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.
iStar Inc.
Consolidated Balance Sheets
(In thousands, except per share data)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
Real estate
|
|
|
|
Real estate, at cost
|
$
|
1,752,053
|
|
|
$
|
1,761,079
|
|
Less: accumulated depreciation
|
(267,772)
|
|
|
(233,860)
|
|
Real estate, net
|
1,484,281
|
|
|
1,527,219
|
|
Real estate available and held for sale
|
5,212
|
|
|
8,650
|
|
Total real estate
|
1,489,493
|
|
|
1,535,869
|
|
Net investment in leases
|
429,101
|
|
|
418,915
|
|
Land and development, net
|
430,663
|
|
|
580,545
|
|
Loans receivable and other lending investments, net
|
732,330
|
|
|
827,861
|
|
Other investments
|
1,176,560
|
|
|
907,875
|
|
Cash and cash equivalents
|
98,633
|
|
|
307,172
|
|
Accrued interest and operating lease income receivable, net
|
10,061
|
|
|
10,162
|
|
Deferred operating lease income receivable, net
|
58,128
|
|
|
54,222
|
|
Deferred expenses and other assets, net
|
436,839
|
|
|
442,488
|
|
Total assets
|
$
|
4,861,808
|
|
|
$
|
5,085,109
|
|
LIABILITIES AND EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
$
|
467,922
|
|
|
$
|
424,374
|
|
Liabilities associated with properties held for sale
|
27
|
|
|
57
|
|
Loan participations payable, net
|
42,501
|
|
|
35,638
|
|
Debt obligations, net
|
3,286,975
|
|
|
3,387,080
|
|
Total liabilities
|
3,797,425
|
|
|
3,847,149
|
|
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)
|
12
|
|
|
12
|
|
|
|
|
|
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
|
74
|
|
|
78
|
|
Additional paid-in capital
|
3,240,535
|
|
|
3,284,877
|
|
Accumulated deficit
|
(2,316,972)
|
|
|
(2,205,838)
|
|
Accumulated other comprehensive loss (refer to Note 14)
|
(52,680)
|
|
|
(38,707)
|
|
Total iStar Inc. shareholders' equity
|
870,969
|
|
|
1,040,422
|
|
Noncontrolling interests
|
193,414
|
|
|
197,538
|
|
Total equity
|
1,064,383
|
|
|
1,237,960
|
|
Total liabilities and equity
|
$
|
4,861,808
|
|
|
$
|
5,085,109
|
|
_______________________________________________________________________________
(1)Refer to Note 2 for details on the Company's consolidated variable interest entities ("VIEs").
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
Operating lease income
|
$
|
188,722
|
|
|
$
|
206,388
|
|
|
$
|
208,192
|
|
Interest income
|
60,116
|
|
|
77,654
|
|
|
97,878
|
|
Interest income from sales-type leases
|
33,552
|
|
|
20,496
|
|
|
—
|
|
Other income
|
83,857
|
|
|
55,363
|
|
|
82,342
|
|
Land development revenue
|
164,702
|
|
|
119,595
|
|
|
409,710
|
|
Total revenues
|
530,949
|
|
|
479,496
|
|
|
798,122
|
|
Costs and expenses:
|
|
|
|
|
|
Interest expense
|
169,574
|
|
|
183,919
|
|
|
183,751
|
|
Real estate expense
|
72,493
|
|
|
92,426
|
|
|
139,289
|
|
Land development cost of sales
|
177,727
|
|
|
109,663
|
|
|
350,181
|
|
Depreciation and amortization
|
58,092
|
|
|
58,259
|
|
|
58,699
|
|
General and administrative
|
100,879
|
|
|
98,609
|
|
|
92,135
|
|
Provision for loan losses
|
9,052
|
|
|
6,482
|
|
|
16,937
|
|
Provision for losses on net investment in leases
|
1,760
|
|
|
—
|
|
|
—
|
|
Impairment of assets
|
7,827
|
|
|
13,419
|
|
|
147,108
|
|
Other expense
|
569
|
|
|
13,120
|
|
|
6,040
|
|
Total costs and expenses
|
597,973
|
|
|
575,897
|
|
|
994,140
|
|
Income from sales of real estate
|
6,318
|
|
|
236,623
|
|
|
126,004
|
|
Income (loss) from operations before earnings from equity method investments and other items
|
(60,706)
|
|
|
140,222
|
|
|
(70,014)
|
|
Loss on early extinguishment of debt, net
|
(12,038)
|
|
|
(27,724)
|
|
|
(10,367)
|
|
Earnings (losses) from equity method investments
|
42,126
|
|
|
41,849
|
|
|
(5,007)
|
|
Selling profit from sales-type leases
|
—
|
|
|
180,416
|
|
|
—
|
|
Gain on consolidation of equity method investment
|
—
|
|
|
—
|
|
|
67,877
|
|
Net income (loss) from operations before income taxes
|
(30,618)
|
|
|
334,763
|
|
|
(17,511)
|
|
Income tax expense
|
(235)
|
|
|
(438)
|
|
|
(815)
|
|
Net income (loss)
|
(30,853)
|
|
|
334,325
|
|
|
(18,326)
|
|
Net income attributable to noncontrolling interests
|
(11,588)
|
|
|
(10,283)
|
|
|
(13,936)
|
|
Net income (loss) attributable to iStar Inc.
|
(42,441)
|
|
|
324,042
|
|
|
(32,262)
|
|
Preferred dividends
|
(23,496)
|
|
|
(32,495)
|
|
|
(32,495)
|
|
Net income (loss) allocable to common shareholders
|
$
|
(65,937)
|
|
|
$
|
291,547
|
|
|
$
|
(64,757)
|
|
Per common share data:
|
|
|
|
|
|
Net income (loss) allocable to common shareholders
|
|
|
|
|
|
Basic
|
$
|
(0.87)
|
|
|
$
|
4.51
|
|
|
$
|
(0.95)
|
|
Diluted
|
$
|
(0.87)
|
|
|
$
|
3.73
|
|
|
$
|
(0.95)
|
|
Weighted average number of common shares:
|
|
|
|
|
|
Basic
|
75,684
|
|
|
64,696
|
|
|
67,958
|
|
Diluted
|
75,684
|
|
|
80,666
|
|
|
67,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Net income (loss)
|
$
|
(30,853)
|
|
|
$
|
334,325
|
|
|
$
|
(18,326)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Impact from adoption of new accounting standards
|
—
|
|
|
—
|
|
|
276
|
|
Reclassification of losses on cumulative translation adjustment into earnings upon realization(1)
|
—
|
|
|
—
|
|
|
721
|
|
Reclassification of (gains) losses on cash flow hedges into earnings upon realization(2)
|
8,075
|
|
|
14,524
|
|
|
(1,508)
|
|
Unrealized gains (losses) on available-for-sale securities
|
1,838
|
|
|
2,280
|
|
|
(1,135)
|
|
Unrealized gains (losses) on cash flow hedges
|
(28,290)
|
|
|
(42,582)
|
|
|
(14,699)
|
|
Unrealized losses on cumulative translation adjustment
|
—
|
|
|
—
|
|
|
(364)
|
|
Other comprehensive income (loss)
|
(18,377)
|
|
|
(25,778)
|
|
|
(16,709)
|
|
Comprehensive income (loss)
|
(49,230)
|
|
|
308,547
|
|
|
(35,035)
|
|
Comprehensive income attributable to noncontrolling interests
|
(7,184)
|
|
|
(5,942)
|
|
|
(12,015)
|
|
Comprehensive income (loss) attributable to iStar Inc.
|
$
|
(56,414)
|
|
|
$
|
302,605
|
|
|
$
|
(47,050)
|
|
_______________________________________________________________________________
(1)Amounts were reclassified to "Earnings (losses) from equity method investments" in the Company's consolidated statements of operations.
(2)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.
