UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~June 30, 2018~~March 31, 2019
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 1-15371

iStar Inc.

(Exact name of registrant as specified in its charter)



Maryland (State or other jurisdiction of incorporation or organization)		95-6881527 (I.R.S. Employer Identification Number)
1114 Avenue of the Americas, 39th Floor
New York, NY (Address of principal executive offices)		10036 (Zip code)

Registrant's telephone number, including area code: (212) 930-9400

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes ý No o

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 ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý	Accelerated filer o	Non-accelerated filer o ~~(Do not check if a~~ ~~smaller reporting company)~~	Smaller reporting company o	Emerging growth company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

As of ~~August~~May 1, ~~2018,~~2019, there were ~~67,968,039~~64,693,932 shares, $0.001 par value per share, of iStar Inc. common stock outstanding.

TABLE OF CONTENTS



		Page
PART I	Consolidated Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (unaudited) as of ~~June 30, 2018~~March 31,2019 and December 31, ~~2017~~2018	1
	Consolidated Statements of Operations (unaudited)—For the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)—For the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	3
	Consolidated Statements of Changes in Equity (unaudited)—For the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	4
	Consolidated Statements of Cash Flows (unaudited)—For the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3735
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5650
Item 4.	Controls and Procedures	5650
PART II	Other Information	5852
Item 1.	Legal Proceedings	5852
Item 1A.	Risk Factors	5852
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5852
Item 3.	Defaults Upon Senior Securities	5852
Item 4.	Mine Safety Disclosures	5852
Item 5.	Other Information	5852
Item 6.	Exhibits	5953
SIGNATURES		6054

PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Financial Statements

iStar Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

(unaudited)


	As of						As of
	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Real estate
Real estate, at cost	$	2,255,537		$	1,629,436		$	1,873,642		$	2,076,333
Less: accumulated depreciation	(340,538		)	(347,405		)	(252,638		)	(305,314		)
Real estate, net	1,914,999			1,282,031			1,621,004			1,771,019
Real estate available and held for sale	37,597			68,588			253,336			22,551
Total real estate	1,952,596			1,350,619			1,874,340			1,793,570
Land and development, net	641,627			860,311			616,350			598,218
Loans receivable and other lending investments, net	1,052,872			1,300,655			894,846			988,224
Other investments	293,017			321,241			521,999			304,275
Cash and cash equivalents	1,039,591			657,688			315,407			931,751
Accrued interest and operating lease income receivable, net	10,994			11,957			11,723			10,669
Deferred operating lease income receivable, net	88,080			86,877			68,712			98,302
Deferred expenses and other assets, net	279,390			141,730			368,036			289,268
Total assets	$	5,358,167		$	4,731,078		$	4,671,413		$	5,014,277
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	249,494		$	238,004		$	332,358		$	316,251
Liabilities associated with properties held for sale							234,267			2,341
Loan participations payable, net	14,709			102,425			25,021			22,484
Debt obligations, net	3,869,576			3,476,400			3,070,296			3,609,086
Total liabilities	4,133,779			3,816,829			3,661,942			3,950,162
Commitments and contingencies (refer to Note 11)
Redeemable noncontrolling interests	11,814			—
Equity:
iStar Inc. shareholders' equity:
Preferred Stock Series D, G and I, liquidation preference $25.00 per share (refer to Note 13)	12			12			12			12
Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 13)	4			4			4			4
Common Stock, $0.001 par value, 200,000 shares authorized, 67,968 and 68,236 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	68			68
Common Stock, $0.001 par value, 200,000 shares authorized, 66,061 and 68,085 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively							66			68
Additional paid-in capital	3,350,750			3,352,665			3,335,719			3,352,225
Retained deficit	(2,325,291		)	(2,470,564		)
Accumulated other comprehensive income (loss) (refer to Note 13)	(2,233		)	(2,482		)
Accumulated deficit							(2,495,836		)	(2,472,061		)
Accumulated other comprehensive loss (refer to Note 13)							(29,594		)	(17,270		)
Total iStar Inc. shareholders' equity	1,023,310			879,703			810,371			862,978
Noncontrolling interests	189,264			34,546			199,100			201,137
Total equity	1,212,574			914,249			1,009,471			1,064,115
Total liabilities and equity	$	5,358,167		$	4,731,078		$	4,671,413		$	5,014,277

Note - Refer to Note 2 for details on the Company's consolidated variable interest entities ("VIEs").

The accompanying notes are an integral part of the consolidated financial statements.

iStar Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Operating lease income	$	44,609		$	47,002		$	90,407		$	94,349		$	58,915		$	45,799
Interest income	25,212			28,645			51,909			57,703			20,375			26,697
Other income	20,823			139,510			36,142			151,374			14,813			15,320
Land development revenue	80,927			132,710			357,356			152,760			12,699			276,429
Total revenues	171,571			347,867			535,814			456,186			106,802			364,245
Costs and expenses:
Interest expense	43,172			48,807			88,353			99,952			46,577			45,182
Real estate expense	37,043			34,684			73,224			70,274			25,940			36,180
Land development cost of sales	83,361			122,466			306,768			138,376			14,449			223,407
Depreciation and amortization	10,767			13,171			21,878			25,451			15,668			11,110
General and administrative⁽¹⁾	23,228			27,218			52,041			52,392			21,099			28,814
Provision for (recovery of) loan losses	18,892			(600		)	18,037			(5,528		)
Recovery of loan losses													(97		)	(855		)
Impairment of assets	6,088			10,284			10,188			14,696			3,851			4,100
Other expense	3,716			16,276			4,882			18,145			508			1,166
Total costs and expenses	226,267			272,306			575,371			413,758			127,995			349,104
Income (loss) before earnings from equity method investments and other items	(54,696		)	75,561			(39,557		)	42,428
Income from sales of real estate													9,407			17,048
Income (loss) from operations before earnings from equity method investments and other items													(11,786		)	32,189
Loss on early extinguishment of debt, net	(2,164		)	(3,315		)	(2,536		)	(3,525		)	(468		)	(372		)
Earnings (losses) from equity method investments	(7,278		)	5,515			(3,946		)	11,217
Gain on consolidation of equity method investment	67,877			—			67,877			—
Income from continuing operations before income taxes	3,739			77,761			21,838			50,120
Earnings from equity method investments													5,309			3,332
Net income (loss) before income taxes													(6,945		)	35,149
Income tax expense	(128		)	(1,644		)	(249		)	(2,251		)	(25		)	(121		)
Income from continuing operations	3,611			76,117			21,589			47,869
Income from discontinued operations	—			173			—			4,939
Gain from discontinued operations	—			123,418			—			123,418
Income tax expense from discontinued operations	—			(4,545		)	—			(4,545		)
Income from sales of real estate⁽²⁾	56,895			844			73,943			8,954
Net income	60,506			196,007			95,532			180,635
Net income attributable to noncontrolling interests	(9,509		)	(5,710		)	(9,604		)	(4,610		)
Net income attributable to iStar Inc.	50,997			190,297			85,928			176,025
Net income (loss)													(6,970		)	35,028
Net (income) attributable to noncontrolling interests													(2,471		)	(95		)
Net income (loss) attributable to iStar Inc.													(9,441		)	34,933
Preferred dividends	(8,124		)	(12,830		)	(16,248		)	(25,660		)	(8,124		)	(8,124		)
Net income allocable to common shareholders	$	42,873		$	177,467		$	69,680		$	150,365
Net income (loss) allocable to common shareholders													$	(17,565	)	$	26,809
Per common share data:
Income attributable to iStar Inc. from continuing operations:
Basic	$	0.63		$	0.81		$	1.03		$	0.37
Diluted	$	0.54		$	0.69		$	0.89		$	0.35
Net income attributable to iStar Inc.:
Net income (loss) allocable to common shareholders:
Basic	$	0.63		$	2.46		$	1.03		$	2.09		$	(0.26	)	$	0.39
Diluted	$	0.54		$	2.04		$	0.89		$	1.76		$	(0.26	)	$	0.35
Weighted average number of common shares:
Basic	67,932			72,142			67,922			72,104			67,747			67,913
Diluted	83,694			88,195			83,682			88,156			67,747			83,670

~~(1)~~

For the three months ended June 30, 2018 and 2017, includes $2.2 million and $2.9 million, respectively, of equity-based compensation associated with iPIP Plans (refer to Note 14). For the six months ended June 30, 2018 and 2017, includes $10.2 million and $7.9 million, respectively, of equity-based compensation associated with iPIP Plans (refer to Note 14). These plans are liability-based plans which are marked-to-market quarterly and such marks are based upon the performance of the assets underlying the plans as of the quarterly measurement dates; however, actual amounts cannot be determined until the end date of the plans and the ultimate repayment or monetization of the related assets.


~~(2)~~	~~Income from sales of real estate represents gains from sales of real estate that do not qualify as discontinued operations.~~

The accompanying notes are an integral part of the consolidated financial statements.

iStar Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
2018 2017 2018 2017
Net income $ 60,506
$ 196,007
$ 95,532
$ 180,635
Other comprehensive income (loss):
Impact from adoption of new accounting standards (refer to Note 3) —
—
276
—
Reclassification of (gains)/losses on cumulative translation adjustment into earnings upon realization⁽¹⁾
721
—
721
—
Reclassification of losses on cash flow hedges into earnings upon realization⁽²⁾
(1,795 ) (313 ) (1,786 ) (191 )
Unrealized gains (losses) on available-for-sale securities 15
583
(956 ) 566
Unrealized gains (losses) on cash flow hedges 7
(146 ) 2,358
394
Unrealized gains (losses) on cumulative translation adjustment (256 ) 172
(364 ) (229 )
Other comprehensive income (loss) (1,308 ) 296

249
540
Comprehensive income 59,198
196,303
95,781
181,175
Comprehensive (income) attributable to noncontrolling interests (9,509 ) (5,710 ) (9,604 ) (4,610 )
Comprehensive income attributable to iStar Inc. $ 49,689
$ 190,593
$ 86,177
$ 176,565



	For the Three Months Ended March 31,
	2019			2018
Net income (loss)	$	(6,970	)	$	35,028
Other comprehensive income (loss):
Impact from adoption of new accounting standards	—			276
Reclassification of losses on cash flow hedges into earnings upon realization⁽¹⁾	7			9
Unrealized gains (losses) on available-for-sale securities	1,000			(971		)
Unrealized gains (losses) on cash flow hedges	(15,012		)	2,351
Unrealized losses on cumulative translation adjustment	—			(108		)
Other comprehensive income (loss)	(14,005		)	1,557
Comprehensive income (loss)	(20,975		)	36,585
Comprehensive (income) attributable to noncontrolling interests	(790		)	(95		)
Comprehensive income (loss) attributable to iStar Inc.	$	(21,765	)	$	36,490


(1)	~~Amounts were reclassified to "Earnings from equity method investments" in the Company's consolidated statements of operations.~~

~~(2)~~

~~Amounts~~Amount reclassified to "Interest expense" in the Company's consolidated statements of operations ~~are $30 and $60~~is $151 for the three ~~and six~~ months ended June 30, 2017, respectively. Amount reclassified to "Gain on consolidation of equity method investment" in the Company's consolidated statements of operations is $1,876 for the three and six months ended June 30, 2018.March 31, 2019. Amounts reclassified to "Earnings (losses) from equity method investments" in the Company's consolidated statements of operations are ~~$81~~$(144) and ~~$90~~$9 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~respectively, and $70 and $164 for the three and six months ended June 30, 2017,~~ respectively.

The accompanying notes are an integral part of the consolidated financial statements.

iStar Inc.

Consolidated Statements of Changes in Equity

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~

(In thousands)

(unaudited)


	iStar Inc. Shareholders' Equity																						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			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, 2018																							$	12	$	4	$	68		$	3,352,225		$	(2,472,061	)	$	(17,270	)	$	201,137		$	1,064,115
Dividends declared—preferred																							—		—		—			—			(8,124		)	—			—			(8,124		)
Dividends declared—common ($.09 per share)																							—		—		—			—			(6,210		)	—			—			(6,210		)
Issuance of stock/restricted stock unit amortization, net																							—		—		—			2,661			—			—			428			3,089
Net loss																							—		—		—			—			(9,441		)	—			2,471			(6,970		)
Change in accumulated other comprehensive income (loss)																							—		—		—			—			—			(12,324		)	(1,681		)	(14,005		)
Repurchase of stock																							—		—		(2		)	(19,167		)	—			—			—			(19,169		)
Distributions to noncontrolling interests																							—		—		—			—			—			—			(3,255		)	(3,255		)
Balance as of March 31, 2019																							$	12	$	4	$	66		$	3,335,719		$	(2,495,836	)	$	(29,594	)	$	199,100		$	1,009,471

Balance as of December 31, 2017	$	12	$	4	$	68		$	3,352,665		$	(2,470,564	)	$	(2,482	)	$	34,546		$	914,249		$	12	$	4	$	68		$	3,352,665		$	(2,470,564	)	$	(2,482	)	$	34,546		$	914,249
Dividends declared—preferred	—		—		—			—			(16,248		)	—			—			(16,248		)	—		—		—			—			(8,124		)	—			—			(8,124		)
Issuance of stock/restricted stock unit amortization, net	—		—		1			6,388			—			—			—			6,389			—		—		1			5,888			—			—			—			5,889
Net income for the period	—		—		—			—			85,928			—			9,604			95,532
Net income																							—		—		—			—			34,933			—			95			35,028
Change in accumulated other comprehensive income (loss)	—		—		—			—			—			(27		)	—			(27		)	—		—		—			—			—			1,281			—			1,281
Repurchase of stock	—		—		(1		)	(8,303		)	—			—			—			(8,304		)	—		—		(1		)	(8,303		)	—			—			—			(8,304		)
Contributions from noncontrolling interests	—		—		—			—			—			—			9			9			—		—		—			—			—			—			9			9
Distributions to noncontrolling interests	—		—		—			—			—			—			(43,174		)	(43,174		)
Change in noncontrolling interest attributable to consolidation of equity method investment (refer to Note 7)	—		—		—			—			—			—			188,279			188,279
Impact from adoption of new accounting standards (refer to Note 3)	—		—		—			—			75,593			276			—			75,869
Balance as of June 30, 2018	$	12	$	4	$	68		$	3,350,750		$	(2,325,291	)	$	(2,233	)	$	189,264		$	1,212,574

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	—		—		—			—			(25,660		)	—			—			(25,660		)
Issuance of stock/restricted stock unit amortization, net	—		—		—			1,699			—			—			—			1,699
Net income for the period⁽²⁾	—		—		—			—			176,025			—			5,946			181,971
Change in accumulated other comprehensive income	—		—		—			—			—			540			—			540
Change in additional paid in capital attributable to redeemable noncontrolling interest	—		—		—			110			—			—			—			110
Distributions to noncontrolling interests	—		—		—			—			—			—			(12,988		)	(12,988		)
Balance as of June 30, 2017	$	22	$	4	$	72		$	3,603,981		$	(2,431,123	)	$	(3,678	)	$	36,078		$	1,205,356
Impact from adoption of new accounting standards																							—		—		—			—			75,593			276			—			75,869
Balance as of March 31, 2018																							$	12	$	4	$	68		$	3,350,250		$	(2,368,162	)	$	(925	)	$	34,650		$	1,015,897


(1)	Refer to Note 13 for details on the Company's Preferred Stock.


~~(2)~~	~~For the six months ended June 30, 2017, net income (loss) shown above excludes $(1,336) of net loss attributable to redeemable noncontrolling interests.~~

The accompanying notes are an integral part of the consolidated financial statements.

iStar Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	95,532		$	180,635
Net income (loss)							$	(6,970	)	$	35,028
Adjustments to reconcile net income to cash flows from operating activities:
Provision for (recovery of) loan losses	18,037			(5,528		)
Recovery of loan losses							(97		)	(855		)
Impairment of assets	10,188			14,696			3,851			4,100
Depreciation and amortization	21,878			26,352			15,668			11,110
Non-cash expense for stock-based compensation	12,593			9,796
Stock-based compensation expense							4,249			9,091
Amortization of discounts/premiums and deferred financing costs on debt obligations, net	7,900			6,615			3,616			3,943
Amortization of discounts/premiums on loans and deferred interest on loans, net	(18,487		)	(31,445		)
Amortization of discounts/premiums and deferred interest on loans, net							(9,853		)	(9,067		)
Deferred interest on loans received	39,254			23,177			5,850			17,930
Gain from consolidation of equity method investment	(67,877		)	—
Gain from discontinued operations	—			(123,418		)
(Earnings) losses from equity method investments	3,946			(11,217		)
Earnings from equity method investments							(5,309		)	(3,332		)
Distributions from operations of other investments	6,745			35,502			1,389			3,101
Deferred operating lease income	(3,752		)	(3,070		)	(4,222		)	(2,239		)
Income from sales of real estate	(73,943		)	(9,462		)	(9,407		)	(17,048		)
Land development revenue in excess of cost of sales	(50,588		)	(14,384		)	1,750			(53,022		)
Loss on early extinguishment of debt, net	2,536			3,525			468			372
Other operating activities, net	3,281			10,606			(181		)	865
Changes in assets and liabilities:
Changes in accrued interest and operating lease income receivable	1,530			2,798			(954		)	617
Changes in deferred expenses and other assets, net	(2,426		)	(7,567		)	(1,512		)	(2,016		)
Changes in accounts payable, accrued expenses and other liabilities	(27,483		)	3,941			(44,869		)	(45,144		)
Cash flows provided by (used in) operating activities	(21,136		)	111,552
Cash flows used in operating activities							(46,533		)	(46,566		)
Cash flows from investing activities:
Originations and fundings of loans receivable, net	(294,476		)	(130,701		)	(58,318		)	(103,288		)
Capital expenditures on real estate assets	(17,805		)	(16,346		)	(5,184		)	(7,840		)
Capital expenditures on land and development assets	(61,577		)	(53,894		)	(37,762		)	(30,954		)
Acquisitions of real estate assets	(3,390		)	—			(109,663		)	—
Repayments of and principal collections on loans receivable and other lending investments, net	552,696			367,028			157,915			114,525
Net proceeds from sales of real estate	238,834			154,291			58,529			48,469
Net proceeds from sales of land and development assets	170,662			146,713			11,455			130,304
Cash, cash equivalents and restricted cash acquired upon consolidation of equity method investment	13,608			—
Distributions from other investments	22,296			11,275			46,778			17,813
Contributions to and acquisition of interest in other investments	(53,012		)	(139,139		)	(260,297		)	(43,391		)
Other investing activities, net	(1,357		)	5,317			(16,685		)	491
Cash flows provided by investing activities	566,479			344,544
Cash flows provided by (used in) investing activities							(213,232		)	126,129
Cash flows from financing activities:
Borrowings from debt obligations and convertible notes	332,746			854,637
Borrowings from debt obligations							63,500			—
Repayments and repurchases of debt obligations	(412,215		)	(632,237		)	(379,797		)	(349,658		)
Preferred dividends paid	(16,248		)	(25,660		)	(8,124		)	(8,124		)
Common dividends paid							(6,127		)	—
Repurchase of stock	(8,304		)	—			(15,328		)	(8,304		)
Payments for deferred financing costs	(4,921		)	(12,243		)	—			(252		)
Payments for withholding taxes upon vesting of stock-based compensation	(4,008		)	(511		)	(1,842		)	(3,845		)
Payments for debt prepayment or extinguishment costs	—			(3,637		)
Distributions to noncontrolling interests	(43,174		)	(12,759		)	(3,255		)	—
Other financing activities, net	8			(661		)	—			9
Cash flows provided by (used in) financing activities	(156,116		)	166,929
Cash flows used in financing activities							(350,973		)	(370,174		)
Effect of exchange rate changes on cash	30			7			8			22
Changes in cash, cash equivalents and restricted cash	389,257			623,032			(610,730		)	(290,589		)
Cash, cash equivalents and restricted cash at beginning of period	677,733			354,627			974,544			677,733
Cash, cash equivalents and restricted cash at end of period	$	1,066,990		$	977,659		$	363,814		$	387,144
Supplemental disclosure of non-cash investing and financing activity:
Fundings and repayments of loan receivables and loan participations, net	$	(87,800	)	$	(52,406	)	$	2,502		$	(17,117	)
Accounts payable for capital expenditures on land and development assets	12,473			2,984
Accrued repurchase of stock							3,841			—
Contributions of land and development assets to equity method investments, net							4,073			—
Accounts payable for capital expenditures on real estate assets	—			1,488			—			338
Receivable from sales of real estate and land parcels	—			3,139
Developer fee payable							—			28,831
Acquisitions of land and development assets through foreclosure	4,600			—			—			4,600
Financing provided on sales of land and development assets, net	142,639			—			—			142,639
Increase in net lease assets upon consolidation of equity method investment	844,550			—
Increase in debt obligations upon consolidation of equity method investment	464,706			—
Increase in noncontrolling interests upon consolidation of equity method investment	200,093			—

The accompanying notes are an integral part of the consolidated financial statements.

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iStar Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1—Business and Organization

Business—iStar Inc. (the "Company") finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company also ~~provides management services for its~~manages entities focused on ground lease ~~equity method investment~~ and net lease ~~joint ventures~~investments (refer to Note 7). The Company has invested approximately $40 billion of capital over the past two decades and is structured as a real estate investment trust ("REIT") with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company's primary reportable business segments are real estate finance, net lease, operating properties and land and development (refer to Note 17).

Organization—The Company began its business in 1993 through the management of private investment funds and became publicly traded in 1998. Since that time, the Company has grown through the origination of new investments and corporate acquisitions.

Note 2—Basis of Presentation and Principles of Consolidation

Basis of Presentation—The accompanying unaudited 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 America ("GAAP") for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~"2017~~"2018 Annual Report").

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

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's consolidated financial statements and the related notes 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 and VIEs for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. The Company's involvement with VIEs affects its financial performance and cash flows primarily through amounts recorded in "Operating lease income," "Interest income," "Earnings from equity method investments," "Real estate expense" and "Interest expense" in the Company's consolidated statements of operations. The Company has provided no financial support to those VIEs that it was not previously contractually required to provide.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE's respective assets. The Company did not have any unfunded commitments related to consolidated VIEs as of ~~June 30, 2018.~~March 31, 2019. The following table presents the assets and liabilities of the Company's consolidated VIEs as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 ($ in thousands):


	As of						As of
	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Real estate
Real estate, at cost	$	817,979		$	47,073		$	848,059		$	848,052
Less: accumulated depreciation	(4,593		)	(2,732		)	(19,736		)	(15,365		)
Real estate, net	813,386			44,341			828,323			832,687
Land and development, net	242,213			212,408			305,800			279,031
Other investments	88			—			68			72
Cash and cash equivalents	12,918			10,704			15,963			25,219
Accrued interest and operating lease income receivable, net	557			230			1,781			1,302
Deferred operating lease income receivable, net							10,639			8,972
Deferred expenses and other assets, net	179,129			29,929			142,177			167,324
Total assets	$	1,248,291		$	297,612		$	1,304,751		$	1,314,607
LIABILITIES
Accounts payable, accrued expenses and other liabilities	$	99,784		$	38,616		$	103,523		$	106,907
Debt obligations, net	464,706			—			483,508			485,000
Total liabilities	564,490			38,616			587,031			591,907

Unconsolidated VIEs—The Company has investments in VIEs where it is not the primary beneficiary and accordingly the VIEs have not been consolidated in the Company's consolidated financial statements. As of ~~June 30, 2018,~~March 31, 2019, the Company's maximum exposure to loss from these investments does not exceed the sum of the ~~$88.5~~$70.4 million carrying value of the investments, which are classified in "Other investments" ~~and "Loans receivable and other lending investments, net"~~ on the Company's consolidated balance sheets, and ~~$22.7~~$30.8 million of related unfunded commitments.

Note 3—Summary of Significant Accounting Policies

The following paragraphs describe the impact on the Company's consolidated financial statements from the adoption of Accounting Standards Updates ("ASUs") on January 1, ~~2018.~~2019.

ASU ~~2014-09~~—2016-02 and ASU ~~2014-09, Revenue from Contracts with Customers~~2018-11—Accounting Standards Update ("ASU") 2016-02, Leases ("ASU ~~2014-09"~~2016-02")~~, stipulates that an entity should recognize revenue to depict~~ required the ~~transfer~~recognition of ~~promised goods~~right-of-use lease assets and lease liabilities by the Company as lessee for those leases classified as operating or ~~services to customers in an amount that reflects~~finance leases, both measured at the ~~consideration to~~present value of the lease payments, on its consolidated balance sheets. For operating lease arrangements as of December 31, 2018 for which the ~~entity expects to be entitled~~Company was the lessee, primarily under leases of office space and certain ground leases, and a finance lease the Company entered into during the three months ended March 31, 2019, the Company recorded operating lease right-of-use assets of $31.6 million and a finance lease right-of-use asset of $68.1 million in ~~exchange for those goods or services. Certain contracts with customers, including lease contracts and financial instruments~~"Deferred expenses and other ~~contractual rights, are not within~~assets, net" and operating lease liabilities of $31.6 million and a finance lease liability of $68.1 million in "Accounts payable, accrued expenses and other liabilities" on its consolidated balance sheets (refer to Significant Accounting Policies below). The accounting applied by the ~~scope of the new guidance. The Company's revenue within the scope of the guidance~~Company as a lessor is primarily ancillary income related to its operating properties. The Company adopted ASU 2014-09 using the modified retrospective approach and the adoption did not have a material impact on the Company's consolidated financial statements.generally unchanged from that applied under previous GAAP.

