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 | |
September 30, | |
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, 2017,2022, there were 68,200,01586,697,347 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 | | ||||
| | September 30, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
ASSETS |
| |
|
| |
| |
Real estate |
| |
|
| |
| |
Real estate, at cost | | $ | 111,719 | | $ | 113,510 | |
Less: accumulated depreciation | |
| (22,575) | |
| (21,360) | |
Real estate, net | |
| 89,144 | |
| 92,150 | |
Real estate available and held for sale | |
| 1,283 | |
| 301 | |
Total real estate | |
| 90,427 | |
| 92,451 | |
Real estate and other assets available and held for sale and classified as discontinued operations(2) | | | 11,925 | | | 2,299,711 | |
Net investment in leases ($0 of allowances as of December 31, 2021) | | | — | | | 43,215 | |
Land and development, net | |
| 248,246 | |
| 286,810 | |
Loans receivable and other lending investments, net ($2,890 and $4,769 of allowances as of September 30, 2022 and December 31, 2021, respectively) | |
| 176,623 | |
| 332,844 | |
Loans receivable held for sale | | | — | | | 43,215 | |
Other investments | |
| 1,605,268 | |
| 1,297,281 | |
Cash and cash equivalents | |
| 1,335,722 | |
| 339,601 | |
Accrued interest and operating lease income receivable, net | |
| 1,035 | |
| 1,813 | |
Deferred operating lease income receivable, net | |
| 2,842 | |
| 3,159 | |
Deferred expenses and other assets, net | |
| 50,044 | |
| 100,434 | |
Total assets | | $ | 3,522,132 | | $ | 4,840,534 | |
LIABILITIES AND EQUITY | |
|
| |
|
| |
Liabilities: | |
|
| |
|
| |
Accounts payable, accrued expenses and other liabilities | | $ | 140,876 | | $ | 236,732 | |
Liabilities associated with real estate held for sale and classified as discontinued operations(2) | | | 2,918 | | | 968,419 | |
Liabilities associated with properties held for sale | |
| — | |
| 3 | |
Debt obligations, net | |
| 1,680,708 | |
| 2,572,174 | |
Total liabilities | |
| 1,824,502 | |
| 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, 86,695 and 68,870 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | |
| 87 | |
| 69 | |
Additional paid-in capital | |
| 3,457,961 | |
| 3,100,015 | |
Accumulated deficit | |
| (1,772,843) | |
| (2,227,213) | |
Accumulated other comprehensive loss | |
| (4,898) | |
| (21,587) | |
Total iStar Inc. shareholders' equity | |
| 1,680,319 | |
| 851,296 | |
Noncontrolling interests | |
| 17,311 | |
| 211,910 | |
Total equity | |
| 1,697,630 | |
| 1,063,206 | |
Total liabilities and equity | | $ | 3,522,132 | | $ | 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 September 30, | | For the Nine Months Ended September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Revenues: |
| |
|
| |
| | |
|
| |
|
Operating lease income | | $ | 3,424 | | $ | 3,732 | | $ | 9,715 | | $ | 13,456 |
Interest income | |
| 2,093 | |
| 6,972 | |
| 11,262 | |
| 24,846 |
Interest income from sales-type leases | |
| 129 | |
| 526 | |
| 861 | |
| 683 |
Other income | |
| 27,024 | |
| 39,033 | |
| 51,545 | |
| 60,950 |
Land development revenue | |
| 15,087 | |
| 93,369 | |
| 54,390 | |
| 157,936 |
Total revenues | |
| 47,757 | |
| 143,632 | |
| 127,773 | |
| 257,871 |
Costs and expenses: | |
|
| |
|
| |
|
| |
|
|
Interest expense | |
| 22,664 | |
| 28,695 | |
| 76,056 | |
| 86,145 |
Real estate expense | |
| 16,204 | |
| 13,369 | |
| 39,337 | |
| 33,404 |
Land development cost of sales | |
| 16,778 | |
| 87,380 | |
| 55,369 | |
| 147,507 |
Depreciation and amortization | |
| 1,290 | |
| 1,742 | |
| 3,985 | |
| 5,715 |
General and administrative | |
| 14,210 | |
| 17,121 | |
| 10,406 | |
| 68,954 |
Provision for (recovery of) loan losses | |
| (157) | |
| (1,610) | |
| 22,556 | |
| (7,411) |
Provision for (recovery of) losses on net investment in leases | |
| (380) | |
| (315) | |
| — | |
| 465 |
Impairment of assets | |
| — | |
| 421 | |
| 1,768 | |
| 679 |
Other expense | |
| 4,171 | |
| 894 | |
| 6,624 | |
| 1,358 |
Total costs and expenses | |
| 74,780 | |
| 147,697 | |
| 216,101 | |
| 336,816 |
Income from sales of real estate | |
| 951 | |
| 25,611 | |
| 1,443 | |
| 26,319 |
Income (loss) from operations before earnings from equity method investments and other items | |
| (26,072) | |
| 21,546 | |
| (86,885) | |
| (52,626) |
Loss on early extinguishment of debt, net | |
| (13,209) | |
| — | |
| (131,200) | |
| — |
Earnings from equity method investments | |
| 57,797 | |
| 87,795 | |
| 102,222 | |
| 110,661 |
Net income (loss) from continuing operations before income taxes | |
| 18,516 | |
| 109,341 | |
| (115,863) | |
| 58,035 |
Income tax (expense) benefit | |
| (564) | |
| 39 | |
| (567) | |
| 117 |
Net income (loss) from continuing operations | | | 17,952 | | | 109,380 | | | (116,430) | | | 58,152 |
Net income from discontinued operations(1) | |
| — | |
| 21,614 | |
| 797,688 | |
| 69,415 |
Net income | | | 17,952 | | | 130,994 | | | 681,258 | | | 127,567 |
Net (income) loss from continuing operations attributable to noncontrolling interests | |
| 53 | |
| (10) | |
| (46) | |
| 55 |
Net (income) from discontinued operations attributable to noncontrolling interests(1) | | | — | | | (3,254) | | | (179,089) | | | (8,092) |
Net income attributable to iStar Inc. | |
| 18,005 | |
| 127,730 | |
| 502,123 | |
| 119,530 |
Preferred dividends | |
| (5,874) | |
| (5,874) | |
| (17,622) | |
| (17,622) |
Net income allocable to common shareholders | | $ | 12,131 | | $ | 121,856 | | $ | 484,501 | | $ | 101,908 |
Per common share data: | |
|
| |
|
| |
|
| |
|
|
Net income (loss) allocable to common shareholders | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.14 | | $ | 1.71 | | $ | 6.16 | | $ | 1.40 |
Diluted | | $ | 0.14 | | $ | 1.51 | | $ | 6.16 | | $ | 1.30 |
Net income (loss) from continuing operations and allocable to common shareholders: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.14 | | $ | 1.45 | | $ | (1.70) | | $ | 0.56 |
Diluted | | $ | 0.14 | | $ | 1.28 | | $ | (1.70) | | $ | 0.52 |
Net income from discontinued operations and allocable to common shareholders: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | — | | $ | 0.26 | | $ | 7.86 | | $ | 0.84 |
Diluted | | $ | — | | $ | 0.23 | | $ | 7.86 | | $ | 0.78 |
Weighted average number of common shares: | |
|
| |
|
| |
|
| |
|
|
Basic | |
| 85,458 | |
| 71,299 | |
| 78,706 | |
| 72,675 |
Diluted | |
| 85,867 | |
| 80,487 | |
| 78,706 | |
| 78,402 |
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 September 30, |
| For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 | | ||||
Net income | | $ | 17,952 | | $ | 130,994 | | $ | 681,258 | | $ | 127,567 | |
Other comprehensive income: | |
|
| |
|
| |
|
| |
|
| |
Reclassification of losses on cash flow hedges into earnings upon realization(1) | |
| 562 | |
| 2,683 | |
| 1,763 | |
| 7,507 | |
Reclassification of losses on available-for-sale securities | | | 386 | | | — | | | 386 | | | — | |
Unrealized losses on available-for-sale securities | |
| — | |
| (539) | |
| (4,623) | |
| (913) | |
Unrealized gains on cash flow hedges |
|
| 12,026 |
|
| 273 | |
| 19,163 | |
| 11,483 | |
Other comprehensive income | |
| 12,974 |
|
| 2,417 | |
| 16,689 | |
| 18,077 | |
Comprehensive income | |
| 30,926 | |
| 133,411 | |
| 697,947 | |
| 145,644 | |
Comprehensive (income) attributable to noncontrolling interests(2) | |
| 53 | |
| (4,207) | |
| (179,135) | |
| (11,951) | |
Comprehensive income attributable to iStar Inc. | | $ | 30,979 | | $ | 129,204 | | $ | 518,812 | | $ | 133,693 | |
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 June 30, 2022 | | $ | 12 | | $ | 84 | | $ | 3,406,422 | | $ | (1,774,069) | | $ | (17,872) | | $ | 16,287 | | $ | 1,630,864 |
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) |
Dividends declared—common ($0.125 per share) | |
| — | |
| — | |
| — | |
| (10,905) | |
| — | |
| — | |
| (10,905) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 1,262 | |
| — | |
| — | |
| 1,077 | |
| 2,339 |
Issuance of common stock in connection with 3.125% convertible notes(3) | | | — | | | 3 | | | 50,277 | | | — | | | — | | | — | | | 50,280 |
Net income (loss) | |
| — | |
| — | |
| — | |
| 18,005 | |
| — | |
| (53) | |
| 17,952 |
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 12,974 | |
| — | |
| 12,974 |
Balance as of September 30, 2022 | | $ | 12 | | $ | 87 | | $ | 3,457,961 | | $ | (1,772,843) | | $ | (4,898) | | $ | 17,311 | | $ | 1,697,630 |
| | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2021 | | $ | 12 | | $ | 72 | | $ | 3,185,748 | | $ | (2,338,454) | | $ | (35,824) | | $ | 197,152 | | $ | 1,008,706 |
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) |
Dividends declared—common ($0.125 per share) | |
| — | |
| — | |
| — | |
| (8,954) | |
| — | |
| — | |
| (8,954) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 1,158 | |
| — | |
| — | |
| 1,107 | |
| 2,265 |
Net income (loss) | |
| — | |
| — | |
| — | |
| 127,730 | |
| — | |
| 3,264 | |
| 130,994 |
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 1,474 | |
| 943 | |
| 2,417 |
Repurchase of stock | |
| — | |
| (2) | |
| (59,505) | |
| — | |
| — | |
| — | |
| (59,507) |
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 169 | | | 169 |
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (3,917) | |
| (3,917) |
Change to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (74) | | | (74) |
Balance as of September 30, 2021 | | $ | 12 | | $ | 70 | | $ | 3,127,401 | | $ | (2,225,552) | | $ | (34,350) | | $ | 198,644 | | $ | 1,066,225 |
5
| | | | | | | | | | | | | | | | | | | | | |
|
| 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 | |
| — | |
| — | |
| — | |
| (17,622) | |
| — | |
| — | |
| (17,622) |
Dividends declared—common ($0.375 per share) | |
| — | |
| — | |
| — | |
| (30,131) | |
| — | |
| — | |
| (30,131) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| 1 | |
| 10,148 | |
| — | |
| — | |
| 3,504 | |
| 13,653 |
Issuance of common stock in connection with 3.125% convertible notes(3) | | | — | | | 17 | | | 347,798 | | | — | | | — | | | — | | | 347,815 |
Net income | |
| — | |
| — | |
| — | |
| 502,123 | |
| — | |
| 179,135 | |
| 681,258 |
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 16,689 | |
| — | |
| 16,689 |
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 7,893 | | | 7,893 |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | (385,131) | | | (385,131) |
Balance as of September 30, 2022 | | $ | 12 | | $ | 87 | | $ | 3,457,961 | | $ | (1,772,843) | | $ | (4,898) | | $ | 17,311 | | $ | 1,697,630 |
| | | | | | | | | | | | | | | | | | | | | |
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 | |
| — | |
| — | |
| — | |
| (17,622) | |
| — | |
| — | |
| (17,622) |
Dividends declared—common ($0.36 per share) | |
| — | |
| — | |
| — | |
| (26,338) | |
| — | |
| — | |
| (26,338) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 4,929 | |
| — | |
| — | |
| 2,645 | |
| 7,574 |
Net income (loss) | |
| — | |
| — | |
| — | |
| 119,530 | |
| — | |
| 8,037 | |
| 127,567 |
Change in accumulated other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | 18,330 | | | 3,913 | | | 22,243 |
Repurchase of stock | | | — | | | (4) | | | (91,859) | | | — | | | — | | | — | | | (91,863) |
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 1,026 | | | 1,026 |
Distributions to noncontrolling interests | |
| — | |
| — | |
| (335) | |
| — | |
| — | |
| (10,317) | |
| (10,652) |
Change to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (74) | | | (74) |
Balance as of September 30, 2021 | | $ | 12 | | $ | 70 | | $ | 3,127,401 | | $ | (2,225,552) | | $ | (34,350) | | $ | 198,644 | | $ | 1,066,225 |
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) |
(3) |
The accompanying notes are an integral part of the consolidated financial statements.