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iStar Inc. Shareholders' Equity
|
|
|
|
|
|
|
Preferred
Stock(1)
|
|
Preferred Stock Series J(1)
|
|
Common
Stock at
Par
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
(Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
Balance as of December 31, 2017
|
|
$
|
12
|
|
|
$
|
4
|
|
|
$
|
68
|
|
|
$
|
3,352,665
|
|
|
$
|
(2,470,564)
|
|
|
$
|
(2,482)
|
|
|
|
|
$
|
34,546
|
|
|
$
|
914,249
|
|
Dividends declared—preferred
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,495)
|
|
|
—
|
|
|
|
|
—
|
|
|
(32,495)
|
|
Dividends declared—common ($0.18 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,333)
|
|
|
—
|
|
|
|
|
—
|
|
|
(12,333)
|
|
Issuance of stock/restricted stock unit amortization, net(2)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
7,863
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
7,864
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,262)
|
|
|
—
|
|
|
|
|
13,936
|
|
|
(18,326)
|
|
Change in accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,064)
|
|
|
|
|
(1,921)
|
|
|
(16,985)
|
|
Repurchase of stock
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(8,303)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(8,304)
|
|
Contributions from noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
15,227
|
|
|
15,227
|
|
Distributions to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(48,930)
|
|
|
(48,930)
|
|
Change in noncontrolling interest attributable to consolidation of equity method investment (refer to Note 8)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
188,279
|
|
|
188,279
|
|
Impact from adoption of new accounting standards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,593
|
|
|
276
|
|
|
|
|
—
|
|
|
75,869
|
|
Balance as of December 31, 2018
|
|
$
|
12
|
|
|
$
|
4
|
|
|
$
|
68
|
|
|
$
|
3,352,225
|
|
|
$
|
(2,472,061)
|
|
|
$
|
(17,270)
|
|
|
|
|
$
|
201,137
|
|
|
$
|
1,064,115
|
|
Dividends declared—preferred
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,495)
|
|
|
—
|
|
|
|
|
—
|
|
|
(32,495)
|
|
Dividends declared—common ($0.39 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,324)
|
|
|
—
|
|
|
|
|
—
|
|
|
(25,324)
|
|
Issuance of stock/restricted stock unit amortization, net(2)
|
|
—
|
|
|
—
|
|
|
1
|
|
|
7,317
|
|
|
—
|
|
|
—
|
|
|
|
|
2,864
|
|
|
10,182
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
324,042
|
|
|
—
|
|
|
|
|
10,283
|
|
|
334,325
|
|
Change in accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,437)
|
|
|
|
|
(4,341)
|
|
|
(25,778)
|
|
Repurchase of stock
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
(74,640)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(74,647)
|
|
Redemption of Series J Preferred Stock
|
|
—
|
|
|
(4)
|
|
|
16
|
|
|
(25)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(13)
|
|
Contributions from noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2,592
|
|
|
2,592
|
|
Distributions to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(14,997)
|
|
|
(14,997)
|
|
Balance as of December 31, 2019
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
78
|
|
|
$
|
3,284,877
|
|
|
$
|
(2,205,838)
|
|
|
$
|
(38,707)
|
|
|
|
|
$
|
197,538
|
|
|
$
|
1,237,960
|
|
Impact from adoption of new accounting standards (refer to Note 3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,382)
|
|
|
—
|
|
|
|
|
—
|
|
|
(12,382)
|
|
Dividends declared—preferred
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,496)
|
|
|
—
|
|
|
|
|
—
|
|
|
(23,496)
|
|
Dividends declared—common ($0.43 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,815)
|
|
|
—
|
|
|
|
|
—
|
|
|
(32,815)
|
|
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iStar Inc. Shareholders' Equity
|
|
|
|
|
|
|
Preferred
Stock(1)
|
|
Preferred Stock Series J(1)
|
|
Common
Stock at
Par
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
(Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
Issuance of stock/restricted stock unit amortization, net
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4,060
|
|
|
—
|
|
|
—
|
|
|
|
|
3,363
|
|
|
7,424
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,441)
|
|
|
—
|
|
|
|
|
11,588
|
|
|
(30,853)
|
|
Change in accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,973)
|
|
|
|
|
(4,404)
|
|
|
(18,377)
|
|
Repurchase of stock
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(48,402)
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(48,407)
|
|
Contributions from noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
496
|
|
|
496
|
|
Distributions to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(15,167)
|
|
|
(15,167)
|
|
Balance as of December 31, 2020
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
74
|
|
|
$
|
3,240,535
|
|
|
$
|
(2,316,972)
|
|
|
$
|
(52,680)
|
|
|
|
|
$
|
193,414
|
|
|
$
|
1,064,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________________________________________________
(1)Refer to Note 14 for details on the Company's Preferred Stock.
(2)Net of payments for withholding taxes upon vesting of stock-based compensation.
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
(30,853)
|
|
|
$
|
334,325
|
|
|
$
|
(18,326)
|
|
Adjustments to reconcile net income (loss) to cash flows from operating activities:
|
|
|
|
|
|
Provision for loan losses
|
9,052
|
|
|
6,482
|
|
|
16,937
|
|
Provision for losses on net investment in leases
|
1,760
|
|
|
—
|
|
|
—
|
|
Impairment of assets
|
7,827
|
|
|
13,419
|
|
|
147,108
|
|
Depreciation and amortization
|
58,092
|
|
|
58,259
|
|
|
58,699
|
|
Non-cash interest income from sales-type leases
|
(24,969)
|
|
|
(3,781)
|
|
|
—
|
|
Stock-based compensation expense
|
39,354
|
|
|
30,436
|
|
|
17,563
|
|
Amortization of discounts/premiums and deferred financing costs on debt obligations, net
|
13,328
|
|
|
13,847
|
|
|
15,422
|
|
Amortization of discounts/premiums and deferred interest on loans, net
|
(30,738)
|
|
|
(42,342)
|
|
|
(41,168)
|
|
Deferred interest on loans received
|
20,661
|
|
|
10,397
|
|
|
40,463
|
|
Gain from consolidation of equity method investment
|
—
|
|
|
—
|
|
|
(67,877)
|
|
|
|
|
|
|
|
Selling profit from sales-type leases
|
—
|
|
|
(180,416)
|
|
|
—
|
|
Losses (earnings) from equity method investments
|
(42,126)
|
|
|
(41,849)
|
|
|
5,007
|
|
Distributions from operations of other investments
|
24,826
|
|
|
30,058
|
|
|
18,133
|
|
Deferred operating lease income
|
(14,052)
|
|
|
(16,185)
|
|
|
(14,989)
|
|
Income from sales of real estate
|
(6,318)
|
|
|
(236,623)
|
|
|
(126,004)
|
|
Land development revenue in excess of cost of sales
|
13,025
|
|
|
(9,932)
|
|
|
(59,529)
|
|
Loss on early extinguishment of debt, net
|
12,038
|
|
|
27,724
|
|
|
10,367
|
|
|
|
|
|
|
|
Other operating activities, net
|
(19,496)
|
|
|
13,642
|
|
|
3,377
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Changes in accrued interest and operating lease income receivable, net
|
(2,311)
|
|
|
417
|
|
|
949
|
|
Changes in deferred expenses and other assets, net
|
(5,351)
|
|
|
(5,848)
|
|
|
(1,925)
|
|
Changes in accounts payable, accrued expenses and other liabilities, net
|
(1,863)
|
|
|
(47,655)
|
|
|
(28,335)
|
|
Cash flows provided by (used in) operating activities
|
21,886
|
|
|
(45,625)
|
|
|
(24,128)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Originations and fundings of loans receivable, net
|
(119,368)
|
|
|
(255,804)
|
|
|
(482,143)
|
|
Capital expenditures on real estate assets
|
(15,798)
|
|
|
(39,946)
|
|
|
(60,495)
|
|
Capital expenditures on land and development assets
|
(40,954)
|
|
|
(117,514)
|
|
|
(128,543)
|
|
Acquisitions of real estate, net investments in leases and land assets
|
—
|
|
|
(240,487)
|
|
|
(19,454)
|
|
Repayments of and principal collections on loans receivable and other lending investments, net
|
208,240
|
|
|
419,800
|
|
|
832,982
|
|
Net proceeds from sales of loans receivable
|
11,000
|
|
|
5,898
|
|
|
—
|
|
Net proceeds from sales of real estate
|
48,415
|
|
|
329,971
|
|
|
411,786
|
|
Net proceeds from sales of land and development assets
|
161,063
|
|
|
114,885
|
|
|
223,416
|
|
Cash, cash equivalents and restricted cash acquired upon consolidation of equity method investment
|
—
|
|
|
—
|
|
|
13,608
|
|
Distributions from other investments
|
39,871
|
|
|
62,911
|
|
|
40,804
|
|
Contributions to and acquisition of interest in other investments
|
(260,121)
|
|
|
(656,720)
|
|
|
(94,578)
|
|
Other investing activities, net
|
(1,169)
|
|
|
(21,090)
|
|
|
41,476
|
|
Cash flows provided by investing activities
|
31,179
|
|
|
(398,096)
|
|
|
778,859
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings from debt obligations
|
802,913
|
|
|
1,486,980
|
|
|
704,360
|
|
Repayments and repurchases of debt obligations
|
(913,501)
|
|
|
(1,482,558)
|
|
|
(944,800)
|
|
Purchase of marketable securities in connection with the defeasance of mortgage notes payable
|
—
|
|
|
—
|
|
|
(110,939)
|
|
Preferred dividends paid
|
(23,496)
|
|
|
(32,495)
|
|
|
(32,496)
|
|
Common dividends paid
|
(32,664)
|
|
|
(25,059)
|
|
|
(12,227)
|
|
Repurchase of stock
|
(54,565)
|
|
|
(68,289)
|
|
|
(8,304)
|
|
|
|
|
|
|
|
Payments for deferred financing costs
|
(7,711)
|
|
|
(19,928)
|
|
|
(5,471)
|
|
