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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-15371
_______________________________________________________________________________
iStar Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
1114 Avenue of the Americas, 39th Floor
New York, NY
(Address of principal executive offices)
95-6881527
(I.R.S. Employer
Identification Number)
10036
(Zip code)
Registrant's telephone number, including area code: (212) 930-9400
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.001 par value
8.00% Series D Cumulative Redeemable
Preferred Stock, $0.001 par value
7.65% Series G Cumulative Redeemable
Preferred Stock, $0.001 par value
7.50% Series I Cumulative Redeemable
Preferred Stock, $0.001 par value
Name of Exchange on which registered:
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class:
4.50% Series J Convertible Perpetual
Preferred Stock, $0.001 par value
Name of Exchange on which registered:
N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ☒
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Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve
months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes ☒ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See
definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer o
Non-accelerated
filer o
Smaller reporting company o
Emerging growth company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. o
As of June 30, 2018 the aggregate market value of iStar Inc. common stock, $0.001 par value per share, held by non-affiliates (1) of the registrant was approximately $698.1 million, based
upon the closing price of $10.79 on the New York Stock Exchange composite tape on such date.
As of February 22, 2019, there were 68,158,151 shares of common stock outstanding.
(1) For purposes of this Annual Report only, includes all outstanding common stock other than common stock held directly by the registrant's directors and executive officers.
DOCUMENTS INCORPORATED BY REFERENCE
1.
Portions of the registrant's definitive proxy statement for the registrant's 2019 Annual Meeting, to be filed within 120 days after the close of the registrant's fiscal year, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
Table of Contents
PART I
Item 1.
Item 1a.
Item 1b.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7a.
Item 8.
Item 9.
Item 9a.
Item 9b.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Equity and Related Share Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplemental Data
Changes and Disagreements with Registered Public Accounting Firm on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Registered Public Accounting Firm Fees and Services
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Form10-K Summary
SIGNATURES
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Item 1. Business
PART I
Explanatory Note for Purposes of the "Safe Harbor Provisions" of Section 21E of the Securities Exchange Act of 1934, as amended
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are included with respect to, among other things, iStar Inc.'s
current business plan, business strategy, portfolio management, prospects and liquidity. These forward-looking statements generally are identified by the
words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will
likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and
uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. Important factors that
iStar Inc. believes might cause such differences are discussed in the section entitled, "Risk Factors" in Part I, Item 1a of this Form 10-K or otherwise
accompany the forward-looking statements contained in this Form 10-K. We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise. In assessing all forward-looking statements, readers are urged to read carefully
all cautionary statements contained in this Form 10-K.
Overview
iStar Inc. (references to the "Company," "we," "us" or "our" refer to iStar Inc.) finances, invests in and develops real estate and real estate related
projects as part of its fully-integrated investment platform. The Company also manages entities focused on ground lease ("Ground Lease") and net lease
investments. The Company has invested approximately $40 billion over the past two decades and is structured as a real estate investment trust ("REIT") with
a diversified portfolio focused on larger assets located in major metropolitan markets. The Company's primary reportable business segments are real estate
finance, net lease, operating properties and land and development.
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As of December 31, 2018, based on our gross book value, including the carrying value of our equity method investments exclusive of accumulated
depreciation, our total investment portfolio has the following characteristics:
Real Estate Finance: The real estate finance portfolio is comprised of senior and mezzanine real estate loans that may be either fixed-rate or variable-
rate and are structured to meet the specific financing needs of borrowers. The Company's portfolio also includes leasehold loans, preferred equity investments
and senior and subordinated loans to business entities and may be either secured or unsecured. The Company's loan portfolio includes whole loans and loan
participations.
Net Lease: The net lease portfolio includes the Company's net lease and Ground Lease investment strategies, both of which offer stable long-term cash
flows. We own net lease properties directly and through ventures that we manage. We operate our Ground Lease investment strategy primarily through Safety,
Income & Growth Inc. ("SAFE"), a publicly traded REIT focused exclusively on Ground Leases that we launched in 2017 and manage pursuant to a
management agreement. As of December 31, 2018, we owned approximately 41.8% of SAFE's outstanding common stock. On January 2, 2019, we made an
additional significant, direct equity investment in SAFE (refer to "Item 7. Management's Discussion and Analysis - Our Portfolio"). After giving effect to the
additional investment, we hold approximately 65.5% of SAFE's fully diluted equity. We also directly participate in Ground Leases by offering leasehold loans
to SAFE's tenants.
Operating Properties: The operating properties portfolio is comprised of commercial and residential properties, which represent a pool of assets across a
broad range of geographies and property types. The Company generally seeks to reposition or redevelop its transitional properties with the objective of
maximizing their value through the infusion of capital and/or concentrated asset management efforts. The commercial properties within this portfolio include
office, retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects located in major U.S.
cities where the Company's strategy is to sell individual condominium units through retail distribution channels.
Land & Development: The land and development portfolio is primarily comprised of land entitled for master planned communities and waterfront and
urban infill land parcels located throughout the United States. Master planned communities represent large-scale residential projects that the Company will
entitle, plan and/or develop and may sell through retail channels to homebuilders or in bulk ("MPCs"). The communities also typically have a smaller portion
of their land reserved for future commercial development. Waterfront parcels are generally entitled for residential projects and urban infill parcels are
generally entitled for mixed-use projects. The Company may develop these properties itself, or in partnership with commercial real estate developers, or may
sell the properties.
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The Company's primary sources of revenues are operating lease income, which is comprised of the rent and reimbursements that tenants pay to lease the
Company's properties, interest income, which is the interest that borrowers pay on loans, and land development revenue from lot and parcel sales. The
Company primarily generates income through a “spread” or “margin,” which is the difference between the revenues net of property related expenses
generated from leases and loans and interest expense. In addition, the Company generates income from sales of its real estate and income from equity in
earnings of its unconsolidated ventures.
Investment Strategy
Throughout our more than 20-year history, we have focused on providing capital to the commercial real estate sector in a differentiated way that
emphasizes custom-tailored solutions over commoditized products. We have adjusted the allocation of our capital and resources from time to time based on
market conditions. Our Ground Lease strategy is the most recent example of our historical approach. We believe that investment and financing opportunities
in the Ground Lease sector currently offer more attractive risk adjusted returns than other investment opportunities, and should enable us to benefit from the
unique insights and competitive advantages we have gained through the launch of SAFE.
In originating new investments, the Company's strategy is to focus on the following:
•
•
•
•
•
•
•
Targeting custom-tailored opportunities where customers require flexible financial solutions and "one-call" responsiveness, such as a joint offering
of a SAFE Ground Lease and an iStar leasehold loan;
Acquiring a fee simple interest in a commercial property that we intend to bifurcate into a SAFE Ground Lease to be acquired by SAFE and a
leasehold interest which we may sell or hold for investment;
Avoiding commodity businesses where there is significant direct competition from other providers of capital;
Developing direct relationships with borrowers and corporate customers in addition to sourcing transactions through intermediaries;
Adding value beyond simply providing capital by offering borrowers and corporate customers specific lending expertise, flexibility, certainty of
closing and continuing relationships beyond the closing of a particular financing transaction;
Taking advantage of market anomalies in the real estate financing markets when, in the Company's view, credit is mispriced by other providers of
capital; and
Evaluating relative risk adjusted returns across multiple investment markets.
We have been actively seeking to reduce the level of our "legacy assets," which refer primarily to properties that we took back from defaulting
borrowers in the financial crisis. In 2018, we reduced that portfolio from 35% of our gross book value to 20%. Under the guidance of a new President of Land
and Development hired in 2018, we intend to accelerate the monetization of certain legacy assets, including several larger assets, in order to allow us to focus
more capital and resources on new investments, particularly in the Ground Lease business.
Financing Strategy
The Company uses leverage to enhance its return on assets. Although capital remains cheap and plentiful in the commercial real estate markets, recently
interest rates and the equity markets are experiencing greater volatility. We have taken a cautious approach in these conditions. In the fourth quarter 2018, we
opportunistically refinanced a net lease asset using non-recourse mortgage debt that generated $115.5 million of proceeds to us, net of closing costs, which
were used to redeem at par a portion of our senior notes due July 2019. The July 2019 senior notes maturity was reduced from $770.0 million at the beginning
of 2018 to $375.0 million as of December 31, 2018. Subsequent to December 31, 2018, we called for redemption the remaining $375.0 million principal
amount of July 2019 senior notes on the redemption date of March 7, 2019.
Going forward, the Company will seek to raise capital through a variety of means, which may include unsecured and secured debt financing, debt
refinancings, asset sales, sales of interests in business lines, issuances of equity, joint ventures and other third party capital arrangements. A more detailed
discussion of the Company's current liquidity and capital resources is provided in Item 7—"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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Underwriting Process
The Company reviews investment opportunities with its investment professionals, as well as representatives from its legal, credit, risk management and
capital markets departments. The Company has developed a process for screening potential investments called the Six Point Methodologysm. Through this
proprietary process, the Company internally evaluates an investment opportunity by: (1) evaluating the source of the opportunity; (2) evaluating the quality of
the collateral, corporate credit or lessee, as well as the market and industry dynamics; (3) evaluating the borrower equity, corporate sponsorship and/or
guarantors; (4) determining the optimal legal and financial structure for the transaction given its risk profile; (5) performing an alternative investment test; and
(6) evaluating the liquidity of the investment. The Company intends to use a similar screening methodology for leasehold loans to tenants of SAFE and
related party transactions with SAFE. The Company maintains an internal investment committee, and certain investments, including related party transactions
and leasehold loans to tenants of SAFE, are subject to the approval of the Board of Directors or a committee thereof.
Hedging Strategy
The Company finances its business with a combination of fixed-rate and variable-rate debt and its asset base consists of fixed-rate and variable-rate
investments. Its variable-rate assets and liabilities are intended to be matched against changes in variable interest rates. This means that as interest rates
increase, the Company earns more on its variable-rate lending assets and pays more on its variable-rate debt obligations and, conversely, as interest rates
decrease, the Company earns less on its variable-rate lending assets and pays less on its variable-rate debt obligations. When the Company's variable-rate debt
obligations differ from its variable-rate lending assets, the Company may utilize derivative instruments to limit the impact of changing interest rates on its net
income. The Company also uses derivative instruments to limit its exposure to changes in currency rates in respect of certain investments denominated in
foreign currencies. The derivative instruments the Company uses are typically in the form of interest rate swaps, interest rate caps and foreign exchange
contracts.
Policies with Respect to Other Activities
The Company's investment, financing and corporate governance policies (including conflicts of interests policies) are managed under the ultimate
supervision of the Company's Board of Directors. The Company can amend, revise or eliminate these policies at any time without a vote of its shareholders.
The Company intends to originate and manage investments in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for the Company to qualify as a REIT.
Investment Restrictions or Limitations
The Company does not have any prescribed allocation among investments or product lines. Instead, the Company focuses on corporate and real estate
credit underwriting to develop an analysis of the risk/reward trade-offs in determining the pricing and advisability of each particular transaction.
The Company believes that it is not, and intends to conduct its operations so as not to become, regulated as an investment company under the
Investment Company Act. The Investment Company Act generally exempts entities that are "primarily engaged in purchasing or otherwise acquiring
mortgages and other liens on and interests in real estate" (collectively, "Qualifying Interests"). The Company intends to rely on current interpretations of the
Securities and Exchange Commission in an effort to qualify for this exemption. Based on these interpretations, the Company, among other things, must
maintain at least 55% of its assets in Qualifying Interests and at least 80% of its assets in Qualifying Interests and other "real estate-related assets" (such as
mezzanine loans and unsecured investments in real estate entities) combined. The Company's senior mortgages, real estate assets and certain of its
subordinated mortgages generally constitute Qualifying Interests. Subject to the limitations on ownership of certain types of assets and the gross income tests
imposed by the Code, the Company also may invest in the securities of other REITs, other entities engaged in real estate activities or other issuers, including
for the purpose of exercising control over such entities.
Competition
The Company operates in a competitive market. See Item 1a—Risk factors—"We compete with a variety of financing and leasing sources for our
customers," for a discussion of how we may be affected by competition.
Regulation
The operations of the Company are subject, in certain instances, to supervision and regulation by state and federal governmental authorities and may be
subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things: (1) regulate
credit granting activities; (2) establish maximum interest rates, finance charges and other charges; (3) require disclosures to customers; (4) govern secured
transactions; (5) set collection, foreclosure, repossession and claims-handling procedures and other trade practices; (6) govern privacy of customer
information;
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and (7) regulate anti-terror and anti-money laundering activities. Although most states do not regulate commercial finance, certain states impose limitations
on interest rates and other charges and on certain collection practices and creditor remedies, and require licensing of lenders and financiers and adequate
disclosure of certain contract terms. The Company is also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable
to commercial loans.
In the judgment of management, existing statutes and regulations have not had a material adverse effect on the business conducted by the Company. It
is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon
the future business, financial condition or results of operations or prospects of the Company.
The Company has elected and expects to continue to qualify to be taxed as a REIT under Section 856 through 860 of the Code. As a REIT, the
Company must generally distribute at least 90% of its net taxable income, excluding capital gains, to its shareholders each year. In addition, the Company
must distribute 100% of its net taxable income (including net capital gains) each year to eliminate U.S. corporate federal income taxes payable by it. REITs
are also subject to a number of organizational and operational requirements in order to elect and maintain REIT qualification. These requirements include
specific share ownership tests and asset and gross income tests. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to
U.S. federal income tax (including, for taxable years prior to 2018, any applicable alternative minimum tax) on its net taxable income at regular corporate tax
rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to state and local taxes and to U.S. federal income tax and excise
tax on its undistributed income.
Code of Conduct
The Company has adopted a code of conduct that sets forth the principles of conduct and ethics to be followed by our directors, officers and employees
(the "Code of Conduct"). The purpose of the Code of Conduct is to promote honest and ethical conduct, compliance with applicable governmental rules and
regulations, full, fair, accurate, timely and understandable disclosure in periodic reports, prompt internal reporting of violations of the Code of Conduct and a
culture of honesty and accountability. A copy of the Code of Conduct has been provided to each of our directors, officers and employees, who are required to
acknowledge that they have received and will comply with the Code of Conduct. A copy of the Company's Code of Conduct has been previously filed with
the SEC and is incorporated by reference in this Annual Report on Form 10-K as Exhibit 14.0. The Code of Conduct is also available on the Company's
website at www.istar.com. The Company will disclose to shareholders material changes to its Code of Conduct, or any waivers for directors or executive
officers, if any, within four business days of any such event. As of December 31, 2018, there have been no amendments to the Code of Conduct and the
Company has not granted any waivers from any provision of the Code of Conduct to any directors or executive officers.
Employees
As of February 22, 2019, the Company had 166 employees and believes it has good relationships with its employees. The Company's employees are not
represented by any collective bargaining agreements.
Additional Information
We maintain a website at www.istar.com. The information on our website is not incorporated by reference in this report, and our web address is included
only as an inactive textual reference. In addition to this Annual Report on Form 10-K, the Company files quarterly and special reports, proxy statements and
other information with the SEC. Through the Company's corporate website, www.istar.com, the Company makes available free of charge its annual proxy
statement, annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically
files such material with, or furnishes it to, the SEC. These documents also may be accessed through the SEC's electronic data gathering, analysis and retrieval
system via electronic means, including on the SEC's homepage, which can be found at www.sec.gov.
Item 1a. Risk Factors
In addition to the other information in this report, you should consider carefully the following risk factors in evaluating an investment in the Company's
securities. Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company's
business, financial condition, results of operations, cash flows and market price of the Company's common stock. The risks set forth below speak only as of
the date of this report and the Company disclaims any duty to update them except as required by law. For purposes of these risk factors, the terms "our
Company," "we," "our" and "us" refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise.
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Changes in general economic conditions and other factors outside our control may adversely affect our business.
Risks Related to Our Business
Our success is generally dependent upon economic conditions in the United States, and in particular, the geographic areas in which our investments are
located. Substantially all businesses, including ours, were negatively affected by the previous economic recession and resulting illiquidity and volatility in the
credit and commercial real estate markets. The commercial real estate and credit markets remain volatile and sensitive to factors outside our control, including
changes in interest rates, domestic political conditions, geopolitical conditions and other factors. It is not possible for us to predict whether these trends will
continue in the future or quantify the impact of these or other trends on our financial results. Deterioration in any of such factors could have a material
adverse effect on our financial performance, liquidity and our ability to meet our debt obligations.
Our credit ratings will impact our borrowing costs.
Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. Our unsecured corporate credit ratings from
major national credit rating agencies are currently below investment grade. Having below investment grade credit ratings increases our borrowing costs and
caused restrictive covenants in our public debt instruments to become operative. These restrictive covenants are described below in "Covenants in our
indebtedness could limit our flexibility and adversely affect our financial condition." These factors have adversely impacted our financial performance and
will continue to do so unless our credit ratings improve.
Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.
Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to
unsecured indebtedness of at least 1.2x and a restriction on debt incurrence based upon the effect of the debt incurrence on our fixed charge coverage ratio. If
any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver
or modification is agreed upon with the requisite percentage of the bondholders. Limitations on our ability to incur new indebtedness under the fixed charge
coverage ratio may limit the amount of new investments we make.
Our revolving credit facility with a maximum capacity of $325.0 million (our "2015 Revolving Credit Facility") and our senior term loan with a
maximum capacity of $650.0 million (our "2016 Senior Term Loan") contain certain covenants, including covenants relating to collateral coverage, dividend
payments, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information
to the lenders. In particular, our 2016 Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the
facility and our 2015 Revolving Credit Facility requires us to maintain both collateral coverage of at least 1.5x outstanding borrowings on the facility and a
consolidated ratio of cash flow to fixed charges of at least 1.5x. We may not pay common dividends if the Company is in default under the 2016 Senior Term
Loan or the 2015 Revolving Credit Facility or would fail to comply with the covenants in such agreements after giving effect to the dividend.
Our 2016 Senior Term Loan and 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of
default and accelerate our indebtedness to them if we fail to pay amounts due in respect of our other recourse indebtedness in excess of specified thresholds or
if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing our unsecured
public debt securities permit the bondholders to declare an event of default and accelerate our indebtedness to them if our other recourse indebtedness in
excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated. A default by us on our indebtedness would have a material
adverse effect on our business, liquidity and the market price of our common stock.
We have significant indebtedness and funding commitments and limitations on our liquidity and ability to raise capital may adversely affect us.
Sufficient liquidity is critical to our ability to grow and to meet our scheduled debt payments and our funding commitments to borrowers. We have
relied on proceeds from the issuance of unsecured debt, secured borrowings, repayments from our loan assets and proceeds from asset sales to fund our
operations and meet our debt maturities, and we expect to continue to rely primarily on these sources of liquidity for the foreseeable future. While we had
access to various sources of capital in 2018, our ability to access capital in 2019 and beyond will be subject to a number of factors, many of which are outside
of our control, such as general economic conditions, changes in interest rates and conditions prevailing in the credit and real estate markets. There can be no
assurance that we will have access to liquidity when needed or on terms that are acceptable to us. We may also encounter difficulty in selling assets or
executing capital raising strategies on acceptable terms in a timely manner, which could impact our ability to make scheduled repayments on our outstanding
debt. Failure to repay or refinance our borrowings as they come due would be an event of default under the relevant debt instruments, which could result in a
cross default and acceleration of our other outstanding
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debt obligations. Failure to meet funding commitments could cause us to be in default of our financing commitments to borrowers. Any of the foregoing
could have a material adverse effect on our business, liquidity and the market price of our common stock.
We may utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks.
The derivative instruments we may use are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts. Interest rate
swaps effectively change variable-rate debt obligations to fixed-rate debt obligations or fixed-rate debt obligations to variable-rate debt obligations. Interest
rate caps limit our exposure to rising interest rates. Foreign exchange contracts limit or offset our exposure to changes in currency rates in respect of certain
investments denominated in foreign currencies.
Our use of derivative instruments also involves the risk that a counterparty to a hedging arrangement could default on its obligation and the risk that we
may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement is terminated by us. As a matter of policy, we enter into
hedging arrangements with counterparties that are large, creditworthy financial institutions typically rated at least "A/A2" by S&P and Moody's, respectively.
Developing an effective strategy for dealing with movements in interest rates and foreign currencies is complex and no strategy can completely insulate
us from risks associated with such fluctuations. There can be no assurance that any hedging activities will have the desired beneficial impact on our results of
operations or financial condition.
Significant increases in interest rates could have an adverse effect on our operating results.
Our operating results depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in
connection with our interest bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between
our interest earning assets and interest bearing liabilities subject to the impact of interest rate floors and caps, as well as the amounts of floating rate assets and
liabilities. Any significant compression of the spreads between interest earning assets and interest bearing liabilities could have a material adverse effect on
us. While interest rates remain low by historical standards, rates have recently risen and are generally expected to rise in the coming years, although there is
no certainty as to the amount by which they may rise. In the event of a significant rising interest rate environment, rates could exceed the interest rate floors
that exist on certain of our floating rate debt and create a mismatch between our floating rate loans and our floating rate debt that could have a significant
adverse effect on our operating results. An increase in interest rates could also, among other things, reduce the value of our fixed-rate interest bearing assets
and our ability to realize gains from the sale of such assets. In addition, rising interest rates tend to negatively impact the residential mortgage market, which
in turn may adversely affect the value of and demand for our land assets, including our residential development projects. Interest rates are highly sensitive to
many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our
control.
Changes in the method for determining LIBOR or a replacement of LIBOR may affect the value of the financial obligations to be held or issued by us
that are linked to LIBOR and could affect our results of operations or financial condition.
In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.
We are unable to predict the effect of any changes, any establishment of alternative reference rates or any other reforms to LIBOR or any replacement of
LIBOR that may be enacted in the United Kingdom or elsewhere. Such changes, reforms or replacements relating to LIBOR could have an adverse impact on
the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our
overall financial condition or results of operations.
We are required to make a number of judgments in applying accounting policies, and different estimates and assumptions could result in changes to our
financial condition and results of operations.
Material estimates that are particularly susceptible to significant change underlie our determination of the reserve for loan losses, which is based
primarily on the estimated fair value of loan collateral, as well as the valuation of real estate assets and deferred tax assets. While we have identified those
accounting policies that are considered critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of
these policies could have a material adverse effect on our financial performance and results of operations and actual results may differ materially from our
estimates.
The carrying values of our assets held for investment are not determined based upon the prices at which they could be sold currently. We have recognized
impairments as a result of selling or marketing legacy assets for sale, or re-evaluating expected cash flows from legacy assets, and there can be no
assurance that we will not recognize more impairments in the future on legacy and non-legacy assets.
As discussed further in the notes to our consolidated financial statements, we record our real estate and land and development assets at cost less
accumulated depreciation and amortization. If we hold a property for use or investment, we will only review it
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for impairment in value if events or changes in circumstances indicate that the carrying amount of the property may not be recoverable, based on
management's determination that the aggregate future cash flows to be generated by the asset (taking into account the anticipated holding period of the asset)
is less than the carrying value. Management's estimates of cash flows considers factors such as expected future operating income trends, as well as the effects
of demand, competition and other economic factors. The carrying values of our real estate and land and development assets are not indicative of the prices at
which we would be able to sell the properties, if we had to do so before the end of their intended holding period. If we changed our investment intent and
decided to sell a property that was being held for investment, including in distressed circumstances as a means of raising liquidity, there can be no assurance
that we would not realize losses on such sales, which losses could have a material adverse effect on our business, financial results, liquidity and the market
price of our common stock. We intend to accelerate the monetization of assets in our legacy portfolio, including certain larger assets, and our decisions to do
so resulted in our recognizing significant impairments in 2018. We also recognized additional impairments on legacy assets in 2018 from a re-evaluation of
expected cash flows from certain legacy assets (refer to "Item 7. Management's Discussion and Analysis - Our Portfolio"). We continue to hold other legacy
assets for investment, and there can be no assurance that we will not recognize impairment on such assets, or non-legacy assets in the future.
Changes in accounting rules will affect our financial reporting.
The Financial Accounting Standards Board ("FASB") has issued new accounting standards that will affect our financial reporting.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU
2016-13") which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial
instruments held by a reporting entity. This amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13
is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods
beginning after December 15, 2018. Management does not believe the guidance will have a material impact on the Company's consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), and in July 2018, the FASB issued ASU 2018-11, Leases ("ASU 2018-
11"), to address two requirements of ASU 2016-02. ASU 2016-02 and ASU 2018-11 are effective for interim and annual reporting periods beginning after
December 15, 2018. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating or finance
leases. For operating and finance leases, a lessee will be required to recognize a right-of-use asset and a lease liability, initially measured at the present value
of the lease payments, in its statement of financial position. Lessees under operating leases will be required to recognize a single lease cost, calculated so that
the cost of the lease is allocated over the lease term generally on a straight-line basis, and classify all cash payments within operating activities in its statement
of cash flows. Lessees under finance leases will be required to recognize interest expense on the lease liability (under the effective interest method) and
amortization expense of the right-of-use asset (generally on a straight line basis), each reflected separately in its statement of operations. For operating lease
arrangements for which we are the lessee, primarily under leases of office space and certain ground leases, we expect the adoption of ASU 2016-02 to result
in the recognition of a right-of-use asset and lease liability on our consolidated balance sheets. We do not expect the right-of-use assets or lease liabilities to
be material to our balance sheet. The accounting applied by us as a lessor will be mostly unchanged from that applied under previous GAAP.
Management has decided to elect the practical expedient package that allows us: (a) to not reassess whether any expired or existing contracts entered
into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease classification for any expired or existing leases entered into prior to January 1,
2019; and (c) to not reassess initial direct costs for any expired or existing leases entered into prior to January 1, 2019. In addition, we will elect to not record
on our consolidated balance sheets leases whose term is less than 12 months at lease inception.
ASU 2018-11 amends ASU 2016-02 so that: (a) entities may elect to not recast the comparative periods presented when transitioning to ASC 842 by
allowing entities to change their initial application to the beginning of the period of adoption; and (b) provides lessors with a practical expedient to not
separate non-lease components from the associated lease component of the contractual payments if certain conditions are met. Management has decided to
elect both of these provisions.
Changes in accounting standards could affect the comparability of our reported results with prior periods and our ability to comply with financial
covenants under our debt instruments. We may also need to change our accounting systems and processes to enable us to comply with the new standards,
which may be costly.
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For additional information regarding new accounting standards, refer to Note 3 to our consolidated financial statements under the heading "New
accounting pronouncements."
Our reserves for loan losses may prove inadequate, which could have a material adverse effect on our financial results.
We maintain loan loss reserves to offset potential future losses. Our general loan loss reserve reflects management's then-current estimation of the
probability and severity of losses within our portfolio. In addition, our determination of asset-specific loan loss reserves relies on material estimates regarding
the fair value of loan collateral. Estimation of ultimate loan losses, provision expenses and loss reserves is a complex and subjective process. As such, there
can be no assurance that management's judgment will prove to be correct and that reserves will be adequate over time to protect against potential future
losses. Such losses could be caused by factors including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting
specific assets, borrowers, industries in which our borrowers operate or markets in which our borrowers or their properties are located. In particular, during
the previous financial crisis, the weak economy and disruption of the credit markets adversely impacted the ability and willingness of many of our borrowers
to service their debt and refinance our loans to them at maturity. If our reserves for credit losses prove inadequate we may suffer additional losses which
would have a material adverse effect on our financial performance, liquidity and the market price of our common stock.
We have suffered losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may suffer additional losses in
the future.
We have suffered losses arising from borrower defaults on our loan assets and we may suffer additional losses in the future. In the event of a default by
a borrower on a non-recourse loan, we will only have recourse to the real estate-related assets collateralizing the loan. If the underlying collateral value is less
than the loan amount, we will suffer a loss. Conversely, we sometimes make loans that are unsecured or are secured only by equity interests in the borrowing
entities. These loans are subject to the risk that other lenders may be directly secured by the real estate assets of the borrower. In the event of a default, those
collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying real estate. In cases described above, we may lack
control over the underlying asset collateralizing our loan or the underlying assets of the borrower prior to a default, and as a result the value of the collateral
may be reduced by acts or omissions by owners or managers of the assets.
We sometimes obtain individual or corporate guarantees from borrowers or their affiliates. In cases where guarantees are not fully or partially secured,
we typically rely on financial covenants from borrowers and guarantors which are designed to require the borrower or guarantor to maintain certain levels of
creditworthiness. Where we do not have recourse to specific collateral pledged to satisfy such guarantees or recourse loans, or where the value of the
collateral proves insufficient, we will only have recourse as an unsecured creditor to the general assets of the borrower or guarantor, some or all of which may
be pledged to satisfy other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants, or that sufficient assets
will be available to pay amounts owed to us under our loans and guarantees. As a result of these factors, we may suffer additional losses which could have a
material adverse effect on our financial performance, liquidity and the market price of our common stock.
In the event of a borrower bankruptcy, we may not have full recourse to the assets of the borrower in order to satisfy our loan. In addition, certain of our
loans are subordinate to other debts of the borrower. If a borrower defaults on our loan or on debt senior to our loan, or in the event of a borrower bankruptcy,
our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of intercreditor arrangements may
limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through "standstill" periods) and control
decisions made in bankruptcy proceedings relating to borrowers. Bankruptcy and borrower litigation can significantly increase collection costs and losses and
the time necessary to acquire title to the underlying collateral, during which time the collateral may decline in value, causing us to suffer additional losses.
If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a borrower may not be able to obtain the
necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a borrower's ability
to refinance our loan because the underlying property cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower
is unable to repay our loan at maturity, we could suffer additional loss which may adversely impact our financial performance.
Our expectations as to the potential size of the market for Ground Lease transactions and the growth of SAFE may prove to be incorrect.
We have made a significant investment in SAFE and the Ground Lease business. The achievement of our investment objectives for the Ground Lease
business depends, in large part, on our ability, as SAFE's manager, to grow SAFE's portfolio. We cannot assure you that the size of the market for Ground
Leases will meet our estimates. Potential tenants may prefer to own the land underlying the improvements they intend to develop, rehabilitate or own. In
addition, as and when interest rates increase,
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there may be less activity generally in real estate transactions, including leasing, development and financing, and less financing available for potential tenants
to finance their leasehold interests. If the Ground Lease business does not achieve our investment objectives, the value of our investment in SAFE may
decline materially and/or SAFE may reduce its distributions to stockholders, including us.
We may acquire a commercial property with the intent to sell the land to SAFE and to sell or lease the leasehold interest to a third party. If we are unable
to sell or lease the leasehold interest, we will be exposed to the risks of ownership of operating properties.
We may acquire commercial properties with the intent to separate the property into an ownership interest in land that is sold to SAFE and an interest in
the buildings and improvements thereon that is sold or leased to a third party. There may be instances where we are unable to find a purchaser or lessee for the
improvements, in which case we will be subject to the risks of owning operating properties.
The ownership and operation of commercial properties will expose us to risks, including, without limitation:
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adverse changes in international, regional or local economic and demographic conditions;
tenant vacancies and market pressures to offer tenant incentives to sign or renew leases;
adverse changes in the financial position or liquidity of tenants;
the inability to collect rent from tenants;
tenant bankruptcies;
higher costs resulting from capital expenditures and property operating expenses;
civil disturbances, hurricanes and other natural disasters, or terrorist acts or acts of war, which may result in uninsured or underinsured losses;
liabilities under environmental laws;
risks of loss from casualty or condemnation;
changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental,
zoning and tax laws; and
the other risks described under "We are subject to additional risks associated with owning and developing property."
Upon taking ownership of a commercial property, we may be required to contribute ownership of the land to a taxable REIT subsidiary ("TRS"), which
would subsequently seek to sell the land to SAFE and lease or sell a leasehold interest in such commercial property to a third party. Any gain from the sale of
land would be subject to corporate income tax.
We are subject to additional risks associated with loan participations.
Some of our loans are participation interests or co-lender arrangements in which we share the rights, obligations and benefits of the loan with other
lenders. We may need the consent of these parties to exercise our rights under such loans, including rights with respect to amendment of loan documentation,
enforcement proceedings in the event of default and the institution of, and control over, foreclosure proceedings. Similarly, a majority of the participants may
be able to take actions to which we object but to which we will be bound if our participation interest represents a minority interest. We may be adversely
affected by this lack of full control.
We are subject to additional risk associated with owning and developing real estate.
We own a number of assets that previously served as collateral on defaulted loans. These assets are predominantly land and development assets and
operating properties. These assets expose us to additional risks, including, without limitation:
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• We must incur costs to carry these assets and in some cases make repairs to defects in construction, make improvements to, or complete the assets,
which requires additional liquidity and results in additional expenses that could exceed our original estimates and impact our operating results.
Real estate projects are not liquid and, to the extent we need to raise liquidity through asset sales, we may be limited in our ability to sell these assets
in a short-time frame.
Uncertainty associated with economic conditions, rezoning, obtaining governmental permits and approvals, concerns of community associations,
reliance on third party contractors, increasing commodity costs and threatened or pending litigation may materially delay our completion of
rehabilitation and development activities and materially increase their cost to us.
The values of our real estate investments are subject to a number of factors outside of our control, including changes in the general economic
climate, changes in interest rates and the availability of attractive financing, over-building or decreasing demand in the markets where we own assets,
and changes in law and governmental regulations.
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The residential market has experienced significant downturns that could recur and adversely affect us.
As of December 31, 2018, we owned land and residential condominiums with a net carrying value of $618.8 million. The housing market in the United
States has previously been affected by weakness in the economy, high unemployment levels and low consumer confidence. It is possible another downturn
could occur again in the near future and adversely impact our portfolio, and accordingly our financial performance. In addition, rising interest rates tend to
negatively impact the residential mortgage market, which in turn may adversely affect the value of and demand for our land assets including our residential
development projects.
We may experience losses if the creditworthiness of our tenants deteriorates and they are unable to meet their lease obligations.
We own properties leased to tenants of our real estate assets and receive rents from tenants during the contracted term of such leases. We underwrite the
credit of prospective borrowers and tenants and often require them to provide some form of credit support such as corporate guarantees, letters of credit
and/or cash security deposits. Although our loans and real estate assets are geographically diverse and the borrowers and tenants operate in a variety of
industries, to the extent we have a significant concentration of interest or operating lease revenues from any single borrower or customer, the inability of that
borrower or tenant to make its payment could have a material adverse effect on us. As of December 31, 2018, our five largest borrowers or tenants of net
lease assets collectively accounted for approximately 14.4% of our 2018 revenues, of which no single customer accounts for more than 6.7%. A tenant's
ability to pay rent is determined by its creditworthiness, among other factors. If a tenant's credit deteriorates, the tenant may default on its obligations under
our lease and may also become bankrupt. The bankruptcy or insolvency of our tenants or other failure to pay is likely to adversely affect the income produced
by our real estate assets. If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files for
bankruptcy, we may not be able to evict the tenant solely because of such bankruptcy or failure to pay. A court, however, may authorize a tenant to reject and
terminate its lease with us. In such a case, our claim against the tenant for unpaid, future rent would be subject to a statutory cap that might be substantially
less than the remaining rent owed under the lease. In addition, certain amounts paid to us within 90 days prior to the tenant's bankruptcy filing could be
required to be returned to the tenant's bankruptcy estate. In any event, it is highly unlikely that a bankrupt or insolvent tenant would pay in full amounts it
owes us under a lease that it intends to reject. In other circumstances, where a tenant's financial condition has become impaired, we may agree to partially or
wholly terminate the lease in advance of the termination date in consideration for a lease termination fee that is likely less than the total contractual rental
amount. Without regard to the manner in which the lease termination occurs, we are likely to incur additional costs in the form of tenant improvements and
leasing commissions in our efforts to lease the space to a new tenant. In any of the foregoing circumstances, our financial performance could be materially
adversely affected.
We are subject to risks relating to our asset concentration.
Our portfolio consists primarily of real estate and commercial real estate loans which are generally diversified by asset type, obligor, property type and
geographic location. Refer to "Item 7. Management's Discussion and Analysis - Portfolio Overview" for our asset concentrations by property type and
geographic location. Many property types were adversely affected by the previous economic recession and we may suffer additional losses on our assets due
to these concentrations.
Lease expirations, lease defaults and lease terminations may adversely affect our revenue.
Lease expirations and lease terminations may result in reduced revenues if the lease payments received from replacement tenants are less than the lease
payments received from the expiring or terminating corporate tenants. In addition, lease defaults or lease terminations by one or more significant tenants or
the failure of tenants under expiring leases to elect to renew their leases could cause us to experience long periods of vacancy with no revenue from a facility
and to incur substantial capital expenditures and/or lease concessions in order to obtain replacement tenants. Leases representing approximately 14.1% of our
in-place operating lease income are scheduled to expire during the next five years.
We compete with a variety of financing and leasing sources for our customers.
The financial services industry and commercial real estate markets are highly competitive and have become more competitive in recent years. Our
competitors include finance companies, other REITs, commercial banks and thrift institutions, investment banks and hedge funds, among others. Our
competitors may seek to compete aggressively on a number of factors including transaction pricing, terms and structure. We may have difficulty competing to
the extent we are unwilling to match our competitors' deal terms in order to maintain our interest margins and/or credit standards. To the extent that we match
competitors' pricing, terms or structure, we may experience decreased interest margins and/or increased risk of credit losses, which could have a material
adverse effect on our financial performance, liquidity and the market price of our common stock.
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We face significant competition within our net leasing business from other owners, operators and developers of properties, many of which own
properties similar to ours in markets where we operate. Such competition may affect our ability to attract and retain tenants and reduce the rents we are able to
charge. These competing properties may have vacancy rates higher than our properties, which may result in their owners offering lower rental rates than we
would or providing greater tenant improvement allowances or other leasing concessions. This combination of circumstances could adversely affect our
revenues and financial performance.
We are subject to certain risks associated with investing in real estate, including potential liabilities under environmental laws and risks of loss from
weather conditions, man-made or natural disasters, climate change and terrorism.
Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real estate (including, in
certain circumstances, a secured lender that succeeds to ownership or control of a property) may become liable for the costs of removal or remediation of
certain hazardous or toxic substances at, on, under or in its property. Those laws typically impose cleanup responsibility and liability without regard to
whether the owner or control party knew of or was responsible for the release or presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose liability in
connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners of real
properties for personal injuries associated with asbestos-containing materials. While a secured lender is not likely to be subject to these forms of
environmental liability, when we foreclose on real property, we become an owner and are subject to the risks of environmental liability. Additionally, our net
lease assets require our tenants to undertake the obligation for environmental compliance and indemnify us from liability with respect thereto. There can be
no assurance that our tenants will have sufficient resources to satisfy their obligations to us.
Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental
conditions can damage properties we own. As of December 31, 2018, approximately 16% of the carrying value of our assets was located in the western and
northwestern United States, geographic areas at higher risk for earthquakes. Additionally, we own properties located near the coastline and the value of our
properties will potentially be subject to the risks associated with long-term effects of climate change. A significant number of our properties are located in
major urban areas which, in recent years, have been high risk geographical areas for terrorism and threats of terrorism. Certain forms of terrorism including,
but not limited to, nuclear, biological and chemical terrorism, political risks, environmental hazards and/or Acts of God may be deemed to fall completely
outside the general coverage limits of our insurance policies or may be uninsurable or cost prohibitive to justify insuring against. Furthermore, if the U.S.
Terrorism Risk Insurance Program Reauthorization Act is repealed or not extended or renewed upon its expiration, the cost for terrorism insurance coverage
may increase and/or the terms, conditions, exclusions, retentions, limits and sublimits of such insurance may be materially amended, and may effectively
decrease the scope and availability of such insurance to the point where it is effectively unavailable. Future weather conditions, man-made or natural
disasters, effects of climate change or acts of terrorism could adversely impact the demand for, and value of, our assets and could also directly impact the
value of our assets through damage, destruction or loss, and could thereafter materially impact the availability or cost of insurance to protect against these
events. Although we believe our owned real estate and the properties collateralizing our loan assets are adequately covered by insurance, we cannot predict at
this time if we or our borrowers will be able to obtain appropriate coverage at a reasonable cost in the future, or if we will be able to continue to pass along all
of the costs of insurance to our tenants. Any weather conditions, man-made or natural disasters, terrorist attack or effect of climate change, whether or not
insured, could have a material adverse effect on our financial performance, liquidity and the market price of our common stock. In addition, there is a risk that
one or more of our property insurers may not be able to fulfill their obligations with respect to claims payments due to a deterioration in its financial
condition.
Transactions between iStar and SAFE were negotiated between related parties and their terms may not be as favorable to us as if they had been
negotiated with an unaffiliated third party.
Transactions between iStar and SAFE, including our recent $250.0 million investment in SAFE and the agreements entered into in connection with such
investment (refer to "Item 7. Management's Discussion and Analysis - Our Portfolio") were negotiated between related parties and their terms may not be as
favorable to us as if they had been negotiated with an unaffiliated third party. In addition, we may choose not to enforce, or to enforce less vigorously, our
rights under agreements with SAFE because of our desire to maintain our ongoing relationship with SAFE.
There are various potential conflicts of interest in our relationship with SAFE, including our executive officers and/or directors who are also officers
and/or directors of SAFE, which could result in decisions that are not in the best interest of our stockholders.
Conflicts of interest may exist or could arise in the future with SAFE, including our executive officers and/or directors who are also directors or officers
of SAFE. Conflicts may include, without limitation: conflicts arising from the enforcement of
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agreements between us and SAFE; conflicts in the amount of time that our officers and employees will spend on our affairs versus SAFE's affairs; and
conflicts in future transactions that we may pursue with SAFE. Transactions between iStar and SAFE would be subject to certain approvals of our
independent directors; however, there can be no assurance that such approval will be successful in achieving terms and conditions as favorable to us as would
be available from a third party. Two directors of iStar also serve on SAFE's our board of directors, including Jay Sugarman, who is the chief executive officer
of SAFE and our chief executive officer.
Our directors and executive officers have duties to our company under applicable Maryland law, and our executive officers and our directors who are
also directors or officers of SAFE also have duties to SAFE under applicable Maryland law. Those duties may come in conflict from time to time. We have
duties as the manager of SAFE which may come in conflict with our duties to our stockholders from time to time. In addition, conflicts of interest may exist
or could arise in the future with our duties to Net Lease Venture II and our duties to SAFE as its manager in connection with future investment opportunities.
From time to time we make investments in companies over which we do not have control. Some of these companies operate in industries that differ from
our current operations, with different risks than investing in real estate.
From time to time we make debt or equity investments in other companies that we may not control or over which we may not have sole control.
Although these businesses generally have a significant real estate component, some of them may operate in businesses that are different from our primary
business segments. Consequently, investments in these businesses, among other risks, subject us to the operating and financial risks of industries other than
real estate and to the risk that we do not have sole control over the operations of these businesses.
From time to time we may make additional investments in or acquire other entities that may subject us to similar risks. Investments in entities over
which we do not have sole control, including joint ventures, present additional risks such as having differing objectives than our partners or the entities in
which we invest, or becoming involved in disputes, or competing with those persons. In addition, we rely on the internal controls and financial reporting
controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us.
Declines in the market values of our equity investments may adversely affect periodic reported results.
Most of our equity investments are in funds or companies that are not publicly traded and their fair value may not be readily determinable. We may
periodically estimate the fair value of these investments, based upon available information and management's judgment. Because such valuations are
inherently uncertain, they may fluctuate over short periods of time. In addition, our determinations regarding the fair value of these investments may be
materially higher than the values that we ultimately realize upon their disposal, which could result in losses that have a material adverse effect on our
financial performance, the market price of our common stock and our ability to pay dividends.
Quarterly results may fluctuate and may not be indicative of future quarterly performance.
Our quarterly operating results could fluctuate; therefore, reliance should not be placed on past quarterly results as indicative of our performance in
future quarters. Factors that could cause quarterly operating results to fluctuate include, among others, variations in loan and real estate portfolio performance,
levels of non-performing assets and related provisions, market values of investments, costs associated with debt, general economic conditions, the state of the
real estate and financial markets and the degree to which we encounter competition in our markets.
Our ability to retain and attract key personnel is critical to our success.
Our success depends on our ability to retain our senior management and the other key members of our management team and recruit additional
qualified personnel. We rely in part on equity compensation to retain and incentivize our personnel. In addition, if members of our management join
competitors or form competing companies, the competition could have a material adverse effect on our business. Efforts to retain or attract professionals may
result in additional compensation expense, which could affect our financial performance.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to
suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that
of our customers, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing,
maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information
technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach
could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure
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or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our
operations and the services we provide to customers, and damage our reputation, which could have a material adverse effect on our business.
We may change certain of our policies without stockholder approval.
Our charter does not set forth specific percentages of the types of investments we may make. We can amend, revise or eliminate our investment
financing and conflict of interest policies at any time at our discretion without a vote of our shareholders. A change in these policies could have a material
adverse effect on our financial performance, liquidity and the market price of our common stock.
Certain provisions in our charter may inhibit a change in control.
Generally, to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares of stock may be owned,
directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year. The Code defines "individuals" for purposes of the
requirement described in the preceding sentence to include some types of entities. Under our charter, no person may own more than 9.8% of our outstanding
shares of stock, with some exceptions. The restrictions on transferability and ownership may delay, deter or prevent a change in control or other transaction
that might involve a premium price or otherwise be in the best interest of the security holders.
We would be subject to adverse consequences if we fail to qualify as a REIT.
We believe that we have been organized and operated in a manner so as to qualify for taxation as a REIT for U.S. federal income tax purposes
commencing with our taxable year ended December 31, 1998. Our qualification as a REIT, however, has depended and will continue to depend on our ability
to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and
the amount of our distributions to our shareholders. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to
manage successfully the composition of our income and assets on an ongoing basis. Our ability to satisfy these asset tests depends upon our analysis of the
characterization of our assets for U.S. federal income tax purposes and fair market values of our assets. The fair market values of certain of our assets are not
susceptible to a precise determination.