6
(In thousands)
(unaudited)
| | | | | | | |
|
| For the Nine Months Ended September 30, | | ||||
|
| 2022 |
| 2021 | | ||
Cash flows from operating activities: | | |
|
| |
| |
Net income | | $ | 681,258 | | $ | 127,567 | |
Adjustments to reconcile net income (loss) to cash flows from operating activities: | |
|
| |
|
| |
Provision for (recovery of) loan losses | |
| 22,556 | |
| (7,613) | |
Provision for losses on net investment in leases | |
| — | |
| (1,735) | |
Impairment of assets | |
| 3,260 | |
| 2,965 | |
Depreciation and amortization | |
| 3,985 | |
| 44,971 | |
Non-cash interest income from sales-type leases | |
| (1,748) | |
| (22,243) | |
Stock-based compensation | |
| (30,724) | |
| 23,300 | |
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | |
| 7,362 | |
| 5,920 | |
Amortization of discounts/premiums and deferred interest on loans, net | |
| (6,615) | |
| (11,730) | |
Deferred interest on loans received | |
| 4,738 | |
| 24,394 | |
Earnings from equity method investments | |
| (229,351) | |
| (114,675) | |
Distributions from operations of other investments | |
| 149,741 | |
| 37,433 | |
Deferred operating lease income | |
| (2,169) | |
| (7,874) | |
Income from sales of real estate | |
| (685,180) | |
| (28,433) | |
Land development revenue in excess of cost of sales | |
| 979 | |
| (10,429) | |
Loss on early extinguishment of debt, net | |
| 172,608 | |
| — | |
Other operating activities, net | |
| (12,846) | |
| (14,031) | |
Changes in assets and liabilities: | |
| | |
| | |
Origination and fundings of loans receivable held for sale | | | — | | | (42,000) | |
Changes in accrued interest and operating lease income receivable | |
| 2,552 | |
| 5,259 | |
Changes in deferred expenses and other assets, net | |
| (15,308) | |
| (9,186) | |
Changes in accounts payable, accrued expenses and other liabilities | |
| (49,725) | |
| (6,601) | |
Cash flows provided by (used in) operating activities | |
| 15,373 | |
| (4,741) | |
Cash flows from investing activities: | |
|
| |
|
| |
Originations and fundings of loans receivable, net | |
| (5,831) | |
| (71,921) | |
Capital expenditures on real estate assets | |
| (1,090) | |
| (5,835) | |
Capital expenditures on land and development assets | |
| (15,993) | |
| (15,603) | |
Acquisitions of real estate, net investments in leases and land assets | |
| (36,730) | |
| (42,000) | |
Repayments of and principal collections on loans receivable and other lending investments, net | |
| 90,615 | |
| 226,065 | |
Net proceeds from sales of loans receivable | |
| 145,583 | |
| 122,609 | |
Net proceeds from sales of real estate | |
| 1,982,254 | |
| 125,666 | |
Net proceeds from sales of land and development assets | |
| 51,580 | |
| 154,094 | |
Net proceeds from sales of net investment in leases | | | 608,238 | | | 14,910 | |
Net proceeds from sales of other investments | | | — | | | 3,000 | |
Distributions from other investments | |
| 161,275 | |
| 34,926 | |
Contributions to and acquisition of interest in other investments | |
| (273,206) | |
| (171,005) | |
Other investing activities, net | |
| (62) | |
| (1,184) | |
Cash flows provided by investing activities | |
| 2,706,633 | |
| 373,722 | |
Cash flows from financing activities: | |
|
| |
|
| |
Borrowings from debt obligations | |
| 50,000 | |
| 25,000 | |
Repayments and repurchases of debt obligations | |
| (1,154,033) | |
| (44,534) | |
Purchase of marketable securities in connection with the defeasance of mortgage notes payable | |
| (252,571) | |
| — | |
Preferred dividends paid | |
| (17,622) | |
| (17,622) | |
Common dividends paid | |
| (30,224) | |
| (26,149) | |
Repurchase of stock | |
| — | |
| (88,946) | |
Payments for deferred financing costs | |
| — | |
| (75) | |
Payments for withholding taxes upon vesting of stock-based compensation | |
| (10,567) | |
| (2,210) | |
Contributions from noncontrolling interests | |
| 7,893 | |
| 233 | |
Distributions to noncontrolling interests | |
| (351,005) | |
| (10,317) | |
Payments for debt prepayment or extinguishment costs | |
| (16,676) | |
| — | |
Cash flows used in financing activities | |
| (1,774,805) | |
| (164,620) | |
Effect of exchange rate changes on cash | |
| (100) | |
| (126) | |
Changes in cash, cash equivalents and restricted cash | |
| 947,101 | |
| 204,235 | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 393,996 | |
| 150,566 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 1,341,097 | | $ | 354,801 | |
7
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 Nine Months Ended September 30, | | ||||
| | 2022 |
| 2021 | | ||
Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows | | | | | | | |
Cash and cash equivalents | | $ | 1,335,722 | | $ | 298,886 | |
Restricted cash included in deferred expenses and other assets, net | | | 5,375 | | | 55,915 | |
Total cash and cash equivalents and restricted cash | | $ | 1,341,097 | | $ | 354,801 | |
Supplemental disclosure of non-cash investing and financing activity: |
| |
|
| |
| |
Fundings and (repayments) of loan receivables and loan participations, net | | $ | — | | $ | (42,501) | |
Accounts payable for capital expenditures on land and development and real estate assets | | | 2,258 | | | 1,125 | |
Contributions to other investments | | | — | | | 2,000 | |
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 | |
| — | |
Settlement of senior unsecured notes (refer to Note 10) | | | 218,945 | | | — | |
Accrued repurchase of stock | |
| — | |
| 3,117 | |
Assumption of mortgage by third party | |
| 62,825 | |
| — | |
The accompanying notes are an integral part of the consolidated financial statements.
8
Note 1—Business and Organization
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 and corporate acquisitions.
Merger with Safehold Inc.—On August 10, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Safehold Inc. (“SAFE”). The Merger Agreement provides that, subject to the terms and conditions thereof, SAFE will merge with and into the Company (the “Merger”). The surviving company of the Merger will be named Safehold Inc. (“New SAFE”) and its shares of common stock will trade on the New York Stock Exchange under the symbol “SAFE.” The Company expects that the Merger will close in the first quarter or second quarter of 2023.
As discussed further below, shortly before the closing of the Merger, the Company intends to separate its remaining legacy non-ground lease assets and businesses into a separate public company (“SpinCo”) by distributing to the Company’s stockholders, on a pro rata basis, the issued and outstanding equity interests of SpinCo (the “Spin-Off”).
Conditions to the Merger
The consummation of the Merger is subject to the satisfaction or waiver of certain closing conditions, including: (i) the approval of the Company’s stockholders, (ii) the approval of SAFE’s stockholders, (iii) completion of the Spin-Off, (iv) the approval of the shares of STAR Common Stock to be issued in the Merger for listing on the NYSE, (v) the effectiveness of a registration statement on Form S-4 registering the STAR Common Stock to be issued in the Merger, (vi) the absence of any temporary restraining order, injunction or other order of any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the reverse stock split or the Merger, (vii) generation of certain cash proceeds, (viii) the receipt of certain tax opinions by the Company and SAFE that the Merger will qualify as a reorganization under the Internal Revenue Code and that the Company and SAFE each qualifies as a REIT for federal income tax purposes, (ix) the accuracy of certain representations and warranties of the Company and SAFE contained in the Merger Agreement and the compliance by the parties with the covenants contained in the Merger Agreement (subject to customary materiality qualifiers), and (x) other conditions specified in the Merger Agreement.
Conditions to the Spin-Off
Completion of the Spin-Off is subject to: (i) completion of the documents for the Spin-Off related financings; (ii) the satisfaction or waiver of relevant conditions to the consummation of the Merger; (iii) effectiveness of a registration statement on Securities and Exchange Commission (“SEC”) Form 10; (iv) the absence of an injunction or law preventing the consummation of the Spin-Off, the distribution and the transactions related thereto; and (v) other customary closing conditions.
Other Merger related transactions
The Company has entered into an agreement (the “MSD Stock Purchase Agreement”) with MSD Partners, L.P. (“MSD Partners”) and SAFE under which the Company has agreed to sell and MSD Partners has agreed to buy 5,405,406 shares of the SAFE’s common stock owned by the Company for $200.0 million (the “MSD Stock Purchase”) shortly before the closing of the Merger. If the Merger Agreement is terminated for any reason, the parties’ obligations to
9
consummate the purchase and sale will also terminate. In addition to customary closing conditions, MSD Partners’ obligations to purchase SAFE’s common stock owned by the Company are subject to the condition that the closing of the MSD Caret Purchase (as defined below) will take place substantially concurrently with the closing of the MSD Stock Purchase. Upon closing of the transaction, MSD Partners will have a right to designate an observer to the board of directors of New SAFE, a preemptive right on future equity issuances (subject to certain exceptions) and registration rights. MSD Partners will be subject to a customary standstill and certain restrictions on sales of its New SAFE Common Stock.
MSD Partners has also subscribed to purchase 100,000 Caret units from SAFE for an aggregate purchase price of $20.0 million (the “MSD Caret Purchase”), conditioned on the closing of the Spin-Off and the Merger. MSD Partners’ obligations to purchase the Caret units are also subject to the closing of the MSD Stock Purchase and the implementation by SAFE of certain changes to its Caret program.
SpinCo will be capitalized in part with an 8.0%, four-year term loan from New SAFE having an initial principal amount of $100.0 million or such other amount as the parties may agree prior to the closing of the Merger, as well as through corporate acquisitions.up to $140.0 million of bank debt from Morgan Stanley Bank, N.A. which will be secured by $400 million in shares of SAFE common stock.
New SAFE will enter into a management agreement with SpinCo, under which it will continue to operate and pursue the orderly monetization of SpinCo’s assets. SpinCo will pay to New SAFE an annual management fee of $25.0 million in year one, $15.0 million in year two, $10.0 million in year three and $5.0 million in year four and 2.0% of the gross book value of SpinCo's assets, excluding shares of SAFE common stock, for each annual term thereafter. New SAFE and SpinCo will also enter into a governance agreement that will place certain restrictions on the transfer and voting of the shares of New SAFE owned by SpinCo, and a registration rights agreement under which New SAFE will agree to register such shares for resale in accordance with applicable securities laws.
The Company and SAFE have entered into a voting agreement pursuant to which the Company has agreed vote its shares representing 41.9% of the outstanding SAFE Common Stock to approve the Merger and take certain other actions, including voting against any alternative acquisition proposal or other proposal which could reasonably be expected to materially delay, postpone or materially adversely affect the consummation of the transactions contemplated by the Merger Agreement. In accordance with the terms of the existing stockholders’ agreement between SAFE and the Company, the remainder of the SAFE Common Stock owned by the Company will be voted in the same manner and proportion as the votes cast by the remaining shareholders of SAFE. The voting agreement and the obligations thereunder terminate upon the termination of the Merger Agreement in accordance with its terms.
As noted above, the Merger and related transactions are subject to a number of conditions, several of which are outside the Company's control; therefore, there can be no assurance that the Merger and related transactions will occur within the time frame currently expected by the parties, or at all. The foregoing descriptions of the Merger and the Merger Agreement and the related transactions and agreements do not purport to be complete and are subject to, and qualified in their entirety by, the full text of such agreements. Please see the Company's filings with the Securities and Exchange Commission for additional information, including copies of such agreements.
The Company has covenanted to redeem all of its outstanding preferred stock at the liquidation preference per share plus accrued and unpaid dividends and to retire all of its remaining senior unsecured notes in connection with the Merger. The Company’s trust preferred securities will remain outstanding at New SAFE.
10
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
—11
December 31, 2021. The following table presents the assets and liabilities of the Company’s consolidated VIEs—As as of September 30, 2017, the2022 and December 31, 2021 ($ in thousands):
| | | | | | |
|
| As of | ||||
|
| September 30, 2022 |
| December 31, 2021 | ||
ASSETS | | |
|
| |
|
Real estate | | |
|
| |
|
Real estate, at cost | | $ | 93,940 | | $ | 93,477 |
Less: accumulated depreciation | |
| (17,277) | |
| (14,987) |
Real estate, net | |
| 76,663 | |
| 78,490 |
Real estate and other assets available and held for sale and classified as discontinued operations | | | — | | | 886,845 |
Land and development, net | |
| 145,545 | |
| 176,833 |
Cash and cash equivalents | |
| 33,768 | |
| 23,908 |
Deferred operating lease income receivable, net | |
| 6 | |
| 3 |
Deferred expenses and other assets, net | |
| 6,420 | |
| 5,001 |
Total assets | | $ | 262,402 | | $ | 1,171,081 |
LIABILITIES | |
|
| |
|
|
Accounts payable, accrued expenses and other liabilities | | $ | 25,078 | | $ | 24,744 |
Liabilities associated with real estate held for sale and classified as discontinued operations | | | 146 | | | 493,739 |
Total liabilities | |
| 25,224 | |
| 518,483 |
Unconsolidated VIEs—The Company has investments in VIEs where it is not the primary beneficiary and accordingly the VIEs have not been consolidated in the Company'sCompany’s consolidated financial statements. As of September 30, 2017,2022, the Company'sCompany’s maximum exposure to loss from these investments does not exceed the sum of the $65.8$55.3 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$4.9 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.
12
iStar Inc.
to SAFE for $122.0 million and other separately identifiable cash flows, are presented and classifiedentered into three Ground Leases with SAFE. Two 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 recast revenueform a venture to acquire and expensesdevelop 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 all prior periods presentedsourcing 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 yearventure via co-investment. These senior executives were also entitled to an amount equal to 50% of adoptionany incentive fee received based on the 47.5% external partner’s interest. Net Lease Venture was part of the new standard.
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 |
Net Lease Venture II—In the third quarter 2017, in conjunction with the modification of two master leases,July 2018, the Company exchanged real propertyentered into a new venture (the “Net Lease Venture II”) with an investment strategy similar to the tenant.Net Lease Venture. The fair value ofCompany was responsible for managing the property exchanged exceeded the Company's cost basis by approximately $1.5 million which will be deferredventure in exchange for a management fee and amortized to "Operating lease income" in the Company's consolidated statements of operations over the remaining master lease terms.
Discontinued Operations—The Company’s net lease assets and liabilities associated with a third party. Duringthe Net Lease Sale and the Company’s other two net lease assets are classified as “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 September 30, 2022 and December 31, 2021. For the three months ended September 30, 2021 and the nine months ended September 30, 2016,2022 and 2021, the Company transferred one net lease asset with a carrying valueoperations of $0.7 million and one commercial operating property with a carrying value of $16.1 million to held for sale due to executed contracts with third parties. During the nine months ended September 30, 2016, the Company also acquired a residential operating property for $0.8 million that had no operations and was sold as of September 30, 2017.
13
iStar Inc.
The Company received an additional $113.0 million of proceedsfollowing table presents the Company’s consolidated assets and liabilities recorded in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts for its investment in SAFE as an equity method investment (refer to Note 7). The Company accounted for this transaction as an in substance sale of real“Real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE (refer to Note 2 - Summary of Significant Accounting Policies). The carrying value of the 12 properties is classified in "Real estateother assets available and held for sale"sale and classified as discontinued operations” and “Liabilities associated with real estate held for sale and classified as discontinued operations,” respectively, on the Company'sCompany’s consolidated balance sheetsheets as of September 30, 2022 and December 31, 2016 and the gain was recorded2021 ($ in "Gain from discontinued operations" in the Company's consolidated statementsthousands).
