Safehold Inc. - Annual Report: 2021 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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For the transition period from                to

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Commission File No. 1-15371

iStar Inc.

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧    No  ◻

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧    No ◻

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.

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

As of June 30, 2021 the aggregate market value of iStar Inc. common stock, $0.001 par value per share, held by non-affiliates (1) of the registrant was approximately $1.4 billion, based upon the closing price of $20.73 on the New York Stock Exchange composite tape on such date.

As of February 22, 2022, there were 69,020,750 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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PART I

Item 1.   Business

Explanatory Note for Purposes of the "Safe Harbor Provisions" of Section 21E of the Securities Exchange Act of 1934, as amended

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are included with respect to, among other things, iStar Inc.’s current business plan, portfolio management, Ground Lease strategy, prospects of SAFE, pending closing of the Net Lease Sale (refer to “Pending Net Lease Sale” below) and iStar's business strategy and prospects thereafter. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. Important factors that iStar Inc. believes might cause such differences are discussed in the section entitled, "Risk Factors" in Part I, Item 1A of this Form 10-K or otherwise accompany the forward-looking statements contained in this Form 10-K. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-K.

Overview

iStar Inc. (references to the "Company," "we," "us" or "our" refer to iStar Inc.) finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company also manages entities focused on ground lease ("Ground Lease") and net lease investments. The Company has invested over $40 billion over the past two decades and is structured as a real estate investment trust ("REIT") with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company’s primary reportable business segments are net lease, real estate finance, operating properties and land and development.

The Company’s primary sources of revenues in 2021 were rent and reimbursements that tenants pay to lease the Company’s properties, interest that borrowers pay on loans, land development revenue from lot and parcel sales, proceeds from asset sales and income from management fees and equity investments.

As of December 31, 2021, based on our gross book value, including the carrying value of our equity method investments exclusive of accumulated depreciation, our total investment portfolio has the following characteristics:

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Net Lease: As of December 31, 2021, the net lease portfolio includes the Company’s traditional net lease investments and its Ground Lease investments made through Safehold Inc. ("SAFE"), a publicly traded REIT focused exclusively on Ground Leases that we launched in 2017 and manage pursuant to a management agreement, both of which we believe offer stable long-term cash flows. We own our traditional net lease properties directly and through ventures that we manage. As of December 31, 2021, we owned approximately 64.6% of SAFE’s outstanding common stock.

Pending Net Lease Sale—In July 2021, the Company announced that it intended to explore market interest for possible sales of certain of its assets from its net lease business segment. In the fourth quarter 2021, the Company formally marketed the net lease portfolio for sale and, after receiving multiple bids, selected a bid from a potential buyer and commenced the due diligence process. In February 2022, the Company, through certain subsidiaries of and entities managed by the Company, entered into a definitive purchase and sale agreement to sell a portfolio of net lease properties owned and managed by such subsidiaries and entities to a third party for an aggregate gross purchase price of approximately $3.07 billion, subject to final purchase price adjustments. We refer to this pending transaction as the "Net Lease Sale" in this report. The Net Lease Sale is consistent with the Company’s stated corporate strategy which is to grow its Ground Lease and Ground Lease adjacent businesses and simplify its portfolio through sales of other assets.

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The portfolio being sold consists of office, entertainment and industrial properties located in the United States comprising approximately 18.3 million square feet. It includes assets wholly-owned by the Company and assets owned by two joint ventures managed by the Company and in which it owns 51.9% interests. As of December 31, 2021, the portfolio was encumbered by an aggregate of $720 million of mortgage indebtedness, including indebtedness of equity method investments, which will be repaid with proceeds from the sale. After repayment of the mortgage indebtedness and prepayment penalties, a corporate term loan secured by certain of the assets, payments to terminate derivative contracts, payments to joint venture partners, and payments of promotes, transaction expenses and amounts due under employee incentive plans, the Company currently expects to retain net cash proceeds of approximately $1.1 billion from the transaction. In addition, as part of the transaction, the buyer intends to sell three of the properties to SAFE for $122.0 million and enter into three Ground Leases with SAFE. Closing of the Net Lease Sale is subject to customary closing conditions. The Company expects the transaction to close in the first quarter 2022; however, there can be no assurance that the transaction will occur in the expected timeframe or at all. Two net lease properties and the Company’s net lease assets associated with its Ground Lease businesses were not included in the sale.

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The Company’s net lease assets and liabilities included in the Net Lease Sale and the Company’s other two net lease assets are classified as “Real estate and other assets available and held for sale and classified as discontinued operations” and “Liabilities associated with real estate held for sale and classified as discontinued operations,” respectively, on the Company’s consolidated balance sheets as of December 31, 2021 and 2020. For the years ended December 31, 2021, 2020 and 2019, the operations of such assets are classified in “Net income from discontinued operations” in the Company’s consolidated statements of operations.

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Real Estate Finance: The real estate finance portfolio is comprised of leasehold loans (including leasehold loans to SAFE’s tenants), preferred equity investments and senior and subordinated loans to business entities and may be either secured or unsecured. The Company’s loan portfolio includes whole loans and loan participations. The Company’s real estate loans may be either fixed-rate or variable-rate and are structured to meet the specific financing needs of borrowers.

Operating Properties: The operating properties portfolio is comprised of commercial and residential properties, which represent a pool of assets across a broad range of geographies and property types. The Company generally seeks to reposition or redevelop its transitional properties with the objective of maximizing their value through the infusion of capital and/or concentrated asset management efforts. The commercial properties within this portfolio include retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects where the Company’s strategy is to sell individual condominium units through retail distribution channels.

Land & Development: The land and development portfolio is primarily comprised of land entitled for master planned communities and waterfront and urban infill land parcels located throughout the United States. Master planned communities represent large-scale residential projects that the Company will entitle, plan and/or develop and may sell through retail channels to homebuilders or in bulk ("MPCs"). The communities also typically have a smaller portion of their land reserved for future commercial development. Waterfront parcels are generally entitled for residential projects

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and urban infill parcels are generally entitled for mixed-use projects. The Company may develop these properties itself, or in partnership with commercial real estate developers, or may sell the properties.

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Investment Strategy

Throughout our more than 20-year history, we have focused on providing capital to the commercial real estate sector in a differentiated way that emphasizes custom-tailored solutions over commoditized products. We have adjusted the allocation of our capital and resources from time to time based on market conditions. Our Ground Lease strategy is the most recent example of our historical approach. We believe that investment and financing opportunities in the Ground Lease sector currently offer more attractive risk adjusted returns than other investment opportunities, and should enable us to benefit from the unique insights and competitive advantages we have gained through SAFE.

We have been actively seeking to transition our portfolio to be primarily focused on Ground Lease and Ground Lease adjacent investments, held directly and through our investment in SAFE. In furtherance of this objective, we have entered into a definitive agreement for the Net Lease Sale and we have significantly reduced the level of our "legacy assets," which refer primarily to properties that we took back from defaulting borrowers in the financial crisis. As we sell these assets, we expect to use the net proceeds primarily to make additional investments in our Ground Lease business, to repay indebtedness and for general corporate purposes.

Financing Strategy

We use leverage to enhance our return on assets. Our principal financing sources are unsecured bonds issued in capital markets transactions, our revolving credit facility, our term loan and individual mortgage loans. We have no corporate debt maturities through September 2022.

