SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| |
(Mark One) | |
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
March 31, 2022 | |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File No. 1-15371
iStar Inc.
(Exact name of registrant as specified in its charter)
| | |
Maryland | 95-6881527 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
1114 Avenue of the Americas, | | |
New York , NY | | 10036 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value | STAR | New York Stock Exchange | ||
8.00% Series D Cumulative Redeemable Preferred Stock, $0.001 par value | | STAR-PD | | New York Stock Exchange |
7.65% Series G Cumulative Redeemable Preferred Stock, $0.001 par value | | STAR-PG | | New York Stock Exchange |
7.50% Series I Cumulative Redeemable Preferred Stock, $0.001 par value | | STAR-PI | | New York Stock Exchange |
Indicate by check mark whether the registrant: (i)(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii)(2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | |
Large | Accelerated Filer | Non‑accelerated Filer | Smaller | Emerging | ||||
☒ | | ☐ | | ☐ | | ☐ | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 1, 2017,April 29, 2022, there were 68,200,01582,847,755 shares, $0.001 par value per share, of iStar Inc. common stock outstanding.
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Item 1. Financial Statements
iStar Inc.
(In thousands, except per share data)
(unaudited)
| | | | | | | |
| | As of | | ||||
| | March 31, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
ASSETS |
| |
|
| |
| |
Real estate |
| |
|
| |
| |
Real estate, at cost | | $ | 113,679 | | $ | 113,510 | |
Less: accumulated depreciation | |
| (22,245) | |
| (21,360) | |
Real estate, net | |
| 91,434 | |
| 92,150 | |
Real estate available and held for sale | |
| 301 | |
| 301 | |
Total real estate | |
| 91,735 | |
| 92,451 | |
Real estate and other assets available and held for sale and classified as discontinued operations(2) | | | 226,309 | | | 2,299,711 | |
Net investment in leases ($281 and $0 of allowances as of March 31, 2022 and December 31, 2021, respectively) | | | 28,131 | | | 43,215 | |
Land and development, net | |
| 277,421 | |
| 286,810 | |
Loans receivable and other lending investments, net ($4,932 and $4,769 of allowances as of March 31, 2022 and December 31, 2021, respectively) | |
| 331,839 | |
| 332,844 | |
Loans receivable held for sale | | | — | | | 43,215 | |
Other investments | |
| 1,526,019 | |
| 1,297,281 | |
Cash and cash equivalents | |
| 1,500,203 | |
| 339,601 | |
Accrued interest and operating lease income receivable, net | |
| 1,666 | |
| 1,813 | |
Deferred operating lease income receivable, net | |
| 3,046 | |
| 3,159 | |
Deferred expenses and other assets, net | |
| 97,682 | |
| 100,434 | |
Total assets | | $ | 4,084,051 | | $ | 4,840,534 | |
LIABILITIES AND EQUITY | |
|
| |
|
| |
Liabilities: | |
|
| |
|
| |
Accounts payable, accrued expenses and other liabilities | | $ | 198,886 | | $ | 236,732 | |
Liabilities associated with real estate held for sale and classified as discontinued operations(2) | | | 15,963 | | | 968,419 | |
Liabilities associated with properties held for sale | |
| — | |
| 3 | |
Debt obligations, net | |
| 2,084,252 | |
| 2,572,174 | |
Total liabilities | |
| 2,299,101 | |
| 3,777,328 | |
Commitments and contingencies (refer to Note 11) | |
|
| |
|
| |
Equity: | |
|
| |
|
| |
iStar Inc. shareholders' equity: | |
|
| |
|
| |
Preferred Stock Series D, G and I, liquidation preference $25.00 per share | |
| 12 | |
| 12 | |
Common Stock, $0.001 par value, 200,000 shares authorized, 69,096 and 68,870 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | |
| 69 | |
| 69 | |
Additional paid-in capital | |
| 3,100,665 | |
| 3,100,015 | |
Accumulated deficit | |
| (1,625,086) | |
| (2,227,213) | |
Accumulated other comprehensive loss | |
| (21,224) | |
| (21,587) | |
Total iStar Inc. shareholders' equity | |
| 1,454,436 | |
| 851,296 | |
Noncontrolling interests | |
| 330,514 | |
| 211,910 | |
Total equity | |
| 1,784,950 | |
| 1,063,206 | |
Total liabilities and equity | | $ | 4,084,051 | | $ | 4,840,534 | |
(1) | Refer to Note 2 for details on the Company’s consolidated variable interest entities (“VIEs”). |
(2) | Refer to Note 3 - Net Lease Sale and Discontinued Operations. |
As of | |||||||
September 30, 2017 (unaudited) | December 31, 2016 | ||||||
ASSETS | |||||||
Real estate | |||||||
Real estate, at cost | $ | 1,687,318 | $ | 1,740,893 | |||
Less: accumulated depreciation | (363,456 | ) | (353,619 | ) | |||
Real estate, net | 1,323,862 | 1,387,274 | |||||
Real estate available and held for sale | 65,658 | 237,531 | |||||
Total real estate | 1,389,520 | 1,624,805 | |||||
Land and development, net | 861,507 | 945,565 | |||||
Loans receivable and other lending investments, net | 1,109,442 | 1,450,439 | |||||
Other investments | 289,037 | 214,406 | |||||
Cash and cash equivalents | 1,912,448 | 328,744 | |||||
Accrued interest and operating lease income receivable, net | 10,849 | 11,254 | |||||
Deferred operating lease income receivable, net | 87,696 | 88,189 | |||||
Deferred expenses and other assets, net | 134,720 | 162,112 | |||||
Total assets | $ | 5,795,219 | $ | 4,825,514 | |||
LIABILITIES AND EQUITY | |||||||
Liabilities: | |||||||
Accounts payable, accrued expenses and other liabilities | $ | 466,374 | $ | 211,570 | |||
Loan participations payable, net | 122,489 | 159,321 | |||||
Debt obligations, net | 4,278,954 | 3,389,908 | |||||
Total liabilities | 4,867,817 | 3,760,799 | |||||
Commitments and contingencies (refer to Note 11) | — | — | |||||
Redeemable noncontrolling interests | 3,513 | 5,031 | |||||
Equity: | |||||||
iStar Inc. shareholders' equity: | |||||||
Preferred Stock Series D, E, F, G and I, liquidation preference $25.00 per share (refer to Note 13) | 12 | 22 | |||||
Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 13) | 4 | 4 | |||||
Common Stock, $0.001 par value, 200,000 shares authorized, 68,200 and 72,042 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 68 | 72 | |||||
Additional paid-in capital | 3,357,489 | 3,602,172 | |||||
Retained earnings (deficit) | (2,465,654 | ) | (2,581,488 | ) | |||
Accumulated other comprehensive income (loss) (refer to Note 13) | (3,830 | ) | (4,218 | ) | |||
Total iStar Inc. shareholders' equity | 888,089 | 1,016,564 | |||||
Noncontrolling interests | 35,800 | 43,120 | |||||
Total equity | 923,889 | 1,059,684 | |||||
Total liabilities and equity | $ | 5,795,219 | $ | 4,825,514 |
The accompanying notes are an integral part of the consolidated financial statements.
2
(In thousands, except per share data)
(unaudited)
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Revenues: | | |
|
| |
| |
Operating lease income | | $ | 3,109 | | $ | 4,931 | |
Interest income | |
| 4,948 | |
| 9,789 | |
Interest income from sales-type leases | |
| 356 | |
| — | |
Other income | |
| 8,640 | |
| 13,015 | |
Land development revenue | |
| 14,900 | |
| 32,249 | |
Total revenues | |
| 31,953 | |
| 59,984 | |
Costs and expenses: | |
|
| |
|
| |
Interest expense | |
| 29,243 | |
| 28,809 | |
Real estate expense | |
| 10,117 | |
| 8,719 | |
Land development cost of sales | |
| 14,496 | |
| 29,323 | |
Depreciation and amortization | |
| 1,357 | |
| 2,401 | |
General and administrative | |
| 1,375 | |
| 21,439 | |
Provision for (recovery of) loan losses | |
| 135 | |
| (3,642) | |
Provision for losses on net investment in leases | |
| 281 | |
| — | |
Impairment of assets | |
| — | |
| 257 | |
Other expense | |
| 930 | |
| 253 | |
Total costs and expenses | |
| 57,934 | |
| 87,559 | |
Income from sales of real estate | |
| 492 | |
| 612 | |
Loss from operations before earnings from equity method investments and other items | |
| (25,489) | |
| (26,963) | |
Loss on early extinguishment of debt, net | |
| (1,428) | |
| 0 | |
Earnings from equity method investments | |
| 25,032 | |
| 11,768 | |
Net loss from continuing operations before income taxes | |
| (1,885) | |
| (15,195) | |
Income tax (expense) benefit | |
| (3) | |
| 698 | |
Net loss from continuing operations | | | (1,888) | | | (14,497) | |
Net income from discontinued operations(1) | |
| 797,688 | |
| 22,486 | |
Net income | | | 795,800 | | | 7,989 | |
Net loss from continuing operations attributable to noncontrolling interests | |
| 18 | |
| 44 | |
Net (income) from discontinued operations attributable to noncontrolling interests | | | (179,089) | | | (2,564) | |
Net income attributable to iStar Inc. | |
| 616,729 | |
| 5,469 | |
Preferred dividends | |
| (5,874) | |
| (5,874) | |
Net income (loss) allocable to common shareholders | | $ | 610,855 | | $ | (405) | |
Per common share data: | |
|
| |
|
| |
Net income (loss) allocable to common shareholders | |
|
| |
|
| |
Basic and diluted | | $ | 8.85 | | $ | (0.01) | |
Net loss from continuing operations and allocable to common shareholders: | |
|
| |
|
| |
Basic and diluted | | $ | (0.11) | | $ | (0.28) | |
Net income from discontinued operations and allocable to common shareholders: | |
|
| |
|
| |
Basic and diluted | | $ | 8.96 | | $ | 0.27 | |
Weighted average number of common shares: | |
|
| |
|
| |
Basic and diluted | |
| 69,037 | |
| 73,901 | |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Operating lease income | $ | 47,806 | $ | 46,800 | $ | 142,155 | $ | 147,270 | |||||||
Interest income | 25,442 | 32,258 | 83,145 | 99,877 | |||||||||||
Other income | 20,662 | 13,442 | 172,037 | 35,079 | |||||||||||
Land development revenue | 25,962 | 31,554 | 178,722 | 74,389 | |||||||||||
Total revenues | 119,872 | 124,054 | 576,059 | 356,615 | |||||||||||
Costs and expenses: | |||||||||||||||
Interest expense | 48,732 | 55,105 | 148,684 | 168,173 | |||||||||||
Real estate expense | 36,280 | 35,243 | 106,554 | 104,815 | |||||||||||
Land development cost of sales | 27,512 | 22,004 | 165,888 | 50,842 | |||||||||||
Depreciation and amortization | 11,846 | 12,201 | 37,297 | 39,781 | |||||||||||
General and administrative | 20,955 | 19,666 | 73,347 | 62,433 | |||||||||||
(Recovery of) provision for loan losses | (2,600 | ) | (14,955 | ) | (8,128 | ) | (12,749 | ) | |||||||
Impairment of assets | 595 | 8,741 | 15,292 | 11,753 | |||||||||||
Other expense | 2,704 | 819 | 20,849 | 4,741 | |||||||||||
Total costs and expenses | 146,024 | 138,824 | 559,783 | 429,789 | |||||||||||
Income (loss) before earnings from equity method investments and other items | (26,152 | ) | (14,770 | ) | 16,276 | (73,174 | ) | ||||||||
Loss on early extinguishment of debt, net | (616 | ) | (36 | ) | (4,142 | ) | (1,618 | ) | |||||||
Earnings from equity method investments | 2,461 | 26,540 | 13,677 | 74,254 | |||||||||||
Income (loss) from continuing operations before income taxes | (24,307 | ) | 11,734 | 25,811 | (538 | ) | |||||||||
Income tax (expense) benefit | 1,278 | 8,256 | (972 | ) | 9,859 | ||||||||||
Income (loss) from continuing operations | (23,029 | ) | 19,990 | 24,839 | 9,321 | ||||||||||
Income from discontinued operations | — | 3,721 | 4,939 | 10,934 | |||||||||||
Gain from discontinued operations | — | — | 123,418 | — | |||||||||||
Income tax expense from discontinued operations | — | — | (4,545 | ) | — | ||||||||||
Income from sales of real estate(1) | 19,313 | 34,444 | 28,267 | 88,387 | |||||||||||
Net income (loss) | (3,716 | ) | 58,155 | 176,918 | 108,642 | ||||||||||
Net (income) loss attributable to noncontrolling interests | 160 | 967 | (4,450 | ) | (6,915 | ) | |||||||||
Net income (loss) attributable to iStar Inc. | (3,556 | ) | 59,122 | 172,468 | 101,727 | ||||||||||
Preferred dividends | (30,974 | ) | (12,830 | ) | (56,634 | ) | (38,490 | ) | |||||||
Net (income) loss allocable to Participating Security holders(2) | — | — | — | (27 | ) | ||||||||||
Net income (loss) allocable to common shareholders | $ | (34,530 | ) | $ | 46,292 | $ | 115,834 | $ | 63,210 | ||||||
Per common share data: | |||||||||||||||
Income (loss) attributable to iStar Inc. from continuing operations: | |||||||||||||||
Basic | $ | (0.48 | ) | $ | 0.60 | $ | (0.11 | ) | $ | 0.70 | |||||
Diluted | $ | (0.48 | ) | $ | 0.41 | $ | (0.11 | ) | $ | 0.57 | |||||
Net income (loss) attributable to iStar Inc.: | |||||||||||||||
Basic | $ | (0.48 | ) | $ | 0.65 | $ | 1.61 | $ | 0.85 | ||||||
Diluted | $ | (0.48 | ) | $ | 0.44 | $ | 1.61 | $ | 0.66 | ||||||
Weighted average number of common shares: | |||||||||||||||
Basic | 71,713 | 71,210 | 71,972 | 74,074 | |||||||||||
Diluted | 71,713 | 115,666 | 71,972 | 118,590 |
(1) |
The accompanying notes are an integral part of the consolidated financial statements.
3
(In thousands)
(unaudited)
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
| | 2022 |
| 2021 | | ||
Net income | | $ | 795,800 | | $ | 7,989 | |
Other comprehensive income (loss): | |
|
| |
|
| |
Reclassification of losses on cash flow hedges into earnings upon realization(1) | |
| 621 | |
| 2,338 | |
Unrealized losses on available-for-sale securities | |
| (3,013) | |
| (1,031) | |
Unrealized gains on cash flow hedges | |
| 2,755 | |
| 11,973 | |
Other comprehensive income | |
| 363 | |
| 13,280 | |
Comprehensive income | |
| 796,163 | |
| 21,269 | |
Comprehensive (income) attributable to noncontrolling interests(2) | |
| (179,071) | |
| (4,978) | |
Comprehensive income attributable to iStar Inc. | | $ | 617,092 | | $ | 16,291 | |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income (loss) | $ | (3,716 | ) | $ | 58,155 | $ | 176,918 | $ | 108,642 | ||||||
Other comprehensive income (loss): | |||||||||||||||
Reclassification of (gains)/losses on cash flow hedges into earnings upon realization(1) | 56 | 112 | (135 | ) | 487 | ||||||||||
Unrealized gains/(losses) on available-for-sale securities | (116 | ) | (202 | ) | 450 | 263 | |||||||||
Unrealized gains/(losses) on cash flow hedges | (56 | ) | 249 | 338 | (1,070 | ) | |||||||||
Unrealized gains/(losses) on cumulative translation adjustment | (36 | ) | (249 | ) | (265 | ) | (259 | ) | |||||||
Other comprehensive income (loss) | (152 | ) | (90 | ) | 388 | (579 | ) | ||||||||
Comprehensive income (loss) | (3,868 | ) | 58,065 | 177,306 | 108,063 | ||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | 160 | 967 | (4,450 | ) | (6,915 | ) | |||||||||
Comprehensive income (loss) attributable to iStar Inc. | $ | (3,708 | ) | $ | 59,032 | $ | 172,856 | $ | 101,148 |
(1) | Reclassified to |
(2) | For the three |
The accompanying notes are an integral part of the consolidated financial statements.
4
iStar Inc.
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | |
|
| iStar Inc. Shareholders' Equity | | | | | | | |||||||||||||
|
| | |
| | |
|
| |
|
| |
| | Accumulated |
| | |
| | |
| | | | | | Common | | | Additional | | | Retained | | | Other | | | | | | |
| | | Preferred | | | Stock at | | | Paid-In | | | Earnings | | | Comprehensive | | | Noncontrolling | | Total | |
| | | Stock(1) | | | Par | | | Capital | | | (Deficit) | | | Income (Loss) | | | Interests | | Equity | |
Balance as of December 31, 2021 | | $ | 12 | | $ | 69 | | $ | 3,100,015 | | $ | (2,227,213) | | $ | (21,587) | | $ | 211,910 | | $ | 1,063,206 |
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) |
Dividends declared—common ($0.125 per share) | |
| — | |
| — | |
| — | |
| (8,728) | |
| — | |
| — | |
| (8,728) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 650 | |
| — | |
| — | |
| 1,350 | |
| 2,000 |
Net income | |
| — | |
| — | |
| — | |
| 616,729 | |
| — | |
| 179,071 | |
| 795,800 |
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 363 | |
| — | |
| 363 |
Contributions from noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 7,893 | |
| 7,893 |
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (69,710) | |
| (69,710) |
Balance as of March 31, 2022 | | $ | 12 | | $ | 69 | | $ | 3,100,665 | | $ | (1,625,086) | | $ | (21,224) | | $ | 330,514 | | $ | 1,784,950 |
| | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | | $ | 12 | | $ | 74 | | $ | 3,240,535 | | $ | (2,316,972) | | $ | (52,680) | | $ | 193,414 | | $ | 1,064,383 |
Impact from adoption of new accounting standards | | | — | | | — | | | (25,869) | | | 15,850 | | | — | | | — | | | (10,019) |
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) |
Dividends declared—common ($0.11 per share) | |
| — | |
| — | |
| — | |
| (8,236) | |
| — | |
| — | |
| (8,236) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 2,572 | |
| — | |
| — | |
| 1,370 | |
| 3,942 |
Net income | |
| — | |
| — | |
| — | |
| 5,469 | |
| — | |
| 2,520 | |
| 7,989 |
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 10,822 | |
| 2,458 | |
| 13,280 |
Repurchase of stock | |
| — | |
| (1) | |
| (12,376) | |
| — | |
| — | |
| — | |
| (12,377) |
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 64 | | | 64 |
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (2,145) | |
| (2,145) |
Balance as of March 31, 2021 | | $ | 12 | | $ | 73 | | $ | 3,204,862 | | $ | (2,309,763) | | $ | (41,858) | | $ | 197,681 | | $ | 1,051,007 |
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, 2016 | $ | 22 | $ | 4 | $ | 72 | $ | 3,602,172 | $ | (2,581,488 | ) | $ | (4,218 | ) | $ | 43,120 | $ | 1,059,684 | ||||||||||||||
Dividends declared—preferred | — | — | — | — | (38,490 | ) | — | — | (38,490 | ) | ||||||||||||||||||||||
Issuance of stock/restricted stock unit amortization, net | — | — | — | 2,248 | — | — | — | 2,248 | ||||||||||||||||||||||||
Net income for the period(2) | — | — | — | — | 172,468 | — | 5,785 | 178,253 | ||||||||||||||||||||||||
Change in accumulated other comprehensive income (loss) | — | — | — | — | — | 388 | — | 388 | ||||||||||||||||||||||||
Repurchase of stock | — | — | (4 | ) | (45,924 | ) | — | — | — | (45,928 | ) | |||||||||||||||||||||
Issuance of senior unsecured convertible notes (refer to Note 10) | — | — | — | 22,487 | — | — | — | 22,487 | ||||||||||||||||||||||||
Dividends declared and payable — Series E and Series F Preferred Stock | — | — | — | — | (1,830 | ) | — | — | (1,830 | ) | ||||||||||||||||||||||
Redemption of Series E and F Preferred Stock | (10 | ) | — | — | (223,676 | ) | (16,314 | ) | — | — | (240,000 | ) | ||||||||||||||||||||
Change in additional paid in capital attributable to redeemable noncontrolling interest | — | — | — | 182 | — | — | — | 182 | ||||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | 12 | 12 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (13,117 | ) | (13,117 | ) | ||||||||||||||||||||||
Balance as of September 30, 2017 | $ | 12 | $ | 4 | $ | 68 | $ | 3,357,489 | $ | (2,465,654 | ) | $ | (3,830 | ) | $ | 35,800 | $ | 923,889 | ||||||||||||||
Balance as of December 31, 2015 | $ | 22 | $ | 4 | $ | 81 | $ | 3,689,330 | $ | (2,625,474 | ) | $ | (4,851 | ) | $ | 42,218 | $ | 1,101,330 | ||||||||||||||
Dividends declared—preferred | — | — | — | — | (38,490 | ) | — | — | (38,490 | ) | ||||||||||||||||||||||
Issuance of stock/restricted stock unit amortization, net | — | — | — | 1,675 | — | — | — | 1,675 | ||||||||||||||||||||||||
Net income for the period(2) | — | — | — | — | 101,727 | — | 10,908 | 112,635 | ||||||||||||||||||||||||
Change in accumulated other comprehensive income (loss) | — | — | — | — | — | (579 | ) | — | (579 | ) | ||||||||||||||||||||||
Repurchase of stock | — | — | (10 | ) | (98,419 | ) | — | — | — | (98,429 | ) | |||||||||||||||||||||
Change in additional paid in capital attributable to redeemable noncontrolling interest | — | — | — | 124 | — | — | — | 124 | ||||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | 513 | 513 | ||||||||||||||||||||||||
Change in noncontrolling interest(3) | — | — | — | — | — | — | (7,292 | ) | (7,292 | ) | ||||||||||||||||||||||
Balance as of September 30, 2016 | $ | 22 | $ | 4 | $ | 71 | $ | 3,592,710 | $ | (2,562,237 | ) | $ | (5,430 | ) | $ | 46,347 | $ | 1,071,487 |
(1) | Refer to Note 13 for details on the |
(2) |
The accompanying notes are an integral part of the consolidated financial statements.