Management elected the practical expedient package that allowed the Company: (a) to not reassess whether any expired or existing contracts entered into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease classification for any expired or existing leases entered into prior to January 1, 2019; and (c) to not reassess initial direct costs for any expired or existing leases entered into prior to January 1, 2019. In addition, the Company elected to not record on its consolidated balance sheets leases whose term is less than 12 months at lease inception.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

ASU ~~2016-01 and~~2018-11, Leases amended ASU ~~2018-03~~—~~ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities("ASU 2016-01"), addressed certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2018-03, Technical Corrections and Improvements~~2016-02 so that: (i) entities could elect to ~~Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, provided technical corrections and improvements~~not recast the comparative periods presented when transitioning to ~~ASU 2016-01. ASU 2016-01 requires~~ASC 842 by allowing entities to measure equity investments not accounted for under the equity method at fair value and recognize changes in fair value in net income. For equity investments without readily determinable fair values, entities may elect a measurement alternative that will allow those investmentschange their initial application to ~~be recorded at cost, less impairment, and adjusted for~~

~~subsequent observable price changes. Upon adoption, entities must record a cumulative-effect adjustment to the balance sheet as of~~ the beginning of the ~~first reporting~~ period of adoption; and (ii) provided lessors with a practical expedient to not separate non-lease components from the associated lease component of the contractual payments if certain conditions are met. Management elected both of these provisions.

ASU 2018-16—ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes was issued in ~~which~~October 2018 and expands the ~~standard is adopted. ASU 2016-01 also eliminated~~list of U.S. benchmark interest rates permitted in the ~~requirement for public business entities to disclose~~application of hedge accounting by adding the ~~methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost~~OIS rate based on ~~the balance sheet.~~SOFR as an eligible benchmark interest rate. The adoption of ASU ~~2016-01 and ASU 2018-03~~2018-16 did not have a material impact on the Company's consolidated financial statements.

~~ASU 2016-15~~—ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), was issued to reduce diversity in practice in how certain cash receipts and cash payments, including debt prepayment or debt extinguishment costs, distributions from equity method investees, and other separately identifiable cash flows, are presented and classified in the statement of cash flows. The adoption of ASU 2016-15 was retrospective and resulted in an increase to cash flows provided by operating activities of $9.3 million and a decrease to cash flows provided by financing activities of $9.3 million for the six months ended June 30, 2017, primarily resulting from the reclassification of cash payments made related to the extinguishment of debt.

~~ASU 2016-18~~—ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18"), requires that restricted cash be included with cash and cash equivalents when reconciling beginning and ending cash and cash equivalents on the statement of cash flows and requires disclosure of what is included in restricted cash. The adoption of ASU 2016-18 did not have a material impact on the Company's consolidated financial statements. The adoption of ASU 2016-18 was retrospective and resulted in a decrease to cash flows provided by operating activities of $0.7 million and a decrease to cash flows provided by investing activities of $1.8 million for the six months ended June 30, 2017.Significant Accounting Policies

Restricted cash—The following table provides a reconciliation of the cash and cash equivalents and restricted cash reported in the Company's consolidated balance sheets that total to the same amount as reported in the consolidated statements of cash flows (in thousands):


	June 30, 2018		December 31, 2017		June 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018		March 31, 2018		December 31, 2017
Cash and cash equivalents	$	1,039,591	$	657,688	$	954,279	$	328,744	$	315,407	$	931,751	$	366,723	$	657,688
Restricted cash included in deferred expenses and other assets, net⁽¹⁾	27,399		20,045		23,380		25,883		48,407		42,793		20,421		20,045
Total cash, cash equivalents and restricted cash reported in the consolidated statements of cash flows	$	1,066,990	$	677,733	$	977,659	$	354,627	$	363,814	$	974,544	$	387,144	$	677,733


(1)	Restricted cash represents amounts required to be maintained under certain of the Company's debt obligations, loans, leasing, land development, sale and derivative transactions.

~~ASU 2017-01~~—The adoption of ASU 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"), did not have a material impact on the Company's consolidated financial statements. Under ASU 2017-01, certain transactions previously accounted for as business combinations under the former accounting guidance will be accounted for as asset acquisitions under ASU 2017-01. As a result, the Company expects more transaction costs to be capitalized relating to real estate acquisitions as a result of ASU 2017-01.

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~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~ASU 2017-05~~—~~ASU 2017-05, Other Income - Gains~~Deferred expenses and ~~Losses from the Derecognition of Nonfinancial Assets ("ASU 2017-05"), simplifies GAAP by eliminating several accounting differences between transactions involving~~other assets and transactions involving businesses. The amendments in ASU 2017-05 require an entity to initially measure a retained noncontrolling interest in a nonfinancial asset at fair value consistent with how a retained noncontrolling interest in a business is measured. Also, if an entity transfers ownership interests in a consolidated subsidiary that is within the scope of ASC 610-20accounts payable, accrued expenses and continues to have a controlling financial interest in that subsidiary, ASU 2017-05 requires the entity to account for the transaction as an equity transaction, which is consistent with how changes in ownership interests in a consolidated subsidiary that is a business are recorded when a parent retains a controlling financial interest in the business. The Company adopted ASU 2017-05 using the modified retrospective approach which was applied to all contracts. Onother liabilities—Effective January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its ground lease business (refer to Note 4) and other transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to2019 with the adoption of ASU ~~2017-05,~~2016-02, the Company, ~~was required~~as lessee, records right-of-use lease assets in "Deferred expenses and other assets" and lease liabilities in "Accounts payable, accrued expenses and other liabilities" on its consolidated balance sheets for operating and finance leases, both measured at the present value of the lease payments. Some of the Company's lease agreements include extension options, which are not included in the lease payments unless the extensions are reasonably certain to ~~recognize gains~~be exercised.

For operating leases, the Company recognizes a single lease cost for office leases in "General and administrative" and a single lease cost for ground leases in "Real estate expense" in the consolidated statements of operations, calculated so that the cost of the lease is allocated generally on ~~only~~a straight-line basis over the term of the lease, and classifies all cash payments within operating activities in the consolidated statements of cash flows. For finance leases, the Company recognizes amortization of the right-of-use assets on a straight-line basis over the term of the lease in "Depreciation and amortization" and interest expense on the lease liability using the effective interest method in "Interest expense" in the consolidated statements of operations. Repayments of the principal portion of ~~its~~the finance lease liability are classified within financing activities in the consolidated statements of cash flows and payments of interest ~~transferred to third parties and was precluded from recognizing~~on a ~~gain on its retained noncontrolling interest which was carried at~~finance lease liability are classified within operating activities in the ~~Company’s historical cost basis. The adoption~~consolidated statement of ~~ASU 2017-05 had~~cash flows.

For the ~~following impact on~~remainder of the Company's ~~consolidated financial statements (in thousands):~~

Impact from ASU 2017-05on January 1, 2018

December 31, 2017 January 1, 2018
Other investments $ 321,241
$ 75,869
$ 397,110
Total assets 4,731,078
75,869
4,806,947

Retained earnings (deficit) $ (2,470,564 ) $ 75,869
$ (2,394,695 )
Total equity 914,249
75,869
990,118

~~ASU 2017-12~~—~~ASU 2017-12, Derivatives and Hedging - Targeted Improvements~~significant accounting policies, refer to Accounting for Hedging Activities ("ASU 2017-12"), was issued to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The Company adopted ASU 2017-12 on January 1, 2018 and the adoption did not have a material impact on the Company's ~~consolidated financial statements.~~2018 Annual Report.

New Accounting Pronouncements—In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity. This amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company currently records a general reserve that covers performing loans and reserves for loan losses are recorded when: (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio; and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. The Company estimates loss rates based on historical realized losses experienced

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

within its portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Management ~~does not believe the guidance will have a material impact on the Company's consolidated financial statements.~~

~~In February 2016, the FASB issued ASU 2016-02, Leases~~("ASU 2016-02"), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. For operating leases, a lessee will be required to do the following: (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and (iii) classify all cash payments within operating activities in the statement of cash flows. In July 2018, the FASB issued ASU 2018-11, Leases (“ASU 2018-11”), to address two requirements of ASU 2016-02. ASU 2018-11 allows entities to recognize a cumulative-effect adjustment from the application of ASU 2016-02 to the opening balance of retained earnings in the period of adoption. In addition, ASU 2018-11 provides lessors with a practical expedient to not separate

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

non-lease components from the associated lease component if certain conditions are met. For operating lease arrangements for which the Company is the lessee, primarily the lease of office space, the Company expects the impact of ASU 2016-02 to be the recognition of a right-of-use asset and lease liability on its consolidated balance sheets. The accounting applied by the Company as a lessor will be largely unchanged from that applied under previous GAAP. However, in certain instances, a new long-term lease of land subsequent to adoption could be classified as a sales-type lease, which could result in the Company derecognizing the underlying asset and recording a profit or loss on sale and the net investment in the lease. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. Management iscurrently evaluating the impact ~~of the guidance~~from ASU 2016-13 on the Company's consolidated financial statements.

Note 4—Real Estate

The Company's real estate assets were comprised of the following ($ in thousands):


	Net Lease⁽¹⁾			Operating Properties			Total			Net Lease			Operating Properties			Total
As of June 30, 2018
As of March 31, 2019
Land, at cost	$	335,926		$	181,973		$	517,899		$	302,199		$	105,771		$	407,970
Buildings and improvements, at cost	1,495,393			242,245			1,737,638			1,389,332			76,340			1,465,672
Less: accumulated depreciation	(298,730		)	(41,808		)	(340,538		)	(241,686		)	(10,952		)	(252,638		)
Real estate, net	1,532,589			382,410			1,914,999			1,449,845			171,159			1,621,004
Real estate available and held for sale ⁽²⁾⁽¹⁾	—			37,597			37,597			219,184			34,152			253,336
Total real estate	$	1,532,589		$	420,007		$	1,952,596		$	1,669,029		$	205,311		$	1,874,340
As of December 31, 2017
As of December 31, 2018
Land, at cost	$	219,092		$	203,278		$	422,370		$	336,740		$	133,599		$	470,339
Buildings and improvements, at cost	888,959			318,107			1,207,066			1,487,270			118,724			1,605,994
Less: accumulated depreciation	(292,268		)	(55,137		)	(347,405		)	(287,516		)	(17,798		)	(305,314		)
Real estate, net	815,783			466,248			1,282,031			1,536,494			234,525			1,771,019
Real estate available and held for sale ⁽²⁾⁽¹⁾	—			68,588			68,588			1,055			21,496			22,551
Total real estate	$	815,783		$	534,836		$	1,350,619		$	1,537,549		$	256,021		$	1,793,570


(1)	~~On June 30,~~As of March 31, 2019 and December 31, 2018, the Company ~~consolidated the Net Lease Venture (refer to Note 7) and recorded $743.6 million to "Real estate, net" on the Company's consolidated balance sheet.~~


~~(2)~~	~~As of June 30, 2018 and December 31, 2017, the Company~~ had ~~$36.7~~$16.1 million and ~~$48.5~~$20.6 million, respectively, of residential condominiums available for sale in its operating properties portfolio.

~~Disposition~~Acquisitions—During the three months ended March 31, 2019, the Company acquired a net lease asset for $11.5 million and acquired the leasehold interest in another net lease asset for $98.2 million, inclusive of closing costs, and simultaneously entered into a new 98-year Ground Lease ~~Business—~~In April 2017, institutional investors acquired a controlling interest in the Company's ground lease business through the merger of a Company subsidiary and related transactions (the "Acquisition Transactions"). Ground leases generally represent ownership of the land underlying commercial real estate projects that is triple net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Lease"). The Company's Ground Lease business was a component of the Company's net lease segment and consisted of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five properties). The acquiring entity was a newly formed unconsolidated entity named Safety, Income & Growth Inc. ("SAFE"). The carrying value of the Company's Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed towith SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts for its investment in SAFE as an equity method investment (refer to Note 7). The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05 (refer to Note 3), on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

~~Discontinued Operations—~~The transactions described above involving the Company's Ground Lease business qualified for discontinued operations and the following table summarizes income from discontinued operations for the three and six months ended June 30, 2017 ($ in thousands)⁽¹⁾⁽²⁾:

Three Months Ended June 30, 2017 Six Months Ended June 30, 2017
Revenues $ 678
$ 5,922
Expenses (505 ) (1,491 )
Income from sales of real estate —
508
Income from discontinued operations $ 173
$ 4,939


~~(1)~~	~~The transactions closed on April 14, 2017. Revenues primarily consisted of operating lease income and expenses primarily consisted of depreciation and amortization and real estate expense.~~


~~(2)~~	For the six months ended June 30, 2017, cash flows provided by operating activities and cash flows used in investing activities from discontinued operations was $5.7 million and $0.5 million, respectively.

~~Other~~ Dispositions—The following table presents the net proceeds and income recognized for properties sold, by property type ($ in millions):


	Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2019		2018
Operating Properties
Proceeds⁽¹⁾	$	196.2	$	17.6
Income from sales of real estate⁽¹⁾	49.0		2.7
Proceeds					$	58.5	$	41.9
Income from sales of real estate					9.4		16.6

Net Lease
Proceeds⁽²⁾	$	38.4	$	19.5
Income from sales of real estate⁽²⁾	24.9		6.2
Proceeds					$	—	$	2.3
Income from sales of real estate					—		0.4

Total
Proceeds	$	234.6	$	37.1	$	58.5	$	44.2
Income from sales of real estate	73.9		8.9		9.4		17.0


~~(1)~~	During the six months ended June 30, 2018, the Company sold four operating properties and recognized $49.0 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations, of which $9.8 million was attributable to a noncontrolling interest at one of the properties.


~~(2)~~	During the six months ended June 30, 2018, the Company sold three net lease assets and recognized $24.9 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations.

Real Estate Available and Held for Sale—During the three months ended March 31, 2019, the Company transferred a portfolio of net lease assets with an aggregate carrying value of $218.1 million and associated liabilities to held for sale due to an executed contract with a third party. In addition, the Company transferred a commercial operating property with a carrying value of $16.2 million to held for sale based on an executed purchase and sale agreement.

Impairments—During the ~~six~~three months ended ~~June 30,~~March 31, 2019, the Company recorded an impairment of $3.2 million on a commercial operating property based on an executed purchase and sale agreement and recorded $0.7 million of impairments in connection with the sale of residential condominium units. During the three months ended March 31, 2018, the Company recorded ~~aggregate impairments~~an impairment of ~~$8.9~~$4.1 million ~~resulting from the exercise of a below-market lease renewal option related to a net lease asset and~~on a real estate asset held for sale due to contracts to sell the remaining four condominium units at the property. During the six months ended June 30, 2017, the Company recorded an impairment of $4.4 million on a real estate asset held for sale due to shifting demand in the local condominium market along with a change in the Company's exit strategy.

Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements were ~~$5.0~~$5.4 million and ~~$10.6~~$5.6 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~respectively. Tenant expense reimbursements were $5.2 million and $10.7 million for the three and six months ended June 30, 2017,~~ respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Allowance for Doubtful Accounts—As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the allowance for doubtful accounts related to real estate tenant receivables was ~~$1.3~~$1.1 million and ~~$1.3~~$1.5 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was ~~$1.5~~$1.3 million and ~~$1.3~~$1.8 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income receivable, net," respectively, on the Company's consolidated balance sheets.

Note 5—Land and Development

The Company's land and development assets were comprised of the following ($ in thousands):


	As of						As of
	June 30,			December 31,			March 31,			December 31,
	2018			2017			2019			2018
Land and land development, at cost⁽¹⁾	$	649,783		$	868,692		$	625,228		$	606,849
Less: accumulated depreciation	(8,156		)	(8,381		)	(8,878		)	(8,631		)
Total land and development, net	$	641,627		$	860,311		$	616,350		$	598,218


~~(1)~~	~~During the six months ended June 30, 2018, the Company funded capital expenditures on land and development assets of $61.6 million.~~

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Acquisitions—During the ~~six~~three months ended ~~June 30,~~March 31, 2018, the Company acquired, via foreclosure, title to a land asset which had a total fair value of $4.6 million and had previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with this transaction.

Dispositions—During the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company sold land parcels and residential lots and units and recognized land development revenue of ~~$357.4~~$12.7 million and ~~$152.8~~$276.4 million, respectively. In connection with the sale of two land parcels totaling 93 acres during the ~~six~~three months ended ~~June 30,~~March 31, 2018, the Company ~~originated~~provided an aggregate $145.0 million of financing to the buyers. $81.2 million was repaid in the second quarter 2018. During the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company recognized land development cost of sales of ~~$306.8~~$14.4 million and ~~$138.4~~$223.4 million, respectively, from its land and development portfolio.

In connection with the resolution of litigation involving a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland, during the three and six months ended June 30, 2017, the Company recognized $114.0 million of land development revenue and $106.3 million of land development cost of sales.

~~Impairments—~~During the six months ended June 30, 2018, the Company recorded an impairment of $1.3 million on a land and development asset based upon market comparable sales. During the six months ended June 30, 2017, the Company recorded an impairment of $10.1 million on a land and development asset due to a change in the Company's exit strategy.

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Note 6—Loans Receivable and Other Lending Investments, net

The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):


	As of						As of
Type of Investment	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Senior mortgages	$	849,192		$	791,152		$	690,860		$	760,749
Corporate/Partnership loans⁽¹⁾	129,988			488,921			143,426			148,583
Subordinate mortgages	9,822			9,495			10,338			10,161
Total gross carrying value of loans	989,002			1,289,568			844,624			919,493
Reserves for loan losses	(54,495		)	(78,489		)	(53,298		)	(53,395		)
Total loans receivable, net	934,507			1,211,079			791,326			866,098
Other lending investments—securities	118,365			89,576			103,520			122,126
Total loans receivable and other lending investments, net	$	1,052,872		$	1,300,655		$	894,846		$	988,224


~~(1)~~	~~In the second quarter 2018, the Company resolved a non-performing loan with a carrying value of $145.8 million~~. ~~Refer to "Impaired Loans" section below.~~

Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Reserve for loan losses at beginning of period	$	69,466		$	79,389		$	78,489		$	85,545		$	53,395		$	78,489
Provision for (recovery of) loan losses	18,892			(600		)	18,037			(5,528		)
Recovery of loan losses													(97		)	(855		)
Charge-offs	(33,863		)	—			(42,031		)	(1,228		)	—			(8,168		)
Reserve for loan losses at end of period	$	54,495		$	78,789		$	54,495		$	78,789		$	53,298		$	69,466

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserve for loan losses were as follows ($ in thousands):


	Individually Evaluated for Impairment⁽¹⁾			Collectively Evaluated for Impairment⁽²⁾			Total			Individually Evaluated for Impairment⁽¹⁾			Collectively Evaluated for Impairment⁽²⁾			Total
As of June 30, 2018
As of March 31, 2019
Loans	$	67,068		$	927,074		$	994,142		$	66,500		$	783,334		$	849,834
Less: Reserve for loan losses	(40,395		)	(14,100		)	(54,495		)	(40,888		)	(12,410		)	(53,298		)
Total⁽³⁾	$	26,673		$	912,974		$	939,647		$	25,612		$	770,924		$	796,536
As of December 31, 2017
As of December 31, 2018
Loans	$	237,877		$	1,056,944		$	1,294,821		$	66,725		$	857,662		$	924,387
Less: Reserve for loan losses	(60,989		)	(17,500		)	(78,489		)	(40,395		)	(13,000		)	(53,395		)
Total⁽³⁾	$	176,888		$	1,039,444		$	1,216,332		$	26,330		$	844,662		$	870,992

(1)

The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.5 million and ~~$0.7~~$0.5 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status; therefore, the unamortized amounts associated with these loans are not currently being amortized into income.


(2)	The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of ~~$3.7~~$2.5 million and ~~net premiums of $6.2~~$3.1 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

(3)

The Company's recorded investment in loans as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, including accrued interest of ~~$5.1~~$5.2 million and ~~$5.3~~$4.9 million, respectively, is included in "Accrued interest and operating lease income receivable, net" on the Company's consolidated balance sheets. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the total amounts exclude ~~$118.4~~$103.5 million and ~~$89.6~~$122.1 million, respectively, of securities that are evaluated for impairment under ASC 320.

Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments, which are inherently uncertain, and there can be no assurance that actual performance will be similar to current expectation. The Company designates loans as non-performing at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.

The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands):


	As of June 30, 2018			As of December 31, 2017			As of March 31, 2019			As of December 31, 2018
	Performing Loans		Weighted Average Risk Ratings	Performing Loans		Weighted Average Risk Ratings	Performing Loans		Weighted Average Risk Ratings	Performing Loans		Weighted Average Risk Ratings
Senior mortgages	$	786,399	2.78	$	713,057	2.72	$	628,408	2.81	$	697,807	2.76
Corporate/Partnership loans	130,823		2.85	334,364		2.85	144,556		2.89	149,663		2.84
Subordinate mortgages	9,852		3.00	9,523		3.00	10,370		3.00	10,192		3.00
Total	$	927,074	2.79	$	1,056,944	2.77	$	783,334	2.83	$	857,662	2.77

1312

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The Company's recorded investment in loans, aged by payment status and presented by class, was as follows ($ in thousands):


	Current		Less Than and Equal to 90 Days		Greater Than 90 Days⁽¹⁾		Total Past Due		Total		Current		Less Than and Equal to 90 Days		Greater Than 90 Days⁽¹⁾		Total Past Due		Total
As of June 30, 2018
As of March 31, 2019
Senior mortgages	$	792,399	$	—	$	61,068	$	61,068	$	853,467	$	634,408	$	—	$	60,500	$	60,500	$	694,908
Corporate/Partnership loans	130,823		—		—		—		130,823		144,556		—		—		—		144,556
Subordinate mortgages	9,852		—		—		—		9,852		10,370		—		—		—		10,370
Total	$	933,074	$	—	$	61,068	$	61,068	$	994,142	$	789,334	$	—	$	60,500	$	60,500	$	849,834
As of December 31, 2017
As of December 31, 2018
Senior mortgages	$	719,057	$	—	$	75,343	$	75,343	$	794,400	$	703,807	$	—	$	60,725	$	60,725	$	764,532
Corporate/Partnership loans	334,364		—		156,534		156,534		490,898		149,663		—		—		—		149,663
Subordinate mortgages	9,523		—		—		—		9,523		10,192		—		—		—		10,192
Total	$	1,062,944	$	—	$	231,877	$	231,877	$	1,294,821	$	863,662	$	—	$	60,725	$	60,725	$	924,387

(1)

As of ~~June 30,~~March 31, 2019, the Company had two loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 4.0 to 10.0 years outstanding. As of December 31, 2018, the Company had two loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 3.0 to 9.0 years outstanding. As of December 31, 2017, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 1.04.0 to 9.0 years outstanding.

Impaired Loans—In the second quarter 2018, the Company resolved a non-performing loan with a carrying value of $145.8 million. The Company received a $45.8 million cash payment and a preferred equity position with a face value of $100.0 million that is mandatorily redeemable in five years. The Company recorded the preferred equity at its fair value of $77.0 million and will accrue interest over the expected duration of the position. In addition, the Company recorded a $21.4 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.

The Company's recorded investment in impaired loans, presented by class, was as follows ($ in thousands)⁽¹⁾:


	As of June 30, 2018							As of December 31, 2017							As of March 31, 2019							As of December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With an allowance recorded:
Senior mortgages	$	67,068	$	67,451	$	(40,395	)	$	81,343	$	81,431	$	(48,518	)	$	66,500	$	66,461	$	(40,888	)	$	66,725	$	66,777	$	(40,395	)
Corporate/Partnership loans	—		—		—			156,534		145,849		(12,471		)
Total	$	67,068	$	67,451	$	(40,395	)	$	237,877	$	227,280	$	(60,989	)	$	66,500	$	66,461	$	(40,888	)	$	66,725	$	66,777	$	(40,395	)


(1)	All of the Company's non-accrual loans are considered impaired and included in the table above.