If we were to fail to qualify as a REIT for any taxable year, we would not be allowed a deduction for distributions to our shareholders in computing our
net taxable income and would be subject to U.S. federal income tax, including, for taxable years prior to 2018, any applicable alternative minimum tax on our
net taxable income at regular corporate rates and applicable state and local taxes. We would also be disqualified from treatment as a REIT for the four
subsequent taxable years following the year during which our REIT qualification was lost unless we were entitled to relief under certain Code provisions and
obtained a ruling from the IRS. If disqualified and unable to obtain relief, we may need to borrow money or sell assets to pay taxes. As a result, cash available
for distribution would be reduced for each of the years involved. Furthermore, it is possible that future economic, market, legal, tax or other considerations
may cause our REIT qualification to be revoked. This could have a material adverse effect on our business and the market price of our common stock.
Our 2016 Senior Term Loan and 2015 Revolving Credit Facility (see Item 8—"Financial Statements and Supplemental Data—Note 10") prohibit us
from paying dividends on our common stock if we no longer qualify as a REIT.
To qualify as a REIT, we may be forced to borrow funds, sell assets or take other actions during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our shareholders at least 90% of our net taxable income, excluding net capital gains each year, and
we will be subject to U.S. federal income tax, as well as applicable state and local taxes, to the extent that we distribute less than 100% of our net taxable
income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar
year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
In the event that principal, premium or interest payments with respect to a particular debt instrument that we hold are not made when due, we may
nonetheless be required to continue to recognize the unpaid amounts as taxable income. In addition, we may be allocated taxable income in excess of cash
flow received from some of our partnership investments. For taxable years beginning after December 31, 2017, we will generally be required to take certain
amounts into income no later than the time such amounts are reflected on our financial statements (this rule will apply to debt instruments issued with original
issue discount for taxable years beginning after December 31, 2018). Also, in certain circumstances our ability to deduct interest expenses for U.S. federal
income tax purposes may be limited. From these and other potential timing differences between income recognition or expense deduction and cash receipts or
disbursements, there is a significant risk that we may have substantial taxable income in
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excess of cash available for distribution. In order to qualify as a REIT and avoid the payment of income and excise taxes, we may need to borrow funds or
take other actions to meet our REIT distribution requirements for the taxable year in which the phantom income is recognized.
Complying with the REIT requirements may cause us to forego and/or liquidate otherwise attractive investments.
In order to meet the income, asset and distribution tests under the REIT rules, we may be required to take or forego certain actions. For instance, we
may not be able to make certain investments and we may have to liquidate other investments. In addition, we may be required to make distributions to
shareholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could have the effect of reducing our
income and amounts available for distribution to our shareholders.
Certain of our business activities may potentially be subject to the prohibited transaction tax, which could reduce the return on your investment.
For so long as we qualify as a REIT, our ability to dispose of certain properties may be restricted under the REIT rules, which generally impose a 100%
penalty tax on any gain recognized on "prohibited transactions," which refers to the disposition of property that is deemed to be inventory or held primarily
for sale to customers in the ordinary course of our business, subject to certain exceptions. Whether property is inventory or otherwise held primarily for sale
depends on the particular facts and circumstances. The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a
prohibited transaction. No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can
comply with the safe harbor. The 100% tax does not apply to gains from the sale of foreclosure property or to property that is held through a taxable REIT
subsidiary ("TRS") or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We
intend to structure our activities to avoid prohibited transaction characterization.
Certain of our activities, including our use of TRSs, are subject to taxes that could reduce our cash flows.
Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some U.S. federal, state, local and non-U.S. taxes on our
income and property, including taxes on any undistributed income, taxes on income from certain activities conducted as a result of foreclosures, and property
and transfer taxes. We would be required to pay taxes on net taxable income that we fail to distribute to our shareholders. In addition, we may be required to
limit certain activities that generate non-qualifying REIT income, such as land development and sales of condominiums, and/or we may be required to
conduct such activities through TRS. We hold a significant amount of assets in our TRS, including assets that we have acquired through foreclosure, assets
that may be treated as dealer property and other assets that could adversely affect our ability to qualify as a REIT if held at the REIT level. As a result, we will
be required to pay income taxes on the taxable income generated by these assets. Furthermore, we will be subject to a 100% penalty tax to the extent our
economic arrangements with our TRS are not comparable to similar arrangements among unrelated parties. We will also be subject to a 100% tax to the extent
we derive income from the sale of assets to customers in the ordinary course of business other than through our TRS. To the extent we or our TRS are
required to pay U.S. federal, state, local or non-U.S. taxes, we will have less cash available for distribution to our shareholders.
We have substantial net operating loss carry forwards which we use to offset our tax and distribution requirements. We fully utilized our net capital loss
carry forward during the year ended December 31, 2017. Net operating losses arising in taxable years beginning after December 31, 2017 will only be able to
offset up to 80% of our net taxable income (after the application of the dividends paid deduction) and may not be carried back. In the event that we experience
an "ownership change" for purposes of Section 382 of the Code, our ability to use these losses will be limited. An "ownership change" is determined through
a set of complex rules which track the changes in ownership that occur in our common stock for a trailing three year period. We have experienced volatility
and significant trading in our common stock in recent years. The occurrence of an ownership change is generally beyond our control and, if triggered, may
increase our tax and distribution obligations for which we may not have sufficient cash flow.
A failure to comply with the limits on our ownership of and relationship with our TRS would jeopardize our REIT qualification and may result in the
application of a 100% excise tax.
No more than 20% (25% for taxable years beginning before December 31, 2017) of the value of a REIT's total assets may consist of stock or securities
of one or more TRS. This requirement limits the extent to which we can conduct activities through TRS or expand the activities that we conduct through TRS.
The values of some of our assets, including assets that we hold through TRSs may not be subject to precise determination, and values are subject to change in
the future. In addition, we hold certain mortgage and mezzanine loans within one or more of our TRS that are secured by real property. We treat these loans as
qualifying assets for purposes of the REIT asset tests to the extent that such mortgage loans are secured by real property and such mezzanine
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loans are secured by an interest in a limited liability company that holds real property. We received from the IRS a private letter ruling which holds that we
may exclude such loans from the limitation that securities from TRS must constitute no more than 20% (25% for taxable years beginning before
December 31, 2017) of our total assets. We are entitled to rely upon this private letter ruling only to the extent that we did not misstate or omit a material fact
in the ruling request and that we continue to operate in accordance with the material facts described in such request, and no assurance can be given that we
will always be able to do so. To the extent that any loan is recharacterized as equity, it would increase the amount of non-real estate securities that we have in
our TRS and could adversely affect our ability to meet the limitation described above. If we were not able to exclude such loans to our TRS from the
limitation described above, our ability to meet the REIT asset tests and other REIT requirements could be adversely affected. Accordingly, there can be no
assurance that we have met or will be able to continue to comply with the TRS limitation.
In addition, we may from time to time need to make distributions from a TRS in order to keep the value of our TRS below the TRS limitation. TRS
dividends, however, generally will not constitute qualifying income for purposes of the 75% REIT gross income test. While we will monitor our compliance
with both this income test and the limitation on the percentage of our total assets represented by TRS securities, and intend to conduct our affairs so as to
comply with both, the two may at times be in conflict with one another. For example, it is possible that we may wish to distribute a dividend from a TRS in
order to reduce the value of our TRS to comply with limitation, but we may be unable to do so without simultaneously violating the 75% REIT gross income
test.
Although there are other measures we can take in such circumstances to remain in compliance with the requirements for REIT qualification, there can
be no assurance that we will be able to comply with both of these tests in all market conditions.
Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from C corporations, which could adversely affect the value of
our common stock.
The maximum U.S. federal income tax rate for certain qualified dividends payable by C corporations to U.S. stockholders that are individuals, trusts
and estates is 20%. Dividends payable by REITs, however, are generally not eligible for this reduced rate. For taxable years beginning after December 31,
2017 and before January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends"
(generally, REIT dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain
limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate
applicable to qualified dividends from C corporations does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates
applicable to regular corporate dividends, together with the recently reduced corporate tax rate (21%) could cause non-corporate investors to perceive
investments in REITs to be relatively less attractive than investments in non-REIT corporations that pay dividends, which could adversely affect the value of
the REIT shares, including our common stock.
Legislative or regulatory tax changes related to REITs could materially and adversely affect us.
The U.S. federal income tax laws and regulations governing REITs and their stockholders, as well as the administrative interpretations of those laws and
regulations, are constantly under review and may be changed at any time, possibly with retroactive effect. No assurance can be given as to whether, when, or
in what form, the U.S. federal income tax laws applicable to us and our stockholders may be enacted. Changes to the U.S. federal income tax laws and
interpretations of U.S. federal tax laws could adversely affect an investment in our common stock.
The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, made significant changes to the U.S. federal income tax laws applicable
to businesses and their owners, including REITs and their stockholders. Certain key provisions of the Tax Cuts and Jobs Act could impact the Company and
its stockholders, beginning in 2018, including the following:
•
•
Reduced Tax Rates. The highest individual U.S. federal income tax rate on ordinary income is reduced from 39.6% to 37% (through taxable years
ending in 2025), and the maximum corporate income tax rate is reduced from 35% to 21%. In addition, individuals, trust, and estates that own the
Company's stock are permitted to deduct up to 20% of dividends received from the Company (other than dividends that are designated as capital
gain dividends or qualified dividend income), generally resulting in an effective maximum U.S. federal income tax rate of 29.6% on such dividends
(through taxable years ending in 2025). Further, the amount that the Company is required to withhold on distributions to non-U.S. stockholders that
are treated as attributable to gains from the Company's sale or exchange of U.S. real property interests is reduced from 35% to 21%.
Net Operating Losses. The Company may not use net operating losses generated beginning in 2018 to offset more than 80% of the Company's
taxable income (after the application of the dividends paid deduction). Net operating losses generated beginning in 2018 can be carried forward
indefinitely but can no longer be carried back.
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•
•
•
Limitation on Interest Deductions. The amount of net interest expense that each of the Company and its TRSs may deduct for a taxable year is
limited to the sum of: (i) the taxpayer's business interest income for the taxable year; and (ii) 30% of the taxpayer's "adjusted taxable income" for the
taxable year. For taxable years beginning before January 1, 2022, adjusted taxable income means earnings before interest, taxes, depreciation, and
amortization ("EBITDA"); for taxable years beginning on or after January 1, 2022, adjusted taxable income is limited to earnings before interest and
taxes ("EBIT"). Certain electing businesses, including electing real estate businesses, may elect out of the foregoing limitation.
Alternative Minimum Tax. The corporate alternative minimum tax is eliminated.
Income Accrual. The Company is required to recognize certain items of income for U.S. federal income tax purposes no later than the Company
would report such items on its financial statements. As discussed in Item 1a-Risk factors-"To qualify as a REIT, we may be forced to borrow funds,
sell assets or take other actions during unfavorable market conditions", earlier recognition of income for U.S. federal income tax purposes could
impact the Company's ability to satisfy the REIT distribution requirements. This provision generally applies to taxable years beginning after
December 31, 2017, but will apply with respect to income from a debt instrument having "original issue discount" for U.S. federal income tax
purposes only for taxable years beginning after December 31, 2018.
Prospective investors are urged to consult with their tax advisors regarding the effects of the Tax Cuts and Jobs Act or other legislative, regulatory or
administrative developments on an investment in the Company's common stock.
Our Investment Company Act exemption limits our investment discretion and loss of the exemption would adversely affect us.
We believe that we currently are not, and we intend to operate our company so that we will not be, regulated as an investment company under the
Investment Company Act because we are "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests
in real estate." Specifically, we are required to invest at least 55% of our assets in "qualifying real estate assets" (that is, real estate, mortgage loans and other
qualifying interests in real estate), and at least 80% of our assets in "qualifying real estate assets" and other "real estate-related assets" (such as mezzanine
loans and unsecured investments in real estate entities) combined.
We will need to monitor our assets to ensure that we continue to satisfy the percentage tests. Maintaining our exemption from regulation as an
investment company under the Investment Company Act limits our ability to invest in assets that otherwise would meet our investment strategies. If we fail to
qualify for this exemption, we could not operate our business efficiently under the regulatory scheme imposed on investment companies under the Investment
Company Act, and we could be required to restructure our activities. This would have a material adverse effect on our financial performance and the market
price of our securities.
Actions of the U.S. government, including the U.S. Congress, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies, to stabilize
or reform the financial markets, or market responses to those actions, may not achieve the intended effect and may adversely affect our business.
The U.S government, including the U.S. Congress, the Federal Reserve, the U.S Treasury and other governmental and regulatory bodies have increased
their focus on the regulation of the financial industry in recent years. New or modified regulations and related regulatory guidance may have unforeseen or
unintended adverse effects on the financial industry. Laws, regulations or policies, including tax laws and accounting standards and interpretations, currently
affecting us may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. Therefore, our business may
also be adversely affected by future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement.
Various legislative bodies have also considered altering the existing framework governing creditors' rights and mortgage products including legislation
that would result in or allow loan modifications of various sorts. Such legislation may change the operating environment in substantial and unpredictable
ways. We cannot predict whether new legislation will be enacted, and if enacted, the effect that it or any regulations would have on our activities, financial
condition, or results of operations.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for some litigation, which could limit the ability of
stockholders to obtain a favorable judicial forum for disputes with our company.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (a) any derivative
action or proceeding brought on our behalf; (b) any action asserting a claim of breach of any duty owed by us or by any director or officer or other employee
to us or to our stockholders; (c) any action asserting a claim against us or any
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director or officer or other employee arising pursuant to any provision of the Maryland General Corporation Law or our charter or bylaws; or (d) any action
asserting a claim against us or any director or officer or other employee that is governed by the internal affairs doctrine shall be the Circuit Court for
Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division. This
forum selection provision may limit the ability of stockholders of our company to obtain a judicial forum that they find favorable for disputes with our
company or our directors, officers, employees, if any, or other stockholders.
Item 1b. Unresolved Staff Comments
None.
Item 2. Properties
The Company's principal executive and administrative offices are located at 1114 Avenue of the Americas, New York, NY 10036. Its telephone number
and web address are (212) 930-9400 and www.istar.com, respectively. The lease for the Company's principal executive and administrative offices expires in
February 2021. The Company's principal regional offices are located in the Atlanta, Georgia; Hartford, Connecticut; San Francisco, California and Los
Angeles, California metropolitan areas.
See Item 1—"Net Lease," and "Operating Properties" for a discussion of properties held by the Company for investment purposes and Item 8
—"Financial Statements and Supplemental Data—Schedule III," for a detailed listing of such properties.
Item 3. Legal Proceedings
The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation
incidental to the Company's business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related
proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material
adverse effect on the Company’s consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant's Equity and Related Share Matters
PART II
The Company's common stock trades on the New York Stock Exchange ("NYSE") under the symbol "STAR." The Company had 1,632 holders of
record of common stock as of February 22, 2019.
Issuer Purchases of Equity Securities
The following table sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the three
months ended December 31, 2018.
Total Number of Shares
Purchased(1)
Average Price Paid
per Share
Total Number of Shares
Purchased as Part of a
Publicly Announced Plan
Maximum Dollar Value of
Shares that May Yet be
Purchased Under the Plans(1)
October 1 to October 31, 2018
November 1 to November 30, 2018
— $
— $
December 1 to December 31, 2018
_______________________________________________________________________________
(1)
— $
We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans.
—
—
—
— $
— $
— $
41,710,022
41,710,022
41,710,022
Disclosure of Equity Compensation Plan Information
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Plans Category
Equity compensation plans approved by
security holders-restricted stock awards(1)
(2)
_______________________________________________________________________________
(1)
597,215
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
N/A
2,574,093
Restricted Stock—The amount shown in column (a) includes 357,414 unvested restricted stock units which may vest in the future based on the employees' continued service to the Company
(see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of the Company's restricted stock grants). Substantially all of the restricted stock units
included in column (a) are required to be settled on a net, after-tax basis (after deducting shares for minimum required statutory withholdings); therefore, the actual number of shares issued
will be less than the gross amount of the awards. The amount shown in column (a) also includes 239,801 of common stock equivalents and restricted stock awarded to our non-employee
directors in consideration of their service to the Company as directors. Common stock equivalents represent rights to receive shares of common stock at the date the common stock
equivalents are settled. Common stock equivalents have dividend equivalent rights beginning on the date of grant. The amount in column (c) represents the aggregate amount of stock options,
shares of restricted stock units or other performance awards that could be granted under compensation plans approved by the Company's security holders after giving effect to previously
issued awards of stock options, shares of restricted stock units and other performance awards (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed
description of the Company's Long-Term Incentive Plans).
The amount shown in column (a) does not include a currently indeterminable number of shares that may be issued upon the satisfaction of performance and vesting conditions of awards made
under the Company's Performance Incentive Plan ("iPIP") approved by shareholders. In no event may the number of shares issued exceed the amount available in column (c) unless
shareholders authorize additional shares (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of iPIP.)
(2)
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Item 6. Selected Financial Data
The following table sets forth selected financial data on a consolidated historical basis for the Company. This information should be read in conjunction
with the discussions set forth in Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations."
For the Years Ended December 31,
2018
2017
2016
2015
2014
(In thousands, except per share data and ratios)
OPERATING DATA:
Operating lease income
Interest income
Other income
Land development revenue
Total revenue
Interest expense
Real estate expense
Land development cost of sales
Depreciation and amortization
General and administrative
Provision for (recovery of) loan losses
Impairment of assets(1)
Other expense
Total costs and expenses
Income from sales of real estate
Income (loss) from operations before earnings from equity method
investments and other items
Loss on early extinguishment of debt, net
Earnings (losses) from equity method investments
Gain on consolidation of equity method investment(2)
Income (loss) from continuing operations before income taxes
Income tax (expense) benefit
Income (loss) from continuing operations
Income from discontinued operations
Gain from discontinued operations
Net income (loss)
Net (income) loss attributable to noncontrolling interests
Net income (loss) attributable to iStar Inc.
Preferred dividends
Net (income) loss allocable to HPU holders and Participating Security
holders(3)
$
208,192
$
97,878
82,342
409,710
798,122
183,751
139,289
350,181
58,699
92,135
16,937
147,108
6,040
994,140
126,004
(70,014)
(10,367)
(5,007)
67,877
(17,511)
(815)
(18,326)
—
—
(18,326)
(13,936)
(32,262)
(32,495)
—
Net income (loss) allocable to common shareholders
$
(64,757)
$
Per common share data(4):
Income (loss) attributable to iStar Inc. from continuing operations:
187,684 $
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
92,049
52,612
(14,724)
13,015
—
50,903
948
51,851
4,939
123,418
180,208
(4,526)
175,682
(64,758)
191,180 $
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
105,296
(3,984)
(1,619)
77,349
—
71,746
10,166
81,912
18,270
—
100,182
(4,876)
95,306
(51,320)
211,207 $
134,687
49,924
100,216
496,034
224,639
146,509
67,382
62,045
81,277
36,567
10,524
6,374
635,317
93,816
(45,467)
(281)
32,153
—
(13,595)
(7,639)
(21,234)
15,077
—
(6,157)
3,722
(2,435)
(51,320)
—
110,924 $
(14)
43,972 $
1,080
(52,675) $
Basic
Diluted
Net income (loss) attributable to iStar Inc.:
Basic
Diluted
Dividends declared per common share
$
$
$
$
$
(0.95)
(0.95)
(0.95)
(0.95)
0.18
$
$
$
$
$
(0.25) $
(0.25) $
1.56 $
1.56 $
— $
0.35 $
0.35 $
0.60 $
0.60 $
— $
(0.79) $
(0.79) $
(0.62) $
(0.62) $
— $
229,672
122,704
77,583
15,191
445,150
224,483
162,829
12,840
70,375
88,287
(1,714)
34,634
6,340
598,074
89,943
(62,981)
(25,369)
94,905
—
6,555
(3,912)
2,643
13,122
—
15,765
704
16,469
(51,320)
1,129
(33,722)
(0.55)
(0.55)
(0.40)
(0.40)
—
_______________________________________________________________________________
(1)
(2)
(3)
Refer to "Item 7. - Management's Discussion and Analysis - Our Portfolio" for more information on impairments recognized in 2018.
Refer to Note 7 for more information on "Gain from consolidation of equity method investment."
All of the Company's outstanding HPUs were repurchased and retired on August 13, 2015 (see Item 8—"Financial Statements and Supplemental Data—Note 13). Participating Security
holders are non-employee directors who hold unvested common stock equivalents and restricted stock awards granted under the Company's Long Term Incentive Plans that are eligible to
participate in dividends (see Item 8—"Financial Statements and Supplemental Data—Note 14 and 15).
See Item 8—"Financial Statements and Supplemental Data—Note 15."
(4)
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2018
2017
2016
2015
2014
For the Years Ended December 31,
Weighted average common shares outstanding—basic
Weighted average common shares outstanding—diluted
67,958
67,958
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
$
(24,128)
$
778,859
(457,939)
(In thousands, except per share data and ratios)
71,021
71,021
101,543 $
263,071
(41,480)
73,453
73,453
29,489 $
465,028
(877,655)
84,987
84,987
(57,827) $
191,578
112,185
85,031
85,031
25,593
130,510
(227,096)
2018
2017
2016
2015
2014
(In thousands)
As of December 31,
BALANCE SHEET DATA:
Total real estate(1)
Land and development, net(1)
Loans receivable and other lending investments, net
Total assets
Debt obligations, net
$
1,793,570
$
598,218
988,224
5,014,277
3,609,086
1,350,619 $
860,311
1,300,655
4,731,078
3,476,400
914,249
1,624,805 $
945,565
1,450,439
4,825,514
3,389,908
1,059,684
1,776,890 $
1,001,963
1,601,985
5,597,792
4,118,823
1,101,330
1,987,843
978,962
1,377,843
5,426,483
3,986,034
1,248,348
Total equity(2)
_______________________________________________________________________________
(1)
(2)
1,064,115
Prior to December 31, 2015, land and development assets were recorded in total real estate. Prior year amounts have been reclassified to conform to the current period presentation.
Total equity includes $201.1 million of noncontrolling interests as of December 31, 2018.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity during the three-year
period ended December 31, 2018. This discussion should be read in conjunction with our consolidated financial statements and related notes for the three-
year period ended December 31, 2018 included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of
our future performance. Certain prior year amounts have been reclassified in the Company's consolidated financial statements and the related notes to
conform to the current period presentation.
Executive Overview
Capital remained cheap and plentiful in most traditional lending sectors of the commercial real estate markets in 2018, and we expect such dynamics to
continue in 2019. In addition, interest rates and the equity markets have recently experienced volatility. We have taken a cautious approach in these
conditions, focusing on providing capital to customers with whom we have a pre-existing relationship, originating fewer traditional loans, and aggressively
seeking to monetize legacy assets.
Consistent with our historical approach of offering differentiated capital where we believe we can capture better risk-adjusted returns, we have invested,
and intend to continue to invest, more of our capital and resources in the Ground Lease business. In January 2019, we expanded our relationship with SAFE
through an additional $250.0 million equity investment and an amendment of our management agreement with SAFE that gives us greater protection against a
termination of the agreement, and incentivizes us to grow SAFE's portfolio. We have also pursued and will continue to pursue joint transactions with SAFE,
such as offering customers a SAFE Ground Lease and an iStar leasehold loan.
In July 2018, we entered into Net Lease Venture II with total capital commitments of $526 million and an investment strategy similar to the Net Lease
Venture. We have an equity interest in the new venture of approximately 51.9% and are responsible for managing the venture in exchange for management
and incentive fees.
We continue to work on monetizing, repositioning or redeveloping our legacy portfolio, which includes transitional operating properties and land and
development assets. For the year ended December 31, 2018, we received proceeds of $735.6 million from legacy assets and recognized $137.8 million of
aggregate gains, net of noncontrolling interests. Under the guidance of a new President of Land and Development hired in 2018, we intend to accelerate the
monetization of additional legacy assets, including several larger assets, in order to allow us to focus additional capital and resources on new investments,
particularly in the Ground Lease business. The reevaluation of our expected holding period and the expected cash flows for certain of the legacy assets
resulted in our recognizing material impairments in 2018, offsetting the gains referenced above.
For the year ended December 31, 2018, we recorded a net loss allocable to common shareholders of $64.8 million, compared to net income of $110.9
million during the prior year. Adjusted income allocable to common shareholders for the year ended December 31, 2018 was $222.3 million, compared to
$214.6 million during the prior year (see "Adjusted Income" for a reconciliation of adjusted income to net income).
As of December 31, 2018, we had $931.8 million of cash and $325.0 million of credit facility availability. Subsequent to December 31, 2018, we
invested $250.0 million in SAFE and have called the $375.0 million remaining outstanding principal amount of our 5.0% senior notes due 2019 for
redemption. We have no other debt maturities in 2019. We expect to use our unrestricted cash balance primarily to fund future investment activities and for
general working capital needs.
22
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Portfolio Overview
As of December 31, 2018, based on our gross book value, including the carrying value of our equity method investments exclusive of accumulated
depreciation, our total investment portfolio has the following characteristics:
23
Table of Contents
As of December 31, 2018, based on carrying values exclusive of accumulated depreciation and general loan loss reserves, our total investment portfolio
has the following property/collateral type and geographic characteristics ($ in thousands):
Property/Collateral Types
Office / Industrial
Land and Development
Entertainment / Leisure
Hotel
Mixed Use / Mixed Collateral
Condominium
Ground Leases
Multifamily
Other Property Types
Retail
Strategic Investments
Total
Geographic Region
Northeast
West
Southeast
Mid-Atlantic
Southwest
Central
Various
Strategic Investments
Total
Real Estate
Finance
Net Lease
Operating
Properties
Land &
Development
$
67,924 $
1,191,980 $
110,679 $
— $
96,140
—
—
672,198
—
712,220
248,855
215,719
159,075
—
—
—
—
172,178
139,087
51,113
23,311
—
—
57,348
—
—
14,871
47,468
76,673
20,551
—
29,189
—
69,472
—
—
—
—
—
—
—
—
—
—
Total
1,370,583
768,338
727,091
296,323
292,392
179,626
172,178
168,276
108,461
92,783
7,516
% of
Total
32.7%
18.4%
17.4%
7.1%
7.0%
4.3%
4.1%
4.0%
2.6%
2.2%
0.2%
$
1,001,224 $
2,133,726 $
368,903 $
672,198 $
4,183,567
100.0%
Real Estate
Finance
Net Lease
Operating
Properties
Land &
Development
$
503,702 $
624,605 $
62,824 $
314,572 $
147,936
123,922
—
84,249
44,207
97,208
—
358,007
300,200
401,726
229,735
212,319
7,134
—
54,144
59,341
6,300
128,458
57,836
—
—
102,508
76,251
127,550
19,780
31,537
—
—
Total
1,505,703
662,595
559,714
535,576
462,222
345,899
104,342
7,516
% of
Total
36.0%
15.8%
13.4%
12.8%
11.0%
8.3%
2.5%
0.2%
$
1,001,224 $
2,133,726 $
368,903 $
672,198 $
4,183,567
100.0%
24
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Industry Segments
The Company has four reportable business segments: Real Estate Finance, Net Lease, Operating Properties and Land and Development. The following
describes the Company's reportable segments as of December 31, 2018 ($ in thousands):
Real estate, at cost
$
— $
1,824,010 $
252,323 $
— $
— $
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate /
Other(1)
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale
Total real estate
Land and development, net
Loans receivable and other lending
investments, net
Other investments(2)
—
—
—
—
—
988,224
(287,516)
1,536,494
1,055
1,537,549
—
—
—
165,804
(17,798)
234,525
21,496
256,021
—
—
—
—
—
598,218
—
—
—
—
—
Total
2,076,333
(305,314)
1,771,019
22,551
1,793,570
598,218
—
65,643
—
65,312
—
7,516
988,224
304,275
Total portfolio assets
$
988,224 $
1,703,353 $
321,664 $
663,530 $
7,516 $
3,684,287
_______________________________________________________________________________
(1)
(2)
Corporate/Other includes certain joint venture and strategic investments that are not included in the other reportable segments. See Item 8—"Financial Statements and Supplemental Data
—Note 7" for further detail on these investments.
The Net Lease segment includes our equity method investment in SAFE. As of December 31, 2018, we owned 7.6 million shares of SAFE's common stock, or 41.8%. On January 2,
2019, we made an additional $250.0 million cash investment in Investor Units of SAFE OP, representing an additional 12.5 million shares of common stock, bringing our total economic
interest in SAFE to approximately 65.5%.
Real Estate Finance
Our real estate finance business targets sophisticated and innovative owner/operators of real estate and real estate related projects by providing one-stop
capabilities that encompass financing alternatives ranging from full envelope senior loans to mezzanine and preferred equity capital positions. The Company's
real estate finance portfolio consists of senior mortgage loans that are secured by commercial and residential real estate assets where the Company is the first
lien holder, subordinated mortgage loans that are secured by second lien or junior interests in commercial and residential real estate assets, leasehold loans to
Ground Lease tenants, including tenants of SAFE, and corporate/partnership loans, which represent mezzanine or subordinated loans to entities for which the
Company does not have a lien on the underlying asset, but may have a pledge of underlying equity ownership of such assets. The Company's real estate
finance portfolio includes loans on stabilized and transitional properties, Ground Leases and ground-up construction projects. In addition, the Company has
preferred equity investments and debt securities classified as other lending investments.
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Table of Contents
The Company's real estate finance portfolio included the following ($ in thousands):
$
Performing loans:
Senior mortgages
Corporate/partnership loans
Subordinate mortgages
Subtotal
Non-performing loans(1):
Senior mortgages
Corporate/partnership loans
Subtotal
Total carrying value of loans
Other lending investments—securities
Total carrying value
General reserve for loan losses
Total loans receivable and other lending investments, net
$
As of December 31,
2018
2017
Total
% of Total
Total
% of Total
694,025
148,583
10,161
852,769
26,329
—
26,329
879,098
122,126
1,001,224
(13,000)
988,224
69.4% $
14.8%
1.0%
85.2%
2.6%
—%
2.6%
87.8%
12.2%
100.0%
$
709,809
332,387
9,495
1,051,691
32,825
144,063
176,888
1,228,579
89,576
1,318,155
(17,500)
1,300,655
53.9%
25.2%
0.7%
79.8%
2.5%
10.9%
13.4%
93.2%
6.8%
100.0%
_______________________________________________________________________________
(1)
Non-performing loans are presented net of asset-specific loan loss reserves of $40.4 million and $61.0 million, respectively, as of December 31, 2018 and 2017.
Portfolio Activity—During the year ended December 31, 2018, the Company invested $511.5 million (including capitalized deferred interest and
excluding seller financing originations) in its real estate finance portfolio and received repayments of $860.5 million (including the receipt of previously
capitalized deferred interest).
In the second quarter 2018, we resolved a non-performing loan with a carrying value of $145.8 million. We received a $45.8 million cash payment and a
preferred equity investment with a face value of $100.0 million that is mandatorily redeemable in five years. We recorded the preferred equity at its fair value
of $77.0 million and are accruing interest over the expected duration of the investment. In addition, we recorded a $21.4 million loan loss provision and
simultaneously charged-off of the remaining unpaid balance.
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Table of Contents
Summary of Interest Rate Characteristics—The Company's loans receivable and other lending investments had the following interest rate characteristics
($ in thousands):
Fixed-rate loans and other lending investments
Variable-rate loans(1)
Non-performing loans(2)
Total carrying value
General reserve for loan losses
As of December 31,
$
Carrying
Value
179,122
795,772
26,330
2018
%
of Total
17.9%
79.5%
2.6%
Weighted
Average
Accrual Rate
7.7% $
6.2%
N/A
Carrying
Value
251,185
890,082
176,888
2017
%
of Total
19.1%
67.5%
13.4%
Weighted
Average
Accrual Rate
9.4%
8.2%
N/A
1,001,224
100.0%
1,318,155
100.0%
Total loans receivable and other lending investments, net
__________________________________________________________________________
(1)
(2)
$
As of December 31, 2018 and 2017, includes $461.3 million and $416.6 million, respectively, of loans with a weighted average LIBOR floor of 1.1% and 0.3%, respectively.
Non-performing loans are presented net of asset-specific loan loss reserves of $40.4 million and $61.0 million, respectively, as of December 31, 2018 and 2017.
(13,000)
988,224
(17,500)
$
1,300,655
Summary of Maturities—As of December 31, 2018 the Company's loans receivable and other lending investments had the following maturities ($ in
thousands):
Year of Maturity(1)
2019
2020
2021
2022
2023
2024 and thereafter
Total performing loans and other lending investments
Non-performing loans(2)
Total carrying value
General reserve for loan losses
Total loans receivable and other lending investments, net
Number of
Loans
Maturing
Carrying
Value
%
of Total
15 $
6
11
—
1
5
38 $
3
41 $
$
516,030
145,069
164,188
—
79,606
70,001
974,894
26,330
1,001,224
(13,000)
988,224
51.5%
14.5%
16.4%
—%
8.0%
7.0%
97.4%
2.6%
100.0%
_______________________________________________________________________________
(1)
Year of maturity represents the initial maturity and does not include any extension options. As of December 31, 2018, our real estate finance portfolio had a weighted average remaining
term, exclusive of any borrower extension options, of 2.5 years.
Non-performing loans are presented net of asset-specific loan loss reserves of $40.4 million.
(2)
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The tables below summarize our loan portfolio, excluding securities, and the reserves for loan losses associated with our loan portfolio ($ in thousands):
Number
Gross Carrying
Value
Reserve for
Loan Losses
Carrying Value % of Total
Reserve for Loan
Losses as a % of Gross
Carrying Value
December 31, 2018
Performing loans
Non-performing loans
Total
35 $
3
38 $
852,768 $
(13,000) $
66,725
(40,395)
839,768
26,330
97.0%
3.0%
919,493 $
(53,395) $
866,098
100.0%
1.5%
60.5%
5.8%
Number
Gross Carrying
Value
Reserve for
Loan Losses
Carrying Value % of Total
Reserve for Loan
Losses as a % of Gross
Carrying Value
December 31, 2017
Performing loans
Non-performing loans
Total
36 $
5
41 $
1,051,691 $
(17,500) $
1,034,191
237,877
(60,989)
176,888
85.4%
14.6%
1,289,568 $
(78,489) $
1,211,079
100.0%
1.7%
25.6%
6.1%
Performing Loans—The table below summarizes our performing loans gross of reserves ($ in thousands):
December 31, 2018
December 31, 2017
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
$
$
694,025
$
148,583
10,160
709,809
332,387
9,495
852,768
$
1,051,691
Weighted average LTV
Yield
63%
9.2%
67%
9.8%
Non-Performing Loans—We designate loans as non-performing at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity
default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-
performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt. As of December 31, 2018, we had
non-performing loans with an aggregate carrying value of $26.3 million compared to non-performing loans with an aggregate carrying value of $176.9
million as of December 31, 2017. In the second quarter 2018, we resolved a non-performing loan with a carrying value of $145.8 million. We received a
$45.8 million cash payment and a preferred equity investment with a face value of $100.0 million that is mandatorily redeemable in five years. We recorded
the preferred equity at its fair value of $77.0 million and are accruing interest over the expected duration of the investment. In addition, we recorded a $21.4
million loan loss provision and simultaneously charged-off of the remaining unpaid balance. We expect that our level of non-performing loans will fluctuate
from period to period.
Reserve for Loan Losses—The reserve for loan losses was $53.4 million as of December 31, 2018, or 5.8% of total loans, compared to $78.5 million or
6.1% as of December 31, 2017. For the year ended December 31, 2018, the provision for loan losses included a $21.4 million provision resulting from the
resolution of a non-performing loan partially offset by a $4.5 million decrease in the general reserve. We expect that our level of reserve for loan losses will
fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and reserves requires the
use of significant judgment. We currently believe there is adequate collateral and reserves to support the carrying values of the loans.
The reserve for loan losses includes an asset-specific component and a formula-based component. An asset-specific reserve is established for an
impaired loan when the estimated fair value of the loan's collateral less costs to sell is lower than the carrying value of the loan. As of December 31, 2018,
asset-specific reserves decreased to $40.4 million compared to $61.0 million as of December 31, 2017.
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The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of performing loans
based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a
comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management's current judgments and future expectations about
their credit quality based on all known and relevant factors that may affect collectability. We consider, among other things, payment status, lien position,
borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional
economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated
probabilities of default and principal loss. We estimate loss rates based on historical realized losses experienced within our portfolio and take into account
current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.
The general reserve decreased to $13.0 million or 1.5% of performing loans as of December 31, 2018, compared to $17.5 million or 1.7% of performing
loans as of December 31, 2017. The decrease was primarily attributable to a decrease in the size of our loan portfolio.
Net Lease
Our net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on our properties. We target mission-
critical facilities leased on a long-term basis to tenants, offering structured solutions that combine our capabilities in underwriting, lease structuring, asset
management and build-to-suit construction. Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis. Under a
typical net lease agreement, the tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including
taxes, utilities, maintenance and insurance). The Company generally intends to hold its net lease assets for long-term investment. However, the Company may
dispose of assets if it deems the disposition to be in the Company's best interests.
The net lease segment includes the Company's traditional net lease investments and its investment in SAFE.
Net Lease Venture—In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a
right of first refusal to the venture on all new net lease investments that met specified investment criteria (refer to Note 7 in our consolidated financial
statements for more information on our Net Lease Venture). The Net Lease Venture's investment period expired on June 30, 2018 and the remaining term of
the venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of us and our partner. We obtained control over the
Net Lease Venture when the investment period expired on June 30, 2018 and consolidated the assets and liabilities of the venture, which had previously been
accounted for as an equity method investment.
Net Lease Venture II—In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture (refer to Note 7).
The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us. We have an equity interest in
the new venture of approximately 51.9%, which is accounted for as an equity method investment, and are responsible for managing the venture in exchange
for a management fee and incentive fee.
SAFE—In April 2017, institutional investors acquired a controlling interest in our Ground Lease business through the merger of one of our subsidiaries
and related transactions. Our Ground Lease business was a component of our net lease segment and consisted of 12 properties subject to long-term net leases
including seven Ground Leases and one master lease (covering five properties). As a result of the Acquisition Transactions, we deconsolidated the 12
properties and the associated financing. We account for our investment in SAFE as an equity method investment (refer to Note 7). We are SAFE's external
manager, and we have an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate,
invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its
independent directors has declined the opportunity. As of December 31, 2018, we owned approximately 41.8% of SAFE's common stock outstanding.
On January 2, 2019, we purchased 12,500,000 newly designated limited partnership units (the "Investor Units") in SAFE's operating partnership
("SAFE OP"), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. The purpose of the investment was to allow SAFE to fund
additional Ground Lease acquisitions and originations.
The Investor Units have the following features:
•
the right to receive equivalent distributions per unit to those paid on one share of SAFE common stock;
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Table of Contents
•
•
•
•
no voting rights;
non-transferable prior to June 30, 2019;
no automatic conversion or exchange rights; and
limited protective consent rights.
SAFE has agreed to seek stockholder approval to exchange the Investor Units for shares of SAFE common stock, on a one-for-one basis.
The Investor Units represent an approximate 40.6% fully diluted economic interest in SAFE. After giving effect to the issuance of the Investor Units,
our aggregate fully diluted economic interest in SAFE (including the shares of SAFE common stock and Investor Units owned by us) is approximately
65.4%; however, our voting power in SAFE will remain capped at 41.9%, as a result of the limitations described below.
In connection with our purchase of the Investor Units, we entered into a Stockholder's Agreement with SAFE on January 2, 2019. The Stockholder's
Agreement:
•
•
•
•
•
•
limits our discretionary voting power to 41.9% of the outstanding voting power of SAFE's Common Stock until our aggregate ownership of
SAFE common stock is less than 41.9%;
requires us to cast all of our voting power in favor of three director nominees to SAFE's board who are independent of each of us and SAFE
for three years;
subjects us to certain standstill provisions for two years;
restricts our ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one year
after their issuance;
prohibits us from transferring shares of SAFE common stock representing more than 20% of the outstanding SAFE common stock in one
transaction or a series of related transactions to any person or group, other than pursuant to a widely distributed public offering, unless
SAFE's other stockholders have participation rights in the transaction; and
provides us certain preemptive rights.
In connection with the new investment, SFTY Manager LLC (our wholly-owned subsidiary) and SAFE amended and restated the Management
Agreement, dated as of June 27, 2017, between them, the "Amended and Restated Management Agreement". The Amended and Restated Management
Agreement, dated January 2, 2019, generally provides for incremental increases in the base management fee payable to the manager from a minimum of 1.0%
to a maximum of 1.5% of SAFE's Total Equity (as defined in the agreement) as it increases. The management fee will be payable in cash or SAFE common
stock, at SAFE's election (as determined by SAFE's independent directors). SAFE common stock issued to pay the management fee will be valued at the
greater of $20.00 or a recent volume weighted average market price.
The Amended and Restated Management Agreement will have an initial term through June 30, 2022 during which the agreement is non-terminable,
except for certain cause events. After the initial term, the agreement will be automatically renewed for additional one year terms, subject to certain rights of
SAFE's independent directors to terminate the agreement based on the manager's materially detrimental long-term performance or, beginning with the seventh
annual renewal term after the initial term, unfair management fees that the manager declines to renegotiate. SAFE will be obligated to pay the manager a
termination fee equal to three times the annual management fee paid in respect of the last completed fiscal year prior to the termination if, by the time of such
termination, SAFE has raised Total Equity of at least $820.0 million since inception, including from us.
In connection with our purchase of the Investor Units, the parties also entered into an Amended and Restated Registration Rights Agreement, dated
January 2, 2019, which requires SAFE to, among other things, use commercially reasonable efforts to file a shelf registration statement with the Securities
and Exchange Commission providing for resale of all shares of SAFE common stock held by us. The agreement also provides us with certain demand
registration rights.
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Table of Contents
As of December 31, 2018, our consolidated net lease portfolio totaled $2.0 billion. Our net lease portfolio, including the carrying value of our equity
method investments in SAFE and Net Lease Venture II, exclusive of accumulated depreciation, totaled $2.1 billion. The table below provides certain statistics
for our net lease portfolio.
Consolidated
Real Estate(1)
Net Lease
Venture II
SAFE(2)
Ownership %
Gross book value (millions)(3)
$
100.0%
1,961
$
51.9%
31
$
% Leased
Square feet (thousands)
Weighted average lease term (years)(4)
Weighted average yield
98.8%
100.0%
16,754
15.3
169
10.0
8.8%
8.2%
_______________________________________________________________________________
(1) We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements (refer to Note 4).
(2)
(3)
(4)
On January 2, 2019, we made an additional $250.0 million cash investment in Investor Units of SAFE OP.
Gross book value represents the acquisition cost of real estate and any additional capital invested into the property by us.
Represents the initial maturity and does not include extension options.
41.8%
884
100.0%
1,793
83.4
Portfolio Activity—On June 30, 2018, we consolidated the Net Lease Venture (refer to Note 7) and recorded $743.6 million to "Real estate, net" on our
consolidated balance sheet and recorded a gain of $67.9 million in "Gain on consolidation of equity method investment" in our consolidated statement of
operations as a result of the consolidation.
As a result of the adoption of new accounting standards (refer to Note 3), on January 1, 2018, we recorded an increase to retained earnings of $55.5
million, bringing our total gain on the sale of our Ground Lease business to SAFE to approximately $178.9 million. In addition, during the year ended
December 31, 2018, we purchased 0.8 million shares of SAFE's common stock for $13.8 million, representing an average cost of $17.92 per share.
We also entered into Net Lease Venture II, which acquired its first investment in December 2018. We contributed $16.4 million to the venture which
purchased the asset for $31.2 million.
Also during the year ended December 31, 2018, we acquired two net lease assets for $14.8 million and invested an aggregate $40.2 million of tenant
improvements and capital expenditures on our existing net lease assets.
During the year ended December 31, 2018, we recorded an aggregate impairment of $10.4 million on two net lease assets. We recorded a $6.0 million
impairment on a property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties. We also
recorded a $4.4 million impairment on a property as we determined our total recovery was less than our carrying value.
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Table of Contents
Summary of Lease Expirations—As of December 31, 2018, future lease expirations on the Company's net lease assets, excluding our equity method
investments in SAFE and Net Lease Venture II, are as follows ($ in thousands):
Year of Lease Expiration
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029 and thereafter
Total
Number of
Leases
Expiring
Annualized In-Place
Operating
Lease Income
% of In-Place
Operating
Lease Income
% of Total
Revenue(1)
4 $
1
1
1
3
1
1
4
2
1
16
35 $
4,001
2,228
1,987
7,204
4,657
5,272
7,383
10,020
2,796
1,095
129,233
175,876
2.3%
1.3%
1.1%
4.1%
2.6%
3.0%
4.2%
5.7%
1.6%
0.6%
73.5%
100.0%
Square Feet of Leases
Expiring (in thousands)
254
153
69
484
96
200
410
638
892
104
13,454
16,754
0.7%
0.4%
0.4%
1.3%
0.8%
0.9%
1.3%
1.8%
0.5%
0.2%
23.0%
31.3%
Weighted average remaining lease
term (in years)(2)
_______________________________________________________________________________
(1)
(2)
Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.
Represents the initial maturity and does not include extension options.
15.3
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Operating Properties
Our operating properties portfolio is comprised of commercial and residential properties, which represent a pool of assets across a broad range of
geographies and collateral types including office, retail and hotel properties. The operating properties are primarily part of our legacy portfolio, and generally
represent properties that we acquired in foreclosures of loans on which the borrowers defaulted during the financial crisis. The Company generally seeks to
reposition or redevelop transitional properties with the objective of maximizing their value through the infusion of capital and/or intensive asset management
efforts. Upon stabilization, the Company will generally look to monetize these assets if favorable conditions exist for maximizing value, or if the Company
determines that the future prospects of the property indicate that the Company would be better served by disposing of the asset and investing the cash in new
assets, paying down debt or otherwise using the cash. The commercial properties within this portfolio include office, retail, hotel and other property types.