5
(In thousands)
(unaudited)
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Cash flows from operating activities: | | |
|
| |
| |
Net income (loss) | | $ | 795,800 | | $ | 7,989 | |
Adjustments to reconcile net income (loss) to cash flows from operating activities: | |
|
| |
|
| |
Provision for (recovery of) loan losses | |
| 135 | |
| (3,794) | |
Provision for losses on net investment in leases | |
| 281 | |
| (1,601) | |
Impairment of assets | |
| 1,492 | |
| 1,785 | |
Depreciation and amortization | |
| 1,357 | |
| 15,455 | |
Non-cash interest income from sales-type leases | |
| (1,580) | |
| (9,388) | |
Stock-based compensation (income) expense | |
| (12,427) | |
| 5,508 | |
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | |
| 2,930 | |
| 2,016 | |
Amortization of discounts/premiums and deferred interest on loans, net | |
| (2,785) | |
| (3,379) | |
Deferred interest on loans received | |
| 0 | |
| 23,703 | |
Earnings from equity method investments | |
| (152,161) | |
| (12,769) | |
Distributions from operations of other investments | |
| 16,429 | |
| 10,598 | |
Deferred operating lease income | |
| (2,373) | |
| (2,684) | |
Income from sales of real estate | |
| (684,229) | |
| (612) | |
Land development revenue in excess of cost of sales | |
| (404) | |
| (2,926) | |
Loss on early extinguishment of debt, net | |
| 42,836 | |
| 0 | |
Other operating activities, net | |
| (9,940) | |
| (3,917) | |
Changes in assets and liabilities: | |
| | |
| | |
Origination and fundings of loans receivable held for sale | | | 0 | | | (16,086) | |
Changes in accrued interest and operating lease income receivable | |
| 1,368 | |
| 1,945 | |
Changes in deferred expenses and other assets, net | |
| (1,735) | |
| 1,776 | |
Changes in accounts payable, accrued expenses and other liabilities | |
| (25,618) | |
| (17,414) | |
Cash flows used in operating activities | |
| (30,624) | |
| (3,795) | |
Cash flows from investing activities: | |
|
| |
|
| |
Originations and fundings of loans receivable, net | |
| (4,000) | |
| (50,670) | |
Capital expenditures on real estate assets | |
| (741) | |
| (648) | |
Capital expenditures on land and development assets | |
| (4,803) | |
| (4,134) | |
Acquisitions of real estate, net investments in leases and land assets | |
| (28,309) | |
| 0 | |
Repayments of and principal collections on loans receivable and other lending investments, net | |
| 4,612 | |
| 109,926 | |
Net proceeds from sales of loans receivable | |
| 96,202 | |
| 79,560 | |
Net proceeds from sales of real estate | |
| 1,981,599 | |
| 2,967 | |
Net proceeds from sales of land and development assets | |
| 14,407 | |
| 30,801 | |
Net proceeds from sales of net investment in leases | | | 563,495 | | | 0 | |
Net proceeds from net investment in leases | | | 0 | | | 6,575 | |
Distributions from other investments | |
| 46,073 | |
| 20,032 | |
Contributions to and acquisition of interest in other investments | |
| (255,182) | |
| (59,866) | |
Other investing activities, net | |
| 4,514 | |
| 3,092 | |
Cash flows provided by investing activities | |
| 2,417,867 | |
| 137,635 | |
Cash flows from financing activities: | |
|
| |
|
| |
Borrowings from debt obligations | |
| 50,000 | |
| 25,000 | |
Repayments and repurchases of debt obligations | |
| (965,592) | |
| (32,308) | |
Purchase of marketable securities in connection with the defeasance of mortgage notes payable | |
| (252,571) | |
| 0 | |
Preferred dividends paid | |
| (5,874) | |
| (5,874) | |
Common dividends paid | |
| (8,956) | |
| (8,216) | |
Repurchase of stock | |
| 0 | |
| (10,775) | |
Payments for deferred financing costs | |
| 0 | |
| (75) | |
Payments for withholding taxes upon vesting of stock-based compensation | |
| (3,808) | |
| (2,085) | |
Contributions from noncontrolling interests | |
| 7,893 | |
| 64 | |
Distributions to noncontrolling interests | |
| (35,476) | |
| (2,145) | |
Payments for debt prepayment or extinguishment costs | |
| (15,608) | |
| 0 | |
Cash flows used in financing activities | |
| (1,229,992) | |
| (36,414) | |
Effect of exchange rate changes on cash | |
| 3 | |
| (111) | |
Changes in cash, cash equivalents and restricted cash | |
| 1,157,254 | |
| 97,315 | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 393,996 | |
| 150,566 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 1,551,250 | | $ | 247,881 | |
6
For the Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 176,918 | $ | 108,642 | |||
Adjustments to reconcile net income to cash flows from operating activities: | |||||||
(Recovery of) provision for loan losses | (8,128 | ) | (12,749 | ) | |||
Impairment of assets | 15,292 | 11,753 | |||||
Depreciation and amortization | 38,198 | 42,184 | |||||
Non-cash expense for stock-based compensation | 12,730 | 7,644 | |||||
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | 9,793 | 12,954 | |||||
Amortization of discounts/premiums on loans, net | (10,098 | ) | (10,835 | ) | |||
Deferred interest on loans, net | 1,162 | (5,632 | ) | ||||
Gain from discontinued operations | (123,418 | ) | — | ||||
Earnings from equity method investments | (13,677 | ) | (74,254 | ) | |||
Distributions from operations of other investments | 39,076 | 44,893 | |||||
Deferred operating lease income | (4,870 | ) | (7,340 | ) | |||
Income from sales of real estate | (28,775 | ) | (88,387 | ) | |||
Land development revenue in excess of cost of sales | (12,834 | ) | (23,547 | ) | |||
Loss on early extinguishment of debt, net | 1,392 | 1,618 | |||||
Debt discount on repayments of debt obligations | (6,634 | ) | (5,369 | ) | |||
Other operating activities, net | 12,210 | 4,115 | |||||
Changes in assets and liabilities: | |||||||
Changes in accrued interest and operating lease income receivable, net | 2,533 | 5,715 | |||||
Changes in deferred expenses and other assets, net | (8,271 | ) | (14,194 | ) | |||
Changes in accounts payable, accrued expenses and other liabilities | (5,792 | ) | (11,773 | ) | |||
Cash flows provided by (used in) operating activities | 86,807 | (14,562 | ) | ||||
Cash flows from investing activities: | |||||||
Originations and fundings of loans receivable, net | (177,952 | ) | (226,012 | ) | |||
Capital expenditures on real estate assets | (24,891 | ) | (55,385 | ) | |||
Capital expenditures on land and development assets | (84,966 | ) | (87,891 | ) | |||
Acquisitions of real estate assets | — | (4,740 | ) | ||||
Repayments of and principal collections on loans receivable and other lending investments, net | 491,680 | 243,780 | |||||
Net proceeds from sales of real estate | 201,939 | 412,335 | |||||
Net proceeds from sales of land and development assets | 174,979 | 64,159 | |||||
Net proceeds from sales of other investments | — | 39,810 | |||||
Distributions from other investments | 40,772 | 25,795 | |||||
Contributions to and acquisition of interest in other investments | (181,279 | ) | (45,635 | ) | |||
Changes in restricted cash held in connection with investing activities | 5,491 | (603 | ) | ||||
Other investing activities, net | 646 | (14,265 | ) | ||||
Cash flows provided by investing activities | 446,419 | 351,348 | |||||
Cash flows from financing activities: | |||||||
Borrowings from debt obligations and convertible notes | 1,903,643 | 696,401 | |||||
Repayments and repurchases of debt obligations | (726,795 | ) | (1,065,253 | ) | |||
Proceeds from loan participations payable | — | 22,844 | |||||
Preferred dividends paid | (38,490 | ) | (38,490 | ) | |||
Repurchase of stock | (45,928 | ) | (99,335 | ) | |||
Payments for deferred financing costs | (27,972 | ) | (8,930 | ) | |||
Payments for withholding taxes upon vesting of stock-based compensation | (511 | ) | (1,203 | ) | |||
Distributions to noncontrolling interests | (12,889 | ) | (7,248 | ) | |||
Other financing activities, net | (599 | ) | 821 | ||||
Cash flows provided by (used in) financing activities | 1,050,459 | (500,393 | ) | ||||
Effect of exchange rate changes on cash | 19 | 16 | |||||
Changes in cash and cash equivalents | 1,583,704 | (163,591 | ) | ||||
Cash and cash equivalents at beginning of period | 328,744 | 711,101 | |||||
Cash and cash equivalents at end of period | $ | 1,912,448 | $ | 547,510 | |||
Supplemental disclosure of non-cash investing and financing activity: | |||||||
Fundings and repayments of loan receivables and loan participations, net | $ | (37,405 | ) | $ | 31,030 | ||
Accrual for redemption of preferred stock and preferred stock dividends | 241,830 | — | |||||
Accounts payable for capital expenditures on land and development assets | 5,700 | 3,187 | |||||
Accounts payable for capital expenditures on real estate assets | 2,574 | — | |||||
Acquisitions of real estate and land and development assets through deed-in-lieu | — | 9,083 | |||||
Developer fee payable | — | 9,478 | |||||
Accrued financing costs | 3,031 | — |
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
| | 2022 |
| 2021 | | ||
Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows | | | | | | | |
Cash and cash equivalents | | $ | 1,500,203 | | $ | 193,852 | |
Restricted cash included in deferred expenses and other assets, net | | | 51,047 | | | 54,029 | |
Total cash and cash equivalents and restricted cash | | $ | 1,551,250 | | $ | 247,881 | |
Supplemental disclosure of non-cash investing and financing activity: |
| |
|
| |
| |
Fundings and (repayments) of loan receivables and loan participations, net | | $ | — | | $ | (42,501) | |
Accrued repurchase of stock | | | — | | | 1,802 | |
Distributions to noncontrolling interests | |
| 34,467 | |
| — | |
Defeasance of mortgage notes payable | |
| 230,452 | |
| — | |
Marketable securities transferred in connection with the defeasance of mortgage notes payable | |
| 252,571 | |
| — | |
Accounts payable for capital expenditures on land and development and real estate assets | |
| 2,053 | |
| — | |
Assumption of mortgage by third party | |
| 62,825 | |
| — | |
The accompanying notes are an integral part of the consolidated financial statements.
7
Business
—iStar Inc. (theOrganization
—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
Note 2—Basis of Presentation and Principles of Consolidation
Basis of Presentation
—The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of AmericaThe 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.
In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year. Certain prior year amounts have been reclassified in the Company'sCompany’s consolidated financial statements and the related notes (refer to Note 3 – Net Lease Sale and Discontinued Operations) to conform to the current period presentation.
Principles of Consolidation
—The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, controlled partnerships andConsolidated VIEs
—8
2021. The following table presents the assets and liabilities of the Company’s consolidated VIEs as of March 31, 2022 and December 31, 2021 ($ in thousands):
| | | | | | |
|
| As of | ||||
|
| March 31, 2022 |
| December 31, 2021 | ||
ASSETS | | |
|
| |
|
Real estate | | |
|
| |
|
Real estate, at cost | | $ | 93,592 | | $ | 93,477 |
Less: accumulated depreciation | |
| (15,761) | |
| (14,987) |
Real estate, net | |
| 77,831 | |
| 78,490 |
Real estate and other assets available and held for sale and classified as discontinued operations | | | — | | | 886,845 |
Land and development, net | |
| 168,458 | |
| 176,833 |
Cash and cash equivalents | |
| 730,820 | |
| 23,908 |
Accrued interest and operating lease income receivable, net | |
| 541 | |
| — |
Deferred operating lease income receivable, net | |
| 5 | |
| 3 |
Deferred expenses and other assets, net | |
| 5,371 | |
| 5,001 |
Total assets | | $ | 983,026 | | $ | 1,171,081 |
LIABILITIES | |
|
| |
|
|
Accounts payable, accrued expenses and other liabilities | | $ | 28,529 | | $ | 24,744 |
Liabilities associated with real estate held for sale and classified as discontinued operations | | | — | | | 493,739 |
Total liabilities | |
| 28,529 | |
| 518,483 |
Unconsolidated VIEs—As of September 30, 2017, theThe Company has investments in VIEs where it is not the primary beneficiary and accordingly the VIEs have not been consolidated in the Company'sCompany’s consolidated financial statements. As of September 30, 2017,March 31, 2022, the Company'sCompany’s maximum exposure to loss from these investments does not exceed the sum of the $65.8$58.7 million carrying value of the investments, which are classified in "Other investments" and "Loans receivable and other lending investments, net"“Other investments” on the Company'sCompany’s consolidated balance sheets, and $80.7$2.3 million of related unfunded commitments.
Note 3—Summary of Significant Accounting Policies
Net Lease Sale and Discontinued Operations—A discontinued operation represents: (i) a component of the Company adopted Accounting Standards Update ("ASU") 2016-09,
Net Lease Sale—In March 2022, the Company, through certain subsidiaries of and continuesentities managed by the Company, closed on a definitive purchase and sale agreement to havesell a controlling financial interestportfolio of net lease properties owned and managed by such subsidiaries and entities to a third party for an aggregate gross sales price of approximately $3.07 billion and recognized a gain of $663.7 million in that subsidiary, ASU 2017-05 requires“Net income from discontinued operations” in the entityCompany’s consolidated statements of operations. The Company refers to account for thethis transaction as an equity transaction, whichthe "Net Lease Sale" in this report. The Net Lease Sale is consistent with how changes in ownership interests in a consolidated subsidiary thatthe Company’s stated corporate strategy which is a business are recorded when a parent retains a controlling financial interest in the business. ASU 2017-05 is effective for interimto grow its Ground Lease and annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning January 1, 2017. Management is evaluating the impact of the guidance on the Company's consolidated financial statements and expects to adopt the retrospective approach, which would require the Company to recast revenue and expenses for all prior periods presented in the year of adoption of the new standard. The Company expects that transactions in assets andGround Lease adjacent businesses in which the Company retains an ownership interest, such as the sale of a controlling interest in its GL business (refer to Note 4), will be impacted8) and simplify its portfolio through sales of other assets.
The portfolio sold consisted of office, entertainment and industrial properties located in the United States comprising approximately 18.3 million square feet. It included assets wholly-owned by this guidance. As a result, under the retrospective approach, in 2018, the Company expects to record an incremental gain of $55.5 million in its consolidated statements of operations for the nine months ended September 30, 2017, bringing the Company's full gain on the sale of its GL business to approximately $178.9 million.
9
iStar Inc.
of $1.2 billion from equity method investees,the transaction. In addition, as part of the transaction, the buyer sold 3 of the properties to Safehold Inc. (“SAFE”) for $122.0 million and other separately identifiable cash flows, are presented and classifiedentered into 3 Ground Leases with SAFE. NaN net lease properties were sold to different third parties in the statementfirst quarter of cash flows. ASU 2016-15 is effective for interim2022 and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. Management doesthe Company’s net lease assets associated with its Ground Lease businesses were not believeincluded in the guidance will have a material impact on the Company's consolidated financial statements.
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 was 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 was substantially devoted to the Net Lease Venture owned a total of 0.6% equity ownership in the venture via co-investment. These senior executives were also entitled to an amount equal to 50% of any incentive fee received based on the 47.5% external partner’s interest. Net Lease Venture was part of the Net Lease Sale. As of March 31, 2022, $316.6 million of “Noncontrolling interests” was attributable to the Net Lease Venture and represented proceeds from the Net Lease Sale that were not yet distributed to the Company’s partners in the venture as of March 31, 2022.
Net Lease Venture II—In July 2018, the Company entered into a new venture (the “Net Lease Venture II”) with an investment strategy similar to the Net Lease Venture. The Company was responsible for managing the venture in exchange for a management fee and incentive fee. During the three months ended March 31, 2022 and 2021, the Company recorded $0.4 million and $0.4 million, respectively, of management fees from Net Lease Venture II in “Net income from discontinued operations” in the Company’s consolidated statements of operations. Net Lease Venture II was part of the Net Lease Sale. As of March 31, 2022, $216.3 million of “Real estate and other income will be impacted by ASU 2014-09. The Company does not expect incomeassets available and held for sale and classified as discontinued operations” was attributable to the Net Lease Venture II and represented proceeds from the salesNet Lease Sale that were not yet distributed to the Company as of March 31, 2022.
Discontinued Operations—The Company’s net lease or commercial operating properties to be impacted by ASU 2014-09. In August 2015,assets and liabilities included in the FASB issued ASU 2015-14,
10
iStar Inc.
The following table presents the Company’s consolidated assets and liabilities recorded in “Real estate and other assets available and held for sale and classified as discontinued operations” and “Liabilities associated with real estate held for sale and classified as discontinued operations,” respectively, on the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021 ($ in thousands).
| | | | | | | |
| | As of | | ||||
| | March 31, | | December 31, | | ||
| | 2022 |
| 2021 | | ||
ASSETS | | |
|
| |
| |
Real estate | | |
|
| |
| |
Real estate, at cost | | $ | — | | $ | 1,537,655 | |
Less: accumulated depreciation | |
| — | |
| (271,183) | |
Total real estate, net | |
| — | |
| 1,266,472 | |
Net investment in leases | |
| — | |
| 486,389 | |
Loans receivable held for sale | | | — | | | 48,675 | |
Other investments | |
| 216,309 | |
| 103,229 | |
Finance lease right of use assets | | | — | | | 150,099 | |
Accrued interest and operating lease income receivable, net | |
| 1,018 | |
| 2,997 | |
Deferred operating lease income receivable, net | |
| — | |
| 63,156 | |
Deferred expenses and other assets, net | |
| 8,982 | |
| 178,694 | |
Total real estate and other assets available and held for sale and classified as discontinued operations | | $ | 226,309 | | $ | 2,299,711 | |
| |
|
| |
|
| |
LIABILITIES | |
|
| |
|
| |
Accounts payable, accrued expenses and other liabilities | | $ | 15,963 | | $ | 92,865 | |
Finance lease liabilities | | | — | | | 161,258 | |
Debt obligations, net | |
| — | |
| 714,296 | |
Total liabilities associated with real estate held for sale and classified as discontinued operations | | $ | 15,963 | | $ | 968,419 | |
11
The transaction described above involving the Company's net lease business qualified for discontinued operations and the following table summarizes net income from discontinued operations for the three months ended March 31, 2022 and 2021 ($ in thousands):
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Revenues: | | |
|
| |
| |
Operating lease income | | $ | 35,596 | | $ | 42,513 | |
Interest income | |
| 885 | |
| 861 | |
Interest income from sales-type leases | |
| 8,803 | |
| 8,627 | |
Other income | |
| 4,292 | |
| 1,275 | |
Total revenues | |
| 49,576 | |
| 53,276 | |
Costs and expenses: | |
| | |
| | |
Interest expense(1) | |
| 7,484 | |
| 10,754 | |
Real estate expense | |
| 5,072 | |
| 8,175 | |
Depreciation and amortization(1) | |
| — | |
| 13,054 | |
Recovery of loan losses | | | — | | | (152) | |
Recovery of losses on net investment in leases | |
| — | |
| (1,601) | |
Impairment of assets | |
| 1,492 | |
| 1,528 | |
Other expense(2) | |
| (5,669) | |
| — | |
Total costs and expenses | |
| 8,379 | |
| 31,758 | |
Income from sales of real estate | |
| 683,738 | |
| — | |
Income from discontinued operations before earnings from equity method investments and other items | |
| 724,935 | |
| 21,518 | |
Earnings from equity method investments | |
| 127,129 | |
| 1,001 | |
Loss on early extinguishment of debt, net | |
| (41,408) | |
| — | |
Net income from discontinued operations before income taxes | |
| 810,656 | |
| 22,519 | |
Income tax expense | |
| (12,968) | |
| (33) | |
Net income from discontinued operations | |
| 797,688 | |
| 22,486 | |
Net (income) from discontinued operations attributable to noncontrolling interests | |
| (179,089) | |
| (2,564) | |
Net income from discontinued operations attributable to iStar Inc. | | $ | 618,599 | | $ | 19,922 | |
(1) | For the three months ended March 31, 2022, the Company recorded $1.3 million of “Interest expense” in its consolidated statements of operations from its Ground Leases with SAFE. For the three months ended March 31, 2021, the Company recorded $2.1 million and $0.4 million, respectively, of “Interest expense” and “Depreciation and amortization” in its consolidated statements of operations from its Ground Leases with SAFE. |
(2) | Represents the reversal of other expenses recognized in connection with the settlement of interest rate hedges during the three months ended March 31, 2022. |
The following table presents cash flows provided by operating activities and cash flows used in investing activities from discontinued operations for the three months ended March 31, 2022 and 2021 ($ in thousands).
| | | | | | |
| | For the Three Months Ended March 31, | ||||
| | 2022 |
| 2021 | ||
Cash flows provided by operating activities | | $ | 22,571 | | $ | 20,847 |
Cash flows provided by investing activities | |
| 2,553,349 | |
| 566 |
12
The Company'sCompany’s real estate assets were comprised of the following ($ in thousands):
| | | |
As of March 31, 2022 |
| |
|
Land, at cost | | $ | 6,830 |
Buildings and improvements, at cost | |
| 106,849 |
Less: accumulated depreciation | |
| (22,245) |
Real estate, net | |
| 91,434 |
Real estate available and held for sale(1) | |
| 301 |
Total real estate | | $ | 91,735 |
As of December 31, 2021 | |
|
|
Land, at cost | | $ | 6,831 |
Buildings and improvements, at cost | |
| 106,679 |
Less: accumulated depreciation | |
| (21,360) |
Real estate, net | |
| 92,150 |
Real estate available and held for sale(1) | |
| 301 |
Total real estate | | $ | 92,451 |
Net Lease(1) | Operating Properties | Total | |||||||||
As of September 30, 2017 | |||||||||||
Land, at cost | $ | 223,764 | $ | 209,068 | $ | 432,832 | |||||
Buildings and improvements, at cost | 926,912 | 327,574 | 1,254,486 | ||||||||
Less: accumulated depreciation | (306,183 | ) | (57,273 | ) | (363,456 | ) | |||||
Real estate, net | 844,493 | 479,369 | 1,323,862 | ||||||||
Real estate available and held for sale (2) | — | 65,658 | 65,658 | ||||||||
Total real estate | $ | 844,493 | $ | 545,027 | $ | 1,389,520 | |||||
As of December 31, 2016 | |||||||||||
Land, at cost | $ | 231,506 | $ | 211,054 | $ | 442,560 | |||||
Buildings and improvements, at cost | 987,050 | 311,283 | 1,298,333 | ||||||||
Less: accumulated depreciation | (307,444 | ) | (46,175 | ) | (353,619 | ) | |||||
Real estate, net | 911,112 | 476,162 | 1,387,274 | ||||||||
Real estate available and held for sale (2) | 155,051 | 82,480 | 237,531 | ||||||||
Total real estate | $ | 1,066,163 | $ | 558,642 | $ | 1,624,805 |
(1) |
As of |
Dispositions—Refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | — | $ | 4,614 | $ | 6,430 | $ | 13,600 | ||||||||
Expenses | — | (893 | ) | (1,491 | ) | (2,666 | ) | |||||||||
Income from discontinued operations | $ | — | $ | 3,721 | $ | 4,939 | $ | 10,934 |
Allowance for Doubtful Accounts—
As ofFuture Minimum Operating Lease Payments—Future minimum operating lease income receivable, net," respectively,payments to be collected under non-cancelable operating leases, excluding customer reimbursements of expenses, in effect as of March 31, 2022, are as follows by year ($ in thousands):
| | | |
|
| Operating | |
Year | | Properties | |
2022 (remaining nine months) | | $ | 4,843 |
2023 | |
| 6,293 |
2024 | |
| 6,195 |
2025 | |
| 5,600 |
2026 | |
| 5,125 |
Thereafter | |
| 4,361 |
Note 5—Net Investment in Leases
In June 2021, the Company acquired 2 parcels of land for $42.0 million each and simultaneously entered into 2 Ground Leases with the respective tenants. Each Ground Lease also provides for a leasehold improvement allowance up to a maximum of $83.0 million. The Company also concurrently entered into an agreement pursuant to which SAFE would
13
acquire the Ground Leases from the Company. If certain construction conditions are not met within a specified time period, SAFE will have 0 obligation to acquire the Ground Leases or fund the leasehold improvement allowances. The Company classified 1 of the Ground Leases as a sales-type lease and it is recorded in “Net investment in leases” on the Company'sCompany’s consolidated balance sheets. For the three months ended March 31, 2022, the Company recognized $0.2 million of non-cash interest income in "Interest income from sales-type leases" in the Company’s consolidated statements of operations. In January 2022, the Company sold the Ground Lease to an investment fund in which the Company owns a 53% noncontrolling interest (refer to Note 8 – Ground Lease Plus Fund).
NaN Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheet at the time of acquisition. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the properties and Ground Leases from the Company. In January 2022, the Company sold the Ground Lease to the Ground Lease Plus Fund (refer to Note 8).
In January 2022, the Company entered into a commitment to acquire land for $36.0 million and simultaneously structured and entered into a Ground Lease as part of the Ground Lease tenant’s recapitalization of an existing multifamily property. As of March 31, 2022, the Company had funded $28.2 million of this commitment. SAFE (refer to Note 8) waived its right of first refusal on this investment but entered into an agreement with the Company pursuant to which SAFE would acquire the land and related Ground Lease when certain construction related conditions are met.
The Company’s net investment in leases were comprised of the following as of March 31, 2022 and December 31, 2021 ($ in thousands):
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
Total undiscounted cash flows | | $ | 356,338 | | $ | 524,712 |
Unguaranteed estimated residual value | |
| 21,750 | |
| 42,000 |
Present value discount | |
| (349,676) | |
| (523,497) |
Allowance for losses on net investment in leases | |
| (281) | |
| — |
Net investment in leases(1) | | $ | 28,131 | | $ | 43,215 |
(1) | As of March 31, 2022 and December 31, 2021, the Company’s net investment in lease was current in its payment status and performing in accordance with the terms of the lease. As of March 31, 2022, the risk rating on the Company’s net investment in leases was 1.0. |
Dispositions— During the three months ended March 31, 2021, the Company sold net lease assets for net proceeds of $6.6 million and recognized an aggregate impairment of $1.5 million in connection with the sales which is recorded in “Net income from discontinued operations” in the Company’s consolidated statements of operations.
Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases, excluding lease payments that are not fixed and determinable, in effect as of March 31, 2022, are as follows by year ($ in thousands):
| | | |
|
| Amount | |
2022 (remaining nine months) | | $ | 688 |
2023 | |
| 934 |
2024 | |
| 1,194 |
2025 | |
| 1,240 |
2026 | |
| 1,264 |
Thereafter | |
| 351,018 |
Total undiscounted cash flows | | $ | 356,338 |
14
Allowance for Losses on Net Investment in Leases—Changes in the Company’s allowance for losses on net investment in leases for the three months ended March 31, 2022 and 2021 were as follows ($ in thousands):
| | | | | | | |
|
| Three Months Ended |
| ||||
| | March 31, 2022 |
| March 31, 2021 | | ||
Allowance for losses on net investment in leases at beginning of period(1) |
| $ | — | | $ | 10,871 |
|
Provision for (recovery of) losses on net investment in leases (2) | | | 281 | | | (1,601) | |
Allowance for losses on net investment in leases at end of period(1) | | $ | 281 | | $ | 9,270 | |
(1) | All 2021 amounts were for net investment in leases included in the Net Lease Sale (refer to Note 3 – Net Lease Sale and Discontinued Operations). |
(2) | During the three months ended March 31, 2022, the Company recorded a provision for losses on net investment in leases of $0.3 million due primarily to the macroeconomic forecast on commercial real estate markets. During the three months ended March 31, 2021, the Company recorded a recovery of losses on net investment in leases of $1.6 million (which is included in “Net income from discontinued operations’) due primarily to an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. |
Note 5—6—Land and Development
The Company'sCompany’s land and development assets were comprised of the following ($ in thousands):
As of | |||||||
September 30, | December 31, | ||||||
2017 | 2016 | ||||||
Land and land development, at cost(1) | $ | 869,331 | $ | 952,051 | |||
Less: accumulated depreciation | (7,824 | ) | (6,486 | ) | |||
Total land and development, net | $ | 861,507 | $ | 945,565 |
| | | | | | | |
|
| As of | | ||||
| | March 31, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
Land and land development, at cost | | $ | 288,460 | | $ | 297,621 | |
Less: accumulated depreciation | |
| (11,039) | |
| (10,811) | |
Total land and development, net | | $ | 277,421 | | $ | 286,810 | |
Dispositions—
During the
15
iStar Inc.
The following is a summary of the Company'sCompany’s loans receivable and other lending investments by class ($ in thousands):
| | | | | | | |
|
| As of | | ||||
|
| March 31, 2022 |
| December 31, 2021 | | ||
Construction loans | | | | | | | |
Senior mortgages | | $ | 186,094 | | $ | 184,643 | |
Corporate/Partnership loans | |
| 0 | |
| 618 | |
Subtotal - gross carrying value of construction loans(1) | |
| 186,094 | |
| 185,261 | |
Loans | |
|
| |
|
| |
Senior mortgages | |
| 14,724 | |
| 14,965 | |
Subordinate mortgages | |
| 12,670 | |
| 12,457 | |
Subtotal - gross carrying value of loans | |
| 27,394 | |
| 27,422 | |
Other lending investments | |
|
| |
|
| |
Held-to-maturity debt securities | |
| 98,419 | |
| 96,838 | |
Available-for-sale debt securities | |
| 24,864 | |
| 28,092 | |
Subtotal - other lending investments | |
| 123,283 | |
| 124,930 | |
Total gross carrying value of loans receivable and other lending investments | |
| 336,771 | |
| 337,613 | |
Allowance for loan losses | |
| (4,932) | |
| (4,769) | |
Total loans receivable and other lending investments, net | | $ | 331,839 | | $ | 332,844 | |
(1) | As of March 31, 2022, 100% of gross carrying value of construction loans had completed construction. |
As of | |||||||
Type of Investment | September 30, 2017 | December 31, 2016 | |||||
Senior mortgages | $ | 594,081 | $ | 940,738 | |||
Corporate/Partnership loans | 495,066 | 490,389 | |||||
Subordinate mortgages | 9,335 | 24,941 | |||||
Total gross carrying value of loans | 1,098,482 | 1,456,068 | |||||
Reserves for loan losses | (76,189 | ) | (85,545 | ) | |||
Total loans receivable, net | 1,022,293 | 1,370,523 | |||||
Other lending investments—securities | 87,149 | 79,916 | |||||
Total loans receivable and other lending investments, net | $ | 1,109,442 | $ | 1,450,439 |
Allowance for Loan Losses
—Changes in the | | | | | | | | | | | | | | | |
|
| General Allowance | | | | | | ||||||||
|
| | |
| | |
| Held to |
| | |
| | | |
| | Construction | | | | | Maturity Debt | | Specific | | | | |||
Three Months Ended March 31, 2022 | | Loans | | Loans | | Securities | | Allowance | | Total | |||||
Allowance for loan losses at beginning of period | | $ | 1,213 | | $ | 676 | | $ | 2,304 | | $ | 576 | | $ | 4,769 |
Provision for (recovery of) loan losses(1) | |
| 39 | |
| (2) | |
| 111 | |
| 15 | |
| 163 |
Allowance for loan losses at end of period | | $ | 1,252 | | $ | 674 | | $ | 2,415 | | $ | 591 | | $ | 4,932 |
| | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | | | | | | | | | | | | | | | |
Allowance for loan losses at beginning of period | ��� | $ | 6,541 | | $ | 1,643 | | $ | 3,093 | | $ | 743 | | $ | 12,020 |
(Recovery of) provision for loan losses(1) | |
| (3,648) | |
| 172 | |
| (408) | |
| (76) | |
| (3,960) |
Allowance for loan losses at end of period | | $ | 2,893 | | $ | 1,815 | | $ | 2,685 | | $ | 667 | | $ | 8,060 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Reserve for loan losses at beginning of period | $ | 78,789 | $ | 110,371 | $ | 85,545 | $ | 108,165 | ||||||||
(Recovery of) provision for loan losses(1) | (2,600 | ) | (14,955 | ) | (8,128 | ) | (12,749 | ) | ||||||||
Charge-offs | — | — | (1,228 | ) | — | |||||||||||
Reserve for loan losses at end of period | $ | 76,189 | $ | 95,416 | $ | 76,189 | $ | 95,416 |
(1) |
16
iStar Inc.
The Company's recordedCompany’s investment in loans (comprised of a loan's carrying value plus accrued interest)and other lending investments and the associated reserveallowance for loan losses were as follows as of March 31, 2022 and December 31, 2021 ($ in thousands):
| | | | | | | | | |
|
| Individually |
| Collectively |
| | | ||
| | Evaluated for | | Evaluated for | | | | ||
| | Impairment(1) | | Impairment | | Total | |||
As of March 31, 2022 |
| |
|
| |
|
| |
|
Construction loans(2) | | $ | 59,642 | | $ | 126,452 | | $ | 186,094 |
Loans(2) | |
| 0 | |
| 27,394 | |
| 27,394 |
Held-to-maturity debt securities | |
| 0 | |
| 98,419 | |
| 98,419 |
Available-for-sale debt securities(3) | |
| 0 | |
| 24,864 | |
| 24,864 |
Less: Allowance for loan losses | |
| (591) | |
| (4,341) | |
| (4,932) |
Total | | $ | 59,051 | | $ | 272,788 | | $ | 331,839 |
As of December 31, 2021 | |
|
| |
|
| |
|
|
Construction loans(2) | | $ | 59,640 | | $ | 125,621 | | $ | 185,261 |
Loans(2) | |
| 0 | |
| 27,422 | |
| 27,422 |
Held-to-maturity debt securities | |
| 0 | |
| 96,838 | |
| 96,838 |
Available-for-sale debt securities(3) | |
| 0 | |
| 28,092 | |
| 28,092 |
Less: Allowance for loan losses | |
| (576) | |
| (4,193) | |
| (4,769) |
Total | | $ | 59,064 | | $ | 273,780 | | $ | 332,844 |
Individually Evaluated for Impairment(1) | Collectively Evaluated for Impairment(2) | Total | |||||||||
As of September 30, 2017 | |||||||||||
Loans | $ | 238,155 | $ | 865,953 | $ | 1,104,108 | |||||
Less: Reserve for loan losses | (60,989 | ) | (15,200 | ) | (76,189 | ) | |||||
Total(3) | $ | 177,166 | $ | 850,753 | $ | 1,027,919 | |||||
As of December 31, 2016 | |||||||||||
Loans | $ | 253,941 | $ | 1,209,062 | $ | 1,463,003 | |||||
Less: Reserve for loan losses | (62,245 | ) | (23,300 | ) | (85,545 | ) | |||||
Total(3) | $ | 191,696 | $ | 1,185,762 | $ | 1,377,458 |
(1) | The carrying value of |
(2) | The carrying value of these loans |
(3) |
Credit Characteristics
—As part of the17
The Company's recorded investmentCompany’s amortized cost basis in performing senior mortgages, corporate/partnership loans and subordinate mortgages, presented by classyear of origination and by credit quality, as indicated by risk rating, wasas of March 31, 2022 were as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| Year of Origination |
|
| | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior to 2018 |
| Total | |||||||
Senior mortgages | | | | | | | | | | | | | | | | | | | | | |
Risk rating | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
|
1.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
1.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
2.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 11,899 | |
| 0 | |
| 11,899 |
2.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 52,336 | |
| 0 | |
| 52,336 |
3.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 62,912 | |
| 2,826 | |
| 65,738 |
3.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 11,203 | |
| 0 | |
| 11,203 |
4.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
4.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
5.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Subtotal(1) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 138,350 | | $ | 2,826 | | $ | 141,176 |
Subordinate mortgages | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
1.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
1.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
2.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
2.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
3.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 12,670 | |
| 12,670 |
3.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
4.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
4.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
5.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Subtotal | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 12,670 | | $ | 12,670 |
Total | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 138,350 | | $ | 15,496 | | $ | 153,846 |
(1) | As of March 31, 2022, excludes $59.6 million for 1 loan on non-accrual status. |
As of September 30, 2017 | As of December 31, 2016 | ||||||||||||
Performing Loans | Weighted Average Risk Ratings | Performing Loans | Weighted Average Risk Ratings | ||||||||||
Senior mortgages | $ | 515,610 | 2.47 | $ | 859,250 | 3.12 | |||||||
Corporate/Partnership loans | 340,980 | 2.76 | 335,677 | 3.09 | |||||||||
Subordinate mortgages | 9,363 | 3.00 | 14,135 | 3.00 | |||||||||
Total | $ | 865,953 | 2.59 | $ | 1,209,062 | 3.11 |
The Company's recorded investmentCompany’s amortized cost basis in loans, aged by payment status and presented by class, was as follows ($ in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| Less Than |
| Greater |
| | |
| | | ||
| | | | | or Equal | | Than | | Total | | | | |||
| | Current | | to 90 Days | | 90 Days | | Past Due | | Total | |||||
As of March 31, 2022 | | | | | | | | | | | | | | | |
Senior mortgages | | $ | 141,176 | | $ | 0 | | $ | 59,642 | | | 59,642 | | $ | 200,818 |
Subordinate mortgages | |
| 12,670 | |
| 0 | |
| 0 | |
| 0 | |
| 12,670 |
Total | | $ | 153,846 | | $ | 0 | | $ | 59,642 | | $ | 59,642 | | $ | 213,488 |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Senior mortgages | | $ | 139,968 | | $ | 0 | | $ | 59,640 | | | 59,640 | | $ | 199,608 |
Corporate/Partnership loans | |
| 618 | |
| 0 | |
| 0 | |
| 0 | |
| 618 |
Subordinate mortgages | |
| 12,457 | |
| 0 | |
| 0 | |
| 0 | |
| 12,457 |
Total | | $ | 153,043 | | $ | 0 | | $ | 59,640 | | $ | 59,640 | | $ | 212,683 |
18
Current | Less Than and Equal to 90 Days | Greater Than 90 Days(1) | Total Past Due | Total | |||||||||||||||
As of September 30, 2017 | |||||||||||||||||||
Senior mortgages | $ | 521,610 | $ | — | $ | 75,732 | $ | 75,732 | $ | 597,342 | |||||||||
Corporate/Partnership loans | 340,980 | — | 156,423 | 156,423 | 497,403 | ||||||||||||||
Subordinate mortgages | 9,363 | — | — | — | 9,363 | ||||||||||||||
Total | $ | 871,953 | $ | — | $ | 232,155 | $ | 232,155 | $ | 1,104,108 | |||||||||
As of December 31, 2016 | |||||||||||||||||||
Senior mortgages | $ | 868,505 | $ | — | $ | 76,677 | $ | 76,677 | $ | 945,182 | |||||||||
Corporate/Partnership loans | 335,677 | — | 157,146 | 157,146 | 492,823 | ||||||||||||||
Subordinate mortgages | 24,998 | — | — | — | 24,998 | ||||||||||||||
Total | $ | 1,229,180 | $ | — | $ | 233,823 | $ | 233,823 | $ | 1,463,003 |
| | | | | | | | | | | | | | | | | | |
|
| As of March 31, 2022 |
| As of December 31, 2021 | ||||||||||||||
|
| | |
| Unpaid |
| | |
| | |
| Unpaid |
| | | ||
| | Amortized | | Principal | | Related | | Amortized | | Principal | | Related | ||||||
| | Cost | | Balance | | Allowance | | Cost | | Balance | | Allowance | ||||||
With an allowance recorded: | | |
|
| |
|
| |
| | |
|
| |
|
| |
|
Senior mortgages(1) | | $ | 59,642 | | $ | 58,892 | | $ | (591) | | $ | 59,640 | | $ | 58,888 | | $ | (576) |
Total | | $ | 59,642 | | $ | 58,892 | | $ | (591) | | $ | 59,640 | | $ | 58,888 | | $ | (576) |
As of September 30, 2017 | As of December 31, 2016 | ||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||||||||||
With no related allowance recorded: | |||||||||||||||||||||||
Subordinate mortgages | $ | — | $ | — | $ | — | $ | 10,862 | $ | 10,846 | $ | — | |||||||||||
Subtotal | — | — | — | 10,862 | 10,846 | — | |||||||||||||||||
With an allowance recorded: | |||||||||||||||||||||||
Senior mortgages | 81,732 | 81,848 | (48,518 | ) | 85,933 | 85,780 | (49,774 | ) | |||||||||||||||
Corporate/Partnership loans | 156,423 | 145,849 | (12,471 | ) | 157,146 | 146,783 | (12,471 | ) | |||||||||||||||
Subtotal | 238,155 | 227,697 | (60,989 | ) | 243,079 | 232,563 | (62,245 | ) | |||||||||||||||
Total: | |||||||||||||||||||||||
Senior mortgages | 81,732 | 81,848 | (48,518 | ) | 85,933 | 85,780 | (49,774 | ) | |||||||||||||||
Corporate/Partnership loans | 156,423 | 145,849 | (12,471 | ) | 157,146 | 146,783 | (12,471 | ) | |||||||||||||||
Subordinate mortgages | — | — | — | 10,862 | 10,846 | — | |||||||||||||||||
Total | $ | 238,155 | $ | 227,697 | $ | (60,989 | ) | $ | 253,941 | $ | 243,409 | $ | (62,245 | ) |
(1) |
Loans receivable held for sale—In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be constructed. The Company funded $16.1 million at closing and the Ground Lease documents provided for future funding obligations to the Ground Lease tenant of approximately $11.9 million of deferred purchase price and $52.0 million of leasehold improvement allowance upon achievement of certain milestones. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE would acquire the ground lessor entity from the Company. The Company determined that the transaction did not qualify as a sale leaseback transaction and recorded the Ground Lease in “Loans receivable held for sale” on the Company’s consolidated balance sheet. Subsequent to closing, the Company funded approximately $6.0 million of the deferred purchase price to the Ground Lease tenant. The Company sold the ground lessor entity (and SAFE assumed all future funding obligations to the Ground Lease tenant) to SAFE in September 2021 for $22.1 million and recorded 0 gain or loss on the sale.
In June 2021, the Company acquired a parcel of land for $42.0 million and simultaneously entered into a Ground Lease (refer to Note 5). The Company also concurrently entered into an agreement pursuant to which SAFE would acquire the Ground Lease from the Company. The Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheet at the time of acquisition. In January 2022, the Company sold its loan receivable held for sale to the Ground Lease Plus Fund (refer to Note 8).
Other lending investments—Other lending investments includes the following securities ($ in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Net |
| | |
| Net | ||
| | | | | Amortized | | Unrealized | | Estimated | | Carrying | ||||
| | Face Value | | Cost Basis | | Gain | | Fair Value | | Value | |||||
As of March 31, 2022 |
| |
|
| |
|
| |
|
| |
|
| |
|
Available-for-Sale Securities |
| |
|
| |
|
| |
|
| |
|
| |
|
Municipal debt securities | | $ | 23,640 | | $ | 23,640 | | $ | 1,224 | | $ | 24,864 | | $ | 24,864 |
Held-to-Maturity Securities | |
| | |
| | |
| | |
|
| |
| |
Debt securities | |
| 100,000 | |
| 98,419 | |
| — | |
| 98,419 | |
| 98,419 |
Total | | $ | 123,640 | | $ | 122,059 | | $ | 1,224 | | $ | 123,283 | | $ | 123,283 |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Available-for-Sale Securities | |
|
| |
|
| |
|
| |
|
| |
|
|
Municipal debt securities | | $ | 23,855 | | $ | 23,855 | | $ | 4,237 | | $ | 28,092 | | $ | 28,092 |
Held-to-Maturity Securities | |
| | |
| | |
| | |
|
| |
| |
Debt securities | |
| 100,000 | |
| 96,838 | |
| — | |
| 96,838 | |
| 96,838 |
Total | | $ | 123,855 | | $ | 120,693 | | $ | 4,237 | | $ | 124,930 | | $ | 124,930 |
| | | | | | | | | | | | | | | |
19
iStar Inc.
As of March 31, 2022, the contractual maturities of the Company’s securities were as follows ($ in thousands):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||||||||||
With no related allowance recorded: | |||||||||||||||||||||||||||||||
Senior mortgages | $ | — | $ | — | $ | 4,608 | $ | 114 | $ | — | $ | — | $ | 4,575 | $ | 226 | |||||||||||||||
Subordinate mortgages | 5,501 | 385 | 11,567 | — | 8,227 | 385 | 5,784 | — | |||||||||||||||||||||||
Subtotal | 5,501 | 385 | 16,175 | 114 | 8,227 | 385 | 10,359 | 226 | |||||||||||||||||||||||
With an allowance recorded: | |||||||||||||||||||||||||||||||
Senior mortgages | 82,007 | — | 127,494 | — | 83,100 | — | 127,169 | — | |||||||||||||||||||||||
Corporate/Partnership loans | 156,399 | — | 81,108 | — | 156,811 | — | 43,339 | — | |||||||||||||||||||||||
Subtotal | 238,406 | — | 208,602 | — | 239,911 | — | 170,508 | — | |||||||||||||||||||||||
Total: | |||||||||||||||||||||||||||||||
Senior mortgages | 82,007 | — | 132,102 | 114 | 83,100 | — | 131,744 | 226 | |||||||||||||||||||||||
Corporate/Partnership loans | 156,399 | — | 81,108 | — | 156,811 | — | 43,339 | — | |||||||||||||||||||||||
Subordinate mortgages | 5,501 | 385 | 11,567 | — | 8,227 | 385 | 5,784 | — | |||||||||||||||||||||||
Total | $ | 243,907 | $ | 385 | $ | 224,777 | $ | 114 | $ | 248,138 | $ | 385 | $ | 180,867 | $ | 226 |
Face Value | Amortized Cost Basis | Net Unrealized Gain (Loss) | Estimated Fair Value | Net Carrying Value | |||||||||||||||
As of September 30, 2017 | |||||||||||||||||||
Available-for-Sale Securities | |||||||||||||||||||
Municipal debt securities | $ | 21,230 | $ | 21,230 | $ | 875 | $ | 22,105 | $ | 22,105 | |||||||||
Held-to-Maturity Securities | |||||||||||||||||||
Debt securities | 65,007 | 65,044 | 1,158 | 66,202 | 65,044 | ||||||||||||||
Total | $ | 86,237 | $ | 86,274 | $ | 2,033 | $ | 88,307 | $ | 87,149 | |||||||||
As of December 31, 2016 | |||||||||||||||||||
Available-for-Sale Securities | |||||||||||||||||||
Municipal debt securities | $ | 21,240 | $ | 21,240 | $ | 426 | $ | 21,666 | $ | 21,666 | |||||||||
Held-to-Maturity Securities | |||||||||||||||||||
Debt securities | 58,454 | 58,250 | 2,753 | 61,003 | 58,250 | ||||||||||||||
Total | $ | 79,694 | $ | 79,490 | $ | 3,179 | $ | 82,669 | $ | 79,916 |
| | | | | | | | | | | | |
|
| Held-to-Maturity Debt Securities |
| Available-for-Sale Debt Securities | ||||||||
| | Amortized | | Estimated | | Amortized | | Estimated | ||||
| | Cost Basis |
| Fair Value |
| Cost Basis |
| Fair Value | ||||
Maturities |
| |
|
| |
|
| |
|
| |
|
Within one year | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
After one year through 5 years | |
| 98,419 | |
| 98,419 | |
| 0 | |
| 0 |
After 5 years through 10 years | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
After 10 years | |
| 0 | |
| 0 | |
| 23,640 | |
| 24,864 |
Total | | $ | 98,419 | | $ | 98,419 | | $ | 23,640 | | $ | 24,864 |
The Company'sCompany’s other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands):
| | | | | | | | | | | | |
| | | | | | | | Earnings (Losses) from | ||||
| | Carrying Value | | Equity Method Investments | ||||||||
| | as of | | For the Three Months Ended | ||||||||
| | March 31, | | December 31, | | March 31, | ||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Real estate equity investments | | |
|
| |
|
| |
|
| |
|
Safehold Inc. ("SAFE")(1) | | $ | 1,388,657 | | $ | 1,168,532 | | $ | 17,029 | | $ | 11,412 |
Ground Lease Plus Fund | |
| 64,548 | |
| 17,630 | |
| 769 | |
| — |
Other real estate equity investments | |
| 43,441 | |
| 44,349 | |
| 3,611 | |
| (602) |
Subtotal | |
| 1,496,646 | |
| 1,230,511 | |
| 21,409 | |
| 10,810 |
Other strategic investments(2) | |
| 29,373 | |
| 66,770 | |
| 3,623 | |
| 958 |
Total | | $ | 1,526,019 | | $ | 1,297,281 | | $ | 25,032 | | $ | 11,768 |
Equity in Earnings | |||||||||||||||||||||||
Carrying Value as of | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||
September 30, 2017 | December 31, 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Real estate equity investments | |||||||||||||||||||||||
iStar Net Lease I LLC ("Net Lease Venture") | $ | 110,153 | $ | 92,669 | $ | 962 | $ | 723 | $ | 2,975 | $ | 2,613 | |||||||||||
Safety, Income & Growth Inc. ("SAFE")(1) | 75,023 | — | 340 | — | 388 | — | |||||||||||||||||
Marina Palms, LLC ("Marina Palms") | 5,369 | 35,185 | 494 | 6,182 | 4,794 | 19,583 | |||||||||||||||||
Other real estate equity investments(2) | 79,768 | 53,202 | 55 | 16,289 | 4,304 | 43,187 | |||||||||||||||||
Subtotal | 270,313 | 181,056 | 1,851 | 23,194 | 12,461 | 65,383 | |||||||||||||||||
Other strategic investments(3) | 18,724 | 33,350 | 610 | 3,346 | 1,216 | 8,871 | |||||||||||||||||
Total | $ | 289,037 | $ | 214,406 | $ | 2,461 | $ | 26,540 | $ | 13,677 | $ | 74,254 |
(1) |
(2) |
Safehold Inc.—In February 2014,SAFE is a publicly-traded company formed by the Company partnered with a sovereign wealth fund to form the Net Lease Ventureprimarily to acquire, own, manage, finance and developcapitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net lease assets and gave a rightleased by the fee owner of first refusalthe land to the Net Lease Venture on all new net lease investments. The Company has an equity interest in the Net Lease Venture of approximately 51.9%. The partners plan to contribute up to an aggregate $500 million of equity to acquire and develop net lease assets over time. The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a promote and management fee. Severalowners/operators 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 promote payment received based on the 47.5% partner's interest. During the nine months ended September 30, 2017, the Net Lease Venture acquired industrial properties for $59.0 million. During the nine months ended September 30, 2017, the Company sold a net lease asset for proceeds of $6.2 million, which approximated its carrying value net of financing, to the Net Lease Venture and derecognized the associated $18.9 million financing. During the nine months ended September 30, 2017, the Company made contributions of $37.7 million to the Net Lease Venture and received distributions of $23.7 million from the Net Lease Venture. During the nine months ended September 30, 2016, the Net Lease Venture acquired two office properties and the Company made contributions to the Net Lease Venture of $35.6 million and received distributions of $3.9 million.