Payments for withholding taxes upon vesting of stock-based compensation
|
(2,716)
|
|
|
(4,475)
|
|
|
(4,807)
|
|
Contributions from noncontrolling interests
|
496
|
|
|
2,812
|
|
|
13,927
|
|
Distributions to and redemption of noncontrolling interests
|
(15,167)
|
|
|
(14,998)
|
|
|
(60,743)
|
|
Payments for debt prepayment or extinguishment costs
|
(8,567)
|
|
|
(20,606)
|
|
|
(4,132)
|
|
Other financing activities, net
|
—
|
|
|
(13)
|
|
|
7,693
|
|
Cash flows used in financing activities
|
(254,978)
|
|
|
(178,629)
|
|
|
(457,939)
|
|
Effect of exchange rate changes on cash
|
273
|
|
|
12
|
|
|
19
|
|
Changes in cash, cash equivalents and restricted cash
|
(201,640)
|
|
|
(622,338)
|
|
|
296,811
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
352,206
|
|
|
974,544
|
|
|
677,733
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
150,566
|
|
|
$
|
352,206
|
|
|
$
|
974,544
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the period for interest, net of amount capitalized
|
$
|
142,453
|
|
|
$
|
181,520
|
|
|
171,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Supplemental disclosure of non-cash investing and financing activity:
|
|
|
|
|
|
Fundings and repayments of loan receivables and loan participations, net
|
$
|
6,720
|
|
|
$
|
13,014
|
|
|
$
|
(80,095)
|
|
Sales-type lease origination
|
—
|
|
|
411,523
|
|
|
—
|
|
Acquisitions of real estate and land and development assets through deed-in-lieu
|
—
|
|
|
—
|
|
|
4,600
|
|
Contributions of real estate and land and development assets to equity method investments, net
|
—
|
|
|
4,073
|
|
|
—
|
|
Accounts payable for capital expenditures on land and development assets
|
—
|
|
|
—
|
|
|
16,052
|
|
Marketable securities transferred in connection with the defeasance of mortgage notes payable
|
—
|
|
|
—
|
|
|
110,939
|
|
Accounts payable for capital expenditures on real estate assets
|
7,604
|
|
|
—
|
|
|
—
|
|
Acquisition of land and development asset through joint venture consolidation
|
—
|
|
|
27,000
|
|
|
—
|
|
Conversion of Series J convertible preferred stock
|
—
|
|
|
193,510
|
|
|
—
|
|
Defeasance of mortgage notes payable
|
—
|
|
|
—
|
|
|
(105,785)
|
|
|
|
|
|
|
|
Accrued finance costs
|
115
|
|
|
2,362
|
|
|
—
|
|
Accrued stock repurchases
|
200
|
|
|
6,358
|
|
|
—
|
|
Assumption of mortgage by third party
|
—
|
|
|
228,000
|
|
|
—
|
|
Financing provided on sales of land and development assets, net
|
—
|
|
|
—
|
|
|
142,639
|
|
Increase in net lease assets upon consolidation of equity method investment
|
—
|
|
|
—
|
|
|
844,550
|
|
Increase in debt obligations upon consolidation of equity method investment
|
—
|
|
|
—
|
|
|
464,706
|
|
Increase in noncontrolling interests upon consolidation of equity method investment
|
—
|
|
|
—
|
|
|
200,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE's respective assets. The Company did not have any unfunded commitments related to consolidated VIEs as of December 31, 2020. The following table presents the assets and liabilities of the Company's consolidated VIEs as of December 31, 2020 and 2019 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
December 31,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Real estate
|
|
|
|
Real estate, at cost
|
$
|
899,110
|
|
|
$
|
891,000
|
|
Less: accumulated depreciation
|
(61,917)
|
|
|
(37,542)
|
|
Real estate, net
|
837,193
|
|
|
853,458
|
|
Land and development, net
|
240,137
|
|
|
273,617
|
|
Other investments
|
35
|
|
|
45
|
|
Cash and cash equivalents
|
22,571
|
|
|
19,112
|
|
Accrued interest and operating lease income receivable, net
|
1,472
|
|
|
1,208
|
|
Deferred operating lease income receivable, net
|
29,428
|
|
|
19,547
|
|
Deferred expenses and other assets, net
|
122,591
|
|
|
134,117
|
|
Total assets
|
$
|
1,253,427
|
|
|
$
|
1,301,104
|
|
LIABILITIES
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
$
|
115,581
|
|
|
$
|
107,455
|
|
Debt obligations, net
|
488,719
|
|
|
482,918
|
|
Total liabilities
|
604,300
|
|
|
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.
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iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Notes to Consolidated Financial Statements (Continued)
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Notes to Consolidated Financial Statements (Continued)
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Notes to Consolidated Financial Statements (Continued)
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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,
|
|
2020
|
|
2019
|
|
2018
|
Current tax benefit (expense)(1)(2)
|
$
|
(106)
|
|
|
$
|
(35)
|
|
|
$
|
(447)
|
|
|
|
|
|
|
|
Total income tax (expense) benefit
|
$
|
(106)
|
|
|
$
|
(35)
|
|
|
$
|
(447)
|
|
_______________________________________________________________________________
(1)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.
(2)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.
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 $2.0 million, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes, as well as operating loss and tax credit carryforwards. The Company applied the corporate tax rate enacted December 22, 2017 under the Tax Cuts and Jobs Act effective for years beginning after 2017 to value its deferred tax assets and liabilities. The Company evaluates whether its deferred tax assets are realizable and recognizes a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating whether its deferred tax assets are realizable, the Company considers, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Based on an assessment of all factors, including historical losses and continued volatility of the activities within the TRS entities, it was determined that full valuation allowances were required on the net deferred tax assets as of December 31, 2020 and 2019, respectively. Changes in estimates of our valuation allowance, if any, are included in "Income tax (expense) benefit" in the consolidated statements of operations. The valuation allowance was reduced to reflect the change in value of our net deferred tax assets that reflects a reduced rate of tax under the Tax Cuts and Jobs Act.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Deferred tax assets and liabilities of the Company's TRS entities were as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
Deferred tax assets(1)
|
|
$
|
80,101
|
|
|
$
|
79,645
|
|
Valuation allowance
|
|
(80,101)
|
|
|
(79,645)
|
|
Net deferred tax assets (liabilities)
|
|
$
|
—
|
|
|
$
|
—
|
|
_______________________________________________________________________________
(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 $10 million.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 4—Real Estate
The Company's real estate assets were comprised of the following ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Lease(1)
|
|
Operating
Properties
|
|
Total
|
As of December 31, 2020
|
|
|
|
|
|
Land, at cost
|
$
|
188,418
|
|
|
$
|
103,530
|
|
|
$
|
291,948
|
|
Buildings and improvements, at cost
|
1,353,683
|
|
|
106,422
|
|
|
1,460,105
|
|
Less: accumulated depreciation
|
(250,198)
|
|
|
(17,574)
|
|
|
(267,772)
|
|
Real estate, net
|
1,291,903
|
|
|
192,378
|
|
|
1,484,281
|
|
Real estate available and held for sale (2)
|
—
|
|
|
5,212
|
|
|
5,212
|
|
Total real estate
|
$
|
1,291,903
|
|
|
$
|
197,590
|
|
|
$
|
1,489,493
|
|
As of December 31, 2019
|
|
|
|
|
|
Land, at cost
|
$
|
199,710
|
|
|
$
|
106,187
|
|
|
$
|
305,897
|
|
Buildings and improvements, at cost
|
1,347,321
|
|
|
107,861
|
|
|
1,455,182
|
|
Less: accumulated depreciation
|
(219,949)
|
|
|
(13,911)
|
|
|
(233,860)
|
|
Real estate, net
|
1,327,082
|
|
|
200,137
|
|
|
1,527,219
|
|
Real estate available and held for sale (2)
|
—
|
|
|
8,650
|
|
|
8,650
|
|
Total real estate
|
$
|
1,327,082
|
|
|
$
|
208,787
|
|
|
$
|
1,535,869
|
|
_______________________________________________________________________________
(1)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).
(2)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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Property Type
|
|
2020
|
|
2019
|
|
2018
|
Operating Properties
|
|
$
|
—
|
|
|
$
|
14.5
|
|
|
$
|
23.2
|
|
Net Lease
|
|
8.9
|
|
|
185.9
|
|
|
8.1
|
|
Total
|
|
$
|
8.9
|
|
|
$
|
200.4
|
|
|
$
|
31.3
|
|
_______________________________________________________________________________
(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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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,
|
|
|
2020
|
|
2019
|
|
2018
|
Operating Properties(1)
|
|
|
|
|
|
|
Proceeds
|
|
$
|
5.9
|
|
|
$
|
86.1
|
|
|
$
|
327.9
|
|
Income from sales of real estate
|
|
0.2
|
|
|
11.9
|
|
|
81.0
|
|
|
|
|
|
|
|
|
Net Lease(2)
|
|
|
|
|
|
|
Proceeds
|
|
$
|
42.4
|
|
|
$
|
469.4
|
|
|
$
|
79.7
|
|
Income from sales of real estate
|
|
6.1
|
|
|
224.7
|
|
|
45.0
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Proceeds
|
|
$
|
48.3
|
|
|
$
|
555.5
|
|
|
$
|
407.6
|
|
Income from sales of real estate
|
|
6.3
|
|
|
236.6
|
|
|
126.0
|
|
_______________________________________________________________________________
(1)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.