Going forward, the Company will seek to raise capital through a variety of means, which may include unsecured and secured debt financing, debt refinancings, asset sales (including the Net Lease Sale), issuances of equity, engaging in joint venture transactions and other third party capital arrangements. A more detailed discussion of the Company’s current liquidity and capital resources is provided in Item 7—"Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Underwriting Process

The Company reviews investment opportunities with its investment professionals, as well as representatives from its legal, credit, risk management and capital markets departments. The Company has developed a process for screening potential investments called the Six Point Methodology^sm. Through this proprietary process, the Company internally evaluates an investment opportunity by: (1) evaluating the source of the opportunity; (2) evaluating the quality of the collateral, corporate credit or lessee, as well as the market and industry dynamics; (3) evaluating the borrower equity, corporate sponsorship and/or guarantors; (4) determining the optimal legal and financial structure for the transaction given its risk profile; (5) performing an alternative investment test; and (6) evaluating the liquidity of the investment. The Company uses a similar screening methodology for leasehold loans to tenants of SAFE and related party transactions with SAFE. The Company maintains an internal investment committee, and certain investments, including related party transactions and leasehold loans to tenants of SAFE, are subject to the approval of the Board of Directors or a committee thereof.

Hedging Strategy

The Company finances its business with a combination of fixed-rate and variable-rate debt and its asset base consists of fixed-rate and variable-rate investments. Its variable-rate assets and liabilities are intended to be matched against changes in variable interest rates. This means that as interest rates increase, the Company earns more on its variable-rate lending assets and pays more on its variable-rate debt obligations and, conversely, as interest rates decrease, the Company earns less on its variable-rate lending assets and pays less on its variable-rate debt obligations. When the Company’s variable-rate debt obligations differ from its variable-rate lending assets, the Company may utilize derivative instruments to limit the impact of changing interest rates on its net income. The Company may also use derivative instruments to limit its exposure to changes in currency rates in respect of certain investments denominated in foreign

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currencies. The derivative instruments the Company uses are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts.

Investment Restrictions or Limitations

The Company does not have any prescribed allocation among investments or product lines. Instead, the Company focuses on corporate and real estate credit underwriting to develop an analysis of the risk/reward trade-offs in determining the pricing and advisability of each particular transaction.

The Company believes that it is not, and intends to conduct its operations so as not to become, regulated as an investment company under the Investment Company Act. The Company engages primarily in the non-investment company businesses of investing in, financing and developing real estate and real estate-related projects, generally through subsidiaries and affiliated companies, including SAFE. Subject to applicable limitations resulting from the Company’s intentions to continue to qualify as a REIT and remain exempt from registration as an investment company, the Company may make additional investments in the securities of other REITs, other entities engaged in real estate activities or other issuers, including for the purpose of exercising control over such entities.

Competition

The Company operates in a competitive market. See Item 1A—Risk factors—"We compete with a variety of financing and leasing sources for our customers," for a discussion of how we may be affected by competition.

Regulation

The operations of the Company are subject, in certain instances, to supervision and regulation by state and federal governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things: (1) regulate credit granting activities; (2) establish maximum interest rates, finance charges and other charges; (3) require disclosures to customers; (4) govern secured transactions; (5) set collection, foreclosure, repossession and claims-handling procedures and other trade practices; (6) govern privacy of customer information; and (7) regulate anti-terror and anti-money laundering activities. Although most states do not regulate commercial finance, certain states impose limitations on interest rates and other charges and on certain collection practices and creditor remedies, and require licensing of lenders and financiers and adequate disclosure of certain contract terms. The Company is also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans.

In the judgment of management, the Company’s compliance with existing statutes and regulations, including environmental regulations, is not currently expected to have a material effect on the Company’s capital expenditures, earnings and competitive position. It is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon the future capital expenditures, earnings or competitive position of the Company.

The Company has elected and expects to continue to qualify to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company must generally distribute at least 90% of its net taxable income, excluding capital gains, to its shareholders each year. In addition, the Company must distribute 100% of its net taxable income (including net capital gains) each year to eliminate U.S. corporate federal income taxes payable by it. REITs are also subject to a number of organizational and operational requirements in order to elect and maintain REIT qualification. These requirements include specific share ownership tests and asset and gross income tests. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its net taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to state and local taxes and to U.S. federal income tax and excise tax on its undistributed income.

Code of Conduct

The Company has adopted a code of conduct that sets forth the principles of conduct and ethics to be followed by our directors, officers and employees (the "Code of Conduct"). The purpose of the Code of Conduct is to promote

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honest and ethical conduct, compliance with applicable governmental rules and regulations, full, fair, accurate, timely and understandable disclosure in periodic reports, prompt internal reporting of violations of the Code of Conduct and a culture of honesty and accountability. A copy of the Code of Conduct has been provided to each of our directors, officers and employees, who are required to acknowledge that they have received and will comply with the Code of Conduct. A copy of the Company’s Code of Conduct has been previously filed with the SEC and is incorporated by reference in this Annual Report on Form 10-K as Exhibit 14.0. The Code of Conduct is also available on the Company’s website at www.istar.com. The Company will disclose to shareholders material changes to its Code of Conduct, or any waivers for directors or executive officers, if any, within four business days of any such event. As of December 31, 2021, there have been no amendments to the Code of Conduct and the Company has not granted any waivers from any provision of the Code of Conduct to any directors or executive officers.

Employees and Human Capital Resources

Central to our business strategy is attracting, developing and retaining a talented, diverse and engaged workforce to drive our success. As of February 22, 2022, the Company had 144 employees. The Company believes it has good relationships with its employees. Substantially all of our employees are full time employees and they are not represented by any collective bargaining agreements.

As we have transitioned the focus of our business to growing our Ground Lease platform, we have sought to recruit new talent and provide training to existing employees to support our business strategy. In our recruiting efforts, we generally strive to have a diverse group of candidates to consider for roles. We have designed a compensation structure, including an array of benefits, that we believe is attractive to current and prospective personnel. We also offer our professionals the opportunity to participate in a variety of development programs, including discussions led by outside speakers on topics of interest and a learning management tool that enables employees and their managers to select courses that enhance professional development.

In 2021, the COVID-19 pandemic continued to impact our human capital management. Some of our employees worked remotely, and we instituted safety protocols and procedures to enable certain employees to work on site as necessary. All employees returning to the office received personal protective equipment and safe-return kits stocked with thermometers, wipes, face shields and more. We also created guidebooks with return-to-work protocols for each office. We instigated a weekly rapid COVID-19 testing program for employees returning to the office. PCR testing was also made available and was required under certain circumstances.

We maintain a number of health and wellness programs to support the welfare of our people. These programs include an employee assistance program that offers confidential assessment, counseling and referral services at no cost to the employee. We seek to provide a safe workplace for our employees. In addition to the safety protocols that we instituted in response to the pandemic, we have established emergency procedures that address emergency health and safety situations.