In addition, subsequent to SAFE's initial public offering, trusts established by Jay Sugarman,January 2019, the Company's Chairman and Chief Executive Officer, and Geoffrey Jervis,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. In May 2019, after the Company's Chief Operating Officer and Chief Financial Officer, purchased 26 thousandapproval of SAFE’s shareholders, the Investor Units were exchanged for shares in the aggregate of SAFE'sSAFE’s common stock for an aggregate $0.5 million, at an average coston a 1-for-one basis. Following the exchange, the Investor Units were retired.
20
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Table of $19.20 per share, pursuant to a 10b5-1 plan in accordanceContents
In connection with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended. As of September 30, 2017, the trusts established by Jay Sugarman, the Company's Chairman and Chief Executive Officer, and Geoffrey Jervis, the Company's Chief Operating Officer and Chief Financial Officer, had utilized allCompany’s purchase of the availability authorized in the 10b5-1 Plan.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%; |
● | subjects the Company to certain standstill provisions; 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, payable solely in shares of SAFE's common stock, equal tofee. In addition, the sum of 1.0% of SAFE's total equity up to $2.5 billion and 0.75% of SAFE's total equity in excess of $2.5 billion. The Company is not entitledalso 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 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 3 times the prior year’s management fee. |
During the three months ended March 31, 2022 and 2021, the Company recorded $4.5 million and $3.5 million, respectively, of management fees pursuant to receive any performance or incentive compensation. its management agreement with SAFE.
The Company is also entitled to receive certain expense reimbursements, payable solely in sharesincluding for the allocable costs of SAFE's common stock, for its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. Historically, pursuant to the Company’s option under the management agreement, the Company has elected to not seek reimbursement for certain expenses. This historical election is not a waiver of reimbursement for similar expenses in future periods and the Company has started to elect to seek, and may further seek in the future, reimbursement of such additional expenses that it has not previously sought, including, without limitation, rent, overhead and certain personnel costs.
During the three months ended March 31, 2022 and 2021, the Company recognized $3.1 million and $1.9 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE.
The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to waive bothcertain exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the management feeopportunity.
Following is a list of investments that the Company has transacted with SAFE, all of which were approved by the Company’s and certainSAFE’s independent directors, for the periods presented:
21
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Table of the expense reimbursements through June 30, 2018.Contents
In AugustOctober 2017, the Company committedclosed on a 99-year Ground Lease and a $80.5 million construction financing commitment to providesupport the ground-up development of a $24.0to-be-built luxury multi-family project. The transaction included a combination of: (i) a newly created Ground Lease and a $7.2 million leasehold improvement allowance, which was fully funded; and (ii) an $80.5 million leasehold first mortgage. The Company sold the Ground Lease to SAFE in September 2020 for $34.0 million and in January 2021 sold the leasehold first mortgage to an entity in which the Company has a 53% noncontrolling equity interest (refer to “Other strategic investments” below) for $63.3 million.
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 November 2021, the Company acquired the property from Net Lease Venture II. The Company paid $0.6 million to its partner to acquire its equity interest in the property and assumed a $44.4 million mortgage on the property. The Company sold the property in the first quarter of 2022. Prior to the sale, SAFE paid $0.3 million to terminate a purchase option that allowed the Company to purchase the land at the expiration of the Ground Lease.
In February 2021, the Company provided a $50.0 million loan to the ground lessee of a ground leaseGround Lease originated at SAFE. The loan has an initial termwas for the Ground Lease tenant’s recapitalization of one yeara hotel property. The Company received $1.9 million of consideration from SAFE in connection with this transaction. The Company sold the loan in July 2021 and recorded 0 gain or loss on the sale.
In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be usedconstructed. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE would acquire the ground lessor entity from the Company. The Company sold the ground lessor entity to SAFE in September 2021 and recognized 0 gain or loss on the sale (refer to Note 7 - Loans receivable held for sale). The Company also committed to provide a $75.0 million construction loan to the Ground Lease tenant. The Company received $2.7 million of consideration from SAFE in connection with this transaction. In September 2021, the construction loan commitment and the $2.7 million of consideration was transferred to the Loan Fund (refer to “Other strategic investments” below).
In June 2021, the Company sold to SAFE its rights under a purchase option agreement for $1.2 million. The Company had previously acquired such purchase option agreement from a third-party property owner for $1.0 million and incurred $0.2 million of expenses. Under the option agreement, upon certain conditions being met by an outside developer who may become the Ground Lease tenant, SAFE has the right to acquire for $215.0 million a property and hold a Ground Lease under approximately 1.1 million square feet of office space that may be developed on the property. NaN gain or loss was recognized by the Company as a result of the sale.
In June 2021, the Company and SAFE entered into 2 agreements pursuant to each of which SAFE would acquire land and a related Ground Lease originated by the Company when certain construction related conditions are met by a specified time period. The purchase price to be paid for each is $42.0 million, plus an amount necessary for the renovationCompany to achieve the greater of a medical office building1.25x multiple and a 9% return on its investment. In addition, each Ground Lease provides for a leasehold improvement allowance up to a maximum of $83.0 million, which obligation would be assumed by SAFE upon acquisition. If certain construction conditions are not met within a specified time period, SAFE will have no obligation to acquire the Ground Leases or fund the leasehold improvement allowances. In January 2022, the Company sold the Ground Leases to the Ground Lease Plus Fund (see below). There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the properties and Ground Leases from the Ground Lease Plus Fund.
In November 2021, the Company and SAFE entered into an agreement pursuant to which SAFE would acquire land and a related Ground Lease originated by the Company when certain construction related conditions are met by a specified time period. The purchase price to be paid is $33.3 million, plus an amount necessary for the Company to achieve the greater of a 1.25x multiple and a 12% return on its investment. In addition, the Ground Lease provides for a leasehold improvement allowance up to a maximum of $51.8 million, which obligation would be assumed by SAFE upon acquisition. If certain construction conditions are not met within a specified time period, SAFE will have no obligation to acquire the Ground Lease or fund the leasehold improvement allowance. There can be no assurance that the conditions to
22
closing will be satisfied and that SAFE will acquire the land and Ground Lease from the Ground Lease Plus Fund (refer to Ground Lease Plus Fund below).
In December 2021, the Company’s partner in Atlanta, GA. $5.1 milliona venture recapitalized an existing multifamily property, which included a Ground Lease provided by SAFE. As part of the loan was funded as of September 30, 2017.
In January 2022, the Company and SAFE entered into an agreement pursuant to which SAFE would acquire land and a 468 unit, two tower residential condominium developmentrelated Ground Lease originated by the Company when certain construction related conditions are met. The purchase price to be paid is a maximum of $36.0 million (refer to Note 5), plus an amount necessary for the Company to achieve the greater of a 1.05x multiple and a 10% return on its investment. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the land and Ground Lease from the Company.
In February 2022, the Loan Fund (refer to Other Strategic Investments below) committed to provide a $130.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the Ground Lease tenant’s recapitalization of a life science office property. The Loan Fund received $9.0 million of consideration from SAFE in North Miami Beach, Florida. connection with this transaction.
Ground Lease Plus Fund—The 234 unit north tower has one unit remainingCompany formed and manages an investment fund that targets the origination and acquisition of Ground Leases for sale as of September 30, 2017.commercial real estate projects that are in a pre-development phase (the “Ground Lease Plus Fund”). The 234 unit south tower is 85% sold or pre-sold (based on unit count) as of September 30, 2017. This entity is notCompany owns a VIE and53% noncontrolling equity interest in the Ground Lease Plus Fund. The Company does not have a controlling interest in the Ground Lease Plus Fund due to shared controlthe substantive participating rights of its partner and accounts for this investment as an equity method investment. In addition, the entity with its partner. AsGround Lease Plus Fund has first look rights through December 2023 on qualifying pre-development projects that SAFE has elected to not originate.
In January 2022, the Company sold 2 Ground Leases to the Ground Lease Plus Fund (refer to Note 5) and recognized an aggregate $0.5 million of September 30, 2017gains in “Income from sales of real estate” on the sale. The Company and December 31, 2016,SAFE entered into an agreement pursuant to which SAFE would acquire the venture's carrying value of total assets was $43.5land properties and related Ground Leases from the Ground Lease Plus Fund when certain construction related conditions are met by a specified time period (refer to “Safehold Inc.” above).
In November 2021, the Company acquired land for $33.3 million and $201.8 million, respectively.
Other real estate equity investments
—As ofOther strategic investments—As of the entity with its partner. The Company and its partner each made a $7.0 million contribution to the venture and the Company provided financing to the entity in the form of a $27.0 million senior loan commitment, which had a carrying value of $24.3 million and $22.7 million as of September 30, 2017March 31, 2022 and December 31, 2016, respectively, and is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. During the three and nine months ended September 30, 2017, the Company recorded $0.5 million and $1.4 million of interest income, respectively, on the senior loan.
In January 2021, the Company sold 2 loans for under$83.4 million to a newly formed entity in which the Company owns a 53.0% noncontrolling equity interest (the “Loan Fund”). The Company did 0t recognize any gain or loss on the sales. In September 2021, the Company transferred a $75.0 million construction loan commitment to the Loan Fund. The Company does not have a controlling interest in the Loan Fund due to the substantive participating rights of its partner. The Company accounts for this investment as an equity method or cost method. Asinvestment and receives a fixed annual fee in exchange for managing the entity.
23
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
In February 2022, the carrying valueLoan Fund committed to provide a $130.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the Company's cost method investments was $0.8 million and $1.4 million, respectively.
Summarized investee financial information
—The following table presents the investee level summarized financial informationRevenues | Expenses | Net Income Attributable to Parent Entities | |||||||||
For the Nine Months Ended September 30, 2017 | |||||||||||
Marina Palms | $ | 37,668 | $ | (24,209 | ) | $ | 13,459 | ||||
For the Nine Months Ended September 30, 2016 | |||||||||||
Marina Palms | $ | 129,697 | $ | (72,736 | ) | $ | 56,961 |
| | | | | | | | | |
|
| Revenues |
| Expenses |
| Net Income Attributable to Parent | |||
For the Three Months Ended March 31, 2022 | | | | | | | | | |
SAFE | | $ | 60,363 | | $ | 37,732 | | $ | 24,873 |
| |
| | | | | | | |
For the Three Months Ended March 31, 2021 | | | | | | | | | |
SAFE | | $ | 43,507 | | $ | 27,174 | | $ | 16,908 |
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
| | | | | | | |
| | As of | | ||||
|
| March 31, 2022 |
| December 31, 2021 | | ||
Intangible assets, net(2) | | $ | 1,156 | | $ | 1,209 | |
Restricted cash | |
| 51,047 | |
| 54,395 | |
Operating lease right-of-use assets(3) | |
| 19,349 | |
| 20,437 | |
Other assets(4) | |
| 19,444 | |
| 16,040 | |
Other receivables | |
| 3,648 | |
| 5,054 | |
Leasing costs, net(5) | |
| 789 | |
| 818 | |
Corporate furniture, fixtures and equipment, net(6) | |
| 1,832 | |
| 1,852 | |
Deferred financing fees, net | |
| 417 | |
| 629 | |
Deferred expenses and other assets, net | | $ | 97,682 | | $ | 100,434 | |
As of | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Intangible assets, net(1) | $ | 23,801 | $ | 30,727 | |||
Other receivables(2) | 45,321 | 52,820 | |||||
Other assets | 28,799 | 35,189 | |||||
Restricted cash | 21,690 | 25,883 | |||||
Leasing costs, net(3) | 10,303 | 11,802 | |||||
Corporate furniture, fixtures and equipment, net(4) | 4,806 | 5,691 | |||||
Deferred expenses and other assets, net | $ | 134,720 | $ | 162,112 |
(1) | Certain items have been reclassified to “Real estate and other assets available and held for sale and classified as discontinued operations” (refer to Note 3). |
(2) | 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 |
(3) | |
(4) | Other assets primarily includes prepaid expenses, deposits for certain real estate assets and management fees and expense reimbursements due from SAFE (refer to Note 8). |
Accumulated amortization of leasing costs was |
(6) | |
Accumulated depreciation on corporate furniture, fixtures and equipment was |
24
iStar Inc.
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
| | | | | | | |
| | As of | | ||||
|
| March 31, 2022 |
| December 31, 2021 | | ||
Other liabilities(1) | | $ | 35,565 | | | 30,362 | |
Accrued expenses | |
| 115,461 | |
| 151,810 | |
Operating lease liabilities (see table above) | |
| 21,809 | |
| 23,267 | |
Accrued interest payable | |
| 26,051 | |
| 31,293 | |
Accounts payable, accrued expenses and other liabilities | | $ | 198,886 | | $ | 236,732 | |
As of | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Redemption of Series E and Series F preferred stock payable(1) | $ | 240,000 | $ | — | |||
Series E and Series F preferred stock dividend payable(1) | 1,830 | — | |||||
Other liabilities(2) | 78,000 | 75,993 | |||||
Accrued expenses(3) | 93,031 | 72,693 | |||||
Accrued interest payable | 45,612 | 54,033 | |||||
Intangible liabilities, net(4) | 7,901 | 8,851 | |||||
Accounts payable, accrued expenses and other liabilities | $ | 466,374 | $ | 211,570 |
(1) |
As of |
As of | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Deferred tax assets (liabilities) | $ | 90,883 | $ | 66,498 | |||
Valuation allowance | (90,883 | ) | (66,498 | ) | |||
Net deferred tax assets (liabilities) | $ | — | $ | — |
Carrying Value as of | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Loan participations payable(1) | $ | 122,846 | $ | 160,251 | ||||
Debt discounts and deferred financing costs, net | (357 | ) | (930 | ) | ||||
Total loan participations payable, net | $ | 122,489 | $ | 159,321 |
The Company'sCompany’s debt obligations were as follows ($ in thousands):
| | | | | | | | | | |
| | Carrying Value as of | | Stated | | Scheduled | ||||
|
| March 31, 2022 |
| December 31, 2021 |
| Interest Rates |
| Maturity Date | ||
Secured credit facilities: |
| |
|
| |
| |
|
|
|
Revolving Credit Facility | | $ | 0 | | $ | 0 | | LIBOR + 2.00 | % (1) | September 2022 |
Senior Term Loan | |
| 0 | |
| 491,875 | | LIBOR + 2.75 | % (2) | — |
Total secured credit facilities | |
| 0 | |
| 491,875 | |
|
|
|
Unsecured notes: | |
|
| |
|
| |
|
|
|
3.125% senior convertible notes(3) | |
| 287,500 | |
| 287,500 | | 3.125 | % | September 2022 |
4.75% senior notes(4) | |
| 775,000 | |
| 775,000 | | 4.75 | % | October 2024 |
4.25% senior notes(5) | |
| 550,000 | |
| 550,000 | | 4.25 | % | August 2025 |
5.50% senior notes(6) | |
| 400,000 | |
| 400,000 | | 5.50 | % | February 2026 |
Total unsecured notes | |
| 2,012,500 | |
| 2,012,500 | |
|
|
|
Other debt obligations: | |
|
| |
|
| |
|
|
|
Trust preferred securities | |
| 100,000 | |
| 100,000 | | LIBOR + 1.50 | % | October 2035 |
Total debt obligations | |
| 2,112,500 | |
| 2,604,375 | |
|
|
|
Debt discounts and deferred financing costs, net | |
| (28,248) | |
| (32,201) | |
|
|
|
Total debt obligations, net(7) | | $ | 2,084,252 | | $ | 2,572,174 | |
|
|
|
Carrying Value as of | Stated Interest Rates | Scheduled Maturity Date | ||||||||||
September 30, 2017 | December 31, 2016 | |||||||||||
Secured credit facilities and mortgages: | ||||||||||||
2015 $325 Million Secured Revolving Credit Facility | $ | — | $ | — | LIBOR + 2.50% | (1) | September 2020 | |||||
2016 Senior Secured Credit Facility | 400,000 | 498,648 | LIBOR + 3.00% | (2) | October 2021 | |||||||
Mortgages collateralized by net lease assets | 223,182 | 249,987 | 4.851% - 7.26% | (3) | Various through 2026 | |||||||
Total secured credit facilities and mortgages | 623,182 | 748,635 | ||||||||||
Unsecured notes: | ||||||||||||
5.85% senior notes | — | 99,722 | 5.85 | % | March 2017 | |||||||
9.00% senior notes | — | 275,000 | 9.00 | % | June 2017 | |||||||
4.00% senior notes(4) | 550,000 | 550,000 | 4.00 | % | November 2017 | |||||||
7.125% senior notes(5) | 300,000 | 300,000 | 7.125 | % | February 2018 | |||||||
4.875% senior notes(6) | 300,000 | 300,000 | 4.875 | % | July 2018 | |||||||
5.00% senior notes(7) | 770,000 | 770,000 | 5.00 | % | July 2019 | |||||||
6.50% senior notes(8) | 275,000 | 275,000 | 6.50 | % | July 2021 | |||||||
6.00% senior notes(9) | 375,000 | — | 6.00 | % | April 2022 | |||||||
4.625% senior notes(10) | 400,000 | — | 4.625 | % | September 2020 | |||||||
5.25% senior notes(11) | 400,000 | — | 5.25 | % | September 2022 | |||||||
3.125% senior convertible notes(12) | 250,000 | — | 3.125 | % | September 2022 | |||||||
Total unsecured notes | 3,620,000 | 2,569,722 | ||||||||||
Other debt obligations: | ||||||||||||
Trust preferred securities | 100,000 | 100,000 | LIBOR + 1.50% | October 2035 | ||||||||
Total debt obligations | 4,343,182 | 3,418,357 | ||||||||||
Debt discounts and deferred financing costs, net | (64,228 | ) | (28,449 | ) | ||||||||
Total debt obligations, net(13) | $ | 4,278,954 | $ | 3,389,908 |
(1) | The |
(2) | The loan |
(3) |
The |
(4) | The Company can prepay these senior notes without penalty beginning July 1, 2024. |
The Company can prepay these senior notes without penalty beginning May 1, 2025. |
(6) | The Company can prepay these senior notes without penalty beginning August 15, 2024. |
(7) | The Company capitalized interest relating to development activities of |
25
iStar Inc.
Future Scheduled Maturities
—As of | | | | | | | | | |
|
| Unsecured Debt |
| Secured Debt |
| Total | |||
2022 (remaining nine months)(1) | | $ | 287,500 | | $ | 0 | | $ | 287,500 |
2023 | |
| 0 | |
| 0 | |
| 0 |
2024 | |
| 775,000 | |
| 0 | |
| 775,000 |
2025 | |
| 550,000 | |
| 0 | |
| 550,000 |
2026 | |
| 400,000 | |
| 0 | |
| 400,000 |
Thereafter | |
| 100,000 | |
| 0 | |
| 100,000 |
Total principal maturities | |
| 2,112,500 | |
| 0 | |
| 2,112,500 |
Unamortized discounts and deferred financing costs, net | |
| (28,248) | |
| 0 | |
| (28,248) |
Total debt obligations, net | | $ | 2,084,252 | | $ | 0 | | $ | 2,084,252 |
Unsecured Debt | Secured Debt | Total | |||||||||
2017 (remaining three months) | $ | 550,000 | (1) | $ | — | $ | 550,000 | ||||
2018 | 600,000 | (1) | 9,523 | 609,523 | |||||||
2019 | 770,000 | 27,924 | 797,924 | ||||||||
2020 | 400,000 | — | 400,000 | ||||||||
2021 | 275,000 | 517,506 | 792,506 | ||||||||
Thereafter | 1,125,000 | 68,229 | 1,193,229 | ||||||||
Total principal maturities | 3,720,000 | 623,182 | 4,343,182 | ||||||||
Unamortized discounts and deferred financing costs, net | (56,331 | ) | (7,897 | ) | (64,228 | ) | |||||
Total debt obligations, net | $ | 3,663,669 | $ | 615,285 | $ | 4,278,954 |
(1) |
Senior Term Loan—In March 2017, theThe Company (through wholly-owned subsidiaries conducting the Company's GL business) entered intohad a $227.0$650.0 million secured financing transactionsenior term loan (the "2017 Secured Financing"“Senior Term Loan”) that accrued interest at 3.795%LIBOR plus 2.75% per annum and maturesmatured in April 2027.June 2023. The 2017 Secured FinancingSenior Term Loan was collateralizedsecured by pledges of equity of certain subsidiaries that own a defined pool of assets. The Senior Term Loan permitted substitution of collateral, subject to overall collateral pool coverage and concentration limits, over the 12 properties comprisinglife of the Company's GL business, including seven GLsfacility. The Company repaid the Senior Term Loan in full in March 2022 using proceeds from the Net Lease Sale (refer to Note 3 - Net Lease Sale and one master lease (coveringDiscontinued Operations). During the accountsthree months ended March 31, 2022, the Company incurred a “Loss on extinguishment of five properties). Indebt” of $1.4 million in connection with the 2017 Secured Financing, the Company incurred $7.3 million of lender and third-party fees, substantially all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. In April 2017, the Company derecognized the 2017 Secured Financing when third parties acquired a controlling interest in the Company's GL business (refer to Note 4).
Revolving Credit Facility
—Unsecured Notes
—Debt Covenants—The carrying value of the Company's encumbered and unencumbered assets by asset type are as follows ($ in thousands):
As of | |||||||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||||||
Encumbered Assets | Unencumbered Assets | Encumbered Assets | Unencumbered Assets | ||||||||||||
Real estate, net | $ | 841,570 | $ | 482,292 | $ | 881,212 | $ | 506,062 | |||||||
Real estate available and held for sale | — | 65,658 | — | 237,531 | |||||||||||
Land and development, net | 25,100 | 836,407 | 35,165 | 910,400 | |||||||||||
Loans receivable and other lending investments, net(1)(2) | 188,973 | 813,447 | 172,581 | 1,142,050 | |||||||||||
Other investments | — | 289,037 | — | 214,406 | |||||||||||
Cash and other assets | — | 2,145,713 | — | 590,299 | |||||||||||
Total | $ | 1,055,643 | $ | 4,632,554 | $ | 1,088,958 | $ | 3,600,748 |
26
iStar Inc.
Notes to incur additional indebtedness under the fixed charge coverage ratio is limited, the Company is permitted to incur indebtedness for the purposeConsolidated Financial Statements (Continued)
(unaudited)
The Company's 2016 Senior Secured Credit Facility and the 2015 SecuredCompany’s Revolving Credit Facility containcontains certain covenants, including covenants relating to collateral coverage, dividend payments, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2016 Senior Secured Credit Facility requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The 2015 Secured Revolving Credit Facility is secured by a borrowing base of assets and requires the Company to maintain both collateral coverageborrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Secured Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the collateral coverageborrowing 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. In addition, for so long asUnder the Company maintains its qualification as a REIT, the 2016 Senior Secured Credit Facility and the 2015 Secured Revolving Credit Facility permit the Company is permitted to distribute 100% of its REIT taxable income on an annual basis (prior to deducting certain cumulative net operating loss ("NOL") carryforwards). The Company may not pay common dividends if it ceases to qualify as a REIT.
The Company’s Revolving Credit Facility containcontains cross default provisions that would allow the lenders to declare an event of default and accelerate the Company'sCompany’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'sCompany’s unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company'sCompany’s indebtedness to them if the Company'sCompany’s other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated.