| | | | | | | |
| | As of | | ||||
| | September 30, | | 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 | |
| 1,963 | |
| 103,229 | |
Finance lease right of use assets | | | — | | | 150,099 | |
Accrued interest and operating lease income receivable, net | |
| 491 | |
| 2,997 | |
Deferred operating lease income receivable, net | |
| — | |
| 63,156 | |
Deferred expenses and other assets, net | |
| 9,471 | |
| 178,694 | |
Total real estate and other assets available and held for sale and classified as discontinued operations | | $ | 11,925 | | $ | 2,299,711 | |
| |
|
| |
|
| |
LIABILITIES | |
|
| |
|
| |
Accounts payable, accrued expenses and other liabilities | | $ | 2,918 | | $ | 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 | | $ | 2,918 | | $ | 968,419 | |
14
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The transactionstransaction described above involving the Company's GLnet lease business qualified for discontinued operations and the following table summarizes net income from discontinued operations for the three and nine months ended September 30, 20172022 and 20162021 ($ in thousands)
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Revenues: |
| |
|
| |
| | |
|
| |
| |
Operating lease income | | $ | — | | $ | 40,660 | | $ | 35,596 | | $ | 123,925 | |
Interest income | |
| — | |
| 979 | |
| 885 | |
| 2,728 | |
Interest income from sales-type leases | |
| — | |
| 9,052 | |
| 8,803 | |
| 26,212 | |
Other income | |
| — | |
| 1,162 | |
| 4,292 | |
| 3,599 | |
Total revenues | |
| — | |
| 51,853 | |
| 49,576 | |
| 156,464 | |
Costs and expenses: | | | | | | | | | | | | | |
Interest expense(1) | |
| — | |
| 10,776 | |
| 7,484 | |
| 32,306 | |
Real estate expense | |
| — | |
| 5,355 | |
| 5,072 | |
| 20,503 | |
Depreciation and amortization(1) | |
| — | |
| 13,114 | |
| — | |
| 39,256 | |
Provision for (recovery of) loan losses | | | — | | | 54 | | | — | | | (202) | |
Provision for (recovery of) losses on net investment in leases | |
| — | |
| 446 | |
| — | |
| (2,200) | |
Impairment of assets(2) | |
| — | |
| 758 | |
| 1,492 | |
| 2,286 | |
Other expense(3) | |
| — | |
| 1,117 | |
| (5,669) | |
| 1,117 | |
Total costs and expenses | |
| — | |
| 31,620 | |
| 8,379 | |
| 93,066 | |
Income from sales of real estate | |
| — | |
| — | |
| 683,738 | |
| 2,114 | |
Income from discontinued operations before earnings from equity method investments and other items | |
| — | |
| 20,233 | |
| 724,935 | |
| 65,512 | |
Earnings from equity method investments | |
| — | |
| 1,414 | |
| 127,129 | |
| 4,014 | |
Loss on early extinguishment of debt, net | |
| — | |
| — | |
| (41,408) | |
| — | |
Net income from discontinued operations before income taxes | |
| — | |
| 21,647 | |
| 810,656 | |
| 69,526 | |
Income tax expense | |
| — | |
| (33) | |
| (12,968) | |
| (111) | |
Net income from discontinued operations | |
| — | |
| 21,614 | |
| 797,688 | |
| 69,415 | |
Net (income) from discontinued operations attributable to noncontrolling interests | |
| — | |
| (3,254) | |
| (179,089) | |
| (8,092) | |
Net income from discontinued operations attributable to iStar Inc. | | $ | — | | $ | 18,360 | | $ | 618,599 | | $ | 61,323 | |
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 |
(1) |
For the nine months ended September 30, |
(2) | During the nine months ended September 30, |
(3) | Represents the reversal of other expenses recognized in connection with the settlement of interest rate hedges during the nine months ended September 30, 2022. |
15
The following table presents cash flows provided by operating activities and cash flows used in investing activities from discontinued operations for the nine months ended September 30, 2022 and 2021 ($ in thousands):
| | | | | | |
| | For the Nine Months Ended September 30, | ||||
| | 2022 |
| 2021 | ||
Cash flows provided by operating activities | | $ | 116,738 | | $ | 70,936 |
Cash flows provided by (used in) investing activities | |
| 2,660,531 | |
| (12,145) |
New Accounting Pronouncements—In March 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-02, Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 was issued to eliminate troubled debt restructuring recognition and measurement guidance and required disclosure of gross write-offs by vintage for public business entities. ASU 2022-02 is effective for annual reporting periods beginning after December 15, 2022. Early adoption is permitted. Management is currently evaluating the impact of ASU 2022-02 and does not expect ASU 2022-02 to have a material impact on the Company’s consolidated financial statements.
Note 4—Real Estate
The Company’s real estate assets were comprised of the following ($ in thousands):
| | | | | | |
|
| As of | ||||
| | September 30, 2022 |
| December 31, 2021 | ||
Land, at cost | | $ | 6,830 | | $ | 6,831 |
Buildings and improvements, at cost | |
| 104,889 | |
| 106,679 |
Less: accumulated depreciation | |
| (22,575) | |
| (21,360) |
Real estate, net | |
| 89,144 | |
| 92,150 |
Real estate available and held for sale(1) | |
| 1,283 | |
| 301 |
Total real estate | | $ | 90,427 | | $ | 92,451 |
(1) | As of September 30, 2022 and December 31, 2021, the Company had $1.3 million and $0.3 million, respectively, of residential homes/condominiums available for sale in its operating properties portfolio. |
Dispositions—Refer to Note 3 - Net Lease Sale and Discontinued Operations.
Impairments—During the nine months ended September 30, 2017 and 2016,2022, the Company sold residential condominiums for total net proceeds of $21.8 million and $74.9 million, respectively, and recorded income from sales of real estate totaling $3.3 million and $23.3 million, respectively. During the nine months ended September 30, 2017 and 2016, the Company received net proceeds related to net lease asset sales of $61.7 million and $108.5 million, respectively, resulting in gains of $25.0 million and $15.9 million, respectively. During the nine months ended September 30, 2016, the Company also sold commercial operating properties for net proceeds of $229.1 million resulting in gains of $49.2 million. The gains are recorded in "Income from sales of real estate" in the Company's consolidated statements of operations.
Tenant Reimbursements—
The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements wereAllowance for Doubtful Accounts—
As of16
Future Minimum Operating Lease Payments—Future minimum operating lease income receivable, net," respectively,payments to be collected under non-cancelable operating leases, excluding customer reimbursements of expenses, in effect as of September 30, 2022, are as follows by year ($ in thousands):
| | | |
|
| Operating | |
Year | | Properties | |
2022 (remaining three months) | | $ | 1,649 |
2023 | |
| 6,459 |
2024 | |
| 6,348 |
2025 | |
| 5,698 |
2026 | |
| 5,200 |
Thereafter | |
| 4,413 |
Note 5—Net Investment in Leases
In June 2021, the Company acquired two parcels of land for $42.0 million each and simultaneously entered into two 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 acquire the Ground Leases from the Company. 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. The Company classified one of the Ground Leases as a sales-type lease and it was recorded in “Net investment in leases” on the Company'sCompany’s consolidated balance sheets.sheet at the time of acquisition. 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). One 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. The Company funded $34.6 million of its commitment and then, pursuant to an agreement with SAFE (refer to Note 8) and upon certain construction related conditions being met, sold the Ground Lease to SAFE in July 2022 for $36.0 million and recognized a gain of $1.0 million in “Income from sales of real estate” in its consolidated statements of operations.
The Company’s net investment in leases were comprised of the following as of September 30, 2022 and December 31, 2021 ($ in thousands):
| | | | | | |
|
| September 30, 2022 |
| December 31, 2021 | ||
Total undiscounted cash flows | | $ | — | | $ | 524,712 |
Unguaranteed estimated residual value | |
| — | |
| 42,000 |
Present value discount | |
| — | |
| (523,497) |
Net investment in leases(1) | | $ | — | | $ | 43,215 |
(1) | As of 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. |
17
Allowance for Losses on Net Investment in Leases—Changes in the Company’s allowance for losses on net investment in leases for the three and nine months ended September 30, 2022 and 2021 were as follows ($ in thousands):
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
| | September 30, 2022 | | September 30, 2021 | | September 30, 2022 |
| September 30, 2021 | | ||||
Allowance for losses on net investment in leases at beginning of period(1) |
| $ | 380 | | $ | 9,005 |
| $ | — | | $ | 10,871 |
|
Provision for (recovery of) losses on net investment in leases (2) | | | (380) | | | 131 | | | — | | | (1,735) | |
Allowance for losses on net investment in leases at end of period(1) | | $ | — | | $ | 9,136 | | $ | — | | $ | 9,136 | |
(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 and nine months ended September 30, 2022, the Company recorded a provision for (recovery of) losses on net investment in leases of ($0.4) million and $0.0 million, respectively, due primarily to asset sales. During the three and nine months ended September 30, 2021, the Company recorded a provision for (recovery of) losses on net investment in leases of $0.1 million and ($1.7) million (both of which are included in “Net income from discontinued operations”), respectively. The provision for losses for the three months ended September 30, 2021 resulted from market changes since June 30, 2021 and the recovery of losses for the nine months ended September 30, 2021 was due primarily to asset sales and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. |
Note 5—6—Land and Development
The Company'sCompany’s land and development assets were comprised of the following ($ 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 | | ||||
| | September 30, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
Land and land development, at cost | | $ | 259,732 | | $ | 297,621 | |
Less: accumulated depreciation | |
| (11,486) | |
| (10,811) | |
Total land and development, net | | $ | 248,246 | | $ | 286,810 | |
Dispositions—
During the nine months ended September 30,
18
iStar Inc.
The following is a summary of the Company'sCompany’s loans receivable and other lending investments by class ($ in thousands):
| | | | | | | |
|
| As of | | ||||
|
| September 30, 2022 |
| December 31, 2021 | | ||
Construction loans | | | | | | | |
Senior mortgages | | $ | 133,468 | | $ | 184,643 | |
Corporate/Partnership loans | |
| — | |
| 618 | |
Subtotal - gross carrying value of construction loans(1) | |
| 133,468 | |
| 185,261 | |
Loans | |
|
| |
|
| |
Senior mortgages | |
| — | |
| 14,965 | |
Subordinate mortgages | |
| 13,107 | |
| 12,457 | |
Subtotal - gross carrying value of loans | |
| 13,107 | |
| 27,422 | |
Other lending investments | |
|
| |
|
| |
Held-to-maturity debt securities | |
| 32,938 | |
| 96,838 | |
Available-for-sale debt securities | |
| — | |
| 28,092 | |
Subtotal - other lending investments | |
| 32,938 | |
| 124,930 | |
Total gross carrying value of loans receivable and other lending investments | |
| 179,513 | |
| 337,613 | |
Allowance for loan losses | |
| (2,890) | |
| (4,769) | |
Total loans receivable and other lending investments, net | | $ | 176,623 | | $ | 332,844 | |
(1) | As of September 30, 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 September 30, 2022 | | Loans | | Loans | | Securities | | Allowance | | Total | |||||
Allowance for loan losses at beginning of period | | $ | 861 | | $ | 450 | | $ | 1,014 | | $ | 708 | | $ | 3,033 |
Provision for (recovery of) loan losses(1) | |
| (13) | |
| (72) | |
| (67) | |
| 9 | |
| (143) |
Allowance for loan losses at end of period | | $ | 848 | | $ | 378 | | $ | 947 | | $ | 717 | | $ | 2,890 |
| | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | |
Allowance for loan losses at beginning of period | | $ | 1,640 | | $ | 1,619 | | $ | 2,393 | | $ | 590 | | $ | 6,242 |
Provision for (recovery of) loan losses(1) | |
| (149) | |
| (865) | |
| 145 | |
| 50 | |
| (819) |
Allowance for loan losses at end of period | | $ | 1,491 | | $ | 754 | | $ | 2,538 | | $ | 640 | | $ | 5,423 |
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) |
19
iStar Inc.
Changes in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserveCompany’s allowance for loan losses were as follows for the nine months ended September 30, 2022 and 2021 ($ in thousands):
| | | | | | | | | | | | | | | |
|
| General Allowance | | | | | | ||||||||
|
| | |
| | |
| Held to |
| | |
| | | |
| | Construction | | | | | Maturity Debt | | Specific | | | | |||
Nine Months Ended September 30, 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) | |
| (365) | |
| (298) | |
| 23,643 | |
| 141 | |
| 23,121 |
Charge-offs | |
| — | |
| — | |
| (25,000) | |
| — | |
| (25,000) |
Allowance for loan losses at end of period | | $ | 848 | | $ | 378 | | $ | 947 | | $ | 717 | | $ | 2,890 |
| | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | |
Allowance for loan losses at beginning of period | | $ | 6,541 | | $ | 1,643 | | $ | 3,093 | | $ | 743 | | $ | 12,020 |
Recovery of loan losses(1) | |
| (5,050) | |
| (889) | |
| (555) | |
| (103) | |
| (6,597) |
Allowance for loan losses at end of period | | $ | 1,491 | | $ | 754 | | $ | 2,538 | | $ | 640 | | $ | 5,423 |
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) | During the nine months ended September 30, 2022 and 2021, the Company recorded a provision for (recovery of) loan losses of $22.6 million and ($7.4) million, respectively, in its consolidated statements of operations. The provision in 2022 was due primarily to a $25.0 million charge-off on the Company’s held-to-maturity debt security, which is now recorded at its expected repayment proceeds. The recovery in 2021 was due primarily to the repayment of loans during the nine months ended September 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. Of this amount, $0.9 million related to a recovery of credit losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities.” |
The Company’s investment in loans and other lending investments and the associated allowance for loan losses were as follows as of September 30, 2022 and December 31, 2021 ($ in thousands):
| | | | | | | | | |
|
| Individually |
| Collectively |
| | | ||
| | Evaluated for | | Evaluated for | | | | ||
| | Impairment(1) | | Impairment | | Total | |||
As of September 30, 2022 |
| |
|
| |
|
| |
|
Construction loans(2) | | $ | 61,159 | | $ | 72,309 | | $ | 133,468 |
Loans(2) | |
| — | |
| 13,107 | |
| 13,107 |
Held-to-maturity debt securities | |
| — | |
| 32,938 | |
| 32,938 |
Less: Allowance for loan losses | |
| (717) | |
| (2,173) | |
| (2,890) |
Total | | $ | 60,442 | | $ | 116,181 | | $ | 176,623 |
As of December 31, 2021 | |
|
| |
|
| |
|
|
Construction loans(2) | | $ | 59,640 | | $ | 125,621 | | $ | 185,261 |
Loans(2) | |
| — | |
| 27,422 | |
| 27,422 |
Held-to-maturity debt securities | |
| — | |
| 96,838 | |
| 96,838 |
Available-for-sale debt securities(3) | |
| — | |
| 28,092 | |
| 28,092 |
Less: Allowance for loan losses | |
| (576) | |
| (4,193) | |
| (4,769) |
Total | | $ | 59,064 | | $ | 273,780 | | $ | 332,844 |
(1) | The carrying value of |
(2) | The carrying value of these loans |
(3) |
Credit Characteristics
—As part of the20
from 1 (lower risk) to 5 (higher risk), are based on judgments which are inherently uncertain, and there can be no assurance that actual performance will be similar to current expectation. The Company designates loans as non-performing at such time as: (1) the loan becomesinterest payments become 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.
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 September 30, 2022 were as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| Year of Origination |
|
| | ||||||||||||||||
|
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior to 2018 |
| Total | |||||||
Senior mortgages | | | | | | | | | | | | | | | | | | | | | |
Risk rating | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
|
1.0 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
1.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
2.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
2.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
3.0 | |
| — | |
| — | |
| — | |
| — | |
| 65,559 | |
| — | |
| 65,559 |
3.5 | |
| — | |
| — | |
| — | |
| — | |
| 6,750 | |
| — | |
| 6,750 |
4.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
4.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
5.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Subtotal(1) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 72,309 | | $ | — | | $ | 72,309 |
Subordinate mortgages | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
1.0 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
1.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
2.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
2.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
3.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 13,107 | |
| 13,107 |
3.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
4.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
4.5 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
5.0 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Subtotal | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 13,107 | | $ | 13,107 |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 72,309 | | $ | 13,107 | | $ | 85,416 |
(1) | As of September 30, 2022, excludes $61.2 million for one 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 September 30, 2022 | | | | | | | | | | | | | | | |
Senior mortgages | | $ | 72,309 | | $ | — | | $ | 61,159 | | | 61,159 | | $ | 133,468 |
Subordinate mortgages | |
| 13,107 | |
| — | |
| — | |
| — | |
| 13,107 |
Total | | $ | 85,416 | | $ | — | | $ | 61,159 | | $ | 61,159 | | $ | 146,575 |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Senior mortgages | | $ | 139,968 | | $ | — | | $ | 59,640 | | | 59,640 | | $ | 199,608 |
Corporate/Partnership loans | |
| 618 | |
| — | |
| — | |
| — | |
| 618 |
Subordinate mortgages | |
| 12,457 | |
| — | |
| — | |
| — | |
| 12,457 |
Total | | $ | 153,043 | | $ | — | | $ | 59,640 | | $ | 59,640 | | $ | 212,683 |
21
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 September 30, 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) | | $ | 61,159 | | $ | 60,409 | | $ | (717) | | $ | 59,640 | | $ | 58,888 | | $ | (576) |
Total | | $ | 61,159 | | $ | 60,409 | | $ | (717) | | $ | 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 no 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 (Loss) | | Fair Value | | Value | |||||
As of September 30, 2022 |
| |
|
| |
|
| |
|
| |
|
| |
|
Held-to-Maturity Securities | |
| | |
| | |
| | |
|
| |
| |
Debt securities(1) | | $ | 32,938 | | $ | 32,938 | | $ | — | | $ | 32,938 | | $ | 32,938 |
Total | | $ | 32,938 | | $ | 32,938 | | $ | — | | $ | 32,938 | | $ | 32,938 |
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 |
(1) | During the nine months ended September 30, 2022, the Company received a $40.0 million repayment, reduced the maturity date by nine months to December 30, 2022 and recorded a $25.0 million provision in ‘Provision for (recovery of) loan losses” in its consolidated statements of operations on its debt security. |
22
iStar Inc.