We support the charitable endeavors of our employees with a program that matches the contributions made by them within limits that vary by position. We have engaged with, and made significant investments in, some of the communities where we do business in an effort to enhance the communities’ economic prospects and quality of life. For example, in connection with some of our development projects, we designed plans and obtained community approval to turn underutilized vacant land into a 6,000-square-foot community park. The park includes two active lawn areas, 17 new trees and 280 native shrubs, as well as ornamental beach grasses and indigenous flowers.

Additional Information

We maintain a website at www.istar.com. The information on our website is not incorporated by reference in this report, and our web address is included only as an inactive textual reference. In addition to this Annual Report on Form 10-K, the Company files quarterly and special reports, proxy statements and other information with the SEC. Through the Company’s corporate website, www.istar.com, the Company makes available free of charge its annual proxy statement, annual reports to shareholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

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These documents also may be accessed through the SEC’s electronic data gathering, analysis and retrieval system via electronic means, including on the SEC’s homepage, which can be found at www.sec.gov.

Item 1A.   Risk Factors

In addition to the other information in this report, you should consider carefully the following risk factors in evaluating an investment in the Company’s securities. Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows, ability to service our indebtedness, ability to pay distributions and the market price of the Company’s common stock. The risks set forth below speak only as of the date of this report and the Company disclaims any duty to update them except as required by law. For purposes of these risk factors, the terms "our Company," "we," "our" and "us" refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

Risks Related to Our Business

Our future success will depend on our ability to execute our corporate strategy, which is subject to risks.

After completion of the Net Lease Sale, the Company's portfolio will be primarily comprised of Ground Lease assets and legacy assets. The Company intends to continue its stated corporate strategy of seeking to monetize legacy assets and using the net proceeds to make additional investments in Ground Lease and Ground Lease adjacent assets (directly and through SAFE), repay indebtedness and for general corporate purposes. Our strategy is subject to a number of risks, including the following:

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In connection with the anticipated closing of the Net Lease Sale, our board of directors expects to evaluate ways to continue to execute the Company's corporate strategy, including considering transactions having the objectives of realizing value from our SAFE ownership interest and management contract, simplifying the management structures of the Company and SAFE, addressing our remaining legacy assets and satisfying our outstanding liabilities, among other objectives. The structure, terms, completion and timing of any potential transactions with SAFE and/or third parties would be dependent on many factors, many of which would be outside our control. As such, we cannot predict if or when we would complete any potential transaction or that a potential transaction would otherwise be successful in achieving its desired results. Additionally, any potential transaction would require significant attention from our executive officers and other personnel and, if completed, could have a material effect on our results of operations, financial condition, liquidity, corporate credit ratings, ability to qualify as a REIT and the prices of our outstanding securities.

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SAFE is a public company that separately files public reports with the Securities and Exchange Commission ("SEC"). In its filings with the SEC, SAFE provides disclosure as to its business, including disclosure regarding its views as to the drivers of its financial performance and the risks it faces. SAFE’s SEC filings also include certifications and disclosure regarding internal controls over financial reporting and disclosure controls.

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There are various potential conflicts of interest in our relationship with SAFE, which could result in decisions that are not in the best interest of our shareholders.

Potential conflicts of interest in our relationship with SAFE include, without limitation: conflicts arising from the enforcement of agreements between us and SAFE; conflicts in the amount of time that our officers and employees will spend on SAFE’s affairs vs. our other affairs; conflicts in determining whether to seek reimbursement from SAFE of certain expenses we incur on its behalf; conflicts in transactions that we pursue with SAFE; conflicts between the interests of our shareholders and members of our management who hold SAFE common stock and other equity interests in SAFE such as grants of interests in a subsidiary of SAFE’s operating partnership (called Caret units) that will entitle them to participate in distributions arising from certain sales and financings of SAFE’s Ground Leases; and conflicts in allocating investments to, and managing an investment fund (see Ground Lease Plus Fund below) in which we have invested, and SAFE may invest, as discussed further below. Transactions between iStar and SAFE are subject to certain approvals of our independent directors; however, there can be no assurance that such approval will be successful in achieving terms and conditions as favorable to us as would be available from a third party.

Two directors of iStar serve on SAFE’s board of directors, including Jay Sugarman, who is the chief executive officer of SAFE and our chief executive officer. Our directors and executive officers have duties to our company under applicable Maryland law, and our executive officers and our directors who are also directors or officers of SAFE have duties to SAFE under applicable Maryland law. Those duties may come in conflict from time to time. We also have duties as the manager of SAFE which may come in conflict with our duties to our shareholders from time to time.

We formed an investment fund with a third party (the “Ground Lease Plus Fund”), in which SAFE may invest, which targets the origination and acquisition of pre-development phase Ground Leases which do not fit SAFE’s investment criteria. We own a 53% interest in the Ground Lease Plus Fund and manage it. We may face conflicts of interest in fulfilling our duties to our shareholders, to the fund as its general partner and manager and to SAFE as its manager. We are responsible for identifying and appropriately allocating investments between the fund and SAFE. In addition, iStar would be involved in establishing the price and the conditions of any future potential purchases of assets by SAFE from the fund. If we fail to deal appropriately with these and other conflicts, our business could be adversely affected.

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Transactions between iStar and SAFE have been and will be negotiated between related parties and their terms may not be as favorable to us as if they had been negotiated with an unaffiliated third party.

We have entered into a number of agreements and transactions with SAFE since its formation in 2017, including investments in SAFE common stock, a stockholder's agreement, registration rights agreements, asset bifurcation transactions, forward sale transactions and other investment transactions, and we intend to continue to enter into transactions with SAFE in the future. Transactions between iStar and SAFE have been and will be negotiated between related parties and their terms may not be as favorable to us as if they had been negotiated with an unaffiliated third party. In addition, we may choose not to enforce, or to enforce less vigorously, our rights under agreements with SAFE because of our desire to maintain our ongoing relationship with SAFE. Refer to Note 8 to the consolidated financial statements for a discussion of related party transactions between SAFE and us in 2021.

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Our stockholder's agreement with SAFE limits our voting power in SAFE and contains standstill restrictions.

Although we own approximately 64.6% of the outstanding common stock of SAFE as of December 31, 2021, we are party to a shareholder’s agreement with SAFE that generally limits the discretionary voting power of our shares to 41.9% and requires that we vote shares in excess of that amount in proportion to the votes of SAFE’s other shareholders on matters presented for approval. As a result of such limitations, actions may be approved by SAFE’s board and shareholders with which we do not agree. The stockholder's agreement also subjects us to certain standstill provisions that restricts our ability to acquire additional shares of SAFE common stock in excess of an ownership limit approved by SAFE's independent directors, participate in certain proxy solicitations, solicit or publicly offer to effect certain extraordinary corporate transactions and take other specified actions, in each case without the prior written consent of SAFE's independent directors.  As a result of such restrictions, we may be restricted from pursuing transactions with which SAFE's independent directors do not agree.

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We have acquired, and may in the future acquire, commercial properties with the intent to sell the land to SAFE and to sell or lease the leasehold interest to a third party. If we are unable to sell or lease the leasehold interest, we will be exposed to the risks of ownership of operating properties.

We have acquired, and may in the future acquire, commercial properties with the intent to separate the property into an ownership interest in land that is sold to SAFE and an interest in the buildings and improvements thereon that is sold or leased to a third party. There may be instances where we are unable to find a purchaser or lessee for the improvements, in which case we will be subject to the risks of owning operating properties.