(2)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 $1.0 million. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income receivable, net," respectively, on the Company's consolidated balance sheets.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable leases, excluding customer reimbursements of expenses, in effect as of December 31, 2020, are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Net Lease
Assets
|
|
Operating Properties
|
2021
|
|
$
|
131,625
|
|
|
$
|
15,948
|
|
2022
|
|
129,891
|
|
|
7,784
|
|
2023
|
|
121,586
|
|
|
7,469
|
|
2024
|
|
115,900
|
|
|
7,462
|
|
2025
|
|
119,357
|
|
|
6,809
|
|
Thereafter
|
|
1,238,073
|
|
|
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
|
|
$
|
1,020,921
|
|
|
$
|
1,042,019
|
|
Unguaranteed estimated residual value
|
|
345,284
|
|
|
340,620
|
|
Present value discount
|
|
(926,233)
|
|
|
(963,724)
|
|
Allowance for losses on net investment in leases
|
|
(10,871)
|
|
|
—
|
|
Net investment in leases(1)
|
|
$
|
429,101
|
|
|
$
|
418,915
|
|
_______________________________________________________________________________
(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).
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
2021
|
|
|
|
|
|
|
|
$
|
14,248
|
|
2022
|
|
|
|
|
|
|
|
30,481
|
|
2023
|
|
|
|
|
|
|
|
41,854
|
|
2024
|
|
|
|
|
|
|
|
41,584
|
|
2025
|
|
|
|
|
|
|
|
30,481
|
|
Thereafter
|
|
|
|
|
|
|
|
862,273
|
|
Total undiscounted cash flows
|
|
|
|
|
|
|
|
$
|
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(1)
|
|
9,111
|
|
|
|
|
|
|
|
|
|
|
Provision for losses on net investment in leases(2)
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on net investment in leases at end of period
|
|
$
|
10,871
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________________________________
(1)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).
(2)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):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Land and land development, at cost
|
$
|
441,201
|
|
|
$
|
590,153
|
|
Less: accumulated depreciation
|
(10,538)
|
|
|
(9,608)
|
|
Total land and development, net
|
$
|
430,663
|
|
|
$
|
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Construction loans
|
2020
|
|
2019
|
Senior mortgages
|
$
|
449,733
|
|
|
$
|
518,992
|
|
Corporate/Partnership loans
|
65,100
|
|
|
95,394
|
|
Subtotal - gross carrying value of construction loans(1)
|
514,833
|
|
|
614,386
|
|
Loans
|
|
|
|
Senior mortgages
|
35,922
|
|
|
53,592
|
|
Corporate/Partnership loans
|
20,567
|
|
|
24,424
|
|
Subordinate mortgages
|
11,640
|
|
|
10,877
|
|
Subtotal - gross carrying value of loans
|
68,129
|
|
|
88,893
|
|
Other lending investments
|
|
|
|
Financing receivables (refer to Note 5)
|
46,549
|
|
|
44,339
|
|
Held-to-maturity debt securities
|
90,715
|
|
|
84,981
|
|
Available-for-sale debt securities
|
25,274
|
|
|
23,896
|
|
Subtotal - other lending investments
|
162,538
|
|
|
153,216
|
|
Total gross carrying value of loans receivable and other lending investments
|
745,500
|
|
|
856,495
|
|
Allowance for loan losses
|
(13,170)
|
|
|
(28,634)
|
|
Total loans receivable and other lending investments, net
|
$
|
732,330
|
|
|
$
|
827,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________________________________________________
(1)As of December 31, 2020, 47%, or $241.8 million, gross carrying value of construction loans had completed construction and 5%, or $24.6 million, gross carrying value of construction loans had substantially completed construction.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Allowance for Loan Losses—Changes in the Company's allowance for loan losses were as follows for the year ended December 31, 2020 ($ 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
|
|
|
|
$
|
6,668
|
|
|
$
|
265
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,701
|
|
|
$
|
28,634
|
|
Adoption of new accounting standard(1)
|
|
|
|
(353)
|
|
|
98
|
|
|
20
|
|
|
964
|
|
|
—
|
|
|
729
|
|
Provision for loan losses(2)
|
|
|
|
226
|
|
|
1,280
|
|
|
3,073
|
|
|
186
|
|
|
4,931
|
|
|
9,696
|
|
Charge-offs(3)
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,889)
|
|
|
(25,889)
|
|
Allowance for loan losses at end of period
|
|
|
|
$
|
6,541
|
|
|
$
|
1,643
|
|
|
$
|
3,093
|
|
|
$
|
1,150
|
|
|
$
|
743
|
|
|
$
|
13,170
|
|
____________________________________________________________
(1)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."
(2)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."
(3)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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for
Impairment(1)
|
|
Collectively
Evaluated for
Impairment
|
|
|
|
Total
|
As of December 31, 2020
|
|
|
|
|
|
|
|
Construction loans(2)
|
$
|
53,305
|
|
|
$
|
461,528
|
|
|
|
|
$
|
514,833
|
|
Loans(2)
|
—
|
|
|
68,129
|
|
|
|
|
68,129
|
|
Financing receivables
|
—
|
|
|
46,549
|
|
|
|
|
46,549
|
|
Held-to-maturity debt securities
|
—
|
|
|
90,715
|
|
|
|
|
90,715
|
|
Available-for-sale debt securities(3)
|
—
|
|
|
25,274
|
|
|
|
|
25,274
|
|
Less: Allowance for loan losses
|
(743)
|
|
|
(12,427)
|
|
|
|
|
(13,170)
|
|
Total
|
$
|
52,562
|
|
|
$
|
679,768
|
|
|
|
|
$
|
732,330
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Construction loans(2)
|
$
|
—
|
|
|
$
|
614,386
|
|
|
|
|
$
|
614,386
|
|
Loans(2)
|
37,820
|
|
|
51,073
|
|
|
|
|
88,893
|
|
Financing receivables
|
—
|
|
|
44,339
|
|
|
|
|
44,339
|
|
Held-to-maturity debt securities
|
—
|
|
|
84,981
|
|
|
|
|
84,981
|
|
Available-for-sale debt securities
|
—
|
|
|
23,896
|
|
|
|
|
23,896
|
|
Less: Allowance for loan losses
|
(21,701)
|
|
|
(6,933)
|
|
|
|
|
(28,634)
|
|
Total
|
$
|
16,119
|
|
|
$
|
811,742
|
|
|
|
|
$
|
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.
(2)The carrying value of these loans includes an unamortized net discount of $2.3 million and $0.7 million as of December 31, 2020 and 2019, respectively.
(3)Available-for-sale debt securities are evaluated for impairment under ASC 326-30.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments which are inherently uncertain and there can be no assurance that actual performance will be similar to current expectation.