As of September 30, 2022, the contractual maturities of the Company’s securities were as follows ($ 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 | | $ | 32,938 | | $ | 32,938 | | $ | — | | $ | — |
After one year through 5 years | |
| — | |
| — | |
| — | |
| — |
After 5 years through 10 years | |
| — | |
| — | |
| — | |
| — |
After 10 years | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 32,938 | | $ | 32,938 | | $ | — | | $ | — |
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 | | Earnings (Losses) from | ||||||||
| | Carrying Value | | Equity Method Investments | | Equity Method Investments | ||||||||||||
| | as of | | For the Three Months Ended | | For the Nine Months Ended | ||||||||||||
| | September 30, | | December 31, | | September 30, | | September 30, | ||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Real estate equity investments | | |
|
| |
| | |
| | |
|
| |
|
| |
|
SAFE(1) | | $ | 1,459,476 | | $ | 1,168,532 | | $ | 42,800 | | $ | 73,475 | | $ | 74,549 | | $ | 94,590 |
Ground Lease Plus Fund | |
| 65,793 | |
| 17,630 | |
| 725 | |
| — | |
| 2,014 | |
| — |
Other real estate equity investments(2) | |
| 33,808 | |
| 44,349 | |
| 12,365 | |
| 11,965 | |
| 19,749 | |
| 9,902 |
Subtotal | |
| 1,559,077 | |
| 1,230,511 | |
| 55,890 | |
| 85,440 | |
| 96,312 | |
| 104,492 |
Other strategic investments(3) | |
| 46,191 | |
| 66,770 | |
| 1,907 | |
| 2,355 | |
| 5,910 | |
| 6,169 |
Total | | $ | 1,605,268 | | $ | 1,297,281 | | $ | 57,797 | | $ | 87,795 | | $ | 102,222 | | $ | 110,661 |
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) | |
(3) | During the three and nine months ended September 30, 2021, the Company identified observable price changes in an equity security held by the Company as evidenced by orderly private issuances of similar securities by the same issuer. In accordance with ASC 321 – Investments – Equity Securities, the Company remeasured its equity investment at fair value and recognized |
Safehold Inc.—In February 2014,Refer to Note 1 – Merger with Safehold Inc.
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.real estate projects built thereon (“Ground Leases”). 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.
23
acquired 3,240,000 shares of SAFE’s common stock in a private placement for $191.2 million. As of September 30, 2017,2022, the Company had utilized allowned approximately 64.8% of SAFE’s common stock outstanding.
In January 2019, the Company purchased 12.5 million newly designated limited partnership units (the “Investor Units”) in SAFE’s operating partnership (“SAFE OP”), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. In May 2019, after the approval of SAFE’s shareholders, the Investor Units were exchanged for shares of SAFE’s common stock on a one-for-one basis. Following the exchange, the Investor Units were retired.
In connection with the Company’s purchase of the availability authorized in the 10b5-1 Plan and owned approximately 34.6% of SAFE's common stock outstanding.
● | 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%; 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 three times the prior year’s management fee. |
During the three months ended September 30, 2022 and 2021, the Company recorded $5.3 million and $3.6 million, respectively, of management fees pursuant to receive any performance or incentive compensation. its management agreement with SAFE. During the nine months ended September 30, 2022 and 2021, the Company recorded $15.0 million and $10.6 million, respectively, of management fees pursuant to 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 September 30, 2022 and 2021, the Company recognized $3.1 million and $1.9 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE. During the nine months ended
24
September 30, 2022 and 2021, the Company recognized $9.4 million and $5.6 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 for the periods presented, all of which were approved by the Company’s and certain of the expense reimbursements through June 30, 2018.
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 Note 3) 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 no 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 no 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. No gain or loss was recognized by the Company as a result of the sale.
In June 2021, the Company and SAFE entered into two 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 building in Atlanta, GA. $5.11.25x 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, ofwhich 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 loan was funded as of September 30, 2017.
25
iStar Inc.
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 $57.9Ground 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, inplus 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 closing will be satisfied and that SAFE will acquire the land assets. As of December 31, 2016,and Ground Lease from the Company's other real estate equity investments included $3.6 million in operating properties and $49.6 million in land assets.
In December 2016,2021, the Company’s partner in a venture recapitalized an existing multifamily property, which included a Ground Lease provided by SAFE. As part of the recapitalization, the Company’s partner acquired its 50% equity interest in the entity and the mezzanine loan held by the Company sold a land and development asset to a newly formed unconsolidated entitywas repaid in which the Company owns a 50.0% equity interest. This entity is a VIE and the Company does not have a controlling interest due to shared control 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, 2017 and December 31, 2016, respectively, and is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets.full. During the three and nine months ended September 30, 2017,2021, the Company recorded $0.5$0.6 million and $1.4$1.7 million, respectively, of interest income respectively, on the seniormezzanine loan.
In January 2022, 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. The Company sold the Ground Lease to SAFE in July 2022 for $36.0 million when the construction related conditions were met and recognized a gain of $1.0 million in “Income from sales of real estate” in its consolidated statements of operations.
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 property. The Loan Fund received $9.0 million of consideration from SAFE in connection with this transaction.
In April 2022, the Company exchanged its 50% equity interest with a carrying value of $4.4 million in a venture that owned a hotel property for land underlying the property with an in-place Ground Lease valued at $9.0 million and recorded a gain of $4.6 million in “Earnings from equity method investments” in the consolidated statements of operations. Subsequently, the Company sold the Ground Lease on the land to SAFE for $9.0 million and did not recognize any gain or loss on the sale.
In June 2022, the Loan Fund (refer to Other Strategic Investments below) committed to provide a $105.0 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 mixed-use property. The Loan Fund received $5.0 million of consideration from SAFE in connection with this transaction.
26
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”). The Company owns a 53% 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 the substantive participating rights of its partner and accounts for this investment as an equity method investment. In addition, the Ground Lease Plus Fund has first look rights through December 2023 on qualifying pre-development projects that SAFE has elected to not originate.
In November 2021, the Company acquired land for $33.3 million and simultaneously structured and entered into a Ground Lease on which a multi-family project will be constructed. In December 2021, the Company sold the Ground Lease to the Ground Lease Plus Fund and recognized no gain or loss on the sale. The Company and SAFE entered into an agreement pursuant to which SAFE would acquire the land and related Ground Lease from the Ground Lease Plus Fund when certain construction related conditions are met by a specified time period (refer to “Safehold Inc.” above).
In January 2022, the Company sold two Ground Leases to the Ground Lease Plus Fund (refer to Note 5) and recognized an aggregate $0.5 million of gains in “Income from sales of real estate” on the sale. The Company and SAFE entered into an agreement pursuant to which SAFE would acquire the land 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).
Other strategicreal estate equity investments—As of September 30, 2017,2022, the Company’s other real estate equity investments include equity interests in real estate ventures ranging from 48% to 95%, comprised of investments of $33.8 million in operating properties. As of December 31, 2021, the Company’s other real estate equity investments included $43.3 million in operating properties and $1.1 million in land assets.
Other strategic investments—As of September 30, 2022 and December 31, 2021, the Company also had investments in real estate related funds and other strategic investments in several other entities that were accountedreal estate entities.
In January 2021, the Company sold two 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 not 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.
In February 2022, the Loan Fund committed to provide a $130.0 million loan to the ground lessee of September 30, 2017 and December 31, 2016,a Ground Lease originated at SAFE. The loan was for the carrying valueGround Lease tenant’s recapitalization of a life science property.
In June 2022, the Company's cost method investmentsLoan Fund committed to provide a $105.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was $0.8 million and $1.4 million, respectively.for the Ground Lease tenant’s recapitalization of a mixed-use property.
27
Summarized investee financial information—The following table presents the investee level summarized financial information offor the Company'sCompany’s equity method investments, which wereinvestment that was significant subsidiaries for the nine months endedas of September 30, 2017 and 20162022 ($ in thousands):
| | | | | | | | | |
|
| Revenues |
| Expenses |
| Net Income Attributable to SAFE(1) | |||
For the Nine Months Ended September 30, 2022 | | | | | | | | | |
SAFE | | $ | 196,943 | | $ | 136,517 | | $ | 113,628 |
| |
| | | | | | | |
For the Nine Months Ended September 30, 2021 | | | | | | | | | |
SAFE | | $ | 135,001 | | $ | 88,585 | | $ | 51,844 |
Revenues | 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 |
(1) | Net Income Attributable to SAFE also includes gain on sale of net investment in leases, earnings from equity method investments, loss on early extinguishment of debt and selling profit from sales-type leases. |
28
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
| | | | | | | |
| | As of | | ||||
|
| September 30, 2022 |
| December 31, 2021 | | ||
Other assets(2) | | $ | 20,048 | | $ | 16,040 | |
Operating lease right-of-use assets(3) | |
| 17,104 | |
| 20,437 | |
Restricted cash | |
| 5,375 | |
| 54,395 | |
Other receivables | |
| 4,962 | |
| 5,054 | |
Corporate furniture, fixtures and equipment, net(4) | |
| 1,575 | |
| 1,852 | |
Leasing costs, net(5) | |
| 646 | |
| 818 | |
Intangible assets, net(6) | | | 334 | | | 1,209 | |
Deferred financing fees, net | |
| — | |
| 629 | |
Deferred expenses and other assets, net | | $ | 50,044 | | $ | 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) | 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). |
(3) | Right-of-use lease assets relate primarily to the Company’s leases of office space. Right-of use lease assets initially equal the lease liability. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease and is recorded in “General and administrative” and “Real estate expense” in the Company’s consolidated statements of operations. During the three months ended September 30, 2022 and 2021, the Company recognized $1.2 million and $1.2 million, respectively, in "General and administrative" and $0.1 million and $0.2 million, respectively, in "Real estate expense" in its consolidated statements of operations relating to operating leases. During the nine months ended September 30, 2022 and 2021, the Company recognized $3.6 million and $3.7 million, respectively, in "General and administrative" and $0.5 million and $0.5 million, respectively, in "Real estate expense" in its consolidated statements of operations relating to operating leases. |
(4) | Accumulated depreciation on corporate furniture, fixtures and equipment was $12.2 million and $14.8 million as of September 30, 2022 and December 31, 2021, respectively. |
(5) | Accumulated amortization of leasing costs was $0.5 million and $1.1 million as of September 30, 2022 and December 31, 2021, respectively. |
(6) | Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. Accumulated amortization on intangible assets, net was |
As of September 30, |
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
| | | | | | | |
| | As of | | ||||
|
| September 30, 2022 |
| December 31, 2021 | | ||
Accrued expenses | | $ | 70,428 | | $ | 151,810 | |
Accrued interest payable | |
| 24,575 | |
| 31,293 | |
Other liabilities(1) | | | 26,867 | | | 30,362 | |
Operating lease liabilities (see table above) | |
| 19,006 | |
| 23,267 | |
Accounts payable, accrued expenses and other liabilities | | $ | 140,876 | | $ | 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 September 30, |
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 |
29
iStar Inc.
The Company'sCompany’s debt obligations were as follows ($ in thousands):
| | | | | | | | | | |
| | Carrying Value as of | | Stated | | Scheduled | ||||
|
| September 30, 2022 |
| December 31, 2021 |
| Interest Rates |
| Maturity Date | ||
Secured credit facilities: |
| |
|
| |
| |
|
|
|
Revolving Credit Facility | | $ | — | | $ | — | | LIBOR + 2.00 | % (1) | — |
Senior Term Loan | |
| — | |
| 491,875 | | LIBOR + 2.75 | % (2) | — |
Total secured credit facilities | |
| — | |
| 491,875 | |
|
|
|
Unsecured notes: | |
|
| |
|
| |
|
|
|
3.125% senior convertible notes(3) | |
| — | |
| 287,500 | | 3.125 | % | — |
4.75% senior notes(4) | |
| 753,561 | |
| 775,000 | | 4.75 | % | October 2024 |
4.25% senior notes(5) | |
| 501,997 | |
| 550,000 | | 4.25 | % | August 2025 |
5.50% senior notes(6) | |
| 346,906 | |
| 400,000 | | 5.50 | % | February 2026 |
Total unsecured notes | |
| 1,602,464 | |
| 2,012,500 | |
|
|
|
Other debt obligations: | |
|
| |
|
| |
|
|
|
Trust preferred securities | |
| 100,000 | |
| 100,000 | | LIBOR + 1.50 | % | October 2035 |
Total debt obligations | |
| 1,702,464 | |
| 2,604,375 | |
|
|
|
Debt discounts and deferred financing costs, net | |
| (21,756) | |
| (32,201) | |
|
|
|
Total debt obligations, net(7) | | $ | 1,680,708 | | $ | 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) |
(4) |
The Company can prepay these senior notes without penalty beginning July 1, |
(5) | |
The Company can prepay these senior notes without penalty beginning |
(6) | |
The Company can prepay these senior notes without penalty beginning |
(7) | |
The Company capitalized interest relating to development activities of |
Future Scheduled Maturities
—As of September 30, | | | | | | | | | |
|
| Unsecured Debt |
| Secured Debt |
| Total | |||
2022 (remaining three months) | | $ | — | | $ | — | | $ | — |
2023 | |
| — | |
| — | |
| — |
2024 | |
| 753,561 | |
| — | |
| 753,561 |
2025 | |
| 501,997 | |
| — | |
| 501,997 |
2026 | |
| 346,906 | |
| — | |
| 346,906 |
Thereafter | |
| 100,000 | |
| — | |
| 100,000 |
Total principal maturities | |
| 1,702,464 | |
| — | |
| 1,702,464 |
Unamortized discounts and deferred financing costs, net | |
| (21,756) | |
| — | |
| (21,756) |
Total debt obligations, net | | $ | 1,680,708 | | $ | — | | $ | 1,680,708 |
30
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 |
Senior Term Loan—The Company had a $650.0 million senior term loan (the “Senior Term Loan”) that accrued interest at LIBOR plus 2.75% per annum and matured in June 2023. The Senior Term Loan was secured 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 life of the facility. The Company repaid the Senior Term Loan in full in March 2022 using proceeds from the 2016 Senior Secured Credit Facility, together with cash on hand, were primarily usedNet Lease Sale (refer to repay other secured debt. In connection with the 2016 Senior Secured Credit Facility, the Company incurred $4.5 million of lender fees, substantially all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. The Company also incurred $6.2 million in third party fees, of which $4.3 million was capitalized in “Debt obligations, net” on the Company's consolidated balance sheetsNote 3 - Net Lease Sale and $1.9 million was recognized in “Other expense” in the Company's consolidated statements of operations. In connection with the repricing of the 2016 Senior Secured Credit Facility in January 2017, the Company incurred an additional $0.8 million in fees, substantially all of which was recognized in "Other expense" in the Company's consolidated statements of operations. In connection with the repricing of the 2016 Senior Secured Credit Facility in September 2017, the Company incurred an additional $2.6 million in fees, of which $1.5 million was recognized in "Other expense" in the Company's consolidated statements of operations and $1.1 million was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets.