The ownership and operation of commercial properties will expose us to risks, including, without limitation:

Upon taking ownership of a commercial property, we may be required to contribute ownership of the land to a taxable REIT subsidiary ("TRS"), which would subsequently seek to sell the land to SAFE and lease or sell a leasehold

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interest in such commercial property to a third party. Any gain from the sale of land would be subject to corporate income tax.

We and SAFE face competition.

The commercial real estate industry is highly competitive, and the Ground Lease business has attracted new competitors as SAFE's success has become more widely known. Our competitors include finance companies, other REITs, commercial banks and thrift institutions, investment banks and hedge funds, among others. SAFE’s competitors include those same entities, as well as private individuals and pension funds. These competitors may seek to compete aggressively with us or SAFE on a number of factors including transaction pricing, terms and structure. We and SAFE may have difficulty competing to the extent we are unwilling to match the competitors’ deal terms in order to maintain our or SAFE’s profit margins and/or credit standards. To the extent that we match competitors’ pricing, terms or structure, we or SAFE may experience decreased interest margins and/or increased risk of credit losses, which could have a material adverse effect on our or SAFE’s financial performance, liquidity and the market price of our common stock.

Our business and the growth of SAFE were adversely affected by the COVID-19 pandemic and could be adversely affected in the future COVID-19 by the outbreak of future COVID-19 variants or other highly infectious or contagious diseases.

Future outbreaks of COVID-19 variants or another pandemic could adversely affect us and SAFE due to, among other factors:

Significant increases in interest rates could have an adverse effect on our and SAFE's operating results.

SAFE's and our operating results depend in part on the difference between the income earned on our respective assets and the interest expense incurred in connection with our respective interest bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our and SAFE's income earning assets and interest bearing liabilities, subject to the impact of interest rate floors and caps, as well as the amounts of floating rate assets and liabilities that we or SAFE may have. Any significant compression of the spreads between income earning assets and interest bearing liabilities could have a material adverse effect on us and SAFE. While interest rates remain low by historical standards, rates are generally expected to rise in 2022 and future years, although there is no certainty as to the amount by which they may rise. In the event of a significant rising interest rate environment, rates could exceed the interest rate floors that exist on floating rate debt that we or SAFE may have and create a mismatch between our or SAFE's assets and any floating rate debt that could have a significant adverse effect on our and SAFE's operating results. An increase in interest rates could also, among other things, reduce the value of our and SAFE's net lease and Ground Lease

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assets that generate fixed amounts of income or that provide for contractual increases that are lower than increases in interest rates, and our or SAFE's ability to realize gains from the sale of such assets. In addition, to the extent that market participants believe that increasing interest rates will adversely affect SAFE, the value of our investment in SAFE and our own stock price maybe adversely affected. Rising interest rates also tend to negatively impact the residential mortgage market, which in turn may adversely affect the value of and demand for our land assets, including our residential development projects. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control.

We have recognized losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may recognize additional losses in the future.

We have recognized losses arising from borrower defaults on our loan assets and we may recognize additional losses in the future. In the event of a default by a borrower on a non-recourse loan, we will only have recourse to the real estate-related assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. Conversely, we sometimes make loans that are unsecured or are secured only by equity interests in the borrowing entities. These loans are subject to the risk that other lenders may be directly secured by the real estate assets of the borrower. In the event of a default, those collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying real estate. In cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the borrower prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.

We sometimes obtain individual or corporate guarantees from borrowers or their affiliates. In cases where guarantees are not fully or partially secured, we typically rely on financial covenants from borrowers and guarantors which are designed to require the borrower or guarantor to maintain certain levels of creditworthiness. Where we do not have recourse to specific collateral pledged to satisfy such guarantees or recourse loans, or where the value of the collateral proves insufficient, we will only have recourse as an unsecured creditor to the general assets of the borrower or guarantor, some or all of which may be pledged to satisfy other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants, or that sufficient assets will be available to pay amounts owed to us under our loans and guarantees. As a result of these factors, we may suffer additional losses which could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

In the event of a borrower bankruptcy, we may not have full recourse to the assets of the borrower in order to satisfy our loan. In addition, certain of our loans are subordinate to other debts of the borrower. If a borrower defaults on our loan or on debt senior to our loan, or in the event of a borrower bankruptcy, our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through "standstill" periods) and control decisions made in bankruptcy proceedings relating to borrowers. Bankruptcy and borrower litigation can significantly increase collection costs and losses and the time necessary to acquire title to the underlying collateral, during which time the collateral may decline in value, causing us to suffer additional losses.

If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a borrower may not be able to obtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a borrower’s ability to refinance our loan because the underlying property cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer additional loss which may adversely impact our financial performance.

Joint venture and other investments we hold or may make in the future may not provide us with full control.

We also hold investments in two net lease joint ventures (that will be wound up in the Net Lease Sale), the Ground Lease Plus Fund, a loan fund (refer to Note 8 to the consolidated financial statements) and certain funds and limited partnerships managed by third parties. These and other investments we may make in the future present risks that we may have differing objectives than our partners or the managers, board of directors, shareholders or other members in such investments, that we may become involved in disputes with them and that we may compete with such entities. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us.

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We are subject to additional risks associated with owning and developing real estate.

As of December 31, 2021, we own approximately $286.8 million of land and development assets and $92.5 million of operating properties, based on net carrying values. These assets expose us to additional risks, including, without limitation:

The residential market has previously experienced significant downturns that could recur and adversely affect us.

As of December 31, 2021, we owned land and residential condominiums with a net carrying value of $287.1 million. The housing market in the United States has previously been affected by weakness in the economy, high unemployment levels and low consumer confidence. It is possible another downturn could occur again in the near future and adversely impact our portfolio, and accordingly our financial performance. In addition, rising interest rates tend to negatively impact the residential mortgage market, which in turn may adversely affect the value of and demand for our land assets including our residential development projects.

If the Net Lease Sale fails to close, we will continue to be subject to the risks of the net lease business.

Leasing properties on a long-term net lease basis exposes us to risks, including:

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There are risks associated with the Net Lease Sale.

There are risks associated with the Net Lease Sale, including:

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​

We are subject to certain risks associated with investing in real estate, including potential liabilities under environmental laws and risks of loss from weather conditions, man-made or natural disasters, climate change and terrorism.

Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real estate (including, in certain circumstances, a secured lender that succeeds to ownership or control of a property) may become liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, under or in its property. Those laws typically impose cleanup responsibility and liability without regard to whether the owner or control party knew of or was responsible for the release or presence of such hazardous or toxic substances. The costs of investigation, remediation or removal of those substances may be substantial. The owner or control party of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners of real properties for personal injuries associated with asbestos-containing materials. While a secured lender is not likely to be subject to these forms of environmental liability, when we foreclose on real property, we become an owner and are subject to the risks of environmental liability. Additionally, our net lease assets and SAFE’s Ground Leases generally require the tenants to undertake the obligation for environmental compliance and indemnify us and SAFE from liability with respect thereto. There can be no assurance that the tenants will have sufficient resources to satisfy their obligations to us.

Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can damage properties we own. As of December 31, 2021, approximately 18.0% of the carrying value of our assets was located in the western United States, geographic areas at higher risk for earthquakes. Additionally, we own properties located near the coastline and the value of our properties will potentially be subject to the risks associated with long-term effects of climate change. A significant number of our properties are located in major urban areas which, in recent years, have been high risk geographical areas for terrorism and threats of terrorism. Certain forms of terrorism including, but not limited to, nuclear, biological and chemical terrorism, political risks, environmental hazards and/or Acts of God may be deemed to fall completely outside the general coverage limits of our insurance policies or may be uninsurable or cost prohibitive to justify insuring against. Furthermore, if the U.S. Terrorism Risk Insurance Program Reauthorization Act is repealed or not extended or renewed upon its expiration, the cost for terrorism insurance coverage may increase and/or the terms, conditions, exclusions, retentions, limits and sublimits of such insurance may be materially amended, and may effectively decrease the scope and availability of such insurance to the point where it is effectively unavailable. Future weather conditions, man-made or natural disasters, effects of climate change or acts of terrorism could adversely impact the demand for, and value of, our assets and could also directly impact the value of our assets through damage, destruction or loss, and could thereafter materially impact the availability or cost of insurance to protect against these events. Although we believe our owned real estate and the properties collateralizing our loan assets are adequately covered by insurance, we cannot predict at this time if we or our borrowers will be able to obtain appropriate coverage at a reasonable cost in the future, or if we will be able to continue to pass along all of the costs of insurance to our tenants. The foregoing risks also apply generally to SAFE’s properties and the buildings thereon owned by SAFE’s tenants. Any weather conditions, man-made or natural disasters, terrorist attack or effect of climate change, whether or not insured, could have a material adverse effect on our or SAFE’s financial performance, liquidity and the market price of our or SAFE’s common stock. In addition, there is a risk that one or more of our property insurers may not be able to fulfill their obligations with respect to claims payments due to a deterioration in its financial condition.

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Our ability to retain and attract key personnel is critical to our success.

Our success depends on our ability to retain our senior management and the other key members of our management team and recruit additional qualified personnel. We rely in part on equity compensation to retain and incentivize our personnel. In addition, if members of our management join competitors or form competing companies, the competition could have a material adverse effect on our business or SAFE’s business. Efforts to retain or attract professionals may result in additional compensation expense, which could affect our financial performance.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations and the services we provide to customers, and damage our reputation, which could have a material adverse effect on our business.

Financing Risks

Our credit ratings will impact our borrowing costs.

Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. Our unsecured corporate credit ratings from major national credit rating agencies are currently below investment grade. Having below investment grade credit ratings makes our borrowing costs higher than they would be with an investment grade rating and makes restrictive covenants in our public unsecured debt securities operative. These restrictive covenants are described below in "Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition."

Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.

Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness of at least 1.2x and a restriction on debt incurrence based upon the effect of the debt incurrence on our fixed charge coverage ratio, subject to certain permitted debt baskets. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. Limitations on our ability to incur new indebtedness under the fixed charge coverage ratio may limit the amount of new investments we make.

Our revolving credit facility with a maximum capacity of $350.0 million (our "Revolving Credit Facility") and our $650.0 million senior term loan  (our "Senior Term Loan") contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, our Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility and our Revolving Credit Facility requires us to maintain both collateral coverage of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. We may not pay common dividends if the Company is in default under the Senior Term Loan or the Revolving Credit Facility or would fail to comply with the covenants in such agreements after giving effect to the dividend.

Our Senior Term Loan and Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate our indebtedness to them if we fail to pay amounts due in respect of our other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing our unsecured public debt securities permit the bondholders to declare an event of default and accelerate our indebtedness to them if our other recourse

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indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated. The covenants described above could limit our flexibility and make it more difficult and/or expensive to refinance our existing indebtedness. A default by us on our indebtedness would have a material adverse effect on our business, liquidity and the market price of our common stock.

We have significant indebtedness and funding commitments and limitations on our liquidity and ability to raise capital may adversely affect us.

Sufficient liquidity is critical to our ability to grow and to meet our scheduled debt payments, make additional investments in SAFE, pay distributions and satisfy funding commitments to borrowers. We have relied on proceeds from the issuance of unsecured debt, secured borrowings, repayments from our loan assets and proceeds from asset sales to fund our operations and other activities, and we expect to continue to rely primarily on these sources of liquidity for the foreseeable future. Our ability to access capital in 2022 and beyond will be subject to a number of factors, many of which are outside of our control, such as general economic conditions, changes in interest rates and conditions prevailing in the credit and real estate markets. There can be no assurance that we will have access to liquidity when needed or on terms that are acceptable to us. We may also encounter difficulty in selling assets or executing capital raising strategies on acceptable terms in a timely manner, which could impact our ability to make scheduled repayments on our outstanding debt. Failure to repay or refinance our borrowings as they come due would be an event of default under the relevant debt instruments, which could result in a cross default and acceleration of our other outstanding debt obligations. Failure to meet funding commitments could cause us to be in default of our financing commitments to borrowers. Any of the foregoing could have a material adverse effect on our business, liquidity and the market price of our common stock.

We utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks.

The derivative instruments we use are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts. Our use of derivative instruments involves the risk that a counterparty to a hedging arrangement could default on its obligation and the risk that we may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement is terminated by us. Developing an effective strategy for dealing with movements in interest rates and foreign currencies is complex and no strategy can completely insulate us from risks associated with such fluctuations. There can be no assurance that any hedging activities will have the desired beneficial impact on our results of operations or financial condition.

The replacement of LIBOR may affect the value of certain of our financial obligations and could affect our results of operations or financial condition.

As of December 31, 2021, approximately 22.7% of the total principal amount of our outstanding debt, excluding outstanding debt included in “Liabilities associated with real estate held for sale and classified as discontinued operations,” was floating rate debt. In July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. In March 2021, ICE Benchmark Administration, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors to June 30, 2023, after which LIBOR reference rates will cease to be provided. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. Dollar LIBOR should be entered into after December 31, 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR, or whether LIBOR will continue to be published by its administrator based on these submissions, or on any other basis, after such dates.  Regulators, industry groups and certain committees, such as the Alternative Reference Rates Committee (ARRC) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates, such as the Secured Overnight Financing Rate (SOFR) as the recommended alternative to U.S. Dollar LIBOR, and proposed implementations of the recommended alternatives in floating rate financial instruments. It is currently unknown the extent to which these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments. We are unable to predict the timing or effect of any changes, any establishment of alternative reference rates or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United States, the United Kingdom or elsewhere. Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for

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or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us on our overall financial condition or results of operations.

Risks Relating to Our Accounting and Valuation Estimates

We are required to make a number of judgments in applying accounting policies, and different estimates and assumptions could result in changes to our financial condition and results of operations.

Material estimates that are particularly susceptible to significant change underlie our determination of the allowance for loan losses, which is based primarily on the estimated fair value of loan collateral and our estimate of expected credit losses, as well as the valuation of real estate assets and deferred tax assets. While we have identified those accounting policies that we consider to be critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these policies could have a material adverse effect on our financial performance and results of operations and actual results may differ materially from our estimates.

The carrying values of our assets held for investment are not determined based upon the prices at which they could be sold currently.