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
| | | | | | | | | | | | |
| | Loans and Other | | | | | | | | | | |
| | Lending | | Real | | Other | | | | |||
|
| Investments |
| Estate |
| Investments |
| Total | ||||
Performance-Based Commitments | | $ | 4,235 | | $ | 8,111 | | $ | 108,650 | | $ | 120,996 |
Strategic Investments | |
| 0 | |
| 5,061 | |
| 2,325 | |
| 7,386 |
Total | | $ | 4,235 | | $ | 13,172 | | $ | 110,975 | | $ | 128,382 |
27
Other Commitments—Future minimum lease obligations under non-cancelable operating leases as of March 31, 2022 are as follows ($ in thousands):
| | | |
|
| Operating(1) | |
2022 (remaining nine months) | | $ | 4,929 |
2023 | |
| 6,295 |
2024 | |
| 6,178 |
2025 | |
| 6,166 |
2026 | |
| 142 |
Thereafter | |
| 162 |
Total undiscounted cash flows | |
| 23,872 |
Present value discount(1) | |
| (2,063) |
Lease liabilities | | $ | 21,809 |
Loans and Other Lending Investments(1) | Real Estate | Other Investments | Total | ||||||||||||
Performance-Based Commitments | $ | 317,091 | $ | 6,136 | $ | 50,933 | $ | 374,160 | |||||||
Strategic Investments | — | — | 45,642 | 45,642 | |||||||||||
Total | $ | 317,091 | $ | 6,136 | $ | 96,575 | $ | 419,802 |
(1) |
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
Note 12—Derivatives
The Company'sCompany’s use of derivative financial instruments is primarilyhas 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'sCompany’s operating and financial structure and to manage its exposure to interest rates and foreign exchange rates. DerivativesThe Company may have derivatives that are not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements, foreign exchange rate movements, and other identified risks, but maybecause 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.
28
The table below presents the fair value of the Company'sCompany’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2022 and December 31, 2021 ($ in thousands):
| | | | | |
|
| Derivative Liabilities | |||
| | Balance Sheet | | Fair | |
As of March 31, 2022 |
| Location |
| Value | |
Derivatives Designated in Hedging Relationships | | | | | |
Interest rate swaps |
| Liabilities associated with real estate held for sale and classified as discontinued operations | | $ | 0 |
Total |
|
| | $ | 0 |
| | | | | |
As of December 31, 2021 |
|
| |
|
|
Derivatives Designated in Hedging Relationships |
|
| |
|
|
Interest rate swaps |
| Liabilities associated with real estate held for sale and classified as discontinued operations | | $ | 8,395 |
Total |
|
| | $ | 8,395 |
(1) | Over the next 12 months, the Company expects that $2.6 million related to its proportionate share of cash flow hedges held by SAFE will be reclassified from “Accumulated other comprehensive income (loss)” as a decrease to earnings from equity method investments. |
Derivative Assets as of | Derivative Liabilities as of | ||||||||||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||
Derivatives Designated in Hedging Relationships | |||||||||||||||||||||||
Foreign exchange contracts | N/A | $ | — | N/A | $ | — | Other Liabilities | $ | 18 | Other Liabilities | $ | 8 | |||||||||||
Interest rate swaps | Other Assets | 76 | N/A | — | N/A | — | Other Liabilities | 39 | |||||||||||||||
Total | $ | 76 | $ | — | $ | 18 | $ | 47 | |||||||||||||||
Derivatives not Designated in Hedging Relationships | |||||||||||||||||||||||
Foreign exchange contracts | N/A | $ | — | Other Assets | $ | 702 | N/A | $ | — | N/A | $ | — | |||||||||||
Interest rate cap | N/A | — | Other Assets | 25 | N/A | — | N/A | — | |||||||||||||||
Total | $ | — | $ | 727 | $ | — | $ | — |
The tablestable below presentpresents the effect of the Company'sCompany’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):
| | | | | | | | |
|
| |
| Amount of Gain |
| Amount of Gain | ||
| | Location of Gain | | (Loss) Recognized in | | (Loss) Reclassified | ||
| | (Loss) | | Accumulated Other | | from Accumulated | ||
Derivatives Designated in | | When Recognized in | | Comprehensive | | Other Comprehensive | ||
Hedging Relationships |
| Income |
| Income |
| Income into Earnings | ||
For the Three Months Ended March 31, 2022 | | | | | | | | |
Interest rate swaps |
| Earnings from equity method investments | |
| 2,755 | |
| (621) |
For the Three Months Ended March 31, 2021 |
|
| |
|
| |
|
|
Interest rate swaps |
| Net income from discontinued operations | | $ | 3,335 | | $ | (2,104) |
Interest rate swaps |
| Earnings from equity method investments | |
| 8,638 | |
| (234) |
29
Derivatives Designated in Hedging Relationships | Location of Gain (Loss) Recognized in Income | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Effective Portion) | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion) | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Ineffective Portion) | ||||||
For the Three Months Ended September 30, 2017 | ||||||||||
Interest rate swaps | Interest Expense | 15 | (16 | ) | N/A | |||||
Interest rate cap | Earnings from equity method investments | (2 | ) | (2 | ) | N/A | ||||
Interest rate swap | Earnings from equity method investments | (69 | ) | (38 | ) | N/A | ||||
Foreign exchange contracts | Earnings from equity method investments | (1 | ) | — | N/A | |||||
For the Three Months Ended September 30, 2016 | ||||||||||
Interest rate cap | Earnings from equity method investments | (1 | ) | (1 | ) | N/A | ||||
Interest rate swaps | Interest Expense | 126 | (19 | ) | N/A | |||||
Interest rate swap | Earnings from equity method investments | 124 | (92 | ) | N/A | |||||
Foreign exchange contracts | Earnings from equity method investments | (150 | ) | — | N/A | |||||
For the Nine Months Ended September 30, 2017 | ||||||||||
Interest rate swaps | Interest Expense | 439 | 339 | N/A | ||||||
Interest rate cap | Earnings from equity method investments | (16 | ) | (16 | ) | N/A | ||||
Interest rate swap | Earnings from equity method investments | (85 | ) | (188 | ) | N/A | ||||
Foreign exchange contracts | Earnings from equity method investments | (371 | ) | — | N/A | |||||
For the Nine Months Ended September 30, 2016 | ||||||||||
Interest rate cap | Interest Expense | — | (185 | ) | N/A | |||||
Interest rate cap | Earnings from equity method investments | (2 | ) | — | N/A | |||||
Interest rate swaps | Interest Expense | (568 | ) | (17 | ) | N/A | ||||
Interest rate swap | Earnings from equity method investments | (500 | ) | (284 | ) | N/A | ||||
Foreign exchange contracts | Earnings from equity method investments | (199 | ) | — | N/A |
Amount of Gain (Loss) Recognized in Income | ||||||||||||||||||
Location of Gain (Loss) Recognized in Income | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||
Derivatives not Designated in Hedging Relationships | 2017 | 2016 | 2017 | 2016 | ||||||||||||||
Interest rate cap | Other Expense | $ | — | $ | (4 | ) | $ | 6 | $ | (1,059 | ) | |||||||
Foreign exchange contracts | Other Expense | (199 | ) | 65 | (970 | ) | 406 |
Derivative Type | Notional Amount | Notional (USD Equivalent) | Maturity | |||||||
Sells Indian rupee ("INR")/Buys USD Forward | ₨ | 350,000 | $ | 5,339 | October 2017 |
Derivative Type | Notional Amount | Variable Rate | Fixed Rate | Effective Date | Maturity | |||||||
Interest rate swap | $ | 25,977 | LIBOR + 2.00% | 3.47% | October 2012 | November 2019 |
Preferred Stock
—The Company had the following series of Cumulative Redeemable | | | | | | | | | | | | | | | | | |
|
| |
| | |
| Cumulative Preferential Cash |
| | | | ||||||
| | | | | | | Dividends(1)(2) | | | | | ||||||
| | Shares Issued | | | | | | | | | | | | | | | |
| | and | | | | | | | | | | Annual | | Carrying | | ||
| | Outstanding | | Par | | Liquidation | | Rate per | | Dividend | | Value | | ||||
Series |
| (in thousands) |
| Value |
| Preference(3) |
| Annum |
| per share |
| (in thousands) | | ||||
D |
| 4,000 | | $ | 0.001 | | $ | 25.00 |
| 8.00 | % | $ | 2.00 | | $ | 89,041 | |
G |
| 3,200 | |
| 0.001 | |
| 25.00 |
| 7.65 | % |
| 1.91 | |
| 72,664 | |
I |
| 5,000 | |
| 0.001 | |
| 25.00 |
| 7.50 | % |
| 1.88 | |
| 120,785 | |
Total |
| 12,200 | | | | | | |
|
| |
|
| | $ | 282,490 | |
Cumulative Preferential Cash Dividends(1)(2) | ||||||||||||||||||
Series | Shares Issued and Outstanding (in thousands) | Par Value | Liquidation Preference(3)(4) | Rate per Annum | Equivalent to Fixed Annual Rate (per share) | |||||||||||||
D | 4,000 | $ | 0.001 | $ | 25.00 | 8.00 | % | $ | 2.00 | |||||||||
G | 3,200 | 0.001 | 25.00 | 7.65 | % | 1.91 | ||||||||||||
I | 5,000 | 0.001 | 25.00 | 7.50 | % | 1.88 | ||||||||||||
J (convertible) | 4,000 | 0.001 | 50.00 | 4.50 | % | 2.25 | ||||||||||||
16,200 |
Cumulative Preferential Cash Dividends(1)(2) | ||||||||||||||||
Series | Shares Issued and Outstanding (in thousands) | Par Value | Liquidation Preference(3)(4) | Rate per Annum | Equivalent to Fixed Annual Rate (per share) | |||||||||||
D | 4,000 | $ | 0.001 | $25.00 | 8.000 | % | $ | 2.00 | ||||||||
E | 5,600 | $ | 0.001 | $25.00 | 7.875 | % | $ | 1.97 | ||||||||
F | 4,000 | $ | 0.001 | $25.00 | 7.8 | % | $ | 1.95 | ||||||||
G | 3,200 | $ | 0.001 | $25.00 | 7.65 | % | $ | 1.91 | ||||||||
I | 5,000 | $ | 0.001 | $25.00 | 7.50 | % | $ | 1.88 | ||||||||
J (convertible) | 4,000 | $ | 0.001 | $50.00 | 4.50 | % | $ | 2.25 | ||||||||
25,800 |
(1) | Holders of shares of the Series D, |
(2) | The Company declared and paid dividends of |
(3) | The Company may, at its option, redeem the Series |
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 theStock Repurchase Program—The Company from paying any common dividends if it ceases to qualify as a REIT.may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. The Company did not declare or payrepurchase any shares of its common stock dividendsduring the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company repurchased 0.7 million shares of its outstanding common stock for the
30
Accumulated Other Comprehensive Income (Loss)—"Accumulated “Accumulated other comprehensive income (loss)"” reflected in the Company's shareholders'Company’s shareholders’ equity is comprised of the following ($ in thousands):
As of | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Unrealized gains on available-for-sale securities | $ | 599 | $ | 149 | |||
Unrealized gains on cash flow hedges | 230 | 27 | |||||
Unrealized losses on cumulative translation adjustment | (4,659 | ) | (4,394 | ) | |||
Accumulated other comprehensive income (loss) | $ | (3,830 | ) | $ | (4,218 | ) |
| | | | | | | |
| | As of | | ||||
|
| March 31, 2022 |
| December 31, 2021 | | ||
Unrealized gains on available-for-sale securities | | $ | 1,224 |
| $ | 4,237 | |
Unrealized losses on cash flow hedges | |
| (22,448) | |
| (25,824) | |
Accumulated other comprehensive loss | | $ | (21,224) | | $ | (21,587) | |
Stock-Based Compensation
—The Company recorded stock-based compensation (income) expense, including thePerformance Incentive Plans
—The2019-2022 iPIP Plans—The Company’s 2019-2020 and 2021-2022 iPIP plans are equity-classified awards which are 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 2019-2022 iPIP plans are held by consolidated subsidiaries of the Company and have 2 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 points isthe class B units was determined using a model that forecasts the Company's projected investment performance.underlying cash flows from the investments within the entity to which the class B units have ownership rights. During the three months ended March 31, 2022 and 2021, the Company recorded $1.3 million and $1.4 million, respectively, of expense related to the 2019-2022 iPIP plans. Distributions on the class B units are expected to be 50% in cash and 50% in shares of the Company’s common stock; provided, however, that (a) the cash portion will be increased if the Company does not have sufficient shares available under shareholder approved equity plans; and (b) if the principal remaining material asset in a plan is unsold SAFE shares, the Company may elect to distribute SAFE shares in lieu of cash and Company stock.
The following is a summary of the status of the Company’s equity-classified iPIP plans and changes during the three months ended March 31, 2022.
| | | | |
| | iPIP Investment Pool | ||
|
| 2019-2020 |
| 2021-2022 |
Points at beginning of period |
| 95.20 |
| 84.75 |
Granted | | 0 | | 7.95 |
Forfeited |
| 0 |
| (0.35) |
Points at end of period |
| 95.20 |
| 92.35 |
As of March 31, 2022, investments with an aggregate gross book value of $764 million, including 26.7 million shares of SAFE common stock acquired by the Company, were attributable to the 2019-2020 Plan and investments with an
31
aggregate gross book value of $416 million, including 5.0 million shares of SAFE common stock acquired by the Company, were attributable to the 2021-2022 Plan.
2013-2018 iPIP Plans—The remainder of the Company’s iPIP plans, as shown in the table below, are liability-classified award which will beawards 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.
The following is a summary of grantedthe status of the Company’s liability-classified iPIP points.
| | | | | | |
| | iPIP Investment Pool | ||||
|
| 2013‑2014 |
| 2015‑2016 |
| 2017‑2018 |
Points at beginning of period |
| 80.17 |
| 70.40 |
| 75.34 |
Granted | | 0 | | 0 | | 0 |
Points at end of period |
| 80.17 |
| 70.40 |
| 75.34 |
During the three months ended March 31, 2022, the Company granted 73recorded a $16.0 million reduction of expense related to the 2013-2018 iPIP pointsplans, primarily due to a decrease in the initial 2013-2014 investment pool.
As of March 31, 2022, investments with an additional 10 iPIP points inaggregate gross book value of $13 million were attributable to the 2013-2014 investment poolPlan and 34 iPIP pointsinvestments with an aggregate gross book value of $277 million, including 7.6 million shares of SAFE common stock acquired by the Company, were attributable to the 2017-2018 Plan. As of March 31, 2022 there were 0 investments attributable to the 2015-2016 Plan.
During the three months ended March 31, 2021, the Company made distributions to participants in the 2015-2016 investment pool.
As of September 30, 2017, 11.5 iPIP points from the 2013-2014 investment pool, 10.0 iPIP points from the 2015-2016 investment pool and 4.3 iPIP points from the 2017-2018 investment pool were forfeited.
Long-Term Incentive Plan
—TheAs of September 30, 2017,March 31, 2022, an aggregate of 3.32.8 million shares remain available for issuance pursuant to future awards under the Company'sCompany’s 2009 LTIP.
32
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Restricted Stock Unit Activity
— | | |
Nonvested at beginning of period | | 754 |
Granted | | 212 |
Vested | | (270) |
Forfeited | | (4) |
Nonvested at end of period | 692 |
As of March 31, 2022, there was $9.4 million of total unrecognized compensation cost related to all unvested restricted stock units that are expected to be recognized over a weighted average remaining vesting/service period of 1.78 years.
Directors’ Awards—During the following:
401(k) Plan
—The Company madeThe following table presents a reconciliation of income (loss) from continuing operations used in the basic and diluted EPSearnings per share (“EPS”) calculations ($ in thousands, except for per share data):
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Net loss from continuing operations | | $ | (1,888) | | $ | (14,497) | |
Net loss from continuing operations attributable to noncontrolling interests | |
| 18 | |
| 44 | |
Preferred dividends | |
| (5,874) | |
| (5,874) | |
Net loss from continuing operations and allocable to common shareholders for basic and diluted earnings per common share | | $ | (7,744) | | $ | (20,327) | |
33
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Income (loss) from continuing operations | $ | (23,029 | ) | $ | 19,990 | $ | 24,839 | $ | 9,321 | ||||||
Income from sales of real estate | 19,313 | 34,444 | 28,267 | 88,387 | |||||||||||
Net (income) loss attributable to noncontrolling interests | 160 | 967 | (4,450 | ) | (6,915 | ) | |||||||||
Preferred dividends | (12,830 | ) | (12,830 | ) | (38,490 | ) | (38,490 | ) | |||||||
Preferred dividends declared and payable | (1,830 | ) | — | (1,830 | ) | — | |||||||||
Premium above book value on redemption of preferred stock | (16,314 | ) | — | (16,314 | ) | — | |||||||||
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders and Participating Security Holders for basic earnings per common share(1) | $ | (34,530 | ) | $ | 42,571 | $ | (7,978 | ) | $ | 52,303 | |||||
Add: Effect of joint venture shares | — | 3 | — | 5 | |||||||||||
Add: Effect of 1.50% senior convertible unsecured notes | — | 1,123 | — | 3,400 | |||||||||||
Add: Effect of 3.00% senior convertible unsecured notes | — | 1,785 | — | 5,346 | |||||||||||
Add: Effect of Series J convertible perpetual preferred stock | — | 2,250 | — | 6,750 | |||||||||||
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders and Participating Security Holders for diluted earnings per common share(1) | $ | (34,530 | ) | $ | 47,732 | $ | (7,978 | ) | $ | 67,804 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings allocable to common shares: | |||||||||||||||
Numerator for basic earnings per share: | |||||||||||||||
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (34,530 | ) | $ | 42,571 | $ | (7,978 | ) | $ | 52,280 | |||||
Income from discontinued operations | — | 3,721 | 4,939 | 10,929 | |||||||||||
Gain from discontinued operations | — | — | 123,418 | — | |||||||||||
Income tax expense from discontinued operations | — | — | (4,545 | ) | — | ||||||||||
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (34,530 | ) | $ | 46,292 | $ | 115,834 | $ | 63,209 | ||||||
Numerator for diluted earnings per share: | |||||||||||||||
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (34,530 | ) | $ | 47,732 | $ | (7,978 | ) | $ | 67,786 | |||||
Income from discontinued operations | — | 3,721 | 4,939 | 10,931 | |||||||||||
Gain from discontinued operations | — | — | 123,418 | — | |||||||||||
Income tax expense from discontinued operations | — | — | (4,545 | ) | — | ||||||||||
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (34,530 | ) | $ | 51,453 | $ | 115,834 | $ | 78,717 | ||||||
Denominator for basic and diluted earnings per share: | |||||||||||||||
Weighted average common shares outstanding for basic earnings per common share | 71,713 | 71,210 | 71,972 | 74,074 | |||||||||||
Add: Effect of assumed shares issued under treasury stock method for restricted stock units | — | 87 | — | 65 | |||||||||||
Add: Effect of joint venture shares | — | 298 | — | 298 | |||||||||||
Add: Effect of 1.50% senior convertible unsecured notes | — | 11,444 | — | 11,526 | |||||||||||
Add: Effect of 3.00% senior convertible unsecured notes | — | 16,992 | — | 16,992 | |||||||||||
Add: Effect of series J convertible perpetual preferred stock | — | 15,635 | — | 15,635 | |||||||||||
Weighted average common shares outstanding for diluted earnings per common share | 71,713 | 115,666 | 71,972 | 118,590 | |||||||||||
Basic earnings per common share: | |||||||||||||||
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (0.48 | ) | $ | 0.60 | $ | (0.11 | ) | $ | 0.70 | |||||
Income from discontinued operations | — | 0.05 | 0.07 | 0.15 | |||||||||||
Gain from discontinued operations | — | — | 1.71 | — | |||||||||||
Income tax expense from discontinued operations | — | — | (0.06 | ) | — | ||||||||||
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (0.48 | ) | $ | 0.65 | $ | 1.61 | $ | 0.85 | ||||||
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Earnings allocable to common shares: | | |
|
| |
| |
Numerator for basic and diluted earnings per share: | | |
|
| |
| |
Net loss from continuing operations and allocable to common shareholders | | $ | (7,744) | | $ | (20,327) | |
Net income from discontinued operations | | | 797,688 | | | 22,486 | |
Net (income) from discontinued operations attributable to noncontrolling interests | | | (179,089) | | | (2,564) | |
Net income (loss) allocable to common shareholders | | $ | 610,855 | | $ | (405) | |
| | | | | | | |
Denominator for basic and diluted earnings per share: | |
|
| |
|
| |
Weighted average common shares outstanding for basic and diluted earnings per common share | |
| 69,037 | |
| 73,901 | |
| | | | | | | |
Basic and diluted earnings per common share:(1) | |
|
| |
|
| |
Net loss from continuing operations and allocable to common shareholders | | $ | (0.11) | | $ | (0.28) | |
Net income from discontinued operations and allocable to common shareholders | | | 8.96 | | | 0.27 | |
Net income (loss) allocable to common shareholders | | $ | 8.85 | | $ | (0.01) | |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Diluted earnings per common share: | |||||||||||||||
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (0.48 | ) | $ | 0.41 | $ | (0.11 | ) | $ | 0.57 | |||||
Income from discontinued operations | — | 0.03 | 0.07 | 0.09 | |||||||||||
Gain from discontinued operations | — | — | 1.71 | — | |||||||||||
Income tax expense from discontinued operations | — | — | (0.06 | ) | — | ||||||||||
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (0.48 | ) | $ | 0.44 | $ | 1.61 | $ | 0.66 | ||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Series J convertible perpetual preferred stock | 15,635 | — | 15,635 | — | |||||||
Joint venture shares | 298 | — | 298 | — |
(1) | For the three |
Note 16—Fair Values
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Certain of the Company'sCompany’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.
34
iStar Inc.
The following fair value hierarchy table summarizes the Company'sCompany’s assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):
| | | | | | | | | | | | |
| | Fair Value Using | ||||||||||
| | | | | Quoted | | | | | | | |
| | | | | market | | Significant | | | | ||
| | | | | prices in | | other | | Significant | |||
| | | | | active | | observable | | unobservable | |||
| | | | | markets | | inputs | | inputs | |||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
As of March 31, 2022 | |
| | |
| | |
| | |
| |
Recurring basis: |
| |
|
| |
|
| |
|
| |
|
Available-for-sale securities(1) |
| $ | 24,864 |
| $ | — |
| $ | — |
| $ | 24,864 |
As of December 31, 2021 |
| |
|
| |
|
| |
|
| |
|
Recurring basis: |
| |
|
| |
|
| |
|
| |
|
Derivative liabilities(1) | | $ | 8,395 |
| $ | — |
| $ | 8,395 |
| $ | — |
Available-for-sale securities(1) | | | 28,092 | | | — | | | — | | | 28,092 |
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 September 30, 2017 | |||||||||||||||
Recurring basis: | |||||||||||||||
Derivative assets(1) | $ | 76 | $ | — | $ | 76 | $ | — | |||||||
Derivative liabilities(1) | 18 | — | 18 | — | |||||||||||
Available-for-sale securities(1) | 22,105 | — | — | 22,105 | |||||||||||
As of December 31, 2016 | |||||||||||||||
Recurring basis: | |||||||||||||||
Derivative assets(1) | $ | 727 | $ | — | $ | 727 | $ | — | |||||||
Derivative liabilities(1) | 47 | — | 47 | — | |||||||||||
Available-for-sale securities(1) | 21,666 | — | — | 21,666 | |||||||||||
Non-recurring basis: | |||||||||||||||
Impaired loans(2) | 7,200 | — | — | 7,200 | |||||||||||
Impaired real estate(3) | 3,063 | — | — | 3,063 |
(1) | The fair value of the |
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company'sCompany’s consolidated balance sheets for the ninethree months ended September 30, 2017March 31, 2022 and 20162021 ($ in thousands):
| | | | | | |
|
| 2022 |
| 2021 | ||
Beginning balance | | $ | 28,092 | | $ | 25,274 |
Repayments | |
| (215) | |
| (200) |
Unrealized losses recorded in other comprehensive income | |
| (3,013) | |
| (1,031) |
Ending balance | | $ | 24,864 | | $ | 24,043 |
35
2017 | 2016 | |||||||
Beginning balance | $ | 21,666 | $ | 1,161 | ||||
Purchases | — | 4,366 | ||||||
Repayments | (10 | ) | (10 | ) | ||||
Unrealized gains recorded in other comprehensive income | 449 | 263 | ||||||
Ending balance | $ | 22,105 | $ | 5,780 |
iStar Inc.