Revolving Credit Facility
—Unsecured Notes—As of September 30, 2017, based on2022, the Company has senior unsecured notes outstanding with varying fixed-rates and maturities ranging from October 2024 to February 2026. In connection with the Net Lease Sale, in the fourth quarter 2021, the Company obtained the consents of holders of its outstanding 4.75% senior notes due 2024, 4.25% senior notes due 2025 and 5.50% senior notes due 2026 to certain amendments to the indentures governing the notes intended to align the indentures with the sale of the Company's borrowing basenet lease assets. The Company paid holders consent fees ranging from 0.75% to 1.00% of assets, the Company had $325.0 million of borrowing capacity available under the 2015 Secured Revolving Credit Facility.
3.125% Senior Convertible Notes—In April 2022, the $300.0 million principal amount outstandingCompany completed separate, privately-negotiated transactions with holders of the 7.125% senior unsecured notes due February 2018 and the $300.0 million principal amount outstanding of the 4.875% senior unsecured notes due July 2018. In addition, subsequent to September 30, 2017, the initial purchasers of the 3.125% Convertible Notes exercised their option to purchase an additional $37.5$194 million aggregate principal amount of the Company's 3.125% Convertible Notes.
In July and August 2022, the Company completed a series of privately-negotiated exchange transactions with holders of approximately $80.9 million aggregate principal amount of the Company's 3.125% Convertible Notes in which the noteholders exchanged their convertible notes with the Company for an aggregate of approximately 3.3 million newly issued shares of the Company's common stock and aggregate cash payments of approximately $43.6 million inclusive of accrued interest. The convertible notes received by the Company were retired. The Company recognized a net increase in shareholders’ equity of $38.2 million inclusive of a $12.1 million loss on extinguishment of debt in connection with these transactions.
In September 2022, the holders of approximately $11.7 million aggregate principal amount of the Company's 3.125% Convertible Notes executed their conversion rights under the notes and exchanged their convertible notes with the Company for an aggregate of approximately 92,011 newly issued shares of the Company's common stock and aggregate cash payments of approximately $11.7 million. The convertible notes received by the Company were retired. The Company also repaid $0.5 million principal amount of 6.00% senior unsecured notes dueits 3.125% Convertible Notes for cash at maturity.
4.75% Senior Notes—In April 2022. Proceeds from the offering were primarily used to repay in full the $99.7 million principal amount outstanding of the 5.85% senior unsecured notes due March 2017 and repay in full the $275.0 million principal amount outstanding of the 9.00% senior unsecured notes due June 2017 prior to maturity. In March 2016,2022, the Company repaid its $261.4 million principal amount outstanding of the 5.875% senior unsecured notes at maturity using available cash. In addition, the Company issued $275.0redeemed $7.1 million principal amount of 6.50%its 4.75% senior unsecured notes due July 2021. Proceeds from the offering were primarily used to repay in full the $265.0October 2024 for $7.2 million. The Company recognized a $0.2 million principal amount outstanding of the senior unsecured notes due July 2016 and repay $5.0 million of the 2015 Secured Revolving Credit Facility.
31
iStar Inc.
5.50% Senior Notes—In June 2022, the Company redeemed $53.1 million principal amount of its 5.50% senior notes due February 2026 for $50.6 million. The Company recognized a $1.7 million net gain on extinguishment of debt in connection with these transactions.
4.25% Senior Notes— In August and September 2022, the Company redeemed an aggregate $48.0 million principal amount of its senior notes due August 2025 for $48.1 million. The Company recognized a $0.7 million loss on extinguishment of debt in connection with these transactions.
Debt Covenants—The carrying value of the Company's encumbered and unencumbered assets by asset type are as follows ($ 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 |
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
September 30, | | | | | | | | | | | | |
| | Loans and Other | | | | | | | | | | |
| | Lending | | Real | | Other | | | | |||
|
| Investments |
| Estate |
| Investments |
| Total | ||||
Performance-Based Commitments | | $ | 717 | | $ | 270 | | $ | 147,405 | | $ | 148,392 |
Strategic Investments | |
| — | |
| 3,161 | |
| 4,907 | |
| 8,068 |
Total | | $ | 717 | | $ | 3,431 | | $ | 152,312 | | $ | 156,460 |
32
Other Commitments—Future minimum lease obligations under non-cancelable operating leases as of September 30, 2022 are as follows ($ in thousands):(1)
| | | |
2022 (remaining three months) | | $ | 1,628 |
2023 | |
| 6,295 |
2024 | |
| 6,178 |
2025 | |
| 6,166 |
2026 | |
| 142 |
Thereafter | |
| 162 |
Total undiscounted cash flows | |
| 20,571 |
Present value discount(1) | |
| (1,565) |
Lease liabilities | | $ | 19,006 |
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.
33
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 September 30, 2022 and December 31, 2021 ($ in thousands):
| | | | | |
|
| Derivative Liabilities | |||
| | Balance Sheet | | Fair | |
As of September 30, 2022 |
| Location |
| Value | |
Derivatives Designated in Hedging Relationships | | | | | |
Interest rate swaps |
| Liabilities associated with real estate held for sale and classified as discontinued operations | | $ | — |
Total |
|
| | $ | — |
| | | | | |
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 $2.4 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 | $ | — | $ | — |
34
iStar Inc.
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 September 30, 2022 | | | | | | | | |
Interest rate swaps |
| Earnings from equity method investments | | $ | 12,026 | | $ | (562) |
For the Three Months Ended September 30, 2021 |
|
| |
|
| |
|
|
Interest rate swaps |
| Net income from discontinued operations | | $ | 273 | | $ | (2,050) |
Interest rate swaps |
| Earnings from equity method investments | |
| — | |
| (633) |
For the Nine Months Ended September 30, 2022 | | | | | | | | |
Interest rate swaps |
| Earnings from equity method investments | | $ | 19,163 | | $ | (1,763) |
For the Nine Months Ended September 30, 2021 |
|
| |
|
| |
|
|
Interest rate swaps |
| Net income from discontinued operations | | $ | 2,845 | | $ | (6,183) |
Interest rate swaps |
| Earnings from equity method investments | |
| 8,638 | |
| (1,324) |
35
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 $6.0 |
(3) | The Company may, at its option, redeem the Series |
Dividends
—To maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate corporate federal income taxes payable by the REIT. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the
Stock Repurchase Program—The Company from paying any common dividends if it ceases to qualify as a REIT.may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. The Company did not declare or payrepurchase any shares of its common stock dividends forduring the
36
Accumulated Other Comprehensive Income (Loss)—"Accumulated “Accumulated other comprehensive income (loss)"” reflected in the Company's shareholders'Company’s shareholders’ equity is comprised of the following ($ 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 | | ||||
|
| September 30, 2022 |
| December 31, 2021 | | ||
Unrealized gains on available-for-sale securities | | $ | — |
| $ | 4,237 | |
Unrealized losses on cash flow hedges | |
| (4,898) | |
| (25,824) | |
Accumulated other comprehensive loss | | $ | (4,898) | | $ | (21,587) | |
Stock-Based Compensation
—The Company recorded stock-based compensation,Performance 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 two ownership classes, class A units and class B units. The Company owns 100% of the class A units and the class B units were issued to employees as long-term compensation. Except for certain clawback provisions, participants can retain vested class B units upon their termination of employment with the Company. The class B units are entitled to distributions from the net cash realized from the investments in the plan after the Company, through its ownership of the class A units, has received a specified return on its invested capital and a return of its invested capital. Distributions on the class B units are also subject to reductions under a total shareholder return (“TSR”) adjustment. The fair value of 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 nine months ended September 30, 2022 and 2021, the Company recorded $3.5 million and $2.6 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 nine months ended September 30, 2022.
| | | | |
| | iPIP Investment Pool | ||
|
| 2019-2020 |
| 2021-2022 |
Points at beginning of period |
| 95.20 |
| 84.75 |
Granted | | — | | 7.95 |
Forfeited |
| — |
| (0.95) |
Points at end of period |
| 95.20 |
| 91.75 |
As of September 30, 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
37
an aggregate gross book value of $406 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.plans and changes during the nine months ended September 30, 2022.
| | | | | | |
| | iPIP Investment Pool | ||||
|
| 2013‑2014 |
| 2015‑2016(1) |
| 2017‑2018 |
Points at beginning of period |
| 80.17 |
| 70.40 |
| 75.34 |
Granted | | — | | — | | — |
Points at end of period |
| 80.17 |
| 70.40 |
| 75.34 |
(1) | As of September 30, 2022, all awards under the 2015-2016 Plan had been paid. |
During the nine months ended September 30, 2022, the Company granted 73recorded a $39.0 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 September 30, 2022, investments with an additional 10 iPIP pointsaggregate gross book value of $13 million were attributable to the 2013-2014 Plan and investments with an aggregate gross book value of $236 million, including 7.6 million shares of SAFE common stock acquired by the Company, were attributable to the 2017-2018 Plan. As of September 30, 2022 there were no investments attributable to the 2015-2016 Plan.
During the nine months ended September 30, 2022, the Company made distributions to participants in the 2013-2014 investment poolpool. The iPIP participants received total distributions in the amount of $19.6 million as compensation, comprised of cash and 34 iPIP points412,041 shares of the Company’s common stock with a fair value of $16.06 per share, which are fully-vested and issued under the 2009 LTIP. After deducting statutory minimum tax withholdings, a total of 215,657 shares of the Company’s common stock were issued.
During the nine months ended September 30, 2022, the Company made distributions to participants in the 2015-2016 investment pool.
During the nine months ended September 30, 2021, the Company granted an additional 10 iPIP points in the 2013-2014 investment pool and an additional 40 iPIP pointsmade distributions to participants in the 2015-2016 investment pool.
38
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, 2017,2022, an aggregate of 3.32.3 million shares remain available for issuance pursuant to future awards under the Company'sCompany’s 2009 LTIP.
Restricted Stock Unit Activity
— | | |
Nonvested at beginning of period | | 754 |
Granted | | 221 |
Vested | | (316) |
Forfeited | | (19) |
Nonvested at end of period | 640 |
As of September 30, 2017, 111,6422022, there was $6.5 million of such service-based Units were outstanding.
Directors’ Awards
—During the nine months ended September 30,401(k) Plan
—The Company made
39
iStar Inc.
Note 15—Earnings Per Share
The following table presents a reconciliation of income (loss) from continuing operations used in the basic and diluted EPSearnings per share (“EPS”) calculations ($ in thousands, except for per share data):
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Net income (loss) from continuing operations | | $ | 17,952 | | $ | 109,380 | | $ | (116,430) | | $ | 58,152 | |
Net (income) loss from continuing operations attributable to noncontrolling interests | |
| 53 | |
| (10) | |
| (46) | |
| 55 | |
Preferred dividends | |
| (5,874) | |
| (5,874) | |
| (17,622) | |
| (17,622) | |
Net income (loss) from continuing operations and allocable to common shareholders for basic and diluted earnings per common share | | $ | 12,131 | | $ | 103,496 | | $ | (134,098) | | $ | 40,585 | |
40
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Earnings allocable to common shares: |
| |
|
| |
| | |
|
| |
| |
Numerator for basic and diluted earnings per share: |
| |
|
| |
| | |
|
| |
| |
Net income (loss) from continuing operations and allocable to common shareholders | | $ | 12,131 | | $ | 103,496 | | $ | (134,098) | | $ | 40,585 | |
Net income from discontinued operations | | | — | | | 21,614 | | | 797,688 | | | 69,415 | |
Net (income) from discontinued operations attributable to noncontrolling interests | | | — | | | (3,254) | | | (179,089) | | | (8,092) | |
Net income allocable to common shareholders | | $ | 12,131 | | $ | 121,856 | | $ | 484,501 | | $ | 101,908 | |
| | | | | | | | | | | | | |
Denominator for basic and diluted earnings per share: | |
|
| |
|
| |
|
| |
|
| |
Weighted average common shares outstanding for basic earnings per common share | | | 85,458 | | | 71,299 | | | 78,706 | | | 72,675 | |
Add: Effect of assumed shares issued under treasury stock method for restricted stock units | | | 76 | | | 221 | | | — | | | 206 | |
Add: Effect of convertible debt | | | 333 | | | 8,967 | | | — | | | 5,521 | |
Weighted average common shares outstanding for basic and diluted earnings per common share | |
| 85,867 | |
| 80,487 | |
| 78,706 | |
| 78,402 | |
| | | | | | | | | | | | | |
Basic earnings per common share:(1) | |
|
| |
|
| |
|
| |
|
| |
Net income (loss) from continuing operations and allocable to common shareholders | | $ | 0.14 | | $ | 1.45 | | $ | (1.70) | | $ | 0.56 | |
Net income from discontinued operations and allocable to common shareholders | | | — | | | 0.26 | | | 7.86 | | | 0.84 | |
Net income allocable to common shareholders | | $ | 0.14 | | $ | 1.71 | | $ | 6.16 | | $ | 1.40 | |
| | | | | | | | | | | | | |
Diluted earnings per common share:(1) | |
|
| |
|
| |
|
| |
|
| |
Net income (loss) from continuing operations and allocable to common shareholders | | $ | 0.14 | | $ | 1.28 | | $ | (1.70) | | $ | 0.52 | |
Net income from discontinued operations and allocable to common shareholders | | | — | | | 0.23 | | | 7.86 | | | 0.78 | |
Net income allocable to common shareholders | | $ | 0.14 | | $ | 1.51 | | $ | 6.16 | | $ | 1.30 | |
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 |
(1) | For the nine months ended September 30, |
41
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 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 | — |
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.
| | | | | | | | | | | | |
| | 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 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 nine months ended September 30, 20172022 and 20162021 ($ in thousands):
| | | | | | |
|
| 2022 |
| 2021 | ||
Beginning balance | | $ | 28,092 | | $ | 25,274 |
Purchases | | | — | | | 3,375 |
Sales and Repayments | |
| (26,752) | |
| (201) |
Realized gain recorded in other income | | | 2,897 | | | — |
Unrealized losses recorded in other comprehensive income | |
| (4,237) | |
| (913) |
Ending balance | | $ | — | | $ | 27,535 |
42
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 September 30, 2022 | | As of December 31, 2021 | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | ||||
|
| Value |
| Value |
| Value |
| Value | ||||
Assets | | | | | | | | | | | | |
Net investment in leases (refer to Note 5)(1) | | $ | — | | $ | — | | $ | 43 | | $ | 43 |
Loans receivable and other lending investments, net(1) | | | 177 | | | 177 | | | 333 | | | 345 |
Loans receivable held for sale(1) | | | — | | | — | | | 43 | | | 43 |
Cash and cash equivalents(2) | |
| 1,336 | |
| 1,336 | |
| 340 | |
| 340 |
Restricted cash(2) | |
| 5 | |
| 5 | |
| 54 | |
| 54 |
| | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
Debt obligations, net(1)(3) | | | | | | | | | | | | |
Level 1 | | | 1,582 | | | 1,583 | | | 2,473 | | | 2,799 |
Level 3 | | | 99 | | | 99 | | | 99 | | | 104 |
Total debt obligations, net | | | 1,681 | | | 1,682 | | | 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 September 30, 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 December 31, 2021, the fair value of the Company’s 3.125% Senior Convertible Notes was $527.5 million (refer to Note 10). |
Note 17—Segment Reporting
The Company has determined that it has four reportable segments based on how management reviews and manages its business. These reportable segments include: Net Lease, Real Estate Finance, Net Lease, Operating Properties and Land and Development. The Net Lease segment (refer to Note 3 - Net Lease Sale and Discontinued Operations) includes the Company’s investments in SAFE and its Ground Lease adjacent businesses (refer to Note 8). The Real Estate Finance segment includes all of the Company'sCompany’s activities related to senior and mezzanine real estate loans and real estate related securities. The Net Lease segment includes the Company's activities and operations related to the ownership of properties generally leased to single corporate tenants. The Operating Properties segment includes the Company'sCompany’s activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company'sCompany’s activities related to its developable land portfolio.