As discussed further in the notes to our consolidated financial statements, we record our real estate and land and development assets at cost less accumulated depreciation and amortization. If we hold a property for use or investment, we will only review it for impairment in value if events or changes in circumstances indicate that the carrying amount of the property may not be recoverable, based on management’s determination that the aggregate future cash flows to be generated by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value. Management’s estimates of cash flows considers factors such as expected future operating income trends, as well as the effects of demand, competition and other economic factors. The carrying values of our real estate and land and development assets are not indicative of the prices at which we would be able to sell the properties, if we had to do so before the end of their intended holding period. If we changed our investment intent and decided to sell a property that was being held for investment, including in distressed circumstances as a means of raising liquidity, there can be no assurance that we would not realize losses on such sales, which losses could have a material adverse effect on our business, financial results, liquidity and the market price of our common stock. We intend to accelerate the monetization of assets in our legacy portfolio. We continue to hold other legacy assets for investment, and there can be no assurance that we will not recognize impairment on such assets, or non-legacy assets in the future.

Our allowances for loan losses and net investment in leases may prove inadequate, which could have a material adverse effect on our financial results.

We maintain allowances for our loan and net investment in lease portfolios to offset potential future losses. Our loss allowances reflect management’s then-current estimation of the probability and severity of losses within our portfolio. In addition, our determination of asset-specific allowances relies on material estimates regarding the fair value of loan collateral. Estimation of ultimate losses, provision expenses and loss allowances is a complex and subjective process. As such, there can be no assurance that management’s judgment will prove to be correct and that allowances will be adequate over time to protect against potential future losses. Such losses could be caused by factors including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting specific assets, borrowers, tenants, industries in which our borrowers or tenants operate or markets in which our borrowers/tenants or their properties are located. In particular, during the previous financial crisis, the weak economy and disruption of the credit markets adversely impacted the ability and willingness of many of our borrowers to service their debt and refinance our loans to them at maturity. If our allowances for credit losses prove inadequate we may suffer additional losses which would have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

Declines in the market values of our equity investments that are not publicly traded may adversely affect periodic reported results.

Certain of our equity investments other than SAFE, are in funds or companies that are not publicly traded and their fair value may not be readily determinable. As of December 31, 2021, the aggregate carrying value of such investments represented 2.7% of our assets. We may periodically estimate the fair value of these investments, based upon

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available information and management’s judgment. Because such valuations are inherently uncertain, they may fluctuate over short periods of time. In addition, our determinations regarding the fair value of these investments may be materially higher than the values that we ultimately realize upon their disposal, which could result in losses that have a material adverse effect on our financial performance, the market price of our common stock and our ability to pay dividends.

Risks Relating to our Organization and Structure

We may change certain of our policies without shareholder approval.

Our charter does not set forth specific percentages of the types of investments we may make. We can amend, revise or eliminate our investment financing and conflict of interest policies at any time at our discretion without a vote of our shareholders. A change in these policies could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

Certain provisions of Maryland law and our organizational documents could inhibit changes in control of our company.

Certain provisions of Maryland law and our organizational documents could inhibit changes in control of our company that might involve a premium price for our common stock or that our shareholders otherwise believe to be in their best interest, including, among others, the following:

Our Investment Company Act exemption limits our investment discretion and loss of the exemption would adversely affect us.

We believe that we currently are not, and we intend to operate our company so that we will not be, regulated as an investment company under the Investment Company Act. We believe we are not an investment company under Section 3(a)(1)(A) of the Investment Company Act because we do not engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities. The Company engages primarily in the non-investment company businesses of investing in, financing and developing real estate and real estate-related projects, generally through subsidiaries and affiliated companies, including SAFE. Maintaining our exemption from regulation as an investment company under the Investment Company Act limits our ability to invest in assets that otherwise would meet our investment strategies.

We will need to monitor our investments and income to ensure that we continue to satisfy our exemption from the Investment Company Act, but there can be no assurance that we will be able to avoid the need to register as an Investment Company. If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, or that third parties could seek to obtain rescission of transactions and that we would

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be subject to limitations on corporate leverage that would have an adverse impact on our investment returns. This would have a material adverse effect on our financial performance and the market price of our securities.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for some litigation, which could limit the ability of shareholders to obtain a favorable judicial forum for disputes with our company.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of any duty owed by us or by any director or officer or other employee to us or to our shareholders; (c) any action asserting a claim against us or any director or officer or other employee arising pursuant to any provision of the Maryland General Corporation Law or our charter or bylaws; or (d) any action asserting a claim against us or any director or officer or other employee that is governed by the internal affairs doctrine shall be the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division. This forum selection provision may limit the ability of shareholders of our company to obtain a judicial forum that they find favorable for disputes with our company or our directors, officers, employees, if any, or other shareholders.

Tax Risks Related to Ownership of Our Shares

We would be subject to adverse consequences if we fail to qualify as a REIT.

We believe that we have been organized and operated in a manner so as to qualify for taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 1998. Our qualification as a REIT, however, has depended and will continue to depend on our ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our shareholders. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Our ability to satisfy these asset tests depends upon our analysis of the characterization of our assets for U.S. federal income tax purposes and fair market values of our assets. The fair market values of certain of our assets are not susceptible to a precise determination.

If we were to fail to qualify as a REIT for any taxable year, we would not be allowed a deduction for distributions to our shareholders in computing our net taxable income and would be subject to U.S. federal income tax on our net taxable income at regular corporate rates and applicable state and local taxes. We would also be disqualified from treatment as a REIT for the four subsequent taxable years following the year during which our REIT qualification was lost unless we were entitled to relief under certain Code provisions and obtained a ruling from the IRS. If disqualified and unable to obtain relief, we may need to borrow money or sell assets to pay taxes. As a result, cash available for distribution would be reduced for each of the years involved. Furthermore, it is possible that future economic, market, legal, tax or other considerations may cause our REIT qualification to be revoked. This could have a material adverse effect on our business and the market price of our common stock.

To qualify as a REIT, we may be forced to borrow funds, sell assets or take other actions during unfavorable market conditions.

To qualify as a REIT, we generally must distribute to our shareholders at least 90% of our net taxable income, excluding net capital gains each year, and we will be subject to U.S. federal income tax, as well as applicable state and local taxes, to the extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

In the event that principal, premium or interest payments with respect to a particular debt instrument that we hold are not made when due, we may nonetheless be required to continue to recognize the unpaid amounts as taxable income. In addition, we may be allocated taxable income in excess of cash flow received from some of our partnership investments. We are generally required to take certain amounts into income no later than the time such amounts are reflected on our

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financial statements. The application of this rule may require the accrual of income earlier than would be the case under the otherwise applicable tax rules; however, recently released proposed Treasury Regulations generally would exclude, among other items, original issue discount (whether or not de minimis) and market discount from the applicability of this rule. Although the proposed Treasury Regulations generally will not be effective until taxable years beginning after the date on which they are issued in final form, we generally are permitted to elect to rely on the proposed Treasury Regulations currently. Also, in certain circumstances our ability to deduct interest expenses for U.S. federal income tax purposes may be limited. From these and other potential timing differences between income recognition or expense deduction and cash receipts or disbursements, there is a significant risk that we may have substantial taxable income in excess of cash available for distribution. In order to qualify as a REIT and avoid the payment of income and excise taxes, we may need to borrow funds or take other actions to meet our REIT distribution requirements for the taxable year in which the phantom income is recognized.