The Company's amortized cost basis in performing senior mortgages, corporate/partnership loans, subordinate mortgages and financing receivables, presented by year of origination and by credit quality, as indicated by risk rating, was as follows as of December 31, 2020 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Origination
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior to
2016
|
|
Total
|
|
Senior mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
—
|
|
|
—
|
|
|
58,070
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58,070
|
|
|
3.0
|
|
20,115
|
|
|
—
|
|
|
109,121
|
|
|
145,585
|
|
|
42,502
|
|
|
3,925
|
|
|
321,248
|
|
|
3.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
—
|
|
|
—
|
|
|
53,033
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,033
|
|
|
4.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Subtotal(1)
|
|
$
|
20,115
|
|
|
$
|
—
|
|
|
$
|
220,224
|
|
|
$
|
145,585
|
|
|
$
|
42,502
|
|
|
$
|
3,925
|
|
|
$
|
432,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/partnership loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
—
|
|
|
—
|
|
|
22,155
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,155
|
|
|
3.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
—
|
|
|
—
|
|
|
20,567
|
|
|
—
|
|
|
42,945
|
|
|
—
|
|
|
63,512
|
|
|
4.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Subtotal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,722
|
|
|
$
|
—
|
|
|
$
|
42,945
|
|
|
$
|
—
|
|
|
$
|
85,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,640
|
|
|
11,640
|
|
|
3.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Subtotal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,640
|
|
|
$
|
11,640
|
|
|
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
—
|
|
|
46,549
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,549
|
|
|
2.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.5
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Subtotal
|
|
$
|
—
|
|
|
$
|
46,549
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,549
|
|
|
Total
|
|
$
|
20,115
|
|
|
$
|
46,549
|
|
|
$
|
262,946
|
|
|
$
|
145,585
|
|
|
$
|
85,447
|
|
|
$
|
15,565
|
|
|
$
|
576,207
|
|
|
____________________________________________________________
(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
|
Current
|
|
Less Than
and Equal
to 90 Days
|
|
Greater
Than
90 Days
|
|
Total
Past Due
|
|
Total
|
Senior mortgages
|
$
|
443,154
|
|
|
$
|
42,501
|
|
|
$
|
—
|
|
|
$
|
42,501
|
|
|
$
|
485,655
|
|
Corporate/Partnership loans
|
42,721
|
|
|
42,946
|
|
|
—
|
|
|
42,946
|
|
|
85,667
|
|
Subordinate mortgages
|
11,640
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,640
|
|
Total
|
$
|
497,515
|
|
|
$
|
85,447
|
|
|
$
|
—
|
|
|
$
|
85,447
|
|
|
$
|
582,962
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
Senior mortgages
|
$
|
534,765
|
|
|
$
|
—
|
|
|
$
|
37,820
|
|
|
$
|
37,820
|
|
|
$
|
572,585
|
|
Corporate/Partnership loans
|
119,818
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
119,818
|
|
Subordinate mortgages
|
10,877
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,877
|
|
Total
|
$
|
665,460
|
|
|
$
|
—
|
|
|
$
|
37,820
|
|
|
$
|
37,820
|
|
|
$
|
703,280
|
|
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
|
|
As of December 31, 2019
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Senior mortgages(1)
|
$
|
53,305
|
|
|
$
|
52,552
|
|
|
$
|
(743)
|
|
|
$
|
37,820
|
|
|
$
|
37,923
|
|
|
$
|
(21,701)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
53,305
|
|
|
$
|
52,552
|
|
|
$
|
(743)
|
|
|
$
|
37,820
|
|
|
$
|
37,923
|
|
|
$
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinate mortgages
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
301
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior mortgages
|
50,205
|
|
|
2,145
|
|
|
38,556
|
|
|
—
|
|
|
67,041
|
|
|
—
|
|
|
|
|
|
Corporate/Partnership loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,169
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
50,205
|
|
|
2,145
|
|
|
38,556
|
|
|
—
|
|
|
106,210
|
|
|
—
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior mortgages
|
50,205
|
|
|
2,145
|
|
|
38,556
|
|
|
—
|
|
|
67,041
|
|
|
—
|
|
|
|
|
|
Corporate/Partnership loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,169
|
|
|
—
|
|
|
|
|
|
Subordinate mortgages
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
301
|
|
|
|
|
|
Total
|
$
|
50,205
|
|
|
$
|
2,145
|
|
|
$
|
38,556
|
|
|
$
|
—
|
|
|
$
|
106,210
|
|
|
$
|
301
|
|
|
|
|
|
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
|
$
|
20,680
|
|
|
$
|
20,680
|
|
|
$
|
4,594
|
|
|
$
|
25,274
|
|
|
$
|
25,274
|
|
Held-to-Maturity Securities
|
|
|
|
|
|
|
|
|
|
Debt securities
|
100,000
|
|
|
90,715
|
|
|
—
|
|
|
90,715
|
|
|
90,715
|
|
Total
|
$
|
120,680
|
|
|
$
|
111,395
|
|
|
$
|
4,594
|
|
|
$
|
115,989
|
|
|
$
|
115,989
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
Municipal debt securities
|
$
|
21,140
|
|
|
$
|
21,140
|
|
|
$
|
2,756
|
|
|
$
|
23,896
|
|
|
$
|
23,896
|
|
Held-to-Maturity Securities
|
|
|
|
|
|
|
|
|
|
Debt securities
|
100,000
|
|
|
84,981
|
|
|
—
|
|
|
84,981
|
|
|
84,981
|
|
Total
|
$
|
121,140
|
|
|
$
|
106,121
|
|
|
$
|
2,756
|
|
|
$
|
108,877
|
|
|
$
|
108,877
|
|
As of December 31, 2020, the contractual maturities of the Company's securities were as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities
|
|
Available-for-Sale Securities
|
|
Amortized Cost Basis
|
|
Estimated Fair Value
|
|
Amortized Cost Basis
|
|
Estimated Fair Value
|
Maturities
|
|
|
|
|
|
|
|
Within one year
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
After one year through 5 years
|
90,715
|
|
|
90,715
|
|
|
—
|
|
|
—
|
|
After 5 years through 10 years
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
After 10 years
|
—
|
|
|
—
|
|
|
20,680
|
|
|
25,274
|
|
Total
|
$
|
90,715
|
|
|
$
|
90,715
|
|
|
$
|
20,680
|
|
|
$
|
25,274
|
|
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
|
|
Equity in Earnings (Losses)(1)
|
|
As of December 31,
|
|
For the Years Ended December 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2018
|
|
|
Real estate equity investments
|
|
|
|
|
|
|
|
|
|
|
|
Safehold Inc. ("SAFE")(2)
|
$
|
937,712
|
|
|
$
|
729,357
|
|
|
$
|
53,476
|
|
|
$
|
29,764
|
|
|
$
|
4,711
|
|
|
|
iStar Net Lease II LLC ("Net Lease Venture II")
|
78,998
|
|
|
30,712
|
|
|
2,654
|
|
|
(529)
|
|
|
(333)
|
|
|
|
iStar Net Lease I LLC ("Net Lease Venture")(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,100
|
|
|
|
Other real estate equity investments(4)
|
89,939
|
|
|
104,553
|
|
|
(12,929)
|
|
|
12,620
|
|
|
(4,112)
|
|
|
|
Subtotal
|
1,106,649
|
|
|
864,622
|
|
|
43,201
|
|
|
41,855
|
|
|
4,366
|
|
|
|
Other strategic investments(5)
|
69,911
|
|
|
43,253
|
|
|
(1,075)
|
|
|
(6)
|
|
|
(9,373)
|
|
|
|
Total
|
$
|
1,176,560
|
|
|
$
|
907,875
|
|
|
$
|
42,126
|
|
|
$
|
41,849
|
|
|
$
|
(5,007)
|
|
|
|
_______________________________________________________________________________
(1)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.
(2)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.
(3)The Company consolidated the assets and liabilities of the Net Lease Venture on June 30, 2018 (refer to Note 4).
(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.
(5)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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
For the Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
|
2018
|
Balance Sheets
|
|
|
|
|
|
Income Statements
|
|
|
|
|
|
Total assets
|
|
$
|
4,522,147
|
|
|
$
|
3,653,763
|
|
|
Revenues
|
$
|
149,928
|
|
|
$
|
214,123
|
|
|
$
|
262,970
|
|
Total liabilities
|
|
2,437,621
|
|
|
1,918,034
|
|
|
Expenses
|
(203,689)
|
|
|
(181,456)
|
|
|
(187,257)
|
|
Noncontrolling interests
|
|
2,124
|
|
|
1,486
|
|
|
Net income attributable to parent entities
|
(53,955)
|
|
|
32,474
|
|
|
75,056
|
|
Total equity attributable to parent entities
|
|
2,082,402
|
|
|
1,734,243
|
|
|
|
|
|
|
|
|
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."
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 9—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Intangible assets, net(1)
|
$
|
156,041
|
|
|
$
|
174,973
|
|
Finance lease right-of-use assets(2)
|
143,727
|
|
|
145,209
|
|
Operating lease right-of-use assets(2)
|
48,891
|
|
|
34,063
|
|
Other receivables
|
10,881
|
|
|
16,846
|
|
Restricted cash
|
51,933
|
|
|
45,034
|
|
Other assets(3)
|
19,453
|
|
|
17,534
|
|
Leasing costs, net(4)
|
2,340
|
|
|
3,793
|
|
Corporate furniture, fixtures and equipment, net(5)
|
2,024
|
|
|
2,736
|
|
Deferred financing fees, net
|
1,549
|
|
|
2,300
|
|
Deferred expenses and other assets, net
|
$
|
436,839
|
|
|
$
|
442,488
|
|
_______________________________________________________________________________
(1)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.
(2)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.
(3)Other assets primarily includes derivative assets, prepaid expenses and deposits for certain real estate assets.
(4)Accumulated amortization of leasing costs was $2.6 million and $3.3 million as of December 31, 2020 and 2019, respectively.
(5)Accumulated depreciation on corporate furniture, fixtures and equipment was $14.3 million and $13.1 million as of December 31, 2020 and 2019, respectively.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
|
|
|
|
Other liabilities(1)
|
$
|
91,513
|
|
|
$
|
81,709
|
|
Finance lease liabilities (see table above)
|
150,520
|
|
|
147,749
|
|
Operating lease liabilities (see table above)
|
50,072
|
|
|
34,182
|
|
Accrued expenses
|
94,724
|
|
|
83,778
|
|
Accrued interest payable
|
32,355
|
|
|
25,733
|
|
Intangible liabilities, net(2)
|
48,738
|
|
|
51,223
|
|
Accounts payable, accrued expenses and other liabilities
|
$
|
467,922
|
|
|
$
|
424,374
|
|
_______________________________________________________________________________
(1)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.