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 March 31, 2022 | | As of December 31, 2021 | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | ||||
|
| Value |
| Value |
| Value |
| Value | ||||
Assets | | | | | | | | | | | | |
Net investment in leases (refer to Note 5)(1) | | $ | 28 | | $ | 28 | | $ | 43 | | $ | 43 |
Loans receivable and other lending investments, net(1) | | | 332 | | | 342 | | | 333 | | | 345 |
Loans receivable held for sale(1) | | | 0 | | | 0 | | | 43 | | | 43 |
Cash and cash equivalents(2) | |
| 1,500 | |
| 1,500 | |
| 340 | |
| 340 |
Restricted cash(2) | |
| 51 | |
| 51 | |
| 54 | |
| 54 |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Debt obligations, net(1)(3) | | | | | | | | | | | | |
Level 1 | | | 1,985 | | | 2,228 | | | 2,473 | | | 2,799 |
Level 3 | | | 99 | | | 101 | | | 99 | | | 104 |
Total debt obligations, net | | | 2,084 | | | 2,329 | | | 2,572 | | | 2,903 |
(1) | The fair value of the Company’s net investment in leases, loans receivable and other lending investments, net, loans receivable held for sale and certain debt obligations 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. |
(3) | As of March 31, 2022 and December 31, 2021, the fair value of the Company’s unsecured notes is classified as Level 1 in the fair value hierarchy. As of March 31, 2022 and December 31, 2021, the fair value of the Company’s 3.125% Senior Convertible Notes was $497.5 million and $527.5 million, respectively (refer to Note 18). |
Note 17—Segment Reporting
The Company has determined that it has four4 reportable segments based on how management reviews and manages its business. These reportable segments include: Net Lease, Real Estate Finance, Net Lease, Operating Properties and Land and Development. The Net Lease segment (refer to Note 3 - Net Lease Sale and Discontinued Operations) includes the Company’s investments in SAFE and its Ground Lease adjacent businesses (refer to Note 8). The Real Estate Finance segment includes all of the Company'sCompany’s activities related to senior and mezzanine real estate loans and real estate related securities. The Net Lease segment includes the Company's activities and operations related to the ownership of properties generally leased to single corporate tenants. The Operating Properties segment includes the Company'sCompany’s activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company'sCompany’s activities related to its developable land portfolio.
The Company evaluates performance basedperformance-based on the following financial measures for each segment. The Company'sCompany’s segment information is as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land and |
| Corporate/ |
| Company | ||||||
| | Lease(1) | | Finance | | Properties | | Development | | Other(2) | | Total | ||||||
Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | |
Operating lease income | | $ | — | | $ | — | | $ | 2,974 | | $ | 135 | | $ | — | | $ | 3,109 |
Interest income |
| | 75 |
| | 4,873 |
| | — |
| | — |
| | — |
| | 4,948 |
Interest income from sales-type leases |
| | 356 |
| | — |
| | — |
| | — |
| | — |
| | 356 |
Other income |
| | 4,459 |
| | 11 |
| | 2,661 |
| | 1,317 |
| | 192 |
| | 8,640 |
Land development revenue |
| | — |
| | — |
| | — |
| | 14,900 |
| | — |
| | 14,900 |
Earnings from equity method investments |
| | 17,800 |
| | 1,015 |
| | 45 |
| | 3,566 |
| | 2,606 |
| | 25,032 |
Income from sales of real estate |
| | 492 |
| | — |
| | — |
| | — |
| | — |
| | 492 |
Total revenue and other earnings |
| | 23,182 |
| | 5,899 |
| | 5,680 |
| | 19,918 |
| | 2,798 |
| | 57,477 |
Real estate expense |
| | (177) |
| | — |
| | (5,891) |
| | (4,049) |
| | — |
| | (10,117) |
Land development cost of sales |
| | — |
| | — |
| | — |
| | (14,496) |
| | — |
| | (14,496) |
Other expense |
| | (471) |
| | (119) |
| | — |
| | (82) |
| | (258) |
| | (930) |
Allocated interest expense |
| | (16,215) |
| | (3,140) |
| | (1,341) |
| | (4,243) |
| | (4,304) |
| | (29,243) |
36
Real Estate Finance | Net Lease | Operating Properties | Land and Development | Corporate/Other(1) | Company Total | ||||||||||||||||||
Three Months Ended September 30, 2017: | |||||||||||||||||||||||
Operating lease income | $ | — | $ | 31,503 | $ | 16,048 | $ | 255 | $ | — | $ | 47,806 | |||||||||||
Interest income | 25,442 | — | — | — | — | 25,442 | |||||||||||||||||
Other income | 1,298 | 953 | 14,097 | 1,174 | 3,140 | 20,662 | |||||||||||||||||
Land development revenue | — | — | — | 25,962 | — | 25,962 | |||||||||||||||||
Earnings from equity method investments | — | 1,302 | (399 | ) | 948 | 610 | 2,461 | ||||||||||||||||
Income from sales of real estate | — | 18,765 | 548 | — | — | 19,313 | |||||||||||||||||
Total revenue and other earnings | 26,740 | 52,523 | 30,294 | 28,339 | 3,750 | 141,646 | |||||||||||||||||
Real estate expense | — | (4,423 | ) | (23,185 | ) | (8,672 | ) | — | (36,280 | ) | |||||||||||||
Land development cost of sales | — | — | — | (27,512 | ) | — | (27,512 | ) | |||||||||||||||
Other expense | (261 | ) | — | — | — | (2,443 | ) | (2,704 | ) | ||||||||||||||
Allocated interest expense | (9,165 | ) | (12,255 | ) | (4,860 | ) | (6,529 | ) | (15,923 | ) | (48,732 | ) | |||||||||||
Allocated general and administrative(2) | (3,334 | ) | (4,315 | ) | (1,866 | ) | (3,706 | ) | (4,800 | ) | (18,021 | ) | |||||||||||
Segment profit (loss)(3) | $ | 13,980 | $ | 31,530 | $ | 383 | $ | (18,080 | ) | $ | (19,416 | ) | $ | 8,397 | |||||||||
Other significant items: | |||||||||||||||||||||||
Recovery of loan losses | $ | (2,600 | ) | $ | — | $ | — | $ | — | $ | — | $ | (2,600 | ) | |||||||||
Impairment of assets | — | — | 595 | — | — | 595 | |||||||||||||||||
Depreciation and amortization | — | 6,623 | 4,343 | 546 | 334 | 11,846 | |||||||||||||||||
Capitalized expenditures | — | 2,384 | 7,644 | 33,788 | — | 43,816 | |||||||||||||||||
Three Months Ended September 30, 2016: | |||||||||||||||||||||||
Operating lease income | $ | — | $ | 32,287 | $ | 14,407 | $ | 106 | $ | — | $ | 46,800 | |||||||||||
Interest income | 32,258 | — | — | — | — | 32,258 | |||||||||||||||||
Other income | 1,052 | 412 | 10,793 | 658 | 527 | 13,442 | |||||||||||||||||
Land development revenue | — | — | — | 31,554 | — | 31,554 | |||||||||||||||||
Earnings from equity method investments | — | 723 | 630 | 21,841 | 3,346 | 26,540 | |||||||||||||||||
Income from discontinued operations | — | 3,721 | — | — | — | 3,721 | |||||||||||||||||
Income from sales of real estate | — | 6,629 | 27,815 | — | — | 34,444 | |||||||||||||||||
Total revenue and other earnings | 33,310 | 43,772 | 53,645 | 54,159 | 3,873 | 188,759 | |||||||||||||||||
Real estate expense | — | (4,707 | ) | (21,129 | ) | (9,407 | ) | — | (35,243 | ) | |||||||||||||
Land development cost of sales | — | — | — | (22,004 | ) | — | (22,004 | ) | |||||||||||||||
Other expense | (794 | ) | — | — | — | (25 | ) | (819 | ) | ||||||||||||||
Allocated interest expense | (14,544 | ) | (16,330 | ) | (5,110 | ) | (9,013 | ) | (10,108 | ) | (55,105 | ) | |||||||||||
Allocated general and administrative(2) | (3,995 | ) | (4,526 | ) | (1,502 | ) | (3,495 | ) | (4,714 | ) | (18,232 | ) | |||||||||||
Segment profit (loss)(3) | $ | 13,977 | $ | 18,209 | $ | 25,904 | $ | 10,240 | $ | (10,974 | ) | $ | 57,356 | ||||||||||
Other significant items: | |||||||||||||||||||||||
Recovery of loan losses | $ | (14,955 | ) | $ | — | $ | — | $ | — | $ | — | $ | (14,955 | ) | |||||||||
Impairment of assets | — | 4,829 | 112 | 3,800 | — | 8,741 | |||||||||||||||||
Depreciation and amortization | — | 7,829 | 3,798 | 298 | 276 | 12,201 | |||||||||||||||||
Capitalized expenditures | — | 934 | 15,902 | 25,938 | — | 42,774 | |||||||||||||||||
Real Estate Finance | Net Lease | Operating Properties | Land and Development | Corporate/Other(1) | Company Total | ||||||||||||||||||
Nine Months Ended September 30, 2017: | |||||||||||||||||||||||
Operating lease income | $ | — | $ | 93,606 | $ | 47,977 | $ | 572 | $ | — | $ | 142,155 | |||||||||||
Interest income | 83,145 | — | — | — | — | 83,145 | |||||||||||||||||
Other income | 1,854 | 2,009 | 37,720 | 125,430 | 5,024 | 172,037 | |||||||||||||||||
Land development revenue | — | — | — | 178,722 | — | 178,722 | |||||||||||||||||
Earnings from equity method investments | — | 3,363 | 702 | 8,396 | 1,216 | 13,677 | |||||||||||||||||
Income from discontinued operations | — | 4,939 | — | — | — | 4,939 | |||||||||||||||||
Gain from discontinued operations | — | 123,418 | — | — | — | 123,418 | |||||||||||||||||
Income from sales of real estate | — | 24,977 | 3,290 | — | — | 28,267 | |||||||||||||||||
Total revenue and other earnings | 84,999 | 252,312 | 89,689 | 313,120 | 6,240 | 746,360 | |||||||||||||||||
Real estate expense | — | (13,062 | ) | (67,356 | ) | (26,136 | ) | — | (106,554 | ) | |||||||||||||
Land development cost of sales | — | — | — | (165,888 | ) | — | (165,888 | ) | |||||||||||||||
Other expense | (1,263 | ) | — | — | — | (19,586 | ) | (20,849 | ) | ||||||||||||||
Allocated interest expense | (31,561 | ) | (41,659 | ) | (15,472 | ) | (21,769 | ) | (38,223 | ) | (148,684 | ) | |||||||||||
Allocated general and administrative(2) | (11,621 | ) | (14,878 | ) | (5,985 | ) | (12,636 | ) | (15,497 | ) | (60,617 | ) | |||||||||||
Segment profit (loss)(3) | $ | 40,554 | $ | 182,713 | $ | 876 | $ | 86,691 | $ | (67,066 | ) | $ | 243,768 | ||||||||||
Other significant non-cash items: | |||||||||||||||||||||||
Recovery of loan losses | $ | (8,128 | ) | $ | — | $ | — | $ | — | $ | — | $ | (8,128 | ) | |||||||||
Impairment of assets | — | 219 | 5,009 | 10,064 | — | 15,292 | |||||||||||||||||
Depreciation and amortization | — | 21,662 | 13,305 | 1,337 | 993 | 37,297 | |||||||||||||||||
Capitalized expenditures | — | 4,071 | 24,210 | 90,666 | — | 118,947 | |||||||||||||||||
Nine Months Ended September 30, 2016: | |||||||||||||||||||||||
Operating lease income | $ | — | $ | 95,636 | $ | 51,317 | $ | 317 | $ | — | $ | 147,270 | |||||||||||
Interest income | 99,877 | — | — | — | — | 99,877 | |||||||||||||||||
Other income | 2,672 | 924 | 25,351 | 2,889 | 3,243 | 35,079 | |||||||||||||||||
Land development revenue | — | — | — | 74,389 | — | 74,389 | |||||||||||||||||
Earnings from equity method investments | — | 2,613 | 31,564 | 31,189 | 8,888 | 74,254 | |||||||||||||||||
Income from discontinued operations | — | 10,934 | — | — | — | 10,934 | |||||||||||||||||
Income from sales of real estate | — | 15,896 | 72,491 | — | — | 88,387 | |||||||||||||||||
Total revenue and other earnings | 102,549 | 126,003 | 180,723 | 108,784 | 12,131 | 530,190 | |||||||||||||||||
Real estate expense | — | (13,770 | ) | (63,046 | ) | (27,999 | ) | — | (104,815 | ) | |||||||||||||
Land development cost of sales | — | — | — | (50,842 | ) | — | (50,842 | ) | |||||||||||||||
Other expense | (1,634 | ) | — | — | — | (3,107 | ) | (4,741 | ) | ||||||||||||||
Allocated interest expense | (43,877 | ) | (49,030 | ) | (17,579 | ) | (26,040 | ) | (31,647 | ) | (168,173 | ) | |||||||||||
Allocated general and administrative(2) | (11,612 | ) | (13,135 | ) | (5,010 | ) | (10,092 | ) | (14,940 | ) | (54,789 | ) | |||||||||||
Segment profit (loss)(3) | $ | 45,426 | $ | 50,068 | $ | 95,088 | $ | (6,189 | ) | $ | (37,563 | ) | $ | 146,830 | |||||||||
Other significant non-cash items: | |||||||||||||||||||||||
Recovery of loan losses | $ | (12,749 | ) | $ | — | $ | — | $ | — | $ | — | $ | (12,749 | ) | |||||||||
Impairment of assets | — | 4,829 | 3,124 | 3,800 | — | 11,753 | |||||||||||||||||
Depreciation and amortization | — | 23,857 | 14,103 | 997 | 824 | 39,781 | |||||||||||||||||
Capitalized expenditures | — | 3,410 | 44,145 | 92,212 | — | 139,767 |
Allocated general and administrative(3) |
| | (5,016) |
| | (1,124) |
| | (478) |
| | (2,255) |
| | (4,929) |
| | (13,802) |
Segment profit (loss)(4) | | $ | 1,303 | | $ | 1,516 | | $ | (2,030) | | $ | (5,207) | | $ | (6,693) | | $ | (11,111) |
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Provision for loan losses | | $ | — | | $ | 135 | | $ | — | | $ | — | | $ | — | | $ | 135 |
Provision for losses on net investment in leases | |
| 281 | |
| — | |
| — | |
| — | |
| — | |
| 281 |
Depreciation and amortization | |
| — | |
| — | |
| 986 | |
| 228 | |
| 143 | |
| 1,357 |
Capitalized expenditures | |
| (211) | |
| — | |
| 220 | |
| 4,922 | |
| — | |
| 4,931 |
| | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | |
| | |
| | |
| | |
| | |
| | |
| |
Operating lease income | | $ | — | | $ | — | | $ | 4,837 | | $ | 94 | | $ | — | | $ | 4,931 |
Interest income | |
| 17 | |
| 9,772 | |
| — | |
| — | |
| — | |
| 9,789 |
Interest income from sales-type leases | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other income | |
| 3,476 | |
| 99 | |
| 2,337 | |
| 1,389 | |
| 5,714 | |
| 13,015 |
Land development revenue | |
| — | |
| — | |
| — | |
| 32,249 | |
| — | |
| 32,249 |
Earnings (losses) from equity method investments | |
| 11,412 | |
| 466 | |
| (3,747) | |
| 3,146 | |
| 491 | |
| 11,768 |
Income from sales of real estate | |
| — | |
| — | |
| 612 | |
| — | |
| — | |
| 612 |
Total revenue and other earnings | |
| 14,905 | |
| 10,337 | |
| 4,039 | |
| 36,878 | |
| 6,205 | |
| 72,364 |
Real estate expense | |
| (458) | |
| — | |
| (3,799) | |
| (4,462) | |
| — | |
| (8,719) |
Land development cost of sales | |
| — | |
| — | |
| — | |
| (29,323) | |
| — | |
| (29,323) |
Other expense | |
| — | |
| (64) | |
| — | |
| — | |
| (189) | |
| (253) |
Allocated interest expense | |
| (14,325) | |
| (4,578) | |
| (2,043) | |
| (3,938) | |
| (3,925) | |
| (28,809) |
Allocated general and administrative(3) | |
| (5,937) | |
| (1,459) | |
| (660) | |
| (2,428) | |
| (5,447) | |
| (15,931) |
Segment profit (loss)(4) | | $ | (5,815) | | $ | 4,236 | | $ | (2,463) | | $ | (3,273) | | $ | (3,356) | | $ | (10,671) |
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Recovery of loan losses | | $ | — | | $ | (3,642) | | $ | — | | $ | — | | $ | — | | $ | (3,642) |
Impairment of assets | |
| — | |
| — | |
| 257 | |
| — | |
| — | |
| 257 |
Depreciation and amortization | | | — | | | — | | | 1,988 | | | 218 | | | 195 | | | 2,401 |
Capitalized expenditures | |
| 1,268 | |
| — | |
| 57 | |
| 4,739 | |
| — | |
| 6,064 |
| | | | | | | | | | | | | | | | | | |
As of March 31, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | — | | $ | — | | $ | 91,434 | | $ | — | | $ | — | | $ | 91,434 |
Real estate available and held for sale | |
| — | |
| — | |
| 301 | |
| — | |
| — | |
| 301 |
Total real estate | |
| — | |
| — | |
| 91,735 | |
| — | |
| — | |
| 91,735 |
Real estate and other assets available and held for sale and classified as discontinued operations(1) | | | 226,309 | | | — | | | — | | | — | | | — | | | 226,309 |
Net investment in leases | |
| 28,131 | |
| — | |
| — | |
| — | |
| — | |
| 28,131 |
Land and development, net | |
| — | |
| — | |
| — | |
| 277,421 | |
| — | |
| 277,421 |
Loans receivable and other lending investments, net | |
| — | |
| 331,839 | |
| — | |
| — | |
| — | |
| 331,839 |
Loan receivable held for sale | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other investments | | | 1,453,205 | | | 4,627 | | | 43,251 | | | 190 | | | 24,746 | | | 1,526,019 |
Total portfolio assets | | | 1,707,645 | | | 336,466 | | | 134,986 | | | 277,611 | | | 24,746 | |
| 2,481,454 |
Cash and other assets | | | | | | | | | | | | | | | | |
| 1,602,597 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 4,084,051 |
| | | | | | | | | | | | | | | | | | |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | — | | $ | — | | $ | 92,150 | | $ | — | | $ | — | | $ | 92,150 |
Real estate available and held for sale | |
| — | |
| — | |
| 301 | |
| — | |
| — | |
| 301 |
Total real estate | |
| — | |
| — | |
| 92,451 | |
| — | |
| — | |
| 92,451 |
Real estate and other assets available and held for sale and classified as discontinued operations(1) | | | 2,299,711 | | | — | | | — | | | — | | | — | | | 2,299,711 |
Net investment in leases | |
| 43,215 | |
| — | |
| — | |
| — | |
| — | |
| 43,215 |
Land and development, net | |
| — | |
| — | |
| — | |
| 286,810 | |
| — | |
| 286,810 |
Loans receivable and other lending investments, net | |
| — | |
| 332,844 | |
| — | |
| — | |
| — | |
| 332,844 |
Loan receivable held for sale | | | 43,215 | | | — | | | — | | | — | | | — | | | 43,215 |
Other investments | |
| 1,186,162 | | | 48,862 | | | 43,252 | | | 1,096 | | | 17,909 | |
| 1,297,281 |
Total portfolio assets | | $ | 3,572,303 | | $ | 381,706 | | $ | 135,703 | | $ | 287,906 | | $ | 17,909 | |
| 4,395,527 |
Cash and other assets | |
| | |
|
| |
|
| |
|
| |
|
| | | 445,007 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 4,840,534 |
Real Estate Finance | Net Lease | Operating Properties | Land and Development | Corporate/Other(1) | Company Total | ||||||||||||||||||
As of September 30, 2017 | |||||||||||||||||||||||
Real estate | |||||||||||||||||||||||
Real estate, net | $ | — | $ | 844,493 | $ | 479,369 | $ | — | $ | — | $ | 1,323,862 | |||||||||||
Real estate available and held for sale | — | — | 65,658 | — | — | 65,658 | |||||||||||||||||
Total real estate | — | 844,493 | 545,027 | — | — | 1,389,520 | |||||||||||||||||
Land and development, net | — | — | — | 861,507 | — | 861,507 | |||||||||||||||||
Loans receivable and other lending investments, net | 1,109,442 | — | — | — | — | 1,109,442 | |||||||||||||||||
Other investments | — | 185,176 | 21,828 | 63,308 | 18,725 | 289,037 | |||||||||||||||||
Total portfolio assets | $ | 1,109,442 | $ | 1,029,669 | $ | 566,855 | $ | 924,815 | $ | 18,725 | 3,649,506 | ||||||||||||
Cash and other assets | 2,145,713 | ||||||||||||||||||||||
Total assets | $ | 5,795,219 | |||||||||||||||||||||
As of December 31, 2016 | |||||||||||||||||||||||
Real estate | |||||||||||||||||||||||
Real estate, net | $ | — | $ | 911,112 | $ | 476,162 | $ | — | $ | — | $ | 1,387,274 | |||||||||||
Real estate available and held for sale | — | 155,051 | 82,480 | — | — | 237,531 | |||||||||||||||||
Total real estate | — | 1,066,163 | 558,642 | — | — | 1,624,805 | |||||||||||||||||
Land and development, net | — | — | — | 945,565 | — | 945,565 | |||||||||||||||||
Loans receivable and other lending investments, net | 1,450,439 | — | — | — | — | 1,450,439 | |||||||||||||||||
Other investments | — | 92,669 | 3,583 | 84,804 | 33,350 | 214,406 | |||||||||||||||||
Total portfolio assets | $ | 1,450,439 | $ | 1,158,832 | $ | 562,225 | $ | 1,030,369 | $ | 33,350 | 4,235,215 | ||||||||||||
Cash and other assets | 590,299 | ||||||||||||||||||||||
Total assets | $ | 4,825,514 |
(1) | Refer to Note 3 – Net Lease Sale and Discontinued Operations. |
(2) | 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 |
37
(3) | |
General and administrative excludes stock-based compensation (income) expense of |
(4) | |
The following is a reconciliation of segment profit to net income (loss) ($ in thousands): |
| | | | | | | |
| | For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Segment loss | | $ | (11,111) | | $ | (10,671) | |
Less: (Provision for) recovery of loan losses | |
| (135) | |
| 3,642 | |
Less: Provision for losses on net investment in leases | |
| (281) | |
| 0 | |
Less: Impairment of assets | |
| 0 | |
| (257) | |
Less: Stock-based compensation income (expense) | |
| 12,427 | |
| (5,508) | |
Less: Depreciation and amortization | |
| (1,357) | |
| (2,401) | |
Less: Income tax (expense) benefit | |
| (3) | |
| 698 | |
Less: Loss on early extinguishment of debt, net | |
| (1,428) | |
| 0 | |
Less: Net income from discontinued operations | | | 797,688 | | | 22,486 | |
Net income | | $ | 795,800 | | $ | 7,989 | |
Note 18—Subsequent Events
On April 8, 2022, the Company completed separate, privately-negotiated transactions with holders of $194 million aggregate principal amount of the Company's 3.125% Convertible Notes (refer to Note 10) in which the noteholders exchanged their convertible notes with the Company for 13.75 million newly issued shares of the Company's common stock and aggregate cash payments of $14 million. The 3.125% Convertible Senior Notes received by the Company were retired.
38
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Segment profit | $ | 8,397 | $ | 57,356 | $ | 243,768 | $ | 146,830 | |||||||
Less: Recovery of (provision for) loan losses | 2,600 | 14,955 | 8,128 | 12,749 | |||||||||||
Less: Impairment of assets | (595 | ) | (8,741 | ) | (15,292 | ) | (11,753 | ) | |||||||
Less: Stock-based compensation expense | (2,934 | ) | (1,434 | ) | (12,730 | ) | (7,644 | ) | |||||||
Less: Depreciation and amortization | (11,846 | ) | (12,201 | ) | (37,297 | ) | (39,781 | ) | |||||||
Less: Income tax (expense) benefit | 1,278 | 8,256 | (972 | ) | 9,859 | ||||||||||
Less: Income tax expense from discontinued operations | — | — | (4,545 | ) | — | ||||||||||
Less: Loss on early extinguishment of debt, net | (616 | ) | (36 | ) | (4,142 | ) | (1,618 | ) | |||||||
Net income (loss) | $ | (3,716 | ) | $ | 58,155 | $ | 176,918 | $ | 108,642 |
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). Forward-looking statements are included with respect to, among other things, iStar Inc.'s’s (the "Company's"“Company’s”) current business plan, business strategy, portfolio management, prospects and liquidity. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will“believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be," "will” “will continue," "will” “will likely result,"” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-Q and the uncertainties and risks described in Item 1A—"Risk Factors"Factors’’ in our 20162021 Annual Report, all of which could affect our future results of operations, financial condition and liquidity. For purposes of Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, the terms "we," "our"“we,” “our” and "us"“us” refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise.
