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Safehold Inc. - Quarter Report: 2021 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________________

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

Commission File No. 1-15371

_______________________________________________________________________________

iStar Inc.

(Exact name of registrant as specified in its charter)

Maryland

    

95-6881527

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

1114 Avenue of the Americas, 39th Floor

 

New York , NY

10036

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (212930-9400

_______________________________________________________________________________

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes     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 (§232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

   

Accelerated

Filer 

   

Non‑accelerated Filer

   

Smaller Reporting Company 

   

Emerging Growth Company 

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

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

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock,

$0.001 par value

 

STAR

 

New York Stock Exchange

8.00% Series D Cumulative Redeemable Preferred Stock,

$0.001 par value

STAR-PD

New York Stock Exchange

7.65% Series G Cumulative Redeemable Preferred Stock,

$0.001 par value

STAR-PG

New York Stock Exchange

7.50% Series I Cumulative Redeemable Preferred Stock,

$0.001 par value

STAR-PI

New York Stock Exchange

As of November 1, 2021, there were 69,475,927 shares, $0.001 par value per share, of iStar Inc. common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

PART I

Consolidated Financial Information

Item 1.

Financial Statements:

Consolidated Balance Sheets (unaudited) as of September 30, 2021 and December 31, 2020

2

Consolidated Statements of Operations (unaudited)—For the three and nine months ended September 30, 2021 and 2020

3

Consolidated Statements of Comprehensive Income (Loss) (unaudited)—For the three and nine months ended September 30, 2021 and 2020

4

Consolidated Statements of Changes in Equity (unaudited)—For the three and nine months ended September 30, 2021 and 2020

5

Consolidated Statements of Cash Flows (unaudited)—For the nine months ended September 30, 2021 and 2020

7

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4.

Controls and Procedures

58

PART II

Other Information

59

Item 1.

Legal Proceedings

59

Item 1A.

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

SIGNATURES

61

Table of Contents

PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1.   Financial Statements

iStar Inc.

Consolidated Balance Sheets

(In thousands, except per share data)(1)

(unaudited)

As of

September 30, 

December 31, 

    

2021

    

2020

ASSETS

 

  

 

  

Real estate

 

  

 

  

Real estate, at cost

$

1,657,866

$

1,752,053

Less: accumulated depreciation

 

(300,942)

 

(267,772)

Real estate, net

 

1,356,924

 

1,484,281

Real estate available and held for sale

 

1,983

 

5,212

Total real estate

 

1,358,907

 

1,489,493

Net investment in leases ($9,136 and $10,871 of allowances as of September 30, 2021 and December 31, 2020, respectively)

 

477,360

 

429,101

Land and development, net

 

302,845

 

430,663

Loans receivable and other lending investments, net ($6,370 and $13,170 of allowances as of September 30, 2021 and December 31, 2020, respectively)

 

405,509

 

732,330

Loans receivable held for sale

42,683

Other investments

 

1,419,766

 

1,176,560

Cash and cash equivalents

 

298,886

 

98,633

Finance lease right of use assets

142,615

143,727

Accrued interest and operating lease income receivable, net

 

5,046

 

10,061

Deferred operating lease income receivable, net

 

66,002

 

58,128

Deferred expenses and other assets, net

 

282,546

 

293,112

Total assets

$

4,802,165

$

4,861,808

LIABILITIES AND EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Accounts payable, accrued expenses and other liabilities

$

300,461

$

317,402

Finance lease liabilities

152,629

150,520

Liabilities associated with properties held for sale

 

252

 

27

Loan participations payable, net

 

 

42,501

Debt obligations, net

 

3,282,598

 

3,286,975

Total liabilities

 

3,735,940

 

3,797,425

Commitments and contingencies (refer to Note 12)

 

  

 

  

Equity:

 

  

 

  

iStar Inc. shareholders' equity:

 

  

 

  

Preferred Stock Series D, G and I, liquidation preference $25.00 per share (refer to Note 14)

 

12

 

12

Common Stock, $0.001 par value, 200,000 shares authorized, 70,031 and 73,967 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

70

 

74

Additional paid-in capital

 

3,127,401

 

3,240,535

Accumulated deficit

 

(2,225,552)

 

(2,316,972)

Accumulated other comprehensive loss (refer to Note 14)

 

(34,350)

 

(52,680)

Total iStar Inc. shareholders' equity

 

867,581

 

870,969

Noncontrolling interests

 

198,644

 

193,414

Total equity

 

1,066,225

 

1,064,383

Total liabilities and equity

$

4,802,165

$

4,861,808

(1)Refer to Note 2 for details on the Company’s consolidated variable interest entities (“VIEs”).

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

2

Table of Contents

iStar Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

For the Three Months Ended September 30, 

For the Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Revenues:

 

  

 

  

  

 

  

Operating lease income

$

44,392

$

46,370

$

137,381

$

140,529

Interest income

 

7,951

 

14,270

 

27,574

 

46,925

Interest income from sales-type leases

 

9,578

 

8,360

 

26,895

 

25,010

Other income

 

40,195

 

25,552

 

64,549

 

56,212

Land development revenue

 

93,369

 

20,502

 

157,936

 

116,254

Total revenues

 

195,485

 

115,054

 

414,335

 

384,930

Costs and expenses:

 

  

 

  

 

  

 

  

Interest expense

 

39,471

 

42,407

 

118,451

 

127,748

Real estate expense

 

18,724

 

16,935

 

53,907

 

53,708

Land development cost of sales

 

87,380

 

21,358

 

147,507

 

114,704

Depreciation and amortization

 

14,856

 

14,621

 

44,971

 

43,407

General and administrative

 

17,121

 

19,868

 

68,954

 

73,138

(Recovery of) provision for loan losses

 

(1,556)

 

(1,976)

 

(7,613)

 

4,093

Provision for (recovery of) losses on net investment in leases

 

131

 

175

 

(1,735)

 

2,001

Impairment of assets

 

1,179

 

 

2,965

 

6,491

Other expense

 

2,011

 

73

 

2,475

 

351

Total costs and expenses

 

179,317

 

113,461

 

429,882

 

425,641

Income from sales of real estate

 

25,611

 

6,055

 

28,433

 

6,118

Income (loss) from operations before earnings from equity method investments and other items

 

41,779

 

7,648

 

12,886

 

(34,593)

Loss on early extinguishment of debt, net

 

 

(7,924)

 

 

(12,038)

Earnings from equity method investments

 

89,209

 

6,805

 

114,675

 

26,003

Net income (loss) before income taxes

 

130,988

 

6,529

 

127,561

 

(20,628)

Income tax benefit (expense)

 

6

 

(78)

 

6

 

(165)

Net income (loss)

 

130,994

 

6,451

 

127,567

 

(20,793)

Net (income) attributable to noncontrolling interests

 

(3,264)

 

(2,646)

 

(8,037)

 

(8,435)

Net income (loss) attributable to iStar Inc.

