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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
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
OR
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
Trading Symbol(s)
STAR
STAR-PD
STAR-PG
STAR-PI
Name of Exchange on which registered:
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
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 ☐ No ☒
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 ☐
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 ☐
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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
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ 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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal controls over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
As of June 30, 2020 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 $889.5 million,
based upon the closing price of $12.32 on the New York Stock Exchange composite tape on such date.
As of February 19, 2021, there were 73,871,977 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.
1.
Portions of the registrant's definitive proxy statement for the registrant's 2021 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.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1.
Item 1a.
Item 1b.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
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.
SIGNATURES
Market for Registrant's Equity and Related Stock Matters
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary 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
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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 over $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 net lease,
real estate finance, operating properties and land and development.
The Company's primary sources of revenues are rent and reimbursements that tenants pay to lease the Company's properties, interest that borrowers
pay on loans, land development revenue from lot and parcel sales, proceeds from asset sales and income from management fees and equity investments.
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As of December 31, 2020, 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:
Net Lease: The net lease portfolio includes the Company's traditional net lease investments and its Ground Lease investments made through Safehold
Inc. ("SAFE"), a publicly traded REIT focused exclusively on Ground Leases that we launched in 2017 and manage pursuant to a management agreement,
both of which we believe offer stable long-term cash flows. We own our traditional net lease properties directly and through ventures that we manage. As
of December 31, 2020, we owned approximately 65.4% of SAFE's outstanding common stock.
Real Estate Finance: The real estate finance portfolio is comprised of leasehold loans (including leasehold loans to SAFE's tenants), 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. The Company's real estate loans may be either fixed-rate or variable-rate and are structured to meet the specific financing
needs of borrowers
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 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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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 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 and Ground Lease expertise,
flexibility, certainty of closing and continuing relationships beyond the closing of a particular transaction;
Taking advantage of market anomalies in the real estate capital 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. As we sell these assets, we expect to use the net proceeds primarily to make additional investments in our net lease
business, including Ground Leases, and for general corporate purposes.
Financing Strategy
We use leverage to enhance our return on assets. Our principal financing sources are unsecured bonds issued in capital markets transactions, our
revolving credit facility and term loan and individual mortgage loans. In August 2020, we took advantage of favorable interest rate and liquidity conditions
to refinance debt through the issuance of $400 million of unsecured notes due February 2026. Proceeds from the issuance were used to repay unsecured
notes due September 2022. We have no corporate debt maturities through September 2022.
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, issuances of equity, engaging in joint venture transactions 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."
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 Methodology . 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 uses 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.
sm
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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 may also use 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.
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 Company engages primarily in the non-investment company businesses of investing in, financing and developing real estate
and real estate-related projects, generally through subsidiaries and affiliated companies, including SAFE. Subject to applicable limitations resulting from
the Company's intentions to continue to qualify as a REIT and remain exempt from registration as an investment company, the Company may make
additional investments 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; 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, the Company's compliance with existing statutes and regulations, including environmental regulations, is not
currently expected to have a material effect on the Company's capital expenditures, earnings and competitive position. 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 capital
expenditures, earnings or competitive position 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 Internal Revenue Code of
1986, as amended (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 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.
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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, 2020, 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 and Human Capital Resources
Central to our business strategy is attracting, developing and retaining a talented, diverse and engaged workforce to drive our success. As of
February 19, 2021, the Company had 143 employees. The Company believes it has good relationships with its employees. Substantially all of our
employees are full time employees and they are not represented by any collective bargaining agreements.
As we have transitioned the focus of our business to growing our Ground Lease platform, we have sought to recruit new talent and provide training to
existing employees to support our business strategy. In our recruiting efforts, we generally strive to have a diverse group of candidates to consider for roles.
We have designed a compensation structure, including an array of benefits, that we believe is attractive to current and prospective personnel. We also offer
our professionals the opportunity to participate in a variety of development programs, including discussions led by outside speakers on topics of interest
and a learning management tool that enables employees and their managers to select courses that enhance professional development.
In fiscal 2020, the COVID-19 pandemic had a significant impact on our human capital management. Substantially all of our workforce worked
remotely throughout the initial several months of the pandemic, and we instituted safety protocols and procedures to enable certain employees to work on
site in shifts later in the year.
We maintain a number of health and wellness programs to support the welfare of our people. These programs include an employee assistance program
that offers confidential assessment, counseling and referral services at no cost to the employee. We seek to provide a safe workplace for our employees. In
addition to the safety protocols that we instituted in response to the pandemic, we have established emergency procedures that address emergency health
and safety situations.
We support the charitable endeavors of our employees with a program that matches the contributions made by them within limits that vary by
position. We have engaged with, and made significant investments in, some of the communities where we do business in an effort to enhance the
communities’ economic prospects and quality of life. For example, in connection with some of our development projects, we have partnered with a local
construction company to create a workforce development, apprenticeship and internship program that offers residents the opportunity to learn valuable
trade skills; launched a job training program for local residents interested in pursuing opportunities in the hospitality sector; and we setup and promote a
seasonal farmers' market in one of our communities to support local businesses.
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.
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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, ability to service our indebtedness, ability to pay distributions and the 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.
Risks Related to Our Business
Our business and the growth of SAFE were adversely affected by the COVID-19 pandemic in 2020 and could be adversely affected in the future by the
pandemic or the outbreak of any other highly infectious or contagious diseases.
The COVID-19 pandemic adversely affected our business and SAFE's growth in 2020 and could adversely affect our business and SAFE's growth in
the future. At this time, we cannot predict the full extent or duration of the impacts of the COVID-19 pandemic on our business and SAFE's growth
prospects. COVID-19 or another pandemic could adversely affect us due to, among other factors:
•
•
•
•
•
•
•
•
•
•
closures of, or other operational issues at, one or more of our operating properties resulting from government or tenant action;
the impact of reduced economic activity on our tenants' and borrowers' businesses, financial condition and liquidity, which have resulted in certain
of our tenants or borrowers not meeting their obligations to us in full or at all and may do so in the future;
the adverse impact of the pandemic on the entertainment/leisure and hotel sectors, which represent approximately 20.7% and 5.7%, respectively,
of the gross book value of our investments as of December 31, 2020. We entered into two lease modifications with a material tenant in the
entertainment sector in 2020, as described in Note 5 to our consolidated financial statements. There can be no assurance that tenant or borrower
bankruptcies will not occur or that additional accommodations will not be made, in these and other sectors;
the adverse impact of the pandemic on SAFE's hotel Ground Leases, which accounted for approximately 15.2% of SAFE's total revenues in 2020,
excluding percentage rent, which accounted for approximately 2.5% of SAFE's total revenues in 2020; we expect a material decline in percentage
rent payable to SAFE in 2021 in respect of 2020 hotel operating performance;
the decline in real estate transaction activity and constrained credit conditions which adversely affected our strategies of monetizing legacy assets
and scaling SAFE's portfolio as its Manager in 2020 and may continue to do so while these conditions persist;
the negative impact on our earnings from increased allowances against potential future losses and impairment charges and placing certain assets
on accrual status;
deteriorations in our financial condition, if they were to cause us to be unable to satisfy financial covenants in our debt obligations, which could
trigger a default and acceleration of outstanding borrowings;
the negative impacts on our operations if the health of a significant number of our employees were to be impacted by the pandemic;
difficulty accessing debt and equity capital on attractive terms, or at all, to fund business operations or address maturing liabilities; and
delays in the supply of products or services that are needed for our tenants' and borrowers' efficient operations.
We have made a significant commitment to the Ground Lease business. Our future success will depend in large part on our ability to execute our
Ground Lease strategy, which is subject to risks.
In 2019, we announced that we would focus our business activities primarily on scaling SAFE's portfolio through our position as SAFE's largest
stockholder and investment manager and by offering leasehold financing and equity to Ground Lease customers. We have made a significant investment in
SAFE's common stock and have dedicated a significant majority of our personnel to working on growing the Ground Lease business. As of December 31,
2020, we own approximately 65.4% of SAFE's outstanding common stock. There is no assurance that we will be able to achieve our objectives for the
Ground Lease business. Our Ground Lease strategy is subject to a number of risks, including the following:
•
the size of the market for Ground Leases may not meet our growth objectives because, among other reasons, potential tenants may prefer to own
both the land and the improvements they intend to develop, rehabilitate or own; negative
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publicity about the experience of tenants with non-Safehold Ground Leases may discourage potential tenants; interest rate increases may adversely
affect the availability and terms of leasehold financing which is critical to the growth of a robust Ground Lease market; the effects of the pandemic
on commercial real estate trends, including the negative impacts of decreased travel on hotels and of work-from-home trends on urban office
properties, which comprise a material portion of SAFE's portfolio;
as and when interest rates increase, there may be less activity generally in real estate transactions, including leasing, development and financing,
and less financing available on attractive terms for SAFE to refinance its debt obligations or for potential tenants to finance their leasehold
interests;
if SAFE suffers adverse business developments, the market value of our investment in SAFE will likely decline and may decline materially, the
management fees we receive from SAFE may not grow as anticipated and/or SAFE may reduce its distributions to stockholders, including us;
there are potential conflicts of interests in our relationship with SAFE, as discussed further below under "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 interests of our stockholders;"
•
•
•
• we have waived or elected not to seek reimbursement in full for certain expenses that we have incurred on SAFE's behalf while it is in its growth
•
stage, and will likely continue to do so while we foster SAFE's growth; and
if we terminate our management agreement with SAFE for convenience, we will be prohibited from competing with SAFE for one year after such
termination.
SAFE is a public company that files separately with the Securities and Exchange Commission ("SEC"). In its filings with the SEC, SAFE provides
disclosure as to its business, including disclosure regarding its views as to the drivers of its financial performance and the risks it faces. SAFE's SEC filings
also include certifications and disclosure regarding internal controls over financial reporting and disclosure controls.
We are subject to risks relating to our concentrations in certain asset types, geographies and sectors.
Our portfolio consists primarily of real estate, commercial real estate loans and our investment in SAFE. Refer to "Item 7. Management's Discussion
and Analysis - Portfolio Overview" for a breakdown of our asset concentrations by property type and geographic location. In addition, our largest tenant,
representing a net lease tenant in the entertainment/leisure sector, constituted 11.6% of our total revenues for the year ended December 31, 2020. Through
our investment in SAFE, we are also exposed to asset concentrations in SAFE's portfolio. For the year ended December 31, 2020, 17.7% of SAFE's total
revenues came from hotel properties and one of SAFE's tenants, under an office property Ground Lease in Washington, DC, represented more than 10% of
its revenues for the year. Many property types were adversely affected by the COVID-19 pandemic and the previous economic recession and we may suffer
additional losses on our assets due to these concentrations during periods of economic distress that affect these concentrations.
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.
There are various potential conflicts of interest in our relationship 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 agreements between us and SAFE; conflicts in the
amount of time that our officers and employees will spend on SAFE's affairs vs. our other affairs; conflicts in determining whether to seek reimbursement
from SAFE of certain expenses we incur on its behalf; conflicts in transactions that we pursue with SAFE; conflicts between the interests of our
stockholders and members of our management who hold SAFE common stock and other equity interests in SAFE such as grants of interests in a subsidiary
of SAFE's operating partnership (called CARET units) that will entitle them to participate in distributions arising from certain sales and financings of
SAFE's Ground Leases; and conflicts in allocating investments to, and managing, a potential investment fund in which we and SAFE would invest, as
discussed further below. Transactions between iStar and SAFE are 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 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 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
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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.
We are considering the formation of an investment fund in which we and SAFE would invest which would target the origination and acquisition of
Ground Leases for commercial real estate projects that are in a pre-development phase, unlike the later stage development Ground Leases that fit SAFE's
investment criteria. We may face conflicts of interest in fulfilling our duties to our stockholder, to SAFE as its manager and to the fund as its general
partner and manager. We would be responsible for identifying and appropriately allocating investments between the fund and SAFE. In addition, iStar
would be involved in establishing the price and the conditions of any future potential purchases of assets by SAFE from any such fund. The fund's fee
structure could potentially be more favorable to us than the management fees we receive from SAFE. If we fail to deal appropriately with these and other
conflicts, our business could be adversely affected.
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 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. See Note 8 to our financial statements for a discussion of related party transactions
between SAFE and us in 2020.
Our voting power in SAFE is subject to limitations, and joint venture and other investments we hold or may make in the future may not provide us with
full control.
Although we own approximately 65.4% of the outstanding common stock of SAFE as of December 31, 2020, we are party to a stockholder's
agreement with SAFE that generally limits the discretionary voting power of our shares to 41.9% and requires that we vote shares in excess of that amount
in proportion to the votes of SAFE's other stockholders on matters presented for approval. As a result of such limitations, actions may be approved by
SAFE's board and stockholders with which we do not agree. We have a joint venture partner in our Net Lease Ventures and we hold equity investments in
certain funds and limited partnerships managed by third parties. These and other investments we may make in the future present risks that we may have
differing objectives than our partners or the managers, board of directors, shareholders or other members in such investments, that we may become
involved in disputes with them and that we may compete with such entities. 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.
Although the businesses in which we have invested generally have a significant real estate component, some of them may operate in businesses that
are different from our primary or historical business segments. Consequently, investments in these businesses, among other risks, subject us to the
operating and financial risks of new business lines or industries other than real estate and to the risk that we do not have sole control over the operations of
these businesses.
We have acquired, and may in the future acquire, commercial properties 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 have acquired, and may in the future 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:
•
•
•
•
•
•
•
•
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;
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•
•
•
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 have recognized losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may recognize additional
losses in the future.
We have recognized losses arising from borrower defaults on our loan assets and we may recognize 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.
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.
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We are subject to additional risk associated with owning and developing real estate.
As of December 31, 2020, we own approximately $430.7 million of land and development assets and $197.6 million of operating properties, based
on net carrying values. These assets expose us to additional risks, including, without limitation:
• 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.
•
The residential market has previously experienced significant downturns that could recur and adversely affect us.
As of December 31, 2020, we owned land and residential condominiums with a net carrying value of $435.9 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. For the year ended December 31, 2020, our five largest borrowers
or tenants of net lease assets collectively accounted for approximately 21.4% of our revenues, of which our largest customer accounted for approximately
11.6%. 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.
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
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expenditures and/or lease concessions in order to obtain replacement tenants. Leases representing approximately 16.7% of our annualized in-place
operating lease income and interest income from sales-type leases are scheduled to expire during the next five years.
We and SAFE 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. SAFE's
competitors include those same entities, as well as private individuals and pension funds. These competitors may seek to compete aggressively with us or
SAFE on a number of factors including transaction pricing, terms and structure. We and SAFE may have difficulty competing to the extent we are
unwilling to match the competitors' deal terms in order to maintain our or SAFE's profit margins and/or credit standards. To the extent that we match
competitors' pricing, terms or structure, we or SAFE may experience decreased interest margins and/or increased risk of credit losses, which could have a
material adverse effect on our or SAFE's financial performance, liquidity and the market price of our common stock.
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 and SAFE's Ground Leases generally require the tenants to undertake the obligation for environmental compliance and indemnify us and
SAFE from liability with respect thereto. There can be no assurance that the 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, 2020, approximately 17.2% of the carrying value of our assets was located in the western
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. The foregoing risks also apply generally to SAFE's properties
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and the buildings thereon owned by SAFE's 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 or SAFE's financial performance, liquidity and the market price of our or SAFE's
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.
Declines in the market values of our equity investments that are not publicly traded may adversely affect periodic reported results.
Certain of our equity investments other than SAFE, are in funds or companies that are not publicly traded and their fair value may not be readily
determinable. As of December 31, 2020, the aggregate carrying value of such investments represented 4.9% of our assets. 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.
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 or SAFE's 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 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.
Our credit ratings will impact our borrowing costs.
Financing Risks
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 makes our borrowing costs higher
than they would be with an investment grade rating and makes restrictive covenants in our public unsecured debt securities operative. These restrictive
covenants are described below in "Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition."
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,
subject to certain permitted debt baskets. 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 $350.0 million (our "Revolving Credit Facility") and our $650.0 million senior term loan
(our "Senior Term Loan") contain certain covenants, including covenants relating to collateral
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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, our Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding
borrowings on the facility and our 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
Senior Term Loan or the Revolving Credit Facility or would fail to comply with the covenants in such agreements after giving effect to the dividend.
Our Senior Term Loan and 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. The covenants described above could limit our flexibility
and make it more difficult and/or expensive to refinance our existing indebtedness. 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, make additional investments in SAFE, pay distributions
and satisfy 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 other activities, and we expect to continue to rely primarily on these sources of
liquidity for the foreseeable future. Our ability to access capital in 2021 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 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 utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks.
The derivative instruments we use are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts. Our use of
derivative instruments 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. 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 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 may adversely affect the value of our investment in SAFE.
Rising interest rates also 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.
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The replacement of LIBOR may affect the value of certain of our financial obligations and could affect our results of operations or financial condition.
In July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to
submit LIBOR rates after 2021. In December 2020, ICE Benchmark Association, the administrator of LIBOR, published a consultation regarding its
intention to cease publication of U.S. dollar LIBOR after June 2023. As of December 31, 2020, approximately 25.8% of the total principal amount of our
outstanding debt was floating rate debt. We are unable to predict the timing or 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 States, 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 on our overall financial condition or results of operations.
Risks Relating to Our Accounting and Valuation Estimates
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 allowance for loan losses, which is based
primarily on the estimated fair value of loan collateral and our estimate of expected credit losses, as well as the valuation of real estate assets and deferred
tax assets. While we have identified those accounting policies that we consider to be 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.
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 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. 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.
Our allowances for loan losses and net investment in leases may prove inadequate, which could have a material adverse effect on our financial results.
We maintain allowances for our loan and net investment in lease portfolios to offset potential future losses. Our loss allowances reflect management's
then-current estimation of the probability and severity of losses within our portfolio. In addition, our determination of asset-specific allowances relies on
material estimates regarding the fair value of loan collateral. Estimation of ultimate losses, provision expenses and loss allowances is a complex and
subjective process. As such, there can be no assurance that management's judgment will prove to be correct and that allowances 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, tenants, industries in which our borrowers or tenants operate or markets in which our
borrowers/tenants 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 allowances
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.
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We may change certain of our policies without stockholder approval.
Risks Relating to our Organization and Structure
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 of Maryland law and our organizational documents could inhibit changes in control of our company.
Certain provisions of Maryland law and our organizational documents could inhibit changes in control of our company that might involve a premium
price for our common stock or that our shareholders otherwise believe to be in their best interest, including, among others, the following:
•
Pursuant to the Maryland General Corporation Law, or the MGCL, our board of directors has by resolution exempted business combinations
between us and any other person from the business combination provisions of the MGCL, and our bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of shares of our stock. However, there can be no assurance that these
exemptions will not be amended or eliminated at any time in the future.
• Our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or number of shares, whichever is more
restrictive, of our outstanding capital stock.
• Our board of directors, without stockholder approval, has the power under our charter to amend our charter from time to time to increase or
decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to
authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our
common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares. As a
result, our board of directors could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or
prevent a transaction or a change of control that might involve a premium price for our common stock or that our shareholders otherwise believe
to be in their best interest.
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. We believe we are not an investment company under Section 3(a)(1)(A) of the Investment Company Act because we do not
engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities. The Company engages
primarily in the non-investment company businesses of investing in, financing and developing real estate and real estate-related projects, generally through
subsidiaries and affiliated companies, including SAFE. 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.
We will need to monitor our investments and income to ensure that we continue to satisfy our exemption from the Investment Company Act, but
there can be no assurance that we will be able to avoid the need to register as an Investment Company. If it were established that we were an unregistered
investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we
would be unable to enforce contracts with third parties, or that third parties could seek to obtain rescission of transactions and that we would be subject to
limitations on corporate leverage that would have an adverse impact on our investment returns. This would have a material adverse effect on our financial
performance and the market price of our securities.
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 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
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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.
We would be subject to adverse consequences if we fail to qualify as a REIT.
Tax Risks Related to Ownership of Our Shares
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 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.
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. We are generally required to take certain amounts into income no later than the time such amounts
are reflected on our financial statements. The application of this rule may require the accrual of income earlier than would be the case under the otherwise
applicable tax rules; however, recently released proposed Treasury Regulations generally would exclude, among other items, original issue discount
(whether or not de minimis) and market discount from the applicability of this rule. Although the proposed Treasury Regulations generally will not be
effective until taxable years beginning after the date on which they are issued in final form, we generally are permitted to elect to rely on the proposed
Treasury Regulations currently. 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 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.
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
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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 carryforwards which we use to offset our tax and distribution requirements. Net operating losses that have
arisen in taxable years beginning after December 31, 2017 and thereafter may offset up to 80% of our net taxable income (after the application of the
dividends paid deduction), except to the extent those losses are utilized in taxable years prior to 2021, 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% 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 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% 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.
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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.
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.
Stockholders are urged to consult with their tax advisors regarding any legislative, regulatory or administrative developments on an investment in the
Company's common stock.
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. The Company's
principal regional offices are located in the Atlanta, Georgia; Hartford, Connecticut; and Los Angeles, California metropolitan areas. See Item 8
—"Financial Statements and Supplemental Data—Schedule III" for a detailed listing of properties held by the Company for investment purposes.
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 Stock Matters
PART II
The Company's common stock trades on the New York Stock Exchange ("NYSE") under the symbol "STAR." The Company had 1,491 holders of
record of common stock as of February 19, 2021. This figure does not represent the actual number of beneficial owners of our common stock because
shares of our common stock are frequently held in “street name” by securities dealers and others for the benefit of beneficial owners who may vote the
shares and who would report dividends paid by us in their taxable income.
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, 2020.
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, 2020
November 1 to November 30, 2020
December 1 to December 31, 2020
_______________________________________________________________________________
(1)
456,000 $
— $
101,111 $
12.04
—
14.85
5,492,139 $
— $
1,501,652 $
35,286,766
35,286,766
33,786,884
We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. In February 2021, our board of directors authorized an
increase to the stock repurchase program to $50.0 million.
Disclosure of Equity Compensation Plan Information
Plans Category
Equity compensation plans approved by
security holders-restricted stock awards
(2)
(1)
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(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))
710,467
N/A
2,411,963
_______________________________________________________________________________
(1)
Restricted Stock—The amount shown in column (a) includes 530,945 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 15" for a more detailed description of the Company's restricted stock grants). All of the unvested 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 179,522 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 15" 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 15" for a more detailed description of iPIP.)
(2)
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Please read the following discussion of our consolidated operating results, financial condition and liquidity together with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. Our discussion of 2018 results is included in Part II, Item 7 of our
2019 Annual Report on Form 10-K. Our historical results may not be indicative of our future performance. Certain prior year amounts have been
reclassified in our consolidated financial statements and the related notes to conform to the current period presentation.
Executive Overview
Our portfolio is well diversified by business, property type and geography. Our portfolio includes investments in the entertainment/leisure (20.7% of
gross book value) and hotel (5.7% of gross book value) sectors, which have been particularly stressed by the coronavirus (COVID-19) pandemic. We
collected 99% of the rent due from our net lease tenants during the fourth quarter (excluding one net lease tenant with whom we entered into lease
modifications in the second and third quarter 2020 - refer to Note 5), 89% of the interest payments due in our real estate finance portfolio and 85% of the
rent due in our operating properties portfolio. SAFE reported that it received 100% of the ground rent due under its leases for the year ended December 31,
2020. We may continue to experience disruptions and collections of rent and interest payments until more normalized business conditions resume. In 2020,
we increased our general allowance for loan losses and we may continue to do so in the future while the COVID-19 pandemic continues to materially affect
the U.S. economy.
The COVID-19 pandemic has adversely affected our strategies of monetizing legacy assets and materially scaling SAFE's portfolio in 2020, primarily
because of reduced levels of real estate transactions and constrained conditions for equity and debt financing for real estate transactions. In addition, the
pandemic has made it more difficult to execute transactions as people work from home and are reluctant to visit properties, local governmental offices have
reduced operations and third parties such as survey, insurance, environmental and similar services have more limited capacities. These conditions will
adversely affect our strategy while they persist. At this time, we cannot predict the full extent of the impacts of the COVID-19 pandemic on our or SAFE's
business. See the Risk Factors section of this report for additional discussion of certain potential risks to our business arising from the COVID-19
pandemic.
For the year ended December 31, 2020, we recorded a net loss allocable to common shareholders of $65.9 million, compared to net income of $291.5
million during the prior year. Adjusted earnings allocable to common shareholders for the year ended December 31, 2020 was $40.8 million, compared to
$388.0 million during the prior year (see "Adjusted Earnings" for a reconciliation of adjusted earnings to net income).