Certain of our business activities may potentially be subject to the prohibited transaction tax, which could reduce the return on your investment.

For so long as we qualify as a REIT, our ability to dispose of certain properties may be restricted under the REIT rules, which generally impose a 100% penalty tax on any gain recognized on "prohibited transactions," which refers to the disposition of property that is deemed to be inventory or held primarily for sale to customers in the ordinary course of our business, subject to certain exceptions. Whether property is inventory or otherwise held primarily for sale depends on the particular facts and circumstances. The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited transaction. No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can comply with the safe harbor. The 100% tax does not apply to gains from the sale of foreclosure property or to property that is held through a taxable REIT subsidiary ("TRS") or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our activities to avoid prohibited transaction characterization.

Certain of our activities, including our use of TRSs, are subject to taxes that could reduce our cash flows.

Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some U.S. federal, state, local and non-U.S. taxes on our income and property, including taxes on any undistributed income, taxes on income from certain activities conducted as a result of foreclosures, and property and transfer taxes. We would be required to pay taxes on net taxable income that we fail to distribute to our shareholders. In addition, we may be required to limit certain activities that generate non-qualifying REIT income, such as land development and sales of condominiums, and/or we may be required to conduct such activities through TRS. We hold a significant amount of assets in our TRS, including assets that we have acquired through foreclosure, assets that may be treated as dealer property and other assets that could adversely affect our ability to qualify as a REIT if held at the REIT level. As a result, we will be required to pay income taxes on the taxable income generated by these assets. Furthermore, we will be subject to a 100% penalty tax to the extent our economic arrangements with our TRS are not comparable to similar arrangements among unrelated parties. We will also be subject to a 100% tax to the extent we derive income from the sale of assets to customers in the ordinary course of business other than through our TRS. To the extent we or our TRS are required to pay U.S. federal, state, local or non-U.S. taxes, we will have less cash available for distribution to our shareholders.

We have substantial net operating loss carryforwards which we use to offset our tax and distribution requirements. Net operating losses that have arisen in taxable years beginning after December 31, 2017 and thereafter may offset up to 80% of our net taxable income (after the application of the dividends paid deduction), except to the extent those losses are utilized in taxable years prior to 2021, and may not be carried back. In the event that we experience an "ownership change" for purposes of Section 382 of the Code, our ability to use these losses will be limited. An "ownership change" is determined through a set of complex rules which track the changes in ownership that occur in our common stock for a trailing three year period. We have experienced volatility and significant trading in our common stock in recent years. The occurrence of an ownership change is generally beyond our control and, if triggered, may increase our tax and distribution obligations for which we may not have sufficient cash flow.

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A failure to comply with the limits on our ownership of and relationship with our TRS would jeopardize our REIT qualification and may result in the application of a 100% excise tax.

No more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRS. This requirement limits the extent to which we can conduct activities through TRS or expand the activities that we conduct through TRS. The values of some of our assets, including assets that we hold through TRSs may not be subject to precise determination, and values are subject to change in the future. In addition, we hold certain mortgage and mezzanine loans within one or more of our TRS that are secured by real property. We treat these loans as qualifying assets for purposes of the REIT asset tests to the extent that such mortgage loans are secured by real property and such mezzanine loans are secured by an interest in a limited liability company that holds real property. We received from the IRS a private letter ruling which holds that we may exclude such loans from the limitation that securities from TRS must constitute no more than 20% of our total assets. We are entitled to rely upon this private letter ruling only to the extent that we did not misstate or omit a material fact in the ruling request and that we continue to operate in accordance with the material facts described in such request, and no assurance can be given that we will always be able to do so. To the extent that any loan is recharacterized as equity, it would increase the amount of non-real estate securities that we have in our TRS and could adversely affect our ability to meet the limitation described above. If we were not able to exclude such loans to our TRS from the limitation described above, our ability to meet the REIT asset tests and other REIT requirements could be adversely affected. Accordingly, there can be no assurance that we have met or will be able to continue to comply with the TRS limitation.

In addition, we may from time to time need to make distributions from a TRS in order to keep the value of our TRS below the TRS limitation. TRS dividends, however, generally will not constitute qualifying income for purposes of the 75% REIT gross income test. While we will monitor our compliance with both this income test and the limitation on the percentage of our total assets represented by TRS securities, and intend to conduct our affairs so as to comply with both, the two may at times be in conflict with one another. For example, it is possible that we may wish to distribute a dividend from a TRS in order to reduce the value of our TRS to comply with limitation, but we may be unable to do so without simultaneously violating the 75% REIT gross income test.

Although there are other measures we can take in such circumstances to remain in compliance with the requirements for REIT qualification, there can be no assurance that we will be able to comply with both of these tests in all market conditions.

Legislative or regulatory tax changes related to REITs could materially and adversely affect us.

The U.S. federal income tax laws and regulations governing REITs and their shareholders, as well as the administrative interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive effect. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our shareholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of U.S. federal tax laws could adversely affect an investment in our common stock.

Shareholders are urged to consult with their tax advisors regarding any legislative, regulatory or administrative developments on an investment in the Company’s common stock.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

The Company’s principal executive and administrative offices are located at 1114 Avenue of the Americas, New York, NY 10036. The Company’s principal regional offices are located in the Atlanta, Georgia and Los Angeles, California metropolitan areas. See Item 8—"Financial Statements and Supplemental Data—Schedule III" for a detailed listing of properties held by the Company for investment purposes.

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Item 3.   Legal Proceedings

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

Item 4.   Mine Safety Disclosures

Not applicable.

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PART II

Item 5.   Market for Registrant’s Equity and Related Stock Matters

The Company’s common stock trades on the New York Stock Exchange ("NYSE") under the symbol "STAR." The Company had 1,415 holders of record of common stock as of February 22, 2022. This figure does not represent the actual number of beneficial owners of our common stock because shares of our common stock are frequently held in “street name” by securities dealers and others for the benefit of beneficial owners who may vote the shares and who would report dividends paid by us in their taxable income.

Issuer Purchases of Equity Securities

The following table sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the three months ended December 31, 2021.

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Disclosure of Equity Compensation Plan Information

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Item 6.   RESERVED

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Please read the following discussion of our consolidated operating results, financial condition and liquidity together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Our historical results may not be indicative of our future performance. Certain prior year amounts have been reclassified in our consolidated financial statements and the related notes to conform to the current period presentation.

Executive Overview

Corporate Strategy. In 2021, we continued to execute our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio through sales of other assets. In July 2021, we announced that we intended to explore market interest for possible sales of our net lease assets. In the fourth quarter 2021, we formally marketed the net lease portfolio for sale and, after receiving multiple bids, selected a bid from a potential buyer and commenced the due diligence process. In February 2022, we, through certain subsidiaries of ours and entities managed by us, entered into a definitive agreement for the Net Lease Sale at an aggregate gross purchase price of approximately $3.07 billion, subject to final purchase price adjustments.  