The residential properties within this portfolio are generally luxury condominium projects located in major U.S. cities where the Company's strategy is to sell
individual condominium units through retail distribution channels.
The Company's operating properties portfolio, including equity method investments, included the following ($ in thousands):
Commercial
As of December 31,
Residential
As of December 31,
2018
2017
2018
2017
Real estate, at cost
Less: accumulated depreciation
Real estate, net(1)
Real estate available and held for sale
Other investments
$
$
252,323 $
(17,798)
234,525 $
945
65,643
521,385 $
(55,137)
466,248 $
20,069
38,761
— $
—
— $
20,551
—
—
—
—
48,519
—
48,519
Total portfolio assets
_______________________________________________________________________________
(1)
$
301,113 $
525,078 $
20,551 $
There are 10 commercial real estate assets in the operating properties segment, of which the largest four properties comprise 83.0% of the segment's carrying value as of December 31, 2018.
The remaining six properties have an average carrying value of $6.7 million per property.
As of December 31, 2018, our operating property portfolio, including the carrying value of our equity method investments, exclusive of accumulated
depreciation, totaled $368.9 million.
The table below provides certain statistics for our legacy commercial operating property portfolio.
Gross Book
Value
(in thousands)(1)
Properties
Yield
$
_______________________________________________________________________________
(1)
280,464
7.0%
Gross book value represents the acquisition cost of real estate and any additional capital invested into the property by us.
14
33
Table of Contents
Portfolio Activity—We have been aggressively monetizing our operating properties and during the year ended December 31, 2018, we sold 10
commercial operating properties and residential condominiums from other properties for total net sales proceeds of $327.9 million and recognized $81.0
million of gains in "Income from sales of real estate" in our consolidated statement of operations. We recorded aggregate impairments of $71.1 million on five
legacy operating properties and $8.9 million of aggregate impairments on residential condominiums sold and unsold units. The impairments included a $47.1
million impairment on an urban regional mall located in Chicago, IL. Since foreclosing on the mall we had been actively working to release vacant spaces and
made some progress with national retailers. In the second half of 2018, one of the mall’s two anchor tenants liquidated and closed its store. This triggered the
lower alternative rent clauses in the leases of several of the in-line tenants, which led to a significant decline in the mall's income. We continue to seek new
tenants for the mall, but based on recent indications received from prospective tenants and the large, anticipated future and ongoing capital commitment
required to lease the vacated anchor space and in-line vacancies, in the fourth quarter of 2018 we decided to market the asset for sale. The impairments also
included a $23.2 million impairment on an entertainment complex located in Coney Island, NY. We completed construction of the asset in 2016 and hired an
operator to program the asset and to provide food and beverage services. While the project initially produced positive cash flow, operating performance
significantly deteriorated during 2018 and we currently expect the facility to produce losses into the foreseeable future. As a result, we reduced our estimate
of the future cash flow to be received from the property. We also invested $19.9 million in our operating properties and made contributions of $29.8 million to
our operating property equity method investments.
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Table of Contents
The following table presents an operating property portfolio rollforward for the year ended December 31, 2018.
Operating Property Rollforward
(in millions)
Commercial
Residential
Other Investments
Total
Segment
Beginning balance
Dispositions/distributions(1)
Capital expenditures/contributions(2)
Impairments
Placed into service(3)
Other(4)
Depreciation
$
486.3 $
(215.2)
13.0
(71.7)
37.4
(0.5)
(13.9)
48.5 $
(26.3)
6.9
(8.5)
—
—
—
38.8 $
(20.3)
29.8
—
—
17.3
—
Ending balance
_______________________________________________________________________
(1)
(2)
$
For commercial and residential, represents net book value of the assets sold, rather than proceeds received. For other investments, represents distributions received by us.
For other investments, represents contributions made by us.
235.4 $
20.6 $
65.6 $
573.6
(261.8)
49.7
(80.2)
37.4
16.8
(13.9)
321.6
(3)
(4)
Represents assets placed into service during the period.
For other investments, includes a $12.9 million step-up in basis to fair value relating to the disposition of real estate to ventures for which we previously recognized partial gains. Prior to
the adoption of ASU 2017-05 (refer to Note 3), we were required to recognize gains on only the portion of our interest transferred to third parties and were precluded from recognizing a
gain on our retained noncontrolling interest, which was carried at our historical cost basis.
As of December 31, 2018, future lease expirations on commercial properties within the operating properties portfolio, excluding hotels, marinas and
other investments, were as follows ($ in thousands):
Year of Lease Expiration
2019(2)
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029 and thereafter
Total
Number of
Leases
Expiring
Annualized In-Place
Operating
Lease Income
% of In-Place
Operating
Lease Income
% of Total
Revenue(1)
107 $
26
16
21
8
4
6
9
38
7
—
2,568
1,399
998
1,008
982
981
1,220
1,657
3,977
980
—
242 $
15,770
16.3%
8.9%
6.3%
6.4%
6.2%
6.2%
7.7%
10.5%
25.2%
6.3%
—%
100.0%
Square Feet of Leases
Expiring (in thousands)
167
46
27
45
54
120
40
238
69
36
0
842
0.5%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.3%
0.8%
0.2%
—%
3.0%
Weighted average remaining lease
term (in years)
_______________________________________________________________________________
(1)
(2)
5.1
Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.
Includes office leases expiring in commercial properties as well as month-to-month and short term license agreements within our retail properties.
35
Table of Contents
Land and Development
As of December 31, 2018, the Company's land and development portfolio, including equity method investments, included 24 properties, comprised of
five MPCs, 13 infill land parcels and six waterfront land parcels located throughout the United States. MPCs represent large-scale residential projects that the
Company has and/or will entitle, plan and/or develop and may sell through retail channels to home builders or in bulk. The remainder of the Company’s land
includes infill and waterfront parcels located in and around major cities that the Company will develop, sell to or partner with commercial real estate
developers. Waterfront parcels are generally entitled for residential projects and urban infill parcels are generally entitled for mixed-use projects. The land and
development properties are primarily part of our legacy portfolio and generally represent properties that we acquired in foreclosures of loans on which the
borrowers defaulted during the financial crisis. Similar to our legacy operating properties, we have been actively reviewing our legacy land and development
properties and seeking to monetize assets when we believe the proceeds generated from sale can be better deployed in new investments and/or used to repay
debt or for other purposes. We have decided to continue to hold and develop other projects in cases where we believe the potential future returns outweigh the
benefits of selling the assets now.
As of December 31, 2018, we had four projects in production, seven in development and 13 in the pre-development phase. These projects are
collectively entitled for approximately 9,200 lots and units. The Company's land and development portfolio included the following ($ in thousands):
Land and development, net
Other investments
Total
As of December 31,
2018
2017
$
$
598,218 $
65,312
663,530 $
860,311
63,855
924,166
Portfolio Activity—During the year ended December 31, 2018, we sold land parcels and residential lots and units and recognized $409.7 million in
"Land development revenue" and $350.2 million in "Land development cost of sales" in our consolidated statement of operations. We recorded aggregate
impairments of $56.7 million on five legacy land and development properties. Of the $56.7 million of impairments, approximately $25.0 million relates to a
waterfront land and development asset located in Long Beach, NY. In 2014, as part of the settlement of litigation with the city, we received entitlements to
develop a higher density project than was as-of-right under current zoning. We intended to build or joint venture the project and sought a tax abatement in
order to move forward with the development. In 2018, the city revoked its previously approved increased zoning and revoked our building permits. Several
lawsuits were filed and litigation is ongoing. In the fourth quarter 2018, we received written indications of interest from parties interested in acquiring the site
from us. Based on these indications, and the desire to mitigate future development risk associated with the asset, we intend to more broadly market the
property for sale in 2019. $21.6 million of the impairment relates to a MPC located in Santa Clarita, CA. During 2018, we hired a local homebuilder as a
consultant to create detailed lot development plans and budgets for the site. Based on the review, which was concluded in the fourth quarter 2018, an
evaluation of the estimated capital needed to develop the project, the expected four to five year period to develop and sell the lots and market risks over that
time horizon, we decided to market the property for sale as is rather than develop the property. The balance of the impairments relates to three smaller
properties, one property that was sold in 2018, one property that was sold in 2019 and one property where we reduced our expectations for future cash flows
from the property.
36
Table of Contents
The following table presents a land and development portfolio rollforward for the year ended December 31, 2018 and certain land and development
statistics.
Land and Development Portfolio Rollforward
(in millions)
Asbury
Ocean
Club
Asbury Park
Waterfront
Magnolia
Green
All
Others
Total
Segment
Beginning balance(1)
Asset sales(2)
Placed into service(3)
Capital expenditures
Other(4)
Ending balance(1)
$
$
—
—
106.5
—
165.4 $
58.9 $
81.6 $
110.8 $
(3.2)
(9.9)
6.4
(0.2)
(18.3)
—
17.8
(0.8)
609.0 $
(289.7)
(22.9)
13.8
(61.6)
860.3
(311.2)
(32.8)
144.5
(62.6)
598.2
74.7 $
109.5 $
248.6 $
Net sales(5)
_______________________________________________________________________
— $
$
(0.9) $
(1.8) $
62.2 $
59.5
(1)
(2)
(3)
(4)
(5)
As of December 31, 2018 and 2017, Total Segment excludes $65.3 million and $63.9 million, respectively, of equity method investments.
Represents gross book value of the assets sold, rather than proceeds received. During the year ended December 31, 2018, we received approximately $253.4 million in gross proceeds in
connection with the sale of two land parcels totaling 93 acres in San Jose, CA and San Pedro, CA. We also completed the monetization of a 785 acre master planned community entitled
for 1,458 single family lots in Riverside County, California.
Represents assets placed into service during the period.
Includes $56.7 million of impairments.
Net sales represents land development revenue less land development cost of sales.
Following is a description of some of our major land and development projects that we are holding for further development. There can be no
assurance that we will not change our current strategy for any of the projects described below:
Asbury Ocean Club and Asbury Park Waterfront
iStar owns 35 acres of oceanfront property in the Asbury Park waterfront redevelopment area in Asbury Park, N.J. iStar serves as the master developer
and its land holdings represent approximately 70% of the undeveloped land along the waterfront. Over the past several years, iStar has strategically developed
a limited number of residential and commercial projects to re-establish the local housing market and drive momentum for future growth. The existing
redeveloper agreement with the city permits up to approximately 2,500 additional units, comprised of for-sale residential homes, hotel keys and multi-family
apartments. Future projects are positioned to be developed by iStar or in conjunction with joint venture partners. These individual land parcels could also be
sold to third party developers.
Asbury Ocean Club is a 16-story mixed-use project comprised of 130 residential condominium units, a 54-unit boutique hotel, 24,000 square feet of
retail space, a 15,000 square foot spa, 26,000 square feet of outdoor amenity space and 410 structured parking spaces, located at 1101 Ocean Avenue in
Asbury Park, New Jersey. The project is currently under construction and with an estimated completion date of summer 2019.
Magnolia Green
Magnolia Green is a 3,500 unit multi-generational master planned community just outside of Richmond, Virginia with distinct phases designed for
people in different life stages, from first home buyers to empty nesters. Built on nearly 1,900 acres, Magnolia Green is a community with home designs from
the area's top builders. The community’s amenity package features an 18-hole Jack Nicklaus designed golf course and a full-service golf clubhouse and
aquatic center. There is also a tennis facility which is currently under construction.
Magnolia Green sold 166 residential lots for $14.8 million of land development revenue during the year ended December 31, 2018.
37
Table of Contents
The Company's land and development projects that contributed to revenues during the year ended December 31, 2018 are listed below ($ in thousands):
Project
Property Type
Location
Current
Anticipated
Sales
Completion
Date(1)
2018 Revenue
Units Sold in
2018(2)
Cumulative
Units Sold
Estimated
Remaining
Units(2)
Infill Land
Parcel
Infill Land
Parcel
MPC
MPC
MPC
Waterfront
Infill Land
Parcel
Infill Land
Parcel
San Jose, CA
2018
$
151,600
N/A
San Pedro, CA
Riverside, CA
Naples, FL
Richmond, VA
Brooklyn, NY
Miami, FL
Savannah, GA
2018
2018
2020
2026
2021
2019
2018
2019
101,684
73,974
38,393
14,757
10,100
N/A
878
325
166
N/A
9,500
N/A
5,500
2,532
N/A
3
MPC
Asbury Park, NJ
Infill Land
Parcel
Ranson, WV
2022
1,670
N/A
Land and development
Highpark
Great Oaks
Spring Mountain Ranch Phase 2 & 3
Naples Reserve
Magnolia Green
Coney Bath
Palm Tree
Savannah Godley
Asbury Monroe
Potomac
Total land and development
Marina Palms(4)
Other land and development equity
method investments
Land and development equity method investments(3)
Equity in
Earnings
(Losses)
Units Sold in
2018(2)
Cumulative
Units Sold
Waterfront
N. Miami Beach,
FL
2019
3,221
11
409,710
1,372
2,846
2,233
Total land and development equity method investments
Various
Various
Various
(6,331)
(3,110)
N/A
11
Total Land and Development Projects Contributing to Earnings
$
406,600
1,383
_______________________________________________________________________________
(1)
Current anticipated completion dates are subject to change as a result of factors that may be outside of the Company's control, such as economic conditions, uncertainty with rezoning,
obtaining governmental permits and approvals, concerns of community associations and reliance on third party contractors.
Units sold in 2018 excludes bulk land parcel sales. Estimated remaining units may include single-family lots, condos, multifamily rental units and hotel keys, as applicable, for the respective
properties and are subject to change.
These land and development projects are accounted for under the equity method of accounting.
Sales activity is the result of percentage of completion accounting at the venture during the year ended December 31, 2018.
(2)
(3)
(4)
38
N/A
N/A
974
689
1,151
N/A
N/A
N/A
32
N/A
N/A
N/A
—
394
1,837
N/A
N/A
N/A
2
N/A
Estimated
Remaining
Units(2)
24
N/A
444
N/A
444
3,290
24
2,257
Table of Contents
Results of Operations for the Year Ended December 31, 2018 compared to the Year Ended December 31, 2017
Operating lease income
Interest income
Other income
Land development revenue
Total revenue
Interest expense
Real estate expenses
Land development cost of sales
Depreciation and amortization
General and administrative
Provision for (recovery of) loan losses
Impairment of assets
Other expense
Total costs and expenses
Income from sales of real estate
Loss on early extinguishment of debt, net
Earnings (losses) from equity method investments
Gain from consolidation of equity method investment
Income tax benefit (expense)
Income from discontinued operations
Gain from discontinued operations
Net income (loss)
For the Years Ended
December 31,
2018
2017
$ Change
% Change
$
208,192 $
187,684 $
(in thousands)
97,878
82,342
409,710
798,122
183,751
139,289
350,181
58,699
92,135
16,937
147,108
6,040
994,140
126,004
(10,367)
(5,007)
67,877
(815)
—
—
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
92,049
(14,724)
13,015
—
948
4,939
123,418
$
(18,326) $
180,208 $
20,508
(8,670)
(105,749)
212,831
118,920
(10,935)
(8,328)
169,265
9,666
(6,747)
22,765
114,729
(14,914)
275,501
33,955
4,357
(18,022)
67,877
(1,763)
(4,939)
(123,418)
(198,534)
11 %
(8)%
(56)%
>100%
18 %
(6)%
(6)%
94 %
20 %
(7)%
>(100%)
>100%
(71)%
38 %
37 %
(30)%
>(100%)
100 %
>(100%)
(100)%
(100)%
>(100%)
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, increased to $208.2
million in 2018 from $187.7 million in 2017. The following tables summarizes our operating lease income by segment ($ in millions).
Net Lease(1)
Operating Properties(2)
Land and Development
2018
2017
Change
$
152.0 $
123.7 $
55.7
0.5
63.2
0.8
28.3
(7.5)
(0.3)
Total
187.7 $
$
______________________________________________________________
(1) Change primarily due to a $36.9 million increase from the consolidation of the Net Lease Venture and entering into new leases, partially offset by $8.6 million from asset sales.
(2) Change primarily due to a decrease of $8.9 million due to asset sales, partially offset by an increase of $2.3 million from the net amortization of intangible lease liabilities relating to lease
208.2 $
20.5
terminations and an operating property placed into service in 2018.
39
Table of Contents
The following table shows certain same store statistics for our Net Lease and Operating Properties segments. Same store assets are defined as assets we
owned on or prior to January 1, 2017 and were in service through December 31, 2018 (Operating lease income in millions).
Operating lease income
Net Lease
Operating Properties(1)
Rent per square foot
Net Lease
Operating Properties(1)
Occupancy(2)
Net Lease
Operating Properties
$
$
$
$
2018
2017
109.3
35.1
$
$
10.08
41.71
$
$
98.1%
67.3%
107.1
36.3
9.99
34.45
97.9%
83.1%
______________________________________________________________
(1) Excludes $2.6 million recognized during the year ended December 31, 2018 in connection with the termination of two leases.
(2) Occupancy as of December 31, 2018 and 2017.
Interest income decreased to $97.9 million in 2018 from $106.5 million in 2017. The decrease in interest income was due primarily to a decrease in the
weighted-average yield of our performing loans, which decreased to 9.2% for 2018 from 9.8% for 2017, principally from the payoff of higher yielding loans
in 2018. The average balance of our performing loans was $1.07 billion for 2018 and 2017.
Other income decreased to $82.3 million in 2018 from $188.1 million in 2017. Other income in 2018 consisted primarily of income from our hotel
properties, income recognized from the termination of a lease, other ancillary income from our operating properties and interest income earned on our cash
balances. Other income in 2017 primarily consisted of interest income and real estate tax reimbursements resulting from the settlement of the Bevard
litigation (refer to Note 5), income from our hotel properties and other ancillary income from our operating properties. The decrease in 2018 was related
primarily to the Bevard litigation, which resulted in $123.4 million of other income in 2017.
Land development revenue and cost of sales—In 2018, we sold land parcels and residential lots and units and recognized land development revenue of
$409.7 million which had associated cost of sales of $350.2 million. In 2017, we sold residential lots and units and one land parcel totaling 1,250 acres and
recognized land development revenue of $196.9 million which had associated cost of sales of $180.9 million. The increase in 2018 was primarily the result of
two bulk land parcel sales that generated $253.3 million in land development revenue, partially offset by the recognition of $114.0 million in land
development revenue in 2017 related to the Bevard litigation.
Costs and expenses—Interest expense decreased to $183.8 million in 2018 from $194.7 million in 2017. The decrease in interest expense was due to the
balance of our average outstanding debt, which decreased to $3.52 billion for 2018 from $3.58 billion for 2017. Our weighted average cost of debt was 5.5%
for 2018 and 5.6% for 2017. In addition, during the year ended December 31, 2018, we recorded $10.7 million in interest expense as a result of the
consolidation of the Net Lease Venture on June 30, 2018, of which we own a 51.9% equity interest.
40
Table of Contents
Real estate expenses decreased to $139.3 million in 2018 from $147.6 million in 2017. The following table summarizes our real estate expenses by
segment ($ in millions).
Operating Properties(1)
Land and Development(2)
Net Lease(3)
Total
Year Ended December 31,
2018
2017
Change
$
80.6 $
89.7 $
41.7
17.0
41.2
16.7
(9.1)
0.5
0.3
147.6 $
$
______________________________________________________________
(1) Change primarily due to a sale of assets, partially offset by new assets beginning operations in 2018.
(2) Change primarily due to an increase in marketing and other costs associated with launching residential condominium sales, partially offset by asset sales.
(3) Change primarily due to a $1.9 million increase from the consolidation of the Net Lease Venture, partially offset by asset sales.
139.3 $
(1.1)
Depreciation and amortization increased to $58.7 million in 2018 from $49.0 million for the same period in 2017. The increase in 2018 was primarily
due to the consolidation of the Net Lease Venture, partially offset by the sale of net lease and commercial operating properties.
General and administrative expenses decreased to $92.1 million in 2018 from $98.9 million in 2017. We capitalized into our active development
projects $1.7 million and $1.8 million of payroll-related costs (including salaries, bonuses, LTIP awards, benefits and taxes) for the years ended December 31,
2018 and 2017, respectively. The following table summarizes our general and administrative expenses for the years ended December 31, 2018 and 2017 (in
millions):
Payroll and related costs(1)
Severance costs(2)
Performance Incentive Plans(3)
Occupancy costs
Public company costs
Other
Year Ended
December 31,
2018
2017
Change
$
50.3
$
62.0 $
(11.7)
5.3
15.4 5.0
5.2
5.0
10.9
—
14.9
5.2
6.7
10.1
5.3
0.5
—
(1.7)
0.8
Total
92.1
____________________________________________________
(1) Decrease due to a reduced bonus payout and a reduction in headcount. We reduced our headcount to 166 employees as of December 31, 2018 from 186 employees as of December 31,
98.9 $
(6.8)
$
$
2017.
(2) Represents costs associated with terminated employees.
(3) Represents the fair value of points issued and change in fair value of the plans during the periods presented. Such amounts may increase or decrease over time until the awards are settled.
Please refer to Note 14 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans.
The provision for loan losses was $16.9 million in 2018 as compared to a recovery of loan losses of $5.8 million in 2017. The provision for loan losses
in 2018 was due to a specific reserve of $21.4 million resulting from the resolution of a non-performing loan, partially offset by a $4.5 million decrease in the
general reserve due to a decrease in the size of our loan portfolio. The recovery of loan losses in 2017 resulted from a reduction in the general reserve due to
an overall improvement in the risk ratings of our loan portfolio.
In 2018, we recorded impairments of $147.1 million on land and development and real estate assets. Refer to "Management's Discussion and Analysis -
Our Portfolio" for more information on such impairments, which resulted primarily from our decision to accelerate the monetization of certain legacy assets,
including several larger assets. In 2017, we recorded impairments on land and development and real estate assets totaling $32.4 million. The impairments
recorded in 2017 were primarily the result of impairments on land and development assets of $20.5 million resulting from a decrease in expected cash flows
on one asset and a change in exit strategy on another asset. We also recorded impairments of $11.9 million on real estate assets due to shifting demand in the
local condominium markets and changes in our exit strategy on other real estate assets.
41
Table of Contents
Other expense decreased to $6.0 million in 2018 from $21.0 million in 2017. The decrease was primarily the result of paying organization and offering
costs associated with the initial public offering of SAFE (refer to Note 7) and costs incurred in connection with the repricing of our 2016 Senior Term Loan
recorded in 2017.
Income from sales of real estate—Income from sales of real estate increased to $126.0 million in 2018 from $92.0 million in 2017. The following table
presents our income from sales of real estate by segment ($ in millions).
Operating Properties
Net Lease
Total income from sales of real estate
2018
2017
$
$
81.0 $
45.0
126.0 $
4.5
87.5
92.0
Loss on early extinguishment of debt, net—In 2018 and 2017, we incurred losses on early extinguishment of debt of $10.4 million and $14.7 million,
respectively. In 2018, we incurred losses on early extinguishment of debt resulting from the opportunistic refinancing of a net lease asset which generated
$115.5 million of excess proceeds to us, repayments of our 2016 Senior Term Loan prior to its modification, the modification and upsize of our 2016 Senior
Term Loan and repayment of senior notes prior to maturity. In 2017, we incurred losses on early extinguishment of debt primarily resulting from repayments
of unsecured notes prior to maturity and the repricing of our 2016 Senior Term Loan.
Earnings (losses) from equity method investments—Earnings (losses) from equity method investments decreased to $(5.0) million in 2018 from $13.0
million in 2017. In 2018, we recognized $4.1 million of income related to operations at our Net Lease Venture (which we consolidate as of June 30, 2018),
$4.7 million of income from our equity method investment in SAFE and $13.8 million was aggregate losses from our remaining equity method investments,
inclusive of a $10.0 million impairment on a non-U.S. equity method investment due to local market conditions and a $6.1 million impairment on a land and
development equity method investment due to a change in business strategy. In 2017, we recognized $4.7 million primarily from profit participations on a
land development venture, $4.5 million related to operations at our Net Lease Venture, $2.6 million related to sales activity on a land development venture
and $1.2 million aggregate income from our remaining equity method investments.
Gain on consolidation of equity method investment—On June 30, 2018, we gained control of the Net Lease Venture when its investment period
expired. As a result, on that date we consolidated the assets and liabilities of the venture which had previously been accounted for as an equity method
investment. We recorded a gain of $67.9 million as a result of the consolidation.
Income tax (expense) benefit—Income taxes are primarily generated by assets held in our TRS. An income tax expense of$0.8 million was recorded in
2018 and a $0.9 million income tax benefit was recorded in 2017. The income tax expense for 2018 includes federal taxes related to one of our TRS's, state
margins taxes and other minimum state franchise taxes. The income tax benefit for 2017 primarily relates to the credit for prior year’s minimum taxes
generated in 2015 and 2014 for which we expect to receive refunds from changes made by the Tax Cuts and Jobs Act to the corporate alternative minimum
tax.
We also incurred a tax liability in 2017 for $6.1 million of alternative minimum tax imposed at the REIT level. The Tax Cuts and Jobs Act, however,
permits us to claim a refundable credit for prior year’s minimum taxes over the next four years. Therefore, we have no net income tax expense or benefit in
our consolidated statement of operations at the REIT level for our 2017 tax liability.
Income from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our ground lease business through
the merger of one of our subsidiaries and related transactions. Income from discontinued operations represents the operating results from the properties
comprising our ground lease business.
Gain from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our ground lease business through the
merger of one of our subsidiaries and related transactions. We accounted for this transaction as an in substance sale of real estate and recognized a gain of
$123.4 million, reflecting the aggregate gain less the fair value of our retained interest in SAFE.
In addition, as a result of the adoption of ASU 2017-05, on January 1, 2018, we recorded an increase to retained earnings of $55.5 million, bringing our
aggregate gain on the sale of our Ground Lease business to approximately $178.9 million (refer to Note 7).
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Table of Contents
Results of Operations for the Year Ended December 31, 2017 compared to the Year Ended December 31, 2016
Operating lease income
Interest income
Other income
Land development revenue
Total revenue
Interest expense
Real estate expenses
Land development cost of sales
Depreciation and amortization
General and administrative
(Recovery of) provision for loan losses
Impairment of assets
Other expense
Total costs and expenses
Income from sales of real estate
Loss on early extinguishment of debt, net
Earnings from equity method investments
Income tax benefit
Income from discontinued operations
Gain from discontinued operations
Net income
For the Years Ended
December 31,
2017
2016
$ Change
% Change
$
187,684 $
191,180 $
(in thousands)
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
92,049
(14,724)
13,015
948
4,939
123,418
180,208 $
$
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
105,296
(1,619)
77,349
10,166
18,270
—
100,182 $
(3,496)
(22,605)
141,577
108,539
224,015
(26,712)
10,095
118,909
(2,627)
14,855
6,686
17,895
15,071
154,172
(13,247)
(13,105)
(64,334)
(9,218)
(13,331)
123,418
80,026
(2)%
(18)%
>100%
>100%
49 %
(12)%
7 %
>100%
(5)%
18 %
(53)%
>100%
>100%
27 %
(13)%
>100%
(83)%
(91)%
(73)%
100 %
80 %
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased to $187.7
million in 2017 from $191.2 million in 2016. The following tables summarizes our operating lease income by segment ($ in millions).
Net Lease(1)
Operating Properties(2)
Land and Development
2017
2016
Change
$
123.7 $
126.2 $
63.2
0.8
64.6
0.4
Total
191.2 $
$
______________________________________________________________
(1) Change primarily due to the sale of assets.
(2) Change primarily due to the sale of assets partially offset by the execution of new leases.
187.7 $
(2.5)
(1.4)
0.4
(3.5)
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The following table shows certain same store statistics for our Net Lease and Operating Properties segments. Same store assets are defined as assets we
owned on or prior to January 1, 2016 and were in service through December 31, 2017 (Operating lease income in millions).
2017
2016
Operating lease income
Net Lease
Operating Properties
Rent per square foot
Net Lease
Operating Properties
Occupancy(1)
Net Lease
Operating Properties
$
$
$
$
________________________________________
(1) Occupancy as of December 31, 2017 and 2016.
113.7
46.4
$
$
10.26
24.25
$
$
97.9%
75.4%
111.4
45.2
10.08
24.50
97.6%
72.7%
Interest income decreased to $106.5 million in 2017 from $129.2 million in 2016. The decrease in interest income was due primarily to a decrease in the
average balance of our performing loans to $1.07 billion for 2017 from $1.40 billion for 2016. The weighted average yield of our performing loans increased
to 9.8% for 2017 from 8.9% for 2016.
Other income increased to $188.1 million in 2017 from $46.5 million in 2016. Other income in 2017 primarily consisted of interest income and real
estate tax reimbursements resulting from the settlement of the Bevard litigation (refer to Note 5), income from our hotel properties and other ancillary income
from our operating properties. Other income in 2016 consisted of income from our hotel properties, loan prepayment fees and property tax refunds.
Land development revenue and cost of sales—In 2017, we sold residential lots and units and one land parcel totaling 1,250 acres and recognized land
development revenue of $196.9 million which had associated cost of sales of $180.9 million. In 2016, we sold residential lots and units and recognized land
development revenue of $88.3 million which had associated cost of sales of $62.0 million. The increase in 2017 from 2016 was primarily due to the Bevard
litigation (refer to Note 5), which resulted in us recognizing $114.0 million of land development revenue and $106.3 million of land development cost of sales
in 2017.
Costs and expenses—Interest expense decreased to $194.7 million in 2017 from $221.4 million in 2016. The decrease in interest expense was due to a
decrease in the balance of our average outstanding debt, which decreased to $3.58 billion for 2017 from $4.00 billion for 2016. Our weighted average cost of
debt was 5.6% for 2017 and 5.6% for 2016.
Real estate expenses increased to $147.6 million in 2017 from $137.5 million in 2016. The increase was due to expenses for commercial operating
properties, which increased to $83.4 million in 2017 from $73.6 million in 2016. This increase was primarily due to an increase in expenses at our hotel
properties and expenses incurred at properties impacted by the hurricanes that hit the United States. These increases were partially offset by property sales in
2017 and 2016. Expenses associated with residential units decreased to $6.3 million in 2017 from $8.8 million in 2016 due to unit sales. Expenses for same
store commercial operating properties, excluding hotels, increased to $30.9 million in 2017 from $30.2 million in 2016. Expenses for net lease assets
decreased to $16.7 million in 2017 from $18.2 million in 2016 primarily due to asset sales. Expenses for same store net lease assets increased to $14.9 million
in 2017 from $13.5 million in 2016. Carry costs and other expenses on our land and development assets increased to $41.2 million in 2017 from $37.0 million
in 2016.
Depreciation and amortization decreased to $49.0 million in 2017 from $51.7 million for the same period in 2016. The decrease was primarily due to the
sale of net lease assets and commercial operating properties in 2017 and 2016.
General and administrative expenses increased to $98.9 million in 2017 from $84.0 million in 2016. The increase was primarily due to an increase in
compensation expense related to performance incentive plans.
Recovery of loan losses was $5.8 million in 2017 as compared to a net recovery of loan losses of $12.5 million in 2016. The recovery of loan losses in
2017 resulted from a reduction in the general reserve due to an overall improvement in the risk ratings of our loan portfolio. The net recovery of loan losses in
2016 included recoveries of specific reserves of $13.7 million and a decrease in the general reserve of $12.7 million, partially offset by new specific reserves
of $13.9 million.
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Table of Contents
In 2017, we recorded impairments of $32.4 million on land and development and real estate assets. The impairments recorded in 2017 were primarily
the result of impairments on land and development assets of $20.5 million resulting from a decrease in expected cash flows on one asset and a change in exit
strategy on another asset. We also recorded impairments of $11.9 million on real estate assets due to shifting demand in the local condominium markets and
changes in our exit strategy on other real estate assets. In 2016, we recorded impairments on real estate assets totaling $14.5 million comprised of $3.8 million
on a land asset resulting from a change in business strategy, $5.8 million on residential operating properties resulting from unfavorable local market
conditions and $4.9 million on the sale of net lease assets.
Other expense increased to $21.0 million in 2017 from $5.9 million in 2016. The increase was primarily the result of paying organization and offering
costs associated with the initial public offering of SAFE (refer to Note 7) and costs incurred in connection with the repricing of our 2016 Senior Term Loan
(refer to Note 10) recorded in 2017.
Income from sales of real estate—Income from sales of real estate decreased to $92.0 million in 2017 from $105.3 million in 2016. The following
table presents our income from sales of real estate by segment ($ in millions).
2017
2016
Net Lease
Operating Properties
Land and Development(1)
$
Total income from sales of real estate
_______________________________________________________________________________
(1)
$
87.5 $
4.5
—
92.0 $
21.1
75.4
8.8
105.3
During the year ended December 31, 2016, we sold a land and development asset to a newly formed unconsolidated entity in which we own a 50.0% equity interest and recognized a gain on
sale of $8.8 million, reflecting our share of the interest sold to a third party.
Loss on early extinguishment of debt, net—In 2017 and 2016, we incurred losses on early extinguishment of debt of $14.7 million and $1.6 million,
respectively. In 2017, we incurred losses on early extinguishment of debt primarily resulting from repayments of unsecured notes prior to maturity and the
repricing of our 2016 Senior Term Loan. In 2016, we incurred losses on the early extinguishment of debt primarily related to repayments of secured facilities
and unsecured notes prior to maturity.
Earnings from equity method investments—Earnings from equity method investments decreased to $13.0 million in 2017 from $77.3 million in 2016.
In 2017, we recognized $4.7 million primarily from profit participations on a land development venture, $4.5 million related to operations at our Net Lease
Venture, $2.6 million related to sales activity on a land development venture and $1.2 million was aggregate income from our remaining equity method
investments. In 2016, we recognized $33.2 million primarily from the sale of an equity method investment in a commercial operating property, we recognized
$11.6 million of earnings primarily from the non-callable distribution of non-recourse financing proceeds in excess of our carrying value at one of our land
equity method investments, $22.1 million related to sales activity on a land development venture, $3.6 million related to leasing operations at our Net Lease
Venture and $6.8 million was aggregate income from our remaining equity method investments.
Income tax (expense) benefit—Income taxes are primarily generated by assets held in our TRS. An income tax benefit of$0.9 million was recorded in
2017 and a $10.2 million income tax benefit was recorded in 2016. The Tax Cuts and Jobs Act eliminated the corporate alternative minimum tax and grants
corporations a refundable credit for prior years’ minimum taxes paid. The income tax benefit for 2017 primarily relates to the credit for prior year’s minimum
taxes generated in 2015 and 2014 for which we expect to receive refunds from changes made by the Tax Cuts and Jobs Act to the corporate alternative
minimum tax. The income tax benefit for 2016 primarily related to taxable losses generated from sales of certain TRS properties.
We also incurred a tax liability in 2017 for $6.1 million of alternative minimum tax imposed at the REIT level. The Tax Cuts and Jobs Act, however,
permits us to claim a refundable credit for prior year’s minimum taxes over the next four years. Therefore, we have no net income tax expense or benefit in
our consolidated statement of operations at the REIT level for our 2017 tax liability.
Income from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our ground lease business through
the merger of one of our subsidiaries and related transactions. Income from discontinued operations represents the operating results from the properties
comprising our ground lease business.
Gain from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our ground lease business through the
merger of one of our subsidiaries and related transactions. We accounted for this transaction as an in substance sale of real estate and recognized a gain of
$123.4 million, reflecting the aggregate gain less the fair value of our retained interest in SAFE.
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Table of Contents
Adjusted Income
In addition to net income (loss) prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we
use adjusted income, a non-GAAP financial measure, to measure our operating performance. Adjusted income is used internally as a supplemental
performance measure adjusting for certain non-cash GAAP measures to give management a view of income more directly derived from current period
activity. Adjusted income is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision
for (recovery of) loan losses, impairment of assets, stock-based compensation expense, the non-cash portion of gain (loss) on early extinguishment of debt
and is adjusted for the effect of gains or losses on charge-offs and dispositions on carrying value gross of loan loss reserves and impairments ("Adjusted
Income"). In the third quarter 2017, we modified our presentation of Adjusted Income to exclude the effect of the amount of the liquidation preference that
was recorded as a premium above book value on the redemption of preferred stock (refer to Note 13) and the imputed non-cash interest expense recognized
for the conversion feature of our senior convertible notes (refer to Note 10). Adjusted Income also includes the impact to retained earnings (income that
would have been recognized in prior periods had the accounting standards been effective during those prior periods) resulting from the adoption of new
accounting standards on January 1, 2018 (refer to Note 3).
Adjusted Income should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Income
should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), or to cash flows from operating activities (determined
in accordance with GAAP), as a measure of our liquidity, nor is Adjusted Income indicative of funds available to fund our cash needs or available for
distribution to shareholders. Rather, Adjusted Income is an additional measure we use to analyze our business performance because it excludes the effects of
certain non-cash charges that we believe are not necessarily indicative of our operating performance while including the effect of gains or losses on
investments when realized. It should be noted that our manner of calculating Adjusted Income may differ from the calculations of similarly-titled measures by
other companies.
Adjusted Income
Net income (loss) allocable to common shareholders
Add: Depreciation and amortization(1)
Add/Less: (Recovery of) provision for loan losses
Add: Impairment of assets(2)
Add: Stock-based compensation expense
Add: Loss on early extinguishment of debt, net
Add: Non-cash interest expense on senior convertible notes
Add: Premium on redemption of preferred stock
Add: Impact from adoption of new accounting standards(3)
Less: Losses on charge-offs and dispositions(4)
For the Years Ended
December 31,
2018
2017
$
(64,757) $
110,924
71,359
16,937
163,765
17,563
4,318
4,733
—
75,869
(67,506)
60,828
(5,828)
32,379
18,812
3,065
1,255
16,314
—
(23,130)
$
222,281 $
214,619
Adjusted income allocable to common shareholders
_______________________________________________________________________________
(1)
(2)
(3)
(4)
Depreciation and amortization also includes our proportionate share of depreciation and amortization expense for equity method investments and excludes the portion of depreciation and
amortization expense allocable to noncontrolling interests.
Impairment of assets also includes impairments on equity method investments recorded in "Earnings from equity method investments" in our consolidated statements of operations.
Represents an increase to retained earnings on January 1, 2018 upon the adoption of ASU 2017-05 (refer to Note 3).
Represents the impact of charge-offs and dispositions realized during the period. These charge-offs and dispositions were on assets that were previously impaired for GAAP and reflected
in net income but not in Adjusted Income.
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Table of Contents
Liquidity and Capital Resources
During the year ended December 31, 2018, we invested $886.0 million in new investments, prior financing commitments and ongoing development.
This amount includes $574.0 million in lending and other investments, $138.7 million to develop our land and development assets, $57.5 million of capital to
reposition or redevelop our operating properties, $115.7 million to invest in net lease assets and $0.1 million in other investments. Also during the year ended
December 31, 2018, we generated $1,579.4 million from loan repayments and asset sales within our portfolio, comprised of $791.2 million from real estate
finance, $310.8 million from operating properties, $97.3 million from net lease assets, $378.7 million from land and development assets and $1.4 million
from other investments. These amounts are inclusive of fundings and proceeds from both consolidated investments and our pro rata share from equity method
investments.
The following table outlines our capital expenditures on operating properties, net lease and land and development assets as reflected in our consolidated
statements of cash flows for the years ended December 31, 2018 and 2017, by segment ($ in thousands):
Operating Properties
Net Lease
Total capital expenditures on real estate assets
Land and Development
Total capital expenditures on land and development assets
For the Years Ended December 31,
2018
2017
$
$
$
$
26,016 $
34,479
60,495 $
128,543 $
128,543 $
33,774
3,293
37,067
121,400
121,400
As of December 31, 2018, we had unrestricted cash of $931.8 million. Subsequent to December 31, 2018, we made a $250.0 million cash investment in
Investor Units of SAFE OP and we called the remaining $375.0 million aggregate principal balance of our 5.0% senior notes due July 2019 for redemption.
Our primary cash uses over the next 12 months are expected to be funding of investments, capital expenditures, repayment of maturing debt and funding
ongoing business operations. Over the next 12 months, we currently expect to fund in the range of approximately $100 million to $150 million of capital
expenditures within our portfolio. The majority of these amounts relate to our land and development projects and operating properties, and include
multifamily and residential development activities which are expected to include approximately $65 million in vertical construction. The amount actually
invested will depend on the pace of our development activities as well as the extent to which we strategically partner with others to complete these projects.
As of December 31, 2018, we also had approximately $489.3 million of maximum unfunded commitments associated with our investments of which we
expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones and performance hurdles and all other conditions
to fundings (see "Unfunded Commitments" below). We also have $516.0 million carrying amount of scheduled real estate finance maturities over the next 12
months, exclusive of any extension options that can be exercised by our borrowers. Our capital sources to meet cash uses through the next 12 months and
beyond are expected to include cash on hand, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.
We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We
will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions. While economic trends have stabilized, it is
not possible for us to predict whether these trends will continue or to quantify the impact of these or other trends on our financial results. Furthermore, as
more fully described in Item 1a. Risk Factors, our ability to incur more debt to create cash liquidity is dependent on our compliance with debt covenants in
our unsecured notes and corporate debt facilities.
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Table of Contents
Contractual Obligations—The following table outlines the contractual obligations related to our long-term debt obligations, loan participations payable
and operating lease obligations as of December 31, 2018 (see Item 8—"Financial Statements and Supplemental Data—Note 10").
Total
Less Than 1
Year
1 - 3
Years
3 - 5
Years
5 - 10
Years
After 10
Years
Amounts Due By Period
(in thousands)
Long-Term Debt Obligations:
Unsecured notes
Secured credit facilities
Mortgages
Trust preferred securities
Total principal maturities
Interest Payable(2)
Loan Participations Payable(3)
Operating Lease Obligations
$
2,112,500
$
375,000 (1) $
675,000
$
1,062,500
$
646,750
802,367
100,000
3,661,617
771,540
6,500
13,292
—
394,792
184,398
22,642
14,253
—
4,340
13,000
180,749
—
868,749
304,380
22,642
5,605
627,250
66,871
—
1,756,621
150,706
—
1,839
— $
—
527,428
—
527,428
100,470
—
2,469
—
—
14,027
100,000
114,027
31,586
—
—
Total
$
4,470,052
$
583,530
$
1,201,376
$
1,909,166
$
630,367
$
145,613
_______________________________________________________________________________
(1)
(2)
(3)
Subsequent to December 31, 2018, we called these notes for redemption on the redemption date of March 7, 2019.
Variable-rate debt assumes one-month LIBOR of 2.51% and three-month LIBOR of 2.81% that were in effect as of December 31, 2018.
Refer to Note 9 to the consolidated financial statements.
2017 Secured Financing—In March 2017, the predecessor of SAFE (which at the time was comprised of our wholly-owned subsidiaries conducting
our Ground Lease business) entered into a $227.0 million secured financing transaction (the "2017 Secured Financing") that accrued interest at 3.795% and
matures in April 2027. The 2017 Secured Financing was collateralized by the 12 properties comprising SAFE's initial portfolio. In April 2017, we
derecognized the 2017 Secured Financing when third parties acquired a controlling interest in SAFE's predecessor, prior to SAFE's initial public offering
(refer to Note 4).
2016 Senior Term Loan—In June 2016, we entered into a senior term loan of $450.0 million (the "2016 Senior Term Loan"). In August 2016, we
upsized the facility to $500.0 million. The initial $450.0 million of the 2016 Senior Term Loan was issued at 99.0% of par and the upsize was issued at par. In
September 2017, we reduced, repriced and extended the 2016 Senior Term Loan to $400.0 million priced at LIBOR plus 3.00% with a 0.75% LIBOR floor
and maturing in October 2021. In June 2018, the Company increased the 2016 Senior Term Loan to $650.0 million, reduced the interest rate to LIBOR plus
2.75% and extended its maturity to June 2023. The facility was also modified to permit substitution of collateral, subject to overall collateral pool coverage
and concentration limits, over the life of the facility. This modification eliminates the mandatory amortization upon payoff or sale of collateral which existed
prior to the upsize and broadens the types of collateral permitted under the facility. We may make optional prepayments, subject to prepayment fees, and are
required to repay 0.25% of the principal amount each quarter.
2015 Revolving Credit Facility—In March 2015, we entered into our 2015 Revolving Credit Facility. In September 2017, we upsized the 2015
Revolving Credit Facility to $325.0 million, added additional lenders to the syndicate, extended the maturity date to September 2020 and made certain other
changes. This facility is secured by a pledge of the equity interest in a pool of assets which provide asset value coverage for borrowings under the facility.
Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward
based upon our corporate credit rating. An undrawn credit facility commitment fee ranges from 0.30% to 0.50% based on corporate credit ratings. At
maturity, we may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2021. During the year
ended December 31, 2018, we repaid from cash on hand the $325.0 million outstanding on the 2015 Revolving Credit Facility and as of December 31, 2018,
we had $325.0 million of borrowing capacity available under the 2015 Revolving Credit Facility.
Unsecured Notes—In September 2017, we issued $400.0 million principal amount of 4.625% senior unsecured notes due September 2020, $400.0
million principal amount of 5.25% senior unsecured notes due September 2022 and $250.0 million of 3.125% Convertible Notes due September 2022.
Proceeds from these offerings, together with cash on hand, were used to repay in full the $550.0 million principal amount outstanding of the 4.0% senior
unsecured notes due November 2017, the $300.0 million principal amount outstanding of the 7.125% senior unsecured notes due February 2018 and the
$300.0 million principal amount outstanding of the 4.875% senior unsecured notes due July 2018. In addition, the initial purchasers of the 3.125%
Convertible Notes exercised their option to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes.