As of December 31, 2020, we had $99 million of cash and $350 million of credit facility availability. In August 2020, we took advantage of favorable
interest rate and liquidity conditions to refinance debt through the issuance of $400 million of unsecured notes due February 2026. Proceeds from the
issuance were used to repay unsecured notes due September 2022. We have no corporate debt maturities through September 2022 (refer to Note 11). We
have no corporate debt maturities through September 2022 and expect to use our unrestricted cash balance primarily to fund future investment activities
and for general working capital needs.
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Portfolio Overview
As of December 31, 2020, based on gross book value, our total investment portfolio has the following property/collateral type and geographic
characteristics ($ in thousands):
(1)
Property/Collateral
Types
Office
Entertainment /
Leisure
Ground Leases
Industrial
Land and
Development
Condominium
Hotel
Multifamily
Retail
Other Property Types
Net
Lease
Real Estate
Finance
Operating
Properties
Land &
Development
Corporate
$
937,362 $
51,629 $
28 $
— $
— $
967,886
962,386
284,084
—
—
—
—
57,348
—
—
—
—
69,952
159,033
187,802
148,031
56,488
25,274
698,209 $
16,188
—
97,663
—
18,355
82,997
58,878
34,877
—
308,986 $
—
—
—
352,368
111,762
—
—
8,271
—
472,401 $
—
—
62,961
—
—
—
—
—
6,949
69,910 $
Total
$
3,209,066 $
Percentage of Total
68 %
15 %
6 %
10 %
1 %
100 %
$
Geographic Region
Northeast
West
Mid-Atlantic
Central
Southwest
Southeast
Various
Net
Lease
Real Estate
Finance
Operating
Properties
Land &
Development
Corporate
911,690 $
497,171
561,218
429,024
406,753
393,780
9,430
3,209,066 $
280,925 $
224,434
—
73,600
—
28,535
90,715
698,209 $
93,612 $
56,392
6,133
44,749
97,690
10,410
—
308,986 $
275,859 $
42,286
107,275
31,500
8,562
6,919
—
472,401 $
— $
—
—
—
—
—
69,910
69,910 $
Total
_______________________________________________________________________________
(1)
$
Total
989,019
984,074
962,386
444,708
422,320
289,150
270,799
206,909
156,984
32,223
4,758,572
Total
1,562,086
820,283
674,626
578,873
513,005
439,644
170,055
4,758,572
% of
Total
20.8 %
20.7 %
20.2 %
9.3 %
8.9 %
6.1 %
5.7 %
4.3 %
3.3 %
0.7 %
100.0 %
% of
Total
32.8 %
17.2 %
14.2 %
12.2 %
10.8 %
9.2 %
3.6 %
100.0 %
For net lease, operating properties and land and development, gross book value is defined as the basis assigned to physical real estate property (land and building), net of any impairments
taken after acquisition date and net of basis reductions associated with unit/parcel sales, plus our basis in equity method investments, plus lease related intangibles, capitalized leasing costs
and excluding accumulated depreciation and amortization, and for equity method investments, excluding the effect of our share of accumulated depreciation and amortization. For real
estate finance, gross book value is defined as principal funded including any deferred capitalized interest receivable, plus protective advances, exit fee receivables and any unamortized
origination/modification costs, less purchase discounts and specific allowances. This amount is not reduced for CECL allowances.
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). We generally intend to hold net lease assets for long-term investment. However, we may dispose of assets if we
deem the disposition to be in our best interests.
The net lease segment includes our Ground Lease investments made primarily through SAFE and our traditional net lease investments.
SAFE—SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted
returns. We believe its business has characteristics comparable to a high-grade fixed income investment business,
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but with certain unique advantages. Relative to alternative fixed income investments generally, SAFE's Ground Leases typically benefit from built-in
growth derived from contractual base rent increases and the opportunity to realize value from SAFE's right to regain possession of the buildings and other
improvements on its land upon expiration or earlier termination of the lease at no additional cost. We believe that these features offer us the opportunity
through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments. As of
December 31, 2020, we owned approximately 65.4% of SAFE's common stock outstanding, subject to voting limitations described below.
We account for our investment in SAFE as an equity method investment (refer to Note 8). We act as SAFE's external manager pursuant to a
management agreement. The management agreement generally provides for a base management fee that ranges from a minimum of 1.0% to a maximum of
1.5% as SAFE's Total Equity (as defined in the agreement) increases. The management fee is payable in cash or in shares of SAFE common stock at
SAFE's election (as determined by SAFE's independent directors). The initial term of the management agreement ends on June 30, 2023 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.
We are party to 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. We are also party to a stockholders agreement with SAFE that:
•
•
•
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%;
subjects us to certain standstill provisions; and
provides us certain preemptive rights.
The complete management agreement, exclusivity agreement and stockholder's agreement between SAFE and us, as amended, are incorporated by
reference as exhibits to this Annual Report on Form 10-K.
Net Lease Venture—In February 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. 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. 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 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. The Net Lease Venture II's investment period expires on June 30, 2021.
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As of December 31, 2020, our consolidated net lease portfolio totaled $2.2 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 $3.2 billion. The table below provides certain
statistics for our net lease portfolio.
Ownership %
Gross book value (millions)
(2)
Wholly-Owned
100.0 %
1,255
$
$
Net Lease
Venture I
51.9 %
907
$
Consolidated
(1)
Real Estate
—
2,162
$
Net Lease
Venture II
51.9 %
323
$
% Leased
Square feet (thousands)
Weighted average lease term (years)
Weighted average yield
_______________________________________________________________________________
(1) We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements (refer to Note 4).
(2)
100.0 %
5,749
16.3
99.0 %
9,998
14.9
7.9 %
7.9 %
(4)
(3)
15,747
15.5
99.3 %
7.9 %
100.0 %
3,302
12.9
9.0 %
Consolidated Real Estate includes amounts recorded as net investment in leases (refer to Note 5) and financing receivables in loans and other lending investments (refer to Note 7). SAFE
includes its 54.8% pro rata share of its unconsolidated equity method investment.
(3) Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options. SAFE includes its 54.8% pro rata share of its unconsolidated
equity method investment.
Yield represents the yield for the fourth quarter 2020. Yield for SAFE is calculated over the trailing twelve months and excludes management fees earned by us.
(4)
Portfolio Activity—During the year ended December 31, 2020, we sold net lease assets with an aggregate carrying value of $38.4 million and
recognized gains of $6.1 million in "Income from sales of real estate" in our consolidated statements of operations. In addition, we also recorded
$2.0 million of aggregate impairments in connection with the sale of net lease assets, recorded an initial allowance for losses on net investment in leases of
$9.1 million upon the adoption of ASU 2016-13 on January 1, 2020 (refer to Note 3) and recorded a provision for losses on net investment in leases of
$1.8 million resulting primarily from the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets.
During the year ended December 31, 2020, we invested approximately $176.3 million in SAFE common stock through a series of private placements
and open market transactions and received $21.0 million in distributions from SAFE.
Also during the year ended December 31, 2020, we made contributions of $73.3 million to and received distributions of $27.6 million from Net Lease
Venture II.
23
SAFE
65.4 %
3,201
100.0 %
N/A
88.8
4.7 %
Table of Contents
Summary of Lease Expirations—As of December 31, 2020, future lease expirations on our net lease assets, excluding our equity method investments
in SAFE and Net Lease Venture II, are as follows ($ in thousands):
Year of Lease Expiration
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031 and thereafter
Annualized In-Place
Operating
Lease Income and
Interest Income from
Sales-type Leases
% of Annualized
In-Place
Operating
Lease Income and Interest
Income from Sales-type
Leases
Number of
Leases
Expiring
% of Total
(1)
Revenue
Square Feet of Leases
Expiring (in
thousands)
2 $
1
2
2
1
5
1
3
—
1
18
36 $
4,087
7,204
3,954
5,747
7,383
10,608
622
1,948
—
2,212
136,625
180,390
2.3 %
4.0 %
2.2 %
3.2 %
4.1 %
5.9 %
0.3 %
1.1 %
— %
1.2 %
75.7 %
100.0 %
0.7 %
1.2 %
0.7 %
1.0 %
1.3 %
1.8 %
0.1 %
0.3 %
— %
0.4 %
23.4 %
30.9 %
133
484
29
235
410
640
153
189
—
591
12,883
15,747
Total
Weighted average remaining lease
term (in years)
_______________________________________________________________________________
(1)
(2)
15.5
(2)
Reflects the percentage of annualized operating lease income and interest income from sales-type leases for leases in-place as a percentage of annualized total revenue.
Represents the initial maturity and does not include extension options.
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. Our real
estate finance portfolio consists of senior mortgage loans that are secured by commercial and residential real estate assets where we are 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 we do not
have a lien on the underlying asset, but may have a pledge of underlying equity ownership of such assets. Our real estate finance portfolio includes loans on
stabilized and transitional properties, Ground Leases and ground-up construction projects. In addition, we have preferred equity investments and debt
securities classified as other lending investments.
24
Table of Contents
Our real estate finance portfolio included the following ($ in thousands):
$
Performing loans:
Senior mortgages
Corporate/partnership loans
Subordinate mortgages
Subtotal
Non-performing loans:
Senior mortgages
Subtotal
Total carrying value of loans
Other lending investments
Total carrying value
Allowance for loan losses
Total loans receivable and other lending investments, net $
As of December 31,
2020
2019
Total
% of Total
Total
% of Total
432,350
85,667
11,640
529,657
53,305
53,305
582,962
162,538
745,500
(13,170)
732,330
57.9 % $
11.5 %
1.6 %
71.0 %
7.2 %
7.2 %
78.2 %
21.8 %
100.0 %
$
534,765
119,818
10,876
665,459
37,820
37,820
703,279
153,216
856,495
(28,634)
827,861
62.4 %
14.0 %
1.3 %
77.7 %
4.4 %
4.4 %
82.1 %
17.9 %
100.0 %
Portfolio Activity—During the year ended December 31, 2020, the Company invested $138.8 million (including capitalized deferred interest) in its
real estate finance portfolio and received repayments and proceeds from sales of $243.2 million (including the receipt of previously capitalized deferred
interest).
25
Table of Contents
Summary of Interest Rate Characteristics—Our loans receivable and other lending investments had the following interest rate characteristics ($ in
thousands):
As of December 31,
2020
2019
Carrying
Value
%
of Total
Weighted
Average
Accrual Rate
Carrying
Value
%
of Total
Weighted
Average
Accrual Rate
(1)
$
Fixed-rate loans and other lending
investments
Variable-rate loans
Non-performing loans
Total carrying value
Allowance for loan losses
Total loans receivable and other lending
investments, net
__________________________________________________________________________
(1)
239,843
452,352
53,305
745,500
(13,170)
32.1 %
60.7 %
7.2 %
100.0 %
732,330
$
7.0 % $
5.6 %
N/A
207,422
611,253
37,820
856,495
(28,634)
$
827,861
24.2 %
71.4 %
4.4 %
100.0 %
7.2 %
6.2 %
N/A
As of December 31, 2020 and 2019, includes $288.3 million and $400.4 million, respectively, of loans with a weighted average LIBOR floor of 1.7% and 1.3%, respectively.
Summary of Maturities—As of December 31, 2020, our loans receivable and other lending investments had the following maturities ($ in thousands):
Year of Maturity
2021
2022
2023
2024
2025
2026 and thereafter
Total performing loans and other securities
Other lending investments
Non-performing loans
(1)
Total carrying value
General allowance for loan losses
Number of
Loans
Maturing
Carrying
Value
%
of Total
13 $
—
2
1
—
2
18 $
1
1
20 $
$
493,977
—
110,830
3,925
—
36,914
645,646
46,549
53,305
745,500
(13,170)
732,330
66.2 %
— %
14.9 %
0.5 %
— %
5.0 %
86.6 %
6.2 %
7.2 %
100.0 %
26
Total loans receivable and other lending investments, net
_______________________________________________________________________________
(1)
Year of maturity for our performing loans and other securities represents the initial maturity and does not include any extension options. As of December 31, 2020, our performing loans
and other securities had a weighted average remaining term, exclusive of any borrower extension options, of 2.3 years.
Table of Contents
The tables below summarize our loan portfolio, excluding securities and other lending investments, and the allowances for loan losses associated
with our loan portfolio ($ in thousands):
Performing loans
Non-performing loans
Other lending investments
Total
December 31, 2020
Number
Gross Carrying
Value
Allowance for
Loan Losses
Carrying
Value
16 $
1
3
20 $
529,657 $
53,305
162,538
745,500 $
(8,184) $
(742)
(4,244)
(13,170) $
521,473
52,563
158,294
732,330
December 31, 2019
Performing loans
Non-performing loans
Other lending investments
Total
Number
Gross Carrying
Value
Allowance for
Loan Losses
Carrying
Value
22 $
1
3
26 $
665,459 $
37,820
153,216
856,495 $
(6,933) $
(21,701)
—
(28,634) $
658,526
16,119
153,216
827,861
Allowance for
Loan Losses as a %
of Gross Carrying
Value
1.5%
1.4%
2.6%
1.8%
% of Total
71.2%
7.2%
21.6%
100.0%
Allowance for
Loan Losses as a %
of Gross Carrying
Value
1.0%
57.4%
—%
3.3%
% of Total
79.6%
1.9%
18.5%
100.0%
Performing Loans—The table below summarizes our performing loans gross of allowances ($ in thousands):
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
Weighted average LTV
Yield - year to date
December 31, 2020
432,350
85,667
11,640
529,657
$
$
December 31, 2019
534,765
119,818
10,877
665,460
$
$
57 %
7.7 %
56 %
8.8 %
Non-Performing Loans—We designate loans as non-performing at such time as: (1) interest payments become 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, 2020, we had one non-performing loan with a carrying value of $52.6 million compared to one non-performing loan with a carrying value of
$16.1 million as of December 31, 2019. We expect that our level of non-performing loans will fluctuate from period to period.
Allowance for Loan Losses—The allowance for loan losses was $13.2 million as of December 31, 2020, or 1.8% of total loans and other lending
investments, compared to $28.6 million or 3.3% as of December 31, 2019. We expect that our level of allowance 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 allowances requires the use of
significant judgment. We currently believe there is adequate collateral and allowances to support the carrying values of the loans and other lending
investments.
The allowance for loan losses includes an asset-specific component and a formula-based component. An asset-specific allowance 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,
2020, asset-specific allowances decreased to $0.7 million compared to $21.7 million as of December 31, 2019. The decrease was due primarily to a
$25.9 million charge-off resulting from the sale of a non-performing loan.
We estimate the formula-based component based on historical realized losses experienced within our portfolio and take into account current
economic conditions affecting the commercial real estate market. In addition, we use third-party market data that includes forecasted economic trends,
including unemployment rates.
27
Table of Contents
The general allowance increased to $12.4 million or 1.8% of performing loans and other lending investments as of December 31, 2020, compared to
$6.9 million or 1.0% of performing loans as of December 31, 2019. The increase was due to a $0.7 million general allowance recorded upon the adoption
of ASU 2016-13 on January 1, 2020 and an increase in the general allowance of $4.8 million during the year ended December 31, 2020.
Operating Properties
Our operating properties represent a pool of assets across a broad range of geographies and property types including industrial, hotel, multifamily,
retail, condominium, entertainment/leisure and office properties. As of December 31, 2020, our operating property portfolio, including the carrying value
of our equity method investments gross of accumulated depreciation, totaled $309.0 million.
Portfolio Activity—We have been monetizing our operating properties and during the year ended December 31, 2020, we sold commercial and
residential operating properties with an aggregate carrying value of $5.7 million and recognized gains of $0.2 million in "Income from sales of real estate"
in our consolidated statements of operations. We also invested $1.6 million in our operating properties and made contributions of $2.8 million to our
operating property equity method investments.
Land and Development
As of December 31, 2020, the Company's land and development portfolio, including equity method investments, includes master planned
communities, infill land parcels and waterfront land parcels located throughout the United States. The Company's land and development portfolio included
the following, based on net carrying values ($ in thousands):
Land and development, net
Other investments
Total
As of December 31,
2020
2019
$
$
430,663
31,200
461,863
$
$
580,545
42,866
623,411
Portfolio Activity—During the year ended December 31, 2020, we sold land parcels and residential lots and units and recognized $164.7 million in
"Land development revenue" and $177.7 million in "Land development cost of sales" in our consolidated statement of operations.
The following table presents a land and development portfolio rollforward for the year ended December 31, 2020.
Land and Development Portfolio Rollforward
(in millions)
Asbury Ocean
Club and
Asbury Park
Waterfront
Magnolia
Green
All
Others
(1)
(2)
Beginning balance
Asset sales
Capital expenditures
Other
$
234.6 $
(45.1)
11.6
—
201.1 $
112.9 $
(24.1)
15.1
(2.6)
101.3 $
233.0 $
(103.1)
3.7
(5.3)
128.3 $
Total
580.5
(172.3)
30.4
(7.9)
430.7
(1)
Ending balance
_______________________________________________________________________
(1)
(2)
As of December 31, 2020 and 2019, total excludes $31.2 million and $42.9 million, respectively, of equity method investments.
Represents gross book value of the assets sold, rather than proceeds received.
$
28
Table of Contents
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.
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,
aquatic center and a tennis facility.
29
Table of Contents
Results of Operations for the Year Ended December 31, 2020 compared to the Year Ended December 31, 2019
Operating lease income
Interest income
Interest income from sales-type leases
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 loan losses
Provision for losses on net investment in leases
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
Selling profit from sales-type leases
Income tax expense
Net income (loss)
For the Years Ended
December 31,
2020
2019
(in thousands)
$ Change
$
$
188,722 $
60,116
33,552
83,857
164,702
530,949
169,574
72,493
177,727
58,092
100,879
9,052
1,760
7,827
569
597,973
6,318
(12,038)
42,126
—
(235)
(30,853) $
206,388 $
77,654
20,496
55,363
119,595
479,496
183,919
92,426
109,663
58,259
98,609
6,482
—
13,419
13,120
575,897
236,623
(27,724)
41,849
180,416
(438)
334,325 $
(17,666)
(17,538)
13,056
28,494
45,107
51,453
(14,345)
(19,933)
68,064
(167)
2,270
2,570
1,760
(5,592)
(12,551)
22,076
(230,305)
15,686
277
(180,416)
203
(365,178)
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased to $188.7
million in 2020 from $206.4 million in 2019. The following tables summarizes our operating lease income by segment ($ in millions).
(1)
Net Lease
Operating Properties
Land and Development
Total
(2)
2020
2019
Change
$
$
167.1 $
21.2
0.4
188.7 $
177.7 $
28.4
0.3
206.4 $
(10.6)
(7.2)
0.1
(17.7)
______________________________________________________________
(1) Change primarily due to asset sales and the reclassification of certain operating leases to sales-type leases in May 2019 (refer to Note 5), partially offset by new acquisitions.
(2) Change primarily due to asset sales and a decrease in percentage rent at certain properties resulting from the impacts of the COVID-19 pandemic.
The following table shows certain same store statistics for our Net Lease segment. Same store assets are defined as assets we owned on or prior to
January 1, 2019 and were in service through December 31, 2020 (Operating lease income in millions).
2020
2019
Operating lease income
Rent per square foot
Occupancy
______________________________________________________________
(1) Occupancy as of December 31, 2020 and 2019.
165.3
11.09
99.3 %
$
$
$
$
(1)
160.3
10.76
99.3 %
30
Table of Contents
Interest income decreased to $60.1 million in 2020 from $77.7 million in 2019. The decrease in interest income was due primarily to a decrease in the
average balance of our performing loans and other lending investments, which decreased to $706 million for the year ended December 31, 2020 from $857
million in 2019. The weighted average yield on our performing loans and other lending investments was 7.7% and 8.8% for the years ended December 31,
2020 and 2019, respectively.
On January 1, 2019, we adopted new accounting standards and classified certain of our new leases in 2019 as sales-type leases. Interest income from
sales-type leases increased to $33.6 million for the year ended December 31, 2020 from $20.5 million for the year ended December 31, 2019. The increase
was due primarily to a full period of interest income for sales-type leases during the year ended December 31, 2020 (refer to Note 5).
Other income increased to $83.9 million in 2020 from $55.4 million in 2019. Other income in 2020 consisted primarily of mark-to-market gains on an
equity investment, management fees, income resulting from the reimbursement of attorneys’ fees in connection with the successful resolution of litigation,
income from our hotel properties, other ancillary income from our operating properties, land and development projects and loan portfolio and interest
income on our cash. Other income in 2019 consisted primarily of income from our hotel properties, management fees, lease termination fees, other
ancillary income from our operating properties and interest income earned on our cash balances. The increase in 2020 was primarily due to $23.9 million of
mark-to-market gains on an equity investment (refer to Note 8), $12.5 million of income resulting from the reimbursement of attorneys’ fees in connection
with the successful resolution of litigation and an increase in management fees from SAFE, partially offset by a decrease in income from our hotel
properties and other operating properties.
Land development revenue and cost of sales—In 2020, we sold residential lots and units and recognized land development revenue of $164.7
million which had associated cost of sales of $177.7 million. In 2019, we sold land parcels and residential lots and units and recognized land development
revenue of $119.6 million which had associated cost of sales of $109.7 million. The increase in 2020 was due primarily to the sale of a 430 acre site in
California for $36.0 million which had associated cost of sales of $35.4 million.
Costs and expenses—Interest expense decreased to $169.6 million in 2020 from $183.9 million in 2019. The balance of our average outstanding
debt, inclusive of loan participations and lease liabilities associated with finance leases, was $3.52 billion for 2020 and $3.50 billion for 2019. Our
weighted average cost of debt was 4.8% for 2020 and 5.4% for 2019.
Real estate expenses decreased to $72.5 million in 2020 from $92.4 million in 2019. The following table summarizes our real estate expenses by
segment ($ in millions).
(1)
Operating Properties
Land and Development
(3)
Net Lease
Total
(2)
2020
2019
Change
$
$
22.9 $
23.0
26.6
72.5 $
35.3 $
32.3
24.8
92.4 $
(12.4)
(9.3)
1.8
(19.9)
______________________________________________________________
(1) Change primarily due to asset sales and a decrease in expenses at certain hotel and entertainment/leisure operating properties due to the COVID-19 pandemic.
(2) Change primarily due to a decrease in legal and marketing costs at some properties and asset sales.
(3) Change primarily due to the acquisition of new investments, partially offset by asset sales.
Depreciation and amortization was $58.1 million in 2020 and $58.3 million in 2019. The slight decrease in 2020 was primarily due to asset sales and
the reclassification of certain operating leases to sales-type lease (refer to Note 5), partially offset by new acquisitions.
General and administrative expense increased to $100.9 million in 2020 from $98.6 million in 2019. The increase in 2020 was due primarily to a $6.1
million increase in performance based compensation, which was partially offset by a decrease in payroll and related costs, a decrease in travel and
entertainment costs and a decrease in other office costs.
The provision for loan losses was $9.1 million in 2020 as compared to a provision for loan losses of $6.5 million in 2019. The provision for loan
losses for the year ended December 31, 2020 included a $4.2 million provision resulting primarily from the sale of a non-performing loan and an increase
of $4.9 million in the general allowance. The provision for loan losses in 2019 included a $12.5 million specific allowance resulting primarily from the
deterioration of the collateral for one of our loans, partially offset by a $6.0 million decrease in the general allowance due to a decrease in the size of our
loan portfolio.
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Table of Contents
The provision for losses on net investment in leases for the year ended December 31, 2020 included an allowance resulting from the adoption of ASU
2016-13 and the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets.
In 2020, we recorded aggregate impairments of $7.8 million in connection with the sale of net lease assets and impairments on a real estate asset held
for sale and land and development assets. In 2019, we recorded aggregate impairments of $5.7 million in connection with the sale of net lease properties
and a commercial operating property, an aggregate impairment of $5.3 million on two land and development assets based on sales proceeds, a $1.1 million
impairment on a land and development asset due to a change in business strategy, $0.6 million of impairments in connection with the sale of residential
condominium units and an impairment of $0.6 million on an equity investment.
Other expense decreased to $0.6 million in 2020 from $13.1 million in 2019. The decrease in 2020 was due primarily to losses associated with
derivative contracts that were terminated in 2019.