(2)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
|
2021
|
|
$
|
11,725
|
|
2022
|
|
11,724
|
|
2023
|
|
11,570
|
|
2024
|
|
11,452
|
|
2025
|
|
11,144
|
|
Note 10—Loan Participations Payable, net
The Company's loan participations payable, net were as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value as of
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Loan participations payable(1)
|
|
$
|
42,501
|
|
|
$
|
35,656
|
|
Debt discounts and deferred financing costs, net
|
|
—
|
|
|
(18)
|
|
Total loan participations payable, net
|
|
$
|
42,501
|
|
|
$
|
35,638
|
|
_______________________________________________________________________________
(1)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 $35.6 million, respectively, and are included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. The principal and interest due on these loan participations payable are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 11—Debt Obligations, net
The Company's debt obligations were as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value as of December 31,
|
|
Stated
Interest Rates
|
|
Scheduled
Maturity Date
|
|
2020
|
|
2019
|
|
|
Secured credit facilities and mortgages:
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
$
|
—
|
|
|
$
|
—
|
|
|
LIBOR + 2.00%
|
(1)
|
September 2022
|
Senior Term Loan
|
491,875
|
|
|
491,875
|
|
|
LIBOR + 2.75%
|
(2)
|
June 2023
|
Mortgages collateralized by net lease assets(3)
|
721,075
|
|
|
721,118
|
|
|
1.69% - 7.26%
|
(3)
|
|
|
|
|
|
|
|
|
|
Total secured credit facilities and mortgages(4)
|
1,212,950
|
|
|
1,212,993
|
|
|
|
|
|
Unsecured notes:
|
|
|
|
|
|
|
|
6.00% senior notes(5)
|
—
|
|
|
110,545
|
|
|
6.00%
|
|
—
|
5.25% senior notes(6)
|
—
|
|
|
400,000
|
|
|
5.25%
|
|
—
|
3.125% senior convertible notes(7)
|
287,500
|
|
|
287,500
|
|
|
3.125%
|
|
September 2022
|
4.75% senior notes(8)
|
775,000
|
|
|
775,000
|
|
|
4.75%
|
|
October 2024
|
4.25% senior notes(9)
|
550,000
|
|
|
550,000
|
|
|
4.25%
|
|
August 2025
|
5.50% senior notes(10)
|
400,000
|
|
|
—
|
|
|
5.50%
|
|
February 2026
|
Total unsecured notes
|
2,012,500
|
|
|
2,123,045
|
|
|
|
|
|
Other debt obligations:
|
|
|
|
|
|
|
|
Trust preferred securities
|
100,000
|
|
|
100,000
|
|
|
LIBOR + 1.50%
|
|
October 2035
|
Total debt obligations
|
3,325,450
|
|
|
3,436,038
|
|
|
|
|
|
Debt discounts and deferred financing costs, net
|
(38,475)
|
|
|
(48,958)
|
|
|
|
|
|
Total debt obligations, net(11)
|
$
|
3,286,975
|
|
|
$
|
3,387,080
|
|
|
|
|
|
_______________________________________________________________________________
(1)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.
(2)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%.
(3)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.
(4)As of December 31, 2020, $2.1 billion net carrying value of assets served as collateral for the Company's secured debt obligations.
(5)The Company repaid these senior notes in January 2020.
(6)The Company repaid these senior notes in September 2020.
(7)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%.
(8)The Company can prepay these senior notes without penalty beginning July 1, 2024.
(9)The Company can prepay these senior notes without penalty beginning May 1, 2025.
(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 $11.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Future Scheduled Maturities—As of December 31, 2020, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Debt
|
|
Secured Debt
|
|
Total
|
2021
|
$
|
—
|
|
|
$
|
156,144
|
|
|
$
|
156,144
|
|
2022
|
287,500
|
|
|
46,787
|
|
|
334,287
|
|
2023
|
—
|
|
|
491,875
|
|
|
491,875
|
|
2024
|
775,000
|
|
|
—
|
|
|
775,000
|
|
2025
|
550,000
|
|
|
272,843
|
|
|
822,843
|
|
Thereafter
|
500,000
|
|
|
245,301
|
|
|
745,301
|
|
Total principal maturities
|
2,112,500
|
|
|
1,212,950
|
|
|
3,325,450
|
|
Unamortized discounts and deferred financing costs, net
|
(32,465)
|
|
|
(6,010)
|
|
|
(38,475)
|
|
Total debt obligations, net
|
$
|
2,080,035
|
|
|
$
|
1,206,940
|
|
|
$
|
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Debt Covenants
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and Other Lending Investments(1)
|
|
Real
Estate
|
|
Other
Investments
|
|
Total
|
Performance-Based Commitments
|
$
|
63,419
|
|
|
$
|
2,213
|
|
|
$
|
25,959
|
|
|
$
|
91,591
|
|
Strategic Investments
|
—
|
|
|
—
|
|
|
12,810
|
|
|
12,810
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
63,419
|
|
|
$
|
2,213
|
|
|
$
|
38,769
|
|
|
$
|
104,401
|
|
___________________________________________________________________________
(1)Excludes $7.5 million of commitments on loan participations sold that are not the obligation of the Company.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
|
$
|
3,797
|
|
|
$
|
5,494
|
|
2022
|
6,756
|
|
|
5,604
|
|
2023
|
6,393
|
|
|
5,716
|
|
2024
|
6,309
|
|
|
5,830
|
|
2025
|
6,297
|
|
|
5,946
|
|
Thereafter
|
496
|
|
|
1,567,826
|
|
Total undiscounted cash flows
|
30,048
|
|
|
1,596,416
|
|
Present value discount(1)
|
(3,771)
|
|
|
(1,445,896)
|
|
Other adjustments(2)
|
23,795
|
|
|
—
|
|
Lease liabilities
|
$
|
50,072
|
|
|
$
|
150,520
|
|
_______________________________________________________________________________
(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 $3.3 million, respectively, related to its finance leases (refer to Note 4). As of December 31, 2020, the weighted average lease term for the Company's operating leases, excluding operating leases for which the Company's tenants pay rent on its behalf, was 5.6 years and the weighted average discount rate was 5.0%. As of December 31, 2020, the weighted average lease term for the Company's finance leases was 97 years and the weighted average discount rate was 5.5%.
(2)The Company is obligated to pay ground rent under certain operating leases; however, the Company's tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations. The amount shown above is the net present value of the payments to be made by the Company's tenants on its behalf.
Future minimum lease obligations under operating and finance leases as of December 31, 2019 were as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating(1)(2)
|
|
Finance(1)
|
2020
|
$
|
4,167
|
|
|
$
|
5,386
|
|
2021
|
1,803
|
|
|
5,494
|
|
2022
|
1,098
|
|
|
5,604
|
|
2023
|
728
|
|
|
5,716
|
|
2024
|
617
|
|
|
5,830
|
|
Thereafter
|
1,447
|
|
|
1,573,824
|
|
Total undiscounted cash flows
|
9,860
|
|
|
1,601,854
|
|
Present value discount(1)
|
(1,057)
|
|
|
(1,454,105)
|
|
Other adjustments(2)
|
25,379
|
|
|
—
|
|
Lease liabilities
|
$
|
34,182
|
|
|
$
|
147,749
|
|
_______________________________________________________________________________
(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%.
(2)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.
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2020 and 2019 ($ in thousands)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
Fair
Value
|
Derivatives Designated in Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Deferred expenses and other assets, net
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
18,926
|
|
Total
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated in Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Deferred expenses and other assets, net
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
8,680
|
|
Total
|
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
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
|
|
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
|
For the Year Ended December 31, 2020
|
|
|
|
|
Interest rate swaps(1)
|
|
Interest expense
|
|
$
|
(14,931)
|
|
|
$
|
(6,974)
|
|
Interest rate swaps
|
|
Earnings from equity method investments
|
|
(13,359)
|
|
|
(1,101)
|
|
For the Year Ended December 31, 2019
|
|
|
|
|
Interest rate swaps(1)
|
|
Interest expense
|
|
(21,165)
|
|
|
(1,861)
|
|
Interest rate swaps
|
|
Earnings from equity method investments
|
|
(21,417)
|
|
|
(184)
|
|
For the Year Ended December 31, 2018
|
|
|
|
|
Interest rate swaps(1)
|
|
Interest expense
|
|
(12,963)
|
|
|
(388)
|
|
Interest rate swaps
|
|
Earnings from equity method investments
|
|
(1,736)
|
|
|
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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)
|
Series
|
|
Shares Issued and
Outstanding
(in thousands)
|
|
Par Value
|
|
Liquidation Preference(3)
|
|
Rate per Annum
|
|
Annual
Dividend Rate
(per share)
|
|
December 31, 2020
|
|
December 31, 2019
|
D
|
|
4,000
|
|
|
$
|
0.001
|
|
|
$
|
25.00
|
|
|
8.00
|
%
|
|
$
|
2.00
|
|
|
$
|
89,041
|
|
|
$
|
89,041
|
|
G
|
|
3,200
|
|
|
0.001
|
|
|
25.00
|
|
|
7.65
|
%
|
|
1.91
|
|
|
72,664
|
|
|
72,664
|
|
I
|
|
5,000
|
|
|
0.001
|
|
|
25.00
|
|
|
7.50
|
%
|
|
1.88
|
|
|
120,785
|
|
|
120,785
|
|
Total
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
$
|
282,490
|
|
|
$
|
282,490
|
|
_______________________________________________________________________________
(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.
(2)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.
(3)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.