 

127,730

 

3,805

 

119,530

 

(29,228)

Preferred dividends

 

(5,874)

 

(5,874)

 

(17,622)

 

(17,622)

Net income (loss) allocable to common shareholders

$

121,856

$

(2,069)

$

101,908

$

(46,850)

Per common share data:

 

  

 

  

 

  

 

  

Net income (loss) allocable to common shareholders:

 

  

 

  

 

  

 

  

Basic

$

1.71

$

(0.03)

$

1.40

$

(0.61)

Diluted

$

1.51

$

(0.03)

$

1.30

$

(0.61)

Weighted average number of common shares:

 

  

 

  

 

  

 

  

Basic

 

71,299

 

75,033

 

72,675

 

76,232

Diluted

 

80,487

 

75,033

 

78,402

 

76,232

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

3

Table of Contents

iStar Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)

For the Three Months Ended September 30, 

     

For the Nine Months Ended September 30, 

    

2021

    

2020

2021

    

2020

Net income (loss)

$

130,994

$

6,451

$

127,567

$

(20,793)

Other comprehensive income (loss):

 

  

 

  

 

  

 

  

Reclassification of losses on cash flow hedges into earnings upon realization(1)

 

2,683

 

2,371

 

7,507

 

5,792

Unrealized gains (losses) on available-for-sale securities

 

(539)

 

19

 

(913)

 

1,195

Unrealized gains (losses) on cash flow hedges

    

 

273

   

 

197

 

11,483

 

(30,930)

Other comprehensive income (loss)

 

2,417

   

 

2,587

 

18,077

 

(23,943)

Comprehensive income (loss)

 

133,411

 

9,038

 

145,644

 

(44,736)

Comprehensive (income) attributable to noncontrolling interests

 

(4,207)

 

(3,299)

 

(11,951)

 

(2,894)

Comprehensive income (loss) attributable to iStar Inc.

$

129,204

$

5,739

$

133,693

$

(47,630)

(1)Amounts reclassified to “Interest expense” in the Company’s consolidated statements of operations for the three months ended September 30, 2021 and 2020 are $2,050 and $2,038, respectively, and amounts reclassified to “Interest expense” in the Company’s consolidated statements of operations for the nine months ended September 30, 2021 and 2020 are $6,183 and $4,926, respectively. Amounts reclassified to “Earnings from equity method investments” in the Company’s consolidated statements of operations for the three months ended September 30, 2021 and 2020 are $633 and $333, respectively, and amounts reclassified to “Earnings from equity method investments” in the Company’s consolidated statements of operations for the nine months ended September 30, 2021 and 2020 are $1,324 and $866, respectively.

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

4

Table of Contents

iStar Inc.

Consolidated Statements of Changes in Equity

(In thousands)

(unaudited)

    

iStar Inc. Shareholders' Equity

    

    

    

  

    

  

    

Accumulated

    

    

Common

Additional

Retained

Other

Preferred 

Stock at

Paid-In

Earnings

Comprehensive

Noncontrolling

Total

Stock(1)

Par

Capital

(Deficit)

Income (Loss)

Interests

Equity

Balance as of June 30, 2021

$

12

$

72

$

3,185,748

$

(2,338,454)

$

(35,824)

$

197,152

$

1,008,706

Dividends declared—preferred

 

 

 

 

(5,874)

 

 

 

(5,874)

Dividends declared—common ($0.125 per share)

 

 

 

 

(8,954)

 

 

 

(8,954)

Issuance of stock/restricted stock unit amortization, net(2)

 

 

 

1,158

 

 

 

1,107

 

2,265

Net income

 

 

 

 

127,730

 

 

3,264

 

130,994

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

1,474

 

943

 

2,417

Repurchase of stock

 

 

(2)

 

(59,505)

 

 

 

 

(59,507)

Contributions from noncontrolling interests

 

 

 

 

 

 

169

 

169

Distributions to noncontrolling interests

 

 

 

 

 

 

(3,917)

 

(3,917)

Change to noncontrolling interest

(74)

(74)

Balance as of September 30, 2021

$

12

$

70

$

3,127,401

$

(2,225,552)

$

(34,350)

$

198,644

$

1,066,225

Balance as of June 30, 2020

$

12

$

76

$

3,260,173

$

(2,279,284)

$

(59,045)

$

191,853

$

1,113,785

Dividends declared—preferred

 

 

 

 

(5,874)

 

 

 

(5,874)

Dividends declared—common ($0.11 per share)

 

 

 

 

(8,315)

 

 

 

(8,315)

Issuance of stock/restricted stock unit amortization, net(2)

 

 

 

903

 

 

 

894

 

1,797

Net income

 

 

 

 

3,805

 

 

2,646

 

6,451

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

1,934

 

653

 

2,587

Repurchase of stock

 

 

(2)

 

(13,623)

 

 

 

 

(13,625)

Contributions from noncontrolling interests

444

444

Distributions to noncontrolling interests

 

 

 

 

 

 

(3,802)

 

(3,802)

Balance as of September 30, 2020

$

12

$

74

$

3,247,453

$

(2,289,668)

$

(57,111)

$

192,688

$

1,093,448

5

Table of Contents

    

iStar Inc. Shareholders' Equity

    

    

    

  

    

  

    

Accumulated

    

    

Common

Additional

Retained

Other

Preferred 

Stock at

Paid-In

Earnings

Comprehensive

Noncontrolling

Total

Stock(1)

Par

Capital

(Deficit)

Income (Loss)

Interests

Equity

Balance as of December 31, 2020

$

12

$

74

$

3,240,535

$

(2,316,972)

$

(52,680)

$

193,414

$

1,064,383

Impact from adoption of new accounting standards (refer to Note 3)

 

 

 

(25,869)

 

15,850

 

 

 

(10,019)

Dividends declared—preferred

 

 

 

 

(17,622)

 

 

 

(17,622)

Dividends declared—common ($0.36 per share)

 

 

 

 

(26,338)

 

 

 

(26,338)

Issuance of stock/restricted stock unit amortization, net(2)

 

 

 

4,929

 

 

 

2,645

 

7,574

Net income

 

 

 

 

119,530

 

 

8,037

 

127,567

Change in accumulated other comprehensive income (loss)

 

 

 

 

 

18,330

 

3,913

 

22,243

Repurchase of stock

 

 

(4)

 

(91,859)

 

 

 

 

(91,863)

Contributions from noncontrolling interests

1,026

1,026

Distributions to noncontrolling interests

(335)

(10,317)

(10,652)

Change to noncontrolling interest

(74)

(74)

Balance as of September 30, 2021

$

12

$

70

$

3,127,401

$

(2,225,552)

$

(34,350)

$

198,644

$

1,066,225

Balance as of December 31, 2019

$

12

$

78

$

3,284,877

$

(2,205,838)

$

(38,707)

$

197,538

$

1,237,960

Impact from adoption of new accounting standards

 

 

 

 

(12,382)

 

 

 

(12,382)

Dividends declared—preferred

 

 

 

 

(17,622)

 

 

 

(17,622)

Dividends declared—common ($0.32 per share)

 

 

 

 

(24,598)

 

 

 

(24,598)

Issuance of stock/restricted stock unit amortization, net(2)

 

 

1

 

3,985

 

 

 

2,469

 

6,455

Net income (loss)

 

 

 

 

(29,228)

 

 

8,435

 

(20,793)

Change in accumulated other comprehensive income (loss)

(18,404)

(5,539)

(23,943)

Repurchase of stock

(5)

(41,409)

(41,414)

Contributions from noncontrolling interests

760

760

Distributions to noncontrolling interests

 

 

 

 

 

 

(10,975)

 

(10,975)

Balance as of September 30, 2020

$

12

$

74

$

3,247,453

$

(2,289,668)

$

(57,111)

$

192,688

$

1,093,448

(1)Refer to Note 14 for details on the Company’s Preferred Stock.
(2)Net of payments for withholding taxes upon vesting of stock-based compensation.