1413

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The Company's average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands):


	For the Three Months Ended June 30,								For the Six Months Ended June 30,								For the Three Months Ended March 31,
	2018				2017				2018				2017				2019				2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		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:
Subordinate mortgages	$	—	$	—	$	11,023	$	—	$	—	$	92	$	10,970	$	—	$	—	$	—	$	—	$	92
Subtotal	—		—		11,023		—		—		92		10,970		—		—		—		—		92
With an allowance recorded:
Senior mortgages	67,252		—		82,368		—		71,949		—		83,556		—		66,612		—		74,390		—
Corporate/Partnership loans	78,338		—		156,839		—		104,403		—		156,941		—		—		—		156,605		—
Subtotal	145,590		—		239,207		—		176,352		—		240,497		—		66,612		—		230,995		—
Total:
Senior mortgages	67,252		—		82,368		—		71,949		—		83,556		—		66,612		—		74,390		—
Corporate/Partnership loans	78,338		—		156,839		—		104,403		—		156,941		—		—		—		156,605		—
Subordinate mortgages	—		—		11,023		—		—		92		10,970		—		—		—		—		92
Total	$	145,590	$	—	$	250,230	$	—	$	176,352	$	92	$	251,467	$	—	$	66,612	$	—	$	230,995	$	92

Securities—Other lending investments—securities include the following ($ in thousands):


	Face Value		Amortized Cost Basis		Net Unrealized Gain		Estimated Fair Value		Net Carrying Value		Face Value		Amortized Cost Basis		Net Unrealized Gain		Estimated Fair Value		Net Carrying Value
As of June 30, 2018
As of March 31, 2019
Available-for-Sale Securities
Municipal debt securities	$	21,185	$	21,185	$	655	$	21,840	$	21,840	$	21,140	$	21,140	$	1,475	$	22,615	$	22,615
Held-to-Maturity Securities
Debt securities	119,538		96,525		378		96,903		96,525		100,000		80,905		—		80,905		80,905
Total	$	140,723	$	117,710	$	1,033	$	118,743	$	118,365	$	121,140	$	102,045	$	1,475	$	103,520	$	103,520
As of December 31, 2017
As of December 31, 2018
Available-for-Sale Securities
Municipal debt securities	$	21,230	$	21,230	$	1,612	$	22,842	$	22,842	$	21,185	$	21,185	$	476	$	21,661	$	21,661
Held-to-Maturity Securities
Debt securities	66,618		66,734		1,581		68,315		66,734		120,866		100,465		7		100,472		100,465
Total	$	87,848	$	87,964	$	3,193	$	91,157	$	89,576	$	142,051	$	121,650	$	483	$	122,133	$	122,126

1514

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

As of ~~June 30, 2018,~~March 31, 2019, the contractual maturities of the Company's securities were as follows ($ in thousands):


	Held-to-Maturity Securities				Available-for-Sale Securities				Held-to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost Basis		Estimated Fair Value		Amortized Cost Basis		Estimated Fair Value		Amortized Cost Basis		Estimated Fair Value		Amortized Cost Basis		Estimated Fair Value
Maturities
Within one year	$	19,518	$	19,896	$	—	$	—	$	—	$	—	$	—	$	—
After one year through 5 years	77,007		77,007		—		—		80,905		80,905		—		—
After 5 years through 10 years	—		—		—		—		—		—		—		—
After 10 years	—		—		21,185		21,840		—		—		21,140		22,615
Total	$	96,525	$	96,903	$	21,185	$	21,840	$	80,905	$	80,905	$	21,140	$	22,615

Note 7—Other Investments

The Company's other investments and its proportionate share of earnings from equity method investments were as follows ($ in thousands):


					Equity in Earnings (Losses)														Equity in Earnings (Losses)
	Carrying Value as of				For the Three Months Ended June 30,					For the Six Months Ended June 30,					Carrying Value as of				For the Three Months Ended March 31,
	June 30, 2018		December 31, 2017		2018			2017		2018			2017		March 31, 2019		December 31, 2018		2019			2018
Real estate equity investments
Safehold Inc. ("SAFE")															$	402,052	$	149,589	$	7,316		$	1,472
iStar Net Lease II LLC ("Net Lease Venture II")															5,630		16,215		(86		)	—
iStar Net Lease I LLC ("Net Lease Venture")⁽¹⁾	$	—	$	121,139	$	2,016		$	1,032	$	4,100		$	2,013	—		—		—			2,084
Safety, Income & Growth Inc. ("SAFE")⁽²⁾	147,512		83,868		680			48		2,152			48
Other real estate equity investments⁽²⁾	138,716		102,616		(295		)	4,075		(25		)	8,549
Other real estate equity investments															107,090		130,955		(2,123		)	270
Subtotal	286,228		307,623		2,401			5,155		6,227			10,610		514,772		296,759		5,107			3,826
Other strategic investments⁽³⁾	6,789		13,618		(9,679		)	360		(10,173		)	607
Other strategic investments															7,227		7,516		202			(494		)
Total	$	293,017	$	321,241	$	(7,278	)	$	5,515	$	(3,946	)	$	11,217	$	521,999	$	304,275	$	5,309		$	3,332


(1)	The Company consolidated the assets and liabilities of the Net Lease Venture on June 30, 2018 (refer to Net Lease Venture below).

~~(2)~~

On January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its Ground Lease business (refer to Note 4) and other transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to the adoption of ASU 2017-05 (refer to Note 3), the Company was required to recognize gains on only the portion of its interest transferred to third parties and was precluded from recognizing a gain on its retained noncontrolling interest, which was carried at the Company’s historical cost basis.

~~(3)~~

~~For the three and six months ended June 30, 2018, equity in earnings (losses) includes a~~ ~~$10.0 million~~ ~~impairment on a foreign equity method investment due to local market conditions.~~

Safehold Inc.—Safehold Inc. ("SAFE"), formerly known as Safety, Income & Growth Inc., is a publicly-traded company formed by the Company primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Leases"). As of March 31, 2019, the Company owned approximately 42.4% of SAFE's common stock outstanding.

On January 2, 2019, the Company purchased 12,500,000 newly designated limited partnership units (the "Investor Units") in SAFE's operating partnership ("SAFE OP"), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. The purpose of the investment was to allow SAFE to fund additional Ground Lease acquisitions and originations.

The Investor Units have the following features:

the right to receive equivalent distributions per unit to those paid on one share of SAFE common stock;

no voting rights;

non-transferable prior to June 30, 2019;

no automatic conversion or exchange rights; and

limited protective consent rights.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

SAFE has agreed to seek stockholder approval to exchange the Investor Units for shares of SAFE common stock, on a one-for-one basis.

The Investor Units represent an approximate 40.6% fully diluted economic interest in SAFE. After giving effect to the issuance of the Investor Units, the Company's aggregate fully diluted economic interest in SAFE (including the shares of SAFE common stock and Investor Units owned by the Company) is approximately 65.8%; however, the Company's voting power in SAFE will remain capped at 41.9%, as a result of the limitations described below.

In connection with the Company's purchase of the Investor Units, it entered into a Stockholder's Agreement with SAFE on January 2, 2019. The Stockholder's Agreement:

limits the Company's discretionary voting power to 41.9% of the outstanding voting power of SAFE's common stock until its aggregate ownership of SAFE common stock is less than 41.9%;

requires the Company to cast all of its voting power in favor of three director nominees to SAFE's board who are independent of each of the Company and SAFE for three years;

subjects the Company to certain standstill provisions for two years;

restricts the Company's ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one year after their issuance;

prohibits the Company from transferring shares of SAFE common stock representing more than 20% of the outstanding SAFE common stock in one transaction or a series of related transactions to any person or group, other than pursuant to a widely distributed public offering, unless SAFE's other stockholders have participation rights in the transaction; and

provides the Company certain preemptive rights.

A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. Following are the key terms of the management agreement:

The Company received no management fee through June 30, 2018, which covered the first year of the management agreement;

The Company receives a fee equal to 1.0% of total SAFE equity (as defined in the management agreement) up to $1.5 billion; 1.25% of total SAFE equity (for incremental equity of $1.5 billion - $3.0 billion); 1.375% of total SAFE equity (for incremental equity of $3.0 billion - $5.0 billion); and 1.5% of total SAFE equity (for incremental equity over $5.0 billion);

Fee to be paid in cash or in shares of SAFE common stock, at the discretion of SAFE's independent directors;

The stock is locked up for two years, subject to certain restrictions;

There is no additional performance or incentive fee;

From January 1, 2019 through June 30, 2022, the management agreement is non-terminable by SAFE except for cause; and

Automatic annual renewals thereafter, subject to non-renewal upon certain findings by SAFE's independent directors and payment of termination fee equal to three times the prior year's management fee, subject to SAFE having raised $820 million of total equity since inception.

During the three months ended March 31, 2019, the Company recorded $1.5 million of management fees and during the three months ended March 31, 2018, the Company waived $0.9 million of management fees pursuant to its management agreement with SAFE.

The Company is also entitled to receive expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company waived certain of the expense reimbursements through June 30, 2018. For the three months ended March 31, 2019, the Company was reimbursed $0.5 million of expense reimbursements. For the three months ended March 31, 2018, the Company waived $0.4 million 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 certain exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Following is a list of investments that the Company has transacted with SAFE for the periods presented:

In August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the renovation of a medical office building in Atlanta, GA. As of March 31, 2019, $18.0 million of the loan was funded. During the three months ended March 31, 2019 and 2018, the Company recorded $0.5 million and $0.2 million of interest income, respectively, on the loan. The transaction was approved by the Company's and SAFE's independent directors.

In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment to support the ground-up development of Great Oaks Multifamily, a to-be-built 301-unit community within the Great Oaks Master Plan of San Jose, CA. The transaction includes a combination of: (i) a newly created Ground Lease and a $7.2 million leasehold improvement allowance, which was fully funded as of March 31, 2019; and (ii) a $80.5 million leasehold first mortgage. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million. The forward purchase contract was approved by the Company's and SAFE's independent directors.

In May 2018, the Company provided a $19.9 million leasehold mortgage loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the acquisition of 100 and 200 Glenridge Point, two multi-tenant office buildings in Atlanta, GA. During the three months ended March 31, 2019, the Company recorded $0.6 million of interest income on the loan. The transaction was approved by the Company's and SAFE's independent directors.

In January 2019, the Company committed to provide a $13.3 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the conversion of an office building into a multi-family property in Washington, DC. As of March 31, 2019, $11.9 million of the loan was funded. During the three months ended March 31, 2019, the Company recorded $0.2 million of interest income on the loan. The transaction was approved by the Company's and SAFE's independent directors.

In February 2019, the Company acquired the leasehold interest in a net lease property and simultaneously entered into a new 98-year Ground Lease with SAFE (refer to Note 4). The transaction was approved by the Company's and SAFE's independent directors.

Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form ~~a net lease venture (the "Net~~the Net Lease ~~Venture")~~Venture to acquire and develop net lease assets and gave a right of first offer to the venture on all new net lease investments. The Company and its partner had joint decision making rights pertaining to the acquisition of new investments. Upon the expiration of the investment period on June 30, 2018, the Company obtained control of the venture through its unilateral rights of management and disposition of the assets. As a result, the expiration of the investment period resulted in a reconsideration event under GAAP and the Company determined that the Net Lease Venture is a VIE for which the Company is the primary beneficiary. Effective June 30, 2018, the Company consolidated the Net Lease Venture as an asset acquisition under ASC 810. The Company recorded a gain of $67.9 million in "Gain on consolidation of equity method investment" in the Company's consolidated statement of operations as a result of the consolidation. The Net Lease Venture had previously been accounted for as an equity method investment. The Company has an equity interest in the Net Lease Venture of approximately 51.9% and recorded a $188.3 million increase to "Noncontrolling ~~interests" and $11.8 million increase to "Redeemable noncontrolling interest" on the Company's consolidated balance sheet as a result of the consolidation.~~interests." The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a management fee and incentive fee. Several of the Company's senior executives whose time is substantially devoted to the Net

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Lease Venture ~~have~~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 ~~50.0%~~50% of any incentive fee received based on the 47.5% partner's interest.

During the three months ended March 31, 2018, the Company recorded $0.6 million of management fees from the Net Lease Venture. The management fees are included in "Other income" in the Company's consolidated statements of operations. Beginning after the Company's consolidation of the Net Lease Venture on June 30, 2018 and after the effect of eliminations, the Company earned $0.4 million of management fees during the three months ended March 31, 2019 with respect to services provided to other investors in the Net Lease Venture, which was recorded as a reduction to "Net income attributable to noncontrolling interests" in the Company's consolidated statements of operations.

Net Lease Venture II—In July 2018, the Company entered into a new venture ("Net Lease Venture II") with an investment strategy similar ~~investment strategies as~~to the Net Lease Venture. The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by the Company. The Company has an equity interest in the new venture of approximately 51.9%, which will be accounted for as an equity method investment, and is responsible for managing the venture in exchange for ~~a management fee and incentive fee.~~

During the three and six months ended June 30, 2018, the Company recorded management fees of $0.7 million and $1.3 million, respectively, and $0.5 million and $0.9 million during the three and six months ended June 30, 2017, respectively, from the Net Lease Venture which are included in "Other income" in the Company's consolidated statements of operations.

~~Safety, Income & Growth Inc.~~—The Company and two institutional investors capitalized SIGI Acquisition, Inc. ("SIGI") on April 14, 2017 to acquire, manage and capitalize Ground Leases. The Company contributed $55.5 million for an initial 49.1% noncontrolling interest in SIGI and the two institutional investors contributed an aggregate $57.5 million for an initial 50.9% controlling interest in SIGI. A wholly-owned subsidiary of the Company that held the Company's Ground Lease business and assets merged with and into SIGI on April 14, 2017 with SIGI surviving the merger and being renamed Safety, Income & Growth Inc. ("SAFE"). Through this merger and related transactions, the institutional investors acquired a controlling interest in the Company's Ground Lease business. The Company's carrying value of the Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05, on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million.

On June 27, 2017, SAFE completed its initial public offering (the "Offering") raising $205.0 million in gross proceeds and concurrently completed a $45.0 million private placement to the Company. In addition, the Company paid $18.9 million in organization and offering costs of the up to $25.0 million in organization and offering costs it agreed to pay in connection with the Offering and concurrent private placement. The Company expensed the portion of offering costs that was attributable to other investors in "Other expense" in the Company's consolidated statements of operations and capitalized the portion of offering costs attributable to the Company's ownership interest in "Other investments" on the Company's consolidated balance sheets. Subsequent to the initial public offering, the Company purchased 2.2 million shares of SAFE's common stock for $41.7 million, representing an average cost of $18.67 per share, pursuant to two 10b5-1 plans in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended, under which the Company could buy shares of SAFE's common stock in the open market. As of June 30, 2018, the Company owned approximately 39.8% of SAFE's common stock outstanding.

In addition, subsequent to SAFE's initial public offering, trusts established by Jay Sugarman, the Company's Chairman and Chief Executive Officer, and Geoffrey Jervis, the Company's former Chief Operating Officer and former Chief Financial Officer, purchased 26,000 shares in the aggregate of SAFE's common stock for an aggregate $0.5 million, representing an average cost of $19.20 per share, pursuant to a 10b5-1 plan in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended.

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 to 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 entitled to receive any performance or incentive compensation. The Company is also entitled to receive expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company waived both the management fee and certain of the expense reimbursements through June 30, 2018. For the three and six months ended June 30, 2018, the Company waived $0.9 million and $1.8 million, respectively, of management fees and $0.4 million and $0.8 million, respectively, of expense reimbursements. The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

~~In August 2017,~~a management fee and incentive fee.During the three months ended March 31, 2019, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan has an initial term of one year and will be used for the renovation of a medical office building in Atlanta, GA. $13.0recorded $0.4 million of management fees from the ~~loan was funded as of June 30, 2018. The transaction was approved by the Company's and SAFE's independent directors.~~ Net Lease Venture II.

In ~~October 2017, the Company closed on a 99-year Ground~~December 2018, Net Lease and a $80.5 million construction financing commitment to support the ground-up development of Great Oaks Multifamily, a to-be-built 301-unit community within the Great Oaks Master Plan of San Jose, CA. The transaction includes a combination of: (i) a newly created Ground Lease and up to a $7.2 million leasehold improvement allowance; and (ii) a $80.5 million leasehold first mortgage. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million. The forward purchase contract was approved by the Company's and SAFE's independent directors.

In May 2018, the Company provided a $19.9 million mortgage loan to the ground lessee of a Ground Lease originated at SAFE. The loan has an initial term of one year and will be used for the acquisition of 100 and 200 Glenridge Point, two multi-tenant officeVenture II acquired four buildings ~~in Atlanta, GA. The transaction was approved by the Company's and SAFE's independent directors.~~

~~In June 2018, the Company sold two industrial facilities~~comprising 168,636 square feet (the "Properties") located in ~~Miami, FL to a third-party and simultaneously structured and entered into two Ground Leases. The Company then sold~~Livermore, CA. Net Lease Venture II acquired the ~~two Ground Leases to SAFE. Net proceeds from the transactions totaled $36.1~~Properties for $31.2 million ~~and the Company recognized a $24.5 million gain on sale. The transactions were approved by the Company's and SAFE's independent directors.~~ which are 100% leased with four separate leases that expire in December 2028.

Other real estate equity investments—As of ~~June 30, 2018,~~March 31, 2019, the Company's other real estate equity investments include equity interests in real estate ventures ranging from ~~15.5%~~16.0% to 95.0%, comprised of investments of ~~$62.0~~$62.4 million in operating properties and ~~$76.7~~$44.7 million in land assets. As of December 31, ~~2017,~~2018, the Company's other real estate equity investments included ~~$38.8~~$65.6 million in operating properties and ~~$61.3~~$65.3 million in land assets.

In August 2018, the Company provided a mezzanine loan with a principal balance of $31.2 million and $30.5 million as of March 31, 2019 and December 31, 2018, respectively, to an unconsolidated entity in which the Company owns a 50% equity interest. As of March 31, 2019 and December 31, 2018, the loan is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheet. During the three months ended March 31, 2019, the Company recorded $0.7 million of interest income on the mezzanine loan.

In December 2016, the Company sold a land and development asset to a newly formed unconsolidated entity in which the Company 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,~~all of which ~~$26.8 million and $25.4 million~~ was funded as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, respectively,~~2018 and is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, the Company recorded $0.5 million and ~~$1.0 million of interest income, respectively, on the senior loan. During the three and six months ended June 30, 2017, the Company recorded~~ $0.5 ~~million and $0.9~~ million of interest income, respectively, on the senior loan.

Other strategic investments—As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company also had investments in real estate related funds and other strategic investments in real estate entities.

Summarized investee financial information—The following table presents the investee level summarized financial information of the Company's equity method investments, which were significant subsidiaries for the three months ended March, 31, 2019 and 2018 ($ in thousands):



	Revenues		Expenses			Net Income Attributable to Parent Entities
For the Three Months Ended March 31, 2019
SAFE	$	21,820	$	(10,683	)	$	6,619

For the Three Months Ended March 31, 2018
SAFE	$	11,693	$	(7,950	)	$	3,720

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Note 8—Other Assets and Other Liabilities

Deferred expenses and other assets, net, consist of the following items ($ in thousands):


	As of				As of
	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Intangible assets, net⁽¹⁾	$	162,014	$	27,124	$	170,701	$	156,281
Other receivables⁽²⁾	47,355		56,369
Restricted cash					48,407		42,793
Finance lease right-of-use assets⁽²⁾					68,005		—
Operating lease right-of-use assets⁽²⁾					30,294		—
Other assets⁽³⁾	29,952		23,081		22,120		32,333
Restricted cash	27,399		20,045
Leasing costs, net⁽⁴⁾	7,141		9,050
Corporate furniture, fixtures and equipment, net⁽⁵⁾	4,362		4,652
Other receivables⁽⁴⁾					19,635		46,887
Leasing costs, net⁽⁵⁾					4,621		6,224
Corporate furniture, fixtures and equipment, net⁽⁶⁾					3,549		3,850
Deferred financing fees, net	1,167		1,409		704		900
Deferred expenses and other assets, net	$	279,390	$	141,730	$	368,036	$	289,268

(1)

Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. Accumulated amortization on intangible assets, net was ~~$30.9~~$29.6 million and ~~$34.9~~$27.0 million as of ~~June 30, 2018~~March 31, 2019 and December 31, 2017, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company's consolidated statements of operations by $0.4 million and $0.8 million for the three and six months ended June 30, 2018, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company's consolidated statements of operations by ~~$0.8~~$0.6 million and ~~$1.6~~$0.4 million for the three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2019 and 2018, respectively. These intangible lease assets are amortized over the remaining term of the lease. The amortization expense for in-place leases was ~~$0.4~~$2.2 million and ~~$0.7~~$0.4 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~respectively. The amortization expense for in-place leases was $0.7 million and $1.2 million for the three and six months ended June 30, 2017,~~ respectively. These amounts are included in "Depreciation and amortization" in the Company's consolidated statements of operations. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $135.3 million of intangible assets to "Deferred expenses and other assets, net" on the Company's consolidated balance sheet.

(2)

~~As of June 30, 2018 and December 31, 2017, includes $26.5 million and $26.0 million, respectively, of reimbursements receivable related~~Right-of-use lease assets relate primarily to the ~~construction~~Company's leases of office space and ~~development~~certain of anits ground leases. Right-of use lease assets initially equal the lease liability. The lease liability (see table below) equals the present value of the minimum rental payments due under the lease discounted at the rate implicit in the lease or the Company's incremental secured borrowing rate for similar collateral. For operating ~~property.~~leases, lease liabilities were discounted at the Company's weighted average incremental secured borrowing rate for similar collateral estimated to be 5.6% and the weighted average lease term is 9.7 years. For finance leases, lease liabilities were discounted at a weighted average rate implicit in the lease of 5.7% and the weighted average lease term is 98 years. Right-of-use assets for finance leases are amortized on a straight-line basis over the term of the lease and are recorded in "Depreciation and amortization" in the Company's consolidated statements of operations. During the three months ended March 31, 2019, the Company recognized $0.4 million in "Interest expense" and $0.1 million in "Depreciation and amortization" in its consolidated statement of operations relating to finance leases. Right-of-use assets for operating leases are amortized on a straight-line basis over the term of the lease and are recorded in "General and administrative" and "Real estate expense" in the Company's consolidated statements of operations (refer to Note 3). During the three months ended March 31, 2019, the Company recognized $0.9 million in "General and administrative" and $1.1 million in "Real estate expense" in its consolidated statement of operations relating to operating leases.


(3)	Other assets primarily includes derivative assets, prepaid expenses and deposits for certain real estate assets.


(4)	As of December 31, 2018, includes $26.0 million of reimbursements receivable related to the construction and development of an operating property that was received during the three months ended March 31, 2019.


(5)	Accumulated amortization of leasing costs was ~~$3.9~~$3.0 million and ~~$4.7~~$4.4 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.


~~(5)~~(6)	Accumulated depreciation on corporate furniture, fixtures and equipment was ~~$11.2~~$12.2 million and ~~$10.5~~$11.9 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):


	As of				As of
	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Accrued expenses⁽¹⁾	$	87,734	$	101,035
Other liabilities⁽²⁾	69,368		79,015
Other liabilities⁽¹⁾					$	90,682	143,325
Accrued expenses					71,305		95,149
Finance lease liabilities					68,184		—
Intangible liabilities, net⁽³⁾⁽²⁾					48,925		35,108
Operating lease liabilities					30,294		—
Accrued interest payable	50,359		49,933		22,968		42,669
Intangible liabilities, net⁽³⁾⁽²⁾	42,033		8,021
Accounts payable, accrued expenses and other liabilities	$	249,494	$	238,004	$	332,358	$	316,251


(1)	As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, accrued expenses includes $2.3 million and $2.5 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance sheets.~~

~~(2)~~

~~As of June 30,~~ 2018, ~~and December 31, 2017,~~ other liabilities includes ~~$18.5~~$18.6 million and ~~$29.2~~$18.5 million, respectively, related to profit sharing arrangements with developers for certain properties sold. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, includes $0.7 million and $1.6 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance sheets. As of June 30,~~ 2018, ~~and December 31, 2017,~~ other liabilities also includes ~~$4.3~~$9.3 million and ~~$6.2~~$9.4 million, respectively, related to tax increment financing bonds which were issued by government entities to fund development within two of the Company's land projects. The amount represents tax assessments associated with each project, which will decrease as the Company sells units.

~~(3)~~(2)

Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. Accumulated amortization on below market lease liabilities was ~~$5.9~~$3.3 million and ~~$7.8~~$2.8 million as of ~~June 30, 2018~~March 31, 2019 and December 31, 2017, respectively. The amortization of below market leases increased operating lease income in the Company's consolidated statements of operations by $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively. The amortization of below market leases increased operating lease income in the Company's consolidated statements of operations by ~~$0.8~~$0.5 million and ~~$1.0~~$0.1 million for the three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2019 and 2018, respectively. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $34.3 million of intangible liabilities to "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheet.

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Note 9—Loan Participations Payable, net

The Company's loan participations payable, net were as follows ($ in thousands):


	Carrying Value as of						Carrying Value as of
	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Loan participations payable⁽¹⁾	$	14,938		$	102,737		$	25,145		$	22,642
Debt discounts and deferred financing costs, net	(229		)	(312		)	(124		)	(158		)
Total loan participations payable, net	$	14,709		$	102,425		$	25,021		$	22,484

(1)

~~One loan participation payable with a carrying value of $93.8 million and a corresponding loan receivable balance of $93.6 million was fully repaid during the six months ended June 30, 2018.~~ As of ~~June 30,~~March 31, 2019 and December 31, 2018, the Company had one loan participation payable with an interest rate of ~~6.6%. As of December 31, 2017, the Company had two loan participations payable with a weighted average interest rate of 6.5%~~7.0%.

Loan participations represent transfers of financial assets that did not meet the sales criteria established under ASC Topic 860 and are accounted for as loan participations payable, net as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the corresponding loan receivable balances were ~~$14.7~~$25.1 million and ~~$102.3~~$22.5 million, respectively, and are included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. The principal and interest due on these loan participations payable are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Note 10—Debt Obligations, net

The Company's debt obligations were as follows ($ in thousands):


	Carrying Value as of						Stated Interest Rates			Scheduled Maturity Date	Carrying Value as of						Stated Interest Rates			Scheduled Maturity Date
	June 30, 2018			December 31, 2017			Stated Interest Rates			Scheduled Maturity Date	March 31, 2019			December 31, 2018			Stated Interest Rates			Scheduled Maturity Date
Secured credit facilities and mortgages:
2015 $325 million Revolving Credit Facility	$	—		$	325,000		LIBOR + 2.50%		⁽¹⁾	September 2020	$	—		$	—		LIBOR + 2.50%		⁽¹⁾	September 2020
2016 Senior Term Loan	650,000			399,000			LIBOR + 2.75%		⁽²⁾	June 2023	645,125			646,750			LIBOR + 2.75%		⁽²⁾	June 2023
Mortgages collateralized by net lease assets⁽³⁾	670,872			208,491			3.62% - 7.26%		⁽⁴⁾		634,695			802,367			3.62% - 7.26%		⁽³⁾
Total secured credit facilities and mortgages	1,320,872			932,491							1,279,820			1,449,117
Unsecured notes:
5.00% senior notes⁽⁵⁾⁽⁴⁾	770,000			770,000			5.00	%		July 2019	—			375,000			5.00	%		—
4.625% senior notes⁽⁶⁾⁽⁵⁾	400,000			400,000			4.625	%		September 2020	400,000			400,000			4.625	%		September 2020
6.50% senior notes⁽⁷⁾⁽⁶⁾	275,000			275,000			6.50	%		July 2021	275,000			275,000			6.50	%		July 2021
6.00% senior notes⁽⁸⁾⁽⁷⁾	375,000			375,000			6.00	%		April 2022	375,000			375,000			6.00	%		April 2022
5.25% senior notes⁽⁹⁾⁽⁸⁾	400,000			400,000			5.25	%		September 2022	400,000			400,000			5.25	%		September 2022
3.125% senior convertible notes⁽¹⁰⁾	287,500			287,500			3.125	%		September 2022
3.125% senior convertible notes⁽⁹⁾											287,500			287,500			3.125	%		September 2022
Total unsecured notes	2,507,500			2,507,500							1,737,500			2,112,500
Other debt obligations:
Trust preferred securities	100,000			100,000			LIBOR + 1.50%			October 2035	100,000			100,000			LIBOR + 1.50%			October 2035
Total debt obligations	3,928,372			3,539,991							3,117,320			3,661,617
Debt discounts and deferred financing costs, net	(58,796		)	(63,591		)					(47,024		)	(52,531		)
Total debt obligations, net⁽¹¹⁾	$	3,869,576		$	3,476,400
Total debt obligations, net⁽¹⁰⁾											$	3,070,296		$	3,609,086

(1)

The loan bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.0% and subject to a margin ranging from 1.25% to 1.75%; or (ii) LIBOR subject to a margin ranging from 2.25% to 2.75%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2021.