Income from sales of real estate—Income from sales of real estate decreased to $6.3 million in 2020 from $236.6 million in 2019. During the year
ended December 31, 2020, we recorded $6.1 million of income from sales of real estate from the sale of a Ground Lease to SAFE (refer to Note 8) and
$0.2 million from the sale of an operating property. During the year ended December 31, 2019, we recorded $236.6 million of income from sales of real
estate, primarily from the sale of a portfolio of net lease assets and operating properties.
Loss on early extinguishment of debt, net—In 2020 and 2019, we incurred losses on early extinguishment of debt of $12.0 million and $27.7
million, respectively, primarily from the repayment of senior notes prior to maturity.
Earnings from equity method investments—Earnings from equity method investments increased to $42.1 million in 2020 from $41.8 million in
2019. In 2020, we recognized $53.5 million of income from our equity method investment in SAFE, inclusive of $14.4 million of dilution gains resulting
from the dilution of our ownership in SAFE in connection with SAFE equity offerings in 2020, and $2.7 million from our equity investment in Net Lease
Venture II, which were partially offset by $14.1 million of net aggregate losses from our remaining equity method investments. In 2019, we recognized
$29.8 million of income from our equity method investment in SAFE, which included a dilution gain of $7.6 million, $19.3 million resulting primarily
from the sale of assets in operating property ventures and $7.3 million of aggregate losses from our remaining equity method investments.
Selling profit from sales-type leases—During the year ended December 31, 2019, we entered into a transaction with an operator of bowling
entertainment venues, consisting of the purchase of nine bowling centers for $56.7 million and a commitment to invest up to $55.0 million in additional
bowling centers over the next several years (refer to Note 5). The new centers were added to our existing master leases with the tenant. In connection with
this transaction, the maturities of the leases were extended by 15 years to 2047. As a result of the modifications to the leases, we classified the leases as
sales-type leases and recognized $180.4 million in "Selling profit from sales-type leases" as a result of the transaction.
Income tax expense—An income tax expense of $0.2 million was recorded in 2020 and a $0.4 million income tax expense was recorded in 2019.
The income tax expense for both periods consists primarily of state margins taxes and other minimum state franchise taxes.
32
Table of Contents
Adjusted Earnings
In 2019, we announced a new business strategy that would focus our management personnel and our investment resources primarily on scaling our
Ground Lease platform. As part of this strategy, we accelerated the monetization of legacy assets, reducing our legacy portfolio to approximately 15% of
our overall portfolio as of December 31, 2020, and deployed a substantial portion of the proceeds into additional investments in SAFE and new loan and
net lease originations relating to the Ground Lease business. Management has determined that, effective for the first quarter 2020, a modified non-GAAP
earnings metric, designated "adjusted earnings," is the metric it uses to assess our execution of this strategy and the performance of our operations.
Adjusted earnings reflects impairment charges and loan provisions in the same period in which they are recognized in net income (loss) prepared in
conformity with generally accepted accounting principles in the United States of America ("GAAP"), rather than in a later period when the asset is sold.
We believe this change is appropriate as legacy asset sales have become less central to our business, even though sales may be material to particular periods
when they occur.
Adjusted earnings is used internally as a supplemental performance measure which adjusts for certain items to give management a view of income
more directly derived from operating activities in the period in which they occur. Adjusted earnings is calculated as net income (loss) allocable to common
shareholders, prior to the effect of depreciation and amortization, including our proportionate share of depreciation and amortization from equity method
investments and excluding depreciation and amortization allocable to noncontrolling interests, stock-based compensation expense, the non-cash portion of
loss on early extinguishment of debt and the liquidation preference recorded as a premium above book value on the redemption of preferred stock
("Adjusted Earnings"). All prior periods have been calculated in accordance with this definition.
Adjusted Earnings should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted
Earnings 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 Earnings indicative of funds available to fund our cash needs or
available for distribution to shareholders. Rather, Adjusted Earnings 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. It should be noted that our
manner of calculating Adjusted Earnings may differ from the calculations of similarly-titled measures by other companies.
Adjusted Earnings
Net income (loss) allocable to common shareholders
Add: Depreciation and amortization
Add: Stock-based compensation expense
Add: Non-cash portion of loss on early extinguishment of debt
Adjusted earnings allocable to common shareholders
For the Years Ended December 31,
2020
2019
2018
$
$
(65,937) $
63,882
39,354
3,470
40,769 $
291,547 $
58,925
30,436
7,118
388,026 $
(64,757)
68,056
17,563
4,318
25,180
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Liquidity and Capital Resources
During the year ended December 31, 2020, we invested an aggregate $601 million in new investments, prior financing commitments and real estate
development. Investments included $332 million in net lease, loan, and strategic investments, $48 million in the repurchase of our common stock,
$45 million of capital expenditures on legacy assets and $176 million in SAFE common stock. These amounts are inclusive of fundings from our
consolidated investments and our pro rata share from equity method investments and includes $171 million of investments made within the Net Lease
Venture II, of which we own 51.9%.
The following table outlines our capital expenditures on operating properties, net lease and land and development assets as reflected in our
consolidated statements of cash flows for the years ended December 31, 2020 and 2019, by segment ($ 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,
2020
2019
2,233 $
13,565
15,798 $
40,954 $
40,954 $
6,397
33,549
39,946
117,514
117,514
$
$
$
$
As of December 31, 2020, we had unrestricted cash of $99 million and $350 million of borrowing capacity available under the Revolving Credit
Facility. The COVID-19 pandemic has for the time being adversely affected our strategies of monetizing legacy assets and materially scaling SAFE's
portfolio as its Manager. These conditions will adversely affect our strategies while they persist. Our primary cash uses over the next 12 months are
expected to be funding of investments, capital expenditures, distributions to shareholders through dividends and share repurchases and funding ongoing
business operations. The amount we actually invest will depend on the full impact of the COVID-19 pandemic on our business and the pace of the
economic recovery. As of December 31, 2020, we also had approximately $104 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 approximately $494 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, Revolving Credit Facility borrowings, 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, including conditions arising from the
COVID-19 pandemic. While certain economic trends have improved since the onset of the pandemic, the uncertain duration of the pandemic and its
effects, particularly its effects on the commercial real estate markets in which we operate, make it impossible for us to predict 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.
Senior Term Loan—In June 2018, we amended our senior secured term loan (the "Senior Term Loan") to increase the amount of the loan to $650.0
million, reduce the interest rate to LIBOR plus 2.75% and extend its maturity to June 2023. The Senior Term Loan is secured by pledges of equity of
certain subsidiaries that own a defined pool of assets. The Senior Term Loan permits substitution of collateral, subject to overall collateral pool coverage
and concentration limits, over the life of the facility. We may make optional prepayments, subject to prepayment fees.
Revolving Credit Facility—In September 2019, we amended and restated our secured revolving credit facility (the "Revolving Credit Facility") to
increase the maximum available principal amount to $350.0 million, extend the maturity date to September 2022 and make certain other changes.
Outstanding borrowings under the Revolving Credit Facility are secured by pledges of the equity interests in our subsidiaries that own a defined pool of
assets. 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, ranging from 1.0% to 1.5% in the case of base rate loans and from 2.0% to 2.5% in the case of LIBOR
loans. In addition, there is an undrawn credit facility commitment fee ranging from 0.25% to 0.45% based on corporate credit ratings. At maturity, we may
convert outstanding borrowings to a one year term loan which matures in quarterly installments
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through September 2023. As of December 31, 2020, based on our borrowing base of assets, we had $350.0 million of borrowing capacity available under
the Revolving Credit Facility.
Unsecured Notes—In August 2020, we issued $400.0 million principal amount of 5.50% senior unsecured notes due February 2026. Proceeds from
the offering, together with cash on hand, were used to repay in full the $400.0 million principal amount outstanding of the 5.25% senior unsecured notes
due September 2022. In December 2019, we issued $550.0 million principal amount of 4.25% senior unsecured notes due August 2025. Proceeds from the
offering were used to redeem the $375.0 million principal amount outstanding ($110.5 million was redeemed in January 2020) of the 6.00% senior
unsecured notes due April 2022, repay a portion of the borrowings outstanding under the Senior Term Loan and pay related premiums and expenses in
connection with the transaction. In September 2019, we issued $675.0 million principal amount of 4.75% senior unsecured notes due October 2024.
Proceeds from the offering, together with cash on hand, were used in October 2019 to repay in full the $400.0 million principal amount outstanding of the
4.625% senior unsecured notes due September 2020 and the $275.0 million principal amount outstanding of the 6.50% senior unsecured notes due July
2021. In November 2019, we issued an additional $100.0 million principal amount of 4.75% senior unsecured notes due October 2024. Proceeds from the
offering were used for general corporate purposes.
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 Senior Term Loan and the 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 Senior Term Loan requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The 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 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. Under both the Senior Term Loan and the
Revolving Credit Facility we are permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is
continuing or would result therefrom and we remain in compliance with our financial covenants after giving effect to the dividend.
Derivatives—Our use of derivative financial instruments, if necessary, has primarily been 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 13" for further details.
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, 2020, 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
Total
Loans and Other
Lending
Investments
(1)
Real Estate
Other
Investments
$
$
63,419 $
—
63,419 $
2,213 $
—
2,213 $
25,959 $
12,810
38,769 $
Total
91,591
12,810
104,401
_______________________________________________________________________________
(1)
Excludes $7.5 million of commitments on loan participations sold that are not our obligation.
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, 2020, we repurchased 4.2 million shares of our outstanding common stock for $48.4 million,
representing an average cost of $11.48 per share. During the year ended December 31, 2019, we repurchased 7.3 million shares of our outstanding common
stock for $74.6 million, representing an average cost of $10.16 per share. 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. As of December 31, 2020, we had authorization to
repurchase up to $33.8 million of our common stock. In February 2021, our board of directors authorized an increase to the stock repurchase program to
$50.0 million.
Preferred Equity—In December 2019, we issued 16.5 million shares of our common stock upon conversions of our Series J preferred stock by the
holders thereof. We redeemed a de minimis amount of the Series J preferred stock for cash at the liquidation preference plus accrued dividends to the
redemption date (refer to Note 14).
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 2020, 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:
Allowance for loan losses and net investment in leases—We perform a quarterly comprehensive analysis of our loan and sales-type lease portfolios
and assign risk ratings that incorporate management's current judgments about 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 or tenant financial resources and investment
collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans
and sales-type leases being risk rated, with ratings ranging from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk
of loss.
Upon adoption of ASU 2016-13 on January 1, 2020, we estimate our Expected Loss on our loans (including unfunded loan commitments), held-to-
maturity debt securities and net investment in leases based on relevant information including historical realized loss rates, current market conditions and
reasonable and supportable forecasts that affect the collectability of our investments. The estimate of our Expected Loss requires significant judgment and
we analyze our loan portfolio based upon our different categories of financial assets, which includes: (i) loans and held-to-maturity debt securities; (ii)
construction loans; and (iii) net investment in leases and financings that resulted from the acquisition of properties that did not qualify as a sale leaseback
transaction and, as such, are accounted for as financing receivables (refer to Note 5).
For our loans, held-to-maturity debt securities, construction loans, net investment in leases and financings that resulted from the acquisition of
properties that did not qualify as sale leaseback transactions, we analyzed our historical realized loss experience to estimate our Expected Loss. We
adjusted our Expected Loss through the use of third-party market data that provided current and future economic conditions that may impact the
performance of the commercial real estate assets securing our investments.
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We consider a loan or sales-type lease to be non-performing and place it on non-accrual status at such time as: (1) interest payments become 90 days
delinquent; (2) it 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 or sales-type lease. Non-accrual loans or sales-type leases are returned to accrual status when they have become contractually
current and management believes all amounts contractually owed will be received. We will record a specific allowance on a non-performing loan or sales-
type lease if we determine that the collateral fair value less costs to sell is less than the carrying value of the collateral-dependent asset. The specific
allowance is increased (decreased) through "Provision for (recovery of) loan losses" or "Provision for losses on net investment in leases" 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 or tenant as we work toward a settlement or other alternative resolution, which can impact the potential for 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 allowance will be charged off.
The provision for loan losses for the years ended December 31, 2020, 2019 and 2018 were $9.1 million, $6.5 million and $16.9 million, respectively.
The provision for losses on net investment in leases for the year ended December 31, 2020 was $1.8 million.
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 for use 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, 2020, we recorded an aggregate impairment of $7.8 million in connection with the sale of net lease assets and
impairments on a real estate asset held for sale and land and development assets. During the year ended December 31, 2019, we recorded aggregate
impairments on real estate and land and development assets of $13.4 million. During the year ended December 31, 2018, we recorded impairments of
$147.1 million on land and development and real estate assets resulting primarily from our decision to accelerate the monetization of certain legacy assets,
including several larger assets.
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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 decrease by 10 basis points or increase 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 0.14% as of December 31, 2020. Actual results could
differ significantly from those estimated in the table.
Estimated Change In Net Income
($ in thousands)
Net Income
Change in Interest Rates
-10 Basis Points
Base Interest Rate
+10 Basis Points
+50 Basis Points
+100 Basis Points
______________________________________________________________________________
(1) We have an overall net variable-rate liability position. In addition, as of December 31, 2020, $290.7 million of our floating rate loans have a cumulative weighted average LIBOR floor of
278
—
(278)
(1,364)
(2,616)
$
(1)
1.7% and $42.5 million of our floating rate debt has a cumulative weighted average interest rate floor of 1.5%.
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Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts and Reserves as of December 31, 2020 with reconciliations for the years ended
December 31, 2020, 2019 and 2018
Schedule III—Real Estate and Accumulated Depreciation as of December 31, 2020 with reconciliations for the years ended December
31, 2020, 2019 and 2018
Schedule IV—Mortgage Loans on Real Estate as of December 31, 2020 with reconciliations for the years ended December 31, 2020,
2019 and 2018
Page
40
43
44
45
46
48
49
93
94
102
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
39
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 sheets of iStar Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the
related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows, for each of the three years in the period
ended December 31, 2020, 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, 2020 and 2019, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 23, 2021, expressed an unqualified opinion on
the Company's internal control over financial reporting.
Change in Accounting Principle
Effective January 1, 2019, the company adopted FASB Accounting Standards Updates 2016-02 and 2018-11, Leases, using the modified retrospective
approach.
As discussed in Note 3 to the financial statements, the Company has changed its method of accounting for allowance for Loan Losses and Net Investment
in Leases in 2020 due to adoption of Financial Accounting Standards Board (“FASB”); Accounting Standards Update (“ASU”) 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2020.
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 audits. 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 audits 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 audits 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 audits
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 audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Current Expected Credit Loss (“Expected Loss”) – Refer to Note 3 and Note 5 to the financial statements
Critical Audit Matter Description
The Company estimates its Expected Loss on its loans (including unfunded loan commitments), net investment in leases, financing receivables and held-to-
maturity debt securities based on relevant information including historical realized loss rates, current market conditions and reasonable and supportable
forecasts that may affect the collectability of its investments. The
40
estimate of the Company's Expected Loss required judgment when determining the current and future economic conditions that may impact the
performance of the assets securing the Company’s investments.
The determination of the Company’s expected loss rate, including the projection of current and future economic conditions, represents a critical audit
matter given the level of subjectivity and judgement involved. Performing audit procedures to evaluate the expected loss rate required a high degree of
auditor judgment, and an increased extent of effort to evaluate whether management reasonably and appropriately quantified the macroeconomic risks
associated with the Company’s portfolio.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to assess the estimate applied by management to the Expected Loss to account for current and future economic conditions included
the following, among others:
– We tested the effectiveness of controls implemented by the Company in relation to the calculation of the Expected Loss, including the judgements
involved in the determination of the macroeconomic factors applied to the historical loss rate.
– With the assistance of a credit specialist, we evaluated the reasonableness of the methodology and significant assumptions used by management.
– We evaluated management’s expected loss rate by performing a peer benchmarking analysis.
– We tested the accuracy and completeness of quantitative data used by management to estimate the current and future economic conditions.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 23, 2021
We have served as the Company's auditor since 2018.
41
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, 2020, 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, 2020,
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, 2020, of the Company and our report dated February 23, 2021, expressed, an unqualified
opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Financial Accounting Standards Board
(“FASB”); Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial
Instruments, using the modified retrospective approach method.
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 23, 2021
We have served as the Company's auditor since 2018.
42
Table of Contents
iStar Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(1)
ASSETS
Real estate
Real estate, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale
Total real estate
Net investment in leases
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 AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities
Liabilities associated with properties held for sale
Loan participations payable, net
Debt obligations, net
Total liabilities
Commitments and contingencies (refer to Note 12)
Equity:
iStar Inc. shareholders' equity:
Preferred Stock Series D, G and I, liquidation preference $25.00 per share (refer to Note 14)
Common Stock, $0.001 par value, 200,000 shares authorized, 73,967 and 77,810 shares issued and outstanding as
of December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss (refer to Note 14)
Total iStar Inc. shareholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
_______________________________________________________________________________
Refer to Note 2 for details on the Company's consolidated variable interest entities ("VIEs").
(1)
As of December 31,
2020
2019
1,752,053 $
(267,772)
1,484,281
5,212
1,489,493
429,101
430,663
732,330
1,176,560
98,633
10,061
58,128
436,839
4,861,808 $
467,922 $
27
42,501
3,286,975
3,797,425
1,761,079
(233,860)
1,527,219
8,650
1,535,869
418,915
580,545
827,861
907,875
307,172
10,162
54,222
442,488
5,085,109
424,374
57
35,638
3,387,080
3,847,149
12
12
74
3,240,535
(2,316,972)
(52,680)
870,969
193,414
1,064,383
4,861,808 $
78
3,284,877
(2,205,838)
(38,707)
1,040,422
197,538
1,237,960
5,085,109
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
43
iStar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
For the Years Ended December 31,
2019
2018
2020
Table of Contents
Revenues:
Operating lease income
Interest income
Interest income from sales-type leases
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
Provision for loan losses
Provision for losses on net investment in leases
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
Selling profit from sales-type leases
Gain on consolidation of equity method investment
Net income (loss) from operations before income taxes
Income tax expense
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to iStar Inc.
Preferred dividends
Net income (loss) allocable to common shareholders
Per common share data:
Net income (loss) allocable to common shareholders
Basic
Diluted
Weighted average number of common shares:
Basic
Diluted
$
$
$
$
188,722 $
60,116
33,552
83,857
164,702
530,949
169,574
72,493
177,727
58,092
100,879
9,052
1,760
7,827
569
597,973
6,318
(60,706)
(12,038)
42,126
—
—
(30,618)
(235)
(30,853)
(11,588)
(42,441)
(23,496)
(65,937) $
(0.87) $
(0.87) $
75,684
75,684
206,388 $
77,654
20,496
55,363
119,595
479,496
183,919
92,426
109,663
58,259
98,609
6,482
—
13,419
13,120
575,897
236,623
140,222
(27,724)
41,849
180,416
—
334,763
(438)
334,325
(10,283)
324,042
(32,495)
291,547 $
4.51 $
3.73 $
64,696
80,666
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)
(13,936)
(32,262)
(32,495)
(64,757)
(0.95)
(0.95)
67,958
67,958
The accompanying notes are an integral part of the consolidated financial statements.
44
iStar Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Table of Contents
Net income (loss)
Other comprehensive income (loss):
(1)
Impact from adoption of new accounting standards
Reclassification of losses on cumulative translation adjustment into earnings upon
realization
Reclassification of (gains) losses on cash flow hedges into earnings upon realization
Unrealized gains (losses) on available-for-sale securities
Unrealized gains (losses) on cash flow hedges
Unrealized losses on cumulative translation adjustment
(2)
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to iStar Inc.
_______________________________________________________________________________
(1)
(2)
For the Years Ended December 31,
2019
2018
2020
$
(30,853) $
334,325 $
(18,326)
—
—
—
8,075
1,838
(28,290)
—
(18,377)
(49,230)
(7,184)
(56,414) $
—
14,524
2,280
(42,582)
—
(25,778)
308,547
(5,942)
302,605 $
276
721
(1,508)
(1,135)
(14,699)
(364)
(16,709)
(35,035)
(12,015)
(47,050)
$
Amounts were reclassified to "Earnings (losses) 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 $6,974, $1,861 and $388 for the years ended December 31, 2020, 2019 and 2018,
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 $1,101, $184 and $(20),
respectively, for the years ended December 31, 2020, 2019 and 2018. Amount reclassified to "Other expense" in the Company's consolidated statements of operations is $11,673 for
the year ended December 31, 2019 resulting from hedged forecasted transactions becoming not probable to occur. Amount reclassified to "Income from sales of real estate" in the
Company's consolidated statements of operations is $806 for the year ended December 31, 2019.
The accompanying notes are an integral part of the consolidated financial statements.
45
Table of Contents
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
iStar Inc. Shareholders' Equity
Preferred
(1)
Stock
Preferred
Stock
Series J
(1)
Common
Stock at
Par
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
(2)
Balance as of December 31, 2017
Dividends declared—preferred
Dividends declared—common
($0.18 per share)
Issuance of stock/restricted stock
unit amortization, net
Net loss
Change in accumulated other
comprehensive income (loss)
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 8)
Impact from adoption of new
accounting standards
Balance as of December 31, 2018
Dividends declared—preferred
Dividends declared—common
($0.39 per share)
Issuance of stock/restricted stock
unit amortization, net
Net income
Change in accumulated other
comprehensive income (loss)
Repurchase of stock
Redemption of Series J Preferred
Stock
Contributions from noncontrolling
interests
Distributions to noncontrolling
interests
Balance as of December 31, 2019
Impact from adoption of new
accounting standards (refer to Note
3)
Dividends declared—preferred
Dividends declared—common
($0.43 per share)
(2)
Total
Equity
914,249
(32,495)
$
12 $
—
4 $
—
68 $ 3,352,665 $(2,470,564) $
—
(32,495)
—
(2,482) $
—
34,546 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
(1)
—
—
—
—
—
—
(12,333)
7,863
—
—
(8,303)
—
—
—
—
(32,262)
—
—
—
—
—
—
—
—
(15,064)
—
—
—
—
(12,333)
—
13,936
(1,921)
—
7,864
(18,326)
(16,985)
(8,304)
15,227
15,227
(48,930)
(48,930)
—
188,279
188,279
$
—
12 $
—
—
4 $
—
—
—
68 $ 3,352,225 $(2,472,061) $
—
(32,495)
75,593
—
—
—
—
—
—
—
—
—
—
—
—
—
(4)
—
—
1
—
—
(7)
16
—
—
(25,324)
7,317
—
—
324,042
—
(74,640)
(25)
—
—
—
—
—
—
12 $
—
— $
$
—
78 $ 3,284,877 $(2,205,838) $
—
—
276
(17,270) $
—
—
—
—
(21,437)
—
—
—
—
75,869
201,137 $ 1,064,115
(32,495)
—
—
(25,324)
2,864
10,283
(4,341)
—
10,182
334,325
(25,778)
(74,647)
—
(13)
2,592
2,592
—
(38,707) $
(14,997)
(14,997)
197,538 $ 1,237,960
—
—
—
—
—
—
—
—
—
—
—
—
(12,382)
(23,496)
(32,815)
—
—
—
—
—
—
(12,382)
(23,496)
(32,815)
46
Table of Contents
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
iStar Inc. Shareholders' Equity
Preferred
(1)
Stock
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
Issuance of stock/restricted stock
unit amortization, net
Net income (loss)
Change in accumulated other
comprehensive income (loss)
Repurchase of stock
Contributions from noncontrolling
interests
Distributions to noncontrolling
interests
Balance as of December 31, 2020
$
—
—
—
—
—
—
—
—
—
—
1
—
—
(5)
—
4,060
—
—
(48,402)
—
—
(42,441)
—
—
—
—
12 $
—
— $
—
74 $ 3,240,535 $(2,316,972) $
—
—
—
—
(13,973)
—
3,363
11,588
(4,404)
—
7,424
(30,853)
(18,377)
(48,407)
—
496
496
—
(52,680) $
(15,167)
(15,167)
193,414 $ 1,064,383
_______________________________________________________________________________
(1)
(2)
Refer to Note 14 for details on the Company's Preferred Stock.
Net of payments for withholding taxes upon vesting of stock-based compensation.
The accompanying notes are an integral part of the consolidated financial statements.