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Table of Contents
Collateral Assets—The carrying value of our assets that are directly pledged or are held by subsidiaries whose equity is pledged as collateral to secure
our obligations under our secured debt facilities are as follows, by asset type ($ in thousands):
As of December 31,
2018
2017
Collateral Assets(1)
Non-Collateral
Assets
Collateral Assets(1)
Non-Collateral
Assets
Real estate, net
Real estate available and held for sale
Land and development, net
Loans receivable and other lending investments, net(2)(3)
Other investments
Cash and other assets
Total
$
1,620,008 $
151,011 $
795,321 $
1,055
12,300
498,524
—
—
21,496
585,918
480,154
304,275
1,329,990
20,069
25,100
486,710
48,519
835,211
194,529
1,021,340
—
—
321,241
898,252
$
2,131,887 $
2,872,844 $
1,035,019 $
3,611,273
___________________________________________________________
(1)
The 2016 Senior Term Loan and the 2015 Revolving Credit Facility are secured only by pledges of equity of certain of our subsidiaries and not by pledges of the assets held by such
subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions).
As of December 31, 2018, Collateral Assets includes $403.5 million carrying value of assets held by entities whose equity interests are pledged as collateral for the $325.0 million 2015
Revolving Credit Facility that is undrawn as of December 31, 2018.
As of December 31, 2018 and 2017, the amounts presented exclude general reserves for loan losses of $13.0 million and $17.5 million, respectively.
As of December 31, 2018 and 2017, the amounts presented exclude loan participations of $22.5 million and $102.3 million, respectively.
(2)
(3)
Debt Covenants
Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to
unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur additional
indebtedness (except for incurrences of permitted debt), if on a pro forma basis, our consolidated fixed charge coverage ratio, determined in accordance with
the indentures governing our debt securities, is 1.5x or lower. If any of our covenants are breached and not cured within applicable cure periods, the breach
could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. If our
ability to incur additional indebtedness under the fixed charge coverage ratio is limited, we are permitted to incur indebtedness for the purpose of refinancing
existing indebtedness and for other permitted purposes under the indentures.
The 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage,
dividend payments, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of
information to the lenders. In particular, the 2016 Senior Term Loan requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on
the facility. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires us to maintain both collateral coverage of at least 1.5x
outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not
require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the collateral coverage remains at least 1.5x outstanding
borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrowings or substitute assets in the borrowing base. We
may not pay common dividends if we cease to qualify as a REIT. In June 2018, we amended the terms of the 2016 Senior Term Loan and the 2015 Revolving
Credit Facility to include the ability to pay common dividends with no restrictions so long as we are not in default on any of our debt obligations.
Derivatives—Our use of derivative financial instruments is primarily limited to the utilization of interest rate swaps, interest rate caps or other
instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. See Item 8—"Financial
Statements and Supplemental Data—Note 12" for further details.
Off-Balance Sheet Arrangements—We are not dependent on the use of any off-balance sheet financing arrangements for liquidity. We have made
investments in various unconsolidated ventures. See Item 8—"Financial Statements and Supplemental Data—Note 7" for further details of our unconsolidated
investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments and any unfunded commitments (see
below).
Unfunded Commitments—We generally fund construction and development loans and build-outs of space in real estate assets over a period of time if
and when the borrowers and tenants meet established milestones and other performance criteria. We refer to these arrangements as Performance-Based
Commitments. In addition, we have committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic
Investments.
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As of December 31, 2018, the maximum amount of fundings we may be obligated to make under each category, assuming all performance hurdles and
milestones are met under the Performance-Based Commitments and assuming 100% of our capital committed to Strategic Investments is drawn down, are as
follows (in thousands):
Performance-Based Commitments
Strategic Investments
Loans and Other
Lending Investments(1)
$
436,910 $
—
Real Estate
Other
Investments
12,610 $
—
Total
$
436,910 $
12,610 $
_______________________________________________________________________________
(1)
Excludes $27.4 million of commitments on loan participations sold that are not our obligation.
— $
39,754
39,754 $
Total
449,520
39,754
489,274
Stock Repurchase Program—We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading
plans. During the year ended December 31, 2018, we repurchased 0.8 million shares of our outstanding common stock for $8.3 million, representing an
average cost of $10.22 per share. In addition, in connection with the sale of the 3.125% Convertible Notes in September 2017 (refer to Note 10), we
repurchased 4.0 million shares of our common stock for $45.9 million, representing an average cost of $11.51 per share in privately negotiated transactions
with purchasers of the 3.125% Convertible Notes.
Preferred Equity—In October 2017, we redeemed our Series E and Series F preferred stock at par for the aggregate liquidation preference of $240.0
million plus accrued dividends to the redemption date (refer to Note 13).
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that
affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that
valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We
base our estimates on historical corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances.
For all of these estimates, we caution that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment.
During 2018, management reviewed and evaluated these critical accounting estimates and believes they are appropriate. Our significant accounting
policies are described in Item 8—"Financial Statements and Supplemental Data—Note 3." The following is a summary of accounting policies that require
more significant management estimates and judgments:
Reserve for loan losses—The reserve for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet
date. If we determine that the collateral fair value less costs to sell is less than the carrying value of a collateral-dependent loan, we will record a reserve. The
reserve is increased (decreased) through "Provision for (recovery of) loan losses" in our consolidated statements of operations and is decreased by charge-
offs. During delinquency and the foreclosure process, there are typically numerous points of negotiation with the borrower as we work toward a settlement or
other alternative resolution, which can impact the potential for loan repayment or receipt of collateral. Our policy is to charge off a loan when we determine,
based on a variety of factors, that all commercially reasonable means of recovering the loan balance have been exhausted. This may occur at different times,
including when we receive cash or other assets in a pre-foreclosure sale or take control of the underlying collateral in full satisfaction of the loan upon
foreclosure or deed-in-lieu, or when we have otherwise ceased significant collection efforts. We consider circumstances such as the foregoing to be indicators
that the final steps in the loan collection process have occurred and that a loan is uncollectible. At this point, a loss is confirmed and the loan and related
reserve will be charged off. We have one portfolio segment, represented by commercial real estate lending, whereby we utilize a uniform process for
determining our reserves for loan losses. The reserve for loan losses includes a general, formula-based component and an asset-specific component.
The general reserve component covers performing loans and reserves for loan losses are recorded when: (i) available information as of each balance
sheet date indicates that it is probable a loss has occurred in the portfolio; and (ii) the amount of the loss can be reasonably estimated. The formula-based
general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans
with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a comprehensive analysis of our loan
portfolio and assign risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal
and external factors that may affect collectability. We consider, among other things, payment status, lien position, borrower financial resources and investment
in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans
being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range
from "1" to "5" with "1" representing
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the lowest risk of loss and "5" representing the highest risk of loss. We estimate loss rates based on historical realized losses experienced within our portfolio
and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss
experience.
The asset-specific reserve component relates to reserves for losses on impaired loans. We consider a loan to be impaired when, based upon current
information and events, we believe that it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement. This
assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in
collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an
impaired loan when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans
that are dependent on the collateral for repayment) is lower than the carrying value of that loan.
Substantially all of our impaired loans are collateral dependent and impairment is measured using the estimated fair value of collateral, less costs to sell.
We generally use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In some cases,
we obtain external "as is" appraisals for loan collateral, generally when third party participations exist. Valuations are performed or obtained at the time a loan
is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred. In
limited cases, appraised values may be discounted when real estate markets rapidly deteriorate.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when we grant a concession to a
debtor that is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows
discounted at the effective interest rate of the original loan.
The provision for (recovery of) loan losses for the years ended December 31, 2018, 2017 and 2016 were $16.9 million, $(5.8) million and $(12.5)
million, respectively. The total reserve for loan losses as of December 31, 2018 and 2017, included asset specific reserves of $40.4 million and $61.0 million,
respectively, and general reserves of $13.0 million and $17.5 million, respectively.
Acquisition of real estate—We generally acquire real estate assets or land and development assets through purchases or through foreclosure or deed-in-
lieu of foreclosure in full or partial satisfaction of non-performing loans. When we acquire assets these properties are classified as "Real estate, net" or "Land
and development, net" on our consolidated balance sheets. When we intend to hold, operate or develop the property for a period of at least 12 months, assets
are classified as "Real estate, net," and when we intend to market these properties for sale in the near term, assets are classified as "Real estate available and
held for sale." When we purchase assets the properties are recorded at cost. Foreclosed assets classified as real estate and land and development are initially
recorded at their estimated fair value and assets classified as assets held for sale are recorded at their estimated fair value less costs to sell. The excess of the
carrying value of the loan over these amounts is charged-off against the reserve for loan losses. In both cases, upon acquisition, tangible and intangible assets
and liabilities acquired are recorded at their estimated fair values.
During the years ended December 31, 2018 and 2016, we received title to properties in satisfaction of mortgage loans with fair values of $4.6 million
and $40.6 million, respectively, for which those properties had served as collateral. We did not take title to any properties during the year ended December 31,
2017.
Impairment or disposal of long-lived assets—Real estate assets to be disposed of are reported at the lower of their carrying amount or estimated fair
value less costs to sell and are included in "Real estate available and held for sale" on our consolidated balance sheets. The difference between the estimated
fair value less costs to sell and the carrying value will be recorded as an impairment charge. Impairment for real estate assets are included in "Impairment of
assets" in our consolidated statements of operations. Once the asset is classified as held for sale, depreciation expense is no longer recorded.
We periodically review real estate to be held and used and land and development assets for impairment in value whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. The asset's value is impaired only if management's estimate of the
aggregate future cash flows (undiscounted and without interest charges) to be generated by the asset (taking into account the anticipated holding period of the
asset) is less than the carrying value. Such estimate of cash flows considers factors such as expected future operating income, trends and prospects, as well as
the effects of demand, competition and other economic factors. To the extent impairment has occurred, the loss will be measured as the excess of the carrying
amount of the property over the fair value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate and land and
development assets are recorded in "Impairment of assets" in our consolidated statements of operations.
During the year ended December 31, 2018, we recorded aggregate impairments on real estate and land and development assets of $147.1 million. Refer
to "Item 7. Management's Discussion and Analysis - Our Portfolio" for more information on the impairments we recorded during the year ended December
31, 2018. During the year ended December 31, 2017, we recorded
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impairments on real estate and land and development assets totaling $32.4 million. The impairments recorded in 2017 were primarily the result of
impairments on land and development assets of $20.5 million resulting from a decrease in expected cash flows on one asset and a change in exit strategy on
another asset, and impairments of $11.9 million on real estate assets due to shifting demand in the local condominium markets and changes in our exit
strategy on other real estate assets. During the year ended December 31, 2016, we recorded impairments on real estate and land and development assets
totaling $14.5 million resulting from unfavorable local market conditions, sales of net lease assets and changes in business strategy for certain assets.
Identified intangible assets and liabilities—We record intangible assets and liabilities acquired at their estimated fair values, and determine whether
such intangible assets and liabilities have finite or indefinite lives. As of December 31, 2018, all such acquired intangible assets and liabilities have finite
lives. We amortize finite lived intangible assets and liabilities over the period which the assets and liabilities are expected to contribute directly or indirectly to
the future cash flows of the business acquired. We review finite lived intangible assets for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. If we determine the carrying value of an intangible asset is not recoverable we will record an impairment
charge to the extent its carrying value exceeds its estimated fair value. Impairments of intangibles are recorded in "Impairment of assets" in our consolidated
statements of operations.
Valuation of deferred tax assets—Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards. We evaluate
our ability to realize our deferred tax assets and recognize a valuation allowance if, based on the available evidence, both positive and negative, it is more
likely than not that some portion or all of our deferred tax assets will not be realized. When evaluating our ability to realize our deferred tax assets, we
consider, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and projected book/tax
differences, tax planning strategies available, and the general and industry specific economic outlook. This analysis is inherently subjective, as it requires us
to forecast our business and general economic environment in future periods. Changes in estimate of our ability to realize our deferred tax asset, if any, are
included in "Income tax (expense) benefit" in the consolidated statements of operations.
While certain entities with NOLs may generate profits in the future, which may allow us to utilize the NOLs, we continue to record a full valuation
allowance on the net deferred tax asset due to the history of losses and the uncertainty of the entities' ability to generate such profits. We recorded a full
valuation allowance of $78.1 million and $63.3 million as of December 31, 2018 and 2017, respectively.
Variable interest entities—We evaluate our investments and other contractual arrangements to determine if our interests constitute variable interests in a
variable interest entity ("VIE") and if we are the primary beneficiary. There is a significant amount of judgment required to determine if an entity is
considered a VIE and if we are the primary beneficiary. We first perform a qualitative analysis, which requires certain subjective decisions regarding our
assessment, including, but not limited to, which interests create or absorb variability, the contractual terms, the key decision making powers, impact on the
VIE's economic performance and related party relationships. An iterative quantitative analysis is required if our qualitative analysis proves inconclusive as to
whether the entity is a VIE or we are the primary beneficiary and consolidation is required.
Fair value of assets and liabilities—The degree of management judgment involved in determining the fair value of assets and liabilities is dependent
upon the availability of quoted market prices or observable market parameters. For financial and nonfinancial assets and liabilities that trade actively and have
quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and
parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the
availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in
observable market inputs becoming unavailable. Therefore, when market data is not available, we would use valuation techniques requiring more
management judgment to estimate the appropriate fair value measurement.
See Item 8—"Financial Statements and Supplemental Data—Note 16" for a complete discussion on how we determine fair value of financial and non-
financial assets and financial liabilities and the related measurement techniques and estimates involved.
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Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market Risks
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In
pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference
between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in
the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net
amount of floating rate assets/liabilities and the impact of interest rate floors and caps. Any significant compression of the spreads between interest-earning
assets and interest-bearing liabilities could have a material adverse effect on us.
In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses
which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads
between interest-earning assets and interest-bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our
fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political
conditions, and other factors beyond our control. We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may
implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and
other interest rate-related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes
in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against
changes in our credit risk or the credit risk of our borrowers.
While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without
generating non-qualifying income, use of derivatives for other purposes will generate non-qualified income for REIT income test purposes. This includes
hedging asset related risks such as credit, foreign exchange and interest rate exposure on our loan assets. As a result our ability to hedge these types of risks is
limited. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.
The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing
liabilities, should interest rates increase or decrease by 10, 50 or 100 basis points, assuming no change in the shape of the yield curve (i.e., relative interest
rates). The base interest rate scenario assumes the one-month LIBOR rate of 2.50% as of December 31, 2018. Actual results could differ significantly from
those estimated in the table.
Estimated Change In Net Income
($ in thousands)
Change in Interest Rates
-100 Basis Points
-50 Basis Points
-10 Basis Points
Base Interest Rate
+10 Basis Points
+50 Basis Points
Net Income(1)
$
(9,331)
(4,940)
(1,003)
—
1,003
5,016
+100 Basis Points
______________________________________________________________________________
(1) We have an overall net variable-rate asset position, which results in an increase in net income when rates increase and a decrease in net income when rates decrease. As of December 31,
2018, $462.4 million of our floating rate loans have a cumulative weighted average LIBOR floor of 1.1% and $22.6 million of our floating rate debt has a cumulative weighted average
interest rate floor of 0.4%.
10,033
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Item 8. Financial Statements and Supplemental Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts and Reserves as of December 31, 2018 with reconciliations for the years ended
December 31, 2018, 2017 and 2016
Schedule III—Real Estate and Accumulated Depreciation as of December 31, 2018 with reconciliations for the years ended December 31,
2018, 2017 and 2016
Schedule IV—Mortgage Loans on Real Estate as of December 31, 2018 with reconciliations for the years ended December 31, 2018, 2017
and 2016
Page
55
58
59
60
61
63
64
112
113
128
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of iStar Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of iStar Inc. and subsidiaries (the "Company") as of December 31, 2018, the related
consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for the year ended December 31, 2018, and the related notes
and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended
December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2019, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the financial statements, the Company changed the manner in which it accounts for the transfer and derecognition of nonfinancial
assets and in substance nonfinancial assets in 2018 due to the adoption of Accounting Standards Update 2017-05, “Other Income - Gains and Losses from the
Derecognition of Nonfinancial Assets”.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 25, 2019
We have served as the Company's auditor since 2018.
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of iStar Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of iStar Inc. and subsidiaries (the “Company”) as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 25, 2019, expressed an unqualified
opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in the manner in which it accounts for the
transfer and derecognition of nonfinancial assets and in substance nonfinancial assets in 2018 due to the adoption of Accounting Standards Update 2017-05,
“Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets”.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 25, 2019
56
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of iStar Inc.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of iStar Inc. and its subsidiaries (the “Company”) as of December 31, 2017, and the related consolidated
statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2017,
including the related notes and the accompanying schedules of valuation and qualifying accounts and reserves, real estate and accumulated depreciation, and
mortgage loans on real estate for each of the two years in the period ended December 31, 2017 (collectively referred to as the “consolidated financial
statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017,
and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017 in conformity with accounting principles
generally accepted in the United States of America.
Change in Accounting Principles
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it classifies certain cash receipts and cash
payments and changed the manner in which it presents restricted cash on the consolidated statements of cash flows in 2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error
or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
February 26, 2018, except for the change in manner in which the Company classifies certain cash receipts and cash payments and the change in manner in
which it presents restricted cash on the consolidated statements of cash flows discussed in Note 3 to the consolidated financial statements, as to which the date
is February 25, 2019
We served as the Company's auditor from at least 1997 to 2018. We have not been able to determine the specific year we began serving as auditor of the
Company.
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iStar Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
Real estate
Real estate, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale
Total real estate
Land and development, net
Loans receivable and other lending investments, net
Other investments
Cash and cash equivalents
Accrued interest and operating lease income receivable, net
Deferred operating lease income receivable, net
Deferred expenses and other assets, net
Total assets
Liabilities:
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other liabilities
Loan participations payable, net
Debt obligations, net
Total liabilities
Commitments and contingencies (refer to Note 11)
Equity:
iStar Inc. shareholders' equity:
Preferred Stock Series D, G and I, liquidation preference $25.00 per share (refer to Note 13)
Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 13)
Common Stock, $0.001 par value, 200,000 shares authorized, 68,085 and 68,236 shares issued and outstanding as
of December 31, 2018 and 2017, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss (refer to Note 13)
Total iStar Inc. shareholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
_______________________________________________________________________________
Note - Refer to Note 2 for details on the Company's consolidated variable interest entities ("VIEs").
As of December 31,
2018
2017
$
2,076,333 $
(305,314)
1,771,019
22,551
1,793,570
598,218
988,224
304,275
931,751
10,669
98,302
289,268
1,629,436
(347,405)
1,282,031
68,588
1,350,619
860,311
1,300,655
321,241
657,688
11,957
86,877
141,730
$
$
5,014,277 $
4,731,078
318,592 $
22,484
3,609,086
3,950,162
238,004
102,425
3,476,400
3,816,829
12
4
68
3,352,225
(2,472,061)
(17,270)
862,978
201,137
1,064,115
12
4
68
3,352,665
(2,470,564)
(2,482)
879,703
34,546
914,249
$
5,014,277 $
4,731,078
The accompanying notes are an integral part of the consolidated financial statements.
58
iStar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
For the Years Ended December 31,
2018
2017
2016
Table of Contents
Revenues:
Operating lease income
Interest income
Other income
Land development revenue
Total revenues
Costs and expenses:
Interest expense
Real estate expense
Land development cost of sales
Depreciation and amortization
General and administrative(1)
Provision for (recovery of) loan losses
Impairment of assets
Other expense
Total costs and expenses
Income from sales of real estate
Income (loss) from operations before earnings from equity method investments and other items
Loss on early extinguishment of debt, net
Earnings (losses) from equity method investments
Gain on consolidation of equity method investment
Income (loss) from continuing operations before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations
Income from discontinued operations
Gain from discontinued operations
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to iStar Inc.
Preferred dividends
Net income allocable to Participating Security holders(2)
Net income (loss) allocable to common shareholders
Per common share data:
Income (loss) attributable to iStar Inc. from continuing operations:
Basic
Diluted
Net income (loss) attributable to iStar Inc.:
Basic
Diluted
Weighted average number of common shares:
Basic
Diluted
_______________________________________________________________________________
(1)
$
$
$
$
$
$
208,192 $
97,878
82,342
409,710
798,122
183,751
139,289
350,181
58,699
92,135
16,937
147,108
6,040
994,140
126,004
(70,014)
(10,367)
(5,007)
67,877
(17,511)
(815)
(18,326)
—
—
(18,326)
(13,936)
(32,262)
(32,495)
—
(64,757) $
(0.95) $
(0.95) $
(0.95) $
(0.95) $
187,684 $
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
92,049
52,612
(14,724)
13,015
—
50,903
948
51,851
4,939
123,418
180,208
(4,526)
175,682
(64,758)
—
110,924 $
(0.25) $
(0.25) $
1.56 $
1.56 $
67,958
67,958
71,021
71,021
191,180
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
105,296
(3,984)
(1,619)
77,349
—
71,746
10,166
81,912
18,270
—
100,182
(4,876)
95,306
(51,320)
(14)
43,972
0.35
0.35
0.60
0.60
73,453
73,835
For the years ended December 31, 2018, 2017 and 2016, includes $15.4 million, $14.9 million and $5.8 million, respectively, of equity-based compensation associated with iPIP Plans
(refer to Note 14). These plans are liability-based plans which are marked-to-market quarterly and such marks are based upon the performance of the assets underlying the plans as of the
quarterly measurement dates; however, actual amounts cannot be determined until the end date of the plans and the ultimate repayment or monetization of the related assets.
Participating Security holders are non-employee directors who hold common stock equivalents ("CSEs") and restricted stock awards granted under the Company's Long Term Incentive
Plans that are eligible to participate in dividends (refer to Note 14 and Note 15).
(2)
The accompanying notes are an integral part of the consolidated financial statements.
59
Table of Contents
iStar Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net income (loss)
Other comprehensive income:
Impact from adoption of new accounting standards (refer to Note 3)
Reclassification of losses on cumulative translation adjustment into earnings upon realization(1)
Reclassification of (gains)/losses on cash flow hedges into earnings upon realization(2)
Unrealized gains/(losses) on available-for-sale securities
Unrealized gains/(losses) on cash flow hedges
Unrealized gains/(losses) on cumulative translation adjustment
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
For the Years Ended December 31,
2018
2017
2016
$
(18,326) $
180,208 $
100,182
276
721
(1,508)
(1,135)
(14,699)
(364)
(16,709)
(35,035)
(12,015)
—
—
(168)
1,186
847
(129)
1,736
181,944
(4,526)
$
(47,050) $
177,418 $
—
—
598
274
(85)
(154)
633
100,815
(4,876)
95,939
Comprehensive income (loss) attributable to iStar Inc.
_______________________________________________________________________________
(1)
(2)
Amounts were reclassified to "Earnings from equity method investments" in the Company's consolidated statements of operations.
Reclassified to "Interest expense" in the Company's consolidated statements of operations are $388, $64 and $217 for the years ended December 31, 2018, 2017 and 2016, respectively.
Amount reclassified to "Gain on consolidation of equity method investment" in the Company's consolidated
statements of operations is $1,876 for the year ended December 31, 2018. Reclassified to "Earnings (losses) from equity method investments" in the Company's consolidated statements
of operations are $(20), $304 and $381, respectively, for the years ended December 31, December 31, 2018, 2017 and 2016.
The accompanying notes are an integral part of the consolidated financial statements.
60
Table of Contents
Balance as of December
31, 2015
Dividends declared—
preferred
Issuance of stock/restricted
stock unit amortization,
net(2)
Issuance of common stock
for conversion of senior
unsecured convertible
notes
Net income for the
period(3)
Change in accumulated
other comprehensive
income (loss)
Repurchase of stock
Change in additional paid
in capital attributable to
redeemable noncontrolling
interests
Contributions from
noncontrolling interests
Distributions to
noncontrolling interests(4)
Balance as of December
31, 2016
Dividends declared—
preferred
Issuance of stock/restricted
stock unit amortization,
net(2)
Net income for the
period(3)
Change in accumulated
other comprehensive
income (loss)
Repurchase of stock
Issuance of senior
unsecured convertible
notes (refer to Note 10)
Dividends declared and
payable — Series E and
Series F Preferred Stock
Redemption of Series E
and F Preferred Stock
Change in additional paid
in capital attributable to
redeemable noncontrolling
interest(5)
Contributions from
noncontrolling interests
Distributions to
noncontrolling interests
Balance as of December
31, 2017
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
iStar Inc. Shareholders' Equity
Preferred
Stock(1)
Preferred
Stock
Series J(1)
Common
Stock at
Par
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Equity
$
22 $
4
$
81
$ 3,689,330
$(2,625,474)
$
(4,851) $
42,218 $ 1,101,330
—
—
—
—
(51,320)
—
—
(51,320)
—
—
—
2,031
—
—
—
2,031
—
—
1
9,595
—
—
—
9,596
—
—
—
—
95,306
—
10,927
106,233
—
—
—
—
—
(10)
—
(98,419)
—
—
—
—
—
—
—
—
—
(365)
—
—
—
—
—
—
—
633
—
—
—
—
—
633
(98,429)
—
(365)
790
790
—
(10,815)
(10,815)
$
22 $
4
$
72
$ 3,602,172
$(2,581,488)
$
(4,218) $
43,120 $ 1,059,684
—
—
—
—
(46,614)
—
—
(46,614)
—
—
—
—
—
—
—
—
—
—
—
(4)
2,522
—
—
175,682
—
—
—
2,522
5,853
181,535
—
(45,924)
—
—
1,736
—
—
—
1,736
(45,928)
—
—
—
25,869
—
—
—
25,869
—
—
—
—
(1,830)
(10)
—
—
(223,676)
(16,314)
—
—
—
—
—
—
(8,298)
—
—
—
—
—
—
—
—
(1,830)
—
(240,000)
—
(8,298)
12
12
—
— —
— —
— —
— —
—
(14,439)
(14,439)
$
12 $
4
$
68
$ 3,352,665
$(2,470,564)
$
(2,482) $
34,546 $ 914,249
61
Table of Contents
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
iStar Inc. Shareholders' Equity
Preferred
Stock(1)
Preferred
Stock
Series J(1)
Common
Stock at
Par
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Equity
Balance as of December 31,
2017
$
12 $
4 $
68 $ 3,352,665 $(2,470,564) $
(2,482) $
34,546 $ 914,249
Dividends declared—preferred
Dividends declared—common
Issuance of stock/restricted
stock unit amortization, net(2)
Net loss for the period
Change in accumulated other
comprehensive income
Repurchase of stock
Contributions from
noncontrolling interests
Distributions to noncontrolling
interests
Change in noncontrolling
interest attributable to
consolidation of equity
method investment (refer to
Note 7)
Impact from adoption of new
accounting standards (refer to
Note 3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
(1)
—
—
—
—
—
—
—
—
(32,495)
(12,333)
7,863
—
—
(32,262)
—
—
—
—
—
—
—
(32,495)
(12,333)
7,864
13,936
(18,326)
—
(8,303)
—
—
—
—
—
—
(15,064)
(1,921)
(16,985)
—
—
(8,304)
—
15,227
15,227
—
(48,930)
(48,930)
—
—
—
—
—
—
188,279
188,279
—
—
—
—
75,593
276
—
75,869
Balance as of December 31,
2018
$
12 $
_______________________________________________________________________________
(1)
(2)
(3)
(4)
(5)
Refer to Note 13 for details on the Company's Preferred Stock.
Net of payments for withholding taxes upon vesting of stock-based compensation.
For the years ended December 31, 2017 and 2016 net income shown above excludes $1,327 and $6,051 of net loss attributable to redeemable noncontrolling interests.
Includes payments of $10.8 million to acquire a noncontrolling interest.
Represents the amount paid in excess of its carrying value to acquire a redeemable noncontrolling interest.
68 $ 3,352,225 $(2,472,061) $
(17,270) $
201,137 $ 1,064,115
4 $
The accompanying notes are an integral part of the consolidated financial statements.
62
Table of Contents
iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Provision for (recovery of) loan losses
Impairment of assets
Depreciation and amortization
Non-cash expense for stock-based compensation
Amortization of discounts/premiums and deferred financing costs on debt obligations, net
Amortization of discounts/premiums and deferred interest on loans, net
Deferred interest on loans received
Gain from consolidation of equity method investment
Gain from discontinued operations
Losses (earnings) from equity method investments
Distributions from operations of other investments
Deferred operating lease income
Income from sales of real estate
Land development revenue in excess of cost of sales
Loss on early extinguishment of debt, net
Other operating activities, net
Changes in assets and liabilities:
Changes in accrued interest and operating lease income receivable, net
Changes in deferred expenses and other assets, net
Changes in accounts payable, accrued expenses and other liabilities, net
Cash flows provided by (used in) operating activities
Cash flows from investing activities:
Originations and fundings of loans receivable, net
Capital expenditures on real estate assets
Capital expenditures on land and development assets
Acquisitions of real estate assets
Repayments of and principal collections on loans receivable and other lending investments, net
Net proceeds from sales of real estate
Net proceeds from sales of land and development assets
Net proceeds from sale of other investments
Cash acquired upon consolidation of equity method investments
Distributions from other investments
Contributions to and acquisition of interest in other investments
Other investing activities, net
Cash flows provided by investing activities
Cash flows from financing activities:
Borrowings from debt obligations and convertible notes
Repayments and repurchases of debt obligations
Purchase of marketable securities in connection with the defeasance of mortgage notes payable
Proceeds from loan participations payable
Preferred dividends paid
Common dividends paid
Repurchase of stock
Redemption of Series E and F preferred stock
Payments for deferred financing costs
Payments for withholding taxes upon vesting of stock-based compensation
Distributions to and redemption of noncontrolling interests
Payments for debt prepayment or extinguishment costs
Other financing activities, net
Cash flows used in financing activities
Effect of exchange rate changes on cash
Changes in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
For the Years Ended December 31,
2018
2017
2016
$
(18,326)
$
180,208
$
100,182
16,937
147,108
58,699
17,563
15,422
(41,168)
40,463
(67,877)
—
5,007
18,133
(14,989)
(126,004)
(59,529)
10,367
3,377
949
(1,925)
(28,335)
(24,128)
(482,143)
(60,495)
(128,543)
(19,454)
832,982
411,786
223,416
—
13,608
40,804
(94,578)
41,476
778,859
704,360
(944,800)
(110,939)
—
(32,496)
(12,227)
(8,304)
—
(5,471)
(4,807)
(60,743)
(4,132)
21,620
(457,939)
19
296,811
677,733
(5,828)
32,379
49,934
18,812
13,857
(55,985)
52,795
—
(123,418)
(13,015)
42,059
(6,830)
(92,557)
(15,963)
14,724
16,878
1,424
(15,230)
7,299
101,543
(522,269)
(37,067)
(121,400)
(6,600)
615,620
314,013
194,090
—
—
49,672
(224,219)
1,231
263,071
2,288,654
(1,921,699)
—
—
(48,444)
—
(45,928)
(240,000)
(32,419)
(724)
(26,213)
(14,108)
(599)
(41,480)
(28)
323,106
354,627
(12,514)
14,484
54,329
10,889
16,810
(77,851)
85,374
—
—
(77,349)
48,732
(9,921)
(105,296)
(26,333)
1,619
8,809
3,634
(5,656)
(453)
29,489
(410,975)
(69,810)
(103,806)
(38,433)
504,844
435,560
94,424
43,936
—
92,482
(58,197)
(24,997)
465,028
716,001
(1,442,938)
—
22,844
(51,320)
—
(99,335)
—
(9,980)
(1,451)
(10,771)
(1,912)
1,207
(877,655)
7
(383,131)
737,758
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amount capitalized
Supplemental disclosure of non-cash investing and financing activity:
Fundings and repayments of loan receivables and loan participations, net
Developer fee payable
Acquisitions of real estate and land and development assets through deed-in-lieu
Contributions of real estate and land and development assets to equity method investments, net
Accounts payable for capital expenditures on land and development assets
Marketable securities transferred in connection with the defeasance of mortgage notes payable
Accounts payable for capital expenditures on real estate assets
Conversion of senior unsecured convertible notes into common stock
Defeasance of mortgage notes payable
Receivable from sales of real estate and land parcels
Financing provided on sales of land and development assets, net
Increase in net lease assets upon consolidation of equity method investment
Increase in debt obligations upon consolidation of equity method investment
Increase in noncontrolling interests upon consolidation of equity method investment
$
$
$
974,544
$
677,733
$
354,627
171,590
$
179,208
199,667
(80,095)
$
(57,514)
$
(15,594)
—
4,600
—
16,052
110,939
—
—
(105,785)
—
142,639
844,550
464,706
200,093
—
—
—
3,775
—
2,709
—
—
4,853
—
—
—
—
9,478
40,583
8,828
3,674
—
—
9,596
—
7,509
—
—
—
—
The accompanying notes are an integral part of the consolidated financial statements.
63
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements
Note 1—Business and Organization
Business—iStar Inc. (the "Company") finances, invests in and develops real estate and real estate related projects as part of its fully-integrated
investment platform. The Company also manages entities focused on ground lease and net lease investments (refer to Note 7). The Company has invested
approximately $40 billion of capital over the past two decades and is structured as a real estate investment trust ("REIT") with a diversified portfolio focused
on larger assets located in major metropolitan markets. The Company's primary reportable business segments are real estate finance, net lease and operating
properties and land and development (refer to Note 17).
Organization—The Company began its business in 1993 through the management of private investment funds and became publicly traded in 1998.
Since that time, the Company has grown through the origination of new investments and corporate acquisitions.
Note 2—Basis of Presentation and Principles of Consolidation
Basis of Presentation—The accompanying audited consolidated financial statements have been prepared in conformity with generally accepted
accounting principles in the United States of America ("GAAP") for complete financial statements. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Principles of Consolidation—The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries,
controlled partnerships and variable interest entities ("VIEs") for which the Company is the primary beneficiary. All intercompany balances and transactions
have been eliminated in consolidation. The Company's involvement with VIEs affects its financial performance and cash flows primarily through amounts
recorded in "Operating lease income," "Interest income," "Earnings from equity method investments," "Real estate expense" and "Interest expense" in the
Company's consolidated statements of operations. The Company has provided no financial support to those VIEs that it was not previously contractually
required to provide.
64
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. The liabilities of these VIEs are non-recourse
to the Company and can only be satisfied from each VIE's respective assets. The Company did not have any unfunded commitments related to consolidated
VIEs as of December 31, 2018. The following table presents the assets and liabilities of the Company's consolidated VIEs as of December 31, 2018 and 2017
($ in thousands):
As of
December 31,
2018
December 31,
2017
ASSETS
Real estate
Real estate, at cost
Less: accumulated depreciation
Real estate, net
Land and development, net
Other investments
Cash and cash equivalents
Accrued interest and operating lease income receivable, net
Deferred operating lease income receivable, net
Deferred expenses and other assets, net
Total assets
Accounts payable, accrued expenses and other liabilities
LIABILITIES
$
$
Debt obligations, net
Total liabilities
$
848,052 $
(15,365)
832,687
279,031
72
25,219
1,302
8,972
167,324
1,314,607 $
106,907 $
485,000
591,907
47,073
(2,732)
44,341
212,408
—
9,842
230
—
30,791
297,612
38,616
—
38,616
Unconsolidated VIEs—The Company has investments in VIEs where it is not the primary beneficiary, and accordingly, the VIEs have not been
consolidated in the Company's consolidated financial statements. As of December 31, 2018, the Company's maximum exposure to loss from these
investments does not exceed the sum of the $93.2 million carrying value of the investments, which are classified in "Other investments" and "Loans
receivable and other lending investments, net" on the Company's consolidated balance sheets, and $35.7 million of related unfunded commitments.
Note 3—Summary of Significant Accounting Policies
The following paragraphs describe the impact on the Company's consolidated financial statements from the adoption of Accounting Standards
Updates ("ASUs") on January 1, 2018.
ASU 2014-09—ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), stipulates that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Certain contracts with customers, including lease contracts and financial instruments and other contractual rights, are
not within the scope of the new guidance. The Company's revenue within the scope of the guidance is primarily ancillary income related to its operating
properties. The Company adopted ASU 2014-09 using the modified retrospective approach and the adoption did not have a material impact on the Company's
consolidated financial statements.
ASU 2016-01 and ASU 2018-03—ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial
Liabilities ("ASU 2016-01"), addressed certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,
provided technical corrections and improvements to ASU 2016-01. ASU 2016-01 requires entities to measure equity investments not accounted for under the
equity method at fair value and recognize changes in fair value in net income. For equity investments without readily determinable fair values, entities
65
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
may elect a measurement alternative that will allow those investments to be recorded at cost, less impairment, and adjusted for subsequent observable price
changes. Upon adoption, entities must record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the
standard is adopted. ASU 2016-01 also eliminated the requirement for public business entities to disclose the methods and significant assumptions used to
estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The adoption of ASU 2016-
01 and ASU 2018-03 did not have a material impact on the Company's consolidated financial statements.
ASU 2016-15—ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), was issued
to reduce diversity in practice in how certain cash receipts and cash payments, including debt prepayment or debt extinguishment costs, distributions from
equity method investees, and other separately identifiable cash flows, are presented and classified in the statement of cash flows. The adoption of ASU 2016-
15 was retrospective and resulted in an increase to cash flows provided by operating activities of $20.8 million and a decrease to cash flows provided by
financing activities of $20.8 million for the year ended December 31, 2017 and an increase to cash flows provided by operating activities of $7.3 million and
a decrease to cash flows provided by financing activities of $7.3 million for the year ended December 31, 2016, primarily resulting from the reclassification
of cash payments made related to the extinguishment of debt.
ASU 2016-18—ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18"), requires that restricted cash be included with cash and
cash equivalents when reconciling beginning and ending cash and cash equivalents on the statement of cash flows and requires disclosure of what is included
in restricted cash. The adoption of ASU 2016-18 did not have a material impact on the Company's consolidated financial statements. The adoption of ASU
2016-18 was retrospective and resulted in an increase to cash flows provided by operating activities of $0.6 million and a decrease to cash flows provided by
investing activities of $6.4 million for year ended December 31, 2017 and resulted in an increase to cash flows provided by operating activities of $0.7
million and a decrease to cash flows provided by investing activities of $1.5 million for the year ended December 31, 2016.
ASU 2017-01—The adoption of ASU 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"), did not have a
material impact on the Company's consolidated financial statements. Under ASU 2017-01, certain transactions previously accounted for as business
combinations under the former accounting guidance will be accounted for as asset acquisitions under ASU 2017-01. As a result, the Company expects more
transaction costs to be capitalized relating to real estate acquisitions as a result of ASU 2017-01.
ASU 2017-05—ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets ("ASU 2017-05"), simplifies GAAP
by eliminating several accounting differences between transactions involving assets and transactions involving businesses. The amendments in ASU 2017-05
require an entity to initially measure a retained noncontrolling interest in a nonfinancial asset at fair value consistent with how a retained noncontrolling
interest in a business is measured. Also, if an entity transfers ownership interests in a consolidated subsidiary that is within the scope of ASC 610-20 and
continues to have a controlling financial interest in that subsidiary, ASU 2017-05 requires the entity to account for the transaction as an equity transaction,
which is consistent with how changes in ownership interests in a consolidated subsidiary that is a business are recorded when a parent retains a controlling
financial interest in the business. The Company adopted ASU 2017-05 using the modified retrospective approach which was applied to all contracts. On
January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its ground lease business
(refer to Note 4) and other transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to the
adoption of ASU 2017-05, the Company was required to recognize gains on only the portion of its interest transferred to third parties and was precluded from
recognizing a gain on its retained noncontrolling interest which was carried at the Company’s historical cost basis. The adoption of ASU 2017-05 had the
following impact on the Company's consolidated financial statements (in thousands):
Other investments
Total assets
Retained earnings (deficit)
Total equity
December 31,
2017
Impact from ASU
2017-05 on January 1,
2018
January 1, 2018
$
321,241 $
4,731,078
75,869 $
75,869
397,110
4,806,947
$
(2,470,564) $
914,249
75,869 $
(2,394,695)
75,869
990,118
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Notes to Consolidated Financial Statements (Continued)
ASU 2017-12—ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), was
issued to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and
measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 expands and refines hedge accounting for
both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in
the financial statements. The Company adopted ASU 2017-12 on January 1, 2018 and the adoption did not have a material impact on the Company's
consolidated financial statements.
Significant Accounting Policies
Real estate and land and development—Real estate and land and development assets are recorded at cost less accumulated depreciation and
amortization, as follows:
Capitalization and depreciation—Certain improvements and replacements are capitalized when they extend the useful life of the asset. For real estate
projects, the Company begins to capitalize qualified development and construction costs, including interest, real estate taxes, compensation and certain other
carrying costs incurred which are specifically identifiable to a development project once activities necessary to get the asset ready for its intended use have
commenced. If specific allocation of costs is not practicable, the Company will allocate costs based on relative fair value prior to construction or relative sales
value, relative size or other methods as appropriate during construction. The Company’s policy for interest capitalization on qualifying real estate assets is to
use the average amount of accumulated expenditures during the period the asset is being prepared for its intended use, which is typically when physical
construction commences, and a capitalization rate which is derived from specific borrowings on the qualifying asset or the Company’s corporate borrowing
rate in the absence of specific borrowings. The Company ceases capitalization on the portions substantially completed and ready for their intended use.
Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method of cost recovery over the estimated useful
life, which is generally 40 years for facilities, five years for furniture and equipment, the shorter of the remaining lease term or expected life for tenant
improvements and the remaining useful life of the facility for facility improvements.
Purchase price allocation—Upon acquisition of real estate, the Company determines whether the transaction is a business combination, which is
accounted for under the acquisition method, or an acquisition of assets. For both types of transactions, the Company recognizes and measures identifiable
assets acquired, liabilities assumed and any noncontrolling interest in the acquiree based on their relative fair values. For business combinations, the Company
recognizes and measures goodwill or gain from a bargain purchase, if applicable, and expenses acquisition-related costs in the periods in which the costs are
incurred and the services are received. For acquisitions of assets, acquisition-related costs are capitalized and recorded in "Real estate, net" on the Company's
consolidated balance sheets.
The Company accounts for its acquisition of properties by recording the purchase price of tangible and intangible assets and liabilities acquired based on
their estimated fair values. The value of the tangible assets, consisting of land, buildings, building improvements and tenant improvements is determined as if
these assets are vacant. Intangible assets may include the value of lease incentive assets, above-market leases and in-place leases which are each recorded at
their estimated fair values and included in “Deferred expenses and other assets, net” on the Company's consolidated balance sheets. Intangible liabilities may
include the value of below-market leases, which are recorded at their estimated fair values and included in “Accounts payable, accrued expenses and other
liabilities” on the Company's consolidated balance sheets. In-place leases are amortized over the remaining non-cancelable term and the amortization expense
is included in "Depreciation and amortization" in the Company's consolidated statements of operations. Lease incentive assets and above-market (or below-
market) lease value is amortized as a reduction of (or, increase to) operating lease income over the remaining non-cancelable term of each lease plus any
renewal periods with fixed rental terms that are considered to be below-market. The Company may also engage in sale/leaseback transactions and execute
leases with the occupant simultaneously with the purchase of the asset. These transactions are accounted for as asset acquisitions.
Impairments—The Company reviews real estate assets to be held and used and land and development assets, for impairment in value whenever events
or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The value of a long-lived asset held for use and land and
development assets are impaired only if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated
by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value. Such estimate of cash flows considers factors such
as expected future operating income trends, as well as the effects of demand, competition and other economic factors. To the extent impairment has occurred,
the loss will be measured as the excess of the carrying amount of the property over the estimated fair
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value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate assets and land and development assets are recorded in
"Impairment of assets" in the Company's consolidated statements of operations.
Real estate available and held for sale—The Company reports real estate assets to be sold at the lower of their carrying amount or estimated fair value
less costs to sell and classifies them as “Real estate available and held for sale” on the Company's consolidated balance sheets. If the estimated fair value less
costs to sell is less than the carrying value, the difference will be recorded as an impairment charge. Impairment for real estate assets disposed of or classified
as held for sale are included in "Impairment of assets" in the Company's consolidated statements of operations. Once a real estate asset is classified as held for
sale, depreciation expense is no longer recorded.
If circumstances arise that were previously considered unlikely and, as a result the Company decides not to sell a property previously classified as held
for sale, the property is reclassified as held and used and included in "Real estate, net" on the Company's consolidated balance sheets. The Company measures
and records a property that is reclassified as held and used at the lower of: (i) its carrying amount before the property was classified as held for sale, adjusted
for any depreciation expense that would have been recognized had the property been continuously classified as held and used; or (ii) the estimated fair value
at the date of the subsequent decision not to sell.
Dispositions—Revenue from sales of land and development assets and gains or losses on the sale of real estate assets, including residential property, are
recognized in accordance with Accounting Standards Codification ("ASC") 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets. The
Company primarily uses specific identification and the relative sales value method to allocate costs. Gains on sales of real estate are included in "Income from
sales of real estate" in the Company's consolidated statements of operations.
Loans receivable and other lending investments, net—Loans receivable and other lending investments, net includes the following investments:
senior mortgages, corporate/partnership loans, subordinate mortgages, preferred equity investments and debt securities. Management considers nearly all of
its loans to be held-for-investment, although certain investments may be classified as held-for-sale or available-for-sale.
Loans receivable classified as held-for-investment and debt securities classified as held-to-maturity are reported at their outstanding unpaid principal
balance, and include unamortized acquisition premiums or discounts and unamortized deferred loan costs or fees. These loans and debt securities also include
accrued and paid-in-kind interest and accrued exit fees that the Company determines are probable of being collected. Debt securities classified as available-
for-sale are reported at fair value with unrealized gains and losses included in "Accumulated other comprehensive income (loss)" on the Company's
consolidated balance sheets.