The Company evaluates performance basedperformance-based on the following financial measures for each segment. The Company'sCompany’s segment information is as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land and |
| Corporate/ |
| Company | ||||||
| | Lease | | Finance | | Properties | | Development | | Other(1) | | Total | ||||||
Three Months Ended September 30, 2022 | | | | | | | | | | | | | | | | | | |
Operating lease income | | $ | — | | $ | — | | $ | 3,340 | | $ | 84 | | $ | — | | $ | 3,424 |
Interest income |
| | — |
| | 2,093 |
| | — |
| | — |
| | — |
| | 2,093 |
Interest income from sales-type leases |
| | 129 |
| | — |
| | — |
| | — |
| | — |
| | 129 |
Other income |
| | 5,504 |
| | 3,147 |
| | 12,197 |
| | 2,462 |
| | 3,714 |
| | 27,024 |
Land development revenue |
| | — |
| | — |
| | — |
| | 15,087 |
| | — |
| | 15,087 |
Earnings (losses) from equity method investments |
| | 43,525 |
| | 1,329 |
| | 11,515 |
| | 850 |
| | 578 |
| | 57,797 |
Income from sales of real estate |
| | 951 |
| | — |
| | — |
| | — |
| | — |
| | 951 |
Total revenue and other earnings |
| | 50,109 |
| | 6,569 |
| | 27,052 |
| | 18,483 |
| | 4,292 |
| | 106,505 |
Real estate expense |
| | (726) |
| | — |
| | (11,012) |
| | (4,466) |
| | — |
| | (16,204) |
Land development cost of sales |
| | — |
| | — |
| | — |
| | (16,778) |
| | — |
| | (16,778) |
Other expense |
| | 489 |
| | (78) |
| | — |
| | (218) |
| | (4,364) |
| | (4,171) |
Allocated interest expense |
| | (13,049) |
| | (1,713) |
| | (1,122) |
| | (1,915) |
| | (4,865) |
| | (22,664) |
Allocated general and administrative(2) |
| | (5,302) |
| | (1,190) |
| | (751) |
| | (2,333) |
| | (5,008) |
| | (14,584) |
Segment profit (loss)(3) | | $ | 31,521 | | $ | 3,588 | | $ | 14,167 | | $ | (7,227) | | $ | (9,945) | | $ | 32,104 |
43
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 |
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Recovery of loan losses | | $ | — | | $ | (157) | | $ | — | | $ | — | | $ | — | | $ | (157) |
Recovery of losses on net investment in leases | |
| (380) | |
| — | |
| — | |
| — | |
| — | |
| (380) |
Depreciation and amortization | |
| — | |
| — | |
| 923 | |
| 227 | |
| 140 | |
| 1,290 |
Capitalized expenditures | |
| — | |
| — | |
| 104 | |
| 5,301 | |
| — | |
| 5,405 |
| | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Operating lease income | | $ | — | | $ | — | | $ | 3,636 | | $ | 96 | | $ | — | | $ | 3,732 |
Interest income | |
| 651 | |
| 6,321 | |
| — | |
| — | |
| — | |
| 6,972 |
Interest income from sales-type leases | |
| 526 | |
| — | |
| — | |
| — | |
| — | |
| 526 |
Other income | |
| 3,605 | |
| 1,095 | |
| 16,869 | |
| 3,189 | |
| 14,275 | |
| 39,033 |
Land development revenue | |
| — | |
| — | |
| — | |
| 93,369 | |
| — | |
| 93,369 |
Earnings (losses) from equity method investments | |
| 73,475 | |
| 872 | |
| 1,129 | |
| 10,836 | |
| 1,483 | |
| 87,795 |
Income from sales of real estate | |
| — | |
| — | |
| 25,611 | |
| — | |
| — | |
| 25,611 |
Total revenue and other earnings | |
| 78,257 | |
| 8,288 | |
| 47,245 | |
| 107,490 | |
| 15,758 | |
| 257,038 |
Real estate expense | |
| (91) | |
| — | |
| (9,184) | |
| (4,094) | |
| — | |
| (13,369) |
Land development cost of sales | |
| — | |
| — | |
| — | |
| (87,380) | |
| — | |
| (87,380) |
Other expense | |
| (210) | |
| (270) | |
| — | |
| (64) | |
| (350) | |
| (894) |
Allocated interest expense | |
| (15,691) | |
| (3,331) | |
| (1,641) | |
| (3,679) | |
| (4,353) | |
| (28,695) |
Allocated general and administrative(2) | |
| (5,487) | |
| (958) | |
| (473) | |
| (2,173) | |
| (5,029) | |
| (14,120) |
Segment profit (loss) (3) | |
| 56,778 | | $ | 3,729 | | $ | 35,947 | | $ | 10,100 | | $ | 6,026 | | $ | 112,580 |
Other significant non-cash items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Recovery of loan losses | | $ | — | | $ | (1,610) | | $ | — | | $ | — | | $ | — | | $ | (1,610) |
Recovery of losses on net investment in leases | | | (315) | | | — | | | — | | | — | | | — | | | (315) |
Impairment of assets | |
| — | |
| — | |
| 421 | |
| — | |
| — | |
| 421 |
Depreciation and amortization | |
| — | |
| — | |
| 1,385 | |
| 228 | |
| 129 | |
| 1,742 |
Capitalized expenditures | |
| — | |
| — | |
| 121 | |
| 7,416 | |
| — | |
| 7,537 |
| | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2022 | | | | | | | | | | | | | | | | | | |
Operating lease income | | $ | — | | $ | — | | $ | 9,396 | | $ | 319 | | $ | — | | $ | 9,715 |
Interest income |
| | 75 |
| | 11,187 |
| | — |
| | — |
| | — |
| | 11,262 |
Interest income from sales-type leases |
| | 861 |
| | — |
| | — |
| | — |
| | — |
| | 861 |
Other income |
| | 15,185 |
| | 3,185 |
| | 22,452 |
| | 5,097 |
| | 5,626 |
| | 51,545 |
Land development revenue |
| | — |
| | — |
| | — |
| | 54,390 |
| | — |
| | 54,390 |
Earnings from equity method investments |
| | 76,563 | �� | | 3,112 |
| | 15,233 |
| | 4,516 |
| | 2,798 |
| | 102,222 |
Income from sales of real estate |
| | 1,443 |
| | — |
| | — |
| | — |
| | — |
| | 1,443 |
Total revenue and other earnings |
| | 94,127 |
| | 17,484 |
| | 47,081 |
| | 64,322 |
| | 8,424 |
| | 231,438 |
Real estate expense |
| | (1,385) |
| | — |
| | (25,144) |
| | (12,808) |
| | — |
| | (39,337) |
Land development cost of sales |
| | — |
| | — |
| | — |
| | (55,369) |
| | — |
| | (55,369) |
Other expense |
| | (503) |
| | (237) |
| | — |
| | (538) |
| | (5,346) |
| | (6,624) |
Allocated interest expense |
| | (42,426) |
| | (7,049) |
| | (3,602) |
| | (8,903) |
| | (14,076) |
| | (76,056) |
Allocated general and administrative(3) |
| | (14,156) |
| | (3,540) |
| | (1,854) |
| | (6,702) |
| | (14,878) |
| | (41,130) |
Segment profit (loss)(4) | | $ | 35,657 | | $ | 6,658 | | $ | 16,481 | | $ | (19,998) | | $ | (25,876) | | $ | 12,922 |
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Provision for loan losses | | $ | — | | $ | 22,556 | | $ | — | | $ | — | | $ | — | | $ | 22,556 |
Impairment of assets | |
| — | |
| — | |
| 1,750 | |
| — | |
| 18 | |
| 1,768 |
Depreciation and amortization | |
| — | |
| — | |
| 2,878 | |
| 683 | |
| 424 | |
| 3,985 |
Capitalized expenditures | |
| — | |
| — | |
| 644 | |
| 15,824 | |
| — | |
| 16,468 |
| | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | |
| | |
| | |
| | |
| | |
| | |
| |
Operating lease income | | $ | — | | $ | — | | $ | 13,177 | | $ | 279 | | $ | — | | $ | 13,456 |
Interest income | |
| 968 | |
| 23,878 | |
| — | |
| — | |
| — | |
| 24,846 |
Interest income from sales-type leases | |
| 683 | |
| — | |
| — | |
| — | |
| — | |
| 683 |
Other income | |
| 10,614 | |
| 1,245 | |
| 23,159 | |
| 5,894 | |
| 20,038 | |
| 60,950 |
Land development revenue | |
| — | |
| — | |
| — | |
| 157,936 | |
| — | |
| 157,936 |
Earnings (losses) from equity method investments | |
| 94,590 | |
| 2,092 | |
| (5,553) | |
| 15,456 | |
| 4,076 | |
| 110,661 |
Income from sales of real estate | |
| — | |
| — | |
| 26,319 | |
| — | |
| — | |
| 26,319 |
Total revenue and other earnings | |
| 106,855 | |
| 27,215 | |
| 57,102 | |
| 179,565 | |
| 24,114 | |
| 394,851 |
Real estate expense | |
| (562) | |
| — | |
| (19,238) | |
| (13,604) | |
| — | |
| (33,404) |
Land development cost of sales | |
| — | |
| — | |
| — | |
| (147,507) | |
| — | |
| (147,507) |
Other expense | |
| (210) | |
| (422) | |
| — | |
| (64) | |
| (662) | |
| (1,358) |
Allocated interest expense | |
| (44,582) | |
| (11,737) | |
| (5,714) | |
| (11,481) | |
| (12,631) | |
| (86,145) |
Allocated general and administrative(3) | |
| (17,544) | |
| (3,659) | |
| (1,797) | |
| (6,968) | |
| (15,686) | |
| (45,654) |
Segment profit (loss)(4) | | $ | 43,957 | | $ | 11,397 | | $ | 30,353 | | $ | (59) | | $ | (4,865) | | $ | 80,783 |
44
iStar Inc.
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Recovery of loan losses | | $ | — | | $ | (7,411) | | $ | — | | $ | — | | $ | — | | $ | (7,411) |
Provision for losses on net investment in leases | |
| 465 | |
| — | |
| — | |
| — | |
| — | |
| 465 |
Impairment of assets | |
| — | |
| — | |
| 679 | |
| — | |
| — | |
| 679 |
Depreciation and amortization | | | — | | | — | | | 4,592 | | | 674 | | | 449 | | | 5,715 |
Capitalized expenditures | |
| — | |
| — | |
| 610 | |
| 16,727 | |
| — | |
| 17,337 |
| | | | | | | | | | | | | | | | | | |
As of September 30, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | — | | $ | — | | $ | 89,144 | | $ | — | | $ | — | | $ | 89,144 |
Real estate available and held for sale | |
| — | |
| — | |
| 1,283 | |
| — | |
| — | |
| 1,283 |
Total real estate | |
| — | |
| — | |
| 90,427 | |
| — | |
| — | |
| 90,427 |
Real estate and other assets available and held for sale and classified as discontinued operations(1) | | | 11,925 | | | — | | | — | | | — | | | — | | | 11,925 |
Land and development, net | |
| — | |
| — | |
| — | |
| 248,246 | |
| — | |
| 248,246 |
Loans receivable and other lending investments, net | |
| — | |
| 176,623 | |
| — | |
| — | |
| — | |
| 176,623 |
Other investments | | | 1,525,270 | | | 24,349 | | | 33,808 | | | — | | | 21,841 | | | 1,605,268 |
Total portfolio assets | | | 1,537,195 | | | 200,972 | | | 124,235 | | | 248,246 | | | 21,841 | |
| 2,132,489 |
Cash and other assets | | | | | | | | | | | | | | | | |
| 1,389,643 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 3,522,132 |
| | | | | | | | | | | | | | | | | | |
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 |
(3) | |
General and administrative excludes stock-based compensation |
(4) | |
The following is a reconciliation of segment profit to net income (loss) ($ in thousands): |
| | | | | | | | | | | | | |
|
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Segment income | | $ | 32,104 | | $ | 112,580 | | $ | 12,922 | | $ | 80,783 | |
Less: (Provision for) recovery of loan losses | |
| 157 | |
| 1,610 | |
| (22,556) | |
| 7,411 | |
Less: (Provision for) recovery of losses on net investment in leases | |
| 380 | |
| 315 | |
| — | |
| (465) | |
Less: Impairment of assets | |
| — | |
| (421) | |
| (1,768) | |
| (679) | |
Less: Stock-based compensation income (expense) | |
| 374 | |
| (3,001) | |
| 30,724 | |
| (23,300) | |
Less: Depreciation and amortization | |
| (1,290) | |
| (1,742) | |
| (3,985) | |
| (5,715) | |
Less: Income tax (expense) benefit | |
| (564) | |
| 39 | |
| (567) | |
| 117 | |
Less: Loss on early extinguishment of debt, net | |
| (13,209) | |
| — | |
| (131,200) | |
| — | |
Less: Net income from discontinued operations | | | — | | | 21,614 | | | 797,688 | | | 69,415 | |
Net income | | $ | 17,952 | | $ | 130,994 | | $ | 681,258 | | $ | 127,567 | |
45
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, including the Merger with Safehold Inc. (“SAFE”) (refer to Note 1 to the consolidated financial statements), 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
Merger with SAFE—In August 2022, we entered into a definitive agreement with SAFE for a tax-free, strategic combination that provides that, subject to the terms and conditions thereof, SAFE will merge with and into us (the “Merger”). We have reclassified certain itemsexpect that the Merger will accelerate SAFE’s market leadership in ourthe Ground Lease industry and will make SAFE the only internally-managed, pure-play Ground Lease company in the public markets. We expect that the Merger will close in the first quarter or second quarter of 2023. Refer to Note 1 to the consolidated financial statements for more information on the Merger.
Corporate Strategy. We continue 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 prior periods to conform toother assets. In March 2022, we, through certain subsidiaries of ours and entities managed by us, sold 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 $702.0 million of mortgage indebtedness, including indebtedness of equity method investments. We have invested more than $35investments, which was repaid with proceeds from the sale. After repayment of the mortgage indebtedness and prepayment penalties, repayment of our Senior Term Loan (refer to Note 10 to the consolidated financial statements), payments to terminate derivative contracts, payments to joint venture partners, and payments of promotes, transaction expenses and amounts due under employee incentive plans, we retained net cash proceeds of $1.2 billion overfrom the past two decades 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,transaction. Two net lease operating properties and land and development.