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

6

Table of Contents

iStar Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

    

For the Nine Months Ended September 30, 

    

2021

    

2020

Cash flows from operating activities:

  

 

  

Net income (loss)

$

127,567

$

(20,793)

Adjustments to reconcile net income (loss) to cash flows from operating activities:

 

  

 

  

(Recovery of) provision for loan losses

 

(7,613)

 

4,093

(Recovery of) provision for losses on net investment in leases

 

(1,735)

 

2,001

Impairment of assets

 

2,965

 

6,491

Depreciation and amortization

 

44,971

 

43,407

Non-cash interest income from sales-type leases

 

(22,243)

 

(15,681)

Stock-based compensation expense

 

23,300

 

26,675

Amortization of discounts/premiums and deferred financing costs on debt obligations, net

 

5,920

 

10,055

Amortization of discounts/premiums and deferred interest on loans, net

 

(11,730)

 

(24,360)

Deferred interest on loans received

 

24,394

 

15,275

Earnings from equity method investments

 

(114,675)

 

(26,003)

Distributions from operations of other investments

 

37,433

 

17,146

Deferred operating lease income

 

(7,874)

 

(11,276)

Income from sales of real estate

 

(28,433)

 

(6,118)

Land development revenue in excess of cost of sales

 

(10,429)

 

(1,550)

Loss on early extinguishment of debt, net

 

 

12,038

Other operating activities, net

 

(14,031)

 

(21,207)

Changes in assets and liabilities:

 

 

Origination and fundings of loans receivable held for sale

(42,000)

Changes in accrued interest and operating lease income receivable

 

5,259

 

352

Changes in deferred expenses and other assets, net

 

(9,186)

 

(6,079)

Changes in accounts payable, accrued expenses and other liabilities

 

(6,601)

 

(10,644)

Cash flows used in operating activities

 

(4,741)

 

(6,178)

Cash flows from investing activities:

 

  

 

  

Originations and fundings of loans receivable, net

 

(71,921)

 

(80,635)

Capital expenditures on real estate assets

 

(5,835)

 

(11,661)

Capital expenditures on land and development assets

 

(15,603)

 

(33,488)

Acquisitions of real estate, net investments in leases and land assets

 

(42,000)

 

Repayments of and principal collections on loans receivable and other lending investments, net

 

226,065

 

151,612

Net proceeds from sales of loans receivable

 

122,609

 

Net proceeds from sales of real estate

140,576

42,684

Net proceeds from sales of land and development assets

 

154,094

 

113,670

Net proceeds from sales of other investments

3,000

Distributions from other investments

 

34,926

 

12,139

Contributions to and acquisition of interest in other investments

 

(171,005)

 

(194,775)

Other investing activities, net

 

(1,184)

 

(5,214)

Cash flows provided by (used in) investing activities

 

373,722

 

(5,668)

Cash flows from financing activities:

 

  

 

  

Borrowings from debt obligations

 

25,000

 

737,913

Repayments and repurchases of debt obligations

 

(44,534)

 

(824,740)

Preferred dividends paid

 

(17,622)

 

(17,622)

Common dividends paid

 

(26,149)

 

(24,397)

Repurchase of stock

 

(88,946)

 

(47,272)

Payments for debt prepayment or extinguishment costs

(8,567)

Payments for deferred financing costs

 

(75)

 

(7,475)

Payments for withholding taxes upon vesting of stock-based compensation

 

(2,210)

 

(2,001)

Contributions from noncontrolling interests

 

233

 

760

Distributions to noncontrolling interests

 

(10,317)

 

(10,975)

Cash flows used in financing activities

 

(164,620)

 

(204,376)

Effect of exchange rate changes on cash

 

(126)

 

(10)

Changes in cash, cash equivalents and restricted cash

 

204,235

 

(216,232)

Cash, cash equivalents and restricted cash at beginning of period

 

150,566

 

352,206

Cash, cash equivalents and restricted cash at end of period

$

354,801

$

135,974

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For the Nine Months Ended September 30, 

2021

    

2020

Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows

Cash and cash equivalents

$

298,886

$

88,187

Restricted cash included in deferred expenses and other assets, net

55,915

47,787

Total cash and cash equivalents and restricted cash

$

354,801

$

135,974

Supplemental disclosure of non-cash investing and financing activity:

 

  

 

  

Fundings and (repayments) of loan receivables and loan participations, net

$

(42,501)

$

6,160

Accounts payable for capital expenditures on land and development and real estate assets

1,125

Contributions to other investments

2,000

Accrued repurchase of stock

3,117

499

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

8

iStar Inc.

Notes to Consolidated Financial Statements

(unaudited)

Table of Contents

Note 1—Business and Organization

Business—iStar Inc. (the “Company”) finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company also manages entities focused on ground lease and net lease investments (refer to Note 8). The Company has invested over $40 billion of capital over the past two decades and is structured as a real estate investment trust (“REIT”) with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company’s primary reportable business segments are net lease, real estate finance, operating properties and land and development (refer to Note 18).

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

Note 2—Basis of Presentation and Principles of Consolidation

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”).

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

In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year. Certain prior year amounts have been reclassified in the Company’s consolidated financial statements and the related notes to conform to the current period presentation.

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

Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE’s respective assets. The Company did not have any unfunded commitments related to consolidated VIEs as of September 30, 2021 and

9

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

December 31, 2020. The following table presents the assets and liabilities of the Company’s consolidated VIEs as of September 30, 2021 and December 31, 2020 ($ in thousands):

    

As of

    

September 30, 2021

    

December 31, 2020

ASSETS

  

 

  

Real estate

  

 

  

Real estate, at cost

$

901,254

$

899,110

Less: accumulated depreciation

 

(80,409)

 

(61,917)

Real estate, net

 

820,845

 

837,193

Land and development, net

 

190,929

 

240,137

Other investments

 

26

 

35

Cash and cash equivalents

 

25,114

 

22,571

Accrued interest and operating lease income receivable, net

 

1,282

 

1,472

Deferred operating lease income receivable, net

 

36,665

 

29,428

Deferred expenses and other assets, net

 

119,127

 

122,591

Total assets

$

1,193,988

$

1,253,427

LIABILITIES

 

  

 

  

Accounts payable, accrued expenses and other liabilities

$

74,307

$

115,581

Debt obligations, net

 

478,567

 

488,719

Total liabilities

 

552,874

 

604,300

Unconsolidated VIEs—The Company has investments in VIEs where it is not the primary beneficiary and accordingly the VIEs have not been consolidated in the Company’s consolidated financial statements. As of September 30, 2021, the Company’s maximum exposure to loss from these investments does not exceed the sum of the $149.4 million carrying value of the investments, which are classified in “Other investments” on the Company’s consolidated balance sheets, and $7.6 million of related unfunded commitments.

Note 3—Summary of Significant Accounting Policies

The following paragraph describes the impact on the Company’s consolidated financial statements from the adoption of Accounting Standards Updates (“ASUs”) on January 1, 2021.