47
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 loan losses
Provision for losses on net investment in leases
Impairment of assets
Depreciation and amortization
Non-cash interest income from sales-type leases
Stock-based compensation expense
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
Selling profit from sales-type leases
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, net investments in leases and land assets
Repayments of and principal collections on loans receivable and other lending investments, net
Net proceeds from sales of loans receivable
Net proceeds from sales of real estate
Net proceeds from sales of land and development assets
Cash, cash equivalents and restricted cash acquired upon consolidation of equity method investment
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
Repayments and repurchases of debt obligations
Purchase of marketable securities in connection with the defeasance of mortgage notes payable
Preferred dividends paid
Common dividends paid
Repurchase of stock
Payments for deferred financing costs
Payments for withholding taxes upon vesting of stock-based compensation
Contributions from noncontrolling interests
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
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
Sales-type lease origination
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
Acquisition of land and development asset through joint venture consolidation
Conversion of Series J convertible preferred stock
Defeasance of mortgage notes payable
Accrued finance costs
Accrued stock repurchases
Assumption of mortgage by third party
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
For the Years Ended December 31,
2020
2019
2018
$
(30,853)
$
334,325
$
(18,326)
9,052
1,760
7,827
58,092
(24,969)
39,354
13,328
(30,738)
20,661
—
—
(42,126)
24,826
(14,052)
(6,318)
13,025
12,038
(19,496)
(2,311)
(5,351)
(1,863)
21,886
(119,368)
(15,798)
(40,954)
—
208,240
11,000
48,415
161,063
—
39,871
(260,121)
(1,169)
31,179
802,913
(913,501)
—
(23,496)
(32,664)
(54,565)
(7,711)
(2,716)
496
(15,167)
(8,567)
—
(254,978)
273
(201,640)
352,206
150,566
142,453
$
$
6,482
—
13,419
58,259
(3,781)
30,436
13,847
(42,342)
10,397
—
(180,416)
(41,849)
30,058
(16,185)
(236,623)
(9,932)
27,724
13,642
417
(5,848)
(47,655)
(45,625)
(255,804)
(39,946)
(117,514)
(240,487)
419,800
5,898
329,971
114,885
—
62,911
(656,720)
(21,090)
(398,096)
1,486,980
(1,482,558)
—
(32,495)
(25,059)
(68,289)
(19,928)
(4,475)
2,812
(14,998)
(20,606)
(13)
(178,629)
12
(622,338)
974,544
352,206
$
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)
13,927
(60,743)
(4,132)
7,693
(457,939)
19
296,811
677,733
974,544
181,520
171,590
For the Years Ended December 31,
2020
2019
2018
$
6,720
—
—
—
—
—
7,604
—
—
—
115
200
—
—
—
—
—
$
13,014
411,523
—
4,073
—
—
—
27,000
193,510
—
2,362
6,358
228,000
—
—
—
—
(80,095)
—
4,600
—
16,052
110,939
—
—
—
(105,785)
—
—
—
142,639
844,550
464,706
200,093
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
48
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 8). The Company has invested
over $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 net lease, real estate finance, operating
properties and land and development (refer to Note 18).
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"). 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 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.
49
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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, 2020. The following table presents the assets and liabilities of the Company's consolidated VIEs as of December 31, 2020 and
2019 ($ in thousands):
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
LIABILITIES
Accounts payable, accrued expenses and other liabilities
Debt obligations, net
Total liabilities
As of
December 31,
2020
December 31,
2019
$
$
$
899,110 $
(61,917)
837,193
240,137
35
22,571
1,472
29,428
122,591
1,253,427 $
115,581 $
488,719
604,300
891,000
(37,542)
853,458
273,617
45
19,112
1,208
19,547
134,117
1,301,104
107,455
482,918
590,373
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, 2020, the Company's maximum exposure to loss from these
investments does not exceed the sum of the $139.0 million carrying value of the investments, which are classified in "Other investments" on the Company's
consolidated balance sheets, and $12.8 million of related unfunded commitments.
Note 3—Summary of Significant Accounting Policies
The following paragraph describes the impact on the Company's consolidated financial statements from the adoption of Accounting Standards
Updates ("ASUs") on January 1, 2020.
The Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-
13"), as amended, on January 1, 2020 using the modified retrospective approach method. Under the modified retrospective approach, the Company
recorded a cumulative effect adjustment to retained earnings by increasing its allowance for loan losses and recording an initial allowance for losses on net
investment in leases. Periods presented that are prior to the adoption date of January 1, 2020 will not be adjusted. ASU 2016-13 replaced the incurred loss
impairment methodology with a methodology that reflects a current expected credit loss ("Expected Loss"). ASU 2016-13 impacted all of the Company’s
investments held at amortized cost, which included its loans (including unfunded loan commitments), financing receivables, net investment in leases and
held-to-maturity debt securities. Upon adoption of ASU 2016-13 on January 1, 2020, the Company recorded an increase to its allowance for loan losses of
$3.3 million and an initial allowance for losses on net investment in leases of $9.1 million, both of which were recorded as a cumulative effect adjustment
to retained earnings. Subsequent increases or decreases in the allowance for loan losses or the allowance for losses on net investment in leases will be
charged to "Provision for (recovery of) loan losses" and "Provision for (recovery of) losses on net investment in leases," respectively, in the Company's
consolidated statements of operations. Refer to "Significant Accounting Policies" below for more information on how the Company determines its
allowance for loan losses and its allowance for losses on net investment in leases.
50
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform ("ASU 2020-04"). ASU 2020-04 contains practical expedients for reference
rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over
time as reference rate reform activities occur. In March 2020, the Company elected to apply the hedge accounting expedients related to probability and the
assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches
the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The
Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
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 for use 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
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iStar Inc.
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 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.
The Company classifies its real estate assets as held for sale in the period in which all of the following conditions are met: (i) the Company commits
to a plan and has the authority to sell the asset; (ii) the asset is available for sale in its current condition; (iii) the Company has initiated an active marketing
plan to locate a buyer for the asset; (iv) the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months;
(v) the asset is being actively marketed for sale at a price that is reflective of its current fair value; and (vi) the Company does not anticipate changes to its
plan to sell the asset.
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—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.
Net Investment in Leases—Net investment in leases are recognized when the Company's leases qualify as sales-type leases. The net investment in
leases is initially measured at the present value of the fixed and determinable lease payments, including any guaranteed or unguaranteed estimated residual
value of the asset at the end of the lease, discounted at the rate implicit in the lease. Acquisition-related costs are capitalized and recorded in "Net
Investment in Leases" on the Company's consolidated balance sheets. If a lease qualifies as a sales-type lease, it is further evaluated to determine whether
the transaction is considered a sale leaseback transaction. If the sales-type lease does not qualify as a sale leaseback transaction, the lease is considered a
financing receivable and is recognized in accordance with ASC 310 (refer to Note 5) and recorded in "Loans receivable and other lending investments, net"
on the Company's consolidated balance sheets.
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 net of any unamortized acquisition premiums or discounts and unamortized deferred loan costs or fees. These loans and debt securities could 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 recorded 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 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.
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iStar Inc.
The Company may acquire 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 allowance for loan losses
as of the date of foreclosure.
Equity 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. Equity method investments
are included in "Other investments" on the Company's consolidated balance sheets. The Company also has equity interests that are not accounted for
pursuant to the equity method of accounting. These equity interests are carried at cost, plus or minus any changes in value identified through observable
comparable price changes in transactions in identical or similar investments of the same entity. The changes in fair value for these investments are included
in "Other income" in the consolidated statements of operations.
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 and derivative transactions. Restricted cash is included in "Deferred expenses and other assets, net" on the Company's consolidated balance
sheets.
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 / Accounts payable, accrued expenses and other liabilities—Deferred expenses and other assets include
right-of-use lease assets, 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 term of the respective
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iStar Inc.
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.
The Company, as lessee, records right-of-use lease assets in "Deferred expenses and other assets" and lease liabilities in "Accounts payable, accrued
expenses and other liabilities" on its consolidated balance sheets for operating and finance leases, both measured at the present value of the fixed and
determinable lease payments. Some of the Company's lease agreements include extension options, which are not included in the lease payments unless the
extensions are reasonably certain to be exercised. For operating leases, the Company recognizes a single lease cost for office leases in "General and
administrative" and a single lease cost for ground leases in "Real estate expense" in the consolidated statements of operations, calculated so that the cost of
the lease is allocated generally on a straight-line basis over the term of the lease, and classifies all cash payments within operating activities in the
consolidated statements of cash flows. For finance leases, the Company recognizes amortization of the right-of-use assets on a straight-line basis over the
term of the lease in "Depreciation and amortization" and interest expense on the lease liability using the effective interest method in "Interest expense" in
the consolidated statements of operations. Repayments of the principal portion of the finance lease liability are classified within financing activities in the
consolidated statements of cash flows and payments of interest on a finance lease liability are classified within operating activities in the consolidated
statement of cash flows.
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, 2020,
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: For the Company's leases classified as operating leases, 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.
The Company moves to cash basis operating lease income recognition in the period in which collectability of all lease payments is no longer
considered probable. At such time, any operating lease receivable or deferred operating lease income receivable balance will be written off. If and when
lease payments that were previously not considered probable of collection
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iStar Inc.
become probable, the Company will move back to the straight-line method of income recognition and record an adjustment to operating lease income in
that period as if the lease was always on the straight-line method of income recognition.
Interest Income: Interest income on loans receivable and financing receivables (refer to Note 5) 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 it on non-accrual status at such time as: (1) interest payments become 90 days
delinquent; (2) it 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 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.
Interest Income from Sales-Type Leases: Interest income from sales-type leases is recognized in "Interest income from sales-type leases" in the
Company's consolidated statements of operations under the effective interest method. The effective interest method produces a constant yield on the net
investment in the lease over the term of the lease. Rent payments that are not fixed and determinable at lease inception, such as percentage rent and CPI
adjustments, are not included in the effective interest method calculation and are recognized in "Interest income from sales-type leases" in the Company's
consolidated statements of operations in the period earned.
Other income: Other income includes mark-to-market gains on equity method investments, management fees, other ancillary income from our
operating properties, land and development projects and loan portfolio and revenues from hotel operations, which are recognized when rooms are occupied
and the related services are provided. Hotel revenues include room sales, food and beverage sales, parking, telephone, spa services and gift shop sales.
Other ancillary income could include gains from sales of loans, loan prepayment fees, yield maintenance payments, lease termination fees and other
ancillary income.
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.
Allowance for loan losses and net investment in leases—The Company performs quarterly a comprehensive analysis of its loan and sales-type
lease portfolios and assigns risk ratings that incorporate management's current judgments about 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 or tenant financial
resources and investment collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This
methodology results in loans and sales-type leases being risk rated, with ratings ranging from "1" to "5" with "1" representing the lowest risk of loss and
"5" representing the highest risk of loss.
Upon adoption of ASU 2016-13 on January 1, 2020, the Company estimates its Expected Loss on its loans (including unfunded loan commitments),
held-to-maturity debt securities and net investment in leases based on relevant information
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iStar Inc.
including historical realized loss rates, current market conditions and reasonable and supportable forecasts that affect the collectability of its investments.
The estimate of the Company's Expected Loss requires significant judgment and the Company analyzes its loan portfolio based upon its different categories
of financial assets, which includes: (i) loans and held-to-maturity debt securities; (ii) construction loans; and (iii) net investment in leases and financings
that resulted from the acquisition of properties that did not qualify as a sale leaseback transaction and, as such, are accounted for as financing receivables
(refer to Note 5).
For the Company's loans, held-to-maturity debt securities, construction loans, net investment in leases and financings that resulted from the
acquisition of properties that did not qualify as sale leaseback transactions, the Company analyzed its historical realized loss experience to estimate its
Expected Loss. The Company adjusted its Expected Loss through the use of third-party market data that provided current and future economic conditions
that may impact the performance of the commercial real estate assets securing its investments.
The Company considers a loan or sales-type lease to be non-performing and places it on non-accrual status at such time as: (1) interest payments
become 90 days delinquent; (2) it 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 or sales-type lease. Non-accrual loans or sales-type leases are returned to accrual status when they have
become contractually current and management believes all amounts contractually owed will be received. The Company will record a specific allowance on
a non-performing loan or sales-type lease if the Company determines that the collateral fair value less costs to sell is less than the carrying value of the
collateral-dependent asset. The specific allowance is increased (decreased) through "Provision for (recovery of) loan losses" or "Provision for losses on net
investment in leases" 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 or tenant as the Company works toward a settlement or other alternative
resolution, which can impact the potential for 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 allowance will be charged off.
The Company made the accounting policy election to record accrued interest on its loan portfolio separate from its loans receivable and other lending
investments and to exclude accrued interest from its amortized cost basis disclosures (refer to Note 7). As of December 31, 2020 and 2019, accrued interest
was $5.0 million and $4.2 million, respectively, and is recorded in "Accrued interest and operating lease income receivable, net" on the Company's
consolidated balance sheets. The Company places loans on non-accrual status once interest on the loan becomes 90 days delinquent and reverses any
accrued interest as a reduction to interest income or recognizes a credit loss expense at such time. As such, the Company elected the practical expedient to
not record an allowance against accrued interest receivable. During the years ended December 31, 2020, 2019 and 2018, the Company did not reverse any
accrued interest on its loan portfolio.
As of December 31, 2020, all of the Company's net investment in leases were performing in accordance with the terms of the respective leases. The
Company's one impaired loan is collateral dependent and impairment is measured using the estimated fair value of the 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 or 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.
For available-for-sale debt securities held in "Loans receivable and other lending investments, net," management evaluates an available-for-sale
security for impairment if the security's fair value is less than its amortized cost. If the Company
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iStar Inc.
has an impaired security, it will then determine 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 the Company does not intend to sell
the security, it is more likely than not that the entity will not be required to sell the security or it does not expect to recover its amortized cost, the Company
will record an allowance for credit losses. The credit loss component of the allowance will be recorded (or reversed, if necessary) as an "Impairment of
assets" in the Company's consolidated statements of operations, and the remainder of the allowance will be recorded in "Accumulated other comprehensive
income (loss)" on the Company's consolidated balance sheets.
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, including derivative financial instruments at
some of its equity method investments, is primarily limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest
rate risk exposure. The Company does not enter into derivatives for trading purposes.
The Company recognizes its 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 and qualifying as cash flow hedges, changes in the fair value of the derivatives, including the Company's pro rata share of
derivatives at equity method investments, are reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified
into interest expense or earnings from equity method investments in the same periods during which the hedged transaction affects earnings. Amounts
reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the
Company’s debt.
For the Company's derivatives not designated as hedges, the changes in the fair value of the derivatives are reported in "Other expense" in the
Company's consolidated statements of operations.
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 allowance 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 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, 2020 is $31.5
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, 2019, the Company had $460.6 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 begin to expire in 2032
and will fully expire in 2036 if unused. The amount of NOL
57
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
carryforwards as of December 31, 2020 will be subject to finalization of the Company's 2020 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 2016 through 2019 remain subject to examination by
major tax jurisdictions. During the year ended December 31, 2020, the Company is expected to have a REIT taxable loss 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, 2020, $562.3 million of the Company's assets
were owned by TRS entities. The Company's TRS entities are not consolidated with the REIT for federal income tax purposes and are taxed as
corporations. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with
respect to its interest in TRS entities.
The following represents the Company's TRS income tax benefit (expense) ($ in thousands):
For the Years Ended December 31,
2019
2020
2018
Current tax benefit (expense)
(1)(2)
Total income tax (expense) benefit
_______________________________________________________________________________
(1)
(2)
For the years ended December 31, 2020, 2019, and 2018, excludes a REIT tax expense of $0.1 million, $0.4 million, $0.5 million, respectively.
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. The CARES Act enacted on March 27, 2020 permits corporate taxpayers to accelerate the full amount of its alternative minimum tax credits. The
Company filed a claim for refund and received a $3.0 million refund for which the benefit had been recognized in 2017.
$
$
(106) $
(106) $
(35) $
(35) $
(447)
(447)
During the year ended December 31, 2020, the Company’s TRS entities generated a taxable loss of $28.7 million for which the Company recognized
no current tax benefit. As of December 31, 2019, the Company's TRS entities had $123.4 million of NOL carryforwards that can generally be used to offset
both ordinary taxable income and capital gain net income in future years. The NOL carryforwards will begin to expire in 2036, of which $73.6 million will
fully expire in 2037, if unused. NOL carryforwards generated in 2018 and thereafter do not expire and are limited to 80% of taxable income when utilized.
The amount of NOL carryforwards as of December 31, 2020 will be determined upon finalization of the Company's 2020 tax return.
Total cash paid for taxes for the years ended December 31, 2020, 2019 and 2018 was $0.8 million, $0.4 million and $2.0 million, respectively.
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 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, 2020 and 2019, 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.
58
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Deferred tax assets and liabilities of the Company's TRS entities were as follows ($ in thousands):
As of December 31,
Deferred tax assets
Valuation allowance
(1)
Net deferred tax assets (liabilities)
2020
2019
80,101 $
(80,101)
— $
79,645
(79,645)
—
$
$
_______________________________________________________________________________
(1)
Deferred tax assets as of December 31, 2020 include temporary differences related primarily to asset basis of $26.7 million, deferred expenses and other items of $12.7 million, NOL
carryforwards of $38.4 million and other credits of $2.3 million. Deferred tax assets as of December 31, 2019 include temporary differences related primarily to asset basis of $32.9
million, deferred expenses and other items of $11.9 million and NOL carryforwards of $32.5 million and other credits of $2.3 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.
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.
New accounting pronouncements—In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06").
ASU 2020-06 was issued to reduce the complexity associated with applying current accounting guidance for certain financial instruments with
characteristics of both liabilities and equity. ASU 2020-06 removes certain separation models under ASC 470-20 so that a convertible debt instrument will
be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument
measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. In addition, ASU 2020-06 requires that the if-
converted method be used for all convertibles and that the treasury stock method no longer be used. ASU 2020-06 is effective for interim and annual
reporting periods beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020,
including interim periods within those fiscal years. The Company plans to early adopt ASU 2020-06 effective with the annual reporting period beginning
January 1, 2021. The impact from the adoption of ASU 2020-06 on the Company’s consolidated balance sheet will be an increase to "Debt obligations, net"
as of January 1, 2021 of approximately $10 million with a corresponding decrease to "Total iStar Inc. shareholders' equity" as of January 1, 2021 of
approximately $10 million.
59
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 4—Real Estate
The Company's real estate assets were comprised of the following ($ in thousands):
Net
Lease
(1)
Operating
Properties
Total
As of December 31, 2020
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, 2019
Land, at cost
Buildings and improvements, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale
(2)
$
$
$
188,418
1,353,683
(250,198)
1,291,903
—
1,291,903
199,710
1,347,321
(219,949)
1,327,082
—
1,327,082
$
$
$
$
103,530
106,422
(17,574)
192,378
5,212
197,590
106,187
107,861
(13,911)
200,137
8,650
208,787
$
$
$
$
291,948
1,460,105
(267,772)
1,484,281
5,212
1,489,493
305,897
1,455,182
(233,860)
1,527,219
8,650
1,535,869
Total real estate
_______________________________________________________________________________
(1)
(2)
$
As of December 31, 2020 and 2019, real estate, net included $755.5 million and $768.6 million, respectively, of real estate of the Net Lease Venture (refer to Net Lease Venture below).
As of December 31, 2020 and 2019, the Company had $5.2 million and $8.7 million, respectively, of residential condominiums available for sale in its operating properties portfolio.
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease
assets (the "Net Lease Venture") 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 $67.9 million in "Gain on consolidation of equity method investment" in the Company's consolidated statement of operations as a result of the
consolidation. The Net Lease Venture had previously been accounted for as an equity method investment. The Company has an equity interest in the Net
Lease Venture of approximately 51.9%. The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange
for a management fee and incentive fee. Several of the Company's senior executives whose time is substantially devoted to the Net Lease Venture own a
total of 0.6% equity ownership in the venture via co-investment. These senior executives are also entitled to an amount equal to 50% of any incentive fee
received based on the 47.5% external partner's interest.
Real Estate Available and Held for Sale—The following table presents the carrying value of properties transferred to held for sale, by segment ($
in millions):
(1)
Property Type
Operating Properties
Net Lease
$
Years Ended December 31,
2019
2018
2020
— $
8.9
8.9 $
14.5 $
185.9
200.4 $
23.2
8.1
31.3
Total
_______________________________________________________________________________
(1)
$
Properties were transferred to held for sale due to executed contracts with third parties or changes in business strategy. All of these properties were ultimately sold.
60
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Acquisitions—During the year ended December 31, 2019, the Company acquired a net lease asset for $11.5 million. In addition, the Company
acquired the leasehold interest in a net lease asset for $98.2 million, inclusive of closing costs, and simultaneously entered into a new 98-year ground lease
with SAFE (refer to Note 8) and also acquired the leasehold interest in a net lease asset for $110.6 million and simultaneously entered into a new 99-year
Ground Lease with SAFE (refer to Note 8). During the year ended December 31, 2018, the Company acquired two net lease assets for an aggregate $14.8
million.
Dispositions—The following table presents the proceeds and income recognized for properties sold, by property type ($ in millions):
Years Ended December 31,
2019
2020
2018
(1)
Operating Properties
Proceeds
Income from sales of real estate
(2)
Net Lease
Proceeds
Income from sales of real estate
$
$
5.9 $
0.2
86.1 $
11.9
327.9
81.0
42.4 $
6.1
469.4 $
224.7
79.7
45.0
Total
555.5 $
Proceeds
Income from sales of real estate
236.6
_______________________________________________________________________________
(1)
48.3 $
6.3
$
407.6
126.0
(2)
During the year ended December 31, 2019, the Company sold commercial and residential operating properties with an aggregate carrying value of $73.1 million and recognized $11.9
million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations. 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, 2020, proceeds includes $7.5 million of proceeds from the sale of a net lease asset for which the Company recognized an impairment of $1.7 million
in connection with the sale. During the year ended December 31, 2019, the Company sold a portfolio of net lease assets with an aggregate carrying value of $220.4 million and recognized
$219.7 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations. In connection with the sale of this portfolio of assets the buyer
assumed a $228.0 million non-recourse mortgage. 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.
Impairments—During the years ended December 31, 2020, 2019 and 2018, the Company recorded aggregate impairments on real estate assets
totaling $4.8 million, $5.4 million and $90.4 million, respectively. During the year ended December 31, 2020, the Company recorded an impairment of
$1.7 million in connection with the sale of a net lease asset and an impairment of $3.1 million on a real estate asset held for sale. During the year ended
December 31, 2019, the Company recorded an aggregate impairment of $5.4 million in connection with the sale of net lease and operating properties and
residential condominium units. The impairments recorded in 2018 were primarily from the Company's decision to accelerate the monetization of certain
legacy assets, including several larger 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 $23.4 million, $21.2 million and $22.4 million for the years ended
December 31, 2020, 2019 and 2018, 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, 2020 and 2019, the allowance for doubtful accounts related to real estate tenant receivables
was $1.7 million and $1.0 million, respectively. As of December 31, 2019, the allowance for doubtful accounts related to deferred operating lease income
was $1.0 million. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income
receivable, net," respectively, on the Company's consolidated balance sheets.
61
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable leases, excluding
customer reimbursements of expenses, in effect as of December 31, 2020, are as follows ($ in thousands):
$
Year
2021
2022
2023
2024
2025
Thereafter
Net Lease
Assets
131,625 $
129,891
121,586
115,900
119,357
1,238,073
Operating Properties
15,948
7,784
7,469
7,462
6,809
9,712
Note 5—Net Investment in Leases
In May 2019, the Company entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of nine bowling
centers for $56.7 million, of which seven were acquired from the lessee for $44.1 million, and a commitment to invest up to $55.0 million in additional
bowling centers over the next several years. The new centers were added to the Company's existing master leases with the tenant. In connection with this
transaction, the maturities of the master leases were extended by 15 years to 2047. In the second quarter 2020, the Company entered into a transaction with
the lessee whereby it would apply $10 million of the net proceeds it received from certain sales of the lessee's facilities to the lessee's upcoming rent
obligations to the Company. In exchange, the Company's obligation under the lease to acquire an equal amount of new facilities for them or to reduce their
rent in the future has been terminated. In the third quarter 2020, the Company granted the lessee a nine-month rent deferral on its two wholly-owned master
leases in exchange for eliminating the Company's commitment to invest up to $55.0 million in additional bowling centers over the next several years. All
deferred amounts are required to be repaid with interest beginning in January 2023.