Loans receivable and other lending investments designated for sale are classified as held-for-sale and are carried at lower of amortized historical cost or
estimated fair value. The amount by which carrying value exceeds fair value is recorded as a valuation allowance. Subsequent changes in the valuation
allowance are included in the determination of net income (loss) in the period in which the change occurs.
For held-to-maturity and available-for-sale debt securities held in "Loans receivable and other lending investments, net," management evaluates
whether the asset is other-than-temporarily impaired when the fair market value is below carrying value. The Company considers debt securities other-than-
temporarily impaired if: (1) the Company has the intent to sell the security; (2) it is more likely than not that it will be required to sell the security before
recovery; or (3) it does not expect to recover the entire amortized cost basis of the security. If it is determined that an other-than-temporary impairment exists,
the portion related to credit losses, where the Company does not expect to recover its entire amortized cost basis, will be recognized as an "Impairment of
assets" in the Company's consolidated statements of operations. If the Company does not intend to sell the security and it is more likely than not that the
entity will not be required to sell the security, but the security has suffered a credit loss, the impairment charge will be separated. The credit loss component of
the impairment will be recorded as an "Impairment of assets" in the Company's consolidated statements of operations, and the remainder will be recorded in
"Accumulated other comprehensive income (loss)" on the Company's consolidated balance sheets.
The Company acquires properties through foreclosure or by deed-in-lieu of foreclosure in full or partial satisfaction of non-performing loans. Based on
the Company's strategic plan to realize the maximum value from the collateral received, property is classified as "Land and development, net," "Real estate,
net" or "Real estate available and held for sale" at its estimated fair value when title to the property is obtained. Any excess of the carrying value of the loan
over the estimated fair value of the property (less costs to sell for assets held for sale) is charged-off against the reserve for loan losses as of the date of
foreclosure.
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Notes to Consolidated Financial Statements (Continued)
Equity and cost method investments—Equity interests are accounted for pursuant to the equity method of accounting if the Company can
significantly influence the operating and financial policies of an investee. This is generally presumed to exist when ownership interest is between 20% and
50% of a corporation, or greater than 5% of a limited partnership or certain limited liability companies. The Company's periodic share of earnings and losses
in equity method investees is included in "Earnings from equity method investments" in the consolidated statements of operations. When the Company's
ownership position is too small to provide such influence, the cost method is used to account for the equity interest. Equity and cost method investments are
included in "Other investments" on the Company's consolidated balance sheets.
To the extent that the Company contributes assets to an unconsolidated subsidiary, the Company’s investment in the subsidiary is recorded at the
Company’s cost basis in the assets that were contributed to the unconsolidated subsidiary. To the extent that the Company’s cost basis is different from the
basis reflected at the subsidiary level, when required, the basis difference is amortized over the life of the related assets and included in the Company’s share
of equity in net income (loss) of the unconsolidated subsidiary, as appropriate. The Company recognizes gains on the contribution of real estate to
unconsolidated subsidiaries, relating solely to the outside partner’s interest, to the extent the economic substance of the transaction is a sale. The Company
recognizes a loss when it contributes property to an unconsolidated subsidiary and receives a disproportionately smaller interest in the subsidiary based on a
comparison of the carrying amount of the property with the cash and other consideration contributed by the other investors.
The Company periodically reviews equity method investments for impairment in value whenever events or changes in circumstances indicate that the
carrying amount of such investments may not be recoverable. The Company will record an impairment charge to the extent that the estimated fair value of an
investment is less than its carrying value and the Company determines the impairment is other-than-temporary. Impairment charges are recorded in "Earnings
from equity method investments" in the Company's consolidated statements of operations.
Cash and cash equivalents—Cash and cash equivalents include cash held in banks or invested in money market funds with original maturity terms of
less than 90 days.
Restricted cash—Restricted cash represents amounts required to be maintained under certain of the Company's debt obligations, loans, leasing, land
development, sale and derivative transactions. Restricted cash is included in "Deferred expenses and other assets, net" on the Company's consolidated balance
sheets. The following table provides a reconciliation of the cash and cash equivalents and restricted cash reported in the Company's consolidated balance
sheets that total to the same amount as reported in the consolidated statements of cash flows (in thousands):
December 31,
2018
December 31,
2017
December 31,
2016
December 31, 2015
Cash and cash equivalents
$
931,751 $
657,688 $
328,744 $
Restricted cash included in deferred expenses and other assets, net
42,793
20,045
25,883
711,101
26,657
Total cash, cash equivalents and restricted cash reported in the
consolidated statements of cash flows
$
974,544 $
677,733 $
354,627 $
737,758
Variable interest entities—The Company evaluates its investments and other contractual arrangements to determine if they constitute variable interests
in a VIE. A VIE is an entity where a controlling financial interest is achieved through means other than voting rights. A VIE is consolidated by the primary
beneficiary, which is the party that has the power to direct matters that most significantly impact the activities of the VIE and has the obligation to absorb
losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This overall consolidation assessment includes a review of,
among other factors, which interests create or absorb variability, contractual terms, the key decision making powers, their impact on the VIE's economic
performance, and related party relationships. Where qualitative assessment is not conclusive, the Company performs a quantitative analysis. The Company
reassesses its evaluation of the primary beneficiary of a VIE on an ongoing basis and assesses its evaluation of an entity as a VIE upon certain reconsideration
events.
Deferred expenses and other assets—Deferred expenses and other assets include certain non-tenant receivables, leasing costs, lease incentives and
financing fees associated with revolving-debt arrangements. Financing fees associated with other debt obligations are recorded as a reduction of the carrying
value of "Debt obligations, net" and "Loan participations payable, net" on the Company's consolidated balance sheets. Lease incentives and leasing costs that
include brokerage, legal and other costs are amortized over the life of the respective leases and presented as an operating activity in the Company's
consolidated statements of cash flows. External fees and costs incurred to obtain long-term debt financing have been deferred and are amortized over the
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term of the respective borrowing using the effective interest method. Amortization of leasing costs is included in "Depreciation and amortization" and
amortization of deferred financing fees is included in "Interest expense" in the Company's consolidated statements of operations.
Identified intangible assets and liabilities—Upon the acquisition of a business or an asset, the Company records intangible assets or liabilities
acquired at their estimated fair values and determines whether such intangible assets or liabilities have finite or indefinite lives. As of December 31, 2018, all
such intangible assets and liabilities acquired by the Company have finite lives. Intangible assets are included in "Deferred expenses and other assets, net" and
intangible liabilities are included in "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets. The Company
amortizes finite lived intangible assets and liabilities based on the period over which the assets are expected to contribute directly or indirectly to the future
cash flows of the business acquired. The Company reviews finite lived intangible assets for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. If the Company determines the carrying value of an intangible asset is not recoverable it will record an
impairment charge to the extent its carrying value exceeds its estimated fair value. Impairments of intangible assets are recorded in "Impairment of assets" in
the Company's consolidated statements of operations.
Loan participations payable, net—The Company accounts for transfers of financial assets under ASC Topic 860, “Transfers and Servicing,” as either
sales or secured borrowings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred
assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to
pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the
transferred assets. If the transfer does not meet these criteria, the transfer is presented on the balance sheet as "Loan participations payable, net". Financial
asset activities that are accounted for as sales are removed from the balance sheet with any realized gain (loss) reflected in earnings during the period of sale.
Revenue recognition—The Company's revenue recognition policies are as follows:
Operating lease income: The Company's leases have all been determined to be operating leases based on analyses performed in accordance with
ASC 840. Operating lease income is recognized on the straight-line method of accounting, generally from the later of the date the lessee takes possession of
the space and it is ready for its intended use or the date of acquisition of the facility subject to existing leases. Accordingly, contractual lease payment
increases are recognized evenly over the term of the lease. The periodic difference between lease revenue recognized under this method and contractual lease
payment terms is recorded as "Deferred operating lease income receivable, net" on the Company's consolidated balance sheets.
The Company also recognizes revenue from certain tenant leases for reimbursements of all or a portion of operating expenses, including common area
costs, insurance, utilities and real estate taxes of the respective property. This revenue is accrued in the same periods as the expense is incurred and is recorded
as “Operating lease income” in the Company's consolidated statements of operations. Revenue is also recorded from certain tenant leases that is contingent
upon tenant sales exceeding defined thresholds. These rents are recognized only after the defined threshold has been met for the period.
Management estimates losses within its operating lease income receivable and deferred operating lease income receivable balances as of the balance
sheet date and incorporates an asset-specific component, as well as a general, formula-based reserve based on management's evaluation of the credit risks
associated with these receivables. As of December 31, 2018 and 2017, the allowance for doubtful accounts related to real estate tenant receivables was $1.5
million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.8 million and $1.3 million,
respectively.
Interest Income: Interest income on loans receivable is recognized on an accrual basis using the interest method.
On occasion, the Company may acquire loans at premiums or discounts. These discounts and premiums in addition to any deferred costs or fees, are
typically amortized over the contractual term of the loan using the interest method. Exit fees are also recognized over the lives of the related loans as a yield
adjustment, if management believes it is probable that such amounts will be received. If loans with premiums, discounts, loan origination or exit fees are
prepaid, the Company immediately recognizes the unamortized portion, which is included in "Other income" or "Other expense" in the Company's
consolidated statements of operations.
The Company considers a loan to be non-performing and places loans on non-accrual status at such time as: (1) the loan becomes 90 days delinquent;
(2) the loan has a maturity default; or (3) management determines it is probable that it will be unable to collect all amounts due according to the contractual
terms of the loan. While on non-accrual status, based on the Company's
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Notes to Consolidated Financial Statements (Continued)
judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash,
or on a cost-recovery basis, where all cash receipts reduce a loan's carrying value. Non-accrual loans are returned to accrual status when a loan has become
contractually current and management believes all amounts contractually owed will be received.
Certain of the Company's loans contractually provide for accrual of interest at specified rates that differ from current payment terms. Interest is
recognized on such loans at the accrual rate subject to management's determination that accrued interest and outstanding principal are ultimately collectible,
based on the underlying collateral and operations of the borrower.
Certain of the Company's loan investments provide for additional interest based on the borrower's operating cash flow or appreciation of the underlying
collateral. Such amounts are considered contingent interest and are reflected as interest income only upon receipt of cash.
Other income: Other income includes revenues from hotel operations, which are recognized when rooms are occupied and the related services are
provided. Revenues include room sales, food and beverage sales, parking, telephone, spa services and gift shop sales. Other income also includes gains from
sales of loans, loan prepayment fees, yield maintenance payments, lease termination fees, management fees and other ancillary income. During the year ended
December 31, 2017, the Company recorded $123.4 million of interest income and real estate tax reimbursements resulting from the settlement of litigation
involving a dispute over the purchase and sale of land (refer to Note11).
Land development revenue and cost of sales: Land development revenue includes lot and parcel sales from wholly-owned properties and is recognized
for full profit recognition upon closing of the sale transactions, when the profit is determinable, the earnings process is virtually complete, the parties are
bound by the terms of the contract, all consideration has been exchanged, any permanent financing for which the seller is responsible has been arranged and
all conditions for closing have been performed. The Company primarily uses specific identification and the relative sales value method to allocate costs.
Reserve for loan losses—The reserve for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet
date. If the Company determines that the collateral fair value less costs to sell is less than the carrying value of a collateral-dependent loan, the Company will
record a reserve. The reserve is increased (decreased) through "Provision for (recovery of) loan losses" in the Company's consolidated statements of
operations and is decreased by charge-offs. During delinquency and the foreclosure process, there are typically numerous points of negotiation with the
borrower as the Company works toward a settlement or other alternative resolution, which can impact the potential for loan repayment or receipt of collateral.
The Company's policy is to charge off a loan when it determines, based on a variety of factors, that all commercially reasonable means of recovering the loan
balance have been exhausted. This may occur at different times, including when the Company receives cash or other assets in a pre-foreclosure sale or takes
control of the underlying collateral in full satisfaction of the loan upon foreclosure or deed-in-lieu, or when the Company has otherwise ceased significant
collection efforts. The Company considers circumstances such as the foregoing to be indicators that the final steps in the loan collection process have
occurred and that a loan is uncollectible. At this point, a loss is confirmed and the loan and related reserve will be charged off. The Company has one
portfolio segment, represented by commercial real estate lending, whereby it utilizes a uniform process for determining its reserve for loan losses. The reserve
for loan losses includes a general, formula-based component and an asset-specific component.
The general reserve component covers performing loans and reserves for loan losses are recorded when: (i) available information as of each balance
sheet date indicates that it is probable a loss has occurred in the portfolio; and (ii) the amount of the loss can be reasonably estimated. The formula-based
general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans
with similar risk characteristics during the Company's quarterly loan portfolio assessment. During this assessment, the Company performs a comprehensive
analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known
and relevant internal and external factors that may affect collectability. The Company considers, among other things, payment status, lien position, borrower
financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic
factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of
default and principal loss. Ratings range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss. The
Company estimates loss rates based on historical realized losses experienced within its portfolio and takes into account current economic conditions affecting
the commercial real estate market when establishing appropriate time frames to evaluate loss experience.
The asset-specific reserve component relates to reserves for losses on impaired loans. The Company considers a loan to be impaired when, based upon
current information and events, it believes that it is probable that the Company will be unable to collect
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Notes to Consolidated Financial Statements (Continued)
all amounts due under the contractual terms of the loan agreement. This assessment is made on a loan-by-loan basis each quarter based on such factors as
payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well
as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received,
observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying
value of that loan.
Substantially all of the Company's impaired loans are collateral dependent and impairment is measured using the estimated fair value of collateral, less
costs to sell. The Company generally uses the income approach through internally developed valuation models to estimate the fair value of the collateral for
such loans. In some cases, the Company obtains external "as is" appraisals for loan collateral, generally when third party participations exist. Valuations are
performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a
significant change in value has occurred. In limited cases, appraised values may be discounted when real estate markets rapidly deteriorate.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when the Company has granted a
concession and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected
future cash flows discounted at the effective interest rate of the original loan.
Loss on debt extinguishments—The Company recognizes the difference between the reacquisition price of debt and the net carrying amount of
extinguished debt currently in earnings. Such amounts may include prepayment penalties or the write-off of unamortized debt issuance costs, and are recorded
in “Loss on early extinguishment of debt, net” in the Company's consolidated statements of operations.
Derivative instruments and hedging activity—The Company's use of derivative financial instruments is primarily limited to the utilization of interest
rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in
foreign currencies.
The Company recognizes derivatives as either assets or liabilities on the Company's consolidated balance sheets at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability, a hedge of a
forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability.
For derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in Accumulated
Other Comprehensive Income as part of the cumulative translation adjustment. The ineffective portion of the change in fair value of the derivatives is
recognized directly in earnings. Amounts are reclassified out of Accumulated Other Comprehensive Income into earnings when the hedged net investment is
either sold or substantially liquidated.
Derivatives that are not designated hedges are considered economic hedges, with changes in fair value reported in current earnings in "Other expense"
in the Company's consolidated statements of operations. The Company does not enter into derivatives for trading purposes.
Stock-based compensation—Compensation cost for stock-based awards is measured on the grant date and adjusted over the period of the employees'
services to reflect: (i) actual forfeitures; and (ii) the outcome of awards with performance or service conditions through the requisite service period.
Compensation cost for market-based awards is determined using a Monte Carlo model to simulate a range of possible future stock prices for the Company's
common stock, which is reflected in the grant date fair value. All compensation cost for market-based awards in which the service conditions are met is
recognized regardless of whether the market-condition is satisfied. Compensation costs are recognized ratably over the applicable vesting/service period and
recorded in "General and administrative" in the Company's consolidated statements of operations.
Income taxes—The Company has elected to be qualified and taxed as a REIT under section 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is subject to federal income taxation at corporate rates on its REIT taxable income; the Company, however, is allowed a
deduction for the amount of dividends paid to its shareholders, thereby subjecting the distributed net income of the Company to taxation at the shareholder
level only. While the Company must distribute at least 90% of its taxable income to maintain its REIT status, the Company typically distributes all of its
taxable income, if any, to eliminate any tax on undistributed taxable income. In addition, the Company is allowed several other deductions in computing its
REIT taxable income, including non-cash items such as depreciation expense and certain specific reserve amounts that the Company deems to be
uncollectable. These deductions allow the Company to reduce its dividend payout requirement under federal tax laws. The Company intends to operate in a
manner consistent with, and its election to be treated as, a REIT for tax purposes. The Company made foreclosure elections for certain properties acquired
through foreclosure, or an equivalent legal process, which
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allows the Company to operate these properties within the REIT and subjects net income, if any, from these assets to corporate level tax. The carrying value
of assets with foreclosure elections as of December 31, 2018 is $113.1 million. Beginning in 2018, the Tax Cuts and Jobs Act reduced the corporate tax rate to
21% from 35% and net income from foreclosure property, if any, is subject to a 21% tax rate.
As of December 31, 2017, the Company had $582.4 million of REIT net operating loss ("NOL") carryforwards at the corporate REIT level that can
generally be used to offset both ordinary taxable income and capital gain net income in future years. The NOL carryforwards will expire beginning in 2031
and through 2036 if unused. The amount of NOL carryforwards as of December 31, 2018 will be subject to finalization of the Company's 2018 tax return.
The Tax Cuts and Jobs Act reduced the deduction for net operating losses to 80% of the Company’s taxable income for losses incurred after December 31,
2017. The Company's NOL carryforward for losses incurred in taxable years prior to 2018 remain fully deductible. The Company's tax years from 2014
through 2017 remain subject to examination by major tax jurisdictions. During the year ended December 31, 2018, the Company is expected to have REIT
taxable income before the deduction for dividends paid and the NOL deduction. The Company recognizes interest expense and penalties related to uncertain
tax positions, if any, as "Income tax (expense) benefit" in the Company's consolidated statements of operations.
The Company may participate in certain activities from which it would be otherwise precluded and maintain its qualification as a REIT. These activities
are conducted in entities that elect to be treated as taxable subsidiaries under the Code, subject to certain limitations. As such, the Company, through its
taxable REIT subsidiaries ("TRS"), is engaged in various real estate related opportunities, primarily related to managing activities related to certain foreclosed
assets, as well as managing various investments in equity affiliates. As of December 31, 2018, $538.0 million of the Company's assets were owned by TRS
entities. The Company's TRS entities are not consolidated with the REIT for federal income tax purposes and are taxed as corporations. For financial
reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect to its interest in TRS
entities.
The following represents the Company's TRS income tax benefit (expense) ($ in thousands):
For the Years Ended December 31,
2018
2017
2016
Current tax benefit (expense)(1)(2)
$
(447) $
Total income tax (expense) benefit
_______________________________________________________________________________
(1)
$
(447) $
531 $
531 $
9,751
9,751
For the year ended December 31, 2017, the Company recognized a tax benefit for alternative minimum tax credits generated from a carryback of NOLs to 2014 and 2015. For the year ended
December 31, 2018, excludes a REIT tax expense of $0.5 million and for the years ended December 31, 2017 and 2016, excludes a REIT income tax benefit of $0.4 million.
Under the Tax Cuts and Jobs Act, the alternative minimum tax credit carryforward is a refundable tax credit over a four year period beginning in 2018 and ending in 2021 upon which the full
amount of the credit will be allowed.
(2)
During the year ended December 31, 2018, the Company's TRS entities generated a taxable loss of $25.9 million for which the Company recognized no
current tax benefit. The Company’s TRS NOL will be carried forward and the Company’s TRS recorded a full valuation allowance against the related
deferred tax asset. During the year ended December 31, 2017, the Company's TRS entities generated a taxable loss of $33.1 million for which the Company
recognized no current tax benefit. During the year ended December 31, 2016, the Company's TRS entities generated a taxable loss of $49.4 million, resulting
in a current tax benefit of $9.8 million, including a benefit for a return to provision adjustment in the amount of $2.8 million. The 2016 benefit was limited to
the amount the Company’s TRS expected to receive after it filed an NOL carryback claim. The remaining balance of its NOL was carried forward and the
Company’s TRS recorded a full valuation allowance against the related deferred tax asset.
Total cash paid for taxes for the years ended December 31, 2018, 2017 and 2016 was $2.0 million, $6.0 million and $0.2 million, respectively. The taxes
paid in 2017 were primarily alternative minimum taxes at the REIT which the Company expects to be refunded over the next four years.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes, as well as operating loss and tax credit carryforwards. The Company applied the corporate tax rate
enacted December 22, 2017 under the Tax Cuts and Jobs Act effective for years beginning after 2017 to value its deferred tax assets and liabilities. The
Company evaluates whether its deferred tax assets are realizable and recognizes a valuation allowance if, based on the available evidence, both positive and
negative, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating whether its deferred tax assets are
realizable, the Company considers, among other matters, estimates of expected future taxable income, nature of current and
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This
analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Based on an
assessment of all factors, including historical losses and continued volatility of the activities within the TRS entities, it was determined that full valuation
allowances were required on the net deferred tax assets as of December 31, 2018 and 2017, respectively. Changes in estimates of our valuation allowance, if
any, are included in "Income tax (expense) benefit" in the consolidated statements of operations. The valuation allowance was reduced to reflect the change in
value of our net deferred tax assets that reflects a reduced rate of tax under the Tax Cuts and Jobs Act.
Deferred tax assets and liabilities of the Company's TRS entities were as follows ($ in thousands):
Deferred tax assets(1)(2)
Valuation allowance
Net deferred tax assets (liabilities)
As of December 31,
2018
2017
$
$
78,107 $
(78,107)
— $
63,258
(63,258)
—
_______________________________________________________________________________
(1)
Deferred tax assets as of December 31, 2018 include temporary differences related primarily to asset basis of $35.3 million, deferred expenses and other items of $14.9 million, NOL
carryforwards of $25.6 million and other credits of $2.3 million. Deferred tax assets as of December 31, 2017 include temporary differences related primarily to asset basis of $26.1 million,
deferred expenses and other items of $15.9 million and NOL carryforwards of $21.3 million. The Company has determined that the change in tax law associated with the Tax Cuts and Jobs
Act will not have a material effect on whether its deferred tax assets are realizable.
Gross deferred tax assets as of December 31, 2017 were valued at the enacted corporate tax rate during the period in which such deferred tax assets are expected to be realized. The Tax Cuts
and Jobs Act reduced the federal corporate tax rate to 21% from 35% for taxable years beginning after December 31, 2017. The Company’s TRS’s applied its reduced effective tax rate to
compute its gross deferred tax assets before valuation allowance.
(2)
Earnings per share—The Company uses the two-class method in calculating earnings per share ("EPS") when it issues securities other than common
stock that contractually entitle the holder to participate in dividends and earnings of the Company when, and if, the Company declares dividends on its
common stock. Basic earnings per share ("Basic EPS") for the Company's common stock are computed by dividing net income allocable to common
shareholders by the weighted average number of shares of common stock outstanding for the period, respectively. Diluted earnings per share ("Diluted EPS")
is calculated similarly, however, it reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock, where such exercise or conversion would result in a lower earnings per share amount.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are deemed a
"Participating Security" and are included in the computation of earnings per share pursuant to the two-class method. The Company's unvested restricted stock
awards granted under its Long-Term Incentive Plans that are eligible to participate in dividends are considered Participating Securities and have been included
in the two-class method when calculating EPS.
New accounting pronouncements—In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured
Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes ("ASU 2018-16").
ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an
eligible benchmark interest rate. ASU 2018-16 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with
early adoption permitted. The Company adopted ASU 2018-16 effective January 1, 2019 and the adoption did not have a material impact on the Company's
consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU
2016-13") which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial
instruments held by a reporting entity. This amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-
13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting
periods beginning after December 15, 2018. Management is evaluating the impact of the guidance on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), and in July 2018, the FASB issued ASU 2018-11, Leases ("ASU 2018-
11"), to address two requirements of ASU 2016-02. ASU 2016-02 and ASU 2018-11 are effective for interim
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
and annual reporting periods beginning after December 15, 2018. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for
those leases classified as operating or finance leases. For operating and finance leases, a lessee will be required to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease payments, in its statement of financial position. Lessees under operating leases will be required to
recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis, and classify all cash
payments within operating activities in its statement of cash flows. Lessees under finance leases will be required to recognize interest expense on the lease
liability (under the effective interest method) and amortization expense of the right-of-use asset (generally on a straight line basis), each reflected separately in
its statement of operations. For operating lease arrangements for which the Company is the lessee, primarily under leases of office space and certain ground
leases, the adoption of ASU 2016-02 will result in the recognition of a right-of-use asset and lease liability on its consolidated balance sheets. The right-of-use
assets or lease liabilities will not be material to the Company's balance sheet. The accounting applied by the Company as a lessor will be mostly unchanged
from that applied under previous GAAP.
Management has decided to elect the practical expedient package that allows the Company: (a) to not reassess whether any expired or existing
contracts entered into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease classification for any expired or existing leases entered into
prior to January 1, 2019; and (c) to not reassess initial direct costs for any expired or existing leases entered into prior to January 1, 2019. In addition, the
Company will elect to not record on its consolidated balance sheets leases whose term is less than 12 months at lease inception.
ASU 2018-11 amends ASU 2016-02 so that: (a) entities may elect to not recast the comparative periods presented when transitioning to ASC 842 by
allowing entities to change their initial application to the beginning of the period of adoption; and (b) provides lessors with a practical expedient to not
separate non-lease components from the associated lease component of the contractual payments if certain conditions are met. Management has decided to
elect both of these provisions.
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Note 4—Real Estate
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's real estate assets were comprised of the following ($ in thousands):
Net Lease(1)
Operating
Properties
Total
As of December 31, 2018
Land, at cost
Buildings and improvements, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale (2)
Total real estate
As of December 31, 2017
Land, at cost
Buildings and improvements, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale (2)
$
$
$
336,740 $
133,599 $
1,487,270
(287,516)
1,536,494
1,055
118,724
(17,798)
234,525
21,496
1,537,549 $
256,021 $
219,092 $
203,278 $
888,959
(292,268)
815,783
—
318,107
(55,137)
466,248
68,588
815,783 $
534,836 $
470,339
1,605,994
(305,314)
1,771,019
22,551
1,793,570
422,370
1,207,066
(347,405)
1,282,031
68,588
1,350,619
Total real estate
_______________________________________________________________________________
(1)
(2)
$
On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $743.6 million to "Real estate, net" on the Company's consolidated balance sheet.
As of December 31, 2018 and 2017 the Company had $20.6 million and $48.5 million, respectively, of residential condominiums available for sale in its operating properties portfolio.
Real Estate Available and Held for Sale—The following table presents the carrying value of properties transferred to held for sale, by segment ($ in
millions)(1):
Property Type
Operating Properties
Net Lease
Year Ended December 31,
2018
2017
2016
$
23.2 $
20.1 $
8.1
0.9
16.1
1.8
17.9
Total
_______________________________________________________________________________
(1)
Properties were transferred to held for sale due to executed contracts with third parties or changes in business strategy.
31.3 $
21.0 $
$
Acquisitions—During the year ended December 31, 2018, the Company acquired two net lease assets for an aggregate $14.8 million. During the year
ended December 31, 2017, the Company acquired one net lease asset for $6.6 million. In addition, in the third quarter 2017, in conjunction with the
modification of two master leases, the Company exchanged real property with the tenant. The fair value of the property exchanged exceeded the Company's
cost basis by approximately $1.5 million which will be deferred and amortized to "Operating lease income" in the Company's consolidated statements of
operations over the remaining master lease terms.
During the year ended December 31, 2016, the Company acquired one net lease asset for $32.7 million. During the same period, the Company also
acquired land for $3.9 million and simultaneously entered into a 99 year ground lease with the seller. This asset was one of the 12 properties comprising the
Company's Ground Lease business that was disposed of in April 2017 (see "Disposition of Ground Lease Business" below).
Disposition of Ground Lease Business—In April 2017, institutional investors acquired a controlling interest in the Company's ground lease business
through the merger of a Company subsidiary and related transactions (the "Acquisition Transactions"). Ground leases generally represent ownership of the
land underlying commercial real estate projects that is triple net leased by the fee owner of the land to the owners/operators of the real estate projects built
thereon ("Ground Lease"). The
76
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Company's Ground Lease business was a component of the Company's net lease segment and consisted of 12 properties subject to long term net leases
including seven Ground Leases and one master lease (covering five properties). The acquiring entity was a newly formed unconsolidated entity named Safety,
Income & Growth Inc. ("SAFE"). The carrying value of the Company's Ground Lease assets was approximately $161.1 million. Shortly before the
Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company
received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions,
including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company
deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts for its investment in SAFE as an equity method
investment (refer to Note 7). The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million,
reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. The gain was recorded in "Gain from discontinued operations" in
the Company's consolidated statements of operations. As a result of the adoption of ASU 2017-05, Other Income - Gains and Losses from the Derecognition
of Nonfinancial Assets, on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain
on the sale of its Ground Lease business to approximately $178.9 million.
Discontinued Operations—The transactions described above involving the Company's Ground Lease business qualified for discontinued operations
and the following table summarizes income from discontinued operations for the years ended December 31, 2017 and 2016 ($ in thousands)(1):
Year Ended December 31,
2017
2016
Revenues
Expenses
Income from sales of real estate
$
5,922 $
(1,491)
508
Income from discontinued operations
_______________________________________________________________________________
(1)
4,939 $
$
21,839
(3,569)
—
18,270
The transactions closed on April 14, 2017. Revenues primarily consisted of operating lease income and expenses primarily consisted of depreciation and amortization and real estate
expense.
The following table presents cash flows provided by operating activities and cash flows used in investing activities from discontinued operations for the
years ended December 31, 2017 and 2016 ($ in thousands).
Cash flows provided by operating activities
$
Cash flows used in investing activities
5,702 $
(534)
16,662
(7,972)
Year Ended December 31,
2017
2016
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Other Dispositions—The following table presents the proceeds and income recognized for properties sold, by property type ($ in millions):
Year Ended December 31,
2018
2017
2016
Operating Properties(1)
Proceeds
$
327.9 $
41.3 $
Income from sales of real estate
81.0
4.5
Net Lease(2)(3)
Proceeds
$
79.7 $
175.4 $
Income from sales of real estate
45.0
87.5
Total
Proceeds
$
407.6 $
216.7 $
Income from sales of real estate
_______________________________________________________________________________
(1)
126.0
92.0
326.9
75.4
117.2
21.1
444.1
96.5
During the year ended December 31, 2018, the Company sold 10 commercial operating properties and residential condominium units from other properties and recognized $81.0 million of
gains in "Income from sales of real estate" in the Company's consolidated statements of operations, of which $9.8 million was attributable to a noncontrolling interest at one of the properties.
During the year ended December 31, 2018, the Company sold five net lease assets and recognized $45.0 million of gains in "Income from sales of real estate" in the Company's consolidated
statements of operations.
During the year ended December 31, 2017, the Company sold one net lease property and recognized a gain on sale of $62.5 million. Prior to the sale, the Company acquired the
noncontrolling interest with a carrying value of $3.5 million for $12.0 million.
(2)
(3)
Impairments—During the years ended December 31, 2018, 2017 and 2016, the Company recorded aggregate impairments on real estate assets totaling
$90.4 million, $11.9 million and $10.7 million, respectively. Refer to Note 16 for a description of the impairments recorded during the year ended December
31, 2018. The impairments recorded in 2017 were primarily the result of shifting demand in the local condominium markets, changes in our exit strategy on
other real estate assets and an impairment recorded in connection with the sale of an outparcel located at a commercial operating property. The impairments
recorded in 2016 resulted from unfavorable local market conditions on residential operating properties and impairments upon the execution of sales contracts
on net lease assets.
Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs,
insurance, utilities and real estate taxes. Tenant expense reimbursements were $22.4 million, $21.9 million and $23.6 million for the years ended
December 31, 2018, 2017 and 2016, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of
operations.
Allowance for Doubtful Accounts—As of December 31, 2018 and 2017, the allowance for doubtful accounts related to real estate tenant receivables
was $1.5 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.8 million and $1.3
million, respectively. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income
receivable, net," respectively, on the Company's consolidated balance sheets.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable leases, excluding
customer reimbursements of expenses, in effect as of December 31, 2018, are as follows ($ in thousands):
Year
2019
2020
2021
2022
2023
Net Lease
Assets
Operating Properties
$
156,968 $
157,476
158,453
160,395
154,105
22,400
21,146
19,953
11,358
10,417
Note 5—Land and Development
The Company's land and development assets were comprised of the following ($ in thousands):
Land and land development, at cost
Less: accumulated depreciation
Total land and development, net
As of December 31,
2018
2017
$
$
606,849 $
(8,631)
598,218 $
868,692
(8,381)
860,311
Acquisitions—During the year ended December 31, 2018, the Company acquired, via foreclosure, title to a land asset which had a total fair value of
$4.6 million and had previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with this
transaction.
During the year ended December 31, 2016, the Company acquired, via deed-in-lieu, title to two land assets which had a total fair value of $40.6 million
and previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with these transactions.
Dispositions—During the years ended December 31, 2018, 2017 and 2016, the Company sold land parcels and residential lots and units and
recognized land development revenue of $409.7 million, $196.9 million and $88.3 million, respectively. In connection with the sale of two land parcels
totaling 93 acres during the year ended December 31, 2018, the Company provided an aggregate $145.0 million of financing to the buyers, of which $81.2
million was repaid in the second quarter 2018. During the years ended December 31, 2018, 2017 and 2016, the Company recognized land development cost
of sales of $350.2 million, $180.9 million and $62.0 million, respectively, from its land and development portfolio.
In connection with the resolution of litigation involving a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s
County, Maryland, during the year ended December 31, 2017, the Company recognized $114.0 million of land development revenue and $106.3 million of
land development cost of sales.
During the year ended December 31, 2016, the Company sold a land and development asset to a newly formed unconsolidated entity in which the
Company owns a 50.0% equity interest (refer to Note 7). The Company recognized a gain of $8.8 million, reflecting the Company's share of the interest sold
to a third party, which was recorded as "Income from sales of real estate" in the Company's consolidated statement of operations.
Impairments—During the year ended December 31, 2018, the Company recorded an aggregate impairment of $56.7 million on five land and
development assets. Refer to Note 16 for a description of the impairments recorded during the year ended December 31, 2018. During the year ended
December 31, 2017, the Company recorded impairments on land and development assets of $20.5 million resulting from a decrease in expected cash flows on
one asset and a change in exit strategy on another asset. During the year ended December 31, 2016, the Company recorded impairments on land and
development assets of $3.8 million.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 6—Loans Receivable and Other Lending Investments, net
The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):
Type of Investment
Senior mortgages
Corporate/Partnership loans(1)
Subordinate mortgages
Total gross carrying value of loans
Reserves for loan losses
Total loans receivable, net
Other lending investments—securities
Total loans receivable and other lending investments, net
As of December 31,
2018
2017
760,749 $
148,583
10,161
919,493
(53,395)
866,098
122,126
988,224 $
791,152
488,921
9,495
1,289,568
(78,489)
1,211,079
89,576
1,300,655
$
$
_______________________________________________________________________________
(1)
In the second quarter 2018, the Company resolved a non-performing loan with a carrying value of $145.8 million. Refer to "Impaired Loans" section below.
Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):
For the Years Ended December 31,
2018
2017
2016
$
$
78,489 $
85,545 $
16,937
(42,031)
(5,828)
(1,228)
53,395 $
78,489 $
108,165
(12,514)
(10,106)
85,545
Reserve for loan losses at beginning of period
(Recovery of) provision for loan losses(1)
Charge-offs
Reserve for loan losses at end of period
______________________________________________________________________________
(1)
For the year ended December 31, 2016, the (recovery of) provision for loan losses includes recoveries of previously recorded asset-specific loan loss reserves of $13.7 million.
The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserve for loan losses were
as follows ($ in thousands):
As of December 31, 2018
Loans
Less: Reserve for loan losses
Total(3)
As of December 31, 2017
Loans
Less: Reserve for loan losses
Total(3)
Individually
Evaluated for
Impairment(1)
Collectively
Evaluated for
Impairment(2)
Total
$
$
$
$
66,725 $
(40,395)
26,330 $
857,662 $
(13,000)
844,662 $
924,387
(53,395)
870,992
237,877 $
1,056,944 $
1,294,821
(60,989)
(17,500)
(78,489)
176,888 $
1,039,444 $
1,216,332
_______________________________________________________________________________
(1)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.5 million and $0.7 million as of December 31, 2018 and 2017,
respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status; therefore, the unamortized amounts associated with these loans are
not currently being amortized into income.
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $3.1 million and net premiums of $6.2 million as of
December 31, 2018 and 2017, respectively.
The Company's recorded investment in loans as of December 31, 2018 and 2017 includes accrued interest of $4.9 million and $5.3 million, respectively, which is included in "Accrued
interest and operating lease income receivable, net" on the Company's consolidated balance sheets. As of December 31, 2018 and 2017, the total amounts exclude $122.1 million and $89.6
million, respectively, of securities that are evaluated for impairment under ASC 320.
(2)
(3)
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio
assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments
which are inherently uncertain and there can be no assurance that actual performance will be similar to current expectation.
The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in
thousands):
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
As of December 31,
2018
2017
Performing
Loans
Weighted
Average
Risk Ratings
Performing
Loans
Weighted
Average
Risk Ratings
$
$
697,807
149,663
10,192
857,662
2.76 $
2.84
3.00
713,057
334,364
9,523
2.77 $
1,056,944
2.72
2.85
3.00
2.77
The Company's recorded investment in loans, aged by payment status and presented by class, was as follows ($ in thousands):
Current
Less Than
and Equal
to 90 Days
Greater
Than
90 Days(1)
Total
Past Due
Total
As of December 31, 2018
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
As of December 31, 2017
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
— $
—
—
— $
— $
—
—
60,725 $
60,725 $
—
—
—
—
60,725 $
60,725 $
75,343 $
75,343 $
156,534
156,534
—
—
764,532
149,663
10,192
924,387
794,400
490,898
9,523
— $
231,877 $
231,877 $
1,294,821
$
$
$
703,807 $
149,663
10,192
863,662 $
719,057 $
334,364
9,523
81
Total
1,062,944 $
_______________________________________________________________________________
(1)
$
As of December 31, 2018, the Company had two loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related
proceedings and environmental matters, and ranged from 4.0 to 9.0 years outstanding. As of December 31, 2017, the Company had four loans which were greater than 90 days delinquent and
were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 1.0 to 9.0 years outstanding.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Impaired Loans—In the second quarter 2018, the Company resolved a non-performing loan with a carrying value of $145.8 million. The Company
received a $45.8 million cash payment and a preferred equity investment with a face value of $100.0 million that is mandatorily redeemable in five years. The
Company recorded the preferred equity at its fair value of $77.0 million and are accruing interest over the expected duration of the investment. In addition,
the Company recorded a $21.4 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.
The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):
With an allowance recorded:
Senior mortgages
Corporate/Partnership loans
Total
As of December 31, 2018
As of December 31, 2017
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
$
$
66,725 $
66,777 $
(40,395) $
81,343 $
81,431 $
—
—
—
156,534
145,849
66,725 $
66,777 $
(40,395) $
237,877 $
227,280 $
(48,518)
(12,471)
(60,989)
_______________________________________________________________________________
(1)
All of the Company's non-accrual loans are considered impaired and included in the table above.
The Company's average recorded investment in impaired loans and interest income recognized, presented by class, was as follows ($ in thousands):
With no related allowance recorded:
Senior mortgages
Subordinate mortgages
Subtotal
With an allowance recorded:
Senior mortgages
Corporate/Partnership loans
Subtotal
Total:
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
For the Years Ended December 31,
2018
2017
2016
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
— $
— $
— $
— $
3,661 $
—
—
67,041
39,169
106,210
67,041
39,169
—
301
301
—
—
—
—
—
301
6,582
6,582
1,127
1,127
6,799
10,460
82,749
156,756
239,505
82,749
156,756
—
—
—
—
—
6,582
1,127
118,921
66,101
185,022
122,582
66,101
6,799
$
106,210 $
301 $
246,087 $
1,127 $
195,482 $
226
—
226
—
—
—
226
—
—
226
There was no interest income related to the resolution of non-performing loans recorded during the years ended December 31, 2018, 2017 and 2016.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Securities—Other lending investments—securities include the following ($ in thousands):
Face Value
Amortized Cost
Basis
Net Unrealized
Gain
Estimated Fair
Value
Net Carrying Value
As of December 31, 2018
Available-for-Sale Securities
Municipal debt securities
Held-to-Maturity Securities
Debt securities
Total
As of December 31, 2017
Available-for-Sale Securities
Municipal debt securities
Held-to-Maturity Securities
Debt securities
Total
$
$
$
$
21,185 $
21,185 $
476 $
21,661 $
21,661
120,866
100,465
7
100,472
142,051 $
121,650 $
483 $
122,133 $
100,465
122,126
21,230 $
21,230 $
1,612 $
22,842 $
22,842
66,618
66,734
1,581
68,315
87,848 $
87,964 $
3,193 $
91,157 $
66,734
89,576
As of December 31, 2018, the contractual maturities of the Company's securities were as follows ($ in thousands):
Maturities
Within one year
After one year through 5 years
After 5 years through 10 years
After 10 years
Total
Held-to-Maturity Securities
Available-for-Sale Securities
Amortized Cost
Basis
Estimated Fair
Value
Amortized Cost
Basis
Estimated Fair
Value
$
$
20,859 $
79,606
20,866 $
79,606
—
—
—
—
100,465 $
100,472 $
— $
—
—
21,185
21,185 $
—
—
—
21,661
21,661
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Note 7—Other Investments
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands):
Real estate equity investments
Safety, Income & Growth Inc. ("SAFE")(1)(2)
iStar Net Lease II LLC ("Net Lease Venture II")
iStar Net Lease I LLC ("Net Lease Venture")(3)
Other real estate equity investments(2)(4)
Subtotal
Other strategic investments(5)
Total
Carrying Value
As of December 31,
Equity in Earnings (Losses)
For the Years Ended December 31,
2018
2017
2018
2017
2016
$
149,589 $
83,868 $
4,711 $
551 $
16,215
—
130,955
296,759
7,516
—
121,139
102,616
307,623
13,618
(333)
4,100
(4,112)
4,366
(9,373)
—
4,534
6,520
11,605
1,410
$
304,275 $
321,241 $
(5,007) $
13,015 $
—
—
3,567
63,875
67,442
9,907
77,349
_______________________________________________________________________________
(1)
On January 2, 2019, the Company made an additional $250.0 million cash investment in newly designated limited partnership units (the "Investor Units") of SAFE's operating partnership
("SAFE OP") (refer to Note 19). For the year ended December 31, 2017, equity in earnings is for the period from April 14, 2017 to December 31, 2017.
On January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its Ground Lease business (refer to Note 4) and other
transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to the adoption of ASU 2017-05, the Company was required to
recognize gains on only the portion of its interest transferred to third parties and was precluded from recognizing a gain on its retained noncontrolling interest, which was carried at the
Company’s historical cost basis.
The Company consolidated the assets and liabilities of the Net Lease Venture on June 30, 2018 (refer to Net Lease Venture below).
During the year ended December 31, 2018, the Company recorded a $6.1 million impairment on a land and development equity method investment due to a change in business strategy.
During the year ended December 31, 2016, a majority-owned consolidated subsidiary of the Company sold its interest in a real estate equity method investment for net proceeds of $39.8
million and recognized equity in earnings of $31.5 million, of which $10.1 million was attributable to the noncontrolling interest. In addition, the Company received a distribution from one of
its real estate equity method investments and recognized equity in earnings during the year ended December 31, 2016 of $11.6 million.
For the year ended December 31, 2018, equity in earnings (losses) includes a $10.0 million impairment on a foreign equity method investment due to local market conditions.
(2)
(3)
(4)
(5)
Safety, Income & Growth Inc.—The Company and two institutional investors capitalized SIGI Acquisition, Inc. ("SIGI") on April 14, 2017 to
acquire, manage and capitalize Ground Leases. The Company contributed $55.5 million for an initial 49.1% noncontrolling interest in SIGI and the two
institutional investors contributed an aggregate $57.5 million for an initial 50.9% controlling interest in SIGI. A wholly-owned subsidiary of the Company
that held the Company's Ground Lease business and assets merged with and into SIGI on April 14, 2017 with SIGI surviving the merger and being renamed
Safety, Income & Growth Inc. ("SAFE"). Through this merger and related transactions, the institutional investors acquired a controlling interest in the
Company's Ground Lease business. The Company's carrying value of the Ground Lease assets was approximately $161.1 million. Shortly before the
Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company
received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions,
including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company
deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounted for this transaction as an in substance sale of real estate
and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the
adoption of ASU 2017-05, on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate
gain on the sale of its Ground Lease business to approximately $178.9 million.
On June 27, 2017, SAFE completed its initial public offering (the "Offering") raising $205.0 million in gross proceeds and concurrently completed a
$45.0 million private placement to the Company. In addition, the Company paid $18.9 million in organization and offering costs of the up to $25.0 million in
organization and offering costs it agreed to pay in connection with the Offering and concurrent private placement. The Company expensed the portion of
offering costs that was attributable to other investors in "Other expense" in the Company's consolidated statements of operations and capitalized the portion of
offering costs attributable to the Company's ownership interest in "Other investments" on the Company's consolidated balance sheets. Subsequent to the initial
public offering and through December 31, 2018, the Company purchased 2.4 million shares of SAFE's common stock for $45.7 million, representing an
average cost of $18.69 per share, pursuant to 10b5-1 plans in accordance with Rules 10b5-1 and
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
10b-18 under the Securities and Exchange Act of 1934, as amended, under which the Company could buy shares of SAFE's common stock in the open
market. The Company also purchased an additional 133,524 shares of SAFE's common stock in open market and negotiated transactions for $2.2 million,
representing an average cost of $16.39 per share. As of December 31, 2018, the Company owned approximately 41.8% of SAFE's common stock outstanding.