(2)	The loan bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.0% and subject to a margin of 1.75%; or (ii) LIBOR subject to a margin of 2.75%.


(3)	~~On June 30, 2018, the Company consolidated the Net Lease Venture and recorded $464.7 million to "Debt obligations, net" on the Company's consolidated balance sheet.~~


~~(4)~~	As of ~~June 30, 2018,~~March 31, 2019, a non-recourse mortgage associated with a net lease asset was reclassified to “Liabilities associated with properties held for sale” (refer to Note 4). As of March 31, 2019, the weighted average interest rate of these loans is ~~4.6%~~4.4%, inclusive of the effect of interest rate swaps.


~~(5)~~(4)	The Company ~~can prepay~~prepaid these senior notes in March 2019 without penalty. ~~In July 2018, the Company redeemed $273.0 million of the 5.00% senior notes.~~


~~(6)~~(5)	The Company can prepay these senior notes without penalty beginning June 15, 2020.


~~(7)~~(6)	The Company can prepay these senior notes without penalty beginning July 1, 2020.


~~(8)~~(7)	The Company can prepay these senior notes without penalty beginning April 1, 2021.


~~(9)~~(8)	The Company can prepay these senior notes without penalty beginning September 15, 2021.

~~(10)~~(9)

The Company's 3.125% senior convertible fixed rate notes due September 2022 ("3.125% Convertible Notes") are convertible at the option of the holders at ~~a conversion rate of 64.36 shares per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $15.54 per share, at~~ any time prior to the close of business on the business day immediately preceding September 15, 2022. The conversion rate as of March 31, 2019 was 66.1052 shares per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $15.13 per share. The conversion rate is subject to adjustment from time to time for specified events. Upon conversion, the Company will pay or deliver, as the case may be, a combination of cash and shares of its common stock. As such, at issuance in September 2017, the Company valued the debt component at $221.8 million, net of fees, and the equity component of the conversion feature at $22.5 million, net of fees, and recorded the equity component in "Additional paid-in capital" on the Company's consolidated balance sheet. In October 2017, the initial purchasers of the 3.125% Convertible Notes exercised their option to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes. At issuance, the Company valued the debt component at $34.0 million, net of fees, and the equity component of the conversion feature at $3.4 million, net of fees, and recorded the equity component in "Additional paid-in capital" on the Company's consolidated balance sheet. As of ~~June 30, 2018,~~March 31, 2019, the carrying value of the 3.125% Convertible Notes was ~~$259.6~~$264.1 million, net of fees, and the unamortized discount of the 3.125% Convertible Notes was ~~$22.9~~$19.3 million, net of fees. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, the Company recognized $2.2 million and ~~$4.5~~$2.2 million, respectively, of contractual interest and $1.2 million and ~~$2.3~~$1.2 million, respectively, of discount amortization on the 3.125% Convertible Notes. The effective interest rate was 5.2%.


~~(11)~~(10)	The Company capitalized interest relating to development activities of ~~$2.1~~$3.0 million and ~~$4.5~~$2.4 million during the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~respectively, and $2.0 million and $4.0 million during the three and six months ended June 30, 2017,~~ respectively.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Future Scheduled Maturities—As of ~~June 30, 2018~~March 31, 2019, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):


	Unsecured Debt⁽¹⁾			Secured Debt			Total			Unsecured Debt			Secured Debt			Total
2018 (remaining six months)	$	—		$	90,186		$	90,186
2019	770,000			1,054			771,054
2019 (remaining nine months)										$	—		$	116		$	116
2020	400,000			—			400,000			400,000			—			400,000
2021	275,000			269,647			544,647			275,000			161,213			436,213
2022	1,062,500			57,992			1,120,492			1,062,500			48,698			1,111,198
2023										—			645,125			645,125
Thereafter	100,000			901,993			1,001,993			100,000			424,668			524,668
Total principal maturities	2,607,500			1,320,872			3,928,372			1,837,500			1,279,820			3,117,320
Unamortized discounts and deferred financing costs, net	(48,784		)	(10,012		)	(58,796		)	(37,818		)	(9,206		)	(47,024		)
Total debt obligations, net	$	2,558,716		$	1,310,860		$	3,869,576		$	1,799,682		$	1,270,614		$	3,070,296


~~(1)~~	~~In July 2018, the Company redeemed $273.0 million of senior notes.~~

~~2017 Secured Financing~~—In March 2017, the predecessor of SAFE (which at the time was comprised of the Company's wholly-owned subsidiaries conducting its Ground Lease business) entered into a $227.0 million secured financing transaction (the "2017 Secured Financing") that accrued interest at 3.795% and matures in April 2027. The 2017 Secured Financing was collateralized by the 12 properties comprising SAFE's initial portfolio. In connection with the 2017 Secured Financing, the Company incurred $7.3 million of lender and third-party fees, substantially all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. In April 2017, the Company derecognized the 2017 Secured Financing when third parties acquired a controlling interest in SAFE's predecessor, prior to SAFE's initial public offering (refer to Note 4).

The Company is providing a limited recourse guaranty and environmental indemnity under the 2017 Secured Financing that will remain in effect until SAFE has achieved either an equity market capitalization of at least $500.0 million (inclusive of the initial portfolio that the Company contributed to SAFE) or a net worth of at least $250.0 million (exclusive of the initial portfolio that the Company contributed to SAFE), and SAFE or another replacement guarantor provides similar guaranties and indemnities to the lenders. The management agreement with SAFE provides that SAFE may not terminate the management agreement unless a successor guarantor reasonably acceptable to the Company has agreed to replace the Company as guarantor and indemnitor or has provided the Company with a reasonably acceptable indemnity for any losses suffered by the Company as guarantor and indemnitor. SAFE has generally agreed to indemnify the Company for any amounts the Company is required to pay, or other losses the Company may suffer, under the limited recourse guaranty and environmental indemnity.

2016 Senior Term Loan—In June 2016, the Company entered into a senior term loan of $450.0 million (the "2016 Senior Term Loan"). In August 2016, the Company upsized the facility to $500.0 million. The initial $450.0 million of the 2016 Senior Term Loan was issued at 99% of par and the upsize was issued at par. In September 2017, the Company reduced, repriced and extended the 2016 Senior Term Loan to $400.0 million priced at LIBOR plus 3.00% with a 0.75% LIBOR floor and maturing in October 2021. In June 2018, the Company increased the 2016 Senior Term Loan to $650.0 million, re-priced at LIBOR plus 2.75% and extended its maturity to June 2023. The facility was also modified to permit substitution of collateral, subject to overall collateral pool coverage and concentration limits, over the life of the facility. This modification eliminates the mandatory amortization upon payoff or sale of collateral which existed prior to the upsize and broadens the types of collateral permitted under the facility. The Company may make optional prepayments, subject to prepayment fees, and is required to repay 0.25% of the principal amount ~~on the first business day of~~ each quarter.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2018, repayments ~~of the 2016 Senior Term Loan prior to its modification and the modification and upsize~~ of the 2016 Senior Term Loan resulted in losses on early extinguishment of debt of ~~$2.2 million and $2.5 million, respectively.~~$0.4 million.

2015 Revolving Credit Facility—In March 2015, the Company entered into a secured revolving credit facility with a maximum capacity of $250.0 million (the "2015 Revolving Credit Facility"). In September 2017, the Company upsized the 2015 Revolving Credit Facility to $325.0 million, added additional lenders to the syndicate, extended the maturity date to September 2020 and made certain other changes. This facility is secured by a pledge of the equity interest in a pool of assets which provide asset value coverage for borrowings under the facility. Borrowings under this credit facility bear interest at a floating rate indexed

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~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

to one of several base rates plus a margin which adjusts upward or downward based upon the Company's corporate credit rating. An undrawn credit facility commitment fee ranges from 0.30% to 0.50%, based on corporate credit ratings. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2021. ~~During the six months ended June 30, 2018, the Company repaid from cash on hand the $325.0 million outstanding on the 2015 Revolving Credit Facility and as~~As of ~~June 30, 2018,~~March 31, 2019, based on the Company's borrowing base of assets, the Company had $325.0 million of borrowing capacity available under the 2015 Revolving Credit Facility.

Unsecured Notes—In ~~September 2017,~~March 2019, the Company issued $400.0 million principal amount of 4.625% senior unsecured notes due September 2020, $400.0 million principal amount of 5.25% senior unsecured notes due September 2022 and $250.0 million of 3.125% Convertible Notes due September 2022. The Company incurred approximately $18.6 million in fees related to these offerings, all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. Proceeds from these offerings, together with cash on hand, were used to repayrepaid in full the $550.0 million principal amount outstanding of the 4.0% senior unsecured notes due November 2017, the $300.0 million principal amount outstanding of the 7.125% senior unsecured notes due February 2018 and the $300.0 million principal amount outstanding of the 4.875%5.00% senior unsecured notes due July ~~2018. In addition,~~2019. During the ~~initial purchasers~~three months ended March 31, 2019, repayments of ~~the 3.125% Convertible~~ unsecured notes prior to maturity resulted in losses on early extinguishment of debt of $0.5 million.

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iStar Inc.

Notes ~~exercised their option~~ to ~~purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes.~~Consolidated Financial Statements (Continued)

(unaudited)

Collateral Assets—The carrying value of the Company's assets that are directly pledged or are held by subsidiaries whose equity is pledged as collateral to secure the Company's obligations under its secured debt facilities are as follows, by asset type ($ in thousands):


	As of								As of
	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Collateral Assets⁽¹⁾		Non-Collateral Assets		Collateral Assets⁽¹⁾		Non-Collateral Assets		Collateral Assets⁽¹⁾		Non-Collateral Assets		Collateral Assets⁽¹⁾		Non-Collateral Assets
Real estate, net	$	1,583,330	$	331,669	$	795,321	$	486,710	$	1,533,390	$	87,614	$	1,620,008	$	151,011
Real estate available and held for sale	—		37,597		20,069		48,519		219,184		34,152		1,055		21,496
Land and development, net	10,100		631,527		25,100		835,211		42,300		574,050		12,300		585,918
Loans receivable and other lending investments, net⁽²⁾⁽³⁾	523,425		528,812		194,529		1,021,340		431,189		450,988		498,524		480,154
Other investments	—		293,017		—		321,241		—		521,999		—		304,275
Cash and other assets	—		1,418,055		—		898,252		6,601		757,277		—		1,329,990
Total	$	2,116,855	$	3,240,677	$	1,035,019	$	3,611,273	$	2,232,664	$	2,426,080	$	2,131,887	$	2,872,844

(1)

The 2016 Senior Term Loan and the 2015 Revolving Credit Facility are secured only by pledges of equity of certain of the Company's subsidiaries and not by pledges of the assets held by such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions). As of ~~June 30, 2018,~~March 31, 2019, Collateral Assets includes ~~$423.6~~$406.2 million carrying value of assets held by entities pledged as collateral for the $325.0 million 2015 Revolving Credit Facility that is ~~fully~~ undrawn as of ~~June 30, 2018.~~March 31, 2019.


(2)	As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the amounts presented exclude general reserves for loan losses of ~~$14.1~~$12.4 million and ~~$17.5~~$13.0 million, respectively.


(3)	As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the amounts presented exclude loan participations of ~~$14.7~~$25.1 million and ~~$102.3~~$22.5 million, respectively.

Debt Covenants

The Company's outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis the Company's consolidated fixed charge coverage ratio, determined in accordance with the indentures governing the Company's debt securities, is 1.5x or lower. If any of the Company's covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of its debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. If the Company's ability to incur additional indebtedness under the fixed charge coverage ratio is limited, the Company is permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures.

The Company's 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2016 Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The 2015 Revolving Credit Facility is secured

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~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

by a borrowing base of assets and requires the Company to maintain both borrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, the Company has the option to pay down outstanding borrowings or substitute assets in the borrowing base. The Company may not pay common dividends if it ceases to qualify as a REIT. In June 2018, the Company amended the terms of the 2016 Senior Term Loan and the 2015 Revolving Credit Facility to include the ability to pay common dividends with no restrictions so long as the Company is not in default on any of its debt obligations.

The Company's 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate the Company's indebtedness to them if the Company fails to pay amounts due in respect of its other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing the Company's unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company's indebtedness to them if the Company's other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Note 11—Commitments and Contingencies

Unfunded Commitments—The Company generally funds construction and development loans and build-outs of space in real estate assets over a period of time if and when the borrowers and tenants meet established milestones and other performance criteria. The Company refers to these arrangements as Performance-Based Commitments. In addition, the Company has committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments.

As of ~~June 30, 2018~~March 31, 2019, the maximum amount of fundings the Company may be required to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and that 100% of its capital committed to Strategic Investments is drawn down, are as follows ($ in thousands):


	Loans and Other Lending Investments⁽¹⁾		Real Estate		Other Investments		Total		Loans and Other Lending Investments⁽¹⁾		Real Estate		Other Investments		Total
Performance-Based Commitments	$	505,345	$	9,774	$	15,024	$	530,143	$	385,215	$	9,543	$	—	$	394,758
Strategic Investments	—		—		9,322		9,322		—		—		33,304		33,304
Total	$	505,345	$	9,774	$	24,346	$	539,465	$	385,215	$	9,543	$	33,304	$	428,062


(1)	Excludes ~~$35.1~~$24.9 million of commitments on loan participations sold that are not the obligation of the Company.

Other Commitments—Future minimum lease obligations under operating and finance leases are as follows ($ in thousands):



	Operating⁽¹⁾⁽²⁾		Finance⁽¹⁾
2019	$	4,165	$	2,181
2020	3,841		2,633
2021	1,468		2,686
2022	869		2,740
2023	728		2,794
Thereafter	2,074		759,082


(1)	Operating lease obligations for 2019 are as of January 1, 2019 and finance lease obligations are as of lease inception (refer to Note 4). During the three months ended March 31, 2019, the Company made payments of $1.1 million and $0.2 million, respectively, related to its operating and finance leases.


(2)	The Company is obligated to pay ground rent under certain operating leases; however, the Company's tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations.

Legal Proceedings—The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to the Company's business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements.

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~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Note 12—Derivatives

The Company's use of derivative financial instruments has historically been limited to the utilization of interest rate swaps, interest rate caps and foreign exchange contracts. The principal objective of such financial instruments is to minimize the risks and/or costs associated with the Company's operating and financial structure and to manage its exposure to interest rates and foreign exchange rates. The Company may have derivatives that are not designated as hedges because they do not meet the strict hedge accounting requirements. Although not designated as hedges, such derivatives are entered into to manage the Company's exposure to interest rate movements, foreign exchange rate movements and other identified risks.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2019 and December 31, 2018 ($ in thousands)⁽¹⁾:


	Derivative Assets as of			Derivative Liabilities as of					Derivative Assets			Derivative Liabilities
	June 30, 2018			June 30, 2018
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
As of March 31, 2019									Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated in Hedging Relationships	Derivatives Designated in Hedging Relationships							Derivatives Designated in Hedging Relationships
Interest rate swaps	Other assets	$	8,120	Other liabilities	$	(1,150	)		Deferred expenses and other assets, net	$	2,279	Accounts payable, accrued expenses and other liabilities	$	14,297
Total		$	8,120		$	(1,150	)			$	2,279		$	14,297



	Derivative Assets			Derivative Liabilities
As of December 31, 2018	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated in Hedging Relationships
Interest rate swaps	Deferred expenses and other assets, net	$	3,669	Accounts payable, accrued expenses and other liabilities	$	10,244
Total		$	3,669		$	10,244

(1)

The Company did not directly own any derivative financial instruments as of December 31, 2017. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7), including all derivative financial instruments of the venture. Over the next 12 months, the Company expects that ~~$0.4~~$2.8 million related to cash flow hedges will be reclassified from "Accumulated other comprehensive income (loss)" as a reduction to interest expense. As of ~~June 30,~~March 31, 2019 and December 31, 2018, the Company posted cash collateral of $10.7 million and $6.4 million, respectively, in connection with its derivatives which were in a liability position and would not have been required to post any additional collateral to settle these contracts had the Company been declared in default on its derivative obligations.

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The tables below present the effect of the Company's derivative financial instruments, including the Company's share of derivative financial instruments at certain of its equity method investments, in the consolidated statements of operations and the consolidated statements of comprehensive income (loss) ($ in thousands):

Derivatives Designated in Hedging Relationships
Location of Gain (Loss)
Recognized in Income
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
For the Three Months Ended June 30, 2018
Interest rate swaps Earnings from equity method investments $ 1,157
$ 81
Interest rate swaps Interest expense (1,150 ) —

For the Three Months Ended June 30, 2017
Interest rate swaps Interest Expense (44 ) 384
Interest rate cap Earnings from equity method investments (9 ) (9 )
Interest rate swap Earnings from equity method investments (93 ) (62 )
Foreign exchange contracts Earnings from equity method investments (70 ) —

For the Six Months Ended June 30, 2018

Interest rate swaps Earnings from equity method investments 3,508
90
Interest rate swaps Interest expense (1,150 ) —

For the Six Months Ended June 30, 2017

Interest rate swaps Interest Expense 424
355
Interest rate cap Earnings from equity method investments (14 ) (14 )
Interest rate swap Earnings from equity method investments (15 ) (150 )
Foreign exchange contracts Earnings from equity method investments (369 ) —



Derivatives Designated in Hedging Relationships	Location of Gain (Loss) When Recognized in Income	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income			Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
For the Three Months Ended March 31, 2019
Interest rate swaps	Earnings from equity method investments	$	(7,190	)	$	144
Interest rate swaps	Interest expense	(7,822		)	(151		)

For the Three Months Ended March 31, 2018
Interest rate swaps	Earnings from equity method investments	2,351			(9		)

Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income
Derivatives not Designated in Hedging Relationships For the Three Months Ended June 30, For the Six Months
Ended June 30,
2018 2017 2018 2017
Interest rate cap Other Expense $ —
$ (41 ) $ —
$ 6
Foreign exchange contracts Other Expense —
(645 ) —
(769 )

During the six months ended June 30, 2017, the Company entered into and settled a rate lock swap in connection with the 2017 Secured Financing and a simultaneous rate lock swap with SAFE. As a result of the settlements, the Company initially recorded a $0.4 million unrealized gain in “Accumulated other comprehensive income” on the Company’s consolidated balance sheets and subsequently derecognized the gain when third parties acquired a controlling interest in the Company's Ground Lease business (refer to Note 4).

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~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Note 13—Equity

Preferred Stock—The Company had the following series of Cumulative Redeemable and Convertible Perpetual Preferred Stock outstanding as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:



				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)		Carrying Value (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
J (convertible)⁽⁴⁾	4,000	0.001		50.00		4.50	%	2.25		193,510
	16,200									$	476,000

(1)

Holders of shares of the Series D, G, I and J preferred stock are entitled to receive dividends, when and as declared by the Company's Board of Directors, out of funds legally available for the payment of dividends. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the preferred stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment date falls or on another date designated by the Company's Board of Directors for the payment of dividends that is not more than 30 nor less than 10 days prior to the dividend payment date.

(2)

The Company declared and paid dividends of ~~$4.0~~$2.0 million, ~~$3.1~~$1.5 million and ~~$4.7~~$2.3 million on its Series D, G and I Cumulative Redeemable Preferred Stock during the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The Company declared and paid dividends of ~~$4.5~~$2.3 million on its Series J Convertible Perpetual Preferred Stock during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017. The Company declared and paid dividends of $5.5 million and $3.9 million on its Series E and F Cumulative Redeemable Preferred Stock, respectively, during the six months ended June 30, 2017.~~2018. The Company redeemed all of its issued and outstanding Series E and F Cumulative Redeemable Preferred Stock in October 2017. The character of the ~~2017~~2018 dividends was 100% capital gain distribution, of which ~~27.90%~~26.02% represented unrecaptured section 1250 gain and ~~72.10%~~73.98% represented long term capital gain. There are no dividend arrearages on any of the preferred shares currently outstanding.


(3)	The Company may, at its option, redeem the Series G and I Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.

(4)

Each share of the Series J Preferred Stock is convertible at the holder's option at any time ~~initially~~ into ~~3.9087~~ shares of the Company's common ~~stock (equal to an initial conversion price of approximately $12.79 per share), subject to specified adjustments. On or after March 15, 2018, the~~stock. The Company may, at its option, redeem the Series J Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $50.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. The conversion rate as of March 31, 2019 was 4.0149 shares of the Company's common stock (equal to a conversion price of approximately $12.45 per share). The conversion rate is subject to adjustment from time to time for specified events.

Dividends—To maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate corporate federal income taxes payable by the REIT. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company's obligation to

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iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

pay dividends for such periods in order to maintain its REIT qualification. As of December 31, ~~2016,~~2017, the Company had ~~$948.8~~$582.4 million of NOL carryforwards at the corporate REIT level that can generally be used to offset both ordinary taxable income and capital gain net income in future years. The NOL carryforwards will begin to expire ~~beginning~~ in 2029 and ~~through~~will fully expire in 2036 if unused. The Company estimates that the amount of NOL carryforwards as of December 31, 2017 will be approximately $588 million; however, the actual NOL carryforward as of December 31, 2017 will be determined upon filing the Company's 2017 tax return. Because taxable income differs from cash flow from operations due to non-cash revenues and expenses (such as depreciation and certain asset impairments), in certain circumstances, the Company may generate operating cash flow in excess of its dividends, or alternatively, may need to make dividend payments in excess of operating cash flows. The 2016 Senior Term Loan and the 2015 Revolving Credit Facility permit the Company to pay common dividends with no restrictions so long as the Company is not in default on any of its debt obligations. The Company declared and paid common stock dividends of $6.2 million and $6.1 million, respectively, or $0.09 per share, for the three months ended March 31, 2019. The Company did not declare or pay any common stock dividends for the ~~six~~three months ended ~~June 30, 2018~~ ~~and~~ ~~2017~~.March 31, 2018.

Stock Repurchase Program—The Company may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the three months ended March 31, 2019, the Company repurchased 2.3 million shares of its outstanding common stock for $19.2 million, for an average cost of $8.46 per share. During the three months ended March 31, 2018, the Company repurchased 0.8 million shares of its outstanding common stock for $8.3 million, ~~representing~~for an average cost of $10.22 per share. ~~No common stock was repurchased during the three months ended June 30, 2018.~~ As of ~~June 30, 2018,~~March 31, 2019, the Company had remaining authorization to repurchase up to ~~$41.7~~$22.6 million of common stock under its stock repurchase program.

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Accumulated Other Comprehensive Income (Loss)—"Accumulated other comprehensive income (loss)" reflected in the Company's shareholders' equity is comprised of the following ($ in thousands):


	As of						As of
	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Unrealized gains on available-for-sale securities	$	655		$	1,335		$	1,476		$	475
Unrealized gains on cash flow hedges	1,311			707
Unrealized losses on cash flow hedges							(26,871		)	(13,546		)
Unrealized losses on cumulative translation adjustment	(4,199		)	(4,524		)	(4,199		)	(4,199		)
Accumulated other comprehensive income (loss)	$	(2,233	)	$	(2,482	)
Accumulated other comprehensive loss							$	(29,594	)	$	(17,270	)

Note 14—Stock-Based Compensation Plans and Employee Benefits

Stock-Based Compensation—The Company recorded stock-based compensation expense, including the expense related to performance incentive plans (see below), of ~~$3.5~~$4.2 million and ~~$12.6~~$9.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018,~~, respectively, and $3.9 million and $9.8 million for the three and six months ended June 30, 2017,~~ respectively, in "General and administrative" in the Company's consolidated statements of operations.

Performance Incentive Plans—The Company's Performance Incentive ~~Plan~~Plans ("iPIP") isare designed to provide, primarily to senior executives and select professionals engaged in the Company's investment activities, long-term compensation which has a direct relationship to the realized returns on investments included in the ~~plan.~~plans. Awards vest over six years, with 40% being vested at the end of the second year and 15% each year thereafter.

2019-2020 iPIP Plan—The Company's 2019-2020 iPIP plan is an equity-classified award which is measured at the grant date fair value and recognized as compensation cost in "General and administrative" in the Company's consolidated statements of operations and "Noncontrolling interests" in the Company's consolidated statements of changes in equity over the requisite service period. Investments in the 2019-2020 iPIP plan will be held by a consolidated subsidiary of the Company that has two ownership classes, class A units and class B units. The Company owns 100% of the class A units and the class B units were issued to employees as long-term compensation. Except for certain clawback provisions, participants can retain vested class B units upon their termination of employment with the Company. The class B units are entitled to distributions from the net cash realized from the investments in the plan after the Company, through its ownership of the class A units, has received a specified return on its invested capital and a return of its invested capital. Distributions on the class B units are also subject to reductions under a total shareholder return ("TSR") adjustment. The fair value of ~~points~~the class B units was determined using a model that forecasts the underlying cash flows from the investments within the entity to which the class B units have ownership rights. During the three months ended March 31, 2019, the Company recorded $0.4 million of expense related to the 2019-2020 iPIP plan. Distributions on the class B units will be 50% in cash and 50% in shares of the Company's common stock.