As a result of the May 2019 modifications to the leases, the Company classified the leases as sales-type leases and recorded $424.1 million in "Net
investment in leases" and derecognized $193.4 million from "Real estate, net" and "Real estate available and held for sale," $25.4 million from "Deferred
operating lease income receivable, net," $13.4 million from "Deferred expenses and other assets, net" and $1.9 million from "Accounts payable, accrued
expenses and other liabilities" on its consolidated balance sheet. As a result of the modifications in the second and third quarter 2020, the Company
reassessed this classification as required by ASC 842, and concluded that the leases should continue to be classified as sales-type leases. In May 2019, the
Company determined that the seven bowling centers acquired did not qualify as a sale leaseback transaction and recorded $44.1 million in "Loans
receivable and other lending investments, net" on its consolidated balance sheet (refer to Note 7). The Company recognized $180.4 million in "Selling
profit from sales-type leases" in its consolidated statements of operations for the year ended December 31, 2019 as a result of the transaction. For the years
ended December 31, 2020 and 2019, the Company recognized $10.8 million and $17.0 million, respectively, of cash interest income and $22.8 million and
$3.5 million, respectively, of non-cash interest income in "Interest income from sales-type leases" in the Company's consolidated statements of operations.
The Company's net investment in leases were comprised of the following as of December 31, 2020 and December 31, 2019 ($ in thousands):
December 31, 2020
December 31, 2019
Total undiscounted cash flows
Unguaranteed estimated residual value
Present value discount
Allowance for losses on net investment in leases
(1)
$
$
1,020,921 $
345,284
(926,233)
(10,871)
429,101 $
1,042,019
340,620
(963,724)
—
418,915
Net investment in leases
_______________________________________________________________________________
(1)
As of December 31, 2020 and 2019, all of the Company's net investment in leases were current in their payment status and performing in accordance with the terms of the respective
leases. As of December 31, 2020, the risk rating on the Company's net investment in leases was 2.0 (refer to Note 3).
62
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases, excluding lease
payments that are not fixed and determinable, in effect as of December 31, 2020, are as follows by year ($ in thousands):
2021
2022
2023
2024
2025
Thereafter
Total undiscounted cash flows
Amount
14,248
30,481
41,854
41,584
30,481
862,273
1,020,921
$
$
Allowance for Losses on Net Investment in Leases—Changes in the Company's allowance for losses on net investment in leases for the year ended
December 31, 2020 were as follows ($ in thousands):
Allowance for losses on net investment in leases at beginning of period
Initial allowance recorded upon adoption of new accounting standard
Provision for losses on net investment in leases
(1)
(2)
Allowance for losses on net investment in leases at end of period
_________________________________________________________
(1)
(2)
$
$
—
9,111
1,760
10,871
The Company recorded an initial allowance for losses on net investment in leases of $9.1 million upon the adoption of ASU 2016-13 on January 1, 2020 (refer to Note 3).
During the year ended December 31, 2020, the Company recorded a provision for losses on net investment in leases of $1.8 million resulting primarily from the macroeconomic impact
of the COVID-19 pandemic on commercial real estate markets and the adoption of ASU 2016-13 (refer to Note 3).
Impairments—During the year ended December 31, 2019, the Company recorded an impairment of $0.9 million in connection with the sale of a net
lease property.
Note 6—Land and Development
The Company's land and development assets were comprised of the following ($ in thousands):
Land and land development, at cost
Less: accumulated depreciation
Total land and development, net
As of December 31,
2020
2019
$
$
441,201
(10,538)
430,663
$
$
590,153
(9,608)
580,545
Acquisitions—During the year ended December 31, 2019, the Company acquired a land and development asset from an unconsolidated entity in
which the Company owned a noncontrolling 50% equity interest for $34.3 million, which consisted of a $7.3 million cash payment and the assumption of a
$27.0 million loan. This land and development asset was sold in the fourth quarter 2020.
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.
Dispositions—During the years ended December 31, 2020, 2019 and 2018, the Company sold land parcels and residential lots and units and
recognized land development revenue of $164.7 million, $119.6 million and $409.7 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
$58.2 million and $94.2 million was outstanding as of December 31, 2020 and 2019, respectively. During the years ended December 31, 2020, 2019 and
2018, the
63
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Company recognized land development cost of sales of $177.7 million, $109.7 million and $350.2 million, respectively, from its land and development
portfolio.
Impairments—During the year ended December 31, 2020, the Company recorded an aggregate impairment of $2.7 million on two land and
development assets. During the year ended December 31, 2019, the Company recorded an aggregate impairment of $5.3 million on two land and
development assets based on expected sales proceeds and an impairment of $1.1 million on a land and development asset due to a change in business
strategy. During the year ended December 31, 2018, the Company recorded an aggregate impairment of $56.7 million on five land and development assets,
primarily from the Company's decision to accelerate the monetization of legacy assets, including several larger assets.
Note 7—Loans Receivable and Other Lending Investments, net
The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):
Construction loans
Senior mortgages
Corporate/Partnership loans
Subtotal - gross carrying value of construction loans
(1)
Loans
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Subtotal - gross carrying value of loans
Other lending investments
Financing receivables (refer to Note 5)
Held-to-maturity debt securities
Available-for-sale debt securities
Subtotal - other lending investments
Total gross carrying value of loans receivable and other lending investments
Allowance for loan losses
Total loans receivable and other lending investments, net
_______________________________________________________________________________
(1)
64
As of December 31,
2020
2019
$
$
449,733 $
65,100
514,833
35,922
20,567
11,640
68,129
46,549
90,715
25,274
162,538
745,500
(13,170)
732,330 $
518,992
95,394
614,386
53,592
24,424
10,877
88,893
44,339
84,981
23,896
153,216
856,495
(28,634)
827,861
As of December 31, 2020, 47%, or $241.8 million, gross carrying value of construction loans had completed construction and 5%, or $24.6 million, gross carrying value of construction
loans had substantially completed construction.
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Allowance for Loan Losses—Changes in the Company's allowance for loan losses were as follows for the year ended December 31, 2020 ($ in
thousands):
General Allowance
Construction
Loans
Loans
Held to
Maturity Debt
Securities
Financing
Receivables
Specific
Allowance
Total
Allowance for loan losses at beginning of
period
$
Adoption of new accounting standard
Provision for loan losses
(3)
Charge-offs
(2)
(1)
Allowance for loan losses at end of period
____________________________________________________________
(1)
$
6,668
(353)
226
—
6,541
$
$
265 $
98
1,280
—
1,643 $
— $
20
3,073
—
3,093 $
— $
964
186
—
1,150 $
21,701 $
—
4,931
(25,889)
743 $
28,634
729
9,696
(25,889)
13,170
(2)
(3)
On January 1, 2020, the Company recorded an increase to its allowance for loan losses of $3.3 million upon the adoption of ASU 2016-13 (refer to Note 3), of which $2.5 million related
to expected credit losses for unfunded loan commitments and was recorded in "Accounts payable, accrued expenses and other liabilities."
During the year ended December 31, 2020, the Company recorded a provision for loan losses of $9.1 million in its consolidated statement of operations resulting from the
macroeconomic impact of the COVID-19 pandemic on commercial real estate markets, of which $1.5 million related to a recovery of credit losses for unfunded loan commitments and is
recorded as a reduction to "Accounts payable, accrued expenses and other liabilities" and $0.9 million related to a provision on a non-performing loan that was recorded as a reduction to
"Accrued interest and operating lease income receivable, net."
During the year ended December 31,2020, the Company charged-off $25.9 million from the specific allowance due to the sale of a non-performing loan. During the year ended December
31, 2019, the Company charged-off $19.2 million from the specific allowance due to the resolution of a non-performing loan and $12.0 million due to the deterioration of the collateral on
a separate non-performing loan.
The Company's investment in loans and other lending investments and the associated allowance for loan losses were as follows ($ in thousands):
(2)
(2)
As of December 31, 2020
Construction loans
Loans
Financing receivables
Held-to-maturity debt securities
Available-for-sale debt securities
Less: Allowance for loan losses
(3)
Total
(2)
(2)
As of December 31, 2019
Construction loans
Loans
Financing receivables
Held-to-maturity debt securities
Available-for-sale debt securities
Less: Allowance for loan losses
Total
Individually
Evaluated for
(1)
Impairment
Collectively
Evaluated for
Impairment
Total
$
$
$
$
53,305 $
—
—
—
—
(743)
52,562 $
— $
37,820
—
—
—
(21,701)
16,119 $
461,528 $
68,129
46,549
90,715
25,274
(12,427)
679,768 $
614,386 $
51,073
44,339
84,981
23,896
(6,933)
811,742 $
514,833
68,129
46,549
90,715
25,274
(13,170)
732,330
614,386
88,893
44,339
84,981
23,896
(28,634)
827,861
_______________________________________________________________________________
(1)
The carrying value of these loans includes an unamortized net discount of $0.8 million and $0.1 million as of December 31, 2020 and 2019, respectively. The Company's loans individually
evaluated for impairment represents 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 includes an unamortized net discount of $2.3 million and $0.7 million as of December 31, 2020 and 2019, respectively.
Available-for-sale debt securities are evaluated for impairment under ASC 326-30.
(2)
(3)
65
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio
assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments
which are inherently uncertain and there can be no assurance that actual performance will be similar to current expectation.
The Company's amortized cost basis in performing senior mortgages, corporate/partnership loans, subordinate mortgages and financing receivables,
presented by year of origination and by credit quality, as indicated by risk rating, was as follows as of December 31, 2020 ($ in thousands):
2020
2019
2018
2017
2016
Prior to
2016
Total
Year of Origination
(1)
Senior mortgages
Risk rating
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Subtotal
Corporate/partnership loans
Risk rating
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Subtotal
Subordinate mortgages
Risk rating
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Subtotal
$
$
$
$
$
$
— $
—
—
—
20,115
—
—
—
—
20,115 $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
145,585
—
—
—
—
145,585 $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
58,070
109,121
—
53,033
—
—
220,224 $
— $
—
—
—
22,155
—
20,567
—
—
42,722 $
— $
—
—
—
—
—
—
—
—
— $
66
— $
—
—
—
42,502
—
—
—
—
42,502 $
— $
—
—
—
—
—
42,945
—
—
42,945 $
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
3,925
—
—
—
—
3,925 $
—
—
—
58,070
321,248
—
53,033
—
—
432,351
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
11,640
—
—
—
—
11,640 $
—
—
—
—
22,155
—
63,512
—
—
85,667
—
—
—
—
11,640
—
—
—
—
11,640
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Table of Contents
Financing receivables
Risk rating
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Subtotal
$
$
$
— $
—
—
—
—
—
—
—
—
— $
20,115 $
— $
—
46,549
—
—
—
—
—
—
46,549 $
46,549 $
— $
—
—
—
—
—
—
—
—
— $
262,946 $
— $
—
—
—
—
—
—
—
—
— $
145,585 $
— $
—
—
—
—
—
—
—
—
— $
85,447 $
— $
—
—
—
—
—
—
—
—
— $
15,565 $
—
—
46,549
—
—
—
—
—
—
46,549
576,207
Total
____________________________________________________________
(1)
As of December 31, 2020, excludes $53.3 million for one loan on non-accrual status.
The Company's amortized cost basis in loans, aged by payment status and presented by class, was as follows ($ in thousands):
As of December 31, 2020
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
As of December 31, 2019
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
Current
Less Than
and Equal
to 90 Days
Greater
Than
90 Days
Total
Past Due
Total
$
$
$
$
443,154 $
42,721
11,640
497,515 $
534,765 $
119,818
10,877
665,460 $
42,501 $
42,946
—
85,447 $
— $
—
—
— $
67
— $
—
—
— $
37,820 $
—
—
37,820 $
42,501 $
42,946
—
85,447 $
37,820 $
—
—
37,820 $
485,655
85,667
11,640
582,962
572,585
119,818
10,877
703,280
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Impaired Loans—In the fourth quarter 2020, the Company sold a non-performing loan with a carrying value of $15.2 million and received proceeds of
$11.0 million. In addition, the Company recorded a $4.2 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.
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 $21.4 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.
The Company's impaired loans, presented by class, were as follows ($ in thousands):
As of December 31, 2020
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Recorded
Investment
As of December 31, 2019
Unpaid
Principal
Balance
Related
Allowance
With an allowance recorded:
Senior mortgages
(1)
Total
$
$
53,305 $
53,305 $
52,552 $
52,552 $
(743) $
(743) $
37,820 $
37,820 $
37,923 $
37,923 $
(21,701)
(21,701)
_______________________________________________________________________________
(1)
The Company has one non-accrual loan as of December 31, 2020 and one non-accrual loan as of December 31, 2019 that are considered impaired and included in the table above. The
Company did not record any interest income on impaired loans for the years ended December 31, 2020, 2019 and 2018.
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:
Subordinate mortgages
Subtotal
With an allowance recorded:
Senior mortgages
Corporate/Partnership loans
Subtotal
Total:
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
2020
Years Ended December 31,
2019
2018
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
$
— $
—
— $
—
— $
—
50,205
—
50,205
50,205
—
—
50,205 $
2,145
—
2,145
2,145
—
—
2,145 $
38,556
—
38,556
38,556
—
—
38,556 $
— $
—
—
—
—
—
—
—
— $
— $
—
67,041
39,169
106,210
67,041
39,169
—
106,210 $
301
301
—
—
—
—
—
301
301
68
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Other lending investments—Other lending investments includes the following securities ($ in thousands):
Face Value
Amortized Cost
Basis
Net Unrealized
Gain
Estimated Fair
Value
Net Carrying
Value
As of December 31, 2020
Available-for-Sale Securities
Municipal debt securities
Held-to-Maturity Securities
Debt securities
Total
As of December 31, 2019
Available-for-Sale Securities
Municipal debt securities
Held-to-Maturity Securities
Debt securities
Total
$
$
$
$
20,680 $
20,680 $
4,594 $
25,274 $
25,274
100,000
120,680 $
90,715
111,395 $
—
4,594 $
90,715
115,989 $
90,715
115,989
21,140 $
21,140 $
2,756 $
23,896 $
23,896
100,000
121,140 $
84,981
106,121 $
—
2,756 $
84,981
108,877 $
84,981
108,877
As of December 31, 2020, 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
$
$
— $
90,715
—
—
90,715 $
— $
90,715
—
—
90,715 $
— $
—
—
20,680
20,680 $
—
—
—
25,274
25,274
69
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 8—Other Investments
The Company's other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands):
Carrying Value
As of December 31,
2020
2019
Equity in Earnings (Losses)
For the Years Ended December 31,
2019
2020
2018
(1)
(2)
$
Real estate equity investments
Safehold Inc. ("SAFE")
iStar Net Lease II LLC ("Net Lease Venture II")
(3)
iStar Net Lease I LLC ("Net Lease Venture")
Other real estate equity investments
Subtotal
Other strategic investments
937,712 $
78,998
—
89,939
1,106,649
69,911
1,176,560 $
_______________________________________________________________________________
(1)
Total
$
(4)
(5)
729,357 $
30,712
—
104,553
864,622
43,253
907,875 $
53,476 $
2,654
—
(12,929)
43,201
(1,075)
42,126 $
29,764 $
(529)
—
12,620
41,855
(6)
41,849 $
4,711
(333)
4,100
(4,112)
4,366
(9,373)
(5,007)
(2)
(3)
(4)
(5)
For the years ended December 31, 2020, 2019 and 2018, earnings (losses) from equity method investments is net of the Company's pro rata share of $19.5 million, $14.4 million and
$16.9 million, respectively, of depreciation expense and $59.3 million, $32.9 million and $18.1 million, respectively, of interest expense.
As of December 31, 2020, the Company owned 34.8 million shares of SAFE common stock which, based on the closing price of $72.49 on December 31, 2020, had a market value of $2.5
billion. For the year ended December 31, 2020, equity in earnings includes $14.4 million of dilution gains resulting from the dilution of our ownership in SAFE in connection with equity
offerings at SAFE in 2020. For the year ended December 31, 2019, equity in earnings includes dilution gains of $7.6 million.
The Company consolidated the assets and liabilities of the Net Lease Venture on June 30, 2018 (refer to Note 4).
During the year ended December 31, 2019, equity in earnings (losses) includes $19.3 million of income resulting primarily from the sale of properties at two of the Company's equity
method investments. 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, 2020, the Company identified observable price changes in an equity security held by the Company as evidenced by orderly private issuances of
similar securities by the same issuer. In accordance with ASC 321, the Company remeasured its equity investment at fair value and recognized aggregate mark-to-market gains of
$23.9 million in "Other income" in the Company's consolidated statements of operations. 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.
Safehold Inc.—SAFE is a publicly-traded company formed by the Company primarily to acquire, own, manage, finance and capitalize ground
leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to
the owners/operators of the real estate projects built thereon ("Ground Leases").
On January 2, 2019, the Company purchased 12.5 million 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. Each Investor Unit received distributions equivalent to distributions declared and paid
on one share of SAFE's common stock. The Investor Units had no voting rights. They had 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 May 2019, after the approval of SAFE's stockholders, the
Investor Units were exchanged for shares of SAFE's common stock on a one-for-one basis. Following the exchange, the Investor Units were retired.
70
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
In connection with the Company's purchase of the Investor Units, it entered into a Stockholder's Agreement with SAFE on January 2, 2019. The
Stockholder's Agreement:
• limits the Company's discretionary voting power to 41.9% of the outstanding voting power of SAFE's common stock until its aggregate ownership
of SAFE common stock is less than 41.9%;
• requires the Company to cast all of its voting power in favor of three director nominees to SAFE's board who are independent of each of the
Company and SAFE for three years;
• subjects the Company to certain standstill provisions for two years;
• restricts the Company's ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one
year after their issuance;
• prohibits the Company 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 the Company certain preemptive rights.
A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. In addition, the Company is also
the external manager of a venture in which SAFE is a member. Following are the key terms of the management agreement with SAFE:
• The Company received no management fee through June 30, 2018, which covered the first year of the management agreement;
• The Company receives 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 is locked up for two years, subject to certain restrictions;
• There is no additional performance or incentive fee;
• The management agreement is non-terminable by SAFE through June 30, 2023 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.
In November 2020, the Company acquired 1.1 million shares of SAFE's common stock in a private placement for $65.0 million. In March 2020, the
Company acquired 1.7 million shares of SAFE's common stock in a private placement for $80.0 million. In November 2019, the Company acquired 3.8
million shares of SAFE's common stock in a private placement for $130.0 million. In August 2019, the Company acquired 6.0 million shares of SAFE's
common stock in a private placement for $168.0 million. As of December 31, 2020, the Company owned approximately 65.4% of SAFE's common stock
outstanding.
During the years ended December 31, 2020 and 2019, the Company recorded $12.7 million and $7.5 million, respectively, of management fees and
during the six months ended December 31, 2018, the Company recorded $1.8 million of management fees pursuant to its management agreement with
SAFE. During the six months ended June 30, 2018, the Company waived $1.8 million of management fees pursuant to its management agreement with
SAFE.
The Company is also entitled to receive certain 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 has waived
or elected not to charge in full certain of the expense reimbursements while SAFE is growing its portfolio. For the years ended December 31, 2020 and
2019, the Company was reimbursed $5.0 million and $2.1 million, respectively, of expense reimbursements and for the six months ended December 31,
2018, the Company was reimbursed $0.7 million of expense reimbursements. Pursuant to the terms of the management agreement with SAFE, the
Company waived all expense reimbursements for the first year after the closing of SAFE's initial public offering, through June 30, 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
71
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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, all of which were approved by the Company's and SAFE's
independent directors, for the periods presented:
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 was
for the renovation of a medical office building. The Company funded $18.4 million of the loan, which was fully repaid in August 2019. During the years
ended December 31, 2019 and 2018, the Company recorded $1.2 million and $1.4 million, respectively, of interest income on the loan.
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 a to-be-built luxury multi-family project. The transaction includes a combination of: (i) a newly created Ground Lease and a $7.2 million
leasehold improvement allowance, which was fully funded as of December 31, 2020; and (ii) a $80.5 million leasehold first mortgage. As of December 31,
2020, $61.8 million of the leasehold first mortgage was funded. During the years ended December 31, 2020, 2019 and 2018, the Company recorded
$3.4 million, $1.2 million and $0.2 million, respectively, of interest income on the loan. The Company sold the Ground Lease to SAFE in September 2020
for $34.0 million and recognized a gain of $6.1 million in "Income from sales of real estate" in connection with the sale.
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
was for the acquisition of two multi-tenant office buildings. The loan was repaid in full in November 2019 and during the years ended December 31, 2019
and 2018, the Company recorded $1.9 million and $1.4 million, respectively, of interest income on the loan.
In June 2018, the Company sold two industrial facilities 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.
In January 2019, the Company committed to provide a $13.3 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for
the conversion of an office building into a multi-family property. During the years ended December 31, 2020 and 2019, the Company recorded $1.0 million
and $1.0 million, respectively, of interest income on the loan. The loan was repaid in the fourth quarter 2020.
In February 2019, the Company acquired the leasehold interest in an office property and simultaneously entered into a new 98-year Ground Lease
with SAFE (refer to Note 4).
In August 2019, the Company acquired the leasehold interest in a net lease asset and simultaneously entered into a new 99-year Ground Lease with
SAFE (refer to Note 4).
In October 2019, SAFE acquired land and SAFE's Ground Lease tenant acquired the leasehold from a venture in which the Company has a 50%
ownership interest. In addition, the Company provided a $22.0 million loan to SAFE's Ground Lease tenant for the acquisition of the leasehold. The
Company sold the loan at par to a third-party in November 2019.
In June 2020, Net Lease Venture II (see below) acquired the leasehold interest in an office laboratory property in Honolulu, HI and simultaneously
entered into a 99 year Ground Lease with SAFE.
In October 2020, the Company provided a $22.5 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the
Ground Lease tenant's recapitalization of an existing multi-family property. The Company received $2.3 million of consideration from SAFE in connection
with this transaction. During the year ended December 31, 2020, the Company recorded $0.3 million of interest income on the loan.
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. Net Lease Venture II's investment period ends in June 2021. Net Lease Venture II is a voting interest entity and the Company has an equity
interest in the venture of approximately
72
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
51.9%. The Company does not have a controlling interest in Net Lease Venture II due to the substantive participating rights of its partner. The Company
accounts for its investment in Net Lease Venture II as an equity method investment and is responsible for managing the venture in exchange for a
management fee and incentive fee. During the years ended December 31, 2020, 2019 and 2018, the Company recorded $1.5 million, $1.5 million and $0.4
million, respectively, of management fees from Net Lease Venture II.
In December 2019, Net Lease Venture II closed on a commitment to provide up to $150.0 million in net lease financing for the construction of three
industrial centers and entered into a 25 year master lease with the tenant. As of December 31, 2020, Net Lease Venture II had funded $85.9 million of its
commitment.
In December 2019, Net Lease Venture II closed on the acquisition of two grocery distribution centers for $81.8 million, inclusive of assumed debt.
The properties are 100% leased with two separate coterminous leveraged leases that expire in February 2026.
In December 2018, Net Lease Venture II acquired four buildings (the "Properties"). Net Lease Venture II acquired the Properties for $31.2 million
which are 100% leased with four separate leases that expire in December 2028.
Other real estate equity investments—As of December 31, 2020, the Company's other real estate equity investments include equity interests in real
estate ventures ranging from 31% to 95%, comprised of investments of $58.7 million in operating properties and $31.2 million in land assets. As of
December 31, 2019, the Company's other real estate equity investments included $61.7 million in operating properties and $42.9 million in land assets. In
December 2019, the Company sold a partial interest in one of its other real estate equity investments to a related party for $0.5 million and recorded no gain
or loss on the transaction.
In August 2018, the Company provided a mezzanine loan with a principal balance of $33.0 million as of December 31, 2020 and 2019, to an
unconsolidated entity in which the Company owns a 50% equity interest. The loan matures in August 2021. The loan is included in "Loans receivable and
other lending investments, net" on the Company's consolidated balance sheet. During the years ended December 31, 2020, 2019 and 2018, the Company
recorded $2.4 million, $2.8 million and $1.1 million, respectively, of interest income on the mezzanine loan.
In December 2016, the Company sold a land and development asset to a newly formed unconsolidated entity in which the Company owned a 50.0%
equity interest. The Company provided financing to the entity in the form of a $27.0 million senior loan. In April 2019, the Company acquired the land and
development asset from the entity for $34.3 million, which consisted of a $7.3 million cash payment and the assumption of the $27.0 million senior loan.
During the years ended December 31, 2019 and 2018, the Company recorded $0.6 million and $2.1 million, respectively, of interest income on the senior
loan. This asset was sold in the fourth quarter 2020.