A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. In connection with the Company's
$250.0 million cash investment in Investor Units of SAFE OP (refer to Note 19), the management agreement was amended on January 2, 2019. Highlights of
the management agreement terms are included below:
• We received no management fee through June 30, 2018, which covered the first year of the management agreement;
• We receive a fee equal to 1.0% of total SAFE equity (as defined in the management agreement) up to $1.5 billion; 1.25% of total SAFE equity (for
incremental equity of $1.5 billion - $3.0 billion); 1.375% of total SAFE equity (for incremental equity of $3.0 billion - $5.0 billion); and 1.5% of
total SAFE equity (for incremental equity over $5.0 billion);
• Fee to be paid in cash or in shares of SAFE common stock, at the discretion of SAFE's independent directors;
• The stock will be locked up for two years, subject to certain restrictions;
• There is no additional performance or incentive fee;
• From January 1, 2019 through June 30, 2022, the management agreement is non-terminable by SAFE except for cause; and
• Automatic annual renewals thereafter, subject to non-renewal upon certain findings by SAFE's independent directors and payment of termination fee
equal to three times the prior year's management fee, subject to SAFE having raised $820 million of total equity since inception.
The Company is also entitled to receive expense reimbursements, including for the allocable costs of its personnel that perform certain legal,
accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company waived both
the management fee and certain of the expense reimbursements through June 30, 2018. For the six months ended June 30, 2018, the Company waived $1.8
million and $0.8 million, respectively, of management fees and expense reimbursements. For the six months ended December 31, 2018, the Company
recorded $1.8 million and $0.7 million, respectively, of management fees and expense reimbursements. In the fourth quarter 2018, the Company received
45,941 shares of SAFE's common stock for payment of the management fee for the three months ended September 30, 2018. Subsequent to December 31,
2018, the Company was issued 46,020 shares of SAFE's common stock for payment of the management fee for the three months ended December 31, 2018.
The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain exceptions, that it will not acquire, originate, invest in,
or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent
directors has declined the opportunity.
Following is a list of investments that the Company has transacted with SAFE:
In August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan had an
initial term of one year and was extended for an additional year and will be used for the renovation of a medical office building in Atlanta, GA. $17.0 million
of the loan was funded as of December 31, 2018. During the year ended December 31, 2018, the Company recorded $1.4 million of interest income on the
loan. The transaction was approved by the Company's and SAFE's independent directors.
In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment to support the ground-up
development of Great Oaks Multifamily, a to-be-built 301-unit community within the Great Oaks Master Plan of San Jose, CA. The transaction includes a
combination of: (i) a newly created Ground Lease and up to a $7.2 million leasehold improvement allowance; and (ii) a $80.5 million leasehold first
mortgage. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for
approximately $34.0 million. The forward purchase contract was approved by the Company's and SAFE's independent directors.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
In May 2018, the Company provided a $19.9 million leasehold mortgage loan to the ground lessee of a Ground Lease originated at SAFE. The loan has
an initial term of one year and will be used for the acquisition of 100 and 200 Glenridge Point, two multi-tenant office buildings in Atlanta, GA. During the
year ended December 31, 2018, the Company recorded $1.4 million of interest income on the loan. The transaction was approved by the Company's and
SAFE's independent directors.
In June 2018, the Company sold two industrial facilities located in Miami, FL to a third-party and simultaneously structured and entered into two
Ground Leases. The Company then sold the two Ground Leases to SAFE. Net proceeds from the transactions totaled $36.1 million and the Company
recognized a $24.5 million gain on sale. The transactions were approved by the Company's and SAFE's independent directors.
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form the Net Lease Venture to acquire and develop net
lease assets and gave a right of first offer to the venture on all new net lease investments. The Company and its partner had joint decision making rights
pertaining to the acquisition of new investments. Upon the expiration of the investment period on June 30, 2018, the Company obtained control of the venture
through its unilateral rights of management and disposition of the assets. As a result, the expiration of the investment period resulted in a reconsideration
event under GAAP and the Company determined that the Net Lease Venture is a VIE for which the Company is the primary beneficiary. Effective June 30,
2018, the Company consolidated the Net Lease Venture as an asset acquisition under ASC 810. The Company recorded a gain of $67.9 million in "Gain on
consolidation of equity method investment" in the Company's consolidated statement of operations as a result of the consolidation. The Net Lease Venture
had previously been accounted for as an equity method investment. The Company has an equity interest in the Net Lease Venture of approximately 51.9% and
recorded a $188.3 million increase to "Noncontrolling interests" and $11.8 million increase to "Redeemable noncontrolling interest" on the Company's
consolidated balance sheet as a result of the consolidation. The Company acquired the redeemable noncontrolling interest in the fourth quarter 2018. The
Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a management fee and incentive fee. Several
of the Company's senior executives whose time is substantially devoted to the Net Lease Venture own a total of 0.6% equity ownership in the venture via co-
investment. These senior executives are also entitled to an amount equal to 50% of any incentive fee received based on the 47.5% partner's interest.
During the year ended December 31, 2017, the Net Lease Venture acquired industrial properties for $59.0 million. During the year ended December 31,
2017, the Company sold a net lease asset for proceeds of $6.2 million, which approximated its carrying value net of financing, to the Net Lease Venture and
derecognized the associated $18.9 million financing. During the year ended December 31, 2017, the Company made contributions of $49.2 million to the Net
Lease Venture and received distributions of $26.0 million from the Net Lease Venture.
During the year ended December 31, 2016, the Net Lease Venture acquired two office properties and the Company made contributions to the Net Lease
Venture of $37.7 million. In November 2016, the Net Lease Venture placed five year non-recourse financing of $29.0 million on one of its net lease assets.
Net proceeds from the financing were distributed to the members of which the Company received $13.2 million.
As of December 31, 2017, the venture's carrying value of total assets was $658.3 million. During the years ended December 31, 2018, 2017 and 2016,
the Company recorded $1.3 million, $2.1 million and $1.6 million, respectively, of management fees from the Net Lease Venture. The management fees are
included in "Other income" in the Company's consolidated statements of operations. In addition, beginning after the Company's consolidation of the Net
Lease Venture on June 30, 2018 and after the effect of eliminations, the Company earned $0.7 million of management fees with respect to services provided
to other investors in the Net Lease Venture, which was recorded as a reduction to "Net income attributable to noncontrolling interests" in the Company's
consolidated statements of operations.
Net Lease Venture II—In July 2018, the Company entered into a new venture ("Net Lease Venture II") with an investment strategy similar to the Net
Lease Venture. The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by the Company. The
Company has an equity interest in the new venture of approximately 51.9%, which will be accounted for as an equity method investment, and is responsible
for managing the venture in exchange for a management fee and incentive fee. During the year ended December 31, 2018, the Company recorded $0.4
million of management fees from the Net Lease Venture II.
In December 2018, Net Lease Venture II acquired four buildings comprising 168,636 square feet (the "Properties") located in Livermore, CA. Net Lease
Venture II acquired the Properties for $31.2 million which are 100% leased with four separate leases and which each have 10 years of term remaining.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Other real estate equity investments—As of December 31, 2018, the Company's other real estate equity investments include equity interests in real
estate ventures ranging from 16% to 95%, comprised of investments of $65.6 million in operating properties and $65.3 million in land assets. As of
December 31, 2017, the Company's other real estate equity investments included $38.8 million in operating properties and $63.8 million in land assets.
In August 2018, the Company provided a $33.0 million mezzanine loan, of which $28.4 million was funded as of December 31, 2018, to an
unconsolidated entity in which the Company owns a 50% equity interest. As of December 31, 2018, the loan is included in "Loans receivable and other
lending investments, net" on the Company's consolidated balance sheet. During the year ended December 31, 2018, the Company recorded $1.1 million of
interest income on the mezzanine loan.
In December 2016, the Company sold a land and development asset for $36.0 million to a newly formed unconsolidated entity in which the Company
owns a 50.0% equity interest. The Company recognized a gain of $8.8 million, reflecting the Company's share of the interest sold to a third party, which was
recorded as "Income from sales of real estate" in the Company's consolidated statements of operations. As a result of the adoption of ASU 2017-05, on
January 1, 2018, the Company recorded an increase to retained earnings of $8.8 million, bringing the Company's aggregate gain to approximately $17.6
million. The Company and its partner both made $7.0 million contributions to the venture and the Company provided financing to the entity in the form of a
$27.0 million senior loan, of which $27.0 million and $25.4 million was funded as of December 31, 2018 and 2017, respectively, and is included in "Loans
receivable and other lending investments, net" on the Company's consolidated balance sheets. The Company received $17.6 million of net proceeds from the
sale of the asset. This entity is a VIE and the Company does not have a controlling interest due to shared control of the entity with its partner. During the years
ended December 31, 2018, 2017 and 2016, the Company recorded $2.1 million, $1.9 million and $0.1 million, respectively, of interest income on the senior
loan.
Other strategic investments—As of December 31, 2018 and 2017, the Company also had investments in real estate related funds and other strategic
investments in real estate entities.
Summarized investee financial information—The following tables present the investee level summarized financial information of the Company's
equity method investments ($ in thousands):
Balance Sheets
Total assets
Total liabilities
Noncontrolling interests
Total equity attributable to
parent entities
As of December 31,
2018
2017
For the Years Ended December 31,
2018
2017
2016
Income Statements
$
2,118,045 $
2,493,798 Revenues
$
262,970 $
261,867 $
272,281
1,016,502
1,169,125 Expenses
(187,257)
(167,999)
(227,720)
2,007
13,258
Net income attributable to
parent entities
75,056
91,633
42,209
1,099,536
1,311,415
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 8—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
Intangible assets, net(1)
Other receivables(2)
Restricted cash
Other assets(3)
Leasing costs, net(4)
Corporate furniture, fixtures and equipment, net(5)
Deferred financing fees, net
As of December 31,
2018
2017
$
156,281 $
46,887
42,793
32,333
6,224
3,850
900
27,124
56,369
20,045
23,081
9,050
4,652
1,409
Deferred expenses and other assets, net
_______________________________________________________________________________
(1)
$
289,268 $
141,730
Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. On June 30, 2018, the Company consolidated the Net
Lease Venture (refer to Note 7) and recorded $135.3 million of intangible assets to "Deferred expenses and other assets, net" on the Company's consolidated balance sheet. Accumulated
amortization on intangible assets, net was $27.0 million and $34.9 million as of December 31, 2018 and 2017, respectively. The amortization of above market leases and lease incentive assets
decreased operating lease income in the Company's consolidated statements of operations by $2.2 million, $2.5 million and $3.9 million for the years ended December 31, 2018, 2017 and
2016, respectively. These intangible lease assets are amortized over the term of the lease. The amortization expense for in-place leases was $7.2 million, $1.9 million and $1.9 million for the
years ended December 31, 2018, 2017 and 2016, respectively. These amounts are included in "Depreciation and amortization" in the Company's consolidated statements of operations. As of
December 31, 2018, the weighted average amortization period for the Company's intangible assets was approximately 22.3 years.
As of December 31, 2018 and 2017, includes $26.0 million of reimbursements receivable related to the construction and development of an operating property.
Other assets primarily includes derivative assets, prepaid expenses and deposits for certain real estate assets.
Accumulated amortization of leasing costs was $4.4 million and $4.7 million as of December 31, 2018 and 2017, respectively.
Accumulated depreciation on corporate furniture, fixtures and equipment was $11.9 million and $10.5 million as of December 31, 2018 and 2017, respectively.
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
As of December 31,
2018
2017
$
143,808 $
97,007
42,669
35,108
318,592 $
79,015
101,035
49,933
8,021
238,004
Accounts payable, accrued expenses and other liabilities
_______________________________________________________________________________
(1)
$
As of December 31, 2018 and 2017, "Other liabilities" includes $18.5 million and $29.2 million, respectively, related to profit sharing arrangements with developers for certain properties
sold. As of December 31, 2018 and 2017, includes $0.5 million and $1.6 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance
sheets. As of December 31, 2018 and 2017, "Other liabilities" also includes $9.4 million and $6.2 million, respectively related to tax increment financing bonds which were issued by
government entities to fund development within two of the Company's land projects. The amount represents tax assessments associated with each project, which will decrease as the Company
sells units.
As of December 31, 2018 and 2017, accrued expenses includes $1.9 million and $2.5 million, respectively, associated with "Real estate available and held for sale" on the Company's
consolidated balance sheets.
Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to
Note 7) and recorded $34.3 million of intangible liabilities to "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheet. Accumulated
amortization on below market leases was $2.8 million and $7.8 million as of December 31, 2018 and 2017, respectively. The amortization of below market leases increased operating lease
income in the Company's consolidated statements of operations by $3.9 million, $1.3 million and $1.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of
December 31, 2018, the weighted average amortization period for the Company's intangible liabilities was approximately 22.8 years.
88
(2)
(3)
(4)
(5)
(2)
(3)
Other liabilities(1)
Accrued expenses(2)
Accrued interest payable
Intangible liabilities, net(3)
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Intangible assets—The estimated expense from the amortization of intangible assets for each of the five succeeding fiscal years is as follows ($ in
thousands):
2019
2020
2021
2022
2023
$
8,833
8,702
8,701
8,700
8,579
Note 9—Loan Participations Payable, net
The Company's loan participations payable, net were as follows ($ in thousands):
Carrying Value as of
December 31, 2018
December 31, 2017
Loan participations payable(1)
Debt discounts and deferred financing costs, net
$
Total loan participations payable, net
_______________________________________________________________________________
(1)
$
22,642 $
(158)
22,484 $
102,737
(312)
102,425
As of December 31, 2018, the Company had one loan participation payable with an interest rate of 7.0%. As of December 31, 2017, the Company had two loan participations payable with a
weighted average interest rate of 6.5%.
Loan participations represent transfers of financial assets that did not meet the sales criteria established under ASC Topic 860 and are accounted for as
loan participations payable, net as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, the corresponding loan receivable balances were
$22.5 million and $102.3 million, respectively, and are included in "Loans receivable and other lending investments, net" on the Company's consolidated
balance sheets. The principal and interest due on these loan participations payable are paid from cash flows of the corresponding loans receivable, which
serve as collateral for the participations.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 10—Debt Obligations, net
The Company's debt obligations were as follows ($ in thousands):
Carrying Value as of December 31,
2018
2017
Stated
Interest Rates
Scheduled
Maturity Date
Secured credit facilities and mortgages:
2015 $325 Million Revolving Credit Facility
$
— $
325,000
LIBOR + 2.50%
2016 Senior Term Loan
Mortgages collateralized by net lease assets(3)
646,750
802,367
399,000
LIBOR + 2.75%
208,491
3.62% - 7.26%
September 2020
June 2023
(1)
(2)
(4)
Total secured credit facilities and mortgages
1,449,117
932,491
Unsecured notes:
5.00% senior notes(5)
4.625% senior notes(6)
6.50% senior notes(7)
6.00% senior notes(8)
5.25% senior notes(9)
3.125% senior convertible notes(10)
Total unsecured notes
Other debt obligations:
Trust preferred securities
Total debt obligations
Debt discounts and deferred financing costs, net
375,000
400,000
275,000
375,000
400,000
287,500
770,000
400,000
275,000
375,000
400,000
287,500
5.00%
4.625%
6.50%
6.00%
5.25%
3.125%
2,112,500
2,507,500
July 2019
September 2020
July 2021
April 2022
September 2022
September 2022
100,000
3,661,617
(52,531)
100,000
LIBOR + 1.50%
October 2035
3,539,991
(63,591)
3,476,400
Total debt obligations, net (11)
_______________________________________________________________________________
(1)
3,609,086 $
$
(2)
(3)
(4)
(5)
The loan bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.0% and subject to a margin
ranging from 1.25% to 1.75%; or (ii) LIBOR subject to a margin ranging from 2.25% to 2.75%. At maturity, the Company may convert outstanding borrowings to a one year term loan which
matures in quarterly installments through September 2021.
The loan bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.0% and subject to a margin of
1.75%; or (ii) LIBOR subject to a margin of 2.75%.
On June 30, 2018, the Company consolidated the Net Lease Venture and recorded $464.7 million to "Debt obligations, net" on the Company's consolidated balance sheet.
As of December 31, 2018, the weighted average interest rate of these loans is 4.4% inclusive of the effect of interest rate swaps.
The Company can prepay these senior notes without penalty. Subsequent to December 31, 2018, the Company called for redemption the remaining principal amount of these notes on March
7, 2019.
The Company can prepay these senior notes without penalty beginning June 15, 2020.
The Company can prepay these senior notes without penalty beginning July 1, 2020.
The Company can prepay these senior notes without penalty beginning April 1, 2021.
The Company can prepay these senior notes without penalty beginning September 15, 2021.
(6)
(7)
(8)
(9)
(10) The Company's 3.125% senior convertible fixed rate notes due September 2022 ("3.125% Convertible Notes") are convertible at the option of the holders at a conversion rate of 65.47 shares
per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $15.27 per share, at any time prior to the close of business on the business day immediately
preceding September 15, 2022. Upon conversion, the Company will pay or deliver, as the case may be, a combination of cash and shares of its common stock. As such, at issuance in
September 2017, the Company valued the liability component at $221.8 million, net of fees, and the equity component of the conversion feature at $22.5 million, net of fees, and recorded the
equity component in "Additional paid-in capital" on the Company's consolidated balance sheet. In October 2017, the initial purchasers of the 3.125% Convertible Notes exercised their option
to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes. At issuance, the Company valued the liability component at $34.0 million, net of fees,
and the equity component of the conversion feature at $3.4 million, net of fees, and recorded the equity component in "Additional paid-in capital" on the Company's consolidated balance
sheet. As of December 31, 2018, the carrying value of the 3.125% Convertible Notes was $262.6 million, net of fees, and the unamortized discount of the 3.125% Convertible Notes was
$20.5 million, net of fees. As of December 31, 2017, the carrying value of the 3.125% Convertible Notes was $256.7 million, net of fees, and the unamortized discount of the 3.125%
Convertible Notes was $25.2 million, net of fees. During the years ended December 31, 2018 and 2017, the Company recognized $9.0 million and $2.5 million, respectively, of contractual
interest and $4.7 million and $1.3 million, respectively, of discount amortization on the 3.125% Convertible Notes. The effective interest rate for 2018 and 2017 was 5.2%.
(11) The Company capitalized interest relating to development activities of $11.3 million, $8.5 million and $5.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Future Scheduled Maturities—As of December 31, 2018, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):
2019
2020
2021
2022
2023
Thereafter
Total principal maturities
Unamortized discounts and deferred financing costs, net
Unsecured Debt
Secured Debt
Total
$
375,000 $
400,000
275,000
1,062,500
—
100,000
2,212,500
(41,267)
434 $
—
161,914
48,968
646,750
591,051
1,449,117
(11,264)
$
2,171,233 $
1,437,853 $
375,434
400,000
436,914
1,111,468
646,750
691,051
3,661,617
(52,531)
3,609,086
Total debt obligations, net
_______________________________________________________________________________
(1)
Subsequent to December 31, 2018, the Company called for redemption $375.0 million principal amount of senior notes on March 7, 2019.
2017 Secured Financing—In March 2017, the predecessor of SAFE (which at the time was comprised of the Company's wholly-owned subsidiaries
conducting its Ground Lease business) entered into a $227.0 million secured financing transaction (the "2017 Secured Financing") that accrued interest at
3.795% and matures in April 2027. The 2017 Secured Financing was collateralized by the 12 properties comprising SAFE's initial portfolio. In connection
with the 2017 Secured Financing, the Company incurred $7.3 million of lender and third-party fees, substantially all of which was capitalized in "Debt
obligations, net" on the Company's consolidated balance sheets. In April 2017, the Company derecognized the 2017 Secured Financing when third parties
acquired a controlling interest in SAFE's predecessor, prior to SAFE's initial public offering (refer to Note 4).
The Company is providing a limited recourse guaranty and environmental indemnity under the 2017 Secured Financing that will remain in effect until
SAFE has achieved either an equity market capitalization of at least $500.0 million (inclusive of the initial portfolio that the Company contributed to SAFE)
or a net worth of at least $250.0 million (exclusive of the initial portfolio that the Company contributed to SAFE), and SAFE or another replacement
guarantor provides similar guaranties and indemnities to the lenders. The management agreement with SAFE provides that SAFE may not terminate the
management agreement unless a successor guarantor reasonably acceptable to the Company has agreed to replace the Company as guarantor and indemnitor
or has provided the Company with a reasonably acceptable indemnity for any losses suffered by the Company as guarantor and indemnitor. SAFE has
generally agreed to indemnify the Company for any amounts the Company is required to pay, or other losses the Company may suffer, under the limited
recourse guaranty and environmental indemnity.
2016 Senior Term Loan—In June 2016, the Company entered into a senior term loan of $450.0 million (the "2016 Senior Term Loan"). In August
2016, the Company upsized the facility to $500.0 million. The initial $450.0 million of the 2016 Senior Term Loan was issued at 99.0% of par and the upsize
was issued at par. In September 2017, the Company reduced, repriced and extended the 2016 Senior Term Loan to $400.0 million priced at LIBOR plus
3.00% with a 0.75% LIBOR floor and maturing in October 2021. In June 2018, the Company increased the 2016 Senior Term Loan to $650.0 million,
reduced the interest rate to LIBOR plus 2.75% and extended its maturity to June 2023. The facility was also modified to permit substitution of collateral,
subject to overall collateral pool coverage and concentration limits, over the life of the facility. This modification eliminates the mandatory amortization upon
payoff or sale of collateral which existed prior to the upsize and broadens the types of collateral permitted under the facility. The Company may make
optional prepayments, subject to prepayment fees, and is required to repay 0.25% of the principal amount each quarter.
During the years ended December 31, 2018 and 2017, repayments of the 2016 Senior Term Loan prior to its modifications and expenses incurred for the
modifications resulted in losses on early extinguishment of debt of $2.5 million and $0.8 million, respectively.
2015 Revolving Credit Facility—In March 2015, the Company entered into a revolving credit facility with a maximum capacity of $250.0 million (the
"2015 Revolving Credit Facility"). In September 2017, the Company upsized the 2015 Revolving Credit Facility to $325.0 million, added additional lenders
to the syndicate, extended the maturity date to September 2020 and made certain other changes. This facility is secured by a pledge of the equity interest in a
pool of assets which provide asset value coverage for borrowings under the facility. Borrowings under this credit facility bear interest at a floating rate
indexed to one of
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
several base rates plus a margin which adjusts upward or downward based upon the Company's corporate credit rating. An undrawn credit facility
commitment fee ranges from 0.30% to 0.50%, based on corporate credit ratings. At maturity, the Company may convert outstanding borrowings to a one year
term loan which matures in quarterly installments through September 2021. During the year ended December 31, 2018, the Company repaid from cash on
hand the $325.0 million outstanding on the 2015 Revolving Credit Facility and as of December 31, 2018, the Company had $325.0 million of borrowing
capacity available under the 2015 Revolving Credit Facility.
Unsecured Notes—In September 2017, the Company issued $400.0 million principal amount of 4.625% senior unsecured notes due September 2020,
$400.0 million principal amount of 5.25% senior unsecured notes due September 2022 and $250.0 million of 3.125% Convertible Notes due September 2022.
The Company incurred approximately $18.6 million dollars in fees related to these offerings, all of which was capitalized in "Debt obligations, net" on the
Company's consolidated balance sheets. Proceeds from these offerings, together with cash on hand, were used to repay in full the $550.0 million principal
amount outstanding of the 4.0% senior unsecured notes due November 2017, the $300.0 million principal amount outstanding of the 7.125% senior unsecured
notes due February 2018 and the $300.0 million principal amount outstanding of the 4.875% senior unsecured notes due July 2018. In addition, the initial
purchasers of the 3.125% Convertible Notes exercised their option to purchase an additional $37.5 million aggregate principal amount of the 3.125%
Convertible Notes.
During the years ended December 31, 2018, 2017 and 2016, repayments of senior unsecured notes prior to maturity resulted in losses on early
extinguishment of debt of $1.2 million, $13.6 million and $0.4 million, respectively. These amounts are included in "Loss on early extinguishment of debt,
net" in the Company's consolidated statements of operations.
In November 2016, in connection with the retirement of the Company's $200.0 million principal amount of 3.0% senior unsecured convertible notes
due November 2016, the Company converted $9.6 million principal amount into 0.8 million shares of our common stock.
Collateral Assets—The carrying value of the Company's assets that are directly pledged or are held by subsidiaries whose equity is pledged as
collateral to secure the Company's obligations under its secured debt facilities are as follows, by asset type ($ in thousands):
As of December 31,
2018
2017
Collateral Assets(1)
Non-Collateral
Assets
Collateral Assets(1)
Non-Collateral
Assets
Real estate, net
Real estate available and held for sale
Land and development, net
Loans receivable and other lending investments, net(2)(3)
Other investments
Cash and other assets
Total
$
1,620,008 $
151,011 $
795,321 $
1,055
12,300
498,524
—
—
21,496
585,918
480,154
304,275
1,329,990
20,069
25,100
486,710
48,519
835,211
194,529
1,021,340
—
—
321,241
898,252
$
2,131,887 $
2,872,844 $
1,035,019 $
3,611,273
_______________________________________________________________________________
(1)
The 2016 Senior Term Loan and the 2015 Revolving Credit Facility are secured only by pledges of equity of certain of the Company's subsidiaries and not by pledges of the assets held by
such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions).
As of December 31, 2018, Collateral Assets includes $403.5 million carrying value of assets held by entities whose equity interests are pledged as collateral for the $325.0 million 2015
Revolving Credit Facility that is undrawn as of December 31, 2018.
As of December 31, 2018 and 2017, the amounts presented exclude general reserves for loan losses of $13.0 million and $17.5 million, respectively.
As of December 31, 2018 and 2017, the amounts presented exclude loan participations of $22.5 million and $102.3 million, respectively.
(2)
(3)
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Debt Covenants
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered
assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur
additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis, the Company's consolidated fixed charge coverage ratio,
determined in accordance with the indentures governing the Company's debt securities, is 1.5x or lower. If any of the Company's covenants are breached and
not cured within applicable cure periods, the breach could result in acceleration of its debt securities unless a waiver or modification is agreed upon with the
requisite percentage of the bondholders. If the Company's ability to incur additional indebtedness under the fixed charge coverage ratio is limited, the
Company is permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures.
The Company's 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral
coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information
to the lenders. In particular, the 2016 Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the
facility. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires the Company to maintain both borrowing base asset value
of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit
Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains
at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, the Company has the option to pay down outstanding borrowings or substitute
assets in the borrowing base. The Company may not pay common dividends if it ceases to qualify as a REIT. In June 2018, the Company amended the terms
of the 2016 Senior Term Loan and the 2015 Revolving Credit Facility to include the ability to pay common dividends with no restrictions so long as the
Company is not in default on any of its debt obligations.
The Company's 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare
an event of default and accelerate the Company's indebtedness to them if the Company fails to pay amounts due in respect of its other recourse indebtedness
in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The
indentures governing the Company's unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company's
indebtedness to them if the Company's other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is
accelerated.
Note 11—Commitments and Contingencies
Unfunded Commitments—The Company generally funds construction and development loans and build-outs of space in real estate assets over a
period of time if and when the borrowers and tenants meet established milestones and other performance criteria. The Company refers to these arrangements
as Performance-Based Commitments. In addition, the Company has committed to invest capital in several real estate funds and other ventures. These
arrangements are referred to as Strategic Investments.
As of December 31, 2018, the maximum amount of fundings the Company may be obligated to make under each category, assuming all performance
hurdles and milestones are met under the Performance-Based Commitments and assuming100% of its capital committed to Strategic Investments is drawn
down, are as follows ($ in thousands):
Performance-Based Commitments
Strategic Investments
Total
Loans and Other Lending
Investments(1)
Real Estate
Other
Investments
$
$
436,910 $
12,610 $
—
—
436,910 $
12,610 $
— $
39,754
39,754 $
Total
449,520
39,754
489,274
_______________________________________________________________________________
(1)
Excludes $27.4 million of commitments on loan participations sold that are not the obligation of the Company.
93
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Other Commitments—Total operating lease expense for the years ended December 31, 2018, 2017 and 2016 was $5.0 million, $5.2 million and $5.9
million, respectively. Future minimum lease obligations under non-cancelable operating leases are as follows ($ in thousands):
2019
2020
2021
2022
2023
Thereafter
$
4,340
4,016
1,589
991
849
2,469
Legal Proceedings—The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary
routine litigation incidental to the Company's business as a finance and investment company focused on the commercial real estate industry, including
foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that
would have a material adverse effect on the Company’s consolidated financial statements.
Note 12—Risk Management and Derivatives
Risk management
In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk:
interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at
different points in time and potentially at different bases, than its interest-earning assets. Credit risk is the risk of default on the Company's lending
investments or leases that result from a borrower's or tenant's inability or unwillingness to make contractually required payments. Market risk reflects changes
in the value of loans and other lending investments due to changes in interest rates or other market factors, including the rate of prepayments of principal and
the value of the collateral underlying loans, the valuation of real estate assets by the Company as well as changes in foreign currency exchange rates.
Risk concentrations—Concentrations of credit risks arise when a number of borrowers or tenants related to the Company's investments are engaged in
similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual
obligations, including those to the Company, to be similarly affected by changes in economic conditions.
Substantially all of the Company's real estate as well as assets collateralizing its loans receivable are located in the United States. As of December 31,
2018, the only states with a concentration greater than 10.0% were New York with 16.5% and California with 11.0%. As of December 31, 2018, the
Company's portfolio contains concentrations in the following asset types: office/industrial 32.7%, land 18.4%, entertainment/leisure 17.4%, hotel 7.1% and
mixed use/mixed collateral 7.0%.
The Company underwrites the credit of prospective borrowers and tenants and often requires them to provide some form of credit support such as
corporate guarantees, letters of credit and/or cash security deposits. Although the Company's loans and real estate assets are geographically diverse and the
borrowers and tenants operate in a variety of industries, to the extent the Company has a significant concentration of interest or operating lease revenues from
any single borrower or tenant, the inability of that borrower or tenant to make its payment could have a material adverse effect on the Company. As of
December 31, 2018, the Company's five largest borrowers or tenants collectively accounted for approximately 14.4% of the Company's 2018 revenues, of
which no single customer accounts for more than 6.7%.
Derivatives
The Company's use of derivative financial instruments has historically been limited to the utilization of interest rate swaps, interest rate caps and foreign
exchange contracts. The principal objective of such financial instruments is to minimize the risks and/or costs associated with the Company's operating and
financial structure and to manage its exposure to interest rates and foreign exchange rates. The Company may have derivatives that are not designated as
hedges because they do not meet the strict hedge accounting requirements. Although not designated as hedges, such derivatives are entered into to manage the
Company's exposure to interest rate movements, foreign exchange rate movements and other identified risks.
94
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance
sheets as of December 31, 2018 ($ in thousands):
Derivative Assets
Derivative Liabilities
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives Designated in Hedging Relationships
Interest rate swaps
Other assets
Total
$
$
3,669
3,669
Other liabilities
$
$
10,244
10,244
____________________________________________________________________________
(1)
Over the next 12 months, the Company expects that $1.0 million related to cash flow hedges will be reclassified from "Accumulated other comprehensive income (loss)" as an increase to
interest expense.
The tables below present the effect of the Company's derivative financial instruments, including the Company's share of derivative financial instruments
at certain of its equity method investments, in the consolidated statements of operations and the consolidated statements of comprehensive income (loss) ($ in
thousands):
Derivatives Designated in Hedging Relationships
For the Year Ended December 31, 2018
Location of Gain (Loss)
Recognized in Income
Amount of Gain (Loss)
Recognized in Accumulated
Other Comprehensive
Income
Amount of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Income into
Earnings
Interest rate swaps
Interest expense
$
(12,963) $
Earnings from equity method
investments
(1,736)
Interest rate swaps
For the Year Ended December 31, 2017
Interest rate cap
Interest rate swaps
Interest rate swap
Foreign exchange contracts
For the Year Ended December 31, 2016
Interest rate cap
Interest rate cap
Earnings from equity method
investments
Interest expense
Earnings from equity method
investments
Earnings from equity method
investments
Interest expense
Earnings from equity method
investments
Interest rate swaps
Interest expense
Interest rate swaps
Foreign exchange contracts
Earnings from equity method
investments
Earnings from equity method
investments
95
(16)
495
368
(352)
—
(4)
(175)
94
(167)
(388)
20
(16)
339
(285)
—
(185)
(3)
(32)
(378)
—
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Amount of Gain or (Loss) Recognized in Income
Derivatives not Designated in Hedging Relationships(1)
Interest rate cap
Location of Gain or
(Loss) Recognized in
Income
Other expense
$
Foreign exchange contracts
____________________________________________________________________________
(1)
Other expense
The Company did not have any derivatives not designated in hedging relationships during the year ended December 31, 2018.
For the Years Ended December 31,
2017
2016
6 $
(970)
(1,080)
1,115
Foreign Exchange Contracts—The Company is exposed to fluctuations in foreign exchange rates on investments it holds in foreign entities. The
Company used foreign exchange contracts to hedge its exposure to changes in foreign exchange rates on its foreign investments. Foreign exchange contracts
involve fixing the U.S. dollar ("USD") to the respective foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified
date. The foreign exchange contracts are typically cash settled in USD for their fair value at or close to their settlement date.
For derivatives designated as net investment hedges, the changes in the fair value of the derivatives are reported in Accumulated Other Comprehensive
Income as part of the cumulative translation adjustment. Amounts are reclassified out of Accumulated Other Comprehensive Income into earnings when the
hedged foreign entity is either sold or substantially liquidated. For derivatives not designated as net investment hedges, the changes in the fair value of the
derivatives are reported in the Company's consolidated statements of operations within "Other Expense."
The Company marks its foreign investments each quarter based on current exchange rates and records the gain or loss through "Other expense" in its
consolidated statements of operations. The Company recorded net gains (losses) related to foreign investments of $0.2 million and $0.1 million during the
years ended December 31, 2017 and 2016, respectively, in its consolidated statements of operations. The Company did not have any outstanding derivatives
designated as net investments during the year end December 31, 2018.
Interest Rate Hedges—For derivatives designated and qualifying as cash flow hedges, the changes in the fair value of the derivatives are reported in
Accumulated Other Comprehensive Income (Loss). For derivatives not designated as cash flow hedges, the changes in the fair value of the derivatives are
reported in the Company's consolidated statements of operations within "Other Expense."
During the year ended December 31, 2017, the Company entered into and settled a rate lock swap in connection with the 2017 Secured Financing and a
simultaneous rate lock swap with SAFE. As a result of the settlements, the Company initially recorded a $0.4 million unrealized gain in “Accumulated other
comprehensive income” on the Company’s consolidated balance sheets and subsequently derecognized the gain when third parties acquired a controlling
interest in the Company's Ground Lease business (refer to Note 4).
Credit Risk-Related Contingent Features—The Company has agreements with each of its derivative counterparties that contain a provision where if
the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its
derivative obligations.
The Company reports derivative instruments on a gross basis in its consolidated financial statements. In connection with its derivatives which were in a
liability position as of December 31, 2018, the Company posted collateral of $6.4 million and is included in "Deferred expenses and other assets, net" on the
Company's consolidated balance sheets. The Company's net exposure under these contracts was zero as of December 31, 2018.
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Note 13—Equity
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Preferred Stock—On October 20, 2017, the Company redeemed all of its issued and outstanding Series E and Series F preferred stock. Each holder of
Series E and Series F preferred stock received cash in the amount of the liquidation preference of $25.00 per share, or $240.0 million in the aggregate. The
total carrying value of the Series E and Series F preferred stock was $223.7 million, net of discounts and fees, and was recorded in "Additional paid-in-
capital" and "Preferred Stock Series D, E, F, G and I, liquidation preference $25.00 per share" on the Company's consolidated balance sheet as of
December 31, 2016. The remaining liquidation premium of $16.3 million represents a return similar to a dividend to the holders of the Series E and Series F
preferred stock and, as such, has been recorded as an adjustment to "Retained earnings (deficit)" on the Company's consolidated balance sheet.
The Company had the following series of Cumulative Redeemable and Convertible Perpetual Preferred Stock outstanding as of December 31, 2018 and
2017:
Series
D
G
I
J (convertible)(4)
Shares Issued and
Outstanding
(in thousands)
Par Value
Liquidation
Preference(3)(4)
Rate per Annum
Equivalent to
Fixed Annual
Rate
(per share)
Carrying
Value
(in thousands)
Cumulative Preferential Cash
Dividends(1)(2)
4,000 $
0.001 $
3,200
5,000
4,000
0.001
0.001
0.001
25.00
25.00
25.00
50.00
8.00% $
2.00 $
7.65%
7.50%
4.50%
1.91
1.88
2.25
$
89,041
72,664
120,785
193,510
476,000
16,200
Total
_______________________________________________________________________________
(1)
Holders of shares of the Series D, G, I and J preferred stock are entitled to receive dividends, when and as declared by the Company's Board of Directors, out of funds legally available for the
payment of dividends. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each March, June, September and December
or, if not a business day, the next succeeding business day. Any dividend payable on the preferred stock for any partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment
date falls or on another date designated by the Company's Board of Directors for the payment of dividends that is not more than 30 nor less than 10 days prior to the dividend payment date.
The Company declared and paid dividends of $8.0 million, $6.1 million and $9.4 million on its Series D, G and I Cumulative Redeemable Preferred Stock during the year ended
December 31, 2018. The Company declared and paid dividends of $8.0 million, $8.3 million, $5.9 million, $6.1 million and $9.4 million on its Series D, E, F, G and I Cumulative
Redeemable Preferred Stock during the year ended December 31, 2017. In addition, in October 2017, the Company redeemed its Series E and Series F Preferred Stock and paid dividends
through the redemption date of $1.1 million and $0.8 million, respectively, on its Series E and Series F Preferred Stock and paid a liquidation premium of $16.3 million representing a return
similar to a dividend to the holders of the Series E and Series F Preferred Stock. The Company declared and paid dividends of $9.0 million on its Series J Convertible Perpetual Preferred
Stock during the years ended December 31, 2018 and 2017. The character of the 2018 dividends was 100% capital gain distribution, of which 26.02% represented unrecaptured section 1250
gain and 73.98% long term capital gain. The character of the 2017 dividends was 100% capital gain distribution, of which 27.90% represented unrecaptured section 1250 gain and 72.10%
long term capital gain. There are no dividend arrearages on any of the preferred shares currently outstanding.
The Company may, at its option, redeem the Series G and I Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the
liquidation preference of $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.
Each share of the Series J Preferred Stock is convertible at the holder's option at any time, into 3.9762 shares of the Company's common stock (equal to a conversion price of approximately
$12.57 per share), subject to specified adjustments. The Company may, at its option, redeem the Series J Preferred Stock, in whole or in part, at any time and from time to time, for cash at a
redemption price equal to 100% of the liquidation preference of $50.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.
(2)
(3)
(4)
Dividends—To maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable
income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate corporate federal income taxes
payable by the REIT. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower
or eliminate entirely the Company's obligation to pay dividends for such periods in order to maintain its REIT qualification. As of December 31, 2017, the
Company had $582.4 million of NOL carryforwards at the corporate REIT level that can generally be used to offset both ordinary taxable income and capital
gain net income in future years. The NOL carryforwards will expire beginning in 2031 and through 2036 if unused. The amount of NOL carryforwards as of
December 31, 2018 will be determined upon finalization of the Company's 2018 tax return. Because taxable income differs from cash flow from operations
due to non-cash revenues and expenses (such as depreciation and certain asset impairments), in certain circumstances, the Company may generate operating
cash flow in excess of its dividends,
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
or alternatively, may need to make dividend payments in excess of operating cash flows. The 2016 Senior Term Loan and the 2015 Revolving Credit Facility
permit the Company to distribute 100% of its REIT taxable income on an annual basis (prior to deducting certain cumulative NOL carryforwards), as long as
the Company maintains its REIT qualification. The 2016 Senior Term Loan and the 2015 Revolving Credit Facility restrict the Company from paying any
common dividends if it ceases to qualify as a REIT. The Company declared and paid common stock dividends of $12.3 million, or $0.18 per share, for the
year ended December 31, 2018. The character of the 2018 dividends was 100% capital gain distribution, of which 26.02% represented unrecaptured section
1250 gain and 73.98% long term capital gain. The Company did not declare or pay any common stock dividends for the year ended December 31, 2017.
Stock Repurchase Program—The Company may repurchase shares in negotiated transactions or open market transactions, including through one or
more trading plans. During the three months ended March 31, 2018, the Company repurchased 0.8 million shares of its outstanding common stock for $8.3
million, representing an average cost of $10.22 per share. No common stock was repurchased during the nine months ended December 31, 2018. The
Company did not repurchase shares of its common stock during the year ended December 31, 2017 under stock repurchase programs. During the year ended
December 31, 2016, the Company repurchased 10.2 million shares of its outstanding common stock for $98.4 million, representing an average cost of $9.67
per share. As of December 31, 2018, the Company had authorization to repurchase up to $41.7 million of common stock.
In addition, in connection with the sale of the 3.125% Convertible Notes in September 2017 (refer to Note 10), the Company repurchased 4.0 million
shares of its common stock for $45.9 million, representing an average cost of $11.51 per share, in privately negotiated transactions with purchasers of the
3.125% Convertible Notes.
Accumulated Other Comprehensive Income (Loss)—"Accumulated other comprehensive income (loss)" reflected in the Company's shareholders'
equity is comprised of the following ($ in thousands):
Unrealized gains on available-for-sale securities
Unrealized gains (losses) on cash flow hedges
Unrealized losses on cumulative translation adjustment
Accumulated other comprehensive loss
Note 14—Stock-Based Compensation Plans and Employee Benefits
As of December 31,
2018
2017
$
$
475 $
(13,546)
(4,199)
(17,270) $
1,335
707
(4,524)
(2,482)
Stock-Based Compensation—The Company recorded stock-based compensation expense, including the expense related to performance incentive
plans (see below), of $17.6 million, $18.8 million and $10.9 million, respectively, for the years ended December 31, 2018, 2017 and 2016 in "General and
administrative" in the Company's consolidated statements of operations. As of December 31, 2018, there was $2.0 million of total unrecognized
compensation cost related to all unvested restricted stock units that is expected to be recognized over a weighted average remaining vesting/service period of
1.98 years.
Performance Incentive Plans—The Company's Performance Incentive Plan ("iPIP") is designed to provide, primarily to senior executives and select
professionals engaged in the Company's investment activities, long-term compensation which has a direct relationship to the realized returns on investments
included in the plan. The fair value of points is determined using a model that forecasts the Company's projected investment performance. iPIP is a liability-
classified award, which will be remeasured each reporting period at fair value until the awards are settled. The following is a summary of the status of the
Company’s iPIP points and changes during the year ended December 31, 2018.
Points at beginning of period
Granted
Forfeited
Points at end of period
Year Ended December 31, 2018
iPIP Investment Pool
2013-2014
2015-2016
2017-2018
86.57
0.50
(1.30)
85.77
84.16
—
(4.75)
79.41
40.97
49.33
(7.87)
82.43
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
In 2018, the Company made initial distributions to participants in the 2013-2014 investment pool following a determination that, as of December 31,
2017, the Company had realized a return of all invested capital in the assets included in the 2013-2014 investment pool, together with a return based on
leverage and a preferred return hurdle of 9.0%. The amount distributable to participants was reduced by 4.3% based on the Company's total shareholder return
in accordance with the provisions of the iPIP and, as a result, iPIP participants received total distributions in the amount of $15.6 million as compensation,
comprised of $7.8 million in cash and 685,624 shares of the Company's common stock, with a fair value of $7.8 million or $11.37 per share, which are fully-
vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a total of 374,055 shares of the Company's common
stock were issued. As of December 31, 2018 and 2017, the Company had accrued compensation costs relating to iPIP of $37.5 million and $38.1 million,
respectively, which are included in "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets.
Long-Term Incentive Plan—The Company's shareholders approved the Company's 2009 Long-Term Incentive Plan (the "2009 LTIP") which is
designed to provide incentive compensation for officers, key employees, directors and advisors of the Company. Shareholders approved amendments to the
2009 LTIP and the performance-based provisions of the 2009 LTIP in 2014. The 2009 LTIP provides for awards of stock options, shares of restricted stock,
phantom shares, restricted stock units, dividend equivalent rights and other share-based performance awards. A maximum of 8.0 million shares of common
stock may be awarded under the 2009 LTIP. All awards under the 2009 LTIP are made at the discretion of the Company's Board of Directors or a committee
of the Board of Directors.
As of December 31, 2018, an aggregate of 2.6 million shares remain available for issuance pursuant to future awards under the Company's 2009 LTIP.
Restricted Share Issuances—During the year ended December 31, 2018, the Company granted 213,609 shares of common stock to certain employees
under the 2009 LTIP as part of annual incentive awards that included a mix of cash and equity awards. The weighted average grant date fair value per share of
these share awards was $10.10 and the total fair value was $2.2 million. The shares are fully-vested and 135,503 shares were issued net of statutory minimum
required tax withholdings. The employees are restricted from selling these shares for up to 18 months from the date of grant.
Restricted Stock Units—Changes in non-vested restricted stock units ("Units") during the year ended December 31, 2018 were as follows (number of
shares and $ in thousands, except per share amounts):
Non-vested as of December 31, 2017
Granted
Vested
Forfeited
Non-vested as of December 31, 2018
Number
of Shares
Weighted Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
282 $
278 $
(142) $
(61) $
357 $
10.98 $
10.16
10.37
10.36
10.68 $
3,183
3,277
The total fair value of Units vested during the years ended December 31, 2018, 2017 and 2016 was $1.4 million, $0.9 million and $2.9 million,
respectively. The weighted-average grant date fair value per share of Units granted during the years ended December 31, 2018, 2017 and 2016 was $10.16,
$12.09 and $10.11, respectively.