2013-2018 iPIP Plans—The remainder of the Company's iPIP plans, as shown in the table below, are liability-classified awards and are remeasured each reporting period at fair value until the awards are settled. Certain employees will be granted

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

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. ~~iPIP is a liability-classified award, which~~Settlement of the awards will be ~~remeasured each reporting period at fair value until~~50% in cash and 50% in shares of the ~~awards are settled.~~ Company's common stock.

The following is a summary of the status of the Company’s liability-classified iPIP ~~points~~plans and changes during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and the year ended December 31, ~~2017.~~2018.


	Six Months Ended June 30, 2018						Year Ended December 31, 2017						Three Months Ended March 31, 2019					Year Ended December 31, 2018
	iPIP Investment Pool						iPIP Investment Pool						iPIP Investment Pool					iPIP Investment Pool
	2013-2014		2015-2016		2017-2018		2013-2014		2015-2016		2017-2018		2013-2014	2015-2016		2017-2018		2013-2014		2015-2016		2017-2018
Points at beginning of period	86.57		84.16		40.97		92.00		74.10		0		85.77	79.41		82.43		86.57		84.16		40.97
Granted	0.50		—		49.08		5.00		17.88		41.68		—	—		—		0.50		—		49.33
Forfeited	(0.15	)	(0.89	)	(4.56	)	(10.43	)	(7.82	)	(0.71	)	—	(0.82	)	(1.03	)	(1.3	)	(4.75	)	(7.87	)
Points at end of period	86.92		83.27		85.49		86.57		84.16		40.97		85.77	78.59		81.40		85.77		79.41		82.43

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company made ~~initial~~ distributions to participants in the 2013-2014 investment pool following a determination that, as of December 31, 2017, the Company had realized a return of all invested capital in the assets included in the 2013-2014 investment pool, together with a return based on leverage and a preferred return hurdle of 9.0%. After the amount distributable to participants was reduced based on the Company's total shareholder return in accordance with the provisions of the iPIP,pool. The iPIP participants received total distributions in the amount of ~~$13.6~~$7.4 million as compensation, comprised of ~~$6.8~~$3.8 million in cash and ~~595,869~~389,545 shares of the Company's common stock, with a fair value of ~~$6.8~~$3.6 million or ~~$11.41~~$9.21 per share, which are fully-vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a total of ~~328,074~~209,118 shares of the Company's common stock were issued. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company had accrued compensation costs relating to iPIP of ~~$34.3~~$33.0 million and ~~$38.1~~$37.5 million, respectively, which are included in "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets.

Long-Term Incentive Plan—The Company's 2009 Long-Term Incentive Plan (the "2009 LTIP") is designed to provide incentive compensation for officers, key employees, directors and advisors of the Company. The 2009 LTIP provides for awards of stock options, shares of restricted stock, phantom shares, restricted stock units, dividend equivalent rights and other share-based performance awards. All awards under the 2009 LTIP are made at the discretion of the Company's Board of Directors or a committee of the Board of Directors. The Company's shareholders approved the 2009 LTIP in 2009 and approved the performance-based provisions of the 2009 LTIP, as amended, in 2014.

As of ~~June 30, 2018,~~March 31, 2019, an aggregate of ~~2.7~~2.1 million shares remain available for issuance pursuant to future awards under the Company's 2009 LTIP.

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~Restricted Share Issuances~~—During the six months ended June 30, 2018, the Company granted 213,609 shares of common stock to certain employees under the 2009 LTIP as part of annual incentive awards that included a mix of cash and equity awards. The shares are fully-vested and 135,503 shares were issued net of required, statutory minimum tax withholdings. The employees are restricted from selling these shares for up to 18 months from the date of grant.

Restricted Stock Unit Activity—A summary of the Company’s stock-based compensation awards to certain employees in the form of long-term incentive awards for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and the year ended December 31, ~~2017,~~2018, are as follows (in thousands):


	Six Months Ended June 30, 2018		Year Ended December 31, 2017		Three Months Ended March 31, 2019		Year Ended December 31, 2018
Nonvested at beginning of period	282		290		357		282
Granted	264		116		474		278
Vested	(40	)	(75	)	(52	)	(142	)
Forfeited	(49	)	(49	)	(9	)	(61	)
Nonvested at end of period	457		282		770		357

As of ~~June 30, 2018,~~March 31, 2019, there was ~~$2.9~~$5.4 million of total unrecognized compensation cost related to all unvested restricted stock units that are expected to be recognized over a weighted average remaining vesting/service period of 2.0 years.

Directors' Awards—During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company ~~awarded to non-employee Directors 67,631 restricted shares of~~issued 1,899 common stock equivalents ("CSEs") at a fair value of ~~$10.65 at the time~~$8.17 per CSE in respect of ~~grant. The restricted shares have a vesting term of one year.~~dividend equivalents on outstanding CSEs. As of ~~June 30, 2018,~~March 31, 2019, a combined total of ~~236,996~~241,700 CSEs and restricted shares of common stock granted to members of the Company's Board of Directors remained outstanding under the Company's Non-Employee Directors Deferral Plan, with an aggregate intrinsic value of ~~$2.6~~$2.0 million.

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

401(k) Plan—The Company made contributions of ~~$0.1~~$0.6 million and ~~$0.8~~$0.7 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018,~~, respectively, and $0.1 million and $0.8 million for the three and six months ended June 30, 2017,~~ respectively.

Note 15—Earnings Per Share

The following table presents a reconciliation of income (loss) from ~~continuing~~ operations used in the basic and diluted earnings per share ("EPS") calculations ($ in thousands, except for per share data):

For the Three Months Ended June 30, For the Six Months Ended June 30,
2018 2017 2018 2017
Income from continuing operations $ 3,611
$ 76,117
$ 21,589
$ 47,869
Income from sales of real estate 56,895
844
73,943
8,954
Net income attributable to noncontrolling interests (9,509 ) (5,710 ) (9,604 ) (4,610 )
Preferred dividends (8,124 ) (12,830 ) (16,248 ) (25,660 )
Income from continuing operations attributable to iStar Inc. and allocable to common shareholders for basic earnings per common share $ 42,873
$ 58,421
$ 69,680
$ 26,553
Add: Effect of joint venture shares —
5
—
9
Add: Effect of Series J convertible perpetual preferred stock 2,250
2,250
4,500
4,500
Income from continuing operations attributable to iStar Inc. and allocable to common shareholders for diluted earnings per common share $ 45,123
$ 60,676
$ 74,180
$ 31,062



	For the Three Months Ended March 31,
	2019			2018
Net income (loss)	$	(6,970	)	$	35,028
Net income attributable to noncontrolling interests	(2,471		)	(95		)
Preferred dividends	(8,124		)	(8,124		)
Net income (loss) allocable to common shareholders for basic earnings per common share	$	(17,565	)	$	26,809
Add: Effect of Series J convertible perpetual preferred stock	—			2,250
Net income (loss) allocable to common shareholders for diluted earnings per common share	$	(17,565	)	$	29,059



	For the Three Months Ended March 31,
	2019			2018
Earnings allocable to common shares:
Numerator for basic earnings per share:
Net income (loss) allocable to common shareholders	$	(17,565	)	$	26,809

Numerator for diluted earnings per share:
Net income (loss) allocable to common shareholders	$	(17,565	)	$	29,059

Denominator for basic and diluted earnings per share:
Weighted average common shares outstanding for basic earnings per common share	67,747			67,913
Add: Effect of assumed shares issued under treasury stock method for restricted stock units	—			122
Add: Effect of series J convertible perpetual preferred stock	—			15,635
Weighted average common shares outstanding for diluted earnings per common share	67,747			83,670

Basic earnings per common share:
Net income (loss) allocable to common shareholders	$	(0.26	)	$	0.39

Diluted earnings per common share:
Net income (loss) allocable to common shareholders	$	(0.26	)	$	0.35

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
2018 2017 2018 2017
Earnings allocable to common shares:
Numerator for basic earnings per share:
Income from continuing operations attributable to iStar Inc. and allocable to common shareholders $ 42,873
$ 58,421
$ 69,680
$ 26,553
Income from discontinued operations —
173
—
4,939
Gain from discontinued operations —
123,418
—
123,418
Income tax expense from discontinued operations —
(4,545 ) —
(4,545 )
Net income attributable to iStar Inc. and allocable to common shareholders $ 42,873
$ 177,467
$ 69,680
$ 150,365

Numerator for diluted earnings per share:
Income from continuing operations attributable to iStar Inc. and allocable to common shareholders $ 45,123
$ 60,676
$ 74,180
$ 31,062
Income from discontinued operations —
173
—
4,939
Gain from discontinued operations —
123,418
—
123,418
Income tax expense from discontinued operations —
(4,545 ) —
(4,545 )
Net income attributable to iStar Inc. and allocable to common shareholders $ 45,123
$ 179,722
$ 74,180
$ 154,874

Denominator for basic and diluted earnings per share:
Weighted average common shares outstanding for basic earnings per common share 67,932
72,142
67,922
72,104
Add: Effect of assumed shares issued under treasury stock method for restricted stock units 127
120
125
119
Add: Effect of joint venture shares —
298
—
298
Add: Effect of series J convertible perpetual preferred stock 15,635
15,635
15,635
15,635
Weighted average common shares outstanding for diluted earnings per common share 83,694
88,195
83,682
88,156

Basic earnings per common share:
Income from continuing operations attributable to iStar Inc. and allocable to common shareholders $ 0.63
$ 0.81
$ 1.03
$ 0.37
Income from discontinued operations —
—
—
0.07
Gain from discontinued operations —
1.71
—
1.71
Income tax expense from discontinued operations —
(0.06 ) —
(0.06 )
Net income attributable to iStar Inc. and allocable to common shareholders $ 0.63
$ 2.46
$ 1.03
$ 2.09

Diluted earnings per common share:
Income from continuing operations attributable to iStar Inc. and allocable to common shareholders $ 0.54
$ 0.69
$ 0.89
$ 0.35
Income from discontinued operations —
—
—
0.06
Gain from discontinued operations —
1.40
—
1.40
Income tax expense from discontinued operations —
(0.05 ) —
(0.05 )

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

The following shares were not included in the diluted EPS calculation because they were anti-dilutive (in thousands)⁽¹⁾:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2018 2017 2018 2017
Net income attributable to iStar Inc. and allocable to common shareholders $ 0.54
$ 2.04
$ 0.89
$ 1.76



	For the Three Months Ended March 31,
	2019	2018
Series J convertible perpetual preferred stock	15,951	—

(1)

For the three monthsended March 31, 2019, the effect of the Company's unvested Units, performance-based Units, CSEs and restricted stock awards were anti-dilutive due to the Company having a net loss for the period. The Company will settle conversions of the 3.125% Convertible Notes by paying the conversion value in cash up to the original principal amount of the notes being converted and shares of common stock to the extent of any conversion premium. The amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value calculated for each trading day in a 40 consecutive day observation period. Based upon the conversion price of the 3.125% Convertible Notes, no shares of common stock would have been issuable upon conversion of the 3.125% Convertible Notes for the three months ended March 31, 2019 and 2018 and therefore the 3.125% Convertible Notes had no effect on diluted EPS for such periods.

Note 16—Fair Values

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.

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Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The following fair value hierarchy table summarizes the Company's assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):


			Fair Value Using								Fair Value Using
	Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		Quoted market prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of June 30, 2018
As of March 31, 2019
Recurring basis:
Derivative assets⁽¹⁾	$	8,120	$	—	$	8,120	$	—	$	2,279	$	—	$	2,279	$	—
Derivative liabilities⁽¹⁾	1,150		—		1,150		—		14,297		—		14,297		—
Available-for-sale securities⁽¹⁾	21,840		$	—	$	—	21,840		22,615		$	—	$	—	22,615
Non-recurring basis:
Impaired real estate⁽²⁾	5,632		—		—		5,632
Impaired land and development⁽³⁾	8,873		—		—		8,873
Debt security⁽⁴⁾	77,007		—		—		77,007
Impaired real estate available and held for sale⁽²⁾									17,100		—		—		17,100

As of December 31, 2017
As of December 31, 2018
Recurring basis:
Derivative assets⁽¹⁾									$	3,669	$	—	$	3,669	$	—
Derivative liabilities⁽¹⁾									10,244		—		10,244		—
Available-for-sale securities⁽¹⁾	$	22,842	$	—	$	—	$	22,842	$	21,661	$	—	$	—	$	21,661
Non-recurring basis:
Impaired real estate⁽⁵⁾⁽³⁾	12,400		—		—		12,400		29,400		—		—		29,400
Impaired real estate available and held for sale⁽⁶⁾⁽⁴⁾	800		—		—		800		19,300		—		—		19,300
Impaired land and development⁽⁷⁾⁽⁵⁾	21,400		—		—		21,400		78,400		—		—		78,400


(1)	The fair value of the Company's derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company's available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as Level 3.


(2)	The Company recorded an impairment of $3.2 million on a ~~net lease asset with a fair value of $5.6 million due to the exercise of a below-market lease renewal option related to a net lease asset.~~commercial operating property based on an executed purchase and sale agreement.


(3)	The Company recorded aggregate impairments of $76.3 million on three real estate assets with an estimated aggregate fair value of $29.4 million. The impairments were as follows:


a.	A $23.2 million impairment on a ~~land and development asset with~~commercial operating property based on a decline in expected operating performance. The fair value is based on the Company's estimate of ~~$8.9~~the recoverability of its investment in the project.


b.	A $6.0 million impairment on a property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value.


c.	A $47.1 million impairment on a commercial operating property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value.


(4)	The Company recorded aggregate impairments of $3.7 million on two real estate assets held for sale. The fair values are based on market comparable sales.

~~(4)~~(5)

~~In connection with the resolution of a non-performing loan, the Company received a preferred equity position with a face value of $100.0 million that is mandatorily redeemable in five years.~~ The Company recorded ~~the preferred equity position at its~~aggregate impairments of $55.4 million on four land and development assets with an estimated aggregate fair value of ~~$77.0 million based on a discount rate of 7.375%.~~$78.4 million. The impairments were as follows:


~~(5)~~a.	~~The Company recorded an~~A $25.0 million impairment on a ~~real estate~~waterfront land and development asset ~~with~~based on a strategic decision to sell the asset. The fair value ~~of $12.4 million~~is based on ~~market comparable sales.~~purchase offers received from third parties, which is consistent with the Company's estimate of fair value.


~~(6)~~b.	~~The Company recorded an~~A $21.6 million impairment on a ~~residential real estate asset available and held for sale~~master planned community based on ~~market comparable sales.~~a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value.


~~(7)~~c.	~~The Company recorded an~~A $6.9 million impairment on aan infill land and development asset ~~with a~~based on the deterioration of the asset. The fair value ~~of $21.4 million~~is based on ~~a discount rate~~purchase offers received from third parties, which is consistent with the Company's estimate of ~~6% and a 10 year holding period.~~fair value.


d.	A $1.9 million impairment on a waterfront land and development asset based on the sale of the asset in 2019.

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's consolidated balance sheets for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ ($ in thousands):


	2018			2017			2019			2018
Beginning balance	$	22,842		$	21,666		$	21,661		$	22,842
Repayments	(46		)	(10		)	(46		)	(36		)
Unrealized gains (losses) recorded in other comprehensive income	(956		)	566			1,000			(971		)
Ending balance	$	21,840		$	22,222		$	22,615		$	21,835

Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending investments and outstanding debt, including liabilities associated with properties held for sale, was ~~$1.1~~$0.9 billion and ~~$3.9~~$3.3 billion, respectively, as of ~~June 30, 2018~~March 31, 2019 and ~~$1.3~~$1.0 billion and ~~$3.7~~$3.5 billion, respectively, as of December 31, ~~2017.~~2018. The Company determined that the significant inputs used to value its loans receivable and other lending investments and debt obligations fall within Level 3 of the fair value hierarchy. The carrying value of other

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable and accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value hierarchy. The fair value of other financial instruments, including derivative assets and liabilities, is included in the fair value hierarchy table above.

Note 17—Segment Reporting

The Company has determined that it has four reportable segments based on how management reviews and manages its business. These reportable segments include: Real Estate Finance, Net Lease, Operating Properties and Land and Development. The Real Estate Finance segment includes all of the Company's activities related to senior and mezzanine real estate loans and real estate related securities. The Net Lease segment includes the Company's activities and operations related to the ownership of properties generally leased to single corporate ~~tenants.~~tenants and its investment in SAFE (refer to Note 7). The Operating Properties segment includes the Company's activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company's activities related to its developable land portfolio.

The Company evaluates performance based on the following financial measures for each segment. The Company's segment information is as follows ($ in thousands):


	Real Estate Finance			Net Lease			Operating Properties			Land and Development			Corporate/Other⁽¹⁾			Company Total			Real Estate Finance			Net Lease			Operating Properties			Land and Development			Corporate/Other⁽¹⁾			Company Total
Three Months Ended June 30, 2018:
Three Months Ended March 31. 2019:																			Three Months Ended March 31. 2019:
Operating lease income	$	—		$	29,310		$	15,199		$	100		$	—		$	44,609		$	—		$	49,482		$	9,356		$	77		$	—		$	58,915
Interest income	25,212			—			—			—			—			25,212			20,375			—			—			—			—			20,375
Other income	3,133			698			13,351			1,313			2,328			20,823			2,189			3,420			2,375			3,447			3,382			14,813
Land development revenue	—			—			—			80,927			—			80,927			—			—			—			12,699			—			12,699
Earnings (losses) from equity method investments	—			2,694			(1,316		)	1,023			(9,679		)	(7,278		)	—			7,230			(2,410		)	287			202			5,309
Gain on consolidation of equity method investment	—			67,877			—			—			—			67,877
Income from sales of real estate	—			24,493			32,402			—			—			56,895			—			—			9,407			—			—			9,407
Total revenue and other earnings	28,345			125,072			59,636			83,363			(7,351		)	289,065			22,564			60,132			18,728			16,510			3,584			121,518
Real estate expense	—			(3,433		)	(23,818		)	(9,792		)	—			(37,043		)	—			(6,106		)	(11,033		)	(8,801		)	—			(25,940		)
Land development cost of sales	—			—			—			(83,361		)	—			(83,361		)	—			—			—			(14,449		)	—			(14,449		)
Other expense	(290		)	—			—			—			(3,426		)	(3,716		)	(265		)	—			—			—			(243		)	(508		)
Allocated interest expense	(10,648		)	(13,591		)	(4,578		)	(5,308		)	(9,047		)	(43,172		)	(8,413		)	(21,766		)	(2,918		)	(5,127		)	(8,353		)	(46,577		)
Allocated general and administrative⁽²⁾	(3,852		)	(4,853		)	(1,975		)	(3,747		)	(5,298		)	(19,725		)	(2,209		)	(5,678		)	(761		)	(3,257		)	(4,945		)	(16,850		)
Segment profit (loss)⁽³⁾	$	13,555		$	103,195		$	29,265		$	(18,845	)	$	(25,122	)	$	102,048		$	11,677		$	26,582		$	4,016		$	(15,124	)	$	(9,957	)	$	17,194
Other significant items:
Provision for loan losses	$	18,892		$	—		$	—		$	—		$	—		$	18,892
Recovery of loan losses																			$	(97	)	$	—		$	—		$	—		$	—		$	(97	)
Impairment of assets	—			4,342			446			1,300			—			6,088			—			—			3,851			—			—			3,851
Depreciation and amortization	—			6,341			3,738			318			370			10,767			—			13,561			1,557			247			303			15,668
Capitalized expenditures	—			720			4,623			42,603			—			47,946			—			2,756			416			36,079			—			39,251

Three Months Ended June 30, 2017:
Operating lease income	$	—		$	30,852		$	15,940		$	210		$	—		$	47,002
Interest income	28,645			—			—			—			—			28,645
Other income	479			550			13,333			123,871			1,277			139,510
Land development revenue	—			—			—			132,710			—			132,710
Earnings from equity method investments	—			1,080			469			3,606			360			5,515
Income from discontinued operations	—			173			—			—			—			173
Gain from discontinued operations	—			123,418			—			—			—			123,418
Income from sales of real estate	—			—			844			—			—			844

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)



	Real Estate Finance			Net Lease			Operating Properties			Land and Development			Corporate/Other⁽¹⁾			Company Total

Three Months Ended March 31, 2018:
Operating lease income	$	—		$	29,727		$	15,817		$	255		$	—		$	45,799
Interest income	26,697			—			—			—			—			26,697
Other income	384			1,049			12,144			471			1,272			15,320
Land development revenue	—			—			—			276,429			—			276,429
Earnings from equity method investments	—			3,556			(1,275		)	1,545			(494		)	3,332
Income from sales of real estate	—			414			16,634			—			—			17,048
Total revenue and other earnings	27,081			34,746			43,320			278,700			778			384,625
Real estate expense	—			(3,948		)	(21,626		)	(10,606		)	—			(36,180		)
Land development cost of sales	—			—			—			(223,407		)	—			(223,407		)
Other expense	(400		)	—			—			—			(766		)	(1,166		)
Allocated interest expense	(11,765		)	(14,201		)	(5,528		)	(6,473		)	(7,215		)	(45,182		)
Allocated general and administrative⁽²⁾	(3,969		)	(4,586		)	(2,043		)	(3,805		)	(5,320		)	(19,723		)
Segment profit (loss)⁽³⁾	$	10,947		$	12,011		$	14,123		$	34,409		$	(12,523	)	$	58,967
Other significant items:
Recovery of loan losses	$	(855	)	$	—		$	—		$	—		$	—		$	(855	)
Impairment of assets	—			—			4,100			—			—			4,100
Depreciation and amortization	—			6,309			3,926			515			360			11,110
Capitalized expenditures	—			478			7,700			31,447			—			39,625

As of March 31, 2019
Real estate
Real estate, net	$	—		$	1,449,845		$	171,159		$	—		$	—		$	1,621,004
Real estate available and held for sale	—			219,184			34,152			—			—			253,336
Total real estate	—			1,669,029			205,311			—			—			1,874,340
Land and development, net	—			—			—			616,350			—			616,350
Loans receivable and other lending investments, net	894,846			—			—			—			—			894,846
Other investments	—			407,682			62,434			44,656			7,227			521,999
Total portfolio assets	$	894,846		$	2,076,711		$	267,745		$	661,006		$	7,227		3,907,535
Cash and other assets																763,878
Total assets																$	4,671,413

As of December 31, 2018
Real estate
Real estate, net	$	—		$	1,536,494		$	234,525		$	—		$	—		$	1,771,019
Real estate available and held for sale	—			1,055			21,496			—			—			22,551
Total real estate	—			1,537,549			256,021			—			—			1,793,570
Land and development, net	—			—			—			598,218			—			598,218
Loans receivable and other lending investments, net	988,224			—			—			—			—			988,224
Other investments	—			165,804			65,643			65,312			7,516			304,275
Total portfolio assets	$	988,224		$	1,703,353		$	321,664		$	663,530		$	7,516		3,684,287
Cash and other assets																1,329,990
Total assets																$	5,014,277

Table of Contents

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Real Estate Finance Net Lease Operating Properties Land and Development
Corporate/Other⁽¹⁾
Company Total
Total revenue and other earnings 29,124
156,073
30,586
260,397
1,637
477,817
Real estate expense —
(4,064 ) (22,653 ) (7,967 ) —
(34,684 )
Land development cost of sales —
—
—
(122,466 ) —
(122,466 )
Other expense (399 ) —
—
—
(15,877 ) (16,276 )
Allocated interest expense (10,508 ) (13,669 ) (5,006 ) (7,122 ) (12,502 ) (48,807 )
Allocated general and administrative⁽²⁾
(4,691 ) (5,921 ) (2,364 ) (5,004 ) (5,323 ) (23,303 )
Segment profit (loss)⁽³⁾
$ 13,526
$ 132,419
$ 563
$ 117,838
$ (32,065 ) $ 232,281
Other significant items:
Recovery of loan losses $ (600 ) $ —
$ —
$ —
$ —
$ (600 )
Impairment of assets —
219
—
10,065
—
10,284
Depreciation and amortization —
7,400
4,923
521
327
13,171
Capitalized expenditures —
917
8,355
30,286
—
39,558

Six Months Ended June 30, 2018
Operating lease income $ —
$ 59,036
$ 31,016
$ 355
$ —
$ 90,407
Interest income 51,909
—
—
—
—
51,909
Other income 3,516
1,746
25,496
1,784
3,600
36,142
Land development revenue —
—
—
357,356
—
357,356
Earnings (losses) from equity method investments —
6,252
(2,591 ) 2,566
(10,173 ) (3,946 )
Gain on consolidation of equity method investment —
67,877
—
—
—
67,877
Income from sales of real estate —
24,907
49,036
—
—
73,943
Total revenue and other earnings 55,425
159,818
102,957
362,061
(6,573 ) 673,688
Real estate expense —
(7,411 ) (45,443 ) (20,370 ) —
(73,224 )
Land development cost of sales —
—
—
(306,768 ) —
(306,768 )
Other expense (690 ) —
—
—
(4,192 ) (4,882 )
Allocated interest expense (22,413 ) (27,792 ) (10,106 ) (11,781 ) (16,261 ) (88,353 )
Allocated general and administrative⁽²⁾
(7,821 ) (9,439 ) (4,018 ) (7,552 ) (10,618 ) (39,448 )
Segment profit (loss)⁽³⁾
$ 24,501
$ 115,176
$ 43,390
$ 15,590
$ (37,644 ) $ 161,013
Other significant non-cash items:
Provision for loan losses $ 18,037
$ —
$ —
$ —
$ —
$ 18,037
Impairment of assets —
4,342
4,546
1,300
—
10,188
Depreciation and amortization —
12,652
7,664
832
730
21,878
Capitalized expenditures —
1,198
12,324
74,050
—
87,572

Six Months Ended June 30, 2017:
Operating lease income $ —
$ 62,104
$ 31,929
$ 316
$ —
$ 94,349
Interest income 57,703
—
—
—
—
57,703
Other income 556
1,056
23,688
124,256
1,818
151,374
Land development revenue —
—
—
152,760
—
152,760
Earnings (losses) from equity method investments —
2,062
1,101
7,448
606
11,217
Income from discontinued operations —
4,939
—
—
—
4,939
Gain from discontinued operations —
123,418
—
—
—
123,418
Income from sales of real estate —
6,212
2,742
—
—
8,954
Total revenue and other earnings 58,259
199,791
59,460
284,780
2,424
604,714

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Real Estate Finance Net Lease Operating Properties Land and Development
Corporate/Other⁽¹⁾
Company Total
Real estate expense —
(8,640 ) (44,171 ) (17,463 ) —
(70,274 )
Land development cost of sales —
—
—
(138,376 ) —
(138,376 )
Other expense (1,004 ) —
—
—
(17,141 ) (18,145 )
Allocated interest expense (22,396 ) (29,404 ) (10,612 ) (15,240 ) (22,300 ) (99,952 )
Allocated general and administrative⁽²⁾
(8,287 ) (10,563 ) (4,119 ) (8,930 ) (10,697 ) (42,596 )
Segment profit (loss)⁽³⁾
$ 26,572
$ 151,184
$ 558
$ 104,771
$ (47,714 ) $ 235,371
Other significant non-cash items:
Recovery of loan losses $ (5,528 ) $ —
$ —
$ —
$ —
$ (5,528 )
Impairment of assets —
219
4,413
10,064
—
14,696
Depreciation and amortization —
15,039
8,962
791
659
25,451
Capitalized expenditures —
1,687
16,566
56,879
—
75,132

As of June 30, 2018
Real estate

Real estate, net $ —
$ 1,532,589
$ 382,410
$ —
$ —
$ 1,914,999
Real estate available and held for sale —
—
37,597
—
—
37,597
Total real estate —
1,532,589
420,007
—
—
1,952,596
Land and development, net —
—
—
641,627
—
641,627
Loans receivable and other lending investments, net 1,052,872
—
—
—
—
1,052,872
Other investments —
147,512
62,024
76,693
6,788
293,017
Total portfolio assets $ 1,052,872
$ 1,680,101
$ 482,031
$ 718,320
$ 6,788
3,940,112
Cash and other assets 1,418,055
Total assets

$ 5,358,167

As of December 31, 2017
Real estate

Real estate, net $ —
$ 815,783
$ 466,248
$ —
$ —
$ 1,282,031
Real estate available and held for sale —
—
68,588
—
—

68,588
Total real estate —
815,783
534,836
—
—
1,350,619
Land and development, net —
—
—
860,311
—
860,311
Loans receivable and other lending investments, net 1,300,655
—
—
—
—
1,300,655
Other investments —
205,007
38,761
63,855
13,618
321,241
Total portfolio assets $ 1,300,655
$ 1,020,790
$ 573,597
$ 924,166
$ 13,618
3,832,826
Cash and other assets 898,252
Total assets

$ 4,731,078


(1)	Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also includes the Company's joint venture investments and strategic investments that are not included in the other reportable segments above.