Other strategic investments—As of December 31, 2020 and 2019, the Company also had investments in real estate related funds and other strategic
investments in real estate entities.
Summarized investee financial information—The following table presents the investee level summarized financial information of the Company's
equity method investments ($ in thousands):
Balance Sheets
Total assets
Total liabilities
As of December 31,
2020
2019
$
4,522,147 $
2,437,621
3,653,763
1,918,034
Noncontrolling interests
Total equity attributable to
parent entities
2,124
1,486
2,082,402
1,734,243
For the Years Ended December 31,
2018
2019
2020
Income Statements
Revenues
Expenses
Net income attributable to
parent entities
$
149,928 $
(203,689)
214,123 $
(181,456)
262,970
(187,257)
(53,955)
32,474
75,056
During the year ended December 31, 2020, SAFE represented a significant subsidiary of the Company. For detailed financial information regarding
SAFE, please refer to its financial statements, which are publicly available on the website of the Securities and Exchange Commission at
http://www.sec.gov under the ticker symbol "SAFE."
73
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 9—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
$
(1)
(2)
(2)
Intangible assets, net
Finance lease right-of-use assets
Operating lease right-of-use assets
Other receivables
Restricted cash
(3)
Other assets
Leasing costs, net
Corporate furniture, fixtures and equipment, net
Deferred financing fees, net
(4)
(5)
Deferred expenses and other assets, net
_______________________________________________________________________________
(1)
$
As of December 31,
2020
2019
156,041 $
143,727
48,891
10,881
51,933
19,453
2,340
2,024
1,549
436,839 $
174,973
145,209
34,063
16,846
45,034
17,534
3,793
2,736
2,300
442,488
Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. Accumulated amortization on intangible assets, net
was $44.4 million and $33.4 million as of December 31, 2020 and 2019, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income
in the Company's consolidated statements of operations by $1.4 million, $1.7 million and $2.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. These
intangible lease assets are amortized over the term of the lease. The amortization expense for in-place leases was $10.5 million, $9.6 million and $7.2 million for the years ended
December 31, 2020, 2019 and 2018, respectively. These amounts are included in "Depreciation and amortization" in the Company's consolidated statements of operations. As of
December 31, 2020, the weighted average remaining amortization period for the Company's intangible assets was approximately 16.7 years.
Right-of-use lease assets relate primarily to the Company's leases of office space and certain of its ground leases. Right-of use lease assets initially equal the lease liability. The lease
liability (see table below) equals the present value of the minimum rental payments due under the lease discounted at the rate implicit in the lease or the Company's incremental secured
borrowing rate for similar collateral. For operating leases, lease liabilities were discounted at the Company's weighted average incremental secured borrowing rate for similar collateral
estimated to be 5.1% and the weighted average remaining lease term is 8.2 years. For finance leases, lease liabilities were discounted at a weighted average rate implicit in the lease of
5.5% and the weighted average remaining lease term is 97.0 years. Right-of-use assets for finance leases are amortized on a straight-line basis over the term of the lease and are recorded in
"Depreciation and amortization" in the Company's consolidated statements of operations. During the years ended December 31, 2020 and 2019, the Company recognized $8.2 million and
$5.1 million, respectively, in "Interest expense" and $1.5 million and $0.9 million, respectively, in "Depreciation and amortization" in its consolidated statement of operations relating to
finance leases. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease and is recorded in "General and administrative" and "Real estate expense"
in the Company's consolidated statements of operations (refer to Note 3). During the years ended December 31, 2020 and 2019, the Company recognized $4.7 million and $3.6 million,
respectively, in "General and administrative" and $3.5 million and $3.3 million, respectively, in "Real estate expense" in its consolidated statement of operations relating to operating
leases.
Other assets primarily includes derivative assets, prepaid expenses and deposits for certain real estate assets.
Accumulated amortization of leasing costs was $2.6 million and $3.3 million as of December 31, 2020 and 2019, respectively.
Accumulated depreciation on corporate furniture, fixtures and equipment was $14.3 million and $13.1 million as of December 31, 2020 and 2019, respectively.
(2)
(3)
(4)
(5)
74
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
(1)
Other liabilities
Finance lease liabilities (see table above)
Operating lease liabilities (see table above)
Accrued expenses
Accrued interest payable
Intangible liabilities, net
(2)
$
Accounts payable, accrued expenses and other liabilities
_______________________________________________________________________________
(1)
$
As of December 31,
2020
2019
91,513 $
150,520
50,072
94,724
32,355
48,738
467,922 $
81,709
147,749
34,182
83,778
25,733
51,223
424,374
(2)
As of December 31, 2020 and 2019, "Other liabilities" includes $36.9 million and $27.5 million, respectively, of deferred income. As of December 31, 2020 and 2019, other liabilities
includes $19.0 million and $8.7 million, respectively, of derivative liabilities. As of December 31, 2020, other liabilities includes $1.0 million of expected credit losses for unfunded loan
commitments.
Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. Accumulated amortization on below market lease liabilities was $7.5 million
and $5.0 million as of December 31, 2020 and 2019, respectively. The amortization of below market lease liabilities increased operating lease income in the Company's consolidated
statements of operations by $2.5 million, $2.3 million and $3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the weighted
average amortization period for the Company's intangible liabilities was approximately 17.5 years.
Intangible assets—The estimated expense from the amortization of intangible assets for each of the five succeeding fiscal years is as follows ($ in
thousands):
Year
Amount
$
11,725
11,724
11,570
11,452
11,144
2021
2022
2023
2024
2025
Note 10—Loan Participations Payable, net
The Company's loan participations payable, net were as follows ($ in thousands):
Carrying Value as of
Loan participations payable
Debt discounts and deferred financing costs, net
(1)
$
Total loan participations payable, net
_______________________________________________________________________________
(1)
$
December 31, 2020
42,501
—
42,501
December 31, 2019
35,656
$
(18)
35,638
$
As of December 31, 2020 and 2019, the Company had one loan participation payable with an interest rate of 6.0% and 6.3%, respectively.
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, 2020 and 2019. As of December 31, 2020 and 2019, the corresponding loan receivable balances were
$42.5 million and $35.6 million, respectively, and are included in "Loans receivable and other lending investments, net" on the Company's consolidated
balance sheets. The principal and interest due on these loan participations payable are paid from cash flows of the corresponding loans receivable, which
serve as collateral for the participations.
75
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 11—Debt Obligations, net
The Company's debt obligations were as follows ($ in thousands):
Secured credit facilities and mortgages:
Carrying Value as of December 31,
2020
2019
Stated
Interest Rates
Revolving Credit Facility
Senior Term Loan
Mortgages collateralized by net lease assets
(4)
Total secured credit facilities and mortgages
Unsecured notes:
(3)
(5)
(6)
6.00% senior notes
5.25% senior notes
3.125% senior convertible notes
4.75% senior notes
4.25% senior notes
5.50% senior notes
Total unsecured notes
Other debt obligations:
(10)
(8)
(9)
(7)
Trust preferred securities
Total debt obligations
Debt discounts and deferred financing costs, net
$
— $
491,875
721,075
1,212,950
—
—
287,500
775,000
550,000
400,000
2,012,500
100,000
3,325,450
(38,475)
3,286,975 $
—
491,875
721,118
1,212,993
110,545
400,000
287,500
775,000
550,000
—
2,123,045
100,000
3,436,038
(48,958)
3,387,080
LIBOR + 2.00%
LIBOR + 2.75%
1.69% - 7.26%
(1)
(2)
(3)
6.00%
5.25%
3.125%
4.75%
4.25%
5.50%
Scheduled
Maturity Date
September 2022
June 2023
—
—
September 2022
October 2024
August 2025
February 2026
LIBOR + 1.50%
October 2035
Total debt obligations, net
_______________________________________________________________________________
(1)
(11)
$
(2)
(3)
(4)
(5)
(6)
(7)
The Revolving Credit Facility bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.50% or (c) LIBOR plus 1.00% and
subject to a margin ranging from 1.00% to 1.50%; or (ii) LIBOR subject to a margin ranging from 2.00% to 2.50%. At maturity, the Company may convert outstanding borrowings to a one
year term loan which matures in quarterly installments through September 2023.
The Senior Term 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 0.50% or (c) LIBOR plus 1.00% and subject
to a margin of 1.75%; or (ii) LIBOR subject to a margin of 2.75%.
In June 2019, the buyer of a portfolio of net lease assets assumed a $228.0 million non-recourse mortgage (refer to Note 4). As of December 31, 2020, the weighted average interest rate of
these loans is 4.4% inclusive of the effect of interest rate swaps.
As of December 31, 2020, $2.1 billion net carrying value of assets served as collateral for the Company's secured debt obligations.
The Company repaid these senior notes in January 2020.
The Company repaid these senior notes in September 2020.
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 any time prior to the close of
business on the business day immediately preceding September 15, 2022. The conversion rate as of December 31, 2020 was 70.25 shares per $1,000 principal amount of 3.125%
Convertible Notes, which equals a conversion price of $14.23 per share. 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, 2020, the carrying value of the 3.125% Convertible Notes was $275.1 million, net of fees, and the
unamortized discount of the 3.125% Convertible Notes was $10.2 million, net of fees. As of December 31, 2019, the carrying value of the 3.125% Convertible Notes was $268.7 million,
net of fees, and the unamortized discount of the 3.125% Convertible Notes was $15.5 million, net of fees. During the years ended December 31, 2020, 2019 and 2018, the Company
recognized $9.0 million, $9.0 million, $9.0 million, respectively, of contractual interest and $5.2 million, $5.0 million and $4.7 million, respectively, of discount amortization on the
3.125% Convertible Notes. The effective interest rate for 2020, 2019 and 2018 was 5.2%.
The Company can prepay these senior notes without penalty beginning July 1, 2024.
The Company can prepay these senior notes without penalty beginning May 1, 2025.
(8)
(9)
(10) The Company can prepay these senior notes without penalty beginning August 15, 2024.
(11) The Company capitalized interest relating to development activities of $1.9 million, $7.5 million and $11.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
76
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Future Scheduled Maturities—As of December 31, 2020, future scheduled maturities of outstanding debt obligations are as follows ($ in
thousands):
2021
2022
2023
2024
2025
Thereafter
Total principal maturities
Unamortized discounts and deferred financing costs, net
Total debt obligations, net
Unsecured Debt
Secured Debt
Total
$
$
— $
287,500
—
775,000
550,000
500,000
2,112,500
(32,465)
2,080,035 $
156,144 $
46,787
491,875
—
272,843
245,301
1,212,950
(6,010)
1,206,940 $
156,144
334,287
491,875
775,000
822,843
745,301
3,325,450
(38,475)
3,286,975
Senior Term Loan—In June 2018, the Company amended its senior secured term loan (the "Senior Term Loan") to increase the amount of the loan
to $650.0 million, reduce the interest rate to LIBOR plus 2.75% and extend its maturity to June 2023. The Senior Term Loan is secured by pledges of
equity of certain subsidiaries that own a defined pool of assets. The Senior Term Loan permits substitution of collateral, subject to overall collateral pool
coverage and concentration limits, over the life of the facility. The Company may make optional prepayments, subject to prepayment fees.
During the year ended December 31, 2018, repayments of the Senior Term Loan prior to modification and expenses incurred for the modification
resulted in losses on early extinguishment of debt of $2.5 million.
Revolving Credit Facility—In September 2019, the Company amended its secured revolving credit facility (the "Revolving Credit Facility") to
increase the maximum capacity to $350.0 million, extend the maturity date to September 2022 and make certain other changes. Outstanding borrowings
under the Revolving Credit Facility are secured by pledges of the equity interests in the Company's subsidiaries that own a defined pool of assets.
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 the Company's corporate credit rating, ranging from 1.0% to 1.5% in the case of base rate loans and from 2.0% to 2.5% in the case of LIBOR
loans. In addition, there is an undrawn credit facility commitment fee that ranges from 0.25% to 0.45%, 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 2023. As of
December 31, 2020, based on the Company's borrowing base of assets, the Company had the ability to draw $350.0 million without pledging any additional
assets to the facility.
Unsecured Notes—In September 2019, the Company issued $675.0 million principal amount of 4.75% senior unsecured notes due October 2024.
Proceeds from the offering, together with cash on hand, were used to repay in full the $400.0 million principal amount outstanding of the 4.625% senior
unsecured notes due September 2020 and the $275.0 million principal amount outstanding of the 6.50% senior unsecured notes due July 2021. In
November 2019, the Company issued an additional $100.0 million principal amount of 4.75% senior unsecured notes due October 2024 at 102% of par,
representing a yield to maturity of 4.29%.
In December 2019, the Company issued $550.0 million principal amount of 4.25% senior unsecured notes due August 2025. Proceeds from the
offering were used to redeem the $375.0 million principal amount outstanding ($110.5 million was redeemed in January 2020) of the 6.00% senior
unsecured notes due April 2022, repay a portion of the borrowings outstanding under the Senior Term Loan and pay related premiums and expenses in
connection with the transaction.
In August 2020, the Company issued $400.0 million principal amount of 5.50% senior unsecured notes due February 2026. Proceeds from the
offering, together with cash on hand, were used to repay in full the $400.0 million principal amount outstanding of the 5.25% senior unsecured notes due
September 2022.
During the years ended December 31, 2020, 2019 and 2018, repayments of senior unsecured notes prior to maturity resulted in losses on early
extinguishment of debt of $12.0 million, $26.6 million and $1.2 million, respectively. These amounts are included in "Loss on early extinguishment of debt,
net" in the Company's consolidated statements of operations.
77
Table of Contents
Debt Covenants
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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 restricting certain
incurrences of debt based on a fixed charge coverage ratio. 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.
The Company's Senior Term Loan and the 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 Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility.
The 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 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. Under both the Senior Term Loan and the Revolving Credit Facility the Company is permitted to pay dividends provided that no material
default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and the Company remains in compliance with its
financial covenants after giving effect to the dividend.
The Company's Senior Term Loan and the 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 12—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, 2020, the maximum amount of fundings the Company may be required to make under each category, assuming all performance
hurdles and milestones are met under the Performance-Based Commitments and that 100% 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)
63,419 $
—
63,419 $
$
Real
Estate
Other
Investments
2,213 $
—
2,213 $
25,959 $
12,810
38,769 $
Total
91,591
12,810
104,401
___________________________________________________________________________
(1)
Excludes $7.5 million of commitments on loan participations sold that are not the obligation of the Company.
78
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Other Commitments—Total operating lease expense for the years ended December 31, 2020, 2019 and 2018 was $5.4 million, $4.4 million and
$5.0 million, respectively. Future minimum lease obligations under non-cancelable operating and finance leases as of December 31, 2020 are as follows ($
in thousands):
Operating
(1)(2)
Finance
(1)
$
2021
2022
2023
2024
2025
Thereafter
Total undiscounted cash flows
Present value discount
Other adjustments
(2)
(1)
3,797 $
6,756
6,393
6,309
6,297
496
30,048
(3,771)
23,795
50,072 $
5,494
5,604
5,716
5,830
5,946
1,567,826
1,596,416
(1,445,896)
—
150,520
Lease liabilities
_______________________________________________________________________________
(1)
$
During the years ended December 31, 2020 and 2019, the Company made payments of $4.3 million and $4.1 million, respectively, related to its operating leases and $5.4 million and $3.3
million, respectively, related to its finance leases (refer to Note 4). As of December 31, 2020, the weighted average lease term for the Company's operating leases, excluding operating
leases for which the Company's tenants pay rent on its behalf, was 5.6 years and the weighted average discount rate was 5.0%. As of December 31, 2020, the weighted average lease term
for the Company's finance leases was 97 years and the weighted average discount rate was 5.5%.
The Company is obligated to pay ground rent under certain operating leases; however, the Company's tenants at the properties pay this expense directly under the terms of various
subleases and these amounts are excluded from lease obligations. The amount shown above is the net present value of the payments to be made by the Company's tenants on its behalf.
(2)
Future minimum lease obligations under operating and finance leases as of December 31, 2019 were as follows ($ in thousands):
Operating
(1)(2)
Finance
(1)
$
2020
2021
2022
2023
2024
Thereafter
Total undiscounted cash flows
Present value discount
Other adjustments
(2)
(1)
4,167 $
1,803
1,098
728
617
1,447
9,860
(1,057)
25,379
34,182 $
5,386
5,494
5,604
5,716
5,830
1,573,824
1,601,854
(1,454,105)
—
147,749
$
Lease liabilities
_______________________________________________________________________________
(1)
As of December 31, 2019, the weighted average lease term for the Company's operating leases, excluding operating leases for which the Company's tenants pay rent on its behalf, was 4.2
years and the weighted average discount rate was 5.6%. As of December 31, 2019, the weighted average lease term for the Company's finance leases was 93 years and the weighted
average discount rate was 5.4%.
The Company is obligated to pay ground rent under certain operating leases; however, the Company's tenants at the properties pay this expense directly under the terms of various
subleases and these amounts are excluded from lease obligations. The amount shown above is the net present value of the payments to be made by the Company's tenants on its behalf.
(2)
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.
79
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 13—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, net investment in leases and assets collateralizing its loans receivable are located in the United States.
As of December 31, 2020, the Company's portfolio contains concentrations in the following property types: office, entertainment/leisure, Ground Leases,
industrial, land and development, multifamily, hotel, condominium, retail and other property types.
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.
During the year ended December 31, 2020, the Company's five largest borrowers or tenants collectively accounted for approximately 21.4% of the
Company's revenues, of which the largest customer, from the Company's net lease segment, accounted for 11.6%.
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 and other identified risks.
80
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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, 2020 and 2019 ($ in thousands)
(1)
:
As of December 31, 2020
Derivatives Designated in Hedging Relationships
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivative Assets
Derivative Liabilities
Interest rate swaps
Total
Deferred expenses and other
assets, net
As of December 31, 2019
Derivatives Designated in Hedging Relationships
Interest rate swaps
Total
Deferred expenses and other
assets, net
$
$
$
$
—
—
114
114
Accounts payable, accrued
expenses and other liabilities
Accounts payable, accrued
expenses and other liabilities
$
$
$
$
18,926
18,926
8,680
8,680
____________________________________________________________________________
(1)
Over the next 12 months, the Company expects that $10.3 million related to cash flow hedges will be reclassified from "Accumulated other comprehensive income (loss)" as an increase
to interest expense.
The tables below present the effect of the Company's derivative financial instruments, including the Company's share of derivative financial
instruments at certain of its equity method investments, in the consolidated statements of operations and the consolidated statements of comprehensive
income (loss) ($ in thousands):
Derivatives Designated in Hedging
Relationships
For the Year Ended December 31, 2020
Interest rate swaps
(1)
Interest rate swaps
For the Year Ended December 31, 2019
Interest rate swaps
(1)
Interest rate swaps
For the Year Ended December 31, 2018
Interest rate swaps
Interest rate swaps
(1)
Location of Gain (Loss)
When 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 expense
Earnings from equity method
investments
$
Interest expense
Earnings from equity method
investments
Interest expense
Earnings from equity method
investments
(14,931) $
(13,359)
(21,165)
(21,417)
(12,963)
(1,736)
(6,974)
(1,101)
(1,861)
(184)
(388)
20
______________________________________________________________
(1)
For the years ended December 31, 2020, 2019 and 2018, $4.4 million, $4.3 million, and $1.9 million, respectively, of the loss recognized in accumulated other comprehensive income
was attributable to a noncontrolling interest.
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."
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
81
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
indebtedness, then the Company could also be declared in default on its derivative obligations. The Company did not post any collateral related to its
derivatives as of December 31, 2020.
Note 14—Equity
Preferred Stock—In December 2019, the Company issued an aggregate 16.5 million shares of its common stock upon conversion its outstanding
Series J Preferred Stock at a conversion rate of 4.125 shares of common stock per each share of Series J Preferred Stock. The total carrying value of the
Series J Preferred Stock prior to redemption was $193.5 million, net of discounts and fees, and was recorded in "Additional paid-in-capital" and
"Convertible Preferred Stock Series J, liquidation preference $50.00 per share" on the Company's consolidated balance sheet.
The Company had the following series of Cumulative Redeemable Preferred Stock outstanding as of December 31, 2020 and 2019:
Cumulative Preferential Cash
Dividends
(1)(2)
Carrying Value
(in thousands)
Shares Issued
and
Outstanding
(in thousands)
Par Value
Liquidation
(3)
Preference
Rate per Annum
Annual
Dividend Rate
(per share)
December 31,
2020
December 31,
2019
4,000 $
3,200
5,000
12,200
0.001 $
0.001
0.001
25.00
25.00
25.00
8.00 % $
7.65 %
7.50 %
2.00 $
1.91
1.88
$
89,041 $
72,664
120,785
282,490 $
89,041
72,664
120,785
282,490
Series
D
G
I
Total
_______________________________________________________________________________
(1)
Holders of shares of the Series D, G and I 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 years ended
December 31, 2020 and 2019, respectively. The Company declared and paid dividends of $9.0 million on its Series J Convertible Perpetual Preferred Stock during the year ended
December 31, 2019. The character of the 2020 dividends was 100% return of capital. The character of the 2019 dividends was 100% capital gain distribution, of which 34.01% represented
unrecaptured section 1250 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.
(2)
(3)
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,
2019, the Company had $460.6 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 begin to expire in 2032 and will fully expire in 2036 if unused. The amount of
NOL carryforwards as of December 31, 2020 will be determined upon finalization of the Company's 2020 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, or alternatively, may need to make dividend payments in excess of operating cash
flows. The Senior Term Loan and the Revolving Credit Facility permit the Company to pay common dividends with no restrictions so long as the Company
is not in default on any of its debt obligations. The Company declared and paid common stock dividends of $32.8 million, or $0.43 per share, for the year
ended December 31, 2020 and $25.3 million, or $0.39 per share, for the year ended December 31, 2019. The character of the 2020 dividends was 100%
return of capital. The character of the 2019 dividends was 100% capital gain distribution, of which 34.01% represented unrecaptured section 1250 gain.
Stock Repurchase Program—The Company may repurchase shares in negotiated transactions or open market transactions, including through one or
more trading plans. During the year ended December 31, 2020, the Company
82
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
repurchased 4.2 million shares of its outstanding common stock for $48.4 million, for an average cost of $11.48 per share. During the year ended December
31, 2019, the Company repurchased 7.3 million shares of its outstanding common stock for $74.6 million, for an average cost of $10.16 per share. As of
December 31, 2020, the Company had authorization to repurchase up to $33.8 million of common stock. In February 2021, the Company's board of
directors authorized an increase to the stock repurchase program to $50.0 million.
Accumulated Other Comprehensive Income (Loss)—"Accumulated other comprehensive income (loss)" reflected in the Company's shareholders'
equity is comprised of the following ($ in thousands):
Unrealized gains on available-for-sale securities
Unrealized losses on cash flow hedges
Unrealized losses on cumulative translation adjustment
Accumulated other comprehensive loss
Note 15—Stock-Based Compensation Plans and Employee Benefits
As of December 31,
2020
2019
$
$
4,594 $
(53,075)
(4,199)
(52,680) $
2,756
(37,264)
(4,199)
(38,707)
Stock-Based Compensation—The Company recorded stock-based compensation expense, including the expense related to performance incentive
plans (see below), of $39.4 million, $30.4 million and $17.6 million, respectively, during the years ended December 31, 2020, 2019 and 2018 in "General
and administrative" in the Company's consolidated statements of operations. As of December 31, 2020, there was $2.8 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 1.20 years.
Performance Incentive Plans—The Company's Performance Incentive Plans ("iPIP") are 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 plans. Awards vest over six years, with 40% being vested at the end of the second year and 15% each year thereafter.
2019-2020 iPIP Plan—The Company's 2019-2020 iPIP plan is an equity-classified award which is measured at the grant date fair value and
recognized as compensation cost in "General and administrative" in the Company's consolidated statements of operations and "Noncontrolling interests" in
the Company's consolidated statements of changes in equity over the requisite service period. Investments in the 2019-2020 iPIP plan will be held by a
consolidated subsidiary of the Company that has two ownership classes, class A units and class B units. The Company owns 100% of the class A units and
the class B units were issued to employees as long-term compensation. Except for certain clawback provisions, participants can retain vested class B units
upon their termination of employment with the Company. The class B units are entitled to distributions from the net cash realized from the investments in
the plan after the Company, through its ownership of the class A units, has received a specified return on its invested capital and a return of its invested
capital. Distributions on the class B units are also subject to reductions under a total shareholder return ("TSR") adjustment. The fair value of the class B
units was determined using a model that forecasts the underlying cash flows from the investments within the entity to which the class B units have
ownership rights. During the years ended December 31, 2020 and 2019, the Company recorded $3.4 million and $2.9 million, respectively, of expense
related to the 2019-2020 iPIP plan. Distributions on the class B units will be 50% in cash and 50% in shares of the Company's common stock or in shares
of SAFE's common stock owned by the Company.