The discussion below should be read in conjunction with our consolidated financial statements and related notes in this quarterly report on Form 10-Q and our 20162021 Annual Report. These historical financial statements may not be indicative of our future performance.
Executive Overview
Corporate Strategy. We have reclassifiedcontinue to execute our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio through sales of other assets. In March 2022, we, through certain items insubsidiaries of ours and entities managed by us, sold our consolidated financial statementsportfolio of prior periods to conform to our current financial statements presentation.
The portfolio sold consisted of office, entertainment and industrial properties located in the United States comprising approximately 18.3 million square feet. It included assets wholly-owned by us and assets owned by two joint ventures managed by us and in which we owned 51.9% interests. At the time of the sale, the portfolio was encumbered by an aggregate of $702 million of mortgage indebtedness, including indebtedness of equity method investments. We have invested more than $35 billion overinvestments, which was repaid with proceeds from the past two decadessale. After repayment of the mortgage indebtedness and are structured as a real estate investment trust ("REIT") with a diversified portfolio focused on larger assets located in major metropolitan markets. Our primary business segments are real estate finance, net lease, operating properties and land and development.
Uses | Amount | Sources | Amount | ||||||||
Repay 2016 Senior Secured Credit Facility | $ | 473 | Amended 2016 Senior Secured Credit Facility | $ | 400 | ||||||
Repay 4.0% senior unsecured notes due November 2017(1) | 550 | Issue 4.625% senior unsecured notes due September 2020 | 400 | ||||||||
Repay 7.125% senior unsecured notes due February 2018(1) | 300 | Issue 5.25% senior unsecured notes due September 2022 | 400 | ||||||||
Repay 4.875% senior unsecured notes due July 2018(1) | 300 | Issue 3.125% senior unsecured convertible notes due September 2022 | 250 | ||||||||
Redeem 7.875% series E preferred stock(2) | 140 | Cash | 510 | ||||||||
Redeem 7.8% series F preferred stock(2) | 100 | ||||||||||
Repurchase common stock | 46 | ||||||||||
Fees, expenses, interest and dividends | 51 | ||||||||||
Total uses | $ | 1,960 | Total sources | $ | 1,960 |
39
Portfolio Overview
As of September 30, 2017, we owned 34.6% of SAFE and our investment had a market value of $117.4 million. In addition, one of our wholly-owned subsidiaries is the external manager of SAFE, our Chairman and Chief Executive Officer is a director and the Chairman and Chief Executive Officer of SAFE and our other executive officers hold similarly titled positions with SAFE.
| | | | | | | | | | | | | | | | | | | | | |
Property/Collateral |
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||
Types | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| ||||||
Ground Leases | | $ | 1,481,337 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,481,337 |
| 65.7 | % |
Land and Development | |
| — | |
| 11,607 | |
| — | |
| 223,191 | |
| — | |
| 234,798 |
| 10.4 | % |
Hotel | |
| — | |
| 108,362 | |
| 67,712 | |
| — | |
| — | |
| 176,074 |
| 7.8 | % |
Multifamily | |
| — | |
| 72,151 | |
| 38,837 | |
| — | |
| — | |
| 110,988 |
| 4.9 | % |
Retail | |
| — | |
| 61,807 | |
| 13,600 | |
| 8,340 | |
| — | |
| 83,747 |
| 3.7 | % |
Condominium | |
| — | |
| 11,092 | |
| 301 | |
| 46,080 | |
| — | |
| 57,473 |
| 2.5 | % |
Office | | | — | | | 46,583 | | | — | | | — | | | — | | | 46,583 |
| 2.1 | % |
Entertainment / Leisure | | | — | |
| — | |
| 14,534 | |
| — | |
| — | |
| 14,534 |
| 0.6 | % |
Other Property Types | |
| — | |
| 24,863 | |
| — | |
| — | |
| 24,747 | |
| 49,610 |
| 2.2 | % |
Total | | $ | 1,481,337 | | $ | 336,465 | | $ | 134,984 | | $ | 277,611 | | $ | 24,747 | | $ | 2,255,144 |
| 100.0 | % |
Percentage of Total | | | 66% | | | 15% | | | 6% | | | 12% | | | <1% | | | 100% | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||
Geographic Region | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| ||||||
Northeast | | $ | 567,442 | | $ | 91,039 | | $ | 77,831 | | $ | 173,058 | | $ | — | | $ | 909,370 |
| 40.3 | % |
West | |
| 359,451 | |
| 108,463 | |
| 32,374 | |
| 8,970 | |
| — | |
| 509,258 |
| 22.6 | % |
Mid-Atlantic | |
| 217,016 | |
| — | |
| 4,841 | |
| 95,393 | |
| — | |
| 317,250 |
| 14.1 | % |
Southeast | |
| 154,800 | |
| 29,868 | |
| 4,414 | |
| 190 | |
| — | |
| 189,272 |
| 8.4 | % |
Southwest | |
| 140,891 | |
| — | |
| — | |
| — | |
| — | |
| 140,891 |
| 6.2 | % |
Central | |
| 41,737 | |
| 11,092 | |
| 15,524 | |
| — | |
| — | |
| 68,353 |
| 3.0 | % |
Various | |
| — | |
| 96,003 | |
| — | |
| — | |
| 24,747 | |
| 120,750 |
| 5.4 | % |
Total | | $ | 1,481,337 | | $ | 336,465 | | $ | 134,984 | | $ | 277,611 | | $ | 24,747 | | $ | 2,255,144 |
| 100.0 | % |
Net Lease
Prior to the Net Lease Sale, our net lease business created stable cash flows through long-term net leases primarily to single tenants on our properties. We targeted mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combined our capabilities in underwriting, lease structuring, asset management and build-to-suit construction. Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis. Under a typical net lease agreement, the tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including taxes, utilities, maintenance and insurance).
After the Net Lease Sale, the net lease segment includes our Ground Lease investments made primarily through SAFE and our Ground Lease adjacent businesses.
40
As of March 31, 2022, our net lease portfolio consisted primarily of our equity method investments in SAFE and the Ground Lease Plus Fund. The table below provides certain statistics for our net lease portfolio.
| | | | | | | | | | |
| | Wholly- | | SAFE | | Ground Lease |
| |||
Ownership % | | | 100.0 | % | | 64.7 | % | | 53.0 | % |
Book value (millions)(1) | | $ | 28 | | $ | 1,389 | | $ | 65 | |
| | | | | | | | | | |
% Leased | |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Weighted average lease term (years)(2) | |
| 98.9 | |
| 90.9 | |
| 105.0 | |
Weighted average yield(3) | |
| 5.2 | % |
| 4.9 | % |
| 5.7 | % |
Property/Collateral Types | Real Estate Finance | Net Lease | Operating Properties | Land & Development | Total | % of Total | |||||||||||||||||
Land and Development | $ | — | $ | — | $ | — | $ | 932,639 | $ | 932,639 | 22.9 | % | |||||||||||
Office / Industrial | 46,157 | 719,364 | 122,868 | — | 888,389 | 21.8 | % | ||||||||||||||||
Entertainment / Leisure | — | 484,117 | — | — | 484,117 | 11.9 | % | ||||||||||||||||
Mixed Use / Mixed Collateral | 260,424 | — | 186,542 | — | 446,966 | 11.0 | % | ||||||||||||||||
Hotel | 332,514 | — | 103,424 | — | 435,938 | 10.7 | % | ||||||||||||||||
Condominium | 263,721 | — | 65,674 | — | 329,395 | 7.9 | % | ||||||||||||||||
Retail | 26,029 | 57,348 | 136,859 | — | 220,236 | 5.4 | % | ||||||||||||||||
Other Property Types | 195,797 | — | 8,761 | — | 204,558 | 5.0 | % | ||||||||||||||||
Ground Leases(1) | — | 117,448 | — | — | 117,448 | 2.9 | % | ||||||||||||||||
Strategic Investments | — | — | — | — | 18,725 | 0.5 | % | ||||||||||||||||
Total | $ | 1,124,642 | $ | 1,378,277 | $ | 624,128 | $ | 932,639 | $ | 4,078,411 | 100.0 | % |
Geographic Region | Real Estate Finance | Net Lease | Operating Properties | Land & Development | Total | % of Total | |||||||||||||||||
Northeast | $ | 502,904 | $ | 401,384 | $ | 47,257 | $ | 260,867 | $ | 1,212,412 | 29.7 | % | |||||||||||
West | 63,971 | 296,348 | 51,772 | 368,088 | 780,179 | 19.1 | % | ||||||||||||||||
Southeast | 180,265 | 252,787 | 148,881 | 121,103 | 703,036 | 17.2 | % | ||||||||||||||||
Southwest | 79,341 | 161,341 | 244,544 | 22,412 | 507,638 | 12.4 | % | ||||||||||||||||
Central | 204,068 | 79,392 | 76,962 | 31,500 | 391,922 | 9.6 | % | ||||||||||||||||
Mid-Atlantic | — | 153,092 | 44,572 | 128,669 | 326,333 | 8.0 | % | ||||||||||||||||
Various(2) | 94,093 | 33,933 | 10,140 | — | 138,166 | 3.5 | % | ||||||||||||||||
Strategic Investments(2) | — | — | — | — | 18,725 | 0.5 | % | ||||||||||||||||
Total | $ | 1,124,642 | $ | 1,378,277 | $ | 624,128 | $ | 932,639 | $ | 4,078,411 | 100.0 | % |
(1) |
(2) | Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options. SAFE includes its pro rata share of its unconsolidated equity method investments. |
(3) | Yield for SAFE is calculated over the trailing twelve months and excludes dilution gains (refer to Note 8 to the consolidated financial statements) and management fees earned by us. |
SAFE—SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted returns from its investments. We believe its business has characteristics comparable to a high-grade fixed income investment business, but with certain unique advantages. Relative to alternative fixed income investments generally, SAFE’s Ground Leases typically benefit from built-in growth derived from contractual rent escalators that may compound over the duration of the lease. These rent escalators may be based on fixed increases, a CPI lookback or a combination thereof, and may also include a participation in the various category include $9.0 milliongross revenues of international assets.
We account for our investment in SAFE as an equity method investment (refer to Note 8 to the consolidated financial statements). We act as SAFE’s external manager pursuant to a management agreement, and we have an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.
Ground Lease Plus Fund—The Company formed and manages an investment fund that targets the origination and acquisition of Ground Leases for commercial real estate projects that are in a pre-development phase (the “Ground Lease Plus Fund”). We own a 53% noncontrolling interest in the Ground Lease Plus Fund. We do not have a controlling interest in the Ground Lease Plus Fund due to the substantive participating rights of our partner and account for this investment as an equity method investment. In addition, the Ground Lease Plus Fund has first look rights on qualifying pre-development projects through December 2023.
Real Estate Finance
Our real estate finance business targets sophisticated and innovative owner/operators of real estate and real estate related projects by providing one-stop capabilities that encompass financing alternatives ranging from full envelope senior loans to mezzanine and preferred equity capital positions. AsOur real estate finance portfolio consists of September 30, 2017,leasehold loans to Ground Lease tenants, including tenants of SAFE, senior mortgage loans that are secured by commercial and residential real estate assets where we are the first lien holder, subordinated mortgage loans that are secured by second lien or junior interests in commercial and residential real estate assets, and corporate/partnership loans, which represent mezzanine or subordinated loans to entities for which we do not have a lien on the underlying asset, but may have a pledge of underlying equity ownership of such assets. Our real estate finance portfolio includes Ground Leases, loans on stabilized and
41
transitional properties and ground-up construction projects. In addition, we also own loans through equity method investments and have preferred equity investments and debt securities classified as other lending investments.
The tables below shows certain statistics for our real estate finance portfolio including securities, totaled $1.1 billion, gross of general loan loss reserves. The portfolio included $860.3 million of performing loans with a weighted average maturity of 1.4 years.
| | | | | | | | | | | | | | | | |
|
| March 31, 2022 |
| |||||||||||||
|
| |
| | |
| | |
| | |
| |
| Allowance for |
|
| | | | Gross | | Allowance | | | | | | | Loan Losses as |
| ||
| | Number | | Book | | for Loan | | Net Book | | % of | | a % of Gross |
| |||
|
| of Loans |
| Value |
| Losses |
| Value |
| Total | | Book Value | | |||
Performing loans(1) | | 7 | | $ | 153,846 | | $ | (1,925) | | $ | 151,921 |
| 45.8% | | 1.3% | |
Non-performing loans | | 1 | |
| 59,642 | |
| (591) | |
| 59,051 |
| 17.8% | | 1.0% | |
Other lending investments | | 2 | |
| 123,283 | |
| (2,416) | |
| 120,867 |
| 36.4% | | 2.0% | |
Total | | 10 | | $ | 336,771 | | $ | (4,932) | | $ | 331,839 |
| 100.0% | | 1.5% | |
September 30, 2017 | ||||||||||||||||||
Number of Loans | Gross Carrying Value | Reserve for Loan Losses | Carrying Value | % of Total | Reserve for Loan Losses as a % of Gross Carrying Value | |||||||||||||
Performing loans | 35 | $ | 860,327 | $ | (15,200 | ) | $ | 845,127 | 82.7% | 1.8% | ||||||||
Non-performing loans | 5 | 238,155 | (60,989 | ) | 177,166 | 17.3% | 25.6% | |||||||||||
Total | 40 | $ | 1,098,482 | $ | (76,189 | ) | $ | 1,022,293 | 100.0% | 6.9% | ||||||||
December 31, 2016 | ||||||||||||||||||
Number of Loans | Gross Carrying Value | Reserve for Loan Losses | Carrying Value | % of Total | Reserve for Loan Losses as a % of Gross Carrying Value | |||||||||||||
Performing loans | 35 | $ | 1,202,127 | $ | (23,300 | ) | $ | 1,178,827 | 86.0% | 1.9% | ||||||||
Non-performing loans | 6 | 253,941 | (62,245 | ) | 191,696 | 14.0% | 24.5% | |||||||||||
Total | 41 | $ | 1,456,068 | $ | (85,545 | ) | $ | 1,370,523 | 100.0% | 5.9% |
(1) | As of March 31, 2022, our performing loans had a weighted average maturity of 3.3 years and, excluding one performing loan with a maturity of September 2057, had a weighted average maturity of 0.4 years. |
| | | | | | | | | | | | | | | | |
|
| December 31, 2021 |
| |||||||||||||
|
| |
| | |
| | |
| | |
| |
| Allowance for |
|
| | | | Gross | | Allowance | | | | | | | Loan Losses as |
| ||
| | Number | | Book | | for Loan | | Net Book | | % of | | a % of Gross |
| |||
| | of Loans | | Value | | Losses | | Value | | Total |
| Book Value | | |||
Performing loans | | 8 | | $ | 153,043 | | $ | (1,888) | | $ | 151,155 |
| 45.4% | | 1.2% | |
Non-performing loans | | 1 | |
| 59,640 | |
| (576) | |
| 59,064 |
| 17.7% | | 1.0% | |
Other lending investments | | 2 | |
| 124,930 | |
| (2,305) | |
| 122,625 |
| 36.8% | | 1.8% | |
Total | | 11 | | $ | 337,613 | | $ | (4,769) | | $ | 332,844 |
| 100.0% | | 1.4% | |
Performing Loans
—The table below summarizes our performing loans | | | | | | | |
|
| March 31, 2022 |
| December 31, 2021 |
| ||
Senior mortgages | | $ | 141,176 | | $ | 139,968 | |
Corporate/Partnership loans | |
| — | |
| 618 | |
Subordinate mortgages | |
| 12,670 | |
| 12,457 | |
Total | | $ | 153,846 | | $ | 153,043 | |
| | | | | | | |
Weighted average LTV | |
| 61% | |
| 60% | |
Yield - year to date(1) | |
| 7.1% | |
| 7.5% | |
(1) | Yields presented are for the three months ended March 31, 2022 and 2021 and represent the yields on performing loans and other lending investments. |
September 30, 2017 | December 31, 2016 | ||||||
Senior mortgages | $ | 512,349 | $ | 854,805 | |||
Corporate/Partnership loans | 338,643 | 333,244 | |||||
Subordinate mortgages | 9,335 | 14,078 | |||||
Total | $ | 860,327 | $ | 1,202,127 | |||
Weighted average LTV | 61 | % | 64 | % | |||
Yield | 10.1 | % | 8.9 | % |
Non-Performing Loans
—We designate loans as non-performing at such time as: (1)Allowance for Loan Losses
—The42
The reserveallowance for loan losses includes an asset-specific component and a formula-based component. An asset-specific reserveallowance is established for an impaired loan when the estimated fair value of the loan'sloan’s collateral less costs to sell is lower than the carrying value of the loan. As of September 30, 2017, asset-specific reserves decreased to $61.0 million compared to $62.2 million as ofMarch 31, 2022 and December 31, 2016.
We estimate loss ratesthe formula-based component based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market. In addition, we use third-party market when establishing appropriate time framesdata that includes forecasted economic trends, including unemployment rates.
The Expected Loss increased to evaluate loss experience.
Operating Properties
Our operating properties represent a pool of assets across a broad range of geographies and a decrease in sizeproperty types including hotel, multifamily, retail, condominium and entertainment/leisure properties. As of March 31, 2022, the book value of our loan portfolio.
Consolidated Real Estate | SAFE | Net Lease Venture | ||||||||||
Ownership % | 100.0 | % | 34.6 | % | 51.9 | % | ||||||
Net book value (millions) | $ | 844 | $ | 492 | $ | 575 | ||||||
Accumulated depreciation (millions) | 306 | 5 | 43 | |||||||||
Gross carrying value (millions) | $ | 1,150 | $ | 497 | $ | 618 | ||||||
Occupancy | 97.9 | % | 100.0 | % | 100.0 | % | ||||||
Square footage (thousands) | 11,486 | 3,849 | 4,005 | |||||||||
Weighted average lease term (years) | 11.0 | 66.5 | 14.3 | |||||||||
Weighted average yield | 8.9 | % | 3.2 | % | 8.5 | % |
Commercial Operating Property Statistics | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Stabilized Operating(1) | Transitional Operating(1) | Total | ||||||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | |||||||||||||||
Gross book value ($mm)(2) | $ | 401 | $ | 337 | $ | 157 | $ | 189 | $ | 558 | $ | 526 | ||||||||
Occupancy(3) | 86 | % | 86 | % | 56 | % | 54 | % | 77 | % | 74 | % | ||||||||
Yield | 9.1 | % | 8.5 | % | 1.5 | % | 1.5 | % | 7.2 | % | 5.5 | % |
Residential Operating Property Statistics | |||||||
($ in millions) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Condominium units sold | 16 | 80 | |||||
Proceeds | $ | 21.4 | $ | 73.3 | |||
Income from sales of real estate | $ | 3.3 | $ | 23.3 |
The following table presents a land and development portfolio gross of accumulated depreciation and inclu
| | | | | | | | | | | | |
| | Land and Development Portfolio Rollforward | ||||||||||
| | (in millions) | ||||||||||
|
| Asbury Ocean |
| | |
| | |
| | | |
| | Club and | | | | | | | | | | |
| | Asbury Park | | Magnolia | | All | | Total | ||||
| | Waterfront | | Green | | Others | | Segment | ||||
Beginning balance(1) | | $ | 137.8 | | $ | 95.8 | | $ | 53.2 | | $ | 286.8 |
Asset sales(2) | |
| (9.7) | |
| (3.4) | |
| (0.5) | |
| (13.6) |
Capital expenditures | |
| 1.4 | |
| 3.5 | |
| — | |
| 4.9 |
Other | |
| — | |
| (0.6) | |
| (0.1) | |
| (0.7) |
Ending balance(1) | | $ | 129.5 | | $ | 95.3 | | $ | 52.6 | | $ | 277.4 |
(1) | As of March 31, 2022, and December 31, 2021, Total Segment excludes $0.2 million and $1.1 million, respectively, of equity method investments. |
(2) | Represents gross book value of the assets sold, rather than proceeds received. |
Land and Development Portfolio Rollforward | |||||||
(in millions) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Beginning balance(1) | $ | 945.6 | $ | 1,002.0 | |||
Asset sales(2) | (160.4 | ) | (40.0 | ) | |||
Asset transfers in (out)(3) | — | (25.4 | ) | ||||
Capital expenditures | 91.7 | 92.2 | |||||
Other | (15.4 | ) | (6.7 | ) | |||
Ending balance(1) | $ | 861.5 | $ | 1,022.1 |
43
Land and Development Statistics | |||||||
(in millions) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Land development revenue | $ | 178.7 | $ | 74.4 | |||
Land development cost of sales | 165.9 | 50.8 | |||||
Gross margin | $ | 12.8 | $ | 23.6 | |||
Earnings from land development equity method investments | 8.4 | 31.2 | |||||
Total | $ | 21.2 | $ | 54.8 |
Results of Operations for the Three Months Ended September 30, 2017March 31, 2022 compared to the Three Months Ended September 30, 2016
For the Three Months Ended September 30, | ||||||||||||||
2017 | 2016 | $ Change | % Change | |||||||||||
(in thousands) | ||||||||||||||
Operating lease income | $ | 47,806 | $ | 46,800 | $ | 1,006 | 2 | % | ||||||
Interest income | 25,442 | 32,258 | (6,816 | ) | (21 | )% | ||||||||
Other income | 20,662 | 13,442 | 7,220 | 54 | % | |||||||||
Land development revenue | 25,962 | 31,554 | (5,592 | ) | (18 | )% | ||||||||
Total revenue | 119,872 | 124,054 | (4,182 | ) | (3 | )% | ||||||||
Interest expense | 48,732 | 55,105 | (6,373 | ) | (12 | )% | ||||||||
Real estate expense | 36,280 | 35,243 | 1,037 | 3 | % | |||||||||
Land development cost of sales | 27,512 | 22,004 | 5,508 | 25 | % | |||||||||
Depreciation and amortization | 11,846 | 12,201 | (355 | ) | (3 | )% | ||||||||
General and administrative | 20,955 | 19,666 | 1,289 | 7 | % | |||||||||
(Recovery of) provision for loan losses | (2,600 | ) | (14,955 | ) | 12,355 | (83 | )% | |||||||
Impairment of assets | 595 | 8,741 | (8,146 | ) | (93 | )% | ||||||||
Other expense | 2,704 | 819 | 1,885 | >100% | ||||||||||
Total costs and expenses | 146,024 | 138,824 | 7,200 | 5 | % | |||||||||
Loss on early extinguishment of debt, net | (616 | ) | (36 | ) | (580 | ) | >100% | |||||||
Earnings from equity method investments | 2,461 | 26,540 | (24,079 | ) | (91 | )% | ||||||||
Income tax (expense) benefit | 1,278 | 8,256 | (6,978 | ) | (85 | )% | ||||||||
Income from discontinued operations | — | 3,721 | (3,721 | ) | (100 | )% | ||||||||
Income from sales of real estate | 19,313 | 34,444 | (15,131 | ) | (44 | )% | ||||||||
Net (loss) income | $ | (3,716 | ) | $ | 58,155 | $ | (61,871 | ) | >(100%) |
| | | | | | | | | | |
|
| For the Three Months Ended | | | | | ||||
| | March 31, | | | | | ||||
|
| 2022 |
| 2021 |
| $ Change | | |||
| | (in thousands) | | |||||||
Operating lease income | | $ | 3,109 | | $ | 4,931 | | $ | (1,822) | |
Interest income | |
| 4,948 | |
| 9,789 | |
| (4,841) | |
Interest income from sales-type leases | |
| 356 | |
| — | |
| 356 | |
Other income | |
| 8,640 | |
| 13,015 | |
| (4,375) | |
Land development revenue | |
| 14,900 | |
| 32,249 | |
| (17,349) | |
Total revenue | |
| 31,953 | |
| 59,984 | |
| (28,031) | |
Interest expense | |
| 29,243 | |
| 28,809 | |
| 434 | |
Real estate expense | |
| 10,117 | |
| 8,719 | |
| 1,398 | |
Land development cost of sales | |
| 14,496 | |
| 29,323 | |
| (14,827) | |
Depreciation and amortization | |
| 1,357 | |
| 2,401 | |
| (1,044) | |
General and administrative | |
| 1,375 | |
| 21,439 | |
| (20,064) | |
Provision for (recovery of) loan losses | |
| 135 | |
| (3,642) | |
| 3,777 | |
Provision for losses on net investment in leases | |
| 281 | |
| — | |
| 281 | |
Impairment of assets | |
| — | |
| 257 | |
| (257) | |
Other expense | |
| 930 | |
| 253 | |
| 677 | |
Total costs and expenses | |
| 57,934 | |
| 87,559 | |
| (29,625) | |
Income from sales of real estate | |
| 492 | |
| 612 | |
| (120) | |
Loss on early extinguishment of debt, net | |
| (1,428) | |
| — | |
| (1,428) | |
Earnings from equity method investments | |
| 25,032 | |
| 11,768 | |
| 13,264 | |
Income tax (expense) benefit | |
| (3) | |
| 698 | |
| (701) | |
Net income from discontinued operations | | | 797,688 | |
| 22,486 | | | 775,202 | |
Net income | | $ | 795,800 | | $ | 7,989 | | $ | 787,811 | |
Revenue
—Operating lease income, which primarily includes income fromInterest income from net lease assets decreased to $31.5$4.9 million during the three months ended September 30, 2017March 31, 2022 from $32.3$9.8 million for the same period in 2016. The decrease was due to the sale of net lease assets since October 1, 2016. Operating lease income from same store net lease assets, defined as net lease assets we owned on or prior to July 1, 2016 and were in service through September 30, 2017, increased to $31.4 million during the three months ended September 30, 2017 and $30.1 million during the three months ended September 30, 2016. The increase was primarily due to an increase in rent per occupied square foot, which was $11.18 for the three months ended September 30, 2017 and $10.59 for the same period in 2016, and was partially offset by a decrease in the occupancy rate, which was 97.9% as of September 30, 2017 and 98.8% as of September 30, 2016.