(2)	General and administrative excludes stock-based compensation expense of ~~$3.5~~$4.2 million and ~~$12.6~~$9.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~respectively, and $3.9 million and $9.8 million for the three and six months ended June 30, 2017,~~ respectively.

~~Table of Contents~~

~~iStar Inc.~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~(unaudited)~~


(3)	The following is a reconciliation of segment profit to net income (loss) ($ in thousands):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Segment profit	$	102,048		$	232,281		$	161,013		$	235,371		$	17,194		$	58,967
Add: (Provision for) recovery of loan losses	(18,892		)	600			(18,037		)	5,528
Add: Recovery of loan losses													97			855
Less: Impairment of assets	(6,088		)	(10,284		)	(10,188		)	(14,696		)	(3,851		)	(4,100		)
Less: Stock-based compensation expense	(3,503		)	(3,915		)	(12,593		)	(9,796		)	(4,249		)	(9,091		)
Less: Depreciation and amortization	(10,767		)	(13,171		)	(21,878		)	(25,451		)	(15,668		)	(11,110		)
Less: Income tax expense	(128		)	(1,644		)	(249		)	(2,251		)	(25		)	(121		)
Less: Income tax expense from discontinued operations	—			(4,545		)	—			(4,545		)
Less: Loss on early extinguishment of debt, net	(2,164		)	(3,315		)	(2,536		)	(3,525		)	(468		)	(372		)
Net income	$	60,506		$	196,007		$	95,532		$	180,635
Net income (loss)													$	(6,970	)	$	35,028

Item 2. Management'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" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are included with respect to, among other things, iStar Inc.'s (the "Company's") current business plan, business strategy, portfolio management, prospects and liquidity. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. 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" in our ~~2017~~2018 Annual Report, all of which could affect our future results of operations, financial condition and liquidity. For purposes of Management's Discussion and Analysis of Financial Condition and Results of Operations, the terms "we," "our" and "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 ~~2017~~2018 Annual Report. These historical financial statements may not be indicative of our future performance. We have reclassified certain items in our consolidated financial statements of prior periods to conform to our current financial statements presentation.

Introduction

iStar Inc. ("iStar") finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. We also ~~provide management services for our~~manage entities focused on ground lease ("Ground Lease") ~~equity method investment~~ and ~~our~~ net lease ~~ventures.~~investments. We have invested approximately $40 billion of capital over 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, net lease, operating properties and land and development.

Executive Overview

Capital remains cheap and plentiful in most traditional lending sectors of the commercial real estate markets, and we expect that to continue for the remainder of 2019. In addition, interest rates and the equity markets have experienced some volatility. We have taken a cautious approach in these conditions, focusing on providing capital to customers with whom we have a pre-existing relationship, originating fewer traditional loans and aggressively seeking to monetize legacy assets.

Consistent with our historical approach of offering differentiated capital where we believe we can capture better risk-adjusted returns, we have invested, and intend to continue to ~~focus on~~invest, more of our ~~net lease~~capital and ~~real estate finance businesses to find selective investment opportunities~~resources in these core businesses. We also continue to make significant progress in monetizing our commercial and residential operating properties as well as our land portfolio. In our continuing effort to find untapped investment opportunities in real estate, in 2017 we conceived and ultimately launched Safety, Income & Growth Inc. ("SAFE"), a new, publicly-traded REIT focused exclusively on the Ground Lease ~~asset class.~~business. In January 2019, we expanded our relationship with SAFE through an additional $250.0 million equity investment and an amendment of our management agreement with SAFE that gives us greater protection against a termination of the agreement, and incentivizes us to grow SAFE's portfolio. We have also pursued and will continue to pursue joint transactions with SAFE, such as offering customers a SAFE Ground Lease and an iStar leasehold loan.

~~Operating Results~~In July 2018, we entered into "Net Lease Venture II" with total capital commitments of $526 million and an investment strategy similar to the Net Lease Venture. We have an equity interest in the new venture of approximately 51.9% and are responsible for managing the venture in exchange for management and incentive fees.

For the three months ended ~~June 30, 2018,~~March 31, 2019, we recorded net ~~income~~loss allocable to common shareholders of ~~$42.9~~$17.6 million, compared to net income of ~~$177.5~~$26.8 million during the same period in the prior year. Adjusted income (loss) allocable to common shareholders for the three months ended ~~June 30, 2018~~March 31, 2019 was ~~$43.6 million,~~$(120.0) thousand, compared to ~~$198.4~~$132.3 million during the same period in the prior year (see "Adjusted Income" for a reconciliation of adjusted income to net income).

During the three months ended June 30, 2018, we completed the sales of two operating properties and one net lease asset. Our proceeds from these sales totaled $184.9 million and we recognized $56.7 million of gains related to these sales. We also gained control of our Net Lease Venture, which resulted in us consolidating the assets and liabilities of the Net Lease Venture and recording a gain of $67.9 million as a result of its consolidation. During the three months ended June 30, 2017, institutional investors acquired a controlling interest in our ground lease business through the merger of our subsidiary and other related transactions. We recognized a gain of $123.4 million from these transactions (refer to Note 4). During the three months ended June 30, 2017, we also received a judgment in our favor relating to litigation involving a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland, which resulted in $123.4 million of other income.

We continue to work on monetizing, repositioning or redeveloping our legacy portfolio, which includes transitional operating properties and ~~progressing on the entitlement and development of our~~ land and development assets, such as the Asbury Park assemblage and the Magnolia Green community (refer to our Annual Report on Form 10-K), in order to maximize their value. We intend to continue these efforts, with the objective of increasing the contribution of these assets to our earnings in the future. Furthermore, we have sold and expect to continue to opportunistically sell operating assets and land in order to generate cash proceeds to reinvest into real estate finance and net lease assets, and in active development projects.

~~Capital Markets Activity~~

During the three months ended June 30, 2018, we re-priced, amended and extended the 2016 Senior Term Loan. The principal amount of the 2016 Senior Term Loan was increased to $650.0 million from $377.0 million, the annual interest rate was reduced to LIBOR plus 2.75% from LIBOR plus 3.00% and the maturity date was extended to June 2023 from October 2021. The 2016 Senior Term Loan was priced at 99.875% and call protection for lenders was reset for six months.

The 2016 Senior Term Loan is collateralized by the pledge of stock of entities that own existing and new assets, with asset addition and substitution flexibility within specified parameters. In addition, the 2016 Senior Term Loan permits us to pay common dividends with no restrictions so long as we are not in default on any of our debt obligations. A corresponding amendment of the dividend restrictions in the 2015 Revolving Credit Facility was entered into concurrently with the 2016 Senior Term Loan. Proceeds from the 2016 Senior Term Loan were used to repay the outstanding current 2016 Senior Term Loan balance and to redeem in July 2018, $273.0 million of the $770.0 million of senior unsecured notes due July 2019.

As of ~~June 30, 2018,~~March 31, 2019, we had ~~$1,039.6~~$315.4 million of cash and $325.0 million of ~~which $273.0 million was used to redeem senior unsecured notes in July 2018.~~credit facility availability. We have no debt maturities for the remainder of 2019. We expect to use our unrestricted cash balance primarily to fund future investment activities, pay debt service, make distributions to shareholders and for general working capital needs. ~~In addition, we have additional borrowing capacity under the 2015 Revolving Credit Facility (refer to Note 10) of $325.0 million at June 30, 2018.~~

Portfolio Overview

As of ~~June 30, 2018,~~March 31, 2019, based on our gross book value, including the carrying value of our equity method investments ~~gross~~exclusive of accumulated depreciation, our total investment portfolio has the following characteristics:

As of ~~June 30, 2018,~~March 31, 2019, based on our gross book value, including the carrying value of our equity method investments gross of accumulated depreciation, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):


Property/Collateral Types	Real Estate Finance		Net Lease		Operating Properties		Land & Development		Total		% of Total		Real Estate Finance		Net Lease		Operating Properties		Land & Development		Total		% of Total
Office / Industrial	$	85,344	$	1,192,922	$	127,351	$	—	$	1,405,617	31.4	%	$	89,536	$	1,314,712	$	110,691	$	—	$	1,514,939	34.3	%
Land and Development	87,331		—		—		726,476		813,807		18.3	%	75,253		—		—		669,920		745,173		16.9	%
Entertainment / Leisure	—		699,364		27,172		—		726,536		16.2	%	—		723,720		15,038		—		738,758		16.7	%
Ground Leases													—		426,527		—		—		426,527		9.7	%
Hotel	261,118		—		84,161		—		345,279		7.7	%	254,648		—		47,384		—		302,032		6.8	%
Mixed Use / Mixed Collateral													213,225		—		31,728		—		244,953		5.6	%
Multifamily													98,541		—		30,813		—		129,354		2.9	%
Condominium	263,589		—		36,652		—		300,241		6.7	%	104,889		—		16,106		—		120,995		2.7	%
Mixed Use / Mixed Collateral	171,859		—		97,410		—		269,269		6.0	%
Other Property Types													48,344		57,348		—		—		105,692		2.4	%
Retail	24,324		—		165,025		—		189,349		4.2	%	22,819		—		54,784		—		77,603		1.8	%
Ground Leases	—		165,543		—		—		165,543		3.7	%
Multifamily	114,135		—		21,257		—		135,392		3.0	%
Other Property Types	59,272		57,348		—		—		116,620		2.6	%
Strategic Investments	—		—		—		—		6,788		0.2	%	—		—		—		—		7,228		0.2	%
Total	$	1,066,972	$	2,115,177	$	559,028	$	726,476	$	4,474,441	100.0	%	$	907,255	$	2,522,307	$	306,544	$	669,920	$	4,413,254	100.0	%


Geographic Region	Real Estate Finance		Net Lease		Operating Properties		Land & Development		Total		% of Total		Real Estate Finance		Net Lease		Operating Properties		Land & Development		Total		% of Total
Northeast	$	567,250	$	627,219	$	75,048	$	302,699	$	1,572,216	35.1	%	$	400,106	$	687,837	$	62,906	$	341,372	$	1,492,221	33.7	%
Southeast													123,728		550,479		17,898		70,422		762,527		17.3	%
West	113,041		378,517		47,218		131,739		670,515		14.9	%	171,325		397,878		55,014		77,019		701,236		15.9	%
Southeast	100,328		300,854		145,130		100,321		646,633		14.5	%
Mid-Atlantic	—		371,364		35,837		130,882		538,083		12.0	%	11,784		438,835		1,599		129,577		581,795		13.2	%
Southwest	78,444		226,118		149,518		29,333		483,413		10.8	%	54,256		224,156		117,484		19,994		415,890		9.4	%
Central	104,884		204,236		106,277		31,502		446,899		10.0	%	47,475		215,888		51,643		31,536		346,542		7.9	%
Various⁽¹⁾	103,025		6,869		—		—		109,894		2.5	%	98,581		7,234		—		—		105,815		2.4	%
Strategic Investments⁽¹⁾	—		—		—		—		6,788		0.2	%	—		—		—		—		7,228		0.2	%
Total	$	1,066,972	$	2,115,177	$	559,028	$	726,476	$	4,474,441	100.0	%	$	907,255	$	2,522,307	$	306,544	$	669,920	$	4,413,254	100.0	%

~~(1)Combined, strategic investments and the various category include $7.7 million of international assets.~~

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. As of ~~June 30, 2018,~~March 31, 2019, our real estate finance portfolio, including securities, totaled ~~$1.1 billion,~~$907.3 million, exclusive of general loan loss reserves. The portfolio, excluding securities, included ~~$921.9~~$778.1 million of performing loans with a weighted average maturity of 1.8 years.

The tables below summarize our loans and the reserves for loan losses associated with our loans ($ in thousands):


	June 30, 2018										March 31, 2019
	Number of Loans	Gross Carrying Value		Reserve for Loan Losses			Carrying Value		% of Total	Reserve for Loan Losses as a % of Gross Carrying Value	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	39	$	921,934	$	(14,100	)	$	907,834	97.1%	1.5%	32	$	778,124	$	(12,410	)	$	765,714	96.8%	1.6%
Non-performing loans	3	67,068		(40,395		)	26,673		2.9%	60.2%	3	66,500		(40,888		)	25,612		3.2%	61.5%
Total	42	$	989,002	$	(54,495	)	$	934,507	100.0%	5.5%	35	$	844,624	$	(53,298	)	$	791,326	100.0%	6.3%

	December 31, 2017										December 31, 2018
	Number of Loans	Gross Carrying Value		Reserve for Loan Losses			Carrying Value		% of Total	Reserve for Loan Losses as a % of Gross Carrying Value	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	36	$	1,051,691	$	(17,500	)	$	1,034,191	85.4%	1.7%	35	$	852,768	$	(13,000	)	$	839,768	97.0%	1.5%
Non-performing loans	5	237,877		(60,989		)	176,888		14.6%	25.6%	3	66,725		(40,395		)	26,330		3.0%	60.5%
Total	41	$	1,289,568	$	(78,489	)	$	1,211,079	100.0%	6.1%	38	$	919,493	$	(53,395	)	$	866,098	100.0%	5.8%

Performing Loans—The table below summarizes our performing loans exclusive of reserves ($ in thousands):


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Senior mortgages	$	782,124		$	709,809		$	624,360		$	694,025
Corporate/Partnership loans	129,988			332,387			143,426			148,583
Subordinate mortgages	9,822			9,495			10,338			10,160
Total	$	921,934		$	1,051,691		$	778,124		$	852,768

Weighted average LTV	59		%	67		%	61		%	63		%
Yield	9.7		%	9.8		%	9.1		%	9.2		%

Non-Performing Loans—We designate loans as non-performing at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due

according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt. As of ~~June 30, 2018,~~March 31, 2019, we had non-performing loans with an aggregate carrying value of ~~$26.7~~$25.6 million compared to non-performing loans with an aggregate carrying value of ~~$176.9~~$26.3 million as of December 31, 2017. In the second quarter 2018, we resolved a non-performing loan with a carrying value of $145.8 million. We received a $45.8 million cash payment and a preferred equity position with a face value of $100.0 million that is mandatorily redeemable in five years. We recorded the preferred equity at its fair value of $77.0 million and will accrue interest over the expected duration of the position. In addition, we recorded a $21.4 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.2018. We expect that our level of non-performing loans will fluctuate from period to period.

Reserve for Loan Losses—The reserve for loan losses was ~~$54.5~~$53.3 million as of ~~June 30, 2018,~~March 31, 2019, or ~~5.5%~~6.3% of total loans, compared to ~~$78.5~~$53.4 million or ~~6.1%~~5.8% as of December 31, ~~2017.~~2018. For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the ~~provision for~~recovery of loan losses included ~~$21.4 million resulting from the resolution of~~ a ~~non-performing loan partially offset by a $2.5 million~~ decrease ~~(benefit)~~ in the general reserve ~~due to~~of $0.6 million offset by an ~~overall improvement~~increase in the ~~risk ratings.~~specific reserve of $0.5 million. We expect that our level of reserve for loan losses will fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and reserves requires the use of significant judgment. We currently believe there is adequate collateral and reserves to support the carrying values of the loans.

The reserve for loan losses includes an asset-specific component and a formula-based component. An asset-specific reserve is established for an impaired loan when the estimated fair value of the loan's collateral less costs to sell is lower than the carrying value of the loan. As of ~~June 30, 2018,~~March 31, 2019, asset-specific reserves ~~decreased~~increased to ~~$40.4~~$40.9 million compared to ~~$61.0~~$40.4 million as of December 31, ~~2017.~~

2018.

The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of performing loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management's current judgments and future expectations about their credit quality based on all known and relevant factors that may affect collectability. We consider, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. We estimate loss rates based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.

The general reserve decreased to ~~$14.1~~$12.4 million or 1.6% of performing loans as of March 31, 2019, compared to $13.0 million or 1.5% of performing loans as of ~~June 30, 2018, compared to $17.5 million or 1.7% of performing loans as of~~ December 31, ~~2017.~~2018. The decrease was primarily attributable to an overall improvement in the risk ratings.

Net Lease

Our net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on our properties. We target mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combine our capabilities in underwriting, lease structuring, asset management and build-to-suit construction. Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis. Under a typical net lease agreement, the tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including taxes, utilities, maintenance and insurance). We generally intend to hold our net lease assets for long-term investment. However, we may dispose of assets if we deem the disposition to be in our best interests.

The net lease segment includes our traditional net lease investments and our investment in SAFE. As of March 31, 2019, our consolidated net lease portfolio totaled $2.1 billion. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II, exclusive of accumulated depreciation, totaled $2.5 billion. The table below provides certain statistics for our net lease portfolio.



	Consolidated Real Estate⁽¹⁾			Net Lease Venture II			SAFE⁽²⁾
Ownership %	100.0		%	51.9		%	42.4		%
Gross book value (millions)⁽³⁾	$	2,107		$	31		$	1,016

% Leased	98.8		%	100.0		%	100.0		%
Square footage (thousands)⁽⁴⁾	17,242			169			1,801
Weighted average lease term (years)⁽⁵⁾	15.0			9.8			84.1
Weighted average yield	8.8		%	8.2		%

(1)We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements.


(2)	As of March 31, 2019, we own 7,766,411 shares of SAFE common stock, or 42.4%, and 12,500,000 Investor Units in SAFE OP, bringing our total economic interest in SAFE to 65.8%.

(3)Gross book value represents the acquisition cost of real estate and any additional capital invested ininto the property by us.

(4)Square footage for SAFE represents the square footage of the leasehold improvements owned by SAFE.

(5)Represents the initial maturity and does not include extension options.

Net Lease Venture—In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a right of first refusal to the venture on all new net lease investments ~~primarily through~~that met specified investment criteria (refer to Note 7 in our consolidated financial statements for more information on our Net Lease ~~Venture, in which we hold a 51.9% interest.~~Venture). The Net Lease Venture's investment period expired on June 30, 2018 and the remaining term of the venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of us and our partner. We obtained control over the Net Lease Venture when the investment period expired on June 30, 2018 and consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment. ~~We recorded a gain of $67.9 million as a result of the consolidation.~~

Net Lease Venture II—In July 2018, we entered into ~~a new venture ("~~Net Lease Venture ~~II")~~II with similar investment strategies as the Net Lease Venture (refer to Note 7). The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us. We have an equity interest in the new venture of approximately 51.9%, which ~~will be~~is accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee.

~~In June 2018, we sold two industrial facilities~~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 ~~third-party and simultaneously structured and entered into two Ground Leases. We then sold the two~~high-grade fixed income investment business, but with certain unique advantages. Relative to alternative fixed income investments generally, SAFE's Ground Leases ~~to SAFE. Net proceeds~~typically benefit from ~~the transactions totaled $36.1 million and we recognized a $24.5 million gain on sale.~~

In April 2017, institutional investors acquired a controlling interest in our Ground Lease business through the merger of one of our subsidiaries and related transactions (the "Acquisition Transactions"). Our Ground Lease business was a component of our net lease segment and consisted of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five properties). As a result of the Acquisition Transactions, we: (i) recognized a gain of approximately $178.9 million; (ii) deconsolidated the 12 propertiesbuilt-in growth derived from contractual rent increases, and the ~~associated 2017 Secured Financing;~~opportunity to realize value from residual rights to acquire the buildings and ~~(iii)~~other improvements on its land at no additional cost. We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments.

We account for our investment in SAFE as an equity method investment (refer to Note 7).

~~On June 27, 2017, SAFE completed its initial public offering raising $205.0 million in gross proceeds~~ We are SAFE's external manager, and concurrently completed a $45.0 million private placement to us, its largest shareholder. We believe that SAFE is the first publicly-traded company formed primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon. Wewe 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. ~~In addition,~~As of March 31, 2019, we owned approximately 42.4% of SAFE's common stock outstanding.

On January 2, 2019, we purchased 12,500,000 newly designated limited partnership units (the "Investor Units") in SAFE's operating partnership ("SAFE OP"), at a ~~wholly-owned subsidiary~~purchase price of ~~ours is~~$20.00 per unit, for a total purchase price of $250.0 million. The purpose of the ~~external manager~~investment was to provide SAFE with capital to fund additional Ground Lease acquisitions and originations.

The Investor Units have the following features:

the right to receive equivalent distributions per unit to those paid on one share of SAFE common stock;

no voting rights;

non-transferable prior to June 30, 2019;

no automatic conversion or exchange rights; and

limited protective consent rights.

SAFE has agreed to seek stockholder approval to exchange the Investor Units for shares of SAFE common stock, on a one-for-one basis.

The Investor Units represent an approximate 40.6% fully diluted economic interest in SAFE. After giving effect to the issuance of the Investor Units, our aggregate fully diluted economic interest in SAFE (including the shares of SAFE common stock and Investor Units owned by us) is approximately 65.8%; however, our ~~Chief Executive Officer is~~voting power in SAFE will remain capped at 41.9%, as a result of the ~~Chairman~~limitations described below.

In connection with our purchase of the Investor Units, we entered into a Stockholder's Agreement with SAFE on January 2, 2019. The Stockholder's Agreement:

limits our discretionary voting power to 41.9% of the outstanding voting power of SAFE's Common Stock until our aggregate ownership of SAFE common stock is less than 41.9%;

requires us to cast all of our voting power in favor of three director nominees to SAFE's board who are independent of ~~directors.~~each of us and SAFE for three years;

subjects us to certain standstill provisions for two years;

restricts our ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one year after their issuance;

prohibits us from transferring shares of SAFE common stock representing more than 20% of the outstanding SAFE common stock in one transaction or a series of related transactions to any person or group, other than pursuant to a widely distributed public offering, unless SAFE's other stockholders have participation rights in the transaction; and

provides us certain preemptive rights.

AsIn connection with the new investment, SFTY Manager LLC (our wholly-owned subsidiary) and SAFE amended and restated the Management Agreement, dated as of June 27, 2017, between them, the "Amended and Restated Management Agreement". The Amended and Restated Management Agreement, dated January 2, 2019, generally provides for incremental increases in the base management fee payable to the manager from a minimum of 1.0% to a maximum of 1.5% of SAFE's Total Equity (as defined in the agreement) as it increases. The management fee will be payable in cash or SAFE common stock, at SAFE's election (as determined by SAFE's independent directors). SAFE common stock issued to pay the management fee will be valued at the greater of $20.00 or a recent volume weighted average market price.

The Amended and Restated Management Agreement has an initial term through June 30, ~~2018,~~2022 during which the agreement is non-terminable, except for certain cause events. After the initial term, the agreement will be automatically renewed for additional one year terms, subject to certain rights of SAFE's independent directors to terminate the agreement based on the manager's materially detrimental long-term performance or, beginning with the seventh annual renewal term after the initial term, unfair management fees that the manager declines to renegotiate. SAFE will be obligated to pay the manager a termination fee equal to three times the annual management fee paid in respect of the last completed fiscal year prior to the termination if, by the time of such termination, SAFE has raised Total Equity of at least $820.0 million since inception, including from us.