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Unrealized gains on available-for-sale securities
|
$
|
4,594
|
|
|
$
|
2,756
|
|
Unrealized losses on cash flow hedges
|
(53,075)
|
|
|
(37,264)
|
|
Unrealized losses on cumulative translation adjustment
|
(4,199)
|
|
|
(4,199)
|
|
Accumulated other comprehensive loss
|
$
|
(52,680)
|
|
|
$
|
(38,707)
|
|
Note 15—Stock-Based Compensation Plans and Employee Benefits
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iPIP Investment Pool
|
|
|
|
2013-2014
|
|
2015-2016
|
|
2017-2018
|
|
|
|
|
|
|
Points at beginning of period
|
81.17
|
|
|
73.28
|
|
|
77.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(1.00)
|
|
|
(2.88)
|
|
|
(3.93)
|
|
|
|
|
|
|
|
Points at end of period
|
80.17
|
|
|
70.40
|
|
|
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Weighted Average
Grant Date
Fair Value
Per Share
|
|
Aggregate
Intrinsic
Value
|
Non-vested as of December 31, 2019
|
|
598
|
|
|
$
|
9.18
|
|
|
$
|
8,688
|
|
Granted
|
|
181
|
|
|
$
|
14.68
|
|
|
|
Vested
|
|
(248)
|
|
|
$
|
9.62
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2020
|
|
531
|
|
|
$
|
10.85
|
|
|
$
|
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 $1.1 million, respectively, for the years ended December 31, 2020, 2019 and 2018.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 16—Earnings Per Share
Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities, if applicable, to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities.
The following table presents a reconciliation of income (loss) from operations used in the basic and diluted EPS calculations ($ in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Net income (loss)
|
$
|
(30,853)
|
|
|
$
|
334,325
|
|
|
$
|
(18,326)
|
|
|
|
Net income attributable to noncontrolling interests
|
(11,588)
|
|
|
(10,283)
|
|
|
(13,936)
|
|
|
|
Preferred dividends
|
(23,496)
|
|
|
(32,495)
|
|
|
(32,495)
|
|
|
|
Net income (loss) allocable to common shareholders for basic earnings per common share
|
$
|
(65,937)
|
|
|
$
|
291,547
|
|
|
$
|
(64,757)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Effect of Series J convertible perpetual preferred stock
|
—
|
|
|
9,000
|
|
|
—
|
|
|
|
Net income (loss) allocable to common shareholders for diluted earnings per common share
|
$
|
(65,937)
|
|
|
$
|
300,547
|
|
|
$
|
(64,757)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Earnings allocable to common shares:
|
|
|
|
|
|
|
|
Numerator for basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shareholders
|
$
|
(65,937)
|
|
|
$
|
291,547
|
|
|
$
|
(64,757)
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shareholders
|
$
|
(65,937)
|
|
|
$
|
300,547
|
|
|
$
|
(64,757)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic earnings per common share
|
75,684
|
|
|
64,696
|
|
|
67,958
|
|
|
|
Add: Effect of assumed shares issued under treasury stock method for restricted stock units
|
—
|
|
|
146
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Effect of series J convertible perpetual preferred stock
|
—
|
|
|
15,824
|
|
|
—
|
|
|
|
Weighted average common shares outstanding for diluted earnings per common share
|
75,684
|
|
|
80,666
|
|
|
67,958
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shareholders
|
$
|
(0.87)
|
|
|
$
|
4.51
|
|
|
$
|
(0.95)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shareholders
|
$
|
(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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
Note 17—Fair Values
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Using
|
|
Total
|
|
Quoted market
prices in
active markets
(Level 1)
|
|
Significant other
observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
As of December 31, 2020
|
|
|
|
|
|
|
|
Recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities(1)
|
18,926
|
|
|
—
|
|
|
18,926
|
|
|
—
|
|
Available-for-sale securities(1)
|
25,274
|
|
|
—
|
|
|
—
|
|
|
25,274
|
|
Non-recurring basis:
|
|
|
|
|
|
|
|
Impaired land and development(2)
|
6,078
|
|
|
—
|
|
|
—
|
|
|
6,078
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Recurring basis:
|
|
|
|
|
|
|
|
Derivative assets(1)
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
—
|
|
Derivative liabilities(1)
|
8,680
|
|
|
—
|
|
|
8,680
|
|
|
—
|
|
Available-for-sale securities(1)
|
$
|
23,896
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,896
|
|
Non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired land and development(3)
|
40,000
|
|
|
—
|
|
|
—
|
|
|
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.
(2)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.
(3)The Company recorded aggregate impairments of $5.3 million on two land and development assets with an estimated aggregate fair value of $40.0 million. The estimated fair values are based on expected sales proceeds.
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's consolidated balance sheets for the years ended December 31, 2020 and 2019 ($ in thousands):
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Beginning balance
|
|
$
|
23,896
|
|
|
$
|
21,661
|
|
|
|
|
|
|
Repayments
|
|
(460)
|
|
|
(45)
|
|
Unrealized gains recorded in other comprehensive income
|
|
1,838
|
|
|
2,280
|
|
Ending balance
|
|
$
|
25,274
|
|
|
$
|
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
|
|
As of December 31, 2019
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Net investment in leases(1)
|
|
$
|
429
|
|
|
$
|
431
|
|
|
$
|
419
|
|
|
$
|
419
|
|
Loans receivable and other lending investments(1)
|
|
732
|
|
|
772
|
|
|
828
|
|
|
864
|
|
Cash and cash equivalents(2)
|
|
99
|
|
|
99
|
|
|
307
|
|
|
307
|
|
Restricted cash(2)
|
|
52
|
|
|
52
|
|
|
45
|
|
|
45
|
|
Loan participations payable, net(1)
|
|
43
|
|
|
43
|
|
|
36
|
|
|
36
|
|
Debt obligations, net(1)
|
|
3,287
|
|
|
3,414
|
|
|
3,387
|
|
|
3,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________________________________________________________________________
(1)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.
(2)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.
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
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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.
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
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
|
$
|
167,152
|
|
|
$
|
—
|
|
|
$
|
21,214
|
|
|
$
|
356
|
|
|
$
|
—
|
|
|
$
|
188,722
|
|
Interest income
|
3,440
|
|
|
56,676
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,116
|
|
Interest income from sales-type leases
|
33,552
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,552
|
|
Other income
|
18,116
|
|
|
11,975
|
|
|
8,065
|
|
|
19,030
|
|
|
26,671
|
|
|
83,857
|
|
Land development revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
164,702
|
|
|
—
|
|
|
164,702
|
|
Earnings (losses) from equity method investments
|
56,130
|
|
|
—
|
|
|
(16,361)
|
|
|
3,432
|
|
|
(1,075)
|
|
|
42,126
|
|
Income from sales of real estate
|
6,056
|
|
|
—
|
|
|
262
|
|
|
—
|
|
|
—
|
|
|
6,318
|
|
Total revenue and other earnings
|
284,446
|
|
|
68,651
|
|
|
13,180
|
|
|
187,520
|
|
|
25,596
|
|
|
579,393
|
|
Real estate expense
|
(26,571)
|
|
|
—
|
|
|
(22,936)
|
|
|
(22,986)
|
|
|
—
|
|
|
(72,493)
|
|
Land development cost of sales
|
—
|
|
|
—
|
|
|
—
|
|
|
(177,727)
|
|
|
—
|
|
|
(177,727)
|
|
Other expense
|
—
|
|
|
(266)
|
|
|
—
|
|
|
—
|
|
|
(303)
|
|
|
(569)
|
|
Allocated interest expense
|
(101,208)
|
|
|
(23,390)
|
|
|
(8,951)
|
|
|
(17,940)
|
|
|
(18,085)
|
|
|
(169,574)
|
|
Allocated general and administrative(2)
|
(23,223)
|
|
|
(6,622)
|
|
|
(2,591)
|
|
|
(9,990)
|
|
|
(19,099)
|
|
|
(61,525)
|
|
Segment profit (loss)(3)
|
$
|
133,444
|
|
|
$
|
38,373
|
|
|
$
|
(21,298)
|
|
|
$
|
(41,123)
|
|
|
$
|
(11,891)
|
|
|
$
|
97,505
|
|
Other significant items:
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
$
|
186
|
|
|
$
|
8,866
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,052
|
|
Provision for losses on net investment in leases