The Company adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) on January 1, 2021 using the modified retrospective approach method. Under the modified retrospective approach, the Company recorded a cumulative effect adjustment on January 1, 2021 by increasing “Debt obligations, net” by $10.0 million, increasing retained earnings by $15.9 million and decreasing “Additional paid-in capital” by $25.9 million with respect to its 3.125% senior convertible notes (refer to Note 11). Periods presented that are prior to the adoption date of January 1, 2021 will not be adjusted. In addition, upon the adoption of ASU 2020-06, the Company is required to use a modified if-converted method when calculating earnings per share. The Company will settle conversions of the 3.125% senior convertible notes by paying the conversion value in cash up to the original principal amount of the notes being converted and shares of common stock to the extent of any conversion premium. The if-converted method is modified so that interest expense is not added back to the numerator, and the denominator only includes the net number of incremental shares that would be issued upon conversion.

For the remainder of the Company’s significant accounting policies, refer to the Company’s 2020 Annual Report.

10

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

New Accounting PronouncementsIn March 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In March 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Note 4—Real Estate

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

    

Net

    

Operating

    

Lease(1)

Properties

Total

As of September 30, 2021

 

  

 

  

 

  

Land, at cost

$

188,418

$

6,830

$

195,248

Buildings and improvements, at cost

 

1,355,984

 

106,634

 

1,462,618

Less: accumulated depreciation

 

(280,521)

 

(20,421)

 

(300,942)

Real estate, net(1)

 

1,263,881

 

93,043

 

1,356,924

Real estate available and held for sale(2)

 

 

1,983

 

1,983

Total real estate

$

1,263,881

$

95,026

$

1,358,907

As of December 31, 2020

 

  

 

  

 

  

Land, at cost

$

188,418

$

103,530

$

291,948

Buildings and improvements, at cost

 

1,353,683

 

106,422

 

1,460,105

Less: accumulated depreciation

 

(250,198)

 

(17,574)

 

(267,772)

Real estate, net(1)

 

1,291,903

 

192,378

 

1,484,281

Real estate available and held for sale(2)

 

 

5,212

 

5,212

Total real estate

$

1,291,903

$

197,590

$

1,489,493

(1)As of September 30, 2021 and December 31, 2020, real estate, net included $741.6 million and $755.5 million, respectively, of real estate of the Net Lease Venture (refer to Net Lease Venture below).
(2)As of September 30, 2021 and December 31, 2020, the Company had $2.0 million and $5.2 million, respectively, of residential condominiums available for sale in its operating properties portfolio.

Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets (the “Net Lease Venture”) and gave a right of first offer to the venture on all new net lease investments. The Company and its partner had joint decision making rights pertaining to the acquisition of new investments. Upon the expiration of the investment period on June 30, 2018, the Company obtained control of the venture through its unilateral rights of management and disposition of the assets. As a result, the expiration of the investment period resulted in a reconsideration event under GAAP and the Company determined that the Net Lease Venture is a VIE for which the Company is the primary beneficiary. Effective June 30, 2018, the Company consolidated the Net Lease Venture as an asset acquisition under ASC 810. The Net Lease Venture had previously been accounted for as an equity method investment. The Company has an equity interest in the Net Lease Venture of approximately 51.9%. The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a management fee and incentive fee. Several of the Company’s senior executives whose time is substantially devoted to the Net Lease Venture own a total of 0.6% equity ownership in the venture via co-investment. These senior executives are also entitled to an amount equal to 50% of any incentive fee received based on the 47.5% external partner’s interest.

Dispositions—During the nine months ended September 30, 2021, the Company sold an operating property with a carrying value of $96.8 million for $125.0 million and recognized a gain of $25.6 million after selling costs. The gain is

11

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

recorded in “Income from sales of real estate” in the Company’s consolidated statements of operations. During the nine months ended September 30, 2020, the Company sold a net lease asset for net proceeds of $7.5 million and recognized an impairment of $1.7 million in connection with the sale.

Impairments— During the three and nine months ended September 30, 2021, the Company recorded an impairment of $0.4 million on an operating property. During the nine months ended September 30, 2020, the Company recorded an impairment of $1.7 million in connection with the sale of a net lease asset and an impairment of $3.0 million on a real estate asset held for sale.

Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements were $5.3 million and $17.4 million for the three and nine months ended September 30, 2021, respectively, and $5.8 million and $17.1 million for the three and nine months ended September 30, 2020, respectively. These amounts are included in “Operating lease income” in the Company’s consolidated statements of operations.

Allowance for Doubtful Accounts—As of September 30, 2021 and December 31, 2020, the allowance for doubtful accounts related to real estate tenant receivables was $0.4 million and $1.7 million, respectively. These amounts are included in “Accrued interest and operating lease income receivable, net” on the Company’s consolidated balance sheets.

Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable operating leases, excluding customer reimbursements of expenses, in effect as of September 30, 2021, are as follows by year ($ in thousands):

    

Net 

    

Operating

Year

Lease

Properties

2021 (remaining three months)

$

32,800

$

1,455

2022

 

133,616

 

6,226

2023

 

125,330

 

5,966

2024

 

119,714

 

5,913

2025

 

123,248

 

5,318

Thereafter

 

1,385,609

 

7,825

Note 5—Net Investment in Leases

In June 2021, the Company acquired two parcels of land for $42.0 million each and simultaneously entered into two Ground Leases with the respective tenants. Each Ground Lease also provides for a leasehold improvement allowance up to a maximum of $83.0 million. The Company also concurrently entered into an agreement pursuant to which SAFE would acquire the Ground Leases from the Company. If certain construction conditions are not met within a specified time period, SAFE will have no obligation to acquire the Ground Leases or fund the leasehold improvement allowances. The Company classified one of the Ground Leases as a sales-type lease and it is recorded in “Net investment in leases” on the Company’s consolidated balance sheets. One Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheet. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the properties and Ground Leases from the Company.

In May 2019, the Company entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of nine bowling centers for $56.7 million, of which seven were acquired from the lessee for $44.1 million, and a commitment to invest up to $55.0 million in additional bowling centers over the next several years. The new centers were added to the Company’s existing master leases with the tenant. In connection with this transaction, the maturities of the master leases were extended by 15 years to 2047. In the second quarter 2020, the Company entered into a transaction with the lessee whereby it would apply $10 million of the net proceeds it received from certain sales of the lessee’s facilities to the lessee’s upcoming rent obligations to the Company. In exchange, the Company’s obligation under the lease to

12

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

acquire an equal amount of new facilities for them or to reduce their rent in the future was terminated. In the third quarter 2020, the Company granted the lessee a nine-month rent deferral on its two wholly-owned master leases in exchange for eliminating the Company’s commitment to invest up to $55.0 million in additional bowling centers over the next several years. All deferred amounts are required to be repaid with interest beginning in January 2023.

As a result of the May 2019 modifications to the leases, the Company classified the leases as sales-type leases and recorded $424.1 million in “Net investment in leases” on its consolidated balance sheet. As a result of the modifications in the second and third quarter 2020, the Company reassessed this classification as required by ASC 842, and concluded that the leases should continue to be classified as sales-type leases. In May 2019, the Company determined that the seven bowling centers acquired did not qualify as a sale leaseback transaction and recorded $44.1 million in “Loans receivable and other lending investments, net” on its consolidated balance sheet (refer to Note 7).

For the three and nine months ended September 30, 2021, the Company recognized $7.0 million and $7.3 million, respectively, of cash interest income and $2.5 million and $19.6 million, respectively, of non-cash interest income in “Interest income from sales-type leases” in the Company’s consolidated statements of operations. For the three and nine months ended September 30, 2020, the Company recognized $1.5 million and $10.7 million, respectively, of cash interest income and $6.9 million and $14.3 million, respectively, of non-cash interest income in "Interest income from sales-type leases" in the Company's consolidated statements of operations.