The portfolio being sold consists of office, entertainment and industrial properties located in the United States comprising approximately 18.3 million square feet. It includes assets wholly-owned by us and assets owned by two joint ventures managed by us and in which we own 51.9% interests. As of December 31, 2021, the portfolio was encumbered by an aggregate of $720 million of mortgage indebtedness, including indebtedness of equity method investments, which will be repaid with proceeds from the sale. After repayment of the mortgage indebtedness and prepayment penalties, a corporate term loan secured by certain of the assets, payments to terminate derivative contracts, payments to joint venture partners, and payments of promotes, transaction expenses and amounts due under employee incentive plans, we currently expect to retain net cash proceeds of approximately $1.1 billion from the transaction. Closing of the Net Lease Sale is subject to customary closing conditions. We expect the transaction to close in the first quarter 2022; however, there can be no assurance that the transaction will occur in the expected timeframe or at all. Two net lease properties and our net lease assets associated with our Ground Lease businesses were not included in the sale.

COVID-19 and Other Factors. The COVID-19 pandemic adversely affected our strategies of monetizing legacy assets and materially scaling SAFE’s portfolio in 2020 and the first quarter of 2021, primarily because of reduced levels of real estate transactions and constrained conditions for equity and debt financing for real estate transactions. These conditions improved in the second quarter of 2021 and continued through the end of the year, and we expect them to continue to improve as more normalized activity resumes. At this time, however, we cannot predict with certainty the full extent of the impacts of the COVID-19 pandemic on our or SAFE’s business. In addition, other macroeconomic factors such as interest rates, inflation and the market reaction and response of government policy to inflation may impact our or SAFE’s business. See the Risk Factors section of this report for additional discussion of certain potential risks to our business arising from the COVID-19 pandemic and other factors.

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Portfolio Overview

Our portfolio is well diversified by business, property type and geography. As of December 31, 2021, based on our gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):⁽¹⁾  

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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). When we acquire a net lease asset, we generally intend to hold it for long-term investment. However, in light of our strategy to focus on Ground Lease investments, we have entered into a definitive agreement for the Net Lease Sale and expect to use the anticipated proceeds from such sale to repay indebtedness, invest in Ground Lease and Ground Lease adjacent assets, directly and through SAFE, and for general corporate purposes.

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The net lease segment includes our Ground Lease investments made primarily through SAFE and our traditional net lease investments.

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SAFE—SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted returns. We believe its business has characteristics comparable to a high-grade fixed income investment business, but with certain unique advantages. Relative to alternative fixed income investments generally, SAFE’s Ground Leases typically benefit from built-in growth derived from contractual base rent increases and the opportunity to realize value from SAFE’s right to regain possession of the buildings and other improvements on its land upon expiration or earlier termination of the lease at no additional cost. We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments. As of December 31, 2021, we owned approximately 64.6% of SAFE’s common stock outstanding, subject to voting limitations described below.

We account for our investment in SAFE as an equity method investment (refer to Note 8 to the consolidated financial statements). We act as SAFE’s external manager pursuant to a management agreement. The management agreement generally provides for a base management fee that ranges from a minimum of 1.0% to a maximum of 1.5% as SAFE’s Total Equity (as defined in the agreement) increases. The management fee is payable in cash or in shares of SAFE common stock at SAFE’s election (as determined by SAFE’s independent directors). The initial term of the management agreement ends on June 30, 2023 during which the agreement is non-terminable, except for certain cause events. After the initial term, the agreement will be automatically renewed for additional one year terms, subject to certain rights of SAFE’s independent directors to terminate the agreement based on the manager’s materially detrimental long-term performance or, beginning with the seventh annual renewal term after the initial term, unfair management fees that the manager declines to renegotiate. SAFE will be obligated to pay the manager a termination fee equal to three times the annual management fee paid in respect of the last completed fiscal year prior to the termination.

We are party to an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity. We are also party to a shareholders agreement with SAFE that:

The complete management agreement, exclusivity agreement and shareholder’s agreement between SAFE and us, as amended, are incorporated by reference as exhibits to this Annual Report on Form 10-K.

Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a right of first refusal to the venture on all new net lease investments that met specified investment criteria. 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. The Net Lease Venture is part of the Net Lease Sale (refer to Note 3 to the consolidated financial statements – Net Lease Sale and Discontinued Operations).

Net Lease Venture II—In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture. The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us. Net Lease Venture II’s investment period ends on June 30, 2022. We have an equity interest in the venture of approximately 51.9%, which is accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee. The Net Lease Venture II is part of the Net Lease Sale (refer to Note 3 to the consolidated financial statements – Net Lease Sale and Discontinued Operations).

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As of December 31, 2021, our consolidated net lease portfolio totaled $2.3 billion. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II, gross of accumulated depreciation, totaled $3.6 billion. The table below provides certain statistics for our net lease portfolio.

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Portfolio Activity— In July 2021, we announced that we intended to explore market interest for possible sales of certain of our net lease assets. In the fourth quarter 2021, we formally marketed the net lease portfolio for sale and, after receiving multiple bids, selected a bid from a potential buyer and commenced the due diligence process.  In February 2022, we entered into a purchase and sale agreement to sell the majority of our net lease properties owned directly and through ventures. We currently expect the transaction to close in the first quarter of 2022. Our net lease assets associated with our Ground Lease businesses were not included in the sale. The sale is consistent with our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio through sales of other assets.

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During the year ended December 31, 2021, we invested an aggregate $135.2 million (including management fees to us that were paid in shares) in shares of SAFE common stock.

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Summary of Lease Expirations—As of December 31, 2021, future lease expirations on our net lease assets (refer to Note 3 to the consolidated financial statements – Disposition of Net Lease assets and Discontinued Operations), excluding our equity method investments, are as follows ($ in thousands):

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Real Estate Finance

Our real estate finance business targets sophisticated and innovative owner/operators of real estate and real estate related projects by providing one-stop capabilities that encompass financing alternatives ranging from full envelope senior loans to mezzanine and preferred equity capital positions. Our real estate finance portfolio consists of leasehold loans to Ground Lease tenants, including tenants of SAFE, senior mortgage loans that are secured by commercial and residential real estate assets where we are the first lien holder, subordinated mortgage loans that are secured by second lien or junior interests in commercial and residential real estate assets and corporate/partnership loans, which represent mezzanine or subordinated loans to entities for which we do not have a lien on the underlying asset, but may have a pledge of underlying equity ownership of such assets. Our real estate finance portfolio includes Ground Leases, loans on stabilized and transitional properties and ground-up construction projects. In addition, we also own loans through equity method investments and have preferred equity investments and debt securities classified as other lending investments.

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Our real estate finance portfolio included the following ($ in thousands):

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Portfolio Activity—During the year ended December 31, 2021, the Company invested $80.6 million (including capitalized deferred interest) in its real estate finance portfolio and received repayments and proceeds from sales of $420.6 million (including the receipt of previously capitalized deferred interest).

Summary of Interest Rate Characteristics—Our loans receivable and other lending investments, excluding loans held through equity method investments, had the following interest rate characteristics ($ in thousands):

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Summary of Maturities—As of December 31, 2021, our loans receivable and other lending investments had the following maturities ($ in thousands):

The tables below summarize our loan portfolio, excluding securities and other lending investments and loans held through equity method investments, and the allowances for loan losses associated with our loan portfolio ($ in thousands):

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