46
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 |
Portfolio Overview
As of September 30, 2017, we had $1.9 billion of cash, of which $1.4 billion was used to repay senior unsecured notes and redeem preferred equity subsequent to quarter end, and the remainder of which we expect to use primarily to fund future investment activities. In addition, we have additional borrowing capacity of $325.0 million at September 30, 2017.
| | | | | | | | | | | | | | | | | | | | | |
Property/Collateral |
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||
Types | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| ||||||
Ground Leases | | $ | 1,525,564 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,525,564 |
| 71.9 | % |
Land and Development | |
| — | |
| — | |
| — | |
| 218,980 | |
| — | |
| 218,980 |
| 10.3 | % |
Multifamily | |
| — | |
| 74,866 | |
| 34,790 | |
| — | |
| — | |
| 109,656 |
| 5.2 | % |
Hotel | |
| — | |
| 44,720 | |
| 62,308 | |
| — | |
| — | |
| 107,028 |
| 5.0 | % |
Retail | |
| — | |
| 60,442 | |
| 12,481 | |
| 8,340 | |
| — | |
| 81,263 |
| 3.8 | % |
Condominium | |
| — | |
| 6,671 | |
| 301 | |
| 20,926 | |
| — | |
| 27,898 |
| 1.3 | % |
Office | | | — | | | 14,274 | | | — | | | — | | | — | | | 14,274 |
| 0.7 | % |
Other Property Types | |
| — | |
| — | |
| 14,355 | |
| — | |
| 21,840 | |
| 36,195 |
| 1.7 | % |
Total | | $ | 1,525,564 | | $ | 200,973 | | $ | 124,235 | | $ | 248,246 | | $ | 21,840 | | $ | 2,120,858 |
| 100.0 | % |
Percentage of Total | | | 72% | | | 9% | | | 6% | | | 12% | | | 1% | | | 100% | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||
Geographic Region | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| ||||||
Northeast | | $ | 590,357 | | $ | 87,446 | | $ | 76,663 | | $ | 150,145 | | $ | — | | $ | 904,611 |
| 42.7 | % |
West | |
| 373,833 | |
| 45,733 | |
| 31,933 | |
| 8,950 | |
| — | |
| 460,449 |
| 21.7 | % |
Mid-Atlantic | |
| 196,624 | |
| — | |
| 1,335 | |
| 89,151 | |
| — | |
| 287,110 |
| 13.5 | % |
Southeast | |
| 186,660 | |
| 29,133 | |
| — | |
| — | |
| — | |
| 215,793 |
| 10.2 | % |
Southwest | |
| 138,898 | |
| — | |
| — | |
| — | |
| — | |
| 138,898 |
| 6.5 | % |
Central | |
| 39,192 | |
| 6,671 | |
| 14,304 | |
| — | |
| — | |
| 60,167 |
| 2.8 | % |
Various | |
| — | |
| 31,990 | |
| — | |
| — | |
| 21,840 | |
| 53,830 |
| 2.5 | % |
Total | | $ | 1,525,564 | | $ | 200,973 | | $ | 124,235 | | $ | 248,246 | | $ | 21,840 | | $ | 2,120,858 |
| 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.
47
As of September 30, 2022, our net lease portfolio consisted of our equity method investments in SAFE and the Ground Lease Plus Fund. The table below provides certain statistics for our net lease portfolio.
| | | | | | | |
| | SAFE | | Ground Lease |
| ||
Ownership % | | | 64.8 | % | | 53.0 | % |
Book value (millions)(1) | | $ | 1,459 | | $ | 66 | |
| | | | | | | |
% Leased | |
| 100.0 | % |
| 100.0 | % |
Weighted average lease term (years)(2) | |
| 91.7 | |
| 104.6 | |
Weighted average yield(3) | |
| 4.4 | % |
| 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) | Represents the |
(2) | Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options. 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), management fees earned by us and a gain recognized by SAFE in |
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 53.0% 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 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.
48
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.
| | | | | | | | | | | | | | | | |
|
| September 30, 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) | | 4 | | $ | 85,416 | | $ | (1,225) | | $ | 84,191 |
| 47.7% | | 1.4% | |
Non-performing loans | | 1 | |
| 61,159 | |
| (717) | |
| 60,442 |
| 34.2% | | 1.2% | |
Other lending investments | | 1 | |
| 32,938 | |
| (948) | |
| 31,990 |
| 18.1% | | 2.9% | |
Total | | 6 | | $ | 179,513 | | $ | (2,890) | | $ | 176,623 |
| 100.0% | | 1.6% | |
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 September 30, 2022, our performing loans had a weighted average maturity of 5.7 years and, excluding one performing loan with a maturity of September 2057, had a weighted average maturity of 0.3 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 | | | | | | | |
|
| September 30, 2022 |
| December 31, 2021 |
| ||
Senior mortgages | | $ | 72,309 | | $ | 139,968 | |
Corporate/Partnership loans | |
| — | |
| 618 | |
Subordinate mortgages | |
| 13,107 | |
| 12,457 | |
Total | | $ | 85,416 | | $ | 153,043 | |
| | | | | | | |
Weighted average LTV | |
| 61% | |
| 60% | |
Yield - year to date(1) | |
| 6.9% | |
| 8.4% | |
(1) | Yields presented are for the nine months ended September 30, 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
—TheThe 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
49
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 of2022 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 frames to evaluate loss experience.
The general reserveExpected Loss decreased to $15.2$2.2 million, or 1.8%, of performing loans and other lending investments as of September 30, 2017,2022, compared to $23.3$4.2 million, or 1.9%1.5%, of performing loans and other lending investments as of December 31, 2016.2021. The decrease was primarily attributable to an overall improvement in the risk ratings and a decrease in size of our loan portfolio.
Operating Properties
Our operating properties represent a pool of assets across a broad range of geographies and property types including hotel, multifamily, retail, condominium and entertainment/leisure properties. We target mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combine our capabilities in underwriting, lease structuring, asset management and build-to-suit construction. We invest in new net lease investments primarily through our Net Lease Venture, in which we hold a 51.9% interest. The Net Lease Venture has a right of first offer on any new net lease investments that we source. In February 2017, the Net Lease Venture's investment period was extended through February 1, 2018. The term of the Net Lease Venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of the Company and its partner.
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) | |
| (35.6) | |
| (16.6) | |
| (0.6) | |
| (52.8) |
Capital expenditures | |
| 4.4 | |
| 11.6 | |
| — | |
| 16.0 |
Other | |
| — | |
| (1.7) | |
| (0.1) | |
| (1.8) |
Ending balance(1) | | $ | 106.6 | | $ | 89.1 | | $ | 52.5 | | $ | 248.2 |
(1) | As of December 31, 2021, Total Segment excludes $1.1 million 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 |
50
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, 20172022 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 | | | | | ||||
| | September 30, | | | | | ||||
|
| 2022 |
| 2021 |
| $ Change | | |||
| | (in thousands) | | |||||||
Operating lease income | | $ | 3,424 | | $ | 3,732 | | $ | (308) | |
Interest income | |
| 2,093 | |
| 6,972 | |
| (4,879) | |
Interest income from sales-type leases | |
| 129 | |
| 526 | |
| (397) | |
Other income | |
| 27,024 | |
| 39,033 | |
| (12,009) | |
Land development revenue | |
| 15,087 | |
| 93,369 | |
| (78,282) | |
Total revenue | |
| 47,757 | |
| 143,632 | |
| (95,875) | |
Interest expense | |
| 22,664 | |
| 28,695 | |
| (6,031) | |
Real estate expense | |
| 16,204 | |
| 13,369 | |
| 2,835 | |
Land development cost of sales | |
| 16,778 | |
| 87,380 | |
| (70,602) | |
Depreciation and amortization | |
| 1,290 | |
| 1,742 | |
| (452) | |
General and administrative | |
| 14,210 | |
| 17,121 | |
| (2,911) | |
Recovery of loan losses | |
| (157) | |
| (1,610) | |
| 1,453 | |
Recovery of losses on net investment in leases | |
| (380) | |
| (315) | |
| (65) | |
Impairment of assets | |
| — | |
| 421 | |
| (421) | |
Other expense | |
| 4,171 | |
| 894 | |
| 3,277 | |
Total costs and expenses | |
| 74,780 | |
| 147,697 | |
| (72,917) | |
Income from sales of real estate | |
| 951 | |
| 25,611 | |
| (24,660) | |
Loss on early extinguishment of debt, net | |
| (13,209) | |
| — | |
| (13,209) | |
Earnings from equity method investments | |
| 57,797 | |
| 87,795 | |
| (29,998) | |
Income tax (expense) benefit | |
| (564) | |
| 39 | |
| (603) | |
Net income from discontinued operations | | | — | |
| 21,614 | | | (21,614) | |
Net income | | $ | 17,952 | | $ | 130,994 | | $ | (113,042) | |
Revenue
—Operating lease income, which primarily includes income fromInterest income from net lease assets decreased to $31.5$2.1 million during the three months ended September 30, 20172022 from $32.3$7.0 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 sales-type leases decreased
Other income increaseddecreased to $20.7$27.0 million during the three months ended September 30, 20172022 from $13.4$39.0 million for the same period in 2016.2021. Other income during the three months ended September 30, 20172022 consisted primarily of income from our hotel properties, management fees, gains on the sale of available-for-sale securitiesand other ancillary income from our land and development projects and operating properties and interest income on our cash.properties. Other income during the three months ended September 30, 2016 2021 consisted of primarily of mark-to-market gains on an equity investment, management fees, income from our hotel properties, lease termination fees and other ancillary income from our operating properties. The increase in other income in 2017 from 2016 was due primarily to an increase in income at our hotel propertiesland and an increase in interest income earned on our cash.
Land development revenue and cost of sales
—During the three months ended September 30,51
Costs and expenses
—Interest expense decreased toReal estate expensesexpense increased to $36.3$16.2 million during the three months ended September 30, 20172022 from $35.2$13.4 million for the same period in 2016.2021. The increase was primarily due primarily to an increase in expenses at commercialcertain of our operating properties whichthat have increased to $21.6 million in 2017operations from $18.9 million in 2016, primarily resulting from an increase in costs at our hotel propertiesthe prior year.
Depreciation and losses incurred at properties impacted by the recent hurricanes that hit the United States. This increase was offset by a decrease in carry costs and other expenses on our land assets, whichamortization decreased to $8.7$1.3 million during the three months ended September 30, 20172022 from $9.4$1.7 million for the same period in 2016. Expenses for net lease assets decreased to $4.42021.
General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. We recognized general and administrative expense $14.2 million during the three months ended September 30, 2017 from $4.72022 versus $17.1 million of expense for the same period in 2016. Expenses from same store net lease assets2021. The decrease was $4.3due primarily to a $2.3 million decrease in performance-based compensation, which was partially offset by severance costs for terminated employees. 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 recovery of loan losses was $7.5 million and $7.6$0.2 million for the three months ended September 30, 2017 and 2016, respectively. Expenses associated with residential operating properties decreased2022 as compared to a recovery of loan losses of $1.6 million during the three months ended September 30, 2017 from $2.2 million for the same period in 2016 due to the sale of residential units since September 30, 2016.
The recovery of $15.8losses on net investment in leases for the three months ended September 30, 2022 resulted from the reversal of an allowance on a property that was sold during the three months ended September 30, 2022. The recovery of losses on net investment in leases for the three months ended September 30, 2021 resulted from a changing macroeconomic forecast on commercial real estate markets since June 30, 2021.
During the three months ended September 30, 2021, we recorded an aggregate impairment of $0.4 million partially offset by a provision on one non-performing loan of $12.5 million.
Other expense was $0.6$4.2 million during the three months ended September 30, 20172022 and resulted$0.9 million for the same period in 2021. The increase in other expenses for the three months ended September 30, 2022 was due primarily to legal and consulting costs in connection with our Merger with SAFE (refer to Note 1 to the consolidated financial statements).
Income from the salesales of an outparcel of land located at a commercial operating property. real estate—During the three months ended September 30, 2016,2022, we recorded an aggregate impairment$1.0 million of $8.7 millionincome from sales of real estate from the sale of net lease assets and a change in business strategy on one land asset.
Loss on early extinguishment of debt, net—During the three months ended September 30, 2022, we incurred losses on early extinguishment of debt of $0.6$13.2 million resulting from repaymentsthe redemption of our 2016 Senior Secured Credit Facility. During the three months ended September 30, 2016, we incurred losses on the early extinguishment of debt of $36 thousand related to repayments of secured facilities and unsecured notes prior(refer to maturity.
Earnings from equity method investments
—Earnings from equity method investments decreased to52
million related– refer to sales activity on a land development venture, $0.7Note 8) and $14.3 million related to operations at our Net Lease Venture and $3.8 million wasof net aggregate income from our remaining equity method investments.
Income tax (expense) benefit
—Net income from discontinued operations—In March 2022, we closed on the sale of certain taxable REIT subsidiary ("TRS") properties.
Results of Operations for the Nine Monthsmonths Ended September 30, 20172022 compared to the Nine Monthsmonths Ended September 30, 2016
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 | % |
| | | | | | | | | | |
| | For the Nine Months Ended September 30, | | | | | ||||
|
| 2022 |
| 2021 |
| $ Change | | |||
| | (in thousands) | | |||||||
Operating lease income | | $ | 9,715 | | $ | 13,456 | | $ | (3,741) | |
Interest income | |
| 11,262 | |
| 24,846 | |
| (13,584) | |
Interest income from sales-type leases | |
| 861 | |
| 683 | |
| 178 | |
Other income | |
| 51,545 | |
| 60,950 | |
| (9,405) | |
Land development revenue | |
| 54,390 | |
| 157,936 | |
| (103,546) | |
Total revenue | |
| 127,773 | |
| 257,871 | |
| (130,098) | |
Interest expense | |
| 76,056 | |
| 86,145 | |
| (10,089) | |
Real estate expense | |
| 39,337 | |
| 33,404 | |
| 5,933 | |
Land development cost of sales | |
| 55,369 | |
| 147,507 | |
| (92,138) | |
Depreciation and amortization | |
| 3,985 | |
| 5,715 | |
| (1,730) | |
General and administrative | |
| 10,406 | |
| 68,954 | |
| (58,548) | |
Provision for (recovery of) loan losses | |
| 22,556 | |
| (7,411) | |
| 29,967 | |
Provision for losses on net investment in leases | |
| — | |
| 465 | |
| (465) | |
Impairment of assets | |
| 1,768 | |
| 679 | |
| 1,089 | |
Other expense | |
| 6,624 | |
| 1,358 | |
| 5,266 | |
Total costs and expenses | |
| 216,101 | |
| 336,816 | |
| (120,715) | |
Income from sales of real estate | |
| 1,443 | |
| 26,319 | |
| (24,876) | |
Loss on early extinguishment of debt, net | |
| (131,200) | |
| — | |
| (131,200) | |
Earnings from equity method investments | |
| 102,222 | |
| 110,661 | |
| (8,439) | |
Income tax (expense) benefit | |
| (567) | |
| 117 | |
| (684) | |
Net income from discontinued operations | |
| 797,688 | |
| 69,415 | |
| 728,273 | |
Net income | | $ | 681,258 | | $ | 127,567 | | $ | 553,691 | |
Revenue
—Operating lease income, which primarily includes income fromInterest income from same store net lease assets, defined as net lease assets we owned on or priordecreased to January 1, 2016 and were in service through September 30, 2017, increased to $90.1$11.3 million during the nine months ended September 30, 20172022 from $88.6$24.8 million for the same period in 2016. This increase was primarily due to an increase in rent per occupied square foot to $10.68 for the nine months ended September 30, 2017 from $10.41 for the same period in 2016, 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 $1.44 billion in 2016. The weighted average yield on our performing loanssales-type leases increased to 9.6%$0.9 million for the nine months ended September 30, 20172022 from 8.9%$0.7 million for the same period in 2016.2021. The increase resulted from the acquisition of a Ground Lease that was classified as a sales-type lease which was partially offset by the sales of Ground Leases (refer to Note 5 to the consolidated financial statements).