Dispositions—During the nine months ended September 30, 2021, the Company sold net lease assets for net proceeds of $8.7 million and recognized an aggregate impairment of $2.3 million in connection with the sales.

The Company’s net investment in leases were comprised of the following as of September 30, 2021 and December 31, 2020 ($ in thousands):

    

September 30, 2021

    

December 31, 2020

Total undiscounted cash flows

$

1,538,758

$

1,020,921

Unguaranteed estimated residual value

 

367,804

 

345,284

Present value discount

 

(1,420,066)

 

(926,233)

Allowance for losses on net investment in leases

 

(9,136)

 

(10,871)

Net investment in leases(1)

$

477,360

$

429,101

(1)As of September 30, 2021 and December 31, 2020, all of the Company’s net investment in leases were current in their payment status and performing in accordance with the terms of the respective leases. As of September 30, 2021, the weighted average risk rating on the Company’s net investment in leases was 2.0.

Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases, excluding lease payments that are not fixed and determinable, in effect as of September 30, 2021, are as follows by year ($ in thousands):

    

Amount

2021 (remaining three months)

$

7,372

2022

 

30,590

2023

 

43,272

2024

 

43,029

2025

 

31,955

Thereafter

 

1,382,540

Total undiscounted cash flows

$

1,538,758

13

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Allowance for Losses on Net Investment in Leases—Changes in the Company’s allowance for losses on net investment in leases for the three and nine months ended September 30, 2021 and 2020 were as follows ($ in thousands):

    

Three Months Ended

    

Nine Months Ended

    

September 30, 2021

September 30, 2020

September 30, 2021

    

September 30, 2020

Allowance for losses on net investment in leases at beginning of period

    

$

9,005

$

10,937

    

$

10,871

$

    

Initial allowance recorded upon adoption of new accounting standard(1)

 

 

 

 

9,111

Provision for (recovery of) losses on net investment in leases(2)

 

131

 

176

 

(1,735)

 

2,002

Allowance for losses on net investment in leases at end of period

$

9,136

$

11,113

$

9,136

$

11,113

(1)The Company recorded an initial allowance for losses on net investment in leases of $9.1 million upon the adoption of ASU 2016-13 on January 1, 2020.
(2)During the three and nine months ended September 30, 2021, the Company recorded a provision for (recovery of) losses on net investment in leases of $0.1 million and ($1.7) million, respectively. The provision for losses for the three months ended September 30, 2021 resulted from market changes since June 30, 2021 and the recovery of losses for the nine months ended September 30, 2021 was due primarily to asset sales and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. During the three and nine months ended September 30, 2020, the Company recorded a provision for losses on net investment in leases of $0.2 million and $2.0 million, respectively, due primarily to the macroeconomic impact of COVID-19 on commercial real estate markets and the adoption of ASU 2016-13.

Note 6—Land and Development

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

    

As of

September 30, 

December 31, 

   

2021

   

2020

Land and land development, at cost

$

313,428

$

441,201

Less: accumulated depreciation

 

(10,583)

 

(10,538)

Total land and development, net

$

302,845

$

430,663

Dispositions—During the nine months ended September 30, 2021 and 2020, the Company sold land parcels and residential lots and units and recognized land development revenue of $157.9 million and $116.3 million, respectively. During the nine months ended September 30, 2021 and 2020, the Company recognized land development cost of sales of $147.5 million and $114.7 million, respectively, from its land and development portfolio.

Impairments—During the nine months ended September 30, 2020, the Company recorded an impairment of $1.5 million on a land and development asset.

14

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 7—Loans Receivable and Other Lending Investments, net

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

    

As of

   

September 30, 2021

   

December 31, 2020

Construction loans

Senior mortgages

$

191,697

$

449,733

Corporate/Partnership loans

 

3,516

 

65,100

Subtotal - gross carrying value of construction loans(1)

 

195,213

 

514,833

Loans

 

  

 

  

Senior mortgages

 

15,181

 

35,922

Corporate/Partnership loans

 

17,941

 

20,567

Subordinate mortgages

 

12,248

 

11,640

Subtotal - gross carrying value of loans

 

45,370

 

68,129

Other lending investments

 

  

 

  

Financing receivables (refer to Note 5)

 

48,503

 

46,549

Held-to-maturity debt securities

 

95,258

 

90,715

Available-for-sale debt securities

 

27,535

 

25,274

Subtotal - other lending investments

 

171,296

 

162,538

Total gross carrying value of loans receivable and other lending investments

 

411,879

 

745,500

Allowance for loan losses

 

(6,370)

 

(13,170)

Total loans receivable and other lending investments, net

$

405,509

$

732,330

(1)As of September 30, 2021, 98% of gross carrying value of construction loans had completed construction.

15

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Allowance for Loan Losses—Changes in the Company’s allowance for loan losses were as follows for the three months ended September 30, 2021 and 2020 ($ in thousands):

    

General Allowance

    

    

    

Held to  

    

    

    

Construction 

Maturity Debt 

Financing 

Specific 

Three Months Ended September 30, 2021

Loans

Loans

Securities

Receivables

Allowance

Total

Allowance for loan losses at beginning of period

$

1,640

$

1,619

$

2,393

$

893

$

590

$

7,135

(Recovery of) provision for loan losses(1)

 

(149)

 

(865)

 

145

 

54

 

50

 

(765)

Allowance for loan losses at end of period

$

1,491

$

754

$

2,538

$

947

$

640

$

6,370

Three Months Ended September 30, 2020

Allowance for loan losses at beginning of period

$

11,736

$

905

$

111

$

1,159

$

21,701

$

35,612

(Recovery of) provision for loan losses(1)

 

(2,598)

 

(427)

 

(56)

 

17

 

899

 

(2,165)

Allowance for loan losses at end of period

$

9,138

$

478

$

55

$

1,176

$

22,600

$

33,447

(1)During the three months ended September 30, 2021 and 2020, the Company recorded a provision for (recovery of) loan losses of ($1.6) million and ($2.0) million, respectively, in its consolidated statements of operations. The recovery in 2021 was due primarily to the repayment of loans during the three months ended September 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since June 30, 2021. Of this amount, $0.9 million related to a recovery of loan losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities." The recovery in 2020 resulted from the reversal of CECL allowances on loans that repaid in full in the third quarter 2020 and a more favorable economic outlook on commercial real estate markets in the third quarter 2020 as compared to the second quarter 2020. Of this amount, $0.7 million related to a recovery of loan losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities" and $0.9 million related to a provision on a non-performing loan that was recorded as a reduction to "Accrued interest and operating lease income receivable, net."