Interest income from 9.1%sales-type leases was $0.4 million for the same period in 2016.
Other income increaseddecreased to $20.7$8.6 million during the three months ended September 30, 2017March 31, 2022 from $13.4$13.0 million for the same period in 2016.2021. Other income during the three months ended September 30, 2017March 31, 2022 consisted primarily of income from our hotel properties, other ancillary income from our operating properties and interest income on our cash. Other income during the three months ended September 30, 2016 consisted of primarily of management fees, income from our hotel properties and other ancillary income from our land and development projects and operating properties. The increase inOther income during the three months ended March 31, 2021 consisted primarily of a mark-to-market gain on an equity investment, management fees, other ancillary income in 2017 from 2016 was due primarily to an increase inour land and development projects and loan portfolio, income atfrom our hotel properties, lease termination fees and an increase in interest income earned on our cash.
Land development revenue and cost of sales
—During the three months ended44
Costs and expenses
—Interest expenseReal estate expensesexpense increased to $36.3$10.1 million during the three months ended September 30, 2017March 31, 2022 from $35.2$8.7 million for the same period in 2016.2021. The increase was primarily due primarily to an increase in expenses at commercialcertain of our hotel operating properties that have increased operations from the prior year, which increased to $21.6 million in 2017 from $18.9 million in 2016, primarily resulting from an increase in costs at our hotel properties and losses incurred at properties impacted by the recent hurricanes that hit the United States. This increase was partially offset by a decrease in carry costsasset sales.
Depreciation and other expenses on our land assets, whichamortization decreased to $8.7$1.4 million during the three months ended September 30, 2017March 31, 2022 from $9.4$2.4 million for the same period in 2016. Expenses for net lease assets2021.
General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. General and administrative expenses decreased to $4.4$1.4 million during the three months ended September 30, 2017March 31, 2022 from $4.7$21.4 million for the same period in 2016. Expenses from same store net lease assets2021. The decrease in 2022 was $4.3due primarily to a $19.3 million decrease in performance-based compensation. Our primary forms of performance-based compensation are our iPIP Plans and $3.7 million, respectively,our annual bonus pool (refer to Note 14 to the consolidated financial statements for more information on the three months ended September 30, 2017 and 2016. Expenses from same store commercial operating properties, excluding hotels and marinas,iPIP Plans). In addition, illustrative examples of our iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.
The provision for loan losses was $7.5 million and $7.6$0.1 million for the three months ended September 30, 2017 and 2016, respectively. Expenses associated with residential operating properties decreasedMarch 31, 2022 as compared to $1.6 million during the three months ended September 30, 2017 from $2.2a recovery of loan losses of $3.6 million for the same period in 2016 due to the sale of residential units since September 30, 2016.
The provision for losses on net investment in the risk ratings of our loan portfolio. The net recovery of loan lossesleases for the three months ended September 30, 2016 included recoveries of specific reserves of $11.7 million and a reduction inMarch 31, 2022 resulted from the general reserve of $15.8 million, partially offset by a provisionmacroeconomic forecast on one non-performing loan of $12.5 million.
Other expense was $0.6$0.9 million during the three months ended September 30, 2017March 31, 2022 and resulted from the sale of an outparcel of land located at a commercial operating property. During the three months ended September 30, 2016, we recorded an aggregate impairment of $8.7 million from the sale of net lease assets and a change in business strategy on one land asset.
Income from sales of real estate—During the resultthree months ended March 31, 2022, we recorded $0.5 million of costs incurred in connection withincome from sales of real estate primarily from the repricingsale of our 2016 Senior Secured Credit Facility (refer to Note 10).
Loss on early extinguishment of debt, net—
During the three months endedEarnings from equity method investments
—Earnings from equity method investmentsIncome tax (expense) benefit
—Net income from a taxable loss incurred anddiscontinued operations—In March 2022, we closed on the deduction for dividends paid to preferred shareholders (refer to Note 13). The income tax benefit forsale of the three months ended September 30, 2016 primarily related to taxable losses generated by sales of certain taxable REIT subsidiary ("TRS") properties.
45
For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | $ Change | % Change | |||||||||||
(in thousands) | ||||||||||||||
Operating lease income | $ | 142,155 | $ | 147,270 | $ | (5,115 | ) | (3 | )% | |||||
Interest income | 83,145 | 99,877 | (16,732 | ) | (17 | )% | ||||||||
Other income | 172,037 | 35,079 | 136,958 | >100% | ||||||||||
Land development revenue | 178,722 | 74,389 | 104,333 | >100% | ||||||||||
Total revenue | 576,059 | 356,615 | 219,444 | 62 | % | |||||||||
Interest expense | 148,684 | 168,173 | (19,489 | ) | (12 | )% | ||||||||
Real estate expense | 106,554 | 104,815 | 1,739 | 2 | % | |||||||||
Land development cost of sales | 165,888 | 50,842 | 115,046 | >100% | ||||||||||
Depreciation and amortization | 37,297 | 39,781 | (2,484 | ) | (6 | )% | ||||||||
General and administrative | 73,347 | 62,433 | 10,914 | 17 | % | |||||||||
(Recovery of) provision for loan losses | (8,128 | ) | (12,749 | ) | 4,621 | (36 | )% | |||||||
Impairment of assets | 15,292 | 11,753 | 3,539 | 30 | % | |||||||||
Other expense | 20,849 | 4,741 | 16,108 | >100% | ||||||||||
Total costs and expenses | 559,783 | 429,789 | 129,994 | 30 | % | |||||||||
Loss on early extinguishment of debt, net | (4,142 | ) | (1,618 | ) | (2,524 | ) | >100% | |||||||
Earnings from equity method investments | 13,677 | 74,254 | (60,577 | ) | (82 | )% | ||||||||
Income tax (expense) benefit | (972 | ) | 9,859 | (10,831 | ) | >(100%) | ||||||||
Income from discontinued operations | 4,939 | 10,934 | (5,995 | ) | (55 | )% | ||||||||
Gain from discontinued operations | 123,418 | — | 123,418 | 100 | % | |||||||||
Income tax expense from discontinued operations | (4,545 | ) | — | (4,545 | ) | (100 | )% | |||||||
Income from sales of real estate | 28,267 | 88,387 | (60,120 | ) | (68 | )% | ||||||||
Net income | $ | 176,918 | $ | 108,642 | $ | 68,276 | 63 | % |
associated with our performing loans, which decreased to $1.15 billion in 2017 from $1.44 billion in 2016. The weighted average yield on our performing loans increased to 9.6% for the nine months ended September 30, 2017 from 8.9% for the same period in 2016.
Adjusted Earnings
In 2019, we announced a an increase in compensation expense related to performance incentive plans.
Adjusted incomeearnings is used internally as a supplemental performance measure adjusting for certain non-cash GAAP measuresitems to give management a view of income more directly derived from currentoperating activities in the period activity.in which they occur. Adjusted incomeearnings is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision for (recovery of) loan losses, impairmentincluding our proportionate share of assets,depreciation and amortization from equity method investments and excluding depreciation and amortization allocable to noncontrolling interests, stock-based compensation expense, the non-cash portion of gain (loss)loss on early extinguishment of debt and is adjusted for the effect of gains or losses on charge-offs and dispositions on carrying value gross of loan loss reserves and impairments ("Adjusted Income"). In the third quarter 2017, we modified our presentation of Adjusted Income to exclude the effect of the amount of the liquidation preference that was recorded as a premium above book value on the redemption of preferred stock (refer to Note 13) and the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes (refer to Note 10).
Adjusted Earnings should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted IncomeEarnings should not be considered as an alternative to net income (loss) (determined in accordance with GAAP)generally accepted accounting principles in the United States of America (“GAAP”)), or to cash flows from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is Adjusted IncomeEarnings indicative of funds available to fund our cash needs or available for distribution to shareholders. Rather, Adjusted IncomeEarnings is an additional measure we use to analyze our business performance because it excludes the effects of certain non-cash charges that we believe are not necessarily indicative of our operating performance while including the effect of gains or losses on investments when realized.performance. It should be noted that our manner of calculating Adjusted IncomeEarnings may differ from the calculations of similarly-titled measures by other companies.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in thousands) | ||||||||||||||||
Adjusted Income | ||||||||||||||||
Net income (loss) allocable to common shareholders | $ | (34,530 | ) | $ | 46,292 | $ | 115,834 | $ | 63,210 | |||||||
Add: Depreciation and amortization(1) | 14,765 | 15,598 | 45,438 | 50,107 | ||||||||||||
Add: (Recovery of) provision for loan losses | (2,600 | ) | (14,955 | ) | (8,128 | ) | (12,749 | ) | ||||||||
Add: Impairment of assets(2) | 595 | 8,741 | 15,292 | 12,668 | ||||||||||||
Add: Stock-based compensation expense | 2,934 | 1,434 | 12,730 | 7,644 | ||||||||||||
Add: Loss on early extinguishment of debt, net | 616 | 36 | 1,392 | 1,618 | ||||||||||||
Add: Non-cash interest expense on senior convertible notes | 110 | — | — | 110 | — | |||||||||||
Add: Premium on redemption of preferred stock | 16,314 | — | 16,314 | — | ||||||||||||
Less: Losses on charge-offs and dispositions(3) | (1,779 | ) | (8,039 | ) | (15,906 | ) | (12,602 | ) | ||||||||
Less: Participating Security allocation | — | — | — | (21 | ) | |||||||||||
Adjusted income (loss) allocable to common shareholders | $ | (3,575 | ) | $ | 49,107 | $ | 183,076 | $ | 109,875 |
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
| | (in thousands) | | ||||
Adjusted Earnings | | |
|
| |
| |
Net income (loss) allocable to common shareholders | | $ | 610,855 | | $ | (405) | |
Add: Depreciation and amortization | |
| 4,002 | |
| 17,629 | |
Add: Stock-based compensation (income) expense | |
| (12,427) | |
| 5,508 | |
Add: Non-cash portion of loss on early extinguishment of debt | |
| 5,109 | |
| — | |
Adjusted earnings allocable to common shareholders | | $ | 607,539 | | $ | 22,732 | |
During the three months ended September 30, 2017,March 31, 2022, we received net proceeds from the Net Lease Sale of approximately $1.2 billion. We invested $140.4an aggregate $247 million associated within new investments, prior financing commitments as well as ongoing development during the quarter. Total investmentsand real estate development. Investments included $57.9$231 million in lendingour Ground Lease businesses (including $202 million in shares of SAFE common stock) and other investments, $34.5 million to develop our land and development assets and $48.0$16 million of loan fundings and capital to reposition or redevelop our operating propertiesexpenditures on legacy and invest in net leasestrategic assets. Also during the three months ended September 30, 2017, we generated $247.0 million of proceeds from loan repayments and asset sales within our portfolio, comprised of $137.7 million from real estate finance, $7.3 million from operating properties, $61.4 million from net lease assets, $32.1 million from land and development assets and $8.5 million from other investments. These amounts are inclusive of fundings and proceeds from bothour consolidated investments and our pro rata share from equity method investments.
46
The following table outlines our capital expenditures on real estateoperating properties, net lease and land and development assets as reflected in our consolidated statements of cash flows for the three months ended March 31, 2022 and 2021, by segment ($ in thousands):
For the Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Operating Properties | $ | 22,308 | $ | 33,367 | |||
Net Lease | 2,583 | 2,307 | |||||
Total capital expenditures on real estate assets | $ | 24,891 | $ | 35,674 | |||
Land and Development | $ | 84,966 | $ | 58,961 | |||
Total capital expenditures on land and development assets | $ | 84,966 | $ | 58,961 |
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 | | ||
Operating Properties | | $ | 239 | | $ | 96 | |
Net Lease | |
| 502 | |
| 552 | |
Total capital expenditures on real estate assets | | $ | 741 | | $ | 648 | |
| | | | | | | |
Land and Development | | $ | 4,803 | | $ | 4,134 | |
Total capital expenditures on land and development assets | | $ | 4,803 | | $ | 4,134 | |
As of September 30, 2017,March 31, 2022, we had unrestricted cash of $1.9 billion; however, we used approximately $1.4$1.5 billion subsequent to September 30, 2017 to redeem several seriesand $350 million of our unsecured notes and preferred stock, as discussed aboveborrowing capacity available under "Executive Overview."the Revolving Credit Facility. Our primary cash uses over the next 12 months are expected to be funding of investments in our Ground Lease and Ground Lease adjacent businesses, distributions to noncontrolling interests resulting from the Net Lease Sale (refer to Note 3 to the consolidated financial statements), repayment of debt obligations (refer to Note 10 to the consolidated financial statements), capital expenditures on legacy assets, distributions to shareholders through dividends and share repurchases and funding ongoing business operations. Overoperations, including operating lease payments (refer to Note 11 to the next 12 months, we currently expect to fund in the range of approximately $175.0 million to $225.0 million of capital expenditures within our portfolio. The majority of these amounts relate to our land and development and operating properties business segments and include multifamily and residential development activities which are expected to include approximately $100.0 million in vertical construction. consolidated financial statements). The amount spentwe actually invest will depend on the paceclosing of asset sales, the continuing impact of the COVID-19 pandemic, inflation, interest rate increases, market volatility and other macroeconomic factors on our business.
In April 2022, we completed separate, privately-negotiated transactions with holders of $194 million aggregate principal amount of our development activities as well as3.125% convertible notes (refer to Note 18 to the extent toconsolidated financial statements) in which the noteholders exchanged their convertible notes with us for 13.75 million newly issued shares of our common stock and aggregate cash payments of $14 million. Our remaining $94 million aggregate principal amount of our 3.125% convertible notes mature in September 2022, and we strategically partner with others to complete these projects. Asmust repay them in a combination of September 30, 2017, wecash and shares of our common stock. We also had approximately $419.8$128.4 million of maximum unfunded commitments associated with our investments as of March 31, 2022, of which we expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones, performance hurdles and all other conditions to fundings (see "Unfunded Commitments"“Unfunded Commitments” below). We also have approximately $138.4 million principal amount of scheduled real estate finance maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers.
We expect that we will be able to meet our liquidity requirements over the next 12 months and for the reasonably foreseeable future. Our capital sources to meet such cash uses through the next 12 months and beyond will primarily berequirements are expected to include cash on hand, including proceeds from the Net Lease Sale, Revolving Credit Facility borrowings, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.
We also have stabilized, itamounts due under our liability-classified and equity-classified iPIP Plans. We currently estimate the total amount due under our iPIP Plans to be $219 million, assuming SAFE is not possible for us to predict whether these trends will continue or to quantify the impactvalued at a price of these or$43.05 per share and our other trends onassets perform with current underwriting expectations. Of this amount, $114 million has been accrued in our financial results.
Amounts Due By Period | |||||||||||||||||||||||
Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | 5 - 10 Years | After 10 Years | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Long-Term Debt Obligations: | |||||||||||||||||||||||
Unsecured notes(1) | $ | 3,620,000 | $ | 1,150,000 | $ | 1,170,000 | $ | 1,300,000 | $ | — | $ | — | |||||||||||
Secured credit facilities | 400,000 | 4,000 | 8,000 | 388,000 | — | — | |||||||||||||||||
Mortgages | 223,182 | 17,465 | 39,449 | 116,994 | 49,274 | — | |||||||||||||||||
Trust preferred securities | 100,000 | — | — | — | — | 100,000 | |||||||||||||||||
Total principal maturities | 4,343,182 | 1,171,465 | 1,217,449 | 1,804,994 | 49,274 | 100,000 | |||||||||||||||||
Interest Payable(2) | 663,822 | 198,333 | 273,116 | 153,470 | 15,176 | 23,727 | |||||||||||||||||
Loan Participations Payable(3) | 122,846 | 115,243 | 7,603 | — | — | — | |||||||||||||||||
Operating Lease Obligations | 19,159 | 5,408 | 7,819 | 3,018 | 2,914 | — | |||||||||||||||||
Accounts Payable(4) | 241,830 | 241,830 | — | — | — | — | |||||||||||||||||
Total | $ | 5,390,839 | $ | 1,732,279 | $ | 1,505,987 | $ | 1,961,482 | $ | 67,364 | $ | 123,727 |
47
The following table outlines our cash flows provided by operating activities, cash flows used in investing activities and cash flows provided by financing activities for the three months ended March 31, 2022 and 2021 ($ in thousands):
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
| | 2022 |
| 2021 | | ||
| | | | | | | |
Cash flows used in operating activities | | $ | (30,624) | | $ | (3,795) | |
Cash flows provided by investing activities | | | 2,417,867 | | | 137,635 | |
Cash flows used in financing activities | | | (1,229,992) | | | (36,414) | |
The decrease in cash flows provided by operating activities during 2022 was due primarily to a decrease in the Company's GL businesscollection of deferred interest on loans. The increases in cash flows provided by investing activities and cash flows used in financing activities during 2022 was due primarily to the Net Lease Sale (refer to Note 4).
As of | |||||||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||||||
Encumbered Assets | Unencumbered Assets | Encumbered Assets | Unencumbered Assets | ||||||||||||
Real estate, net | $ | 841,570 | $ | 482,292 | $ | 881,212 | $ | 506,062 | |||||||
Real estate available and held for sale | — | 65,658 | — | 237,531 | |||||||||||
Land and development, net | 25,100 | 836,407 | 35,165 | 910,400 | |||||||||||
Loans receivable and other lending investments, net(1)(2) | 188,973 | 813,447 | 172,581 | 1,142,050 | |||||||||||
Other investments | — | 289,037 | — | 214,406 | |||||||||||
Cash and other assets | — | 2,145,713 | — | 590,299 | |||||||||||
Total | $ | 1,055,643 | $ | 4,632,554 | $ | 1,088,958 | $ | 3,600,748 |
Debt Covenants
—Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at leastThe 2016 Senior Secured Credit Facility and the 2015 Secured Revolving Credit Facility containcontains certain covenants, including covenants relating to collateral coverage, dividend payments, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2016 Senior
Derivatives
—Our use of derivative financial instruments,Unfunded Commitments
—We generally fund construction and development loans and build-outs of space in48
committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments.
As of September 30, 2017,March 31, 2022, the maximum amountsamount of the fundings we may be obligated to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and assuming that 100% of our 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 | $ | 317,091 | $ | 6,136 | $ | 50,933 | $ | 374,160 | |||||||
Strategic Investments | — | — | 45,642 | 45,642 | |||||||||||
Total | $ | 317,091 | $ | 6,136 | $ | 96,575 | $ | 419,802 |
| | | | | | | | | | | | |
| | Loans and Other |
| | |
| | |
| | | |
| | Lending | | | | | Other | | | | ||
|
| Investments |
| | Real Estate |
| Investments |
| Total | |||
Performance-Based Commitments | | $ | 4,235 | | $ | 8,111 | | $ | 108,650 | | $ | 120,996 |
Strategic Investments | |
| — | |
| 5,061 | |
| 2,325 | |
| 7,386 |
Total | | $ | 4,235 | | $ | 13,172 | | $ | 110,975 | | $ | 128,382 |
Stock Repurchase Program
—Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We base our estimates on historical corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment.
For a discussion of the impact of newour critical accounting pronouncements on our financial condition or results of operations,policies, refer to Note 3 to the consolidated financial statements.
49
Market Risks
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net amount of floating rate assets/liabilities and the impact of interest rate floors and caps. Any significant compression of the spreads between interest-earning assets and interest-bearing liabilities could have a material adverse effect on us.
In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest-earning assets and interest-bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate-related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers.
While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without generating non-qualifying income, use of derivatives for other purposes will generate non-qualified income for REIT income test purposes. This includes hedging asset related risks such as credit and interest rate exposure on our loan assets. As a result, our ability to hedge these types of risks is limited. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.
The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing liabilities, should interest rates decrease by 10 basis points or increase by 10, 50 or 100 basis points or decrease by 10 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the one-month LIBOR rate of 1.23%0.45% as of September 30, 2017.March 31, 2022. Actual results could differ significantly from those estimated in the table.
Estimated Change In Net Income
($ in thousands)
| | | |
Change in Interest Rates | | Net Income(1) | |
-10 Basis Points | | $ | (1,451) |
Base Interest Rate | | — | |
+10 Basis Points | | 1,451 | |
+50 Basis Points | | 7,256 | |
+100 Basis Points | | 14,512 |
Change in Interest Rates | Net Income(1) | |||
-10 Basis Points | $ | (2,048 | ) | |
Base Interest Rate | — | |||
+10 Basis Points | 2,048 | |||
+50 Basis Points | 10,242 | |||
+100 Basis Points | 20,483 |
(1) |
50
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company'sCompany’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'sCommission’s rules and forms, and that such information is accumulated and communicated to the Company'sCompany’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company has formed a disclosure committee that is responsible for considering the materiality of information and determining the disclosure obligations of the Company on a timely basis. The disclosure committee reports directly to the Company'sCompany’s Chief Executive Officer and Chief Financial Officer.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the disclosure committee and other members of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company'sCompany’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) or Rule 15d-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company'sCompany’s disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act isis: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and formsforms; and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
There have been no changes during the last fiscal quarter in the Company'sCompany’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company'sCompany’s periodic reports.
51
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 itsthe Company’s business as a finance and investment company focused on the commercial real estate and real estate related business activities,industry, including loan foreclosure and foreclosure-related proceedings. In addition to such matters, theThe Company believes it is not a party to, nor are any of its properties the followingsubject of, any pending legal proceedings:
There were no material changes from the risk factors previously disclosed in the Company's 2016our 2021 Annual Report.
Issuer Purchases of the CompanyEquity Securities
We did not purchase any shares of itsour common stock during the three months ended September 30, 2017.
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans(1) | |||||||
July 1 to July 31 | — | $ | — | — | $ | 50,000,000 | ||||
August 1 to August 31 | — | $ | — | — | $ | 50,000,000 | ||||
September 1 to September 30 | 3,990,300 | $ | 11.51 | 3,990,300 | $ | 4,071,647 |
None.
Not applicable.
52
INDEX TO EXHIBITS
| | |
Exhibit | Document Description | |
31.0 | ||
| ||
. | ||
32.0 | | Certifications pursuant to Section 906 of the Sarbanes-Oxley |
101* | | The following financial information from the |
104 | | Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) |
* | |
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934 and otherwise is not subject to liability under these sections. |
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| iStar Inc. | ||
| | ||
Date: | May 4, 2022 | /s/ JAY SUGARMAN | |
| Jay Sugarman | ||
| Chairman of the Board of Directors and Chief | ||
| Executive Officer (principal executive officer) | ||
| | ||
| | ||
| | ||
| | ||
| iStar Inc. | ||
Date: | May 4, 2022 | /s/ BRETT ASNAS | |
| Brett Asnas | ||
| Chief Financial Officer | ||
| (principal financial officer) |
RETT | | | |
| | ||
| iStar Inc. Registrant | ||
Date: | May 4, 2022 | /s/ | |
| Garett Rosenblum | ||
| Chief | ||
| |
54