2013-2018 iPIP Plans—The remainder of the Company's iPIP plans, as shown in the table below, are liability-classified awards and are remeasured
each reporting period at fair value until the awards are settled. Certain employees will be granted awards that entitle employees to receive the residual cash
flows from the investments in the plans after the Company has received a specified return on its invested capital and a return of its invested capital. Awards
are also subject to reductions under a TSR adjustment. The fair value of awards is determined using a model that forecasts the Company's projected
investment performance. Settlement of the awards will be 50% in cash and 50% in shares of the Company's common stock or in shares of SAFE's common
stock owned by the Company.
83
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The following is a summary of the status of the Company’s liability-classified iPIP plans and changes during the year ended December 31, 2020.
Points at beginning of period
Forfeited
Points at end of period
2013-2014
iPIP Investment Pool
2015-2016
2017-2018
81.17
(1.00)
80.17
73.28
(2.88)
70.40
77.27
(3.93)
73.34
During the years ended December 31, 2020, 2019 and 2018, the Company recorded $30.7 million, $21.2 million and $15.0 million, respectively, of
expense related to the 2013-2018 iPIP plans.
During the year ended December 31, 2020, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants
received total distributions in the amount of $1.5 million as compensation, comprised of cash and 54,245 shares of the Company's common stock with a
fair value of $14.51 per share, which are fully-vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a
total of 32,825 shares of the Company's common stock were issued.
During the year ended December 31, 2019, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants
received total distributions in the amount of $9.4 million as compensation, comprised of cash and 356,065 shares of the Company's common stock with a
fair value of $13.11 per share, which are fully-vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a
total of 192,829 shares of the Company's common stock were issued.
During the year ended December 31, 2019, the Company made distributions to participants in the 2013-2014 investment pool. The iPIP participants
received total distributions in the amount of $7.4 million as compensation, comprised of cash and 389,545 shares of the Company's common stock with a
fair value of $9.21 per share, which are fully-vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a
total of 209,118 shares of the Company's common stock were issued.
As of December 31, 2020 and 2019, the Company had accrued compensation costs relating to iPIP of $69.1 million and $41.9 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 2009 Long-Term Incentive Plan (the "2009 LTIP") is designed to provide incentive compensation for
officers, key employees, directors and advisors of the Company. 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. 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. The Company's shareholders approved the 2009 LTIP in 2009
and approved the performance-based provisions of the 2009 LTIP, as amended, in 2014. In May 2019, the Company's shareholders approved an increase in
the number of shares available for issuance under the 2009 LTIP from a maximum of 8.0 million to 8.9 million and extended the expiration date of the 2009
LTIP from May 2019 to May 2029.
As of December 31, 2020, an aggregate of 2.4 million shares remain available for issuance pursuant to future awards under the Company's 2009 LTIP.
84
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Restricted Stock Units—Changes in non-vested restricted stock units ("Units") during the year ended December 31, 2020 were as follows (number of
shares and $ in thousands, except per share amounts):
Non-vested as of December 31, 2019
Granted
Vested
Non-vested as of December 31, 2020
Number
of Shares
Weighted Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
598 $
181 $
(248) $
531 $
9.18 $
14.68
9.62
10.85 $
8,688
7,885
The total fair value of Units vested during the years ended December 31, 2020, 2019 and 2018 was $3.6 million, $1.8 million and $1.4 million,
respectively. The weighted-average grant date fair value per share of Units granted during the years ended December 31, 2020, 2019 and 2018 was $14.68,
$8.84 and $10.16, 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, 2020, the Company awarded to non-employee
Directors 79,138 restricted shares of common stock at a fair value per share of $9.75 at the time of grant for their annual equity awards, 10,710 restricted
shares of common stock to a non-employee Director at a fair value of $11.52 at the time of grant for their annual equity award and also issued 3,096
common stock equivalents ("CSEs") at a fair value of $12.20 per CSE in respect of dividend equivalents on outstanding CSEs. 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, 2020, a combined total of 179,522 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 $2.7 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 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, $0.9 million and $1.1 million, respectively, for the years ended December 31, 2020,
2019 and 2018.
85
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 16—Earnings Per Share
Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities, if
applicable, to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating
securities.
The following table presents a reconciliation of income (loss) from operations used in the basic and diluted EPS calculations ($ in thousands, except
for per share data):
Net income (loss)
Net income attributable to noncontrolling interests
Preferred dividends
Net income (loss) allocable to common shareholders for basic earnings per common share
Add: Effect of Series J convertible perpetual preferred stock
Net income (loss) allocable to common shareholders for diluted earnings per common share
Earnings allocable to common shares:
Numerator for basic earnings per share:
Net income (loss) allocable to common shareholders
Numerator for diluted earnings per share:
Net income (loss) 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 for restricted stock units
Add: Effect of series J convertible perpetual preferred stock
Weighted average common shares outstanding for diluted earnings per common share
Basic earnings per common share:
Net income (loss) allocable to common shareholders
Diluted earnings per common share:
(1)
Net income (loss) allocable to common shareholders
$
$
$
$
$
$
$
For the Years Ended December 31,
2019
2020
2018
(30,853) $
(11,588)
(23,496)
(65,937) $
—
(65,937) $
334,325 $
(10,283)
(32,495)
291,547 $
9,000
300,547 $
(18,326)
(13,936)
(32,495)
(64,757)
—
(64,757)
For the Years Ended December 31,
2019
2020
2018
(65,937) $
291,547 $
(64,757)
(65,937) $
300,547 $
(64,757)
75,684
—
—
75,684
64,696
146
15,824
80,666
67,958
—
—
67,958
(0.87) $
4.51 $
(0.95)
(0.87) $
3.73 $
(0.95)
_______________________________________________________________________________
(1)
For the years ended December 31, 2020 and 2018, the effect of certain of the Company's restricted stock awards were anti-dilutive due to the Company having a net loss for the period. For
the year ended December 31, 2018, 15,704 shares of Series J convertible perpetual preferred stock (refer to Note 14) were anti-dilutive. 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 years ended December 31, 2020, 2019, and 2018, and therefore the 3.125% Convertible Notes had no effect on diluted EPS for such periods.
86
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Note 17—Fair Values
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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.
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, 2020
Recurring basis:
Derivative liabilities
Available-for-sale securities
(1)
(1)
Non-recurring basis:
Impaired land and development
(2)
As of December 31, 2019
Recurring basis:
(1)
Derivative assets
Derivative liabilities
Available-for-sale securities
(1)
(1)
Non-recurring basis:
Impaired land and development
(3)
Quoted market
prices in
active markets
(Level 1)
Fair Value Using
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
18,926
25,274
6,078
114 $
8,680
23,896 $
40,000
$
$
—
—
—
— $
—
— $
—
18,926
—
—
114 $
8,680
— $
—
—
25,274
6,078
—
—
23,896
40,000
_______________________________________________________________________________
(1)
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 a $1.3 million impairment on a land and development asset with an estimated fair value of $6.1 million. The fair value is based on future cash flows expected to be
received.
The Company recorded aggregate impairments of $5.3 million on two land and development assets with an estimated aggregate fair value of $40.0 million. The estimated fair values are
based on expected sales proceeds.
(2)
(3)
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's consolidated balance sheets
for the years ended December 31, 2020 and 2019 ($ in thousands):
87
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Beginning balance
Repayments
Unrealized gains recorded in other comprehensive income
Ending balance
2020
2019
23,896 $
(460)
1,838
25,274 $
21,661
(45)
2,280
23,896
$
$
Fair values of financial instruments—The following table presents the carrying value and fair value for the Company's financial instruments ($ in
millions):
As of December 31, 2020
Fair
Value
Carrying
Value
As of December 31, 2019
Fair
Value
Carrying
Value
(1)
(1)
$
429
Net investment in leases
Loans receivable and other lending
investments
Cash and cash equivalents
Restricted cash
Loan participations payable, net
Debt obligations, net
_______________________________________________________________________________
(1)
732
99
52
43
3,287
$
(2)
(2)
(1)
(1)
431 $
419 $
772
99
52
43
3,414
828
307
45
36
3,387
419
864
307
45
36
3,531
The fair value of the Company's net investment in leases, loans receivable and other lending investments, net, loan participations payable, net and debt obligations, net are classified as
Level 3 within the fair value hierarchy.
The Company determined the carrying values of its cash and cash equivalents and restricted cash approximated their fair values. Restricted cash is recorded in "Deferred expenses and
other assets, net" on the Company's balance sheet. The fair value of the Company's cash and cash equivalents and restricted cash are classified as Level 1 within the fair value hierarchy.
(2)
Derivatives—The Company may use 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 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 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 and net investment in leases—The Company estimates the fair value of its performing loans and
other lending investments and net investment in leases using a discounted cash flow methodology. This method discounts estimated future cash flows using
rates management determines best reflect current market interest rates
88
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
or rental rates that would be offered for loans or tenants with similar characteristics and credit quality. The Company determined that the significant inputs
used to value its loans and other lending investments and net investment in leases 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.
The Company estimates the fair value of its non-performing loans using 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.
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 18—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: Net Lease, Real Estate Finance, Operating Properties and Land and Development. The Net Lease segment includes the Company's
activities and operations related to the ownership of properties generally leased to single corporate tenants and its investments in SAFE and Net Lease
Venture II (refer to Note 8). 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 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.
89
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company evaluates performance based on the following financial measures for each segment. The Company's segment information is as follows
($ in thousands):
Net
Lease
Real Estate
Finance
Operating
Properties
Land and
Development
Corporate/
Other
(1)
Company
Total
Year Ended December 31, 2020
Operating lease income
Interest income
Interest income from sales-type leases
Other income
Land development revenue
Earnings (losses) from equity method investments
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 items:
Provision for loan losses
Provision for losses on net investment in leases
Impairment of assets
Depreciation and amortization
Capitalized expenditures
Year Ended December 31, 2019
Operating lease income
Interest income
Interest income from sales-type leases
Other income
Land development revenue
Earnings (losses) from equity method investments
Selling profit from sales-type leases
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)
Other significant non-cash items:
(3)
Provision for loan losses
Impairment of assets
Depreciation and amortization
Capitalized expenditures
$
$
$
$
167,152 $
3,440
33,552
18,116
—
56,130
6,056
284,446
(26,571)
—
—
(101,208)
(23,223)
133,444 $
186 $
1,760
2,037
50,767
21,764
177,679 $
2,018
20,496
16,718
—
29,235
180,416
224,654
651,216
(24,786)
—
—
(95,154)
(25,990)
505,286 $
$
— $
2,471
51,091
31,445
$
$
$
$
$
$
21,214
—
—
8,065
—
(16,361)
262
13,180
(22,936)
—
—
(8,951)
(2,591)
(21,298)
—
—
3,052
5,142
1,636
28,423
—
—
17,384
—
8,298
—
11,969
66,074
(35,322)
—
—
(10,249)
(2,887)
17,616
—
3,853
4,977
5,617
356 $
—
—
19,030
164,702
3,432
—
187,520
(22,986)
(177,727)
—
(17,940)
(9,990)
(41,123) $
— $
—
2,738
952
30,506
286 $
—
—
7,838
119,595
4,322
—
—
132,041
(32,318)
(109,663)
—
(20,706)
(11,957)
(42,603) $
— $
6,427
977
99,031
$
$
$
$
$
$
—
—
—
26,671
—
(1,075)
—
25,596
—
—
(303)
(18,085)
(19,099)
(11,891)
—
—
—
1,231
—
—
—
—
8,477
—
(6)
—
—
8,471
—
—
(12,658)
(28,223)
(19,085)
(51,495)
—
668
1,214
—
188,722
60,116
33,552
83,857
164,702
42,126
6,318
579,393
(72,493)
(177,727)
(569)
(169,574)
(61,525)
97,505
9,052
1,760
7,827
58,092
53,906
206,388
77,654
20,496
55,363
119,595
41,849
180,416
236,623
938,384
(92,426)
(109,663)
(13,120)
(183,919)
(68,173)
471,083
6,482
13,419
58,259
136,093
— $
56,676
—
11,975
—
—
—
68,651
—
—
(266)
(23,390)
(6,622)
38,373 $
8,866 $
—
—
—
—
— $
75,636
—
4,946
—
—
—
—
80,582
—
—
(462)
(29,587)
(8,254)
42,279 $
6,482 $
—
—
—
90
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Net
Lease
Real Estate
Finance
Operating
Properties
Land and
Development
Corporate/
Other
(1)
Company
Total
Year Ended December 31, 2018
Operating lease income
Interest income
Other income
Land development revenue
Earnings (losses) 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)
Segment profit (loss)
(3)
Other significant non-cash items:
Provision for loan losses
Impairment of assets
Depreciation and amortization
Capitalized expenditures
$
$
$
151,958 $
—
4,286
—
8,479
67,877
45,038
277,638
(17,033)
—
—
(63,706)
(20,713)
176,186 $
— $
10,391
38,588
40,215
$
$
$
55,677
—
54,361
—
(1,003)
—
80,966
190,001
(80,570)
—
—
(18,618)
(6,574)
84,239
—
79,991
17,417
19,912
557 $
—
7,320
409,710
(3,110)
—
—
414,477
(41,686)
(350,181)
—
(21,897)
(14,313)
(13,600) $
— $
56,726
1,353
144,595
$
$
$
—
—
11,819
—
(9,373)
—
—
2,446
—
—
(4,462)
(38,877)
(19,975)
(60,868)
—
—
1,341
—
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
16,937
147,108
58,699
204,722
— $
97,878
4,556
—
—
—
—
102,434
—
—
(1,578)
(40,653)
(12,997)
47,206 $
16,937 $
—
—
—
91
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
As of December 31, 2020
Real estate
Real estate, net
Real estate available and held for sale
Total real estate
Net investment in leases
Land and development, net
Loans receivable and other lending investments, net
Other investments
Total portfolio assets
Cash and other assets
Total assets
As of December 31, 2019
Real estate
Real estate, net
Real estate available and held for sale
Total real estate
Net investment in leases
Land and development, net
Loans receivable and other lending investments, net
Other investments
Total portfolio assets
Cash and other assets
Total assets
Net
Lease
Real Estate
Finance
Operating
Properties
Land and
Development
Corporate/
Other
(1)
Company
Total
$
1,291,903 $
—
1,291,903
429,101
—
45,398
1,016,710
2,783,112 $
$
— $
—
—
—
—
686,932
—
686,932 $
$
1,327,082 $
—
1,327,082
418,915
—
44,339
760,068
2,550,404 $
$
— $
—
—
—
—
783,522
—
783,522 $
192,378
5,212
197,590
—
—
—
58,739
256,329
200,137
8,650
208,787
—
—
—
61,686
270,473
$
$
$
$
— $
—
—
—
430,663
—
31,200
461,863 $
— $
—
—
—
580,545
—
42,866
623,411 $
—
—
—
—
—
—
69,911
69,911
—
—
—
—
—
—
43,255
43,255
$
$
$
$
1,484,281
5,212
1,489,493
429,101
430,663
732,330
1,176,560
4,258,147
603,661
4,861,808
1,527,219
8,650
1,535,869
418,915
580,545
827,861
907,875
4,271,065
814,044
5,085,109
_______________________________________________________________________________
(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 $39.4 million, $30.4 million and $17.6 million for the years ended December 31, 2020, 2019 and 2018,
respectively.
The following is a reconciliation of segment profit to net income (loss) ($ in thousands):
(2)
(3)
Segment profit
Less: Provision for loan losses
Less: Provision for losses on net investment in leases
Less: Impairment of assets
Less: Depreciation and amortization
Less: Stock-based compensation expense
Less: Income tax expense
Less: Loss on early extinguishment of debt, net
Net income (loss)
For the Years Ended December 31,
2019
2020
2018
471,083
(6,482)
—
(13,419)
(58,259)
(30,436)
(438)
(27,724)
334,325
$
$
233,163
(16,937)
—
(147,108)
(58,699)
(17,563)
(815)
(10,367)
(18,326)
$
$
97,505
(9,052)
(1,760)
(7,827)
(58,092)
(39,354)
(235)
(12,038)
(30,853)
$
$
92
Table of Contents
iStar Inc.
Schedule II—Valuation and Qualifying Accounts and Reserves
($ in thousands)
For the Year Ended December 31, 2018
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Adjustments
to Valuation
Accounts
Deductions
Balance at
End
of Period
(1)(2)
Reserve for loan losses
Allowance for doubtful accounts
Allowance for deferred tax assets
(2)
(2)
For the Year Ended December 31, 2019
(1)(2)
Reserve for loan losses
Allowance for doubtful accounts
Allowance for deferred tax assets
(2)
(2)
For the Year Ended December 31, 2020
(1)(2)
Reserve for loan losses
Allowance for doubtful accounts
Allowance for deferred tax assets
(2)
(2)
_____________________________________________________________
(1)
(2)
Refer to Note 7 to the Company's consolidated financial statements.
Refer to Note 3 to the Company's consolidated financial statements.