Changes in the Company’s allowance for loan losses were as follows for the nine months ended September 30, 2021 and 2020 ($ in thousands):

    

General Allowance

    

    

    

Held to  

    

    

    

Construction 

Maturity Debt 

Financing 

Specific 

Nine Months Ended September 30, 2021

Loans

Loans

Securities

Receivables

Allowance

Total

Allowance for loan losses at beginning of period

$

6,541

$

1,643

$

3,093

$

1,150

$

743

$

13,170

Recovery of loan losses(1)

 

(5,050)

 

(889)

 

(555)

 

(203)

 

(103)

 

(6,800)

Allowance for loan losses at end of period

$

1,491

$

754

$

2,538

$

947

$

640

$

6,370

Nine Months Ended September 30, 2020

Allowance for loan losses at beginning of period

$

6,668

$

265

$

$

$

21,701

$

28,634

Adoption of new accounting standard(2)

 

(353)

 

98

 

20

 

964

 

 

729

Provision for loan losses(1)

 

2,823

 

115

 

35

 

212

 

899

 

4,084

Allowance for loan losses at end of period

$

9,138

$

478

$

55

$

1,176

$

22,600

$

33,447

(1)During the nine months ended September 30, 2021 and 2020, the Company recorded a provision for (recovery of) loan losses of ($7.6) million and $4.1 million, respectively, in its consolidated statements of operations. The recovery in 2021 was due primarily to the repayment of loans during the nine months ended September 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. Of this amount, $0.9 million related to a recovery of credit losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities.” The provision for loan losses in 2020 resulted from the macroeconomic impact of COVID-19 on commercial real estate markets, of which $0.9 million related to a recovery of credit losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities" and $0.9 million related to a provision on a non-performing loan that was recorded as a reduction to "Accrued interest and operating lease income receivable, net."

16

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

(2)On January 1, 2020, the Company recorded an increase to its allowance for loan losses of $3.3 million upon the adoption of ASU 2016-13, of which $2.5 million related to expected credit losses for unfunded loan commitments and was recorded in “Accounts payable, accrued expenses and other liabilities.”

The Company’s investment in loans and other lending investments and the associated allowance for loan losses were as follows as of September 30, 2021 and December 31, 2020 ($ in thousands):

    

Individually 

    

Collectively 

    

Evaluated for 

Evaluated for 

Impairment(1)

Impairment

Total

As of September 30, 2021

 

  

 

  

 

  

Construction loans(2)

$

58,819

$

136,394

$

195,213

Loans(2)

 

 

45,370

 

45,370

Financing receivables

 

 

48,503

 

48,503

Held-to-maturity debt securities

 

 

95,258

 

95,258

Available-for-sale debt securities(3)

 

 

27,535

 

27,535

Less: Allowance for loan losses

 

(640)

 

(5,730)

 

(6,370)

Total

$

58,179

$

347,330

$

405,509

As of December 31, 2020

 

  

 

  

 

  

Construction loans(2)

$

53,305

$

461,528

$

514,833

Loans(2)

 

 

68,129

 

68,129

Financing receivables

 

 

46,549

 

46,549

Held-to-maturity debt securities

 

 

90,715

 

90,715

Available-for-sale debt securities(3)

 

 

25,274

 

25,274

Less: Allowance for loan losses

 

(743)

 

(12,427)

 

(13,170)

Total

$

52,562

$

679,768

$

732,330

(1)The carrying value of this loan includes an unamortized discount of $0.8 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively. The Company’s loans individually evaluated for impairment represent loans on non-accrual status and the unamortized amounts associated with these loans are not currently being amortized into income.
(2)The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.2 million and $2.3 million as of September 30, 2021 and December 31, 2020, respectively.
(3)Available-for-sale debt securities are evaluated for impairment under ASC 326-30.

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

17

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

The Company’s amortized cost basis in performing senior mortgages, corporate/partnership loans, subordinate mortgages and financing receivables, presented by year of origination and by credit quality, as indicated by risk rating, as of September 30, 2021 were as follows ($ in thousands):

    

Year of Origination

    

    

    

2021

    

2020

    

2019

    

2018

    

2017

    

Prior to 2017

    

Total

Senior mortgages

Risk rating

  

 

  

 

  

 

  

 

  

 

  

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

 

 

 

2.0

 

 

 

 

11,900

 

 

 

11,900

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

109,137

 

 

3,281

 

112,418

3.5

 

 

 

 

23,741

 

 

 

23,741

4.0

 

 

 

 

 

 

 

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal(1)

$

$

$

$

144,778

$

$

3,281

$

148,059

Corporate/partnership loans

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Risk rating

 

  

 

  

 

  

 

  

 

  

 

  

 

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

3,516

 

 

 

3,516

2.0

 

 

 

 

 

 

 

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

 

3.5

 

 

 

 

 

 

 

4.0

 

 

 

 

17,941

 

 

 

17,941

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal

$

$

$

$

21,457

$

$

$

21,457

Subordinate mortgages

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Risk rating

 

  

 

  

 

  

 

  

 

  

 

  

 

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

12,248

 

12,248

3.5

 

 

 

 

 

 

 

4.0

 

 

 

 

 

 

 

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal

$

$

$

$

$

$

12,248

$

12,248

Financing receivables

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Risk rating

 

  

 

  

 

  

 

  

 

  

 

  

 

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

 

 

 

2.0

 

 

 

48,503

 

 

 

 

48,503

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

 

3.5

 

 

 

 

 

 

 

4.0

 

 

 

 

 

 

 

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal

$

$

$

48,503

$

$

$

$

48,503

Total

$

$

$

48,503

$

166,235

$

$

15,529

$

230,267

(1)As of September 30, 2021, excludes $58.8 million for one loan on non-accrual status.

18

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

The Company’s amortized cost basis in loans, aged by payment status and presented by class, was as follows ($ in thousands):

    

    

Less Than 

    

Greater 

    

    

or Equal 

Than 

Total 

Current

to 90 Days

90 Days

Past Due

Total

As of September 30, 2021

Senior mortgages

$

148,059

$

$

58,819

58,819

$

206,878

Corporate/Partnership loans

 

21,457

 

 

 

 

21,457

Subordinate mortgages

 

12,248

 

 

 

 

12,248

Total

$

181,764

$

$

58,819

$

58,819

$

240,583

As of December 31, 2020

 

  

 

  

 

  

 

  

 

  

Senior mortgages

$

443,154

$

42,501

$

$

42,501

$

485,655

Corporate/Partnership loans

 

42,721

 

42,946

 

 

42,946

 

85,667

Subordinate mortgages

 

11,640

 

 

 

 

11,640

Total

$

497,515

$

85,447

$

$

85,447

$

582,962

Impaired Loans—The Company’s impaired loan was as follows ($ in thousands):

    

As of September 30, 2021

    

As of December 31, 2020

    

    

Unpaid 

    

    

    

Unpaid 

    

Amortized

Principal 

Related 

Amortized

Principal 

Related 

Cost

Balance

Allowance

Cost

Balance

Allowance

With an allowance recorded:

  

 

  

 

  

  

 

  

 

  

Senior mortgages(1)

$

58,819

$

58,069

$

(640)

$

53,305

$

52,552

$

(743)

Total

$

58,819

$

58,069

$

(640)

$

53,305

$

52,552

$

(743)

(1)The Company has one non-accrual loan as of September 30, 2021 and December 31, 2020 that is considered impaired and included in the table above. The Company did not record any interest income on impaired loans for the nine months ended September 30, 2021 and 2020.

Loans receivable held for sale—In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be constructed. The Company funded $16.1 million at closing and the Ground Lease documents provided for future funding obligations to the Ground Lease tenant of approximately $11.9 million of deferred purchase price and $52.0 million of leasehold improvement allowance upon achievement of certain milestones. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE would acquire the ground lessor entity from the Company. The Company determined that the transaction did not qualify as a sale leaseback transaction and recorded the Ground Lease in “Loans receivable held for sale” on the Company’s consolidated balance sheet. Subsequent to closing, the Company funded approximately $6.0 million of the deferred purchase price to the Ground Lease tenant. The Company sold the ground lessor entity (and SAFE assumed all future funding obligations to the Ground Lease tenant) to SAFE in September 2021 for $22.1 million and recorded no gain or loss on the sale.