53
Other income increased to $172.0$51.5 million during the nine months ended September 30, 20172022 from $35.1$60.9 million for the same period in 2016.2021. Other income during the nine months ended September 30, 20172022 consisted primarily consisted of interest income and real estate tax reimbursements resulting from the settlement of litigation involving a dispute over the purchase and sale of land (refer to Note11)management fees, income from our hotel properties, gains on the sale of available-for-sale securities and other ancillary income from our land and development projects and operating properties. Other income during the nine months ended September 30, 20162021 consisted primarily of mark-to-market gains on an equity investment, management fees, lease termination fees, other ancillary income from our operating properties, land and development projects and loan portfolio and income from our hotel properties loan prepayment fees and property tax refunds.
Land development revenue and cost of sales
—During the nine months ended September 30,Costs and expenses
—Interest expense decreased toReal estate expensesexpense increased to $106.6$39.3 million during the nine months ended September 30, 20172022 from $104.8$33.4 million for the same period in 2016.2021. The increase was due to expenses for commercial operating properties, which increased to $62.3 million during the nine months ended September 30, 2017 from $56.1 million for the same period in 2016. This increase was primarily due to an increase in expenses at certain of our hoteloperating properties and losses incurred at properties impacted bythat have increased operations from the recent hurricanes that hit the United States, partially offset by property sales since October 1, 2016. This increaseprior year, which was partially offset by a decrease in carry costsasset sales.
Depreciation and other expenses on our land assets, whichamortization decreased to $26.1$4.0 million during the nine months ended September 30, 20172022 from $28.0$5.7 million for the same period in 2016. Expenses from same store commercial operating properties, excluding hotels2021.
General and marinas, decreased to $22.4 million from $22.6 million for the same period in 2016. Expenses associated with residential operating properties decreased to $5.1administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. We recognized general and administrative expense of $10.4 million during the nine months ended September 30, 2017 from $7.02022 versus $69.0 million of expense for the same period in 20162021. The decrease was due primarily to a $56.2 million decrease in performance-based compensation. Our primary forms of performance-based compensation are our iPIP Plans and our annual bonus pool (refer to Note 14 to the saleconsolidated financial statements for more information on the iPIP Plans). In addition, illustrative examples of residential units since September 30, 2016. Expensesour iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.
The provision for net lease assets decreased to $13.1loan losses was $22.6 million during the nine months ended September 30, 2017 from $13.8 million for the same period in 2016. Expenses from same store net lease assets was $12.1 million and $10.6 million, respectively, for the nine months ended September 30, 2017 and 2016.
The provision for losses on net investment in the risk ratings of our loan portfolio. Included in the net recoveryleases for the nine months ended September 30, 2016 were recoveries2021 resulted from the macroeconomic forecast on commercial real estate markets.
During the nine months ended September 30, 2022, we recognized an impairment of specific reserves$1.8 million on an operating property based on the expected cash flows to be received. During the nine months ended September 30, 2021, we recorded an impairment of $11.7$0.7 million and a reduction in connection with the general reservesale of $14.8 million, partially offset by provisions on two non-performing loans of $13.8 million.
Other expense was $15.3$6.6 million during the nine months ended September 30, 20172022 and resulted$1.4 million for the same period in 2021. The increase in other expenses for the nine months ended September 30, 2022 was due primarily to legal and consulting costs in connection with our Merger with SAFE.
Income from an impairment on a land and development asset due to a change in our exit strategy and an impairment on asales of real estate asset held for sale due to shifting demand in the local condominium market along with a change in our exit strategy. —During the nine months ended September 30, 2016,2022, we recorded impairments
54
2021, we recorded $26.3 million of income from $4.7 million forsales of real estate from the same period in 2016. The increase was primarily the resultsale of paying organizationan operating property and offering costs associated with the initial public offering of SAFE (refer to Note 7) and costs incurred in connection with the repricing of our 2016 Senior Secured Credit Facility (refer to Note 10) recorded during the nine months ended September 30, 2017.
Loss on early extinguishment of debt, net—
During the nine months ended September 30,Earnings from equity method investments
—Earnings from equity method investments decreased toIncome tax (expense) benefit
—Net income from discontinued operations—In March 2022, we closed on the sale of certain TRS properties.
Adjusted Earnings
In 2019, we announced a new business strategy that would focus our management personnel and our investment resources primarily on scaling our Ground Lease platform. As part of $25.0this strategy, we accelerated the monetization of legacy assets and $3.3 million, respectively. Duringdeployed a substantial portion of the nine months ended September 30, 2016, we recognized gains due to sales of commercial operating properties of $49.2 million, residential condominiums of $23.3 millionproceeds into additional investments in SAFE and new loan and net lease assets of $15.9 million.
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(“Adjusted Earnings”).
55
Adjusted IncomeEarnings 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 September 30, | | For the Nine Months Ended September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
| | (in thousands) | | ||||||||||
Adjusted Earnings | | |
|
| |
| | |
|
| |
| |
Net income allocable to common shareholders | | $ | 12,131 | | $ | 121,856 | | $ | 484,501 | | $ | 101,908 | |
Add: Depreciation and amortization | |
| 3,705 | |
| 16,449 | |
| 11,606 | |
| 50,790 | |
Add: Stock-based compensation | |
| (374) | |
| 3,001 | |
| (30,724) | |
| 23,300 | |
Add: Non-cash portion of loss on early extinguishment of debt | |
| 13,051 | |
| — | |
| 136,464 | |
| — | |
Adjusted earnings allocable to common shareholders | | $ | 28,513 | | $ | 141,306 |
| $ | 601,847 | | $ | 175,998 | |
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 |
As of September 30, 2017,2022, we had unrestricted cash of $1.9 billion; however, we used approximately $1.4 billion subsequent to September 30, 2017 to redeem several series of our unsecured notes and preferred stock, as discussed above under "Executive Overview."$1.3 billion. Our primary cash uses over the next 12 months are expected to be repayment of our debt obligations (refer to Note 1 and Note 10 to the consolidated financial statements), redemption of our preferred stock (refer to Note 1 and Note 13 to the consolidated financial statements), funding of investments in our Ground Lease and Ground Lease adjacent businesses, capital expenditures on legacy assets, distributions to shareholders through dividends 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 the Merger with SAFE, asset sales, the continuing impact of the COVID-19 pandemic, inflation, interest rate increases, market volatility and other macroeconomic factors on our business.
Beginning in April 2022 and continuing through September 2022, we completed separate, privately-negotiated transactions with holders of our development activities as well as3.125% convertible notes in which the extentnoteholders exchanged their convertible notes with us for newly issued shares of our common stock and cash (refer to which we strategically partnerNote 10 to the consolidated financial statements). We also repaid $0.5 million principal amount of our 3.125% convertible notes for cash at maturity. We have covenanted to redeem all of our outstanding preferred stock at the liquidation preference per share plus accrued and unpaid dividends and to retire all of our remaining senior unsecured notes in connection with others to complete these projects. As of September 30, 2017, wethe Merger. We also had approximately $419.8$156.5 million of maximum unfunded commitments associated with our investments as of September 30, 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 $105.2 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 also have amounts due under our liability-classified and equity-classified iPIP Plans. We currently estimate the total amount due under our iPIP Plans to be $84 million, assuming SAFE is valued at a price of $29.25 per share and our other assets perform with current underwriting expectations. Of this amount, $59 million has been accrued in our financial statements (refer to Note 14 to the consolidated financial statements). Distributions on our iPIP Plans are expected to be 50% in cash and 50% in shares of our common stock; provided, however, that (a) the cash portion will be increased if we do not have sufficient shares available under shareholder approved equity plans; and (b) if the principal remaining material asset in a plan is unsold SAFE shares, we may elect to distribute SAFE shares in lieu of cash and our common stock. Additional information on our iPIP Plans can be found in our 2021 Annual Report and our 2021 Proxy Statement, both of which are available on our website.
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We expect that we will be able to meet our liquidity requirements over the next 12 months and for the reasonably foreseeable future. Our capital sources to meet such cash uses through the next 12 months and beyond will primarily berequirements are expected to include cash on hand, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.
The following table outlines our cash flows provided by operating activities, cash flows used in investing activities and cash flows provided by financing activities for the contractual obligations relatednine months ended September 30, 2022 and 2021 ($ in thousands):
| | | | | | | |
|
| For the Nine Months Ended September 30, | | ||||
| | 2022 |
| 2021 | | ||
| | | | | | | |
Cash flows provided by (used in) operating activities | | $ | 15,373 | | $ | (4,741) | |
Cash flows provided by investing activities | | | 2,706,633 | | | 373,722 | |
Cash flows used in financing activities | | | (1,774,805) | | | (164,620) | |
The increase in cash flows provided by operating activities during 2022 was due primarily to our long-term debt obligations, loan participations payable, operating lease obligationsan increase in distributions of earnings from other investments in 2022, which was partially offset by iPIP Plan payments and accounts payable relateda decrease in the amount of deferred interest on loans collected in 2022 versus 2021. The increases in cash flows provided by investing activities during 2022 was due primarily to the redemption of our Series E and Series F preferred stock as of
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 |
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 leastDerivatives
—Our use of derivative financial instruments,Unfunded Commitments
—We generally fund construction and development loans and build-outs of space in57
committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments.
As of September 30, 2017,2022, 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 | | $ | 717 | | $ | 270 | | $ | 147,405 | | $ | 148,392 |
Strategic Investments | |
| — | |
| 3,161 | |
| 4,907 | |
| 8,068 |
Total | | $ | 717 | | $ | 3,431 | | $ | 152,312 | | $ | 156,460 |
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.
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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 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%3.14% as of September 30, 2017.2022. 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) | |
-100 Basis Points | | $ | (13,114) |
-50 Basis Points | | (6,566) | |
-10 Basis Points | | | (1,313) |
Base Interest Rate | | — | |
+10 Basis Points | | 1,313 | |
+50 Basis Points | | 6,566 | |
+100 Basis Points | | 13,131 |
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) |
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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 during the period covered by this quarterly report 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.
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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:
Item 1A. Risk Factors
The Merger and related transactions may not be completed on the terms or timeline currently contemplated, or at all.
The completion of the Merger and related transactions are subject to certain conditions, including: (i) the approval of SAFE’s stockholders, (ii) the approval of the Company’s stockholders, (iii) completion of the spin-off, (iv) the approval of the shares of New SAFE common stock to be issued in the Merger for listing on the DistrictNYSE, (v) the effectiveness of Maryland, Civil Action No. DKC 08-1863)
Failure to specific performancecomplete the Merger and related transactions could adversely affect the stock prices and the future business and financial results of the purchaseCompany and saleSAFE.
If the Merger and related transactions are not completed, the ongoing businesses of the Company or SAFE may be adversely affected and the Company and SAFE will be subject to numerous risks, including the following:
● | upon termination of the Merger agreement under specified circumstances, a termination fee of $63 million may be payable by either the Company or SAFE; |
● | each of the Company and SAFE having to pay substantial costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration preparation costs that have already been incurred or will continue to be incurred until the closing of the Merger; |
● | the management of each of the Company and SAFE focusing on the Merger instead of on pursuing other opportunities that could be beneficial to the companies, in each case, without realizing any of the benefits of having the Merger completed; and |
● | reputational harm due to the adverse perception of any failure to successfully complete the Merger. |
If the Merger and related transactions are not completed, neither the Company nor SAFE can assure their respective stockholders that these risks will not materialize or will not materially affect the business, financial results and stock prices of either the Company or SAFE.
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SAFE will have the option to internalize the Company's management if the Merger has not occurred by the outside date under the Merger agreement.
If the Merger agreement is terminated because the Merger has not occurred by September 30, 2023, SAFE will have the option under certain circumstances to terminate the existing external management agreement and awardinginternalize the Company's management, which may adversely affect the Company. If SAFE exercises its option under the Merger agreement to become internalized, it must pay the Company $100.0 million, of which up to $60.0 million may be paid in cash, at SAFE’s discretion, with the aggregate amount of: (i)remainder being paid in shares of SAFE common stock, which is less than the remaining unpaid purchase price; plus (ii) simple interest on$150.0 million of consideration that was allocated to the unpaid amountexisting management agreement in the negotiations of the Merger. If SAFE exercises this option, the Company would become externally-managed by SAFE pursuant to a management agreement that SAFE and the Company have agreed to negotiate in good faith. These changes in the Company's management structure may adversely affect the Company and the market value of its securities.
The Merger agreement contains provisions that could discourage a potential competing acquirer of either the Company or SAFE or could result in any competing proposal being at a ratelower price than it might otherwise be.
The Merger agreement contains provisions that, subject to limited exceptions, restrict the ability of 12% annually from 2008; plus (iii) real estate taxes paid by the Company; plus (iv) actual and reasonable attorneys' fees and costs incurred byeach of the Company and SAFE to, directly or indirectly, initiate, solicit, propose, knowingly encourage or facilitate competing third-party proposals to effect, among other things, a Merger, reorganization, share exchange, consolidation or the sale of 15% or more of the stock or consolidated net revenues, net income or total assets of the Company or SAFE. In addition, either the Company or SAFE generally has an opportunity to offer to modify the terms of the Merger agreement in response to any competing “superior proposal” (as defined in “the Merger Agreement”) that may be made to the other party before the special committee of the boards of directors of the Company or SAFE, as the case may be, may withdraw or modify its recommendation in response to such superior proposal or terminate the Merger agreement to enter into such superior proposal. In some circumstances, one of the parties will be required to pay a substantial termination fee to the other party.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company or SAFE from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger agreement. In addition, the Company's significant ownership interest and voting power in SAFE could discourage a potential competing acquirer for SAFE.
The pendency of the Merger and related transactions could adversely affect the business and operations of the Company and SAFE.
In connection with the litigation. Lennar appealed the District Court's judgment. On April 12, 2017, the United States Courtpending Merger and related transactions, some tenants, vendors or other counterparties of Appeals for the Fourth Circuit affirmed the judgmenteach of the District Court in its entirety. Lennar’s petition for rehearing en banc was summarily denied.
There were no other material changes from the risk factors previously disclosed in the Company's 2016our 2021 Annual Report.
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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.
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INDEX TO EXHIBITS
| | |
Exhibit | Document Description | |
2.1 | ||
| ||
10.1 | | |
10.2 | | |
31.0 | | Certifications pursuant to Section 302 of the Sarbanes-Oxley |
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. |
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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: | November | /s/ JAY SUGARMAN | |
| Jay Sugarman | ||
| Chairman of the Board of Directors and Chief | ||
| Executive Officer (principal executive officer) | ||
| | ||
| | ||
| | ||
| | ||
| iStar Inc. | ||
Date: | November 3, 2022 | /s/ BRETT ASNAS | |
| Brett Asnas | ||
| Chief Financial Officer | ||
| (principal financial officer) |
RETT | | | |
| | ||
| iStar Inc. Registrant | ||
Date: | November | /s/ | |
| Garett Rosenblum | ||
| Chief | ||
| |
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