Directors' Awards—Non-employee directors are awarded CSEs or restricted share awards at the time of the annual shareholders' meeting in
consideration for their services on the Company's Board of Directors. During the year ended December 31, 2018, the Company awarded to non-employee
Directors 67,631 restricted shares of common stock at a fair value per share of $10.65 at the time of grant. These restricted shares have a vesting term of one
year. The Company also issued a total of 2,805 CSEs at a fair value of $10.91 in respect of dividend equivalents on outstanding CSEs during the year ended
December 31, 2018. Dividends will accrue as and when dividends are declared by the Company on shares of its common stock, but will not be paid unless
and until the CSEs and restricted shares of common stock vest and are settled. As of December 31, 2018, a combined total of 239,801 CSEs and restricted
shares of common stock granted to members of the Company's Board of Directors remained outstanding under the Company's Non-Employee Directors
Deferral Plan, with an aggregate intrinsic value of $2.2 million.
401(k) Plan—The Company has a savings and retirement plan (the "401(k) Plan"), which is a voluntary, defined contribution plan. All employees are
eligible to participate in the 401(k) Plan following completion of three months of continuous service with the Company. Each participant may contribute on a
pretax basis up to the maximum percentage of compensation and dollar amount
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
permissible under Section 402(g) of the Internal Revenue Code not to exceed the limits of Code Sections 401(k), 404 and 415. At the discretion of the
Company's Board of Directors, the Company may make matching contributions on the participant's behalf of up to 50% of the participant's contributions, up
to a maximum of 10% of the participants' compensation. The Company made gross contributions of $1.1 million, $1.1 million and $1.0 million, respectively,
for the years ended December 31, 2018, 2017 and 2016.
Note 15—Earnings Per Share
Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities to
calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The following table presents a reconciliation of income (loss) from continuing operations used in the basic and diluted EPS calculations ($ in thousands,
except for per share data):
Income (loss) from continuing operations
Net income attributable to noncontrolling interests
Preferred dividends
Premium above book value on redemption of preferred stock
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common
shareholders and Participating Security Holders for basic earnings per common share(1)
Add: Effect of joint venture shares
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common
shareholders and Participating Security Holders for diluted earnings per common share(1)
For the Years Ended December 31,
2018
2017
2016
(18,326) $
51,851 $
(13,936)
(32,495)
—
(4,526)
(48,444)
(16,314)
81,912
(4,876)
(51,320)
—
(64,757) $
(17,433) $
25,716
—
—
7
(64,757) $
(17,433) $
25,723
$
$
$
_______________________________________________________________________________
(1)
For the year ended December 31, 2016, includes income from continuing operations allocable to Participating Security Holders of $8 and $8 on a basic and dilutive basis, respectively.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Earnings allocable to common shares:
Numerator for basic earnings per share:
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common
shareholders
Income from discontinued operations
Gain from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to common shareholders
Numerator for diluted earnings per share:
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common
shareholders
Income from discontinued operations
Gain from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to common shareholders
Denominator for basic and diluted earnings per share:
Weighted average common shares outstanding for basic earnings per common share
Add: Effect of assumed shares issued under treasury stock method or restricted stock units
Add: Effect of joint venture shares
Weighted average common shares outstanding for diluted earnings per common share
Basic earnings per common share:
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common
shareholders
Income from discontinued operations
Gain from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to common shareholders
Diluted earnings per common share:
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common
shareholders
Income from discontinued operations
Gain from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to common shareholders
$
$
$
$
$
$
$
$
102
For the Years Ended December 31,
2018
2017
2016
(64,757) $
(17,433) $
—
—
4,939
123,418
(64,757) $
110,924 $
(64,757) $
(17,433) $
—
—
4,939
123,418
(64,757) $
110,924 $
25,708
18,264
—
43,972
25,715
18,264
—
43,979
67,958
71,021
73,453
—
—
—
—
67,958
71,021
84
298
73,835
(0.95) $
—
—
(0.95) $
(0.95) $
—
—
(0.95) $
(0.25) $
0.07
1.74
1.56 $
(0.25) $
0.07
1.74
1.56 $
0.35
0.25
—
0.60
0.35
0.25
—
0.60
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2018, 2017 and 2016, the following shares were not included in the diluted EPS calculation because they were anti-
dilutive (in thousands)(1)(2)(3)(4):
For the Years Ended December 31,
2018
2017
2016
—
—
15,704
—
255
—
15,635
—
—
14,764
15,635
9,868
Joint venture shares
3.00% convertible senior unsecured notes
Series J convertible perpetual preferred stock
1.50% convertible senior unsecured notes
_______________________________________________________________________________
(1)
(2)
(3)
(4)
For the year ended December 31, 2016, the effect of 16 and 125 unvested time and market-based Units, respectively, were anti-dilutive.
For the year ended December 31, 2017, the effect of 6 and 17 unvested time and market-based Units, respectively, were anti-dilutive.
For the year ended December 31, 2018, the effect of the Company's unvested Units, CSEs and restricted stock awards were anti-dilutive due to the Company having a net loss for the period.
The Company will settle conversions of the 3.125% Convertible Notes by paying the conversion value in cash up to the original principal amount of the notes being converted and shares of
common stock to the extent of any conversion premium. The amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value calculated for
each trading day in a 40 consecutive day observation period. Based upon the conversion price of the 3.125% Convertible Notes, no shares of common stock would have been issuable upon
conversion of the 3.125% Convertible Notes for the year ended December 31, 2017 and therefore the 3.125% Convertible Notes had no effect on diluted EPS for such periods.
Note 16—Fair Values
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of
the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported
by little or no market activity).
Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-
market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value
every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to
market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The following fair value hierarchy table summarizes the Company's assets and liabilities recorded at fair value on a recurring and non-recurring basis by
the above categories ($ in thousands):
As of December 31, 2018
Recurring basis:
Derivative assets(1)
Derivative liabilities(1)
Available-for-sale securities(1)
Non-recurring basis:
Impaired real estate(2)
Impaired real estate available and held for sale(3)
Impaired land and development(4)
As of December 31, 2017
Recurring basis:
Available-for-sale securities(1)
Non-recurring basis:
Impaired real estate(5)
Impaired real estate available and held for sale(6)
Impaired land and development(7)
Quoted market
prices in
active markets
(Level 1)
Fair Value Using
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
$
3,669
$
10,244
21,661
29,400
19,300
78,400
— $
—
—
—
—
—
3,669 $
10,244
—
—
—
—
22,842
$
— $
— $
12,400
800
21,400
—
—
—
—
—
—
—
—
21,661
29,400
19,300
78,400
22,842
12,400
800
21,400
_______________________________________________________________________________
(1)
(2)
(3)
(4)
The fair value of the Company's derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and
contractual cash flow and are classified as Level 2. The fair value of the Company's available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as
Level 3.
The Company recorded aggregate impairments of $76.3 million on three real estate assets with an estimated aggregate fair value of $29.4 million. The impairments were as follows:
i.
ii.
iii.
A $23.2 million impairment on a commercial operating property based on a decline in expected operating performance. The fair value is based on the Company's estimate of the
recoverability of its investment in the project.
A $6.0 million impairment on a property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent
with the Company's estimate of fair value.
A $47.1 million impairment on a commercial operating property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third
parties, which is consistent with the Company's estimate of fair value.
The Company recorded aggregate impairments of $3.7 million on two real estate assets held for sale. The fair values are based on market comparable sales.
The Company recorded aggregate impairments of $55.4 million on four land and development assets with an estimated aggregate fair value of $78.4 million. The impairments were as
follows:
i.
A $25.0 million impairment on a waterfront land and development asset based on a strategic decision to sell the asset. The fair value is based on purchase offers received from
third parties, which is consistent with the Company's estimate of fair value.
A $21.6 million impairment on a master planned community based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties,
which is consistent with the Company's estimate of fair value.
A $6.9 million impairment on an infill land and development asset based on the deterioration of the asset. The fair value is based on purchase offers received from third parties,
which is consistent with the Company's estimate of fair value.
A $1.9 million impairment on a waterfront land and development asset based on the sale of the asset in 2019.
ii.
iii.
iv.
(5)
(6)
(7)
The Company recorded an impairment on a real estate asset with a fair value of $12.4 million based on market comparable sales.
The Company recorded an impairment on a residential real estate asset available and held for sale based on market comparable sales.
The Company recorded an impairment on a land and development asset with a fair value of $21.4 million based on a discount rate of 6% and a 10 year holding period.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's consolidated balance sheets for
the years ended December 31, 2018 and 2017 ($ in thousands):
Beginning balance
Repayments
Unrealized gains recorded in other comprehensive income
Ending balance
2018
2017
22,842 $
(46)
(1,135)
21,661 $
21,666
(10)
1,186
22,842
$
$
Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending investments and outstanding debt
was $1.0 billion and $3.5 billion, respectively, as of December 31, 2018 and $1.3 billion and $3.7 billion, respectively, as of December 31, 2017. The
Company determined that the significant inputs used to value its loans receivable and other lending investments and debt obligations fall within Level 3 of the
fair value hierarchy. The carrying value of other financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable and
accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value
hierarchy. The fair value of other financial instruments, including derivative assets and liabilities, are included in the fair value hierarchy table above.
Given the nature of certain assets and liabilities, clearly determinable market based valuation inputs are often not available, therefore, these assets and
liabilities are valued using internal valuation techniques. Subjectivity exists with respect to these internal valuation techniques, therefore, the fair values
disclosed may not ultimately be realized by the Company if the assets were sold or the liabilities were settled with third parties. The methods the Company
used to estimate the fair values presented in the table above are described more fully below for each type of asset and liability.
Derivatives—The Company uses interest rate swaps, interest rate caps and foreign exchange contracts to manage its interest rate and foreign currency
risk. The valuation of these instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative. This analysis
reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves,
foreign exchange rates, and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own non-
performance risk and the respective counterparty's non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contracts
for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts and guarantees. The Company has determined that the significant inputs used to value its derivatives fall within Level 2 of the fair
value hierarchy.
Impaired loans—The Company's loans identified as being impaired are nearly all collateral dependent loans and are evaluated for impairment by
comparing the estimated fair value of the underlying collateral, less costs to sell, to the carrying value of each loan. Due to the nature of the individual
properties collateralizing the Company's loans, the Company generally uses a discounted cash flow methodology through internally developed valuation
models to estimate the fair value of the collateral. This approach requires the Company to make judgments in respect to significant unobservable inputs,
which may include discount rates, capitalization rates and the timing and amounts of estimated future cash flows. For income producing properties, cash
flows generally include property revenues, operating costs and capital expenditures that are based on current observable market rates and estimates for market
rate growth and occupancy levels. For other real estate, cash flows may include lot and unit sales that are based on current observable market rates and
estimates for annual revenue growth, operating costs, costs of completion and the inventory sell out pricing and timing. The Company will also consider
market comparables if available. In some cases, the Company obtains external "as is" appraisals for loan collateral, generally when third party participations
exist, and appraised values may be discounted when real estate markets rapidly deteriorate. The Company has determined that significant inputs used in its
internal valuation models and appraisals fall within Level 3 of the fair value hierarchy.
Impaired real estate—If the Company determines a real estate asset available and held for sale is impaired, it records an impairment charge to adjust
the asset to its estimated fair market value less costs to sell. Due to the nature of individual real estate properties, the Company generally uses a discounted
cash flow methodology through internally developed valuation models to estimate the fair value of the assets. This approach requires the Company to make
judgments with respect to significant unobservable inputs, which may include discount rates, capitalization rates and the timing and amounts of estimated
future cash flows. For income producing properties, cash flows generally include property revenues, operating costs and capital expenditures that are based on
current observable market rates and estimates for market rate growth and occupancy levels. For other real estate, cash
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
flows may include lot and unit sales that are based on current observable market rates and estimates for annual market rate growth, operating costs, costs of
completion and the inventory sell out pricing and timing. The Company will also consider market comparables if available. In some cases, the Company
obtains external "as is" appraisals for real estate assets and appraised values may be discounted when real estate markets rapidly deteriorate. The Company
has determined that significant inputs used in its internal valuation models and appraisals fall within Level 3 of the fair value hierarchy. Additionally, in
certain cases, if the Company is under contract to sell an asset, it will mark the asset to the contracted sales price less costs to sell. The Company considers
this to be a Level 3 input under the fair value hierarchy.
Loans receivable and other lending investments—The Company estimates the fair value of its performing loans and other lending investments using
a discounted cash flow methodology. This method discounts estimated future cash flows using rates management determines best reflect current market
interest rates that would be offered for loans with similar characteristics and credit quality. The Company determined that the significant inputs used to value
its loans and other lending investments fall within Level 3 of the fair value hierarchy. For certain lending investments, the Company uses market quotes, to
the extent they are available, that fall within Level 2 of the fair value hierarchy or broker quotes that fall within Level 3 of the fair value hierarchy.
Debt obligations, net—For debt obligations traded in secondary markets, the Company uses market quotes, to the extent they are available, to
determine fair value and are considered Level 2 on the fair value hierarchy. For debt obligations not traded in secondary markets, the Company determines
fair value using a discounted cash flow methodology, whereby contractual cash flows are discounted at rates that management determines best reflect current
market interest rates that would be charged for debt with similar characteristics and credit quality. The Company has determined that the inputs used to value
its debt obligations under the discounted cash flow methodology fall within Level 3 of the fair value hierarchy.
Note 17—Segment Reporting
The Company has determined that it has four reportable segments based on how management reviews and manages its business. These reportable
segments include: Real Estate Finance, Net Lease, Operating Properties and Land and Development. The Real Estate Finance segment includes all of the
Company's activities related to senior and mezzanine real estate loans and real estate related securities. The Net Lease segment includes the Company's
activities and operations related to the ownership of properties generally leased to single corporate tenants. The Operating Properties segment includes the
Company's activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company's
activities related to its developable land portfolio.
The Company evaluates performance based on the following financial measures for each segment. The Company's segment information is as follows ($
in thousands):
Year Ended December 31, 2018
Operating lease income
Interest income
Other income
Land development revenue
Earnings (loss) from equity method investments
Gain from consolidation of equity method investment
Income from sales of real estate
Total revenue and other earnings
Real estate expense
Land development cost of sales
Other expense
Allocated interest expense
Allocated general and administrative(2)
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate/Other(1) Company Total
$
— $
151,958 $
55,677 $
557 $
97,878
4,556
—
—
—
—
102,434
—
—
(1,578)
(40,653)
(12,997)
—
4,286
—
8,479
67,877
45,038
277,638
(17,033)
—
—
(63,706)
(20,713)
—
54,361
—
(1,003)
—
80,966
190,001
(80,570)
—
—
(18,618)
(6,574)
—
7,320
409,710
(3,110)
—
—
414,477
(41,686)
(350,181)
—
(21,897)
(14,313)
— $
—
11,819
—
(9,373)
—
—
2,446
—
—
(4,462)
(38,877)
(19,975)
208,192
97,878
82,342
409,710
(5,007)
67,877
126,004
986,996
(139,289)
(350,181)
(6,040)
(183,751)
(74,572)
233,163
Segment profit (loss) (3)
$
47,206 $
176,186 $
84,239 $
(13,600) $
(60,868) $
106
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Other significant non-cash items:
Provision for loan losses
Impairment of assets
Depreciation and amortization
Capitalized expenditures
Year Ended December 31, 2017
Operating lease income
Interest income
Other income
Land development revenue
Earnings (loss) from equity method investments
Income from discontinued operations
Gain from discontinued operations
Income from sales of real estate
Total revenue and other earnings
Real estate expense
Land development cost of sales
Other expense
Allocated interest expense
Allocated general and administrative(2)
Segment profit (loss) (3)
Other significant non-cash items:
Recovery of loan losses
Impairment of assets
Depreciation and amortization
Capitalized expenditures
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate/Other(1) Company Total
$
16,937 $
— $
— $
— $
—
—
—
10,391
38,588
40,215
79,991
17,417
19,912
56,726
1,353
144,595
— $
—
1,341
—
16,937
147,108
58,699
204,722
$
— $
123,685 $
63,159 $
106,548
2,633
—
—
—
—
—
109,181
—
—
(1,413)
(40,359)
(15,223)
—
2,603
—
5,086
4,939
123,418
87,512
347,243
(16,742)
—
—
(53,710)
(19,563)
—
49,641
—
(772)
—
—
4,537
116,565
(89,725)
—
—
(20,171)
(8,075)
840 $
—
126,259
196,879
7,292
—
—
—
331,270
(41,150)
(180,916)
—
(28,033)
(16,483)
— $
—
6,955
—
1,409
—
—
—
8,364
—
—
(19,541)
(52,413)
(20,726)
$
$
52,186 $
257,228 $
(1,406) $
64,688 $
(84,316) $
(5,828) $
— $
— $
— $
—
—
—
5,486
28,132
4,838
107
6,358
17,684
35,754
20,535
1,896
125,744
— $
—
1,321
—
187,684
106,548
188,091
196,879
13,015
4,939
123,418
92,049
912,623
(147,617)
(180,916)
(20,954)
(194,686)
(80,070)
288,380
(5,828)
32,379
49,033
166,336
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 2016
Operating lease income
Interest income
Other income
Land development revenue
Earnings (loss) from equity method investments
Income from discontinued operations
Income from sales of real estate
Total revenue and other earnings
Real estate expense
Land development cost of sales
Other expense
Allocated interest expense
Allocated general and administrative(2)
Segment profit (loss) (3)
Other significant non-cash items:
Recovery of loan losses
Impairment of assets
Depreciation and amortization
Capitalized expenditures
As of December 31, 2018
Real estate
Real estate, net
Real estate available and held for sale
Total real estate
Land and development, net
Other investments
Total portfolio assets
Cash and other assets
Total assets
As of December 31, 2017
Real estate
Real estate, net
Other investments
Total portfolio assets
Cash and other assets
Total assets
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate/Other(1) Company Total
$
— $
126,164 $
64,593 $
129,153
4,658
—
—
—
—
133,811
—
—
(2,719)
(57,787)
(15,311)
—
1,632
—
3,567
18,270
21,138
170,771
(18,158)
—
—
(65,880)
(17,585)
—
33,216
—
33,863
—
75,357
207,029
(82,401)
—
—
(23,156)
(6,574)
423 $
—
— $
—
3,170
88,340
30,012
—
8,801
130,746
(36,963)
(62,007)
—
(34,888)
(13,693)
3,838
—
9,907
—
—
13,745
—
—
(3,164)
(39,687)
(19,975)
$
$
57,994 $
69,148 $
94,898 $
(16,805) $
(49,081) $
(12,514) $
— $
— $
— $
—
—
—
4,829
31,380
3,667
5,855
17,887
56,784
3,800
1,296
109,548
— $
—
1,097
—
191,180
129,153
46,514
88,340
77,349
18,270
105,296
656,102
(137,522)
(62,007)
(5,883)
(221,398)
(73,138)
156,154
(12,514)
14,484
51,660
169,999
Loans receivable and other lending investments, net
988,224
$
— $
1,536,494 $
234,525 $
—
—
—
1,055
1,537,549
—
—
21,496
256,021
—
—
—
165,804
65,643
$
988,224 $
1,703,353 $
321,664 $
663,530 $
$
— $
815,783 $
466,248 $
Real estate available and held for sale
Total real estate
Land and development, net
—
—
—
Loans receivable and other lending investments, net
1,300,655
—
815,783
—
—
68,588
534,836
—
—
—
205,007
38,761
$
1,300,655 $
1,020,790 $
573,597 $
924,166 $
108
— $
—
—
598,218
—
65,312
— $
—
—
860,311
—
63,855
— $
1,771,019
—
—
—
—
7,516
7,516
$
22,551
1,793,570
598,218
988,224
304,275
3,684,287
1,329,990
5,014,277
— $
1,282,031
—
—
—
—
13,618
13,618
68,588
1,350,619
860,311
1,300,655
321,241
3,832,826
898,252
$
4,731,078
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
_______________________________________________________________________________
(1)
Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also
includes the Company's joint venture investments and strategic investments that are not included in the other reportable segments above.
General and administrative excludes stock-based compensation expense of $17.6 million, $18.8 million and $10.9 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
The following is a reconciliation of segment profit to net income (loss) ($ in thousands):
(2)
(3)
Segment profit
Less: (Provision for) recovery of loan losses
Less: Impairment of assets
Less: Depreciation and amortization
Less: Stock-based compensation expense
Less: Income tax (expense) benefit
Less: Loss on early extinguishment of debt, net
Net income (loss)
For the Years Ended December 31,
2018
2017
2016
$
$
233,163 $
(16,937)
(147,108)
(58,699)
(17,563)
(815)
(10,367)
(18,326) $
288,380 $
5,828
(32,379)
(49,033)
(18,812)
948
(14,724)
180,208 $
156,154
12,514
(14,484)
(51,660)
(10,889)
10,166
(1,619)
100,182
109
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 18—Quarterly Financial Information (Unaudited)
The following table sets forth the selected quarterly financial data for the Company ($ in thousands, except per share amounts).
2018:
Revenue
Net income (loss)
Net income (loss) attributable to iStar Inc.
Earnings per common share data(1):
Net income (loss) attributable to common shareholders
Basic
Diluted
Earnings per share
Basic
Diluted
Weighted average number of common shares
Basic
Diluted
2017:
Revenue
Income from discontinued operations
Net income (loss)
Net income (loss) attributable to iStar Inc.
Earnings per common share data(1):
Net income (loss) attributable to common shareholders
Basic
Diluted
Earnings per share
Basic
Diluted
Weighted average number of common shares
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
December 31,
September 30,
June 30,
March 31,
For the Quarters Ended
140,165 $
(105,028) $
(107,332) $
122,141 $
(8,832) $
(10,860) $
171,571 $
60,506 $
50,997 $
364,245
35,028
34,933
(115,455) $
(115,455) $
(18,984) $
(18,984) $
42,873 $
45,123 $
(1.70) $
(1.70) $
(0.28) $
(0.28) $
0.63 $
0.54 $
68,012
68,012
67,975
67,975
67,932
83,694
103,144 $
119,872 $
347,867 $
— $
3,290 $
3,214 $
— $
(3,716) $
(3,556) $
(173) $
196,007 $
190,297 $
(4,910) $
(4,910) $
(34,530) $
(34,530) $
177,467 $
179,722 $
(0.07) $
(0.07) $
(0.48) $
(0.48) $
2.46 $
2.04 $
68,200
68,200
71,713
71,713
72,142
88,195
26,809
29,059
0.39
0.35
67,913
83,670
108,319
(4,766)
(15,372)
(14,272)
(27,102)
(27,102)
(0.38)
(0.38)
72,065
72,065
_______________________________________________________________________________
(1) Basic and diluted EPS are computed independently based on the weighted-average shares of common stock and stock equivalents outstanding for each period. Accordingly, the sum of the
quarterly EPS amounts may not agree to the total for the year.
110
Table of Contents
Note 19—Subsequent Events
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
On January 2, 2019, the Company invested $250.0 million in 12,500,000 Investor Units of SAFE OP, at a purchase price of $20.00 per unit. This
transaction was approved by a special committee of the Company's board of directors, with the advice of independent legal and financial advisors. Each
Investor Unit will receive distributions equivalent to distributions declared and paid on one share of SAFE common stock. The Investor Units have no voting
rights. They have limited protective consent rights over certain matters such as amendments to the terms of the Investor Units that would adversely affect the
Investor Units.
In conjunction with this investment, the Company and SAFE have entered into an amended and restated management agreement. The revised
agreement reflects the Company's increased commitment to SAFE and aligns with SAFE's ambitious future growth targets. The material revised terms of the
amended management agreement are summarized in the following table.
Terms
Management Fee
Prior Agreement
Amended Agreement
Annual fee of 1.0% of SAFE total equity (up to $2.5
billion)
Annual fee of 1.0% of SAFE total equity (up to $1.5
billion)
Annual fee of 0.75% of SAFE total equity (> $2.5
billion)
Annual fee of 1.25% of SAFE total equity (for
incremental equity of $1.5 billion to $3.0 billion)
Annual fee of 1.375% of SAFE total equity (for
incremental equity of $3.0 billion to $5.0 billion) and
Annual fee of 1.5% of SAFE total equity (for
incremental equity over $5.0 billion)
At the discretion of the SAFE's independent
directors, payment will be made in cash or in shares
of SAFE's common stock (valued at the greater of:
(i) the volume weighted average market price during
the quarter for which the fee is being paid; or (ii) the
initial public offering price of $20.00 per share)
Initial term from January 1, 2019 - June 30, 2022;
non-terminable except for cause.
Automatic annual renewals thereafter, subject to non-
renewal upon certain findings by SAFE's
independent directors and payment of termination
fee.
Three times prior year's management fee, subject to
the SAFE having raised $820 million of total equity
since inception.
Management Fee
Consideration
Payment will be made exclusively in shares of the
SAFE's common stock (valued at the greater of: (i)
the volume weighted average market price during the
quarter for which the fee is being paid; or (ii) the
initial public offering price of $20.00 per share)
Term
One year
Termination Fee
None
111
Table of Contents
For the Year Ended December 31, 2016
Reserve for loan losses(1)(2)
Allowance for doubtful accounts(2)
Allowance for deferred tax assets(2)
For the Year Ended December 31, 2017
Reserve for loan losses(1)(2)
Allowance for doubtful accounts(2)
Allowance for deferred tax assets(2)
For the Year Ended December 31, 2018
Reserve for loan losses(1)(2)
Allowance for doubtful accounts(2)
Allowance for deferred tax assets(2)
iStar Inc.
Schedule II—Valuation and Qualifying Accounts and Reserves
($ in thousands)
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Adjustments
to Valuation
Accounts
Deductions
Balance at
End
of Period
$
108,165 $
(12,514) $
— $
(10,106) $
3,384
53,910
985
3,233
—
15,838
(1,781)
(6,483)
85,545
2,588
66,498
$
$
$
$
165,459 $
(8,296) $
15,838 $
(18,370) $
154,631
85,545 $
(5,828) $
2,588
66,498
473
7,108
— $
—
(9,318)
(1,228) $
(451)
(1,030)
78,489
2,610
63,258
154,631 $
1,753 $
(9,318) $
(2,709) $
144,357
78,489 $
16,937 $
— $
(42,031) $
2,610
63,258
1,300
14,849
—
—
(639)
—
53,395
3,271
78,107
$
144,357 $
33,086 $
— $
(42,670) $
134,773
_____________________________________________________________
(1)
(2)
Refer to Note 6 to the Company's consolidated financial statements.
Refer to Note 3 to the Company's consolidated financial statements.
112
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
OFF001 $
OFF002
OFFICE FACILITIES:
Tempe,
Arizona
Tempe,
Arizona
Tempe,
Arizona
Tempe,
Arizona
Alameda,
California
Ft. Collins,
Colorado
OFF003
OFF006
OFF004
OFF005
OFF008
OFF007
OFF010
Lisle, Illinois
Cockeysville,
Maryland
Chelmsford,
Massachusetts OFF009
Mt. Laurel,
New Jersey
Riverview,
New Jersey
Riverview,
New Jersey
North Hills,
New York
Harrisburg,
Pennsylvania OFF014
OFF013
OFF012
OFF011
OFF015
OFF016
Irving, Texas
Richardson,
Texas
Oakton,
Virginia
Subtotal
— (1) $
1,033 $
6,652 $
2,942 $
1,033 $
9,594 $
10,627
$
4,512
— (1)
1,033
— (1)
1,033
— (1)
701
27,602
434
(1)
22,626
115,000
9,702
—
7,681
6,652
6,652
4,339
29,831
16,752
30,230
287
461
2,171
1,152
(11,239)
—
1,033
1,033
701
9,702
—
7,681
6,939
7,113
6,510
7,972
8,146
7,211
30,983
40,685
5,513
30,230
5,513
37,911
19,529
148,286
—
19,529
148,286
167,815
8,179
(1)
1,600
48,968
7,726
7,795
(1)
1,008
20,568
(1)
2,456
21,947
74,429
13,763
28,955
285
10
206
814
1,600
7,724
1,008
2,456
22,232
23,832
74,441
82,165
13,969
14,977
29,769
32,225
70,000
19,631
104,527
—
19,631
104,527
124,158
— (1)
— (1)
—
690
1,364
1,230
26,098
10,628
(20,084)
5,780
5,660
1,207
257
2,373
1,230
6,447
15,399
6,704
17,772
6,867
8,097
3,331
3,314
2,257
479
—
482
877
9,420
29,894
5,136
10,995
1,368
—
7,846
2,983
OFF017
56,133
$
377,305
14,242
90,659 $
$
68,610
604,011 $
—
(16,008) $
14,242
91,233 $
68,610
82,852
587,429 $ 678,662
$
1,035
83,929
IND001
INDUSTRIAL FACILITIES:
Avondale,
Arizona
Los Angeles,
California
Jacksonville,
Florida
Atlanta,
Georgia
IND002
IND003
IND004
—
34,968
30,397
26,237
3,279
11,635
3,510
2,791
5,221
(7,554)
946
—
946
19,515
20,846
24,637
5,943
11,635
25,458
37,093
8,279
349
3,510
2,791
29,125
32,635
24,986
27,777
—
7,042
7,707
6,985
113
1999
1999
1999
1999
2018
2002
2018
2018
2002
2002
2004
2004
2018
2001
1999
1999
2018
2009
2007
2007
2007
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
IND005
Bristol,
Indiana
Everett,
Massachusetts IND006
Montague,
Michigan
Little Falls,
Minnesota
Elizabeth,
New Jersey
IND008
IND007
IND009
IND011
IND012
Jackson, Ohio IND010
El Reno,
Oklahoma
Fort Worth,
Texas
La Porte,
Texas
Chesapeake,
Virginia
Chippewa
Falls,
Wisconsin
IND014
IND015
IND013
Subtotal
LAND:
Scottsdale,
Arizona
Whittmann,
Arizona
Mammoth
Lakes,
California
Mammoth,
California
San Jose,
California
Santa Clarita
Valley,
California
Fort Myers,
Florida
Fort Myers,
Florida
LAN001
LAN002
LAN003
LAN004
LAN005
LAN006
LAN007
LAN008
42,053
35,520
9,154
9,154
27,426
29,437
32,380
$
314,208
—
—
—
—
—
—
—
—
— (1)
462
9,224
—
462
9,224
9,686
37,482
7,439
21,774
10,979
7,439
32,753
40,192
— (1)
598
— (1)
6,705
9,814
17,690
15,376
56,329
7,644
17,142
27,858
28,481
1
—
21,141
2,891
—
—
(416)
142
598
6,225
8,368
1,990
401
2,341
1,631
2,619
9,815
10,413
18,170
24,395
36,517
59,220
44,885
61,210
7,644
8,045
17,142
19,483
27,442
29,073
28,623
31,242
8,368
1,990
401
2,341
1,631
2,619
3,473
8,666
3,733
6,319
9,737
828
205
269
7,614
8,000
2007
2007
2007
2005
2007
2018
2018
2018
2007
2007
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
2,845
56,614 $
$
55,805
337,356 $
—
41,755 $
2,845
53,801 $
55,805
58,650
381,924 $ 435,725
$
879
71,457
2018
40.0
1,400
96,700
—
—
800
2,200
—
96,700
—
—
2,200
96,700
—
—
28,464
2,836
(21,064)
2,382
8,921
59,100
7,600
5,883
—
—
—
—
—
7,400
2,382
8,921
—
—
(21,600)
37,500
—
1,789
7,600
7,494
114
2,836
10,236
2,836
—
—
—
—
178
2,382
8,921
37,500
7,600
7,672
—
—
—
—
—
2011
2010
2010
2007
2017
2010
2009
2014
0
0
0
0
0
0
0
0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
LAN011
LAN009
LAN015
LAN014
LAN010
LAN013
LAN012
Indiantown,
Florida
Naples,
Florida
St. Lucie,
Florida
Stuart,
Florida
Chicago,
Illinois
Asbury Park,
New Jersey
Asbury Park,
New Jersey
Brooklyn,
New York
Long Beach,
New York
Wawarsing,
New York
Warrington,
Pennsylvania LAN019
Chesterfield
County,
Virginia
Chesterfield
County,
Virginia
Ranson,
West
Virginia
LAN022
LAN021
LAN017
LAN018
LAN016
LAN020
Subtotal
$
ENT003
ENT001
ENT002
ENTERTAINMENT:
Birmingham,
Alabama
Decatur,
Alabama
Huntsville,
Alabama
Mobile,
Alabama
Avondale,
Arizona
Chandler,
Arizona
Chandler,
Arizona
ENT004
ENT007
ENT005
ENT006
—
—
—
—
—
—
—
—
—
—
—
8,100
26,600
10,440
9,300
31,500
43,300
3,992
58,900
52,461
4,600
1,460
—
—
—
—
—
—
—
—
—
—
—
—
8,100
—
8,100
13,538
26,600
13,538
40,138
(6,940)
(1,900)
3,500
7,400
—
31,500
32,296
75,596
—
—
—
—
3,500
7,400
31,500
75,596
161,358
165,350
—
165,350
(19,874)
39,026
(22,461)
30,000
—
664
4,600
1,460
—
—
—
664
39,026
30,000
4,600
2,124
—
2
—
—
—
942
(3)
— (3)
—
—
—
—
2009
2010
2013
2010
2016
2009
2009
2011
2009
2018
2011
—
72,138
—
41,773
113,911
—
113,911
4,338
(3)
2009
—
3,291
—
397
3,688
—
3,688
— (3)
2009
—
—
9,083
$ 545,615 $
2,836 $
(1,256)
157,520 $ 688,755 $
7,827
—
7,827
17,216 $ 705,971
$
—
8,118
1,698
1,939
1,840
— (1)
— (1)
—
1,357
— (1)
— (1)
277
319
279
389
793
521
359
414
1,250
2,074
1,027
673
1,939
1,840
3,779
277
319
279
389
793
521
353
389
1,250
2,075
965
663
630
708
1,529
2,464
1,758
1,184
58
128
136
71
39
337
240
—
(6)
(25)
—
1
(62)
(10)
115
2016
2018
2004
2004
2018
2018
2004
2004
0
0
0
0
0
0
0
0
0
0
0
0
0
0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Glendale,
Arizona
Gilbert,
Arizona
Mesa,
Arizona
Mesa,
Arizona
Peoria,
Arizona
Phoenix,
Arizona
Phoenix,
Arizona
Phoenix,
Arizona
Scottsdale,
Arizona
Tempe,
Arizona
Tucson,
Arizona
Alameda,
California
Bakersfield,
California
Bakersfield,
California
Chula
Vista,
California
Fontana,
California
Milpitas,
California
Moreno
Valley,
California
Murrieta,
California
Norco,
California
Palmdale,
California
Riverside,
California
Rocklin,
California
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT008
ENT009
ENT010
ENT011
ENT012
ENT013
ENT014
ENT015
2,393
5,038
1,520
— (1)
— (1)
— (1)
— (1)
— (1)
1,750
1,969
970
630
590
476
654
666
2,118
3,552
1,710
815
764
616
845
862
ENT016
1,778
1,205
1,933
ENT017
— (1)
ENT018
994
460
456
596
877
ENT019
ENT020
ENT021
ENT022
ENT023
ENT024
ENT025
ENT026
ENT027
ENT028
ENT029
ENT030
— (1)
1,097
1,421
— (1)
— (1)
2,678
1,656
— (1)
1,577
2,890
2,697
1,157
— (1)
— (1)
434
332
2,032
1,097
676
990
1,649
1,503
777
720
574
560
429
4,869
1,882
876
1,910
3,803
3,608
1,963
932
743
1,750
1,969
970
630
590
476
654
666
2,118
3,552
1,710
766
718
606
831
848
1,205
1,933
460
456
560
878
1,097
1,335
434
332
2,032
1,097
676
990
1,649
1,503
777
720
574
527
403
4,869
1,883
823
1,910
3,803
3,608
1,963
876
731
3,868
5,521
2,680
1,396
1,308
1,082
1,485
1,514
3,138
1,020
1,334
2,432
961
735
6,901
2,980
1,499
2,900
5,452
5,111
2,740
1,596
1,305
—
—
—
(49)
(46)
(10)
(14)
(14)
—
(36)
1
(86)
(33)
(26)
—
1
(53)
—
—
—
—
(56)
(12)
116
63
82
38
267
250
220
302
307
41
195
23
465
184
141
111
49
287
46
86
79
53
305
265
2018
2018
2018
2004
2004
2004
2004
2004
2018
2004
2018
2004
2004
2004
2018
2018
2004
2018
2018
2018
2018
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Sacramento,
California
San
Bernardino,
California
San Diego,
California
San Marcos,
California
Thousand
Oaks,
California
Torrance,
California
Upland,
California
Visalia,
California
W. Los
Angeles,
California
Brampton,
ONT,
Canada
Aurora,
Colorado
Aurora,
Colorado
Colorado
Springs,
Colorado
Denver,
Colorado
Englewood,
Colorado
Lakewood,
Colorado
Littleton,
Colorado
Lone Tree,
Colorado
Westminster,
Colorado
Wheat
Ridge,
Colorado
Milford,
Connecticut
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
(8)
392
500
892
181
2004
40.0
ENT031
— (1)
392
ENT032
ENT033
ENT034
ENT035
ENT036
— (1)
— (1)
— (1)
— (1)
— (1)
358
—
852
—
659
ENT037
1,656
1,167
ENT038
— (1)
562
508
464
18,000
1,101
(7)
—
(18)
1,953
25,772
852
1,930
729
(14)
—
(44)
358
—
852
—
659
1,167
562
457
815
18,000
18,000
1,083
1,935
165
6,456
393
27,725
27,725
6,814
838
1,930
685
1,497
3,097
1,247
304
47
239
2004
2003
2004
2008
2004
2018
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
ENT039
— (1)
1,642
2,124
(35)
1,642
2,089
3,731
758
2004
40.0
ENT040
2,176
1,231
ENT041
— (1)
640
ENT042
1,675
ENT043
1,141
ENT044
ENT045
— (1)
— (1)
ENT046
1,587
ENT047
ENT048
ENT049
— (1)
5,728
1,681
ENT050
1,090
1,057
497
729
536
713
901
2,880
1,018
669
ENT051
— (1)
1,097
2,491
827
1,719
820
944
694
2,206
1,165
5,586
1,886
1,671
1,420
1,231
640
1,057
497
729
536
713
901
2,880
1,018
669
1,097
—
(49)
—
—
(57)
(11)
—
(19)
—
—
—
(23)
117
2,491
778
1,719
820
887
683
2,206
1,146
5,586
1,886
1,671
1,397
3,722
1,418
2,776
1,317
1,616
1,219
2,919
2,047
8,466
2,904
2,340
2,494
59
271
44
24
309
248
37
416
115
45
40
506
2018
2004
2018
2018
2004
2004
2018
2004
2018
2018
2018
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT059
ENT060
ENT063
ENT062
ENT061
ENT058
ENT052
ENT054
ENT055
ENT057
ENT056
ENT053
Wilmington,
Delaware
Apopka,
Florida
Boca Raton,
Florida
Boynton
Beach,
Florida
Boynton
Beach,
Florida
Bradenton,
Florida
Davie,
Florida
Lakeland,
Florida
Leesburg,
Florida
Margate,
Florida
Melbourne,
Florida
Ocala,
Florida
Ocala,
Florida
Orange
City, Florida ENT065
Pembroke
Pines,
Florida
Sarasota,
Florida
St.
Petersburg,
Florida
Tampa,
Florida
Venice,
Florida
W. Palm
Beach,
Florida
Augusta,
Georgia
Atlanta,
Georgia
Conyers,
Georgia
Kennesaw,
Georgia
ENT066
ENT070
ENT069
ENT068
ENT071
ENT064
ENT067
ENT074
ENT073
ENT075
ENT072
— (1)
1,076
1,195
— (1)
757
—
1,390
1,347
41,809
(80)
1,076
—
—
757
—
1,310
1,347
2,386
2,104
457
34
41,809
41,809
21,371
2004
2018
2005
40.0
40.0
27.0
— (1)
412
531
(7)
412
524
936
190
2004
40.0
— (1)
6,550
—
17,118
— (1)
1,067
1,382
— (1)
— (1)
— (1)
1,283
1,350
— (1)
— (1)
— (1)
— (1)
— (1)
401
282
352
513
843
437
532
486
497
643
520
364
455
493
1,537
567
689
629
643
833
— (1)
4,200
18,272
— (1)
— (1)
551
507
714
656
— (1)
—
19,337
1,978
1,383
3,776
— (1)
— (1)
510
474
660
613
4,706
2,098
5,113
(83)
(31)
(6)
(28)
—
—
(34)
(42)
(38)
(10)
(14)
—
(12)
(40)
—
—
(11)
(37)
(1)
118
6,533
1,067
401
282
352
513
843
437
532
486
497
643
17,135
23,668
4,995
1,299
2,366
489
358
427
493
1,537
533
647
591
633
819
890
640
779
1,006
2,380
970
1,179
1,077
1,130
1,462
453
170
130
149
10
40
186
226
206
229
297
4,200
18,272
22,472
6,326
551
507
702
616
1,253
1,123
254
215
—
19,337
19,337
6,693
1,383
3,776
510
474
649
576
2,098
5,112
5,159
1,159
1,050
7,210
76
235
201
100
2006
2004
2004
2004
2004
2018
2018
2004
2004
2004
2004
2004
2005
2004
2004
2005
2018
2004
2004
2018
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT076
ENT078
ENT077
ENT079
ENT081
ENT080
Lawrenceville,
Georgia
Marietta,
Georgia
Marietta,
Georgia
Marietta,
Georgia
Norcross,
Georgia
Roswell,
Georgia
Savannah,
Georgia
Woodstock,
Georgia
Algonquin,
Illinois
Buffalo
Grove, Illinois ENT085
Chicago,
Illinois
Glendale
Heights,
Illinois
Lake Zurich,
Illinois
ENT084
ENT083
ENT082
ENT086
ENT088
ENT087
ENT092
ENT090
ENT091
Lyons, Illinois ENT089
Mount
Prospect,
Illinois
Naperville,
Illinois
Romeoville,
Illinois
Roselle,
Illinois
River Grove,
Illinois
Springfield,
Illinois
Vernon Hills,
Illinois
Waukegan,
Illinois
ENT096
ENT097
ENT094
ENT093
ENT095
1,482
— (1)
2,144
1,275
2,396
2,122
— (1)
— (1)
3,137
1,707
911
581
1,180
715
1,110
893
718
502
1,312
861
1,285
752
1,436
760
380
311
930
651
4,041
3,945
—
(46)
—
—
—
1
(15)
(11)
—
—
911
581
1,180
715
1,110
893
718
502
1,312
861
1,285
2,196
706
1,287
1,436
2,616
760
380
312
915
640
1,475
1,490
1,205
1,633
1,142
4,041
5,353
3,945
4,806
32
246
34
22
20
11
332
232
105
79
— (1)
8,803
57
30,479
8,803
30,536
39,339
8,639
1,102
1,221
— (1)
1,247
455
924
433
704
— (1)
1,798
3,004
1,111
1,805
— (1)
995
633
2,254
730
1,754
431
600
342
819
238
560
956
2,894
3,251
682
3,289
557
666
670
1
1
(10)
455
924
433
820
239
550
1,275
1,163
983
(1)
704
955
1,659
530
1,798
3,424
5,222
2,254
730
1,754
431
600
342
3,251
5,505
682
1,412
3,288
5,042
548
666
670
979
1,266
1,012
—
—
(1)
(9)
—
—
119
16
32
200
22
1,060
96
24
79
199
21
17
2018
2004
2018
2018
2018
2018
2004
2004
2018
2018
2006
2018
2018
2004
2018
2017
2018
2018
2018
2004
2018
2018
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT098
ENT100
ENT101
ENT099
ENT105
ENT104
ENT102
ENT103
ENT106
Woodridge,
Illinois
Evansville,
Indiana
Baltimore,
Maryland
Baltimore,
Maryland
Baltimore,
Maryland
Columbia,
Maryland
Ellicott City,
Maryland
Gaithersburg,
Maryland
Hyattsville,
Maryland
Laurel,
Maryland
Linthicum,
Maryland
Pikesville,
Maryland
Timonium,
Maryland
Towson,
Maryland
Auburn,
Massachusetts ENT112
Chicopee,
Massachusetts ENT113
Somerset,
Massachusetts ENT114
Grand Rapids,
Michigan
Grand Rapids,
Michigan
ENT110
ENT116
ENT115
ENT111
ENT109
ENT107
ENT108
1,191
— (1)
— (1)
— (1)
— (1)
1,735
1,349
— (1)
— (1)
— (1)
— (1)
— (1)
829
542
428
575
362
1,762
889
884
399
649
366
398
1,597
701
554
745
468
1,300
1,632
1,145
518
839
473
516
— (1)
1,126
1,458
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
642
523
548
519
554
860
788
678
711
672
718
543
829
542
428
575
362
1,596
2,425
690
520
700
461
1,232
948
1,275
823
1,762
1,300
3,062
889
884
399
649
366
398
1,633
2,522
1,126
2,010
509
825
466
508
908
1,474
832
906
1,126
1,370
2,496
642
523
548
519
554
860
1,242
1,884
666
668
661
675
1,189
1,216
1,180
1,229
1,213
2,073
(1)
(11)
(34)
(45)
(7)
—
1
(19)
(9)
(14)
(7)
(8)
(88)
454
(12)
(43)
(11)
(43)
670
120
40
250
181
244
167
41
32
408
184
299
169
184
478
361
241
233
240
235
397
2018
2004
2004
2004
2004
2018
2018
2004
2004
2004
2004
2004
2004
2017
2004
2004
2004
2004
2017
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT119
ENT117
ENT118
ENT122
ENT121
ENT120
ENT123
ENT124
Roseville,
Michigan
Blaine,
Minnesota
Brooklyn
Park,
Minnesota
Burnsville,
Minnesota
Eden Prairie,
Minnesota
Lakeville,
Minnesota
Rochester,
Minnesota
Columbia,
Missouri
North Kansas
City, Missouri ENT125
St. Peters,
Missouri
Valley Park,
Missouri
Asbury Park,
New Jersey
Aberdeen,
New Jersey
Fairlawn,
New Jersey
Turnersville,
New Jersey
Wallington,
New Jersey
Brooklyn,
New York
Centereach,
New York
Cheektowaga,
New York
ENT134
ENT133
ENT135
ENT130
ENT132
ENT131
ENT128
ENT126
ENT127
ENT129
246
83
60
5,652
55
77
2,667
2,659
— (1)
533
1,801
691
2,814
(12)
(1)
533
1,801
679
1,212
2,813
4,614
1,455
2,036
—
1,455
2,036
3,491
— (1)
2,962
—
17,164
2,962
17,164
20,126
2,717
2,719
1,496
1,910
— (1)
2,437
— (1)
— (1)
2,958
1,391
—
334
878
1,936
803
750
— (1)
1,560
1,618
1,483
1,141
1,354
— (1)
830
—
3,277
— (1)
— (1)
442
385
2,117
3,373
8,715
432
1,139
3,381
1,408
10,670
2,019
2,094
1,314
1,075
—
571
499
(1)
—
1,496
1,910
2,116
3,612
3,373
5,283
2,098
2,437
10,813
13,250
3,989
334
878
406
740
1,070
1,948
1,936
3,381
5,317
803
750
1,560
1,141
1,354
830
587
442
385
1,408
2,211
10,900
11,650
1,986
3,546
2,094
3,235
1,314
2,668
1,010
1,840
2,442
3,029
537
491
979
876
(26)
(69)
—
—
230
(33)
—
—
(65)
(248)
(34)
(8)
121
142
373
76
31
201
720
41
50
352
—
187
178
2004
2018
2018
2006
2018
2018
2006
2004
2004
2018
2018
2017
2004
2018
2018
2004
2013
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Location
Dewpew,
New York
Melville,
New York
Rochester,
New York
Rochester,
New York
Rochester,
New York
Sayville,
New York
Shirley,
New York
Smithtown,
New York
Syosset,
New York
Syracuse,
New York
Wantagh,
New York
Webster,
New York
West
Babylon,
New York
White
Plains,
New York
Asheville,
North
Carolina
Cary, North
Carolina
Charlotte,
North
Carolina
Charlotte,
North
Carolina
Durham,
North
Carolina
ENT136
ENT137
ENT138
ENT139
ENT140
ENT141
ENT142
ENT143
ENT144
ENT145
ENT146
ENT147
ENT148
ENT149
ENT150
ENT151
ENT152
ENT153
ENT154
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
350
494
326
320
399
959
587
521
711
558
747
683
453
640
421
414
516
1,240
761
675
920
723
967
885
(28)
(39)
(25)
(7)
(8)
(20)
(46)
(11)
(56)
(12)
(58)
(15)
350
494
326
320
399
959
587
521
711
558
747
683
425
601
396
407
508
1,220
715
664
864
711
909
870
775
1,095
722
727
907
2,179
1,302
1,185
1,575
1,269
1,656
1,553
148
210
138
148
184
442
249
241
301
258
317
315
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
— (1)
1,492
1,933
(117)
1,492
1,816
3,308
633
2004
40.0
— (1)
1,471
1,904
(31)
1,471
1,873
3,344
679
2004
40.0
— (1)
— (1)
397
476
— (1)
410
— (1)
402
513
615
530
520
(31)
(10)
(8)
(9)
397
476
410
402
482
605
879
1,081
168
220
2004
2004
40.0
40.0
522
932
189
2004
40.0
511
913
185
2004
40.0
— (1)
948
1,227
(75)
948
1,152
2,100
402
2004
40.0
122
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT160
ENT156
ENT155
ENT157
ENT161
ENT163
ENT158
ENT159
ENT162
Goldsboro,
North
Carolina
Greensboro,
North
Carolina
Greenville,
North
Carolina
Hickory,
North
Carolina
Matthews,
North
Carolina
Raleigh,
North
Carolina
Winston-
Salem, North
Carolina
Canton,
Ohio
Columbus,
Ohio
Grove City,
Ohio
Medina,
Ohio
N.