In June 2021, the Company acquired a parcel of land for $42.0 million and simultaneously entered into a Ground Lease (refer to Note 5). The Company also concurrently entered into an agreement pursuant to which SAFE would acquire the Ground Lease from the Company. The Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheets.

19

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

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

    

    

    

Net 

    

    

Net 

Amortized 

Unrealized 

Estimated 

Carrying 

Face Value

Cost Basis

Gain

Fair Value

Value

As of September 30, 2021

 

  

 

  

 

  

 

  

 

  

Available-for-Sale Securities

 

  

 

  

 

  

 

  

 

  

Municipal debt securities

$

23,855

$

23,855

$

3,680

$

27,535

$

27,535

Held-to-Maturity Securities

 

 

 

 

  

 

Debt securities

 

100,000

 

95,258

 

 

95,258

 

95,258

Total

$

123,855

$

119,113

$

3,680

$

122,793

$

122,793

As of December 31, 2020

 

  

 

  

 

  

 

  

 

  

Available-for-Sale Securities

 

  

 

  

 

  

 

  

 

  

Municipal debt securities

$

20,680

$

20,680

$

4,594

$

25,274

$

25,274

Held-to-Maturity Securities

 

 

 

  

 

  

 

Debt securities

 

100,000

 

90,715

 

 

90,715

 

90,715

Total

$

120,680

$

111,395

$

4,594

$

115,989

$

115,989

As of September 30, 2021, the contractual maturities of the Company’s securities were as follows ($ in thousands):

    

Held-to-Maturity Debt Securities

    

Available-for-Sale Debt Securities

Amortized 

Estimated 

Amortized 

Estimated 

Cost Basis

    

Fair Value

    

Cost Basis

    

Fair Value

Maturities

 

  

 

  

 

  

 

  

Within one year

$

$

$

$

After one year through 5 years

 

95,258

 

95,258

 

 

After 5 years through 10 years

 

 

 

 

After 10 years

 

 

 

23,855

 

27,535

Total

$

95,258

$

95,258

$

23,855

$

27,535

20

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 8—Other Investments

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

Earnings (Losses) from

Earnings (Losses) from

Carrying Value

Equity Method Investments (1)

Equity Method Investments(1)

as of

For the Three Months Ended

For the Nine Months Ended

September 30, 

December 31, 

September 30, 

September 30, 

2021

    

2020

    

2021

    

2020

    

2021

    

2020

Real estate equity investments

  

 

  

  

  

 

  

 

  

Safehold Inc. ("SAFE")(2)

$

1,113,333

$

937,712

$

73,475

$

9,331

$

94,590

$

36,905

iStar Net Lease II LLC ("Net Lease Venture II")

 

100,471

 

78,998

 

1,414

 

811

 

4,014

 

1,568

Other real estate equity investments

 

44,196

 

89,939

 

11,965

 

(3,542)

 

9,902

 

(10,517)

Subtotal

 

1,258,000

 

1,106,649

 

86,854

 

6,600

 

108,506

 

27,956

Other strategic investments(3)

 

161,766

 

69,911

 

2,355

 

205

 

6,169

 

(1,953)

Total

$

1,419,766

$

1,176,560

$

89,209

$

6,805

$

114,675

$

26,003

(1)For the three months ended September 30, 2021 and 2020, earnings (losses) from equity method investments is net of the Company’s pro rata share of $5.1 million and $4.6 million, respectively, of depreciation expense and $18.5 million and $14.6 million, respectively, of interest expense. For the nine months ended September 30, 2021 and 2020, earnings (losses) from equity method investments is net of the Company’s pro rata share of $16.2 million and $13.4 million, respectively, of depreciation expense and $51.7 million and $44.0 million, respectively, of interest expense.
(2)As of September 30, 2021, the Company owned 36.0 million shares of SAFE common stock which, based on the closing price of $71.89 on September 30, 2021, had a market value of $2.6 billion. Pursuant to ASC 323-10-40-1, an equity method investor shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment. Any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings. For the three months ended September 30, 2021, equity in earnings includes a dilution gain of $60.2 million resulting from a SAFE equity offering. For the nine months ended September 30, 2021 and 2020, equity in earnings includes dilution gains of $60.7 million and $7.9 million, respectively, resulting from SAFE equity offerings.
(3)During the three and nine months ended September 30, 2021 and the three and nine months ended September 30, 2020, the Company identified observable price changes in an equity security held by the Company as evidenced by orderly private issuances of similar securities by the same issuer. In accordance with ASC 321, the Company remeasured its equity investment at fair value and recognized aggregate mark-to-market gains of $14.0 million and $19.1 million for the three and nine months ended September 30, 2021, respectively, and aggregate mark-to-market gains of $14.0 million and $23.9 million for the three and nine months ended September30, 2020, respectively, in “Other income” in the Company’s consolidated statements of operations.

Safehold Inc.—Safehold Inc. (“SAFE”) is a publicly-traded company formed by the Company primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon (“Ground Leases”). During the nine months ended September 30, 2021, the Company purchased 0.4 million shares of SAFE's common stock for $27.9 million, for an average cost of $71.68 per share, in open market purchases made in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended. As of September 30, 2021, the Company owned approximately 63.6% of SAFE’s common stock outstanding.

In January 2019, the Company purchased 12.5 million newly designated limited partnership units (the “Investor Units”) in SAFE’s operating partnership (“SAFE OP”), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. In May 2019, after the approval of SAFE’s stockholders, the Investor Units were exchanged for shares of SAFE’s common stock on a one-for-one basis. Following the exchange, the Investor Units were retired.

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

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

21

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

requires the Company to cast all of its voting power in favor of three director nominees to SAFE’s board who are independent of each of the Company and SAFE until January 2022;
subjects the Company to certain standstill provisions; and
provides the Company certain preemptive rights.

In September 2021, the Company acquired 657,894 shares of SAFE’s common stock in a private placement for $50.0 million.

In March 2020, the Company acquired 1.7 million shares of SAFE’s common stock in a private placement for $80.0 million.

A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. In addition, the Company is also the external manager of a venture in which SAFE is a member. Following are the key terms of the management agreement with SAFE:

The Company receives a fee equal to 1.0% of total SAFE equity (as defined in the management agreement) up to $1.5 billion; 1.25% of total SAFE equity (for incremental equity of $1.5 billion - $3.0 billion); 1.375% of total SAFE equity (for incremental equity of $3.0 billion - $5.0 billion); and 1.5% of total SAFE equity (for incremental equity over $5.0 billion);
Fee to be paid in cash or in shares of SAFE common stock, at the discretion of SAFE’s independent directors;
The stock is locked up for two years, subject to certain restrictions;
There is no additional performance or incentive fee;
The management agreement is non-terminable by SAFE through June 30, 2023, except for cause; and
Automatic annual renewals thereafter, subject to non-renewal upon certain findings by SAFE’s independent directors and payment of termination fee equal to three times the prior year’s management fee.