16,937 $
1,300
14,849
33,086 $
6,482 $
(696)
1,538
7,324 $
9,696 $
1,601
456
11,753 $
— $
—
—
— $
— $
—
—
— $
729 $
—
—
729 $
(42,031) $
(639)
—
(42,670) $
(31,243) $
(633)
—
(31,876) $
(25,889) $
(1,866)
—
(27,755) $
53,395
3,271
78,107
134,773
28,634
1,942
79,645
110,221
13,170
1,677
80,101
94,948
$
$
$
$
$
$
78,489 $
2,610
63,258
144,357 $
53,395 $
3,271
78,107
134,773 $
28,634 $
1,942
79,645
110,221 $
93
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation
As of December 31, 2020
($ in thousands)
Initial Cost to Company
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
Encumbrances
OFF010
OFF011
OFF005
OFF008
OFF009
OFF006
OFF007
Location
OFFICE FACILITIES:
Tempe, Arizona OFF001 $
Tempe, Arizona OFF002
Tempe, Arizona OFF003
Tempe, Arizona OFF004
Alameda,
California
Ft. Collins,
Colorado
Lisle, Illinois
Cockeysville,
Maryland
Chelmsford,
Massachusetts
Jersey City,
New Jersey
Mt. Laurel,
New Jersey
Riverview, New
Jersey
Riverview, New
Jersey
North Hills,
New York
Austin, Texas
Oakton,
Virginia
Subtotal
INDUSTRIAL FACILITIES:
Montague,
Michigan
Little Falls,
Minnesota
Jacksonville,
Ohio
El Reno,
Oklahoma
Fort Worth,
Texas
OFF014
OFF015
OFF013
OFF012
OFF016
IND004
IND003
IND005
IND001
IND002
$
5,324
3,724
3,750
2,845
2,397
474
2,411
8,269
10,540
4,571
33,620
5,847
12,511
6,840
3,811
$
—
—
—
—
(1)
(1)
(1)
(1)
1,033 $
1,033
1,033
701
26,025
—
21,115
9,702
—
7,681
6,652 $
6,652
6,652
4,339
29,831
16,752
30,230
115,000
19,529
148,286
1,600
—
7,726
1,008
2,456
21,947
99,296
74,429
13,763
28,955
5,931
63,500
46,787
6,850
16,288
70,149
91,000
2,942 $
491
556
2,171
1,033 $
1,033
1,033
701
$
9,594 $
7,143
7,208
6,510
10,627
8,176
8,241
7,211
1,167
9,702
30,998
40,700
(11,239)
—
—
7,681
5,513
30,230
5,513
37,911
(85)
285
—
10
206
814
19,529
148,201
167,730
1,600
22,232
23,832
—
99,296
99,296
7,724
1,008
2,456
74,441
82,165
13,969
14,977
29,769
32,225
19,631
—
104,527
88,136
—
17,436
19,631
—
104,527
105,572
124,158
105,572
54,085
516,730
14,242
87,375 $
$
68,610
749,057 $
—
14,754 $
14,242
87,373 $
68,610
763,813 $
82,852
851,186
$
5,175
112,109
—
—
(1)
(1)
52,410
7,903
7,903
598
6,705
1,990
401
2,341
9,814
17,690
56,329
7,644
17,142
—
—
598
6,225
9,814
10,412
18,170
24,395
23,979
1,990
80,308
82,298
401
2,341
7,644
8,045
17,142
19,483
—
—
94
4,540
7,228
4,302
1,023
1,343
1999
1999
1999
1999
2018
2002
2018
2018
2002
2019
2002
2004
2004
2018
2019
2018
2007
2005
2018
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
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
IND006
LAN001
LAN006
LAN007
LAN002
LAN005
Location
Chippewa
Falls,
Wisconsin
Subtotal
LAND:
Scottsdale,
Arizona
Whittmann,
Arizona
Mammoth
Lakes,
California
LAN003
Naples, Florida LAN004
Chicago,
Illinois
Asbury Park,
New Jersey
Asbury Park,
New Jersey
Asbury Park,
New Jersey
Brooklyn, New
York
Long Beach,
New York
Wawarsing,
New York
Chesterfield
County,
Virginia
Subtotal
ENTERTAINMENT:
Birmingham,
Alabama
Avondale,
Arizona
Glendale,
Arizona
Gilbert,
ENT004
Arizona
Mesa, Arizona ENT005
LAN008
LAN010
LAN009
LAN012
LAN011
ENT001
ENT003
ENT002
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
29,670
97,886
2,845
14,880 $
$
55,805
164,424 $
273
24,252 $
2,845
14,400 $
56,078
189,156 $
58,923
203,556
$
4,397
22,833
$
2018
40.0
—
—
—
—
—
—
—
—
—
—
—
—
—
1,618
1,293
2,281
4,801
1,448
$
1,400
96,700
28,464
26,600
31,500
43,300
3,992
111
58,900
52,461
4,600
—
—
800
2,200
—
96,700
—
—
2,836
—
(19,517)
(20,516)
8,947
26,600
2,836
(20,516)
—
—
—
—
31,500
39,736
83,036
106,934
110,926
—
—
—
2,200
96,700
11,783
6,084
31,500
83,036
—
—
(3)
2,836
5
—
1,123
110,926
—
(3)
5,954
2,206
2,317
5,954
8,271
—
—
—
(19,874)
39,026
(22,461)
30,000
—
4,600
—
—
—
39,026
30,000
4,600
—
—
—
—
72,138
$ 420,166 $
—
8,790 $
35,137
102,445 $ 543,127 $
107,275
—
(11,726) $
107,275
531,401
$
5,944
9,908
1,939
389
1,750
1,969
970
1,840
2,074
2,118
3,552
1,710
—
1
—
—
—
95
1,939
389
1,750
1,969
970
1,840
2,075
2,118
3,552
1,710
3,779
2,464
3,868
5,521
2,680
288
195
314
412
190
2011
2010
2010
2010
2016
2009
2009
2009
2011
2009
2018
2009
2018
2018
2018
2018
2018
0
0
0
0
0
0
0
0
0
0
0
0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Location
Scottsdale,
Arizona
Tucson,
Arizona
Chula Vista,
California
Fontana,
California
Moreno Valley,
California
Murrieta,
California
Norco,
California
Palmdale,
California
San Diego,
California
Thousand Oaks,
California
Upland,
California
Brampton,
ONT, Canada
Aurora,
Colorado
Colorado
Springs,
Colorado
Lakewood,
Colorado
Lone Tree,
Colorado
Westminster,
Colorado
Wheat Ridge,
Colorado
Apopka,
Florida
Boca Raton,
Florida
Boynton Beach,
Florida
ENT006
ENT007
ENT008
ENT009
ENT010
ENT011
ENT012
ENT013
ENT014
ENT015
ENT016
ENT017
ENT018
ENT019
ENT020
ENT021
ENT022
ENT023
ENT024
ENT025
ENT026
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
1,694
948
2,552
1,578
1,503
2,754
2,570
1,103
—
—
(1)
(1)
1,578
2,074
1,596
1,087
1,513
5,458
1,601
1,038
1,139
—
—
(1)
(1)
1,205
456
2,032
1,097
990
1,649
1,503
777
—
—
1,167
1,231
1,057
497
713
2,880
1,018
669
757
—
1,933
877
4,869
1,882
1,910
3,803
3,608
1,963
18,000
1,953
1,930
2,491
1,719
820
2,206
5,586
1,886
1,671
1,347
41,809
—
1
—
1
—
—
—
—
—
28,817
—
—
—
—
—
—
—
—
—
—
1,205
456
2,032
1,097
990
1,649
1,503
777
—
—
1,167
1,231
1,057
497
713
2,880
1,018
669
757
—
1,933
878
4,869
1,883
1,910
3,803
3,608
1,963
3,138
1,334
6,901
2,980
2,900
5,452
5,111
2,740
18,000
18,000
30,770
30,770
1,930
2,491
1,719
820
2,206
5,586
1,886
1,671
1,347
3,097
3,722
2,776
1,317
2,919
8,466
2,904
2,340
2,104
41,809
41,809
6,550
—
17,118
6,533
17,135
23,668
204
114
554
244
228
431
394
263
7,303
8,201
235
294
222
120
187
576
223
198
171
24,456
5,852
2018
2018
2018
2018
2018
2018
2018
2018
2003
2008
2018
2018
2018
2018
2018
2018
2018
2018
2018
2005
2006
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
27.0
40.0
96
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
ENT036
ENT035
ENT034
ENT033
ENT032
ENT030
ENT028
ENT029
ENT031
ENT027
Location
Margate,
Florida
Melbourne,
Florida
St. Petersburg,
Florida
W. Palm Beach,
Florida
Augusta,
Georgia
Kennesaw,
Georgia
Lawrenceville,
Georgia
Marietta,
Georgia
Marietta,
Georgia
Norcross,
Georgia
Roswell,
Georgia
Algonquin,
Illinois
Buffalo Grove,
Illinois
ENT039
Chicago, Illinois ENT040
Glendale
Heights, Illinois ENT041
Lake Zurich,
Illinois
Mount Prospect,
Illinois
Romeoville,
Illinois
ENT044
Roselle, Illinois ENT045
River Grove,
Illinois
Vernon Hills,
Illinois
Waukegan,
Illinois
ENT037
ENT038
ENT042
ENT043
ENT046
ENT048
ENT047
1,222
1,287
—
—
(1)
(1)
1,885
4,484
1,412
2,043
1,215
2,283
2,022
2,990
1,627
—
1,050
1,163
1,188
2,863
1,058
1,720
949
603
(1)
513
843
4,200
—
1,383
2,098
911
1,180
715
1,110
893
1,312
861
8,803
455
924
704
2,254
730
1,754
600
342
493
1,537
18,272
19,337
3,776
5,113
1,285
1,436
760
380
311
4,041
3,945
57
819
238
956
3,251
682
3,289
666
670
52
198
7,240
7,659
378
500
158
170
110
100
53
524
5,159
7,210
2,196
2,616
1,475
1,490
1,205
5,353
4,806
42,339
397
10,166
1,275
1,163
1,659
5,505
1,412
5,042
1,266
1,012
79
161
109
481
121
397
107
83
2018
2018
2005
2005
2018
2018
2018
2018
2018
2018
2018
2018
2018
2006
2018
2018
2018
2018
2018
2018
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
—
—
513
843
493
1,537
1,006
2,380
2,591
4,200
20,863
25,063
3,863
—
23,200
23,200
3,776
5,112
1,285
1,436
760
380
312
4,041
3,945
33,536
820
239
955
3,251
682
3,288
666
670
1,383
2,098
911
1,180
715
1,110
893
1,312
861
8,803
455
924
704
2,254
730
1,754
600
342
—
(1)
—
—
—
—
1
—
—
33,479
1
1
(1)
—
—
(1)
—
—
97
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
ENT057
ENT050
ENT052
ENT051
ENT053
ENT055
ENT056
ENT054
ENT049
Location
Woodridge,
Illinois
Columbia,
Maryland
Ellicott City,
Maryland
Blaine,
Minnesota
Brooklyn Park,
Minnesota
Burnsville,
Minnesota
Eden Prairie,
Minnesota
Lakeville,
Minnesota
Rochester,
Minnesota
St. Peters,
Missouri
Valley Park,
Missouri
Asbury Park,
New Jersey
Fairlawn, New
Jersey
Turnersville,
New Jersey
Brooklyn, New
York
N. Ridgeville,
Ohio
Belle Vernon,
Pennsylvania
Denton, Texas
Ft. Worth,
Texas
ENT067
Watauga, Texas ENT068
ENT065
ENT066
ENT058
ENT062
ENT064
ENT063
ENT061
ENT059
ENT060
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
1,135
1,653
1,286
2,542
2,534
—
(1)
2,589
2,591
—
(1)
2,818
1,326
—
1,542
1,413
—
921
801
1,135
926
2,062
829
1,762
889
1,801
1,455
2,962
1,496
1,910
2,437
1,936
803
750
1,141
1,354
3,277
290
410
712
379
1,073
1,597
1,300
1,632
2,814
2,036
(1)
—
1
(1)
—
829
1,762
889
1,801
1,455
1,596
1,300
1,633
2,813
2,036
2,425
3,062
2,522
4,614
3,491
200
207
161
417
300
—
17,164
2,962
17,164
20,126
6,877
2,117
3,373
8,715
3,381
1,408
10,670
2,094
1,314
—
1,057
759
763
266
2,274
—
—
1,496
1,910
2,117
3,373
3,613
5,283
277
384
2,098
2,437
10,813
13,250
4,830
1,936
803
750
1,141
1,354
587
290
410
712
379
1,073
3,381
1,408
5,317
2,211
11,468
12,218
2,094
1,314
3,191
1,057
759
763
266
2,274
3,235
2,668
3,778
1,347
1,169
1,475
645
3,347
378
153
868
205
252
169
79
113
97
48
241
—
—
798
—
—
501
—
—
—
—
—
98
2018
2018
2018
2018
2018
2006
2018
2018
2006
2014
2014
2017
2018
2018
2013
2018
2018
2018
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
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
Initial Cost to Company
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
Encumbrances
$
RET005
RET003
RET001
RET002
RET004
ENT069
ENT070
Location
Lynnwood,
Washington
Quincy,
Washington
Subtotal
RETAIL:
Colorado
Springs,
Colorado
St. Augustine,
Florida
Honolulu,
Hawaii
Chicago,
Illinois
Albuquerque,
New Mexico
Hamburg, New
York
RET006
Anthony, Texas RET007
RET008
Draper, Utah
Subtotal
HOTEL:
Honolulu,
Hawaii
Asbury Park,
New Jersey
Asbury Park,
New Jersey
Asbury Park,
New Jersey
Subtotal
APARTMENT/RESIDENTIAL:
Mammoth,
California
Atlanta,
Georgia
Jersey City,
New Jersey
Subtotal
HOT001
HOT002
HOT004
HOT003
APA001
APA003
APA002
$
$
$
2,071
1,608
4,010
—
1,608
4,010
5,618
447
—
105,636
(1)
1,500
96,624 $
$
6,500
242,951 $
—
106,431 $
1,500
93,917 $
6,500
352,089 $
8,000
446,006
3,246
101,061
$
2018
2003
40.0
40.0
—
(1)
—
(1)
—
—
(1)
2,631
3,950
3,393
—
—
(1)
1,733
279
—
5,195
2,607
5,498
8,105
10,285
3,908
10,327
14,235
21,155
(7,132)
3,393
14,023
17,416
336
—
2,275
—
2,611
2,611
8,728
1,705
8,756
10,461
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(1)
(1)
731
3,538
3,502
19,478 $
$
6,073
4,215
—
32,058 $
699
(187)
5,975
25,838 $
711
3,514
3,502
19,340 $
6,792
4,052
5,975
58,034 $
7,503
7,566
9,477
77,374
17,996
17,996
(31,160)
3,419
1,413
4,832
297
120
18,299
6,548
3,896
10
297
120
22,195
22,492
6,558
6,678
3,815
22,228 $
$
40,194
83,037 $
4,052
(23,202) $
3,815
7,651 $
44,246
74,412 $
48,061
82,063
10,078
40,312
(50,315)
2,963
11,850
(10,171)
15
928
60
3,714
36,405
49,446 $
$
64,719
116,881 $
(100,930)
(161,416) $
69
1,012 $
125
3,899 $
75
4,642
194
4,911
1,860
3,674
4,546
1,460
3,235
2,859
1,499
2,107
21,240
4,531
1,850
246
8,433
15,060
—
—
—
—
$
$
$
2006
2005
2009
2010
2005
2005
2005
2005
2009
2019
2019
2016
2007
2010
2009
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
0
0
0
99
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
(2)
Acquisition
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
MXU001
—
—
720,252
$
$
5,869
$
5,869 $
$ 716,066 $
629
629 $
1,397,827 $
2
2 $
5,869
5,869 $
89,104 $ 772,689 $
631
631 $
6,500
6,500
$
1,430,308 $ 2,202,997 (4) $
2010
40.0
630
630
282,841
(5)
Location
MIXED USE:
Riverside,
California
Subtotal
Total
_______________________________________________________________________________
(1)
(2)
(3)
(4)
(5)
Consists of properties pledged as collateral under the Company's secured credit facilities with a carrying value of $263.4 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 $2.56 billion at December 31, 2020.
Includes $10.5 million and $4.5 million relating to accumulated depreciation for land and development assets and real estate assets held for sale, respectively, as of December 31, 2020.
The following table reconciles real estate from January 1, 2018 to December 31, 2020:
$
Balance at January 1
Improvements and additions
Acquisitions through foreclosure
Other acquisitions
Dispositions
(1)
Other
Impairments
2020
2,364,413 $
53,906
—
—
(209,532)
—
(5,790)
2,202,997 $
2019
2,710,512 $
134,035
—
231,436
(464,648)
(236,545)
(10,377)
2,364,413 $
2018
2,577,195
203,124
4,600
762,207
(656,900)
—
(179,714)
2,710,512
Balance at December 31
_______________________________________________________________________________
(1)
Refer to Note 5.
$
100
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation (Continued)
As of December 31, 2020
($ in thousands)
The following table reconciles accumulated depreciation from January 1, 2018 to December 31, 2020:
Balance at January 1
Additions
Other
Dispositions
(1)
$
Balance at December 31
_______________________________________________________________________________
(1)
Refer to Note 5.
$
2020
(247,998) $
(44,270)
—
9,427
(282,841) $
2019
(318,724) $
(45,615)
44,200
72,141
(247,998) $
2018
(366,265)
(48,376)
—
95,917
(318,724)
101
Table of Contents
Type of Loan/Borrower
Senior Mortgages:
Borrower A
Borrower B
Borrower C
Borrower D
Borrower E
Borrower F
Borrower G
Borrower H
Borrower I
Borrower J
Senior mortgages individually
<3%
Underlying Property Type
Mixed Use/Mixed Collateral
Land
Apartment/Residential
Apartment/Residential
Mixed Use/Mixed Collateral
Mixed Use/Mixed Collateral
Hotel
Apartment/Residential
Apartment/Residential
Apartment/Residential
Apartment/Residential, Retail,
Mixed Use/Mixed Collateral,
Office, Hotel, Land, or Other
iStar Inc.
Schedule IV—Mortgage Loans on Real Estate
As of December 31, 2020
($ in thousands)
Contractual
Interest
Accrual
Rates
Contractual
Interest
Payment
Rates
Effective
Maturity
Dates
Periodic
Payment
(1)
Terms
Prior
Liens
Face
Amount
of
Mortgages
Carrying
Amount
of
Mortgages
(3)
(2)
LIBOR + 4.50%
LIBOR + 6.00%
Fixed: 6.00%
LIBOR + 5.25%
LIBOR + 6.75%
LIBOR + 4.75%
LIBOR + 4.50%
LIBOR + 5.25%
LIBOR + 2.65%
LIBOR + 5.25%
Fixed: 9.68%
Variable: LIBOR +
5.00%
LIBOR + 4.50%
LIBOR + 6.00%
Fixed: 6.00%
LIBOR + 5.25%
LIBOR + 6.75%
LIBOR + 4.75%
LIBOR + 4.50%
LIBOR + 5.25%
LIBOR + 2.65%
LIBOR + 5.25%
Fixed: 9.68%
Variable: LIBOR +
5.00%
January, 2021
March, 2021
April, 2021
June, 2021
June, 2021
July, 2021
February, 2021
December, 2021
November, 2023
September, 2021
2021 to 2024
$
IO $ —
IO $ —
—
IO
—
IO
—
IO
—
IO
—
IO
—
IO
—
IO
—
IO
—
IO
83,579 $
58,161
61,805
53,055
52,552
51,705
42,501
24,585
22,500
20,955
83,846
58,070
61,740
53,033
52,563
51,629
42,501
24,610
20,115
20,999
15,694
487,092
15,807
484,913
11,637
11,637
498,729 $
11,640
11,640
496,553
Subordinate Mortgages:
Subordinate mortgages
individually <3%
Total mortgages
Hotel
Fixed: 6.80%
Fixed: 6.80%
September, 2057
IO
—
$
_______________________________________________________________________________
(1)
(2)
(3)
IO = Interest only.
Amounts are presented net of asset-specific allowances of $0.7 million on impaired loans. Impairment is measured using the estimated fair value of collateral, less costs to sell.
The carrying amount of mortgages approximated the federal income tax basis.
102
Table of Contents
iStar Inc.
Schedule IV—Mortgage Loans on Real Estate (Continued)
As of December 31, 2020
($ in thousands)
Reconciliation of Mortgage Loans on Real Estate:
The following table reconciles Mortgage Loans on Real Estate from January 1, 2018 to December 31, 2020:
(1)
(2)
Balance at January 1
Additions:
New mortgage loans
Additions under existing mortgage loans
Other
(3)
Deductions :
Collections of principal
Provision for loan losses
Transfers to real estate and equity investments
Amortization of premium
Balance at December 31
$
2020
2019
2018
$
561,761 $
730,515 $
752,129
19,975
72,574
25,867
11,667
164,120
25,740
(178,662)
(4,930)
—
(32)
496,553 $
(355,769)
(493)
(13,987)
(32)
561,761 $
381,133
157,702
25,778
(501,466)
(45)
(84,684)
(32)
730,515
______________________________________________________________
(1) Balances represent the carrying value of loans, which are net of asset specific allowances.
(2) Amount includes amortization of discount, deferred interest capitalized and mark-to-market adjustments resulting from changes in foreign exchange rates.
(3) Amount is presented net of charge-offs of $25.9 million and $19.2 million for the years ended December 31, 2020 and 2019.
103
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 Accounting Officer, who is currently performing the functions of the Company's principal 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
principal financial officer (whose functions are currently being performed by the Company's Chief Accounting Officer) are members of the disclosure
committee.
Based upon their evaluation as of December 31, 2020, the Chief Executive Officer and the principal financial officer (whose functions are currently
being performed by the Company's Chief Accounting 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 Accounting Officer, who is currently performing the
functions of the Company's principal 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, 2020.
The Company's internal control over financial reporting as of December 31, 2020 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.
104
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 2021 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 2021 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 2021 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 2021 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 2021 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.
105
Table of Contents
INDEX TO EXHIBITS
Document Description
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)
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 Stock Certificate for the Company's Common Stock.(6)
Base Indenture, dated as of February 5, 2001, between the Company and State Street Bank and Trust Company.(7)
Twenty-Ninth Supplemental Indenture, dated as of March 13, 2017, governing the 6.00% Senior Notes Due 2022.(8)
Form of Global Note, No. 1, evidencing 6.00% Senior Notes due 2022.(8)
Form of Global Note, No. 1, evidencing 5.500% Senior Notes due 2026*
Thirty-Fifth Supplemental Indenture, dated September 1, 2020, governing the 5.500% Senior Notes due 2026*
Thirty-Second Supplemental Indenture, dated as of September 20, 2017, governing the 3.125% Senior Notes due 2022.(9)
Form of Global Note, No. 1, evidencing 3.125% Senior Notes due 2022.(9)
Thirty-Third Supplemental Indenture, dated as of September 16, 2019, governing the 4.75% Senior Notes due 2024.(10)
Thirty-Fourth Supplemental Indenture, dated as of December 16, 2019, governing the 4.25% Senior Notes due 2025.(11)
Description of Common and Preferred Stock
iStar Inc. 2009 Long Term Incentive Compensation Plan.(12)
iStar Inc. 2013 Performance Incentive Plan.(12)
Form of Restricted Stock Unit Award Agreement.(13)
Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting).(14)
Form of Award Agreement For Investment Pool.(6)
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.(15)
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.(15)
Third Amendment, dated as of June 28, 2018, to the Amended and Restated Credit Agreement referenced at Exhibit 10.8 (16)
Amended and Restated Credit Agreement dated as of September 27, 2019, among the Company, the other parties named therein and JPMorgan Chase Bank,
N.A. as administrative agent.(17)
Stockholder Agreement, dated as of January 2, 2019, between iStar Inc., and Safehold Inc.(18)
Amended and Restated Management Agreement, dated as of January 2, 2019, among Safehold Inc., SFTY Manager LLC and iStar Inc.(18)
First Amendment to Stockholder Agreement, dated as of January 14, 2020, between iStar Inc. and Safehold Inc. (19)
First Amendment to Amended and Restated Management Agreement, dated as of January 14, 2020, among Safehold Inc., SFTY Manager LLC and iStar Inc.
(19)
First Amendment to Exclusivity Agreement, dated as of January 14, 2020, between the Company and Safehold Inc. (19)
iStar Inc. Code of Conduct.(20)
Subsidiaries of the Company.
Consent of Deloitte & Touche LLP.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act.
Inline XBRL-related documents
Interactive data file
Exhibit
Number
3.1
3.2
3.6
3.8
3.9
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
14.0
21.1*
23.1*
31.0*
32.0*
100*
101
________________________________________________________________________
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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 Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015.
(7) Incorporated by reference from the Company's Current Report on Form S-3 Registration Statement filed on February 12, 2001.
(8) Incorporated by reference from the Company's Current Report on Form 8-K filed on March 13, 2017.
(9) Incorporated by reference from the Company's Current Report on Form 8-K filed on September 20, 2017.
(10) Incorporated by reference from the Company's Current Report on Form 8-K filed on September 16, 2019.
(11) Incorporated by reference from the Company's Current Report on Form 8-K filed on December 16, 2019.
(12) Incorporated by reference from the Company's Definitive Proxy Statement filed on April 11, 2014.
(13) Incorporated by reference from the Company's Current Report on Form 8-K filed on January 25, 2007.
(14) 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.
(15) Incorporated by reference from the Company's Current Report on Form 8-K filed on June 29, 2016
(16) Incorporated by reference from the Company's Current Report on Form 8-K filed on July 5, 2018.
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 filed on October 31, 2019.
(18) Incorporated by reference from the Company's Current Report on Form 8-K filed on January 3, 2019.
(19) Incorporated by reference from the Company's Current Report on Form 8-K filed on January 15, 2020.
(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.
* Incorporated by reference from the Company's Current Report on Form 8-K filed on September 1, 2020.
* Filed herewith.
**In accordance with Rule 406T of Regulation S-T, the Inline 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.
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Item 16. Form 10-K Summary
None.
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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 23, 2021
Date: February 23, 2021
Date: February 23, 2021
iStar Inc.
Registrant
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/ JEREMY FOX-GEEN
Jeremy Fox-Geen
Chief Financial Officer
(principal financial officer)
/s/ GARETT ROSENBLUM
Garett Rosenblum
Chief Accounting Officer
(principal 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 23, 2021
Date:
February 23, 2021
Date:
February 23, 2021
Date:
February 23, 2021
Date:
February 23, 2021
Date:
February 23, 2021
Date:
February 23, 2021
/s/ JAY SUGARMAN
Jay Sugarman
Chairman of the Board of Directors
Chief Executive Officer
/s/ CLIFFORD DE SOUZA
Clifford De Souza
Director
/s/ DAVID EISENBERG
David Eisenberg
Director
/s/ ROBIN JOSEPHS
Robin Josephs
Director
/s/ RICHARD LIEB
Richard Lieb
Director
/s/ BARRY W. RIDINGS
Barry W. Ridings
Director
/s/ ANITA SANDS
Anita Sands
Director
109
Subsidiary
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
17093 Biscayne Boulevard - North Miami 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.
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
425 Park REIT Manager LLC
432 Star Lender LLC
6801 Woolridge Road - Moseley LP
6801 Woolridge Road GenPar LLC
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
AH Net Lease II REIT
Exhibit 21.1
State of Formation
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New York
New York
New York
Maryland
AH NLA II (PA) LLC
AH NLA II (SC) 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 Partners, LLC
Asbury Three Liquor License LLC
Asbury Two Liquor License 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
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
Delaware
Delaware
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
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
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Delaware
Delaware
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Delaware
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
ATG NLA II (Mexico) LLC
Autostar Investors Partnership LLP
Autostar Realty GP LLC
Autostar Realty Operating Partnership, L.P.
Avenida Naperville Partners LLC
Bath Site 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.
Charwell TP LLC
Chicago STAR LLC
Childs Associates LLC
Coney Childs Lender LLC
Coney Entertainment LLC
Coney Island Holdings LLC
Coyote Center Development, LLC
CVNet Lease II REIT
CV NLA II GenPar LLC
CV NLA II LP
DT Net Lease I REIT
DT-XCIII-IS, LLC
EB Target Holdco LLC
EB Target LLC
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
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Entertainment Center Development, 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
Florida Lien Investor 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
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 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 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
iStar Bowling Centers PR LP
iStar Busco Inc.
iStar Chicago Hotel Lender LLC
iStar Corporate Collateral LLC
iStar CTL I GenPar, Inc.
iStar CTL I, L.P.
iStar CTL Manager LLC
iStar DH Holdings TRS Inc.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
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Delaware
Delaware
Delaware
Delaware
Delaware
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Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
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Delaware
Delaware
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Delaware
Delaware
Cayman Islands
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 Grand Monarch Investor LLC
iStar Harrisburg Business Trust
iStar Harrisburg GenPar LLC
iStar Harrisburg, L.P.
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 Raintree Venture Member 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
iStar SPP II LLC
iStar SPP LLC
iStar Standard Lender LLC
iStar Tara Holdings 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
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
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
Florida
Florida
Delaware
Delaware
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
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
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
Cyprus
Delaware
Delaware
Delaware
Maryland
New Jersey
Delaware
Delaware
Minnesota
Delaware
Florida
Florida
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
West Virginia
Delaware
Delaware
Florida
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
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Delaware
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Delaware
Delaware
Delaware
Delaware
Delaware
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
SFI Marina Stuart TRS LLC
SFI MG Investor LLC
SFI Mortgage Funding 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 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
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
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Delaware
Delaware
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Delaware
Delaware
Delaware
Delaware
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Delaware
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Delaware
Delaware
Delaware
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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 LH Holdings LLC
STAR 570 Washington LH LLC
STAR 2019 Lender LLC
STAR 10721 Domain Dr LH Owner 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 Domain LH Holdings LLC
STAR Dream Lender LLC
Star FW Ventures II Investor LLC
STAR Germantown Lender LLC
STAR Glenridge Lender LLC
STAR Highpark Lender LLC
STAR Investment Holdco LLC
Star Jadian Investor LLC
STAR Equus McDowell Member LLC
STAR Lineage Investor 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
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
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Delaware
STAR Tustin Lender LLC
STAR TX Purchaser LLC
State Road 710 - Indiantown LLC
Stone Pony Partners 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
Uncommon OpCo 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
WG Net Lease I REIT
WG NLA LLC
Delaware
Delaware
Delaware
New Jersey
New Jersey
Florida
Florida
Delaware
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-239073 on Form S-3 and Registration Statement Nos. 333- 183465 on
Form S-8 of our reports dated February 23, 2021, relating to the financial statements of iStar Inc. and the effectiveness of iStar Inc.'s internal control over
financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2020.
Exhibit 23.1
/s/ DELOITTE & TOUCHE LLP
New York, NY
February 23, 2021
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 23, 2021
By:
/s/ JAY SUGARMAN
Name:
Title:
Jay Sugarman
Chief Executive Officer
I, Jeremy Fox-Geen, 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 23, 2021
By:
/s/ JEREMY FOX-GEEN
Name:
Title:
Jeremy Fox-Geen
Chief Financial 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, 2020 (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 23, 2021
By:
/s/ JAY SUGARMAN
Name:
Title:
Jay Sugarman
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, 2020 (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 23, 2021
By:
/s/ JEREMY FOX-GEEN
Name:
Title:
Jeremy Fox-Geen
Chief Financial Officer