Ridgeville,
Ohio
Edmond,
Oklahoma
Tulsa,
Oklahoma
Salem,
Oregon
Belle
Vernon,
Pennsylvania ENT170
Boothwyn,
Pennsylvania ENT171
Croydon,
Pennsylvania ENT172
Feasterville,
Pennsylvania ENT173
Pittsburgh,
Pennsylvania ENT174
Pittsburgh,
Pennsylvania ENT175
ENT166
ENT168
ENT164
ENT165
ENT167
ENT169
— (1)
259
— (1)
349
— (1)
640
— (1)
409
336
452
828
531
(6)
259
330
589
120
2004
40.0
(28)
349
424
773
148
2004
40.0
(50)
640
778
1,418
271
2004
40.0
(32)
409
499
908
174
2004
40.0
— (1)
965
1,249
(21)
965
1,228
2,193
445
2004
40.0
(37)
475
578
1,053
201
2004
40.0
— (1)
475
— (1)
— (1)
— (1)
— (1)
— (1)
967
— (1)
— (1)
— (1)
840
— (1)
— (1)
494
434
967
281
393
290
431
954
393
410
407
421
615
638
562
1,252
365
508
1,057
557
1,235
508
759
527
544
(10)
(34)
(20)
(6)
(30)
—
(9)
(75)
(8)
—
(32)
(33)
494
434
967
281
393
290
431
954
393
410
407
421
628
528
1,122
962
1,232
2,199
359
478
640
871
1,057
1,347
548
979
1,160
2,114
500
893
759
495
511
1,169
902
932
228
184
446
130
167
16
199
405
181
23
173
178
— (1)
2,340
2,824
211
2,340
3,035
5,375
1,029
— (1)
— (1)
409
407
528
527
(8)
(8)
123
409
407
520
519
929
926
189
188
2004
2004
2004
2004
2004
2018
2004
2004
2004
2018
2004
2004
2017
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
— (1)
950
1,230
(74)
950
1,156
2,106
403
2004
40.0
— (1)
850
1,100
(18)
850
1,082
1,932
392
2004
40.0
ENT187
ENT185
ENT186
ENT183
ENT181
ENT180
ENT184
ENT182
ENT177
ENT178
ENT179
San Juan,
Puerto Rico ENT176
Cranston,
Rhode
Island
Greenville,
South
Carolina
Addison,
Texas
Arlington,
Texas
Conroe,
Texas
Corpus
Christi,
Texas
Denton,
Texas
Desota,
Texas
Euless,
Texas
Ft. Worth,
Texas
Garland,
Texas
Houston,
Texas
Houston,
Texas
Houston,
Texas
Houston,
Texas
Humble,
Texas
Lewisville,
Texas
Midland,
Texas
Richardson,
Texas
San
Antonio,
Texas
Stafford,
Texas
Waco,
Texas
Watauga,
Texas
Webster,
Texas
Annandale,
Virginia
ENT196
ENT191
ENT194
ENT192
ENT193
ENT195
ENT188
ENT189
ENT190
ENT201
ENT198
ENT199
ENT200
ENT197
— (1)
332
— (1)
1,045
— (1)
— (1)
— (1)
1,191
— (1)
— (1)
972
593
838
528
712
480
975
379
— (1)
1,108
— (1)
— (1)
— (1)
— (1)
— (1)
— (1)
425
518
758
375
438
561
— (1)
2,360
— (1)
753
— (1)
— (1)
— (1)
2,164
— (1)
521
634
379
1,073
592
— (1)
3,767
429
1,353
767
1,083
682
763
622
1,261
266
1,433
549
671
981
485
567
726
1,082
976
675
821
491
2,274
766
7,075
332
1,045
593
838
528
712
480
975
379
403
1,271
754
1,066
671
763
612
1,240
266
735
2,316
1,347
1,904
1,199
1,475
1,092
2,215
645
1,108
1,410
2,518
460
631
922
477
558
682
3,105
917
634
808
483
2,274
720
885
1,149
1,680
852
996
1,243
5,465
1,670
1,155
1,442
862
3,347
1,312
7,075
10,842
(26)
(82)
(13)
(17)
(11)
—
(10)
(21)
—
(23)
(89)
(40)
(59)
(8)
(9)
(44)
425
518
758
375
438
561
2,023
2,360
(59)
753
521
634
379
1,073
592
3,767
(41)
(13)
(8)
—
(46)
—
124
141
443
273
387
243
19
222
450
10
511
169
220
322
173
202
238
1,046
320
221
293
175
48
251
20
2004
2004
2004
2004
2004
2018
2004
2004
2018
2004
2004
2004
2004
2004
2004
2004
2017
2004
2004
2004
2004
2018
2004
2018
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Centreville,
Virginia
Chesapeake,
Virginia
Chesapeake,
Virginia
Fredericksburg,
Virginia
Grafton,
Virginia
Lynchburg,
Virginia
Mechanicsville,
Virginia
Norfolk,
Virginia
Richmond,
Virginia
Richmond,
Virginia
Virginia Beach,
Virginia
Williamsburg,
Virginia
Lynnwood,
Washington
Quincy,
Washington
Milwaukee,
Wisconsin
Wauwatosa,
Wisconsin
Subtotal
RETAIL:
Scottsdale,
Arizona
Scottsdale,
Arizona
ENT202
ENT203
ENT204
ENT205
ENT206
ENT207
ENT208
ENT209
ENT210
ENT211
ENT212
ENT213
ENT215
ENT216
ENT217
RET001
RET002
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
— (1)
1,134
— (1)
— (1)
— (1)
— (1)
— (1)
845
884
953
487
425
— (1)
1,151
— (1)
— (1)
— (1)
— (1)
— (1)
546
819
958
788
554
1,608
1,467
1,094
1,145
1,233
632
550
1,490
707
1,061
1,240
1,020
716
4,010
6,500
673
1,025
372,225 $
(89)
(66)
(19)
(21)
(39)
(9)
(24)
(42)
(64)
(75)
(17)
(12)
—
—
(39)
(17)
1,134
845
884
953
487
425
1,378
1,028
1,126
1,212
593
541
1,151
1,466
665
997
1,165
1,003
704
4,010
6,500
634
546
819
958
788
554
1,608
1,500
521
793
2,512
1,873
2,010
2,165
1,080
966
2,617
1,211
1,816
2,123
1,791
1,258
5,618
8,000
1,155
481
358
408
440
207
196
531
232
348
406
364
255
90
2,869
221
92,220 $ 193,127 $
1,008
1,801
467,152 $ 660,279
$
366
119,483
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2018
2003
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
ENT214
2,173
— (1)
1,500
— (1)
— (1)
521
793
$
110,854
$ 195,834 $
—
—
2,625
2,657
4,875
2,666
2,825
2,625
7,700
10,325
(106)
2,657
2,560
5,217
2,141
657
2009
2011
40.0
40.0
125
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
RET004
RET005
RET003
Colorado
Springs,
Colorado
St.
Augustine,
Florida
Honolulu,
Hawaii
Chicago,
Illinois
Chicago,
Illinois
Albuquerque,
New Mexico RET008
Hamburg,
New York
Anthony,
Texas
RET007
RET006
RET009
RET010
Draper, Utah RET011
Subtotal
HOTEL:
Honolulu,
Hawaii
Asbury Park,
New Jersey
Subtotal
HOT001
HOT002
$
$
APA001
APARTMENT/RESIDENTIAL:
Mammoth,
California
Atlanta,
Georgia
Jersey City,
New Jersey
Philadelphia,
Pennsylvania APA004
APA003
APA002
Subtotal
MIXED USE:
Riverside,
California
Key West,
Florida
MXU001
MXU002
Subtotal
$
$
— (1)
2,631
279
5,195
2,607
5,498
8,105
1,582
2006
40.0
— (1)
3,950
—
10,285
3,908
10,327
14,235
—
—
3,393
21,155
(8,671)
3,393
12,484
15,877
14,934
29,675
(26,366)
5,126
13,117
18,243
— (1)
—
— (1)
1,733
336
—
1,601
—
1,937
1,937
8,728
1,705
8,756
10,461
— (1)
— (1)
— (1)
—
—
—
—
—
—
—
—
—
—
—
—
731
6,073
699
711
6,792
7,503
3,538
3,502
39,694 $
$
4,215
—
69,274 $
(187)
5,975
(22) $
3,514
3,502
29,748 $
7,566
4,052
5,975
9,477
79,198 $ 108,946
17,996
17,996
(31,160)
3,419
1,413
4,832
3,815
21,811 $
$
40,194
58,190 $
3,459
(27,701) $
3,815
7,234 $
43,653
45,066 $
47,468
52,300
10,078
40,312
(50,009)
76
305
381
2,963
11,850
(1,728)
2,617
10,468
13,085
36,405
64,719
(100,639)
174
311
485
15,890
65,336 $
$
29,510
146,391 $
(39,100)
(191,476) $
2,205
5,072 $
4,095
15,179 $
6,300
20,251
5,869
629
2
5,869
631
6,500
18,229
24,098 $
$
20,899
21,528 $
2,750
2,752 $
18,229
24,098 $
23,649
24,280 $
41,878
48,378
3,152
3,726
—
1,087
2,799
2,474
1,288
1,804
20,710
4,531
4,594
9,125
—
—
—
—
—
514
5,388
5,902
$
$
$
$
126
2005
2009
2012
2010
2005
2005
2005
2005
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
2009
2016
40.0
40.0
2007
2010
2009
2012
0
0
0
0
2010
2014
40.0
40.0
Table of Contents
Location
Encumbrances
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2018
($ in thousands)
Initial Cost to Company
Building and
Improvements
Land
$1,039,661 $
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
$
802,367
Total
_______________________________________________________________________________
(1)
(2)
(3)
(4)
(5)
Consists of properties pledged as collateral under the Company's secured credit facilities with a carrying value of $472.0 million.
Includes impairments and unit sales.
These properties have land improvements which have depreciable lives of 15 to 20 years.
The aggregate cost for Federal income tax purposes was approximately $3.16 billion at December 31, 2018.
Includes $8.6 million and $4.8 million relating to accumulated depreciation for land and development assets and real estate assets held for sale, respectively, as of December 31, 2018.
59,040 $1,093,068 $
1,617,444 $2,710,512
(4) $
318,724
(5)
1,611,811 $
The following table reconciles real estate from January 1, 2016 to December 31, 2018:
Balance at January 1
Improvements and additions
Acquisitions through foreclosure
Other acquisitions
Dispositions
Other
Impairments
2018
2,577,195 $
2017
2,997,351 $
$
203,124
4,600
762,207
(656,900)
—
167,676
—
5,164
—
(179,714)
(31,565)
2016
3,246,469
169,999
40,583
30,618
4,035
(9,543)
(561,431)
(484,810)
Balance at December 31
$
2,710,512 $
2,577,195 $
2,997,351
The following table reconciles accumulated depreciation from January 1, 2016 to December 31, 2018:
Balance at January 1
Additions
Dispositions
2018
$
(366,265) $
(48,376)
95,917
2017
(426,982) $
(44,270)
104,987
2016
(467,616)
(48,761)
89,395
Balance at December 31
$
(318,724) $
(366,265) $
(426,982)
127
Table of Contents
iStar Inc.
Schedule IV—Mortgage Loans on Real Estate
As of December 31, 2018
($ in thousands)
Type of Loan/Borrower
Underlying Property Type
Senior Mortgages:
Contractual
Interest
Accrual
Rates
Contractual
Interest
Payment
Rates
Effective
Maturity
Dates
Periodic
Payment
Terms(1)
Prior
Liens
Face
Amount
of
Mortgages
Carrying
Amount
of
Mortgages(2)(3)
Borrower A
Borrower B
Borrower C
Borrower D
Borrower E
Borrower F
Borrower G
Borrower H
Borrower I
Senior mortgages
individually <3%
Mixed Use/Mixed Collateral
Apartment/Residential
Hotel
Land
Office
Mixed Use/Mixed Collateral
Hotel
Apartment/Residential
Apartment/Residential
Apartment/Residential, Retail,
Mixed Use/Mixed Collateral,
Office, Hotel, Land, Other
LIBOR + 5.15%
LIBOR + 5.25%
LIBOR + 6%
LIBOR + 6%
LIBOR + 4%
LIBOR + 4.75%
LIBOR + 6%
LIBOR + 5.75%
7.50%
LIBOR + 5.15%
LIBOR + 5.25%
LIBOR + 6%
LIBOR + 6%
LIBOR + 4%
LIBOR + 4.75%
LIBOR + 6%
LIBOR + 5.75%
7.50%
Fixed: 5% to 9.68%
Variable: LIBOR +
3% to LIBOR +
7.50%
Fixed: 6% to 9.68%
Variable: LIBOR +
3% to LIBOR +
7.50%
July 2019
December 2019
July 2019
March 2021
August 2020
July 2020
April 2019
March 2021
January 2024
2019 to 2024
Subordinate Mortgages:
Subordinate mortgages
individually <3%
Hotel
Total mortgages
Fixed: 6.8% to 14.0%
Fixed: 6.8% to 14%
2019 to 2057
IO $ — $107,196 $
IO
IO
IO
IO
IO
IO
IO
IO
88,612
84,000
71,934
31,039
30,833
29,252
27,274
27,000
—
—
—
—
—
—
—
—
107,427
88,114
84,959
71,120
31,017
30,432
29,085
27,019
26,828
282,469
779,609
224,353
720,354
10,485
10,485
$790,094 $
10,161
10,161
730,515
_______________________________________________________________________________
(1)
(2)
(3)
IO = Interest only.
Amounts are presented net of asset-specific reserves of $40.4 million on impaired loans. Impairment is measured using the estimated fair value of collateral, less costs to sell.
The carrying amount of mortgages approximated the federal income tax basis.
128
Table of Contents
iStar Inc.
Schedule IV—Mortgage Loans on Real Estate (Continued)
As of December 31, 2018
($ in thousands)
Reconciliation of Mortgage Loans on Real Estate:
The following table reconciles Mortgage Loans on Real Estate from January 1, 2016 to December 31, 2018(1):
Balance at January 1
Additions:
New mortgage loans
Additions under existing mortgage loans
Other(2)
Deductions(3):
Collections of principal
Recovery of (provision for) loan losses
2018
752,129 $
2017
915,905 $
2016
934,964
$
381,133
157,702
25,778
265,966
132,703
23,388
25,893
165,275
30,694
(501,466)
(528,321)
(247,431)
(45)
28
9,747
(3,177)
(60)
Transfers to real estate and equity investments
(84,684)
(57,505)
Amortization of premium
(32)
(35)
Balance at December 31
______________________________________________________________
(1)
(2)
(3)
$
Balances represent the carrying value of loans, which are net of asset specific reserves.
Amount includes amortization of discount, deferred interest capitalized and mark-to-market adjustments resulting from changes in foreign exchange rates.
Amounts are presented net of charge-offs of $1.2 million and $10.1 million for the years ended December 31, 2017 and 2016, respectively.
730,515 $
752,129 $
915,905
129
Table of Contents
Item 9. Changes and Disagreements with Registered Public Accounting Firm on Accounting and Financial Disclosure
None.
Item 9a. Controls and Procedures
Evaluation of Disclosure Controls and Procedures—The Company has established and maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company has
formed a disclosure committee that is responsible for considering the materiality of information and determining the disclosure obligations of the Company
on a timely basis. Both the Chief Executive Officer and the Chief Financial Officer are members of the disclosure committee.
Based upon their evaluation as of December 31, 2018, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) are
effective.
Management's Report on Internal Control Over Financial Reporting—Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the disclosure
committee and other members of management, including the Chief Executive Officer and Chief Financial Officer, management carried out its evaluation of
the effectiveness of the Company's internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued in
2013 by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on management's assessment under the framework in Internal Control—Integrated Framework, management has concluded that its internal
control over financial reporting was effective as of December 31, 2018.
The Company's internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm.
Changes in Internal Controls Over Financial Reporting—There have been no changes during the last fiscal quarter in the Company's internal
controls identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9b. Other Information
None.
130
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
PART III
Portions of the Company's definitive proxy statement for the 2019 annual meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
Item 11. Executive Compensation
Portions of the Company's definitive proxy statement for the 2019 annual meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Portions of the Company's definitive proxy statement for the 2019 annual meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
Item 13. Certain Relationships, Related Transactions and Director Independence
Portions of the Company's definitive proxy statement for the 2019 annual meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
Item 14. Principal Registered Public Accounting Firm Fees and Services
Portions of the Company's definitive proxy statement for the 2019 annual meeting of shareholders to be filed within 120 days after the close of the
Company's fiscal year are incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART IV
(a) and (c) Financial statements and schedules—see Index to Financial Statements and Schedules included in Item 8.
(b) Exhibits—see index on following page.
131
Table of Contents
Exhibit
Number
INDEX TO EXHIBITS
Document Description
3.1
3.2
3.6
3.8
3.9
3.10
4.1
4.3
4.4
4.5
4.6
4.13
4.14
4.16
4.18
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
10.2
10.3
10.5
10.6
10.7
10.8
10.9
10.11
10.12
10.13
14.0
16.1
21.1*
23.1*
23.2*
31.0*
32.0*
100*
101
Restated Charter of the Company (including the Articles Supplementary for each Series of the Company's Preferred Stock).(1)
Amended and Restated Bylaws of the Company.(2)
Articles Supplementary relating to Series D Preferred Stock.(3)
Articles Supplementary relating to Series G Preferred Stock.(4)
Articles Supplementary relating to Series I Preferred Stock.(5)
Articles Supplementary relating to Series J Preferred Stock.(6)
Form of 8.00% Series D Cumulative Redeemable Preferred Stock Certificate.(3)
Form of 7.65% Series G Cumulative Redeemable Preferred Stock Certificate.(4)
Form of 7.50% Series I Cumulative Redeemable Preferred Stock Certificate.(5)
Form of 4.50% Series J Cumulative Convertible Perpetual Preferred Stock Certificate.(7)
Form of Stock Certificate for the Company's Common Stock.(8)
Form of Global Note, No. 2-A evidencing 5.00% Senior Notes due 2019 issued on June 13, 2014.(9)
Form of Global Note, No. 2-B evidencing 5.00% Senior Notes due 2019 issued on June 13, 2014.(9)
Base Indenture, dated as of February 5, 2001, between the Company and State Street Bank and Trust Company.(10)
Form of Global Note, No. 1 evidencing 6.50% Senior Notes due 2021 issued on March 29, 2016.(11)
Twenty-Seventh Supplemental Indenture, dated June 13, 2014, governing the 5.00% Senior Notes due 2019.(9)
Twenty-Eighth Supplemental Indenture, dated March 23, 2016, governing the 6.50% Senior Notes due 2021.(11)
Twenty-Ninth Supplemental Indenture, dated as of March 13, 2017, governing the 6.00% Senior Notes Due 2022.(12)
Form of Global Note, No. 1, evidencing 6.00% Senior Notes due 2022.(12)
Thirtieth Supplemental Indenture, dated as of September 20, 2017, governing the 4.625% Senior Notes due 2020.(13)
Form of Global Note, No. 1, evidencing 4.625% Senior Notes due 2020.(13)
Thirty-First Supplemental Indenture, dated as of September 20, 2017, governing the 5.25% Senior Notes due 2022.(13)
Form of Global Note, No. 1, evidencing 5.25% Senior Notes due 2022.(13)
Thirty-Second Supplemental Indenture, dated as of September 20, 2017, governing the 3.125% Senior Notes due 2022.(13)
Form of Global Note, No. 1, evidencing 3.125% Senior Notes due 2022.(13)
iStar Inc. 2009 Long Term Incentive Compensation Plan.(14)
iStar Inc. 2013 Performance Incentive Plan.(14)
Form of Restricted Stock Unit Award Agreement.(15)
Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting).(16)
Form of Award Agreement For Investment Pool.(8)
Amended and Restated Credit Agreement, dated as of June 23, 2016, by the Company, the banks set forth therein and J.P. Morgan Chase Bank, N.A., as
administrative agent, and J.P. Morgan Chase Bank, N.A., Bank Of America, N.A. and Barclays Bank PLC as joint lead arrangers.(17)
Security Agreement, dated as of June 23, 2016, made by the Company, and the other parties thereto in favor of J.P. Morgan Chase Bank, N.A., as administrative
agent.(17)
Amended and Restated Credit Agreement dated as of September 27, 2017, among the Company, the other parties named therein and JPMorgan Chase Bank,
N.A. as administrative agent.(18)
Third Amendment, dated as of June 28, 2018, to the Amended and Restated Credit Agreement referenced at Exhibit 10.8 (19)
Second Amendment, dated as of June 21, 2018, to the Amended and Restated Credit Agreement referenced at Exhibit 10.11 (19)
iStar Inc. Code of Conduct.(20)
Letter from PricewaterhouseCoopers, LLP, dated November 28, 2017. (20)
Subsidiaries of the Company.
Consent of Deloitte & Touche LLP.
Consent of PricewaterhouseCoopers LLP.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act.
XBRL-related documents
Interactive data file
132
Table of Contents
________________________________________________________________________
(1) Incorporated by reference from the Company's Current Report on Form 8-K filed on December 15, 2016.
(2) Incorporated by reference from the Company's Current Report on Form 8-K filed on October 25, 2013.
(3) Incorporated by reference from the Company's Current Report on Form 8-A filed on July 8, 2003.
(4) Incorporated by reference from the Company's Current Report on Form 8-A filed on December 10, 2003.
(5) Incorporated by reference from the Company's Current Report on Form 8-A filed on February 27, 2004.
(6) Incorporated by reference from the Company's Current Report on Form 8-K filed on March 18, 2013.
(7) Incorporated by reference from the Company's Current Report on Form 8-A filed on March 18, 2013.
(8) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015.
(9) Incorporated by reference from the Company's Current Report on Form 8-K filed on June 13, 2014.
(10) Incorporated by reference from the Company's Form S-3 Registration Statement filed on February 12, 2001.
(11) Incorporated by reference to the Company's Current Report on Form 8-K filed on March 29, 2016.
(12) Incorporated by reference from the Company's Current Report on Form 8-K filed on March 13, 2017.
(13) Incorporated by reference from the Company's Current Report on Form 8-K filed on September 20, 2017.
(14) Incorporated by reference from the Company's Definitive Proxy Statement filed on April 11, 2014.
(15) Incorporated by reference from the Company's Current Report on Form 8-K filed on January 25, 2007.
(16) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 9, 2008.
(17) Incorporated by reference from the Company's Current Report on Form 8-K filed on June 29, 2016.
(18) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed on November 2, 2017.
(19) Incorporated by reference from the Company's Current Report on Form 8-K filed on July 5, 2018.
(20) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 16, 2005.
* Filed herewith.
**In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or
12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934 and otherwise is not subject to liability under these sections.
133
Table of Contents
Item 16. Form 10-K Summary
None.
134
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2019
Date: February 25, 2019
iStar Inc.
Registrant
iStar Inc.
Registrant
/s/ JAY SUGARMAN
Jay Sugarman
Chairman of the Board of Directors and Chief
Executive Officer (principal executive officer)
/s/ ANDREW C. RICHARDSON
Andrew C. Richardson
Chief Financial Officer (principal financial and
accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
/s/ JAY SUGARMAN
Jay Sugarman
Chairman of the Board of Directors
Chief Executive Officer
/s/ CLIFFORD DE SOUZA
Clifford De Souza
Director
/s/ ROBERT W. HOLMAN, JR.
Robert W. Holman, Jr.
Director
/s/ ROBIN JOSEPHS
Robin Josephs
Director
/s/ DALE ANNE REISS
Dale Anne Reiss
Director
/s/ BARRY W. RIDINGS
Barry W. Ridings
Director
135
List of Subsidiaries
100 Elkhorn Road - Sun Valley LLC
100 Riverview Condominium Association Inc.
1000 South Clark Mezz Lender LLC
1000 South Clark Street Holdings LLC
1000 South Clark Street LLC
1000 South Clark Street Partners LLC
1050 N. El Mirage Road - Avondale LLC
1101 Ocean Ave Parking LLC
1101 Ocean Ave Venture LLC
12 Union Street - Westborough LLC
1250 N. El Mirage Road - Avondale LLC
14000 N. Hayden Road - Scottsdale LLC
1515 Dock Street - Tacoma LLC
17093 Biscayne Boulevard - North Miami LLC
1812 North Moore Lender LLC
2021 Lakeside Boulevard - Richardson LLC
210 5th Ave. Venture Urban Renewal LLC
212 Fifth Lender LLC
215 North Michigan Owner LLC
2220 West First Street - Fort Myers LLC
2611 Corporate West Drive Venture LLC
2611 CWD Net Lease I REIT
2901 Kinwest Parkway - Irving LLC
300 Riverview Condominium Association Inc.
3000 Waterview Parkway - Richardson LLC
3150 SW 38th Avenue - Miami LLC
333 Rector Park - River Rose LLC
3376 Peachtree Hotel LLC
3376 Peachtree Hotel Operator LLC
3376 Peachtree Penthouse LLC
3376 Peachtree Residential LLC
3376 Peachtree Retail LLC
3376 Peachtree Road - Atlanta Hotel LL Inc.
3376 Peachtree Road - Atlanta Restaurant LL Inc.
377 East 33rd Investor LLC
38 North Almaden Boulevard Venture LLC
432 Star Lender LLC
4471 Dean Martin Drive - Las Vegas LLC
46831 Lakeview Boulevard - Fremont LLC
6162 S Willow Drive - Englewood LLC
628 East Cleveland Street - Clearwater LLC
6400 Christie Avenue - Emeryville LLC
Subsidiary
State of Formation
Exhibit 21.1
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
6801 Woolridge Road - Moseley LP
6801 Woolridge Road GenPar LLC
7297 North Scottsdale Unit LW105 Inc.
7445 East Chaparral Road - Scottsdale LLC
99 Shawan Road Joint Venture LLC
Acquest Government Holdings II, LLC
Acquest Government Holdings, L.L.C.
Acquest Holdings FC, LLC
AP at Monroe Urban Renewal LLC
AP at South Grand Urban Renewal LLC
AP Block 146 Developer Urban Renewal, LLC
AP Block 176 Venture Urban Renewal LLC
AP Block 178 Venture LLC
AP Block 4502 Beach Club LLC
AP Fifteen Property Holdings, L.L.C.
AP Five Property Holdings, L.L.C.
AP Mortgagee LLC
AP Retail Venture LLC
AP Ten Property Holdings, L.L.C.
AP Triangle LLC
AP Wesley Lake LLC
Artesia Development Partners LLC
Asbury Convention Hall Limited Liability Company
Asbury One Liquor License LLC
Asbury Partners, LLC
ASTAR 1360 Greely Chapel Road - Lima LLC
ASTAR ASB AR1, LLC
ASTAR ASB AR2, LLC
ASTAR ASB FL1, LLC
ASTAR ASB FL10, LLC
ASTAR ASB FL2, LLC
ASTAR ASB FL3, LLC
ASTAR ASB FL4, LLC
ASTAR ASB FL5, LLC
ASTAR ASB FL6, LLC
ASTAR ASB FL7, LLC
ASTAR ASB FL8, LLC
ASTAR ASB FL9, LLC
ASTAR ASB GA1, LLC
ASTAR ASB GA2, LLC
ASTAR ASB GA3, LLC
ASTAR ASB Holdings LLC
ASTAR ASB NC1, LLC
ASTAR ASB NC2, LLC
ASTAR ASB NC3, LLC
ASTAR ASB NC4, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
New York
New York
New York
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
New Jersey
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
ASTAR ASB TX1 GenPar LLC
ASTAR ASB TX1 LimPar LLC
ASTAR ASB TX1 LP
ASTAR ASB VA1, LLC
ASTAR ASB VA2, LLC
ASTAR Finance Falcon I LLC
ASTAR Finance Falcon II LLC
ASTAR Finance LLC
ASTAR FRR FL1, LLC
ASTAR FRR TX1 GenPar LLC
ASTAR FRR TX1 LP
ASTAR Pima Road - Scottsdale LLC
ASTAR ROU LA1, LLC
ASTAR Spokane LLC
ASTAR Suncadia LLC
ASTAR Two Notch Columbia LLC
ASTAR UAG AZ1, LLC
ASTAR UAG AZ2, LLC
ASTAR UAG AZ3, LLC
ASTAR UAG FL1, LLC
ASTAR UAG NJ1 LLC
Autostar Investors Partnership LLP
Autostar Realty GP LLC
Autostar Realty Operating Partnership, L.P.
Avenida Naperville Partners LLC
Bath Site LLC
Bedford Joint Venture LLC
Belmont Ridge Development Co. LLC
BF Net Lease I REIT
BF NLA LLC
Bond Portfolio Holdings II LLC
Bond Portfolio Holdings LLC
Bonita Grande 68, LLC
BW Bowling Net Lease I REIT
BW Bowling Properties Canada Inc.
BW Bowling Properties GenPar LLC
BW Bowling Properties LLC
BW Bowling Properties LP
Cajun Fish Holdings, L.L.C.
Campbell Commons - Richardson LLC
Charwell TP LLC
Chicago Square Partners LLC
Chicago STAR LLC
Childs Associates LLC
Coney Childs Lender LLC
Coney Entertainment LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Florida
Maryland
British Columbia
Delaware
Delaware
Delaware
New Jersey
Delaware
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Coney Island Holdings LLC
Coyote Center Development, LLC
DT Net Lease I REIT
DT-XCIII-IS, LLC
Entertainment Center Development, LLC
Every Bear Investments LLC
Falcon Auto Dealership Loan Trust 2001-1
Falcon Auto Dealership, LLC
Falcon Financial II, LLC
Falcon Franchise Loan Corp.
Falcon Franchise Loan TR Series 2003-1
FF Net Lease II REIT
FF NLA II LLC
Florida 2005 Theaters LLC
GFV Shawan Office, LLC
Gold Coast Chicago Acquisition Company LLC
Grand Monarch Partners LLC
Great Oaks MF Fee Owner LLC
Harbor Bay Net Lease I REIT
Harbor Bay NLA LLC
Harko, LLC
Hicksville GL Owner LLC
Highland View Associates LLC
IS CI Bath Member LLC
iStar 100 LLC
iStar 100 Management Inc.
iStar 100 Riverview LLC
iStar 181 Fremont Holdings LLC
iStar 200-300 LLC
iStar 200-300 Management Inc.
iStar 200-300 Riverview LLC
iStar 320 East Warner Lender LLC
iStar 4th & Virginia LLC
iStar 4th & Virginia Manager LLC
iStar 701 TS Holdings LLC
iStar Alpha Structured Products LLC
iStar Artesia Land LLC
iStar Asset Services, Inc.
iStar Automotive Investments LLC
iStar Bishops Gate LLC
iStar Blues LLC
iStar Bowling Centers I LLC
iStar Bowling Centers I LP
iStar Bowling Centers II LLC
iStar Bowling Centers II LP
iStar Bowling Centers PR GenPar LLC
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
iStar Bowling Centers PR LP
iStar Busco Inc.
iStar Chicago Hotel Lender LLC
iStar Corporate Collateral LLC
iStar CS Emery Bay North LLC
iStar CTL I GenPar, Inc.
iStar CTL I, L.P.
iStar CTL Manager LLC
iStar DH Holdings TRS Inc.
iStar Diplomat Drive - Farmers Branch LLC
iStar DMI LLC
iStar DOJ Holdings LLC
iStar Financial Protective Trust
iStar Financial Statutory Trust I
iStar FKEC Holdings LLC
iStar Florida 2015 Cinemas LLC
iStar FM Loans LLC
iStar Garden State Lender LLC
iStar Grand Monarch Investor LLC
iStar Harrisburg Business Trust
iStar Harrisburg GenPar LLC
iStar Harrisburg, L.P.
iStar Henderson Lender LLC
iStar IF III LLC
iStar iPIP 2019 LLC
iStar Land and Development Company Inc.
iStar Lex Lender LLC
iStar Madison LLC
iStar Minnesota LLC
iStar Net Lease I LLC
iStar Net Lease II LLC
iStar Net Lease Manager I LLC
iStar Net Lease Manager II LLC
iStar Net Lease Member I LLC
iStar Net Lease Member II LLC
iStar Pinnacle Lender LLC
iStar Potomac LLC
iStar Raintree Venture Member LLC
iStar RC Paradise Valley LLC
iStar Real Estate Services, Inc.
iStar Reeder Lender LLC
iStar REO Holdings II TRS LLC
iStar REO Holdings TRS LLC
iStar San Jose, L.L.C.
iStar SLC LLC
iStar SoHo Lender LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
iStar SPP II LLC
iStar SPP LLC
iStar Standard Lender LLC
iStar Sunnyvale Partners, L.P.
iStar Sunnyvale, LLC
iStar Tara Holdings LLC
iStar Tara Kickers TRS LLC
iStar Tara LLC
iStar WALH Investor TRS LLC
iStar West Walton Lender LLC
iStar West Walton Mezz LLC
Jade Eight Properties LLC
Jersey Star GenPar LLC
Jersey Star LP
Key West Harbour Development, L.L.C.
Key West Marina Investments, L.L.C.
Loft Office Acquisition, LLC
Long Beach Wayfarer LLC
Lysol Limited
Madison Asbury Retail, LLC
Magnolia Green Development Partners LLC
MFF NLA LLC
MFF Net Lease I REIT
MF III Albion LLC
MG Apartment Entity, LLC
MG Apartments Parcel 3 LLC
MN Theaters 2006 LLC
Naples AW Holdco LLC
Naples Harbour Development, L.L.C.
Naples Marina Investments, L.L.C.
NHN Holdco LLC
NHN Venture 2, LLC
Oakton Net Lease I REIT
Oakton NLA LLC
OHA Strategic Credit Fund (Parallel I), L.P.
One Palm Hotel Operator LLC
One Palm LLC
Paramount Bay Owner LLC
Parrot Cay Holdco LLC
Piscataway Road - Clinton MD LLC
Potomac TC Owner LLC
Raintree Venture Owner, LLC
Raintree Venture Partners, LLC
Rattlefish Raw Bar and Grill, LLC
Royal Oaks Lane (Biscayne Landing) - North Miami LLC
Seaside Park LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Florida
Florida
Delaware
Delaware
Cyprus
Delaware
Delaware
Delaware
Maryland
New Jersey
Delaware
Delaware
Minnesota
Delaware
Florida
Florida
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
West Virginia
Delaware
Delaware
Florida
Delaware
Delaware
SFI 10 Rittenhouse LLC
SFI Acquest Holdings LLC
SFI Almaden Manager LLC
SFI Artesia LLC
SFI Ballpark Village LLC
SFI Bedford LLC
SFI Belmont LLC
SFI BR Villa Luisa LLC
SFI Bridgeview LLC
SFI Bullseye - Chicago LLC
SFI Cascade Highlands LLC
SFI Chicago Tollway LLC
SFI Coney Island Manager LLC
SFI CWD Venture Manager LLC
SFI DT Holdings LLC
SFI Eagle Land LLC
SFI Emery Bay Participant LLC
SFI Euro Holdings II LLC
SFI Euro Holdings LLC
SFI Ford City -Chicago LLC
SFI Ginn Investments LLC
SFI Gold Coast Partner LLC
SFI Grand Vista LLC
SFI Harborspire GenPar LLC
SFI Harborspire LimPar LLC
SFI Ilikai 104 LLC
SFI Ilikai GenPar LLC
SFI Ilikai LL Inc.
SFI Ilikai LL Parent Inc.
SFI Ilikai LP
SFI Ilikai Property Owner LLC
SFI Ilikai Retail Owner LLC
SFI Kauai GenPar LLC
SFI Kauai LP
SFI Kauai Operator LLC
SFI Kauai Owner LLC
SFI Key West Harbour Holdings LLC
SFI Key West Marina LLC
SFI Kua 4 Partner LLC
SFI Los Valles LLC
SFI Magnolia Avenue - Riverside LLC
SFI Mammoth Crossing LLC
SFI Mammoth Finance LLC
SFI Mammoth GenPar LLC
SFI Mammoth Owner LP
SFI Marina Investments LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
SFI Marina Stuart TRS LLC
SFI MG Investor LLC
SFI Mortgage Funding LLC
SFI Naples Harbour Holdings LLC
SFI Naples Marina LLC
SFI Naples Reserve LLC
SFI Net Lease Holdings LLC
SFI One Palm Partner LLC
SFI Palm Tree (St Lucie) LLC
SFI Palm Tree Farms LLC
SFI Penn Holdco Statutory Trust
SFI Penn Properties Statutory Trust
SFI Raintree - Scottsdale LLC
SFI Savannah Residential LLC
SFI SMR GenPar LLC
SFI SMR LP
SFI Spring Mountain Ranch Phase 1 LLC
SFI Sugar Mill Investor LLC
SFI Tampa Harbour Holdings LLC
SFI Tampa Marina LLC
SFI Top Ilikai LL Inc.
SFI Top Ilikai Parent LL Inc.
SFI Valley Plaza - North Hollywood LLC
SFI Westgate City Center - Glendale LLC
SFI Winkel Way LLC
SFT I, Inc.
SFTY Manager LLC
Shawan Net Lease I REIT
Shore Road GenPar LLC
Shore Road - Long Beach LP
Shore Road - Long Beach Superblock LLC
SMR Phase 1 Joint Venture LLC
St. Lucie Palm Tree Sales LLC
STAR 100 Barclay Lender LLC
STAR 540 West 26th Lender LLC
STAR 570 Washington LH LLC
STAR 2019 Lender LLC
STAR AGRO Lender LLC
STAR Arizona Avenue Lender LLC
STAR Artesia 2 Member LLC
STAR Barclay A-2 Lender LLC
STAR Boerum Lender LLC
STAR Dayton Hangar One LLC
STAR Dream Lender LLC
Star FW Ventures II Investor LLC
STAR Germantown Lender LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
STAR Glenridge Lender LLC
STAR Highpark Lender LLC
Star Jadian Investor LLC
STAR Equus McDowell Member LLC
STAR McDowell Venture Partner LLC
STAR Mezzanine I LLC
STAR Metropolitan Lender LLC
STAR Mortgage I LLC
STAR Naperville Investor LLC
STAR Nevele Owner LLC
STAR NM Northside Lender LLC
STAR Nashville Hangar 6 LLC
STAR North Clark Lender LLC
STAR Palm Desert Lender GenPar LLC
STAR Palm Desert Lender LP
STAR Preferred Holdings LLC
STAR Shidler-Terra Lender LLC
STAR Structured Lender I LLC
STAR Sycamore Avenue Lender LLC
STAR Town Square Lender Member LLC
State Road 710 - Indiantown LLC
Stone Pony Partners LLC
Sunnyvale GenPar LLC
Talking Partners LLC
Tampa Harbour Development, L.L.C.
Tampa Marina Investments, L.L.C.
TDM Kua 4, LLC
THCF LLC
The Lanes at AP LLC
The New Westgate LLC
TimberStar GP LLC
TimberStar Investors Partnership LLP
TimberStar Operating Partnership, L.P.
TimberStar Selling Party Representative Holdco LLC
TimberStar Southwest Investor LLC
TPRJC Owner LLC
TriNet Essential Facilities XXVII, Inc.
TriNet Sunnyvale Partners, L.P.
TSM I, LLC
TSM II, LLC
Uncommon CCRC Investor LLC
Vector Urban Renewal Associates I, L.P.
Westgate CCDEP Investor LLC
Westgate Investments, LLC
Westgate Signage, LLC
Westgate Sports and Entertainment Group, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
New Jersey
Florida
Florida
Delaware
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Maryland
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
WG Net Lease I REIT
WG NLA LLC
Maryland
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-220353 on Form S-3 and Registration Statement No. 333-183465 on
Form S-8 of our reports dated February 25, 2019, relating to the financial statements and financial statement schedules of iStar Inc. (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to the adoption of a new accounting standard), and the effectiveness of iStar Inc.’s internal
control over financial reporting, appearing in this Annual Report on Form 10-K of iStar Inc. for the year ended December 31, 2018.
/s/ DELOITTE & TOUCHE LLP
New York, NY
February 25, 2019
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-220353) and Form S-8 (No. 333-183465) of iStar
Inc. (“the Company”) of our report dated February 26, 2018, except for the change in manner in which the Company classifies certain cash receipts and cash
payments and the change in manner in which it presents restricted cash on the consolidated statements of cash flows discussed in Note 3 to the consolidated
financial statements, as to which the date is February 25, 2019 relating to the financial statements and financial statement schedules, which appears in this
Form 10-K.
Exhibit 23.2
/s/ PricewaterhouseCoopers LLP
New York, New York
February 25, 2019
Exhibit 31.0
I, Jay Sugarman, certify that:
1. I have reviewed this annual report on Form 10-K of iStar Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 25, 2019
By:
/s/ JAY SUGARMAN
Name:
Jay Sugarman
Title:
Chief Executive Officer
I, Andrew C. Richardson, certify that:
1. I have reviewed this annual report on Form 10-K of iStar Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 25, 2019
By:
/s/ ANDREW C. RICHARDSON
Name:
Andrew C. Richardson
Title:
Chief Financial Officer (principal
financial and accounting officer)
Certification of Chief Executive Officer
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
Exhibit 32.0
The undersigned, the Chief Executive Officer of iStar Inc. (the "Company"), hereby certifies on the date hereof, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the year ended December 31, 2018 (the "Form 10-K"),
filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 25, 2019
By:
/s/ JAY SUGARMAN
Name:
Jay Sugarman
Title:
Chief Executive Officer
Certification of Chief Financial Officer
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
The undersigned, the Chief Financial Officer of iStar Inc. (the "Company"), hereby certifies on the date hereof, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the year ended December 31, 2018 (the "Form 10-K"),
filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 25, 2019
By:
/s/ ANDREW C. RICHARDSON
Name:
Andrew C. Richardson
Title:
Chief Financial Officer (principal
financial and accounting officer)