In connection with our ~~consolidated net lease portfolio totaled $2.0 billion. Our net lease portfolio, including~~purchase of the ~~carrying value~~Investor Units, the parties also entered into an Amended and Restated Registration Rights Agreement, dated January 2, 2019, which requires SAFE to, among other things, use commercially reasonable efforts to file a shelf registration statement with the Securities and Exchange Commission providing for resale of ~~our equity method investment in~~all shares of SAFE ~~gross of accumulated depreciation, totaled $2.1 billion. The table below provides certain statistics for our net lease portfolio.~~

Consolidated
Real Estate⁽¹⁾
SAFE
Ownership % 100.0 % 39.8 %
Gross book value (millions)⁽²⁾
$ 1,963
$ 631

Occupancy 98.7 % 100.0 %
Square footage (thousands) 16,496
1,793
Weighted average lease term (years) 14.7
73.7
Weighted average yield 9.0 %

~~(1)The Net Lease Venture is consolidated in our GAAP financial statements.~~

~~(2)Gross book value represents the acquisition cost of real estate and any additional capital invested into the property~~common stock held by us.

The agreement also provides us with certain demand registration rights.

Operating Properties

During the three months ended June 30, 2018, we completed the sales of two operating properties. Our proceeds from these sales totaled $148.9 million and we recognized $32.2 million of gains related to these sales.

Our commercial operating properties represent a ~~diverse~~ pool of assets across a broad range of geographies and collateral types including office, retail and hotel properties. As of ~~June 30, 2018,~~March 31, 2019, our operating property portfolio, including the carrying value of our equity method investments gross of accumulated depreciation, totaled ~~$559.0~~$306.5 million.

The table below provides certain statistics for our legacy commercial operating ~~properties~~property portfolio.

Gross Book
Value
(in millions)⁽¹⁾
Properties Occupancy Yield
Square Feet
(in thousands)
Legacy Commercial Assets $ 472
19 81% 6.6% 2,852
Legacy Residential Assets 37

New Strategic Commercial Assets 50

Total Operating Properties $ 559


(1)	Gross book value represents the acquisition cost of real estate and any additional capital invested into the property by us.

Land and Development

~~As of June 30, 2018, our~~The following table presents a land and development portfolio ~~exclusive of accumulated depreciation and including equity method investments, totaled $726.5 million, with five projects in production, seven in development and 13 in~~rollforward for the ~~pre-development phase. These projects are collectively entitled for approximately 9,900 lots and units. The following tables present certain statistics for our land and development portfolio.~~three months ended March 31, 2019.

																					Land and Development Portfolio Rollforward	(in millions)
	Six Months Ended June 30,						Asbury Ocean Club		Asbury Park Waterfront			Magnolia Green			All Others			Total Segment
	2018			2017
Beginning balance⁽¹⁾	$	860.3		$	945.6		$	165.4	$	74.7		$	109.5		$	248.6		$	598.2
Asset sales⁽²⁾	(268.5		)	(133.8		)	—		(4.0		)	(1.9		)	(7.8		)	(13.7		)
Asset transfers in (out)⁽³⁾	(21.3		)	—
Capital expenditures⁽⁴⁾	74.1			56.9
Capital expenditures							29.0		1.7			2.8			2.5			36.0
Other	(3.0		)	(13.2		)	—		—			(0.4		)	(3.7		)	(4.1		)
Ending balance⁽¹⁾	$	641.6		$	855.5		$	194.4	$	72.4		$	110.0		$	239.6		$	616.4

(1)As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Total Segment excludes ~~$76.7~~$44.7 million and ~~$63.9~~$65.3 million, respectively, of equity method investments.

(2)

Represents gross book value of the assets sold, rather than proceeds received. During the six months ended June 30, 2018, we received approximately $253.4 million in gross proceeds in connection with the sale of two land parcels totaling 93 acres in San Jose, CA and San Pedro, CA. We also completed the monetization of a 785 acre master planned community entitled for 1,458 single family lots in Riverside County, California.

~~(3)Assets transferred into land and development segment or out to another segment.~~


~~(4)~~	~~During the six months ended June 30, 2018 and 2017, includes $52.2 million and $22.5 million, respectively, of capital expenditures at a luxury residential oceanfront development.~~

Land and Development Statistics
(in millions)
Six Months Ended June 30,
2018 2017
Land development revenue⁽¹⁾
$ 357.4
$ 152.8
Land development cost of sales⁽¹⁾
306.8
138.4
Gross profit $ 50.6
$ 14.4
Earnings from land and development equity method investments 2.6
7.4
Total $ 53.2
$ 21.8


~~(1)~~	During the six months ended June 30, 2018, we recognized approximately $253.4 million in land development revenue and $205.8 million in land development cost of sales in connection with the sale of two land parcels totaling 93 acres in San Jose, CA and San Pedro, CA.

Results of Operations for the Three Months Ended ~~June 30, 2018~~March 31, 2019 compared to the Three Months Ended ~~June 30, 2017~~March 31, 2018


	For the Three Months Ended June 30,											For the Three Months Ended March 31,
	2018			2017			$ Change			% Change		2019			2018			$ Change			% Change
	(in thousands)											(in thousands)
Operating lease income	$	44,609		$	47,002		$	(2,393	)	(5	)%	$	58,915		$	45,799		$	13,116		29	%
Interest income	25,212			28,645			(3,433		)	(12	)%	20,375			26,697			(6,322		)	(24	)%
Other income	20,823			139,510			(118,687		)	(85	)%	14,813			15,320			(507		)	(3	)%
Land development revenue	80,927			132,710			(51,783		)	(39	)%	12,699			276,429			(263,730		)	(95	)%
Total revenue	171,571			347,867			(176,296		)	(51	)%	106,802			364,245			(257,443		)	(71	)%
Interest expense	43,172			48,807			(5,635		)	(12	)%	46,577			45,182			1,395			3	%
Real estate expense	37,043			34,684			2,359			7	%	25,940			36,180			(10,240		)	(28	)%
Land development cost of sales	83,361			122,466			(39,105		)	(32	)%	14,449			223,407			(208,958		)	(94	)%
Depreciation and amortization	10,767			13,171			(2,404		)	(18	)%	15,668			11,110			4,558			41	%
General and administrative	23,228			27,218			(3,990		)	(15	)%	21,099			28,814			(7,715		)	(27	)%
Provision for (recovery of) loan losses	18,892			(600		)	19,492			>(100%)
Recovery of loan losses												(97		)	(855		)	758			(89	)%
Impairment of assets	6,088			10,284			(4,196		)	(41	)%	3,851			4,100			(249		)	(6	)%
Other expense	3,716			16,276			(12,560		)	(77	)%	508			1,166			(658		)	(56	)%
Total costs and expenses	226,267			272,306			(46,039		)	(17	)%	127,995			349,104			(221,109		)	(63	)%
Income from sales of real estate												9,407			17,048			(7,641		)	(45	)%
Loss on early extinguishment of debt, net	(2,164		)	(3,315		)	1,151			(35	)%	(468		)	(372		)	(96		)	26	%
Earnings (losses) from equity method investments	(7,278		)	5,515			(12,793		)	>(100%)
Gain on consolidation of equity method investment	67,877			—			67,877			100	%
Earnings from equity method investments												5,309			3,332			1,977			59	%
Income tax expense	(128		)	(1,644		)	1,516			(92	)%	(25		)	(121		)	96			(79	)%
Income from discontinued operations	—			173			(173		)	(100	)%
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	56,895			844			56,051			>100%
Net income	$	60,506		$	196,007		$	(135,501	)	(69	)%
Net income (loss)												$	(6,970	)	$	35,028		$	(41,998	)	>(100%)

Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, ~~decreased $2.4~~increased $13.1 million, or ~~5.1%~~28.6%, to ~~$44.6~~$58.9 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$47.0~~$45.8 million for the same period in ~~2017.~~2018. The following table summarizes our operating lease income by segment ($ in millions).


	Three Months Ended June 30,								Three Months Ended March 31,
	2018		2017		Change			Reason for Change	2019		2018		Change
Net Lease(1)	$	29.3	$	30.9	$	(1.6	)	Sale of net lease assets, partially offset by the execution of new leases.	$	49.5	$	29.7	$	19.8
Operating Properties(2)	15.2		15.9		(0.7		)	Modification of leases from base rent to percentage rent and operating property sales.	9.3		15.8		(6.5		)
Land and Development	0.1		0.2		(0.1		)	Not meaningful change.	0.1		0.3		(0.2		)
Total	$	44.6	$	47.0	$	(2.4	)		$	58.9	$	45.8	$	13.1


(1)	Change primarily due to a $20.9 million increase from the consolidation of the Net Lease Venture and acquiring a new asset during the three months ended March 31, 2019, partially offset by $1.4 million from asset sales.


(2)	Change primarily due to asset sales.

The following table shows certain same store ~~operating lease income, rent per square foot and occupancy~~statistics for our Net Lease and Operating Properties segments, excluding hotels. Same store assets are defined as assets we owned on or prior to ~~April~~January 1, ~~2017~~2018 and were in service through ~~June 30, 2018~~March 31, 2019 (Operating lease income in millions).


	Three Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Operating lease income
Net Lease	$	27.9		$	27.0		$	27.8		$	28.3
Operating Properties	$	9.8		$	10.2		$	8.1		$	8.7

Rent per square foot
Net Lease	$	10.21		$	9.73		$	10.22		$	10.45
Operating Properties	$	34.04		$	36.18		$	42.84		$	37.37

Occupancy⁽¹⁾
Net Lease	98.1		%	97.9		%	98.1		%	98.1		%
Operating Properties	78.4		%	77.5		%	65.8		%	80.2		%


(1)	Occupancy is as of ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

Interest income decreased ~~$3.4~~$6.3 million, or ~~12.0%~~23.7%, to ~~$25.2~~$20.4 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$28.6~~$26.7 million for the same period in ~~2017.~~2018. The decrease was due primarily to a decrease in the average balance of our performing loans, which ~~decreased to $1.04~~was $0.91 billion ~~in 2018 from $1.18~~for the three months ended March 31, 2019 and $1.14 billion ~~in 2017.~~for the three months ended March 31, 2018. The weighted average yield on our performing loans was ~~9.7%~~9.1% and 9.4% for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017.~~respectively.

Other income decreased ~~$118.7~~$0.5 million, or ~~85.1%~~3.3%, to ~~$20.8~~$14.8 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$139.5~~$15.3 million for the same period in ~~2017.~~2018. Other income during the three months ended ~~June 30,~~March 31, 2019 consisted primarily of income from our hotel properties, other ancillary income from our operating properties and loan portfolio and interest income on our cash. Other income during the three months ended March 31, 2018 consisted primarily of income from our hotel properties, other ancillary income from our operating properties and interest income on our cash. Other income during the three months ended June 30, 2017 consisted of primarily of interest income and real estate tax reimbursements resulting from the settlement of litigation involving a dispute over the purchase and sale of land and also included income from our hotel properties and other ancillary income from our operating properties. The decrease in 2018 was related primarily to the judgment in our favor in 2017 relating to litigation involving a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland, which resulted in $123.4 million of other income during the three months ended June 30, 2017.

Land development revenue and cost of sales—During the three months ended ~~June 30, 2018,~~March 31, 2019, we sold residential lots and units and recognized land development revenue of ~~$80.9~~$12.7 million which had associated cost of sales of ~~$83.4 million primarily from the monetization of a 785 acre master planned community entitled for 1,458 single family lots in Riverside County, California.~~$14.4 million. During the three months ended ~~June 30, 2017,~~March 31, 2018, we sold land parcels and residential lots and units ~~and one land parcel~~ and recognized land development revenue of ~~$132.7~~$276.4 million which had associated cost of sales of ~~$122.5 million, representing a $10.2 million gross profit.~~$223.4 million. The decrease in ~~2018~~2019 was primarily ~~due to~~ the ~~judgment in our favor in 2017 relating to litigation involving a dispute over the purchase and sale~~result of ~~approximately 1,250 acres of land in Prince George’s County, Maryland, which resulted in us recognizing $114.0 million of land development revenue and $106.3 million of land development cost of~~two bulk parcel sales during the three months ended ~~June 30, 2017.~~March 31, 2018.

Costs and expenses—Interest expense ~~decreased $5.6~~increased $1.4 million, or ~~11.5%~~3.1%, to ~~$43.2~~$46.6 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$48.8~~$45.2 million for the same period in ~~2017~~2018 due to ~~a decrease~~an increase in the balance of our average outstanding debt, inclusive of loan participations, lease liabilities associated with finance-type leases and debt classified within “Liabilities associated with properties held for sale” as of March 31, 2019, which ~~decreased~~increased to ~~$3.18~~$3.60 billion for the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$3.70~~$3.47 billion for the same period in ~~2017.~~2018. Our weighted average cost of debt for the three months ended March 31, 2019 and 2018 was 5.5% and 5.4%, respectively. The increase in debt was primarily attributable to our consolidation of the Net Lease Venture on June 30, 2018, ~~and 2017~~of which we own a 51.9% equity interest, which increased our interest expense by $5.6 million for the three months ended March 31, 2019. This impact was ~~5.7% and 5.5%, respectively.~~offset by our repayment in full the 5.00% senior unsecured notes due July 2019.

Real estate expenses ~~increased $2.4~~decreased $10.3 million, or ~~6.8%~~28.3%, to ~~$37.0~~$25.9 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$34.7~~$36.2 million for the same period in ~~2017.~~2018. The following table summarizes our real estate expenses by segment ($ in millions).

Three Months Ended June 30,
2018 2017 Change Reason for Change
Net Lease $ 3.4
$ 4.1
$ (0.7 ) Sale of net lease assets.
Operating Properties 23.8
22.7
1.1
Increase in legal expenses at one of our residential operating properties.
Land and Development 9.8
7.9
1.9
Increase in marketing and other costs at one of our land and development properties.
Total $ 37.0
$ 34.7
$ 2.3



	Three Months Ended March 31,
	2019		2018		Change
Operating Properties⁽¹⁾	$	11.0	$	21.7	$	(10.7	)
Land and Development⁽²⁾	8.8		10.6		(1.8		)
Net Lease⁽³⁾	6.1		3.9		2.2
Total	$	25.9	$	36.2	$	(10.3	)


(1)	Change primarily due to asset sales.


(2)	Change primarily due to a decrease in legal and marketing costs at certain properties.


(3)	Change primarily due to the consolidation of the Net Lease Venture.

Depreciation and amortization ~~decreased $2.4~~increased $4.6 million, or ~~18.3%~~41.0%, to ~~$10.8~~$15.7 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$13.2~~$11.1 million for the same period in ~~2017,~~2018, primarily due to the consolidation of the Net Lease Venture on June 30, 2018, partially offset by the sale of ~~net lease and~~ commercial operating properties in since ~~July~~April 1, ~~2017.~~2018.

General and administrative expenses decreased ~~$4.0~~$7.7 million, or ~~14.7%~~26.8%, to ~~$23.2~~$21.1 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$27.2~~$28.8 million for the same period in ~~2017.~~2018. We capitalized into our active development projects $0.6 million and $0.5 million of payroll-related costs (including salaries, bonuses, LTIP awards, benefits and taxes) for the three months ended March 31, 2019 and 2018, respectively. The following table summarizes our general and administrative expenses for the three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (in millions):


	Three Months Ended June 30,								Three Months Ended March 31,
	2018			2017		Change			2019			2018		Change
Payroll and related costs⁽¹⁾	$	15.5		$	19.2	$	(3.7	)	$	12.3		$	15.3	$	(3.0	)
Performance Incentive Plans⁽²⁾	2.2		5.0	2.9		(0.7		)	3.6		5.0	7.9		(4.3		)
Public company costs	1.3			1.3		—			1.5			1.5		—
Occupancy costs	1.4			1.3		0.1			1.1			1.3		(0.2		)
Other	2.8			2.5		0.3			2.6			2.8		(0.2		)
Total	$	23.2		$	27.2	$	(4.0	)	$	21.1		$	28.8	$	(7.7	)


(1)	Decrease ~~primarily related~~due to ~~additional compensation recognized during the three months ended June 30, 2017~~a reduction in ~~connection with the initial public offering~~headcount to 156 employees as of ~~SAFE (refer to Note 7).~~March 31, 2019 from 186 employees as of December 31, 2017.


(2)	Represents the fair value of points issued and change in fair value of the plans during the periods presented. Such amounts may increase or decrease (except for 2019-2020 Plan) over time until the awards are settled. Please refer to Note 14 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans.

The ~~provision for~~recovery of loan losses was ~~$18.9~~$0.1 million during the three months ended ~~June 30, 2018~~March 31, 2019 as compared to a net recovery of loan losses of ~~$0.6~~$0.9 million for the same period in 2017. The provision for loan losses for the three months ended June 30, 2018 was due to a specific reserve of $21.4 million resulting from the resolution of a non-performing loan partially offset by a $2.5 million decrease in the general reserve.2018. The recovery of loan losses for the three months ended ~~June 30, 2017~~March 31, 2019 was due to a decrease in the general reserve of $0.6 million offset by an increase in the specific reserve of $0.5 million. The recovery of loan losses for the three months ended March 31, 2018 was due to a reduction in the general reserve due to an overall improvement in the risk ratings of our loan portfolio.

Impairment of assets was ~~$6.1~~$3.9 million during the three months ended ~~June 30, 2018~~March 31, 2019 and resulted from an impairment of $3.2 million on a commercial operating property based on an executed purchase and sale agreement and $0.7 million of impairments in connection with the ~~exercise~~sale of ~~a below-market lease renewal option related to a net lease asset and a land and development asset based upon market comparable sales.~~residential condominium units. During the three months ended ~~June 30, 2017,~~March 31, 2018, we recorded an impairment of ~~$10.3~~$4.1 million on a ~~land and development~~real estate asset held for sale due to ~~a change in our exit strategy.~~impending contracts to sell the remaining four condominium units at the property.

Other expense decreased to ~~$3.7~~$0.5 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$16.3~~$1.2 million for the same period in ~~2017. The decrease was primarily the result of paying organization and offering costs associated with the initial public offering of SAFE (refer to Note 7) during the three months ended June 30, 2017.~~

~~Loss on early extinguishment of debt, net—~~During the three months ended June 30, 2018 and 2017, we incurred losses on early extinguishment of debt of $2.2 million and $3.3 million, respectively, resulting from the modification and upsize of our 2016 Senior Term Loan in 2018 and repayments of unsecured notes prior to maturity in 2017.

~~Earnings (losses) from equity method investments—Earnings (losses) from equity method investments decreased $12.8 million to $(7.3) million during the three months ended June 30, 2018 from $5.5 million for the same period in 2017. During the~~2018.

three months ended June 30, 2018, we recognized $2.0 million related to operations at our Net Lease Venture (which is consolidated as of June 30, 2018), $0.7 million from our equity method investment in SAFE and $10.0 million was aggregate losses from our remaining equity method investments inclusive of a $10.0 million impairment on a foreign equity method investment due to local market conditions. During the three months ended June 30, 2017, we recognized $2.4 million from profit participations on a land development venture, $1.2 million related to sales activity on a land development venture, $1.0 million related to operations at our Net Lease Venture and $0.9 million was aggregate income from our remaining equity method investments

~~Gain on consolidation of equity method investment~~—On June 30, 2018, we gained control of the Net Lease Venture when its investment period expired. As a result, as of June 30, 2018, we consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment. We recorded a gain of $67.9 million as a result of the consolidation.

~~Income tax expense~~—Income tax expense of $0.1 million was recorded during the three months ended June 30, 2018 as compared to $1.6 million for the same period in 2017. The income tax expense for the three months ended June 30, 2018 primarily related to state margins taxes and other minimum state franchise taxes. The income tax expense for the three months ended June 30, 2017 related to federal alternative minimum taxes on REIT taxable income generated by the favorable litigation award over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland.

~~Discontinued Operations~~—In April 2017, institutional investors acquired a controlling interest in our Ground Lease business through the merger of one of our subsidiaries and related transactions. We received total consideration of $340.0 million, including $113.0 million in cash, including $55.5 million that we contributed to SAFE in its initial capitalization, and the proceeds from the $227.0 million 2017 Secured Financing (refer to Note 10). Income from discontinued operations represents the operating results from the 12 properties comprising our Ground Lease business.

Income from sales of real estate—Income from sales of real estate ~~increased~~decreased to ~~$56.9~~$9.4 million during the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$0.8~~$17.0 million for the same period in ~~2017.~~2018. The following table presents our income from sales of real estate by segment ($ in millions).


	Three Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2019		2018
Operating Properties					$	9.4	$	16.6
Net Lease	$	24.5	$	—	—		0.4
Operating Properties	32.4		0.8
Total	$	56.9	$	0.8	$	9.4	$	17.0

~~Results of Operations for the Six Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017~~

For the Six Months
Ended June 30,
2018 2017 $ Change % Change
(in thousands)
Operating lease income $ 90,407
$ 94,349
$ (3,942 ) (4 )%
Interest income 51,909
57,703
(5,794 ) (10 )%
Other income 36,142
151,374
(115,232 ) (76 )%
Land development revenue 357,356
152,760
204,596
>100%
Total revenue 535,814
456,186
79,628
17 %
Interest expense 88,353
99,952
(11,599 ) (12 )%
Real estate expense 73,224
70,274
2,950
4 %
Land development cost of sales 306,768
138,376
168,392
>100%
Depreciation and amortization 21,878
25,451
(3,573 ) (14 )%
General and administrative 52,041
52,392
(351 ) (1 )%
Provision for (recovery of) loan losses 18,037
(5,528 ) 23,565
>(100%)
Impairment of assets 10,188
14,696
(4,508 ) (31 )%
Other expense 4,882
18,145
(13,263 ) (73 )%
Total costs and expenses 575,371
413,758
161,613
39 %
Loss on early extinguishment of debt, net (2,536 ) (3,525 ) 989
(28 )%
Earnings (losses) from equity method investments (3,946 ) 11,217
(15,163 ) >(100%)
Gain from consolidation of equity method investment 67,877
—
67,877
100 %
Income tax expense (249 ) (2,251 ) 2,002
(89 )%
Income from discontinued operations —
4,939
(4,939 ) (100 )%
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 73,943
8,954
64,989
>100%
Net income $ 95,532
$ 180,635
$ (85,103 ) (47 )%

~~Revenue~~—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased $3.9 million, or 4.2%, to $90.4 million during the six months ended June 30, 2018 from $94.3 million for the same period in 2017. The following table summarizes our operating lease income by segment ($ in millions).

Six Months Ended June 30,
2018 2017 Change Reason for Change
Net Lease $ 59.0
$ 62.1
$ (3.1 ) Sale of net lease assets, partially offset by the execution of new leases.
Operating Properties 31.0
31.9
(0.9 ) Modification of leases from base rent to percentage rent and operating property sales.
Land and Development 0.4
0.3
0.1
Not meaningful change.
Total $ 90.4
$ 94.3
$ (3.9 )

The following table shows same store operating lease income, rent per square foot and occupancy for our Net Lease and Operating Properties segments, excluding hotels. Same store assets are defined as assets we owned on or prior to January 1, 2017 and were in service through June 30, 2018 (Operating lease income in millions).

Six Months Ended June 30,
2018 2017
Operating lease income
Net Lease $ 56.2
$ 54.0
Operating Properties $ 19.7
$ 20.1

Rent per square foot
Net Lease $ 10.10
$ 9.73
Operating Properties $ 34.34
$ 35.42

Occupancy⁽¹⁾

Net Lease 98.1 % 97.9 %
Operating Properties 78.4 % 77.5 %


~~(1)~~	~~Occupancy is as of June 30, 2018 and 2017.~~

Interest income decreased $5.8 million, or 10.0%, to $51.9 million during the six months ended June 30, 2018 from $57.7 million for the same period in 2017. The decrease was due primarily to a decrease in the average balance of our performing loans, which decreased to $1.09 billion in 2018 from $1.23 billion in 2017. The weighted average yield on our performing loans was 9.5% for the six months ended June 30, 2018 and 2017.

Other income decreased $115.2 million, or 76.1%, to $36.1 million during the six months ended June 30, 2018 from $151.4 million for the same period in 2017. Other income during the six months ended June 30, 2018 consisted primarily of income from our hotel properties, other ancillary income from our operating properties and interest income on our cash. Other income during the six months ended June 30, 2017 consisted primarily of interest income and real estate tax reimbursements resulting from the settlement of litigation involving a dispute over the purchase and sale of land and also included income from our hotel properties and other ancillary income from our operating properties. The decrease in 2018 was related primarily to the judgment in our favor in 2017 relating to litigation involving a dispute over the purchase and sale of land in 2017, which resulted in $123.4 million of other income during the six months ended June 30, 2017.

~~Land development revenue and cost of sales~~—During the six months ended June 30, 2018, we sold land parcels and residential lots and units and recognized land development revenue of $357.4 million which had associated cost of sales of $306.8 million, representing a $50.6 million gross profit. During the six months ended June 30, 2017, we sold residential lots and units and one land parcel and recognized land development revenue of $152.8 million which had associated cost of sales of $138.4 million, representing a $14.4 million gross profit. The increase in 2018 was primarily the result of two bulk land parcel sales.

~~Costs and expenses~~—Interest expense decreased $11.6 million, or 11.6%, to $88.4 million during the six months ended June 30, 2018 from $100.0 million for the same period in 2017 due to a decrease in the balance of our average outstanding debt, which decreased to $3.29 billion for the six months ended June 30, 2018 from $3.64 billion for the same period in 2017, and lower average borrowing costs. Our weighted average cost of debt for the six months ended June 30, 2018 and 2017 was 5.4% and 5.7%, respectively.

Real estate expenses increased $3.0 million, or 4.2%, to $73.2 million during the six months ended June 30, 2018 from $70.3 million for the same period in 2017. The following table summarizes our real estate expenses by segment ($ in millions).