|
1,760
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,760
|
|
Impairment of assets
|
2,037
|
|
|
—
|
|
|
3,052
|
|
|
2,738
|
|
|
—
|
|
|
7,827
|
|
Depreciation and amortization
|
50,767
|
|
|
—
|
|
|
5,142
|
|
|
952
|
|
|
1,231
|
|
|
58,092
|
|
Capitalized expenditures
|
21,764
|
|
|
—
|
|
|
1,636
|
|
|
30,506
|
|
|
—
|
|
|
53,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
$
|
177,679
|
|
|
$
|
—
|
|
|
$
|
28,423
|
|
|
$
|
286
|
|
|
$
|
—
|
|
|
$
|
206,388
|
|
Interest income
|
2,018
|
|
|
75,636
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77,654
|
|
Interest income from sales-type leases
|
20,496
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,496
|
|
Other income
|
16,718
|
|
|
4,946
|
|
|
17,384
|
|
|
7,838
|
|
|
8,477
|
|
|
55,363
|
|
Land development revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
119,595
|
|
|
—
|
|
|
119,595
|
|
Earnings (losses) from equity method investments
|
29,235
|
|
|
—
|
|
|
8,298
|
|
|
4,322
|
|
|
(6)
|
|
|
41,849
|
|
Selling profit from sales-type leases
|
180,416
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
180,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from sales of real estate
|
224,654
|
|
|
—
|
|
|
11,969
|
|
|
—
|
|
|
—
|
|
|
236,623
|
|
Total revenue and other earnings
|
651,216
|
|
|
80,582
|
|
|
66,074
|
|
|
132,041
|
|
|
8,471
|
|
|
938,384
|
|
Real estate expense
|
(24,786)
|
|
|
—
|
|
|
(35,322)
|
|
|
(32,318)
|
|
|
—
|
|
|
(92,426)
|
|
Land development cost of sales
|
—
|
|
|
—
|
|
|
—
|
|
|
(109,663)
|
|
|
—
|
|
|
(109,663)
|
|
Other expense
|
—
|
|
|
(462)
|
|
|
—
|
|
|
—
|
|
|
(12,658)
|
|
|
(13,120)
|
|
Allocated interest expense
|
(95,154)
|
|
|
(29,587)
|
|
|
(10,249)
|
|
|
(20,706)
|
|
|
(28,223)
|
|
|
(183,919)
|
|
Allocated general and administrative(2)
|
(25,990)
|
|
|
(8,254)
|
|
|
(2,887)
|
|
|
(11,957)
|
|
|
(19,085)
|
|
|
(68,173)
|
|
Segment profit (loss) (3)
|
505,286
|
|
|
$
|
42,279
|
|
|
$
|
17,616
|
|
|
$
|
(42,603)
|
|
|
$
|
(51,495)
|
|
|
$
|
471,083
|
|
Other significant non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
$
|
—
|
|
|
$
|
6,482
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,482
|
|
Impairment of assets
|
2,471
|
|
|
—
|
|
|
3,853
|
|
|
6,427
|
|
|
668
|
|
|
13,419
|
|
Depreciation and amortization
|
51,091
|
|
|
—
|
|
|
4,977
|
|
|
977
|
|
|
1,214
|
|
|
58,259
|
|
Capitalized expenditures
|
31,445
|
|
|
—
|
|
|
5,617
|
|
|
99,031
|
|
|
—
|
|
|
136,093
|
|
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Lease
|
|
Real Estate
Finance
|
|
Operating
Properties
|
|
Land and
Development
|
|
Corporate/
Other(1)
|
|
Company
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
Operating lease income
|
$
|
151,958
|
|
|
$
|
—
|
|
|
$
|
55,677
|
|
|
$
|
557
|
|
|
$
|
—
|
|
|
$
|
208,192
|
|
Interest income
|
—
|
|
|
97,878
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
97,878
|
|
Other income
|
4,286
|
|
|
4,556
|
|
|
54,361
|
|
|
7,320
|
|
|
11,819
|
|
|
82,342
|
|
Land development revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
409,710
|
|
|
—
|
|
|
409,710
|
|
Earnings (losses) from equity method investments
|
8,479
|
|
|
—
|
|
|
(1,003)
|
|
|
(3,110)
|
|
|
(9,373)
|
|
|
(5,007)
|
|
Gain from consolidation of equity method investment
|
67,877
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from sales of real estate
|
45,038
|
|
|
—
|
|
|
80,966
|
|
|
—
|
|
|
—
|
|
|
126,004
|
|
Total revenue and other earnings
|
277,638
|
|
|
102,434
|
|
|
190,001
|
|
|
414,477
|
|
|
2,446
|
|
|
986,996
|
|
Real estate expense
|
(17,033)
|
|
|
—
|
|
|
(80,570)
|
|
|
(41,686)
|
|
|
—
|
|
|
(139,289)
|
|
Land development cost of sales
|
—
|
|
|
—
|
|
|
—
|
|
|
(350,181)
|
|
|
—
|
|
|
(350,181)
|
|
Other expense
|
—
|
|
|
(1,578)
|
|
|
—
|
|
|
—
|
|
|
(4,462)
|
|
|
(6,040)
|
|
Allocated interest expense
|
(63,706)
|
|
|
(40,653)
|
|
|
(18,618)
|
|
|
(21,897)
|
|
|
(38,877)
|
|
|
(183,751)
|
|
Allocated general and administrative(2)
|
(20,713)
|
|
|
(12,997)
|
|
|
(6,574)
|
|
|
(14,313)
|
|
|
(19,975)
|
|
|
(74,572)
|
|
Segment profit (loss) (3)
|
$
|
176,186
|
|
|
$
|
47,206
|
|
|
$
|
84,239
|
|
|
$
|
(13,600)
|
|
|
$
|
(60,868)
|
|
|
$
|
233,163
|
|
Other significant non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
$
|
—
|
|
|
$
|
16,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,937
|
|
Impairment of assets
|
10,391
|
|
|
—
|
|
|
79,991
|
|
|
56,726
|
|
|
—
|
|
|
147,108
|
|
Depreciation and amortization
|
38,588
|
|
|
—
|
|
|
17,417
|
|
|
1,353
|
|
|
1,341
|
|
|
58,699
|
|
Capitalized expenditures
|
40,215
|
|
|
—
|
|
|
19,912
|
|
|
144,595
|
|
|
—
|
|
|
204,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Lease
|
|
Real Estate
Finance
|
|
Operating
Properties
|
|
Land and
Development
|
|
Corporate/
Other(1)
|
|
Company
Total
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
$
|
1,291,903
|
|
|
$
|
—
|
|
|
$
|
192,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,484,281
|
|
Real estate available and held for sale
|
—
|
|
|
—
|
|
|
5,212
|
|
|
—
|
|
|
—
|
|
|
5,212
|
|
Total real estate
|
1,291,903
|
|
|
—
|
|
|
197,590
|
|
|
—
|
|
|
—
|
|
|
1,489,493
|
|
Net investment in leases
|
429,101
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
429,101
|
|
Land and development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
430,663
|
|
|
—
|
|
|
430,663
|
|
Loans receivable and other lending investments, net
|
45,398
|
|
|
686,932
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
732,330
|
|
Other investments
|
1,016,710
|
|
|
—
|
|
|
58,739
|
|
|
31,200
|
|
|
69,911
|
|
|
1,176,560
|
|
Total portfolio assets
|
$
|
2,783,112
|
|
|
$
|
686,932
|
|
|
$
|
256,329
|
|
|
$
|
461,863
|
|
|
$
|
69,911
|
|
|
4,258,147
|
|
Cash and other assets
|
|
|
|
|
|
|
|
|
|
|
603,661
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
$
|
4,861,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
$
|
1,327,082
|
|
|
$
|
—
|
|
|
$
|
200,137
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,527,219
|
|
Real estate available and held for sale
|
—
|
|
|
—
|
|
|
8,650
|
|
|
—
|
|
|
—
|
|
|
8,650
|
|
Total real estate
|
1,327,082
|
|
|
—
|
|
|
208,787
|
|
|
—
|
|
|
—
|
|
|
1,535,869
|
|
Net investment in leases
|
418,915
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
418,915
|
|
Land and development, net
|
—
|
|
|
—
|
|
|
—
|
|
|
580,545
|
|
|
—
|
|
|
580,545
|
|
Loans receivable and other lending investments, net
|
44,339
|
|
|
783,522
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
827,861
|
|
Other investments
|
760,068
|
|
|
—
|
|
|
61,686
|
|
|
42,866
|
|
|
43,255
|
|
|
907,875
|
|
Total portfolio assets
|
$
|
2,550,404
|
|
|
$
|
783,522
|
|
|
$
|
270,473
|
|
|
$
|
623,411
|
|
|
$
|
43,255
|
|
|
4,271,065
|
|
Cash and other assets
|
|
|
|
|
|
|
|
|
|
|
814,044
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
$
|
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.
(2)General and administrative excludes stock-based compensation expense of $39.4 million, $30.4 million and $17.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(3)The following is a reconciliation of segment profit to net income (loss) ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Segment profit
|
$
|
97,505
|
|
|
$
|
471,083
|
|
|
$
|
233,163
|
|
|
|
Less: Provision for loan losses
|
(9,052)
|
|
|
(6,482)
|
|
|
(16,937)
|
|
|
|
Less: Provision for losses on net investment in leases
|
(1,760)
|
|
|
—
|
|
|
—
|
|
|
|
Less: Impairment of assets
|
(7,827)
|
|
|
(13,419)
|
|
|
(147,108)
|
|
|
|
Less: Depreciation and amortization
|
(58,092)
|
|
|
(58,259)
|
|
|
(58,699)
|
|
|
|
Less: Stock-based compensation expense
|
(39,354)
|
|
|
(30,436)
|
|
|
(17,563)
|
|
|
|
Less: Income tax expense
|
(235)
|
|
|
(438)
|
|
|
(815)
|
|
|
|
Less: Loss on early extinguishment of debt, net
|
(12,038)
|
|
|
(27,724)
|
|
|
(10,367)
|
|
|
|
Net income (loss)
|
$
|
(30,853)
|
|
|
$
|
334,325
|
|
|
$
|
(18,326)
|
|
|
|
iStar Inc.
Schedule II—Valuation and Qualifying Accounts and Reserves
($ in thousands)