Six Months Ended June 30,
2018 2017 Change Reason for Change
Net Lease $ 7.4
$ 8.6
$ (1.2 ) Sale of net lease assets.
Operating Properties 45.4
44.2
1.2
Slight increase in bad debt expense at one of our commercial operating properties and an increase in legal expenses at one of our residential operating properties.
Land and Development 20.4
17.5
2.9
Increase in marketing and other costs at one of our land and development properties.
Total $ 73.2
$ 70.3
$ 2.9

Depreciation and amortization decreased $3.6 million, or 14.0%, to $21.9 million during the six months ended June 30, 2018 from $25.5 million for the same period in 2017, primarily due to the sale of net lease and commercial operating properties in since July 1, 2017.

General and administrative expenses decreased $0.4 million, or 0.7%, to $52.0 million during the six months ended June 30, 2018 from $52.4 million for the same period in 2017. The following table summarizes our general and administrative expenses for the six months ended June 30, 2018 and 2017 (in millions):

Six Months Ended June 30,
2018 2017 Change
Payroll and related costs $ 30.8
$ 33.7
$ (2.9 )
Performance Incentive Plans⁽¹⁾
10.2
5.0
7.9
2.3
Public company costs 2.9
3.2
(0.3 )
Occupancy costs 2.6
2.6
—
Other 5.5
5.0
0.5
Total $ 52.0
$ 52.4
$ (0.4 )


~~(1)~~	Represents the fair value of points issued and change in fair value of the plans during the periods presented. Such amounts may increase or decrease over time until the awards are settled. Please refer to Note 14 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans.

The provision for loan losses was $18.0 million during the six months ended June 30, 2018 as compared to a net recovery of loan losses of $5.5 million for the same period in 2017. The provision for loan losses for the six months ended June 30, 2018 was due to a specific reserve of $21.4 million resulting from the resolution of a non-performing loan partially offset by a $3.4 million decrease in the general reserve. The net recovery of loan losses for the six months ended June 30, 2017 was due to a reduction in the general reserve due to an overall improvement in the risk ratings of our loan portfolio.

Impairment of assets was $10.2 million during the six months ended June 30, 2018 and resulted from the exercise of a below-market lease renewal option related to a net lease asset, an impairment on a real estate asset held for sale due to contracts to sell the remaining four condominium units at the property and a land and development asset based upon market comparable sales. During the six months ended June 30, 2017, we recorded an aggregate impairment of $14.7 million resulting primarily from an impairment on a land and development asset due to a change in our exit strategy and an impairment on a real estate asset held for sale due to shifting demand in the local condominium market along with a change in our exit strategy.

Other expense decreased to $4.9 million during the six months ended June 30, 2018 from $18.1 million for the same period in 2017. The decrease was primarily the result of paying organization and offering costs associated with the initial public offering of SAFE (refer to Note 7) during the six months ended June 30, 2017.

Loss on early extinguishment of debt, net—During the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ we incurred losses on early extinguishment of debt of ~~$2.5~~$0.5 million and ~~$3.3~~$0.4 million, ~~respectively. During~~respectively, resulting from repayments of senior notes prior to maturity during the ~~six~~three months ended ~~June 30, 2018 we incurred losses on early extinguishment of debt resulting from~~March 31, 2019 and repayments of our 2016 Senior Term Loan ~~prior to its modification and~~during the

~~modification and upsize of our 2016 Senior Term Loan. During the six~~ three months ended ~~June 30, 2017 we incurred losses on early extinguishment of debt resulting from repayments of unsecured notes prior to maturity and the repricing of our 2016 Senior Secured Credit Facility.~~March 31, 2018.

Earnings ~~(losses)~~ from equity method investments—Earnings ~~(losses)~~ from equity method investments ~~decreased $15.2 million~~increased to ~~$(3.9)~~$5.3 million during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 from ~~$11.2~~$3.3 million for the same period in ~~2017.~~2018. During the ~~six~~three months ended ~~June 30,~~March 31, 2019, we recognized $7.3 million of income from our equity method investment in SAFE and $2.0 million was aggregate losses from our remaining equity method investments. During the three months ended March 31, 2018, we recognized ~~$4.1~~$2.1 million of income related to operations at our Net Lease Venture (which ~~we consolidate as of~~was consolidated on June 30, 2018), ~~$2.2~~$1.5 million of income from our equity method investment in SAFE and ~~$10.2~~$0.3 million ~~was~~of aggregate losses from our remaining equity method investments inclusive of a $10.0 million impairment on a foreign equity method investment due to local market conditions. During the six months ended June 30, 2017, we recognized $2.9 million primarily from profit participations on a land development venture, $4.3 million related to sales activity on a land development venture, $2.0 million related to operations at our Net Lease Venture and $2.0 million was aggregate income from our remaining equity method investments.

Income tax expense—Income tax expense of ~~$0.2~~$0.1 million was recorded during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 as compared to ~~$2.3~~an income tax expense of $0.1 million for the same period in ~~2017.~~2018. The income tax expense for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 primarily related to state margins taxes and other minimum state franchise taxes. The income tax expense in for the six months ended June 30, 2017 primarily related to federal alternative minimum taxes on REIT taxable income generated by the favorable litigation award over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland.

~~Income from sales of real estate~~—Income from sales of real estate increased to $73.9 million during the six months ended June 30, 2018 from $9.0 million for the same period in 2017. The following table presents our income from sales of real estate by segment ($ in millions).

Six Months Ended June 30,
2018 2017
Net Lease $ 24.9
$ 6.2
Operating Properties 49.0
2.8
Total $ 73.9
$ 9.0

Adjusted Income

In addition to net income (loss) prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we use adjusted income, a non-GAAP financial measure, to measure our operating performance. Adjusted income is used internally as a supplemental performance measure adjusting for certain non-cash GAAP measures to give management a view of income more directly derived from current period activity. Adjusted income is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision for (recovery of) loan losses, impairment of assets, stock-based compensation expense, the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes, the non-cash portion of gain (loss) on early extinguishment of debt and is adjusted for the effect of gains or losses on charge-offs and dispositions on carrying value gross of loan loss reserves and impairments ("Adjusted Income"). ~~In the third quarter 2017, we modified our presentation of~~ Adjusted Income to exclude the effect of the amount of the liquidation preference that was recorded as a premium above book value on the redemption of preferred stock and the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes (refer to Note 10). Adjusted Incomealso includes the impact to retained earnings (income that would have been recognized in prior periods had the accounting standards been effective during those prior periods) resulting from the adoption of new accounting standards on January 1, ~~2018 (refer to Note 3).~~2018.

Adjusted Income should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Income should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), or to cash flows from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is Adjusted Income indicative of funds available to fund our cash needs or available for distribution to shareholders. Rather, Adjusted Income is an additional measure we use to analyze our business performance because it excludes the effects of certain non-cash charges that we believe are not necessarily indicative of our operating performance while including the effect of gains or losses on investments when realized. It should be noted that our manner of calculating Adjusted Income may differ from the calculations of similarly-titled measures by other companies.


	For the Three Months Ended June 30,							For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2018				2017			2018			2017			2019				2018
	(in thousands)													(in thousands)
Adjusted Income
Net income allocable to common shareholders	$	42,873			$	177,467		$	69,680		$	150,365
Net income (loss) allocable to common shareholders														$	(17,565	)		$	26,809
Add: Depreciation and amortization⁽¹⁾	15,511				15,620			35,582			30,672			15,437				20,069
Add (Less): Provision for (recovery of) loan losses	18,892				(600		)	18,037			(5,528		)
Less: Recovery of loan losses														(97		)		(855		)
Add: Impairment of assets⁽²⁾	16,680				10,284			20,780			14,696			3,851				4,100
Add: Stock-based compensation expense	3,503				3,915			12,593			9,796			4,249				9,091
Add: Loss on early extinguishment of debt, net	2,164				565			2,536			775			468				372
Add: Non-cash interest expense on senior convertible notes	1,176			—	—			2,336			—			1,222			—	1,160
Add: Impact from adoption of new accounting standards⁽³⁾	—				—			75,869			—			—				75,869
Less: Losses on charge-offs and dispositions⁽⁴⁾	(57,153		)		(8,811		)	(61,460		)	(14,127		)	(7,685		)		(4,307		)
Adjusted income allocable to common shareholders	$	43,646			$	198,440		$	175,953		$	186,649
Adjusted income (loss) allocable to common shareholders														$	(120	)		$	132,308


(1)	Depreciation and amortization also includes our proportionate share of depreciation and amortization expense for equity method investments ~~(including from the adoption of ASU 2017-05)~~ and excludes the portion of depreciation and amortization expense allocable to noncontrolling interests.


(2)	~~For the three and six months ended June 30, 2018, impairment~~Impairment of assets includes impairments on equity method investments recorded in ~~earnings (losses)~~"Earnings from equity method ~~investments.~~investments" in our consolidated statements of operations.

(3)

Represents an increase to retained earnings on January 1, 2018 upon the adoption of ~~ASU 2017-05 (refer~~new accounting standards, which allowed us to ~~Note 3).~~record a step-up in basis to fair value of our retained noncontrolling interests relating to the sale of our Ground Lease business in April 2017 and other transactions which occurred in prior periods prior to January 1, 2018 where we sold or contributed real estate to a venture and previously recognized partial gains.


(4)	Represents the impact of charge-offs and dispositions realized during the period. These charge-offs and dispositions were on assets that were previously impaired for GAAP and reflected in net income but not Adjusted Income.

Liquidity and Capital Resources

During the three months ended ~~June 30, 2018,~~March 31, 2019, we invested ~~$252.4~~$479.5 million into new investments, prior financing commitments and ongoing ~~development during the quarter. Total investments included $197.7~~real estate development. This amount includes $65.6 million in lending and other investments, ~~$36.0~~$40.5 million to develop our land and development assets, ~~$2.2~~$366.9 million to invest in net lease assets and ~~$16.5~~$6.5 million of capital to reposition or redevelop our operating properties. Also during the three months ended ~~June 30, 2018,~~March 31, 2019, we generated ~~$605.0~~$280.9 million of proceeds from loan repayments and asset sales within our portfolio, comprised of ~~$377.3~~$163.8 million from real estate finance, ~~$112.6~~$77.3 million from operating properties ~~$36.9 million from~~and net lease assets ~~$77.7~~and $39.8 million from land and development ~~assets and $0.5 million from other investments.~~assets. These amounts are inclusive of fundings and proceeds from both consolidated investments and our pro rata share from equity method investments.

The following table outlines our capital expenditures on operating properties, net lease and land and development assets as reflected in our consolidated statements of cash flows, by segment ($ in thousands):


	For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2018		2017		2019		2018
Operating Properties	$	15,951	$	14,957	$	1,242	$	6,585
Net Lease	1,854		1,389		3,942		1,255
Total capital expenditures on real estate assets	$	17,805	$	16,346	$	5,184	$	7,840

Land and Development	$	61,577	$	53,894	$	37,762	$	30,954
Total capital expenditures on land and development assets	$	61,577	$	53,894	$	37,762	$	30,954

As of ~~June 30, 2018,~~March 31, 2019, we had unrestricted cash of ~~$1,039.6~~$315.4 million. Our primary cash uses over the next 12 months are expected to be funding of investments, capital expenditures, distributions to shareholders and funding ongoing business operations. Over the next 12 months, we currently expect to fund in the range of approximately ~~$150.0~~$75.0 million to ~~$200.0~~$125.0 million of capital expenditures within our portfolio. The majority of these amounts relate to our land and development projects and operating properties, and include multifamily and residential development activities which are expected to include approximately ~~$135.0~~$40.0 million in vertical construction. The amount ~~spent~~actually invested will depend on the pace of our development activities as well as the extent to which we strategically partner with others to complete these projects. As of ~~June 30, 2018,~~March 31, 2019, we also had approximately ~~$539.5~~$428.1 million of maximum unfunded commitments associated with our investments of which we expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones, performance hurdles and all other conditions to fundings (see "Unfunded Commitments" below). We also have $415.8 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. Our capital sources to meet cash uses through the next 12 months and beyond are expected to include cash on hand, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.

We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions. While economic trends have stabilized, it is not possible for us to predict whether these trends will continue or to quantify the impact of these or other trends on our financial results.

Contractual Obligations—The following table outlines the contractual obligations related to our long-term debt obligations, loan participations payable and operating lease obligations as of ~~June 30, 2018~~March 31, 2019 (refer to Note 10 to ~~the~~our consolidated financial statements).


	Amounts Due By Period												Amounts Due By Period
	Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years		5 - 10 Years		After 10 Years		Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years		5 - 10 Years		After 10 Years
	(in thousands)												(in thousands)
Long-Term Debt Obligations:
Unsecured notes⁽¹⁾	$	2,507,500	$	—	$	1,170,000	$	1,337,500	$	—	$	—	$	1,737,500	$	—	$	675,000	$	1,062,500	$	—	$	—
Secured credit facilities	650,000		4,875		13,000		632,125		—		—		645,125		6,500		13,000		625,625		—		—
Mortgages	670,872		106,990		88,368		271,554		187,431		16,529		634,695		12,538		180,960		66,139		362,128		12,930
Trust preferred securities	100,000		—		—		—		—		100,000		100,000		—		—		—		—		100,000
Total principal maturities	3,928,372		111,865		1,271,368		2,241,179		187,431		116,529		3,117,320		19,038		868,960		1,754,264		362,128		112,930
Interest Payable⁽²⁾⁽¹⁾	749,234		192,722		309,910		170,984		45,003		30,615		629,627		131,841		294,779		110,746		63,353		28,908
Loan Participations Payable⁽³⁾⁽²⁾	14,938		—		14,938		—		—		—		25,145		—		25,145		—		—		—
Operating Lease Obligations	15,666		4,419		7,042		1,982		2,223		—
Lease Obligations⁽³⁾													783,946		6,625		9,913		7,121		16,818		743,469
Total	$	4,708,210	$	309,006	$	1,603,258	$	2,414,145	$	234,657	$	147,144	$	4,556,038	$	157,504	$	1,198,797	$	1,872,131	$	442,299	$	885,307


(1)	~~In July 2018, we redeemed $273.0 million~~Variable-rate debt assumes one-month LIBOR of ~~unsecured notes due July~~2.49% and three-month LIBOR of 2.60% that were in effect as of March 31, 2019. Interest payable does not include payments that may be required under our interest rate derivatives.


(2)	Variable-rate debt assumes 1-month LIBOR of 2.09% and 3-month LIBOR of 2.34% that were in effect as of June 30, 2018. Interest payable does not include interest that may be payable under our derivatives.


~~(3)~~	Refer to Note 9 to the consolidated financial statements.


(3)	We are obligated to pay ground rent under certain operating leases; however, our tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations.

Collateral Assets—The carrying value of our assets that are directly pledged or are held by subsidiaries whose equity is pledged as collateral to secure our obligations under our secured debt facilities are as follows, by asset type ($ in thousands):


	As of								As of
	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Collateral Assets⁽¹⁾		Non-Collateral Assets		Collateral Assets⁽¹⁾		Non-Collateral Assets		Collateral Assets⁽¹⁾		Non-Collateral Assets		Collateral Assets⁽¹⁾		Non-Collateral Assets
Real estate, net	$	1,583,330	$	331,669	$	795,321	$	486,710	$	1,533,390	$	87,614	$	1,620,008	$	151,011
Real estate available and held for sale	—		37,597		20,069		48,519		219,184		34,152		1,055		21,496
Land and development, net	10,100		631,527		25,100		835,211		42,300		574,050		12,300		585,918
Loans receivable and other lending investments, net⁽²⁾⁽³⁾	523,425		528,812		194,529		1,021,340		431,189		450,988		498,524		480,154
Other investments	—		293,017		—		321,241		—		521,999		—		304,275
Cash and other assets	—		1,418,055		—		898,252		6,601		757,277		—		1,329,990
Total	$	2,116,855	$	3,240,677	$	1,035,019	$	3,611,273	$	2,232,664	$	2,426,080	$	2,131,887	$	2,872,844

(1)

The 2016 Senior Term Loan and the 2015 Revolving Credit Facility are secured only by pledges of equity of certain of our subsidiaries and not by pledges of the assets held by such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions). As of ~~June 30, 2018,~~March 31, 2019, Collateral Assets includes ~~$423.6~~$406.2 million carrying value of assets held by entities whose equity interests are pledged as collateral for the $325.0 million 2015 Revolving Credit Facility that is ~~fully~~ undrawn as of ~~June 30, 2018.~~March 31, 2019.


(2)	As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the amounts presented exclude general reserves for loan losses of ~~$14.1~~$12.4 million and ~~$17.5~~$13.0 million, respectively.


(3)	As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the amounts presented exclude loan participations of ~~$14.7~~$25.1 million and ~~$102.3~~$22.5 million, respectively.

Debt Covenants—Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis our consolidated fixed charge coverage ratio, determined in accordance with the indentures governing our debt securities, is 1.5x or lower. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. If our ability to incur additional indebtedness under the fixed charge coverage ratio is limited, we are permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures.

The 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2016 Senior Term Loan requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires us to maintain both borrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrowings or substitute assets in the borrowing base. We may not pay dividends if we cease to qualify as a REIT. In June 2018, we amended the terms of the 2016 Senior Term Loan and the 2015 Revolving Credit Facility to include the ability to pay common dividends with no restrictions so long as we are not in default on any of our debt obligations. We declared and paid common stock dividends of $6.2 million, or $0.09 per share, for the three months ended March 31, 2019.

Derivatives—Our use of derivative financial instruments is primarily limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. Refer to Note 12 to the consolidated financial statements.

Off-Balance Sheet Arrangements—We are not dependent on the use of any off-balance sheet financing arrangements for liquidity. We have made investments in various unconsolidated ventures. Refer to Note 7 to the consolidated financial statements for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments and any unfunded commitments (see below).

Unfunded Commitments—We generally fund construction and development loans and build-outs of space in net lease assets over a period of time if and when the borrowers and tenants meet established milestones and other performance criteria. We refer to these arrangements as Performance-Based Commitments. In addition, we have committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments. As of ~~June 30, 2018~~March 31, 2019, the maximum ~~amounts~~amount 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		Loans and Other Lending Investments⁽¹⁾		Real Estate		Other Investments		Total
Performance-Based Commitments	$	505,345	$	9,774	$	15,024	$	530,143	$	385,215	$	9,543	$	—	$	394,758
Strategic Investments	—		—		9,322		9,322		—		—		33,304		33,304
Total	$	505,345	$	9,774	$	24,346	$	539,465	$	385,215	$	9,543	$	33,304	$	428,062


(1)	Excludes ~~$35.1~~$24.9 million of commitments on loan participations sold that are not our obligation.

Stock Repurchase Program—We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the ~~six~~three months ended ~~June 30,~~March 31, 2019, we repurchased 2.3 million shares of our outstanding common stock for $19.2 million, for an average cost of $8.46 per share. During the three months ended March 31, 2018, we repurchased 0.8 million shares of our outstanding common stock for $8.3 million, ~~representing~~for an average cost of $10.22 per share. As of ~~June 30, 2018,~~March 31, 2019, we had remaining authorization to repurchase up to ~~$41.7~~$22.6 million of common stock under our 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 our critical accounting policies, refer to Note 3 to the consolidated financial statements and our 2017 Annual Report on Form 10-K.

New Accounting Pronouncements—For a discussion of the impact of new accounting pronouncements on our financial condition or results of operations, refer to Note 3 to the consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risks

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net amount of floating rate assets/liabilities and the impact of interest rate floors and caps. Any significant compression of the spreads between interest-earning assets and interest-bearing liabilities could have a material adverse effect on us.

In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest-earning assets and interest-bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate-related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers.

While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without generating non-qualifying income, use of derivatives for other purposes will generate non-qualified income for REIT income test purposes. This includes hedging asset related risks such as credit and interest rate exposure on our loan assets. As a result our ability to hedge these types of risks is limited. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.

The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing liabilities, should interest rates increase or decrease by 10, 50 or 100 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the one-month LIBOR rate of ~~2.09%~~2.49% as of ~~June 30, 2018.~~March 31, 2019. 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⁾			Net Income⁽¹⁾
-100 Basis Points	$	(10,392	)	$	(2,261	)
-50 Basis Points	(5,393		)	(1,423		)
-10 Basis Points	(1,100		)	(302		)
Base Interest Rate	—			—
+10 Basis Points	1,118			312
+50 Basis Points	5,594			1,568
+100 Basis Points	11,189			3,138

(1)

We have an overall net variable-rate asset position, which results in an increase in net income when rates increase and a decrease in net income when rates decrease. As of ~~June 30, 2018, $436.6~~March 31, 2019, $447.6 million of our floating rate loans have a ~~cumulative~~ weighted average interest rate floor of ~~0.7%~~1.1% and $25.1 million of our floating rate debt obligations have a weighted average interest rate floor of 0.4%.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company has formed a disclosure committee that is responsible for considering the

materiality of information and determining the disclosure obligations of the Company on a timely basis. The disclosure committee reports directly to the Company'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'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'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 ~~forms~~forms; 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's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company'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's periodic reports.

PART II. OTHER INFORMATION

Item 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 Company's business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements.

Item 1a. Risk Factors

There were no material changes from the risk factors previously disclosed in our ~~2017~~2018 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the information with respect to purchases made by us or on our behalf of our common stock during the three months ended ~~June 30, 2018.~~March 31, 2019.



	~~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⁾
~~April 1 to April 30~~	—	$	—	—	$	—
~~May 1 to May 31~~	—	$	—	—	$	—
~~June 1 to June 30~~	—	$	—	—	$	—



	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⁾
January 1 to January 31	—	$	—	—	$	41,710,022
February 1 to February 28	150,000	$	8.72	150,000	$	40,405,030
March 1 to March 31	2,116,133	$	8.44	2,116,133	$	22,580,670


(1)	We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~On May 2, 2019, iStar Inc. announced that Andrew Richardson, iStar's President of Land and Development and Chief Financial Officer, will be leaving iStar to pursue other opportunities. iStar will initiate a search for a new chief financial officer. Other members of senior management will fulfill the chief financial officer's duties on an interim basis.

Item 6. Exhibits

INDEX TO EXHIBITS



Exhibit Number	Document Description
1.1	Investor Unit Purchase Agreement dated January 2, 2019, among the Company, SAFE and SAFE's Operating Partnership (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed with the SEC on January 3, 2019)
4.1	Partnership Unit Designation of Investor Units issued by SAFE's Operating Partnership to the Company, dated January 2, 2019 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed with the SEC on January 3, 2019)
10.1	Stockholder's Agreement, dated January 2, 2019 between the Company and SAFE (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the SEC on January 3, 2019)
10.2	Amended and Restated Management Agreement, dated January 2, 2019, among SFTY Manager LLC, the Company and SAFE (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed with the SEC on January 3, 2019)
31.0	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
32.0	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act.
101*	The following financial information from the Company's Quarterly Report on Form 10-Q for the period ended ~~June 30, 2018~~March 31, 2019 is formatted in XBRL ("eXtensible Business Reporting Language"): (i) the Consolidated Balance Sheets (unaudited) as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, (ii) the Consolidated Statements of Operations (unaudited) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ (iii) the Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ (iv) the Consolidated Statements of Changes in Equity (unaudited) for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ (v) the Consolidated Statements of Cash Flows (unaudited) for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ and (vi) the Notes to the Consolidated Financial Statements (unaudited).


*	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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ~~as amended,~~ the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		iStar Inc. Registrant
Date:	~~August~~May 2, ~~2018~~2019	/s/ JAY SUGARMAN
		Jay Sugarman Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)

		iStar Inc. Registrant
Date:	~~August~~May 2, ~~2018~~2019	/s/ ANDREW C. RICHARDSON
		Andrew C. Richardson Chief Financial Officer (principal financial and accounting officer)

6054



	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
Revenues	$	678		$	5,922
Expenses	(505		)	(1,491		)
Income from sales of real estate	—			508
Income from discontinued operations	$	173		$	4,939



Derivatives Designated in Hedging Relationships	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income			Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
For the Three Months Ended June 30, 2018
Interest rate swaps	Earnings from equity method investments	$	1,157		$	81
Interest rate swaps	Interest expense	(1,150		)	—

For the Three Months Ended June 30, 2017
Interest rate swaps	Interest Expense	(44		)	384
Interest rate cap	Earnings from equity method investments	(9		)	(9		)
Interest rate swap	Earnings from equity method investments	(93		)	(62		)
Foreign exchange contracts	Earnings from equity method investments	(70		)	—

For the Six Months Ended June 30, 2018
Interest rate swaps	Earnings from equity method investments	3,508			90
Interest rate swaps	Interest expense	(1,150		)	—

For the Six Months Ended June 30, 2017
Interest rate swaps	Interest Expense	424			355
Interest rate cap	Earnings from equity method investments	(14		)	(14		)
Interest rate swap	Earnings from equity method investments	(15		)	(150		)
Foreign exchange contracts	Earnings from equity method investments	(369		)	—



	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
Derivatives not Designated in Hedging Relationships		For the Three Months Ended June 30,					For the Six Months Ended June 30,
Derivatives not Designated in Hedging Relationships		2018		2017			2018		2017
Interest rate cap	Other Expense	$	—	$	(41	)	$	—	$	6
Foreign exchange contracts	Other Expense	—		(645		)	—		(769		)



	Gross Book Value (in millions)⁽¹⁾		Properties	Occupancy	Yield	Square Feet (in thousands)
Legacy Commercial Assets	$	472	19	81%	6.6%	2,852
Legacy Residential Assets	37
New Strategic Commercial Assets	50
Total Operating Properties	$	559



Land and Development Statistics
(in millions)
	Six Months Ended June 30,
	2018		2017
Land development revenue⁽¹⁾	$	357.4	$	152.8
Land development cost of sales⁽¹⁾	306.8		138.4
Gross profit	$	50.6	$	14.4
Earnings from land and development equity method investments	2.6		7.4
Total	$	53.2	$	21.8

Gross Book
Value
(in millions)⁽¹⁾

Properties