During the three months ended September 30, 2021 and 2020, the Company recorded $3.6 million and $3.2 million, respectively, of management fees pursuant to its management agreement with SAFE. During the nine months ended September 30, 2021 and 2020, the Company recorded $10.6 million and $9.3 million, respectively, of management fees pursuant to its management agreement with SAFE.

The Company is also entitled to receive certain expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company has elected not to charge in full certain of the expense reimbursements while SAFE is growing its portfolio. During the three months ended September 30, 2021 and 2020, the Company recognized $1.9 million and $1.3 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE. During the nine months ended September 30, 2021 and 2020, the Company recognized $5.6 million and $3.8 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE.

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

22

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Following is a list of investments that the Company has transacted with SAFE, all of which were approved by the Company’s and SAFE’s independent directors, for the periods presented:

In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment to support the ground-up development of a to-be-built luxury multi-family project. The transaction included a combination of: (i) a newly created Ground Lease and a $7.2 million leasehold improvement allowance, which was fully funded; and (ii) an $80.5 million leasehold first mortgage. During the three and nine months ended September 30, 2020, the Company recorded $0.9 million and $2.5 million, respectively, of interest income on the loan. The Company sold the Ground Lease to SAFE in September 2020 for $34.0 million and recognized a gain of $6.1 million in "Income from sales of real estate" in connection with the sale and sold the leasehold first mortgage to an entity in which the Company has a 53% equity interest (refer to “Other strategic investments” below) in January 2021 for $63.3 million.

In January 2019, the Company committed to provide a $13.3 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the conversion of an office building into a multi-family property. The loan was repaid during the fourth quarter 2020. During the three and nine months ended September 30, 2020, the Company recorded $0.3 million and $0.8 million, respectively, of interest income on the loan.

In June 2020, Net Lease Venture II (see below) acquired the leasehold interest in an office laboratory property in Honolulu, HI and simultaneously entered into a 99-year Ground Lease with SAFE.

In February 2021, the Company provided a $50.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the Ground Lease tenant’s recapitalization of a hotel property. The Company received $1.9 million of consideration from SAFE in connection with this transaction. The Company sold the loan in July 2021 and recorded no gain or loss on the sale. During the three and nine months ended September 30, 2021, the Company recorded $0.4 million and $2.9 million, respectively, of interest income on the loan.

In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be constructed. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE would acquire the ground lessor entity from the Company. The Company sold the ground lessor entity to SAFE in September 2021 and recognized no gain or loss on the sale (refer to Note 7 - Loans receivable held for sale). The Company also committed to provide a $75.0 million construction loan to the Ground Lease tenant. The Company received $2.7 million of consideration from SAFE in connection with this transaction. In September 2021, the construction loan commitment and the $2.7 million of consideration was transferred to an entity in which the Company has a 53.0% noncontrolling equity interest (refer to “Other strategic investments” below).

In June 2021, the Company sold to SAFE its rights under a purchase option agreement for $1.2 million. The Company had previously acquired such purchase option agreement from a third-party property owner for $1.0 million and incurred $0.2 million of expenses. Under the option agreement, upon certain conditions being met by an outside developer who may become the Ground Lease tenant, SAFE has the right to acquire for $215.0 million a property and hold a Ground Lease under approximately 1.1 million square feet of office space that may be developed on the property. No gain or loss was recognized by the Company as a result of the sale.

In June 2021, the Company and SAFE entered into two agreements pursuant to each of which SAFE would acquire land and a related Ground Lease originated by the Company when certain construction related conditions are met by a specified time period. The purchase price to be paid for each is $42.0 million, plus an amount necessary for the Company to achieve the greater of a 1.25x multiple and a 9% return on its investment. In addition, each Ground Lease provides for a leasehold improvement allowance up to a maximum of $83.0 million, which obligation would be assumed by SAFE upon acquisition. If certain construction conditions are not met within a specified time period, SAFE will have no obligation to acquire the Ground Leases or fund the leasehold improvement allowances. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the properties and Ground Leases from the Company.

23

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Net Lease Venture II—In July 2018, the Company entered into a new venture (“Net Lease Venture II”) with an investment strategy similar to the Net Lease Venture. The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by the Company. In June 2021, Net Lease Venture II’s investment period was extended to December 31, 2021. Net Lease Venture II is a voting interest entity and the Company has an equity interest in the venture of approximately 51.9%. The Company does not have a controlling interest in Net Lease Venture II due to the substantive participating rights of its partner. The Company accounts for its investment in Net Lease Venture II as an equity method investment and is responsible for managing the venture in exchange for a management fee and incentive fee. During the three months ended September 30, 2021 and 2020, the Company recorded $0.4 million and $0.4 million, respectively, of management fees from Net Lease Venture II. During the nine months ended September 30, 2021 and 2020, the Company recorded $1.2 million and $1.1 million, respectively, of management fees from Net Lease Venture II.

Other real estate equity investments—As of September 30, 2021, the Company’s other real estate equity investments include equity interests in real estate ventures ranging from 48% to 95%, comprised of investments of $43.7 million in operating properties and $0.5 million in land assets. As of December 31, 2020, the Company’s other real estate equity investments included $58.7 million in operating properties and $31.2 million in land assets.

In August 2018, the Company provided a mezzanine loan with a principal balance of $33.0 million as of September 30, 2021 and December 31, 2020 to an unconsolidated entity in which the Company owns a 50% equity interest. The loan matures in August 2022. As of September 30, 2021, and December 31, 2020, the loan is included in “Loans receivable and other lending investments, net” on the Company’s consolidated balance sheet. During the three months ended September 30, 2021 and 2020, the Company recorded $0.6 million and $0.6 million, respectively, of interest income on the mezzanine loan. During the nine months ended September 30, 2021 and 2020, the Company recorded $1.7 million and $1.8 million, respectively, of interest income on the mezzanine loan.

Other strategic investments—As of September 30, 2021 and December 31, 2020, the Company also had investments in real estate related funds and other strategic investments in real estate entities.

In January 2021, the Company sold two loans for $83.4 million to a newly formed entity in which the Company has a 53.0% noncontrolling equity interest. The Company did not recognize any gain or loss on the sales. In September 2021, the Company transferred a $75.0 million construction loan commitment to this entity. The Company does not have a controlling interest in this entity due to the substantive participating rights of its partner. The Company accounts for this investment as an equity method investment and receives a fixed annual fee in exchange for managing the entity.

Summarized investee financial information—The following table presents the investee level summarized financial information for the Company’s equity method investment that was significant as of September 30, 2021 ($ in thousands):

    

Revenues

    

Expenses

    

Net Income Attributable to Parent

For the Nine Months Ended September 30, 2021

SAFE

$

135,001

$

88,585

$

51,844

 

For the Nine Months Ended September 30, 2020

SAFE

$

115,518

$

73,821

$

44,024

24

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 9—Other Assets and Other Liabilities

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

As of

    

September 30, 2021

    

December 31, 2020

Intangible assets, net(1)

$

146,588

$

156,041

Restricted cash

 

55,915

 

51,933

Operating lease right-of-use assets(2)

 

43,799

 

48,891

Other assets(3)

 

17,572

 

19,453

Other receivables

 

11,052

 

10,881

Leasing costs, net(4)

 

4,936

 

2,340

Corporate furniture, fixtures and equipment, net(5)

 

1,843

 

2,024

Deferred financing fees, net

 

841

 

1,549

Deferred expenses and other assets, net

$

282,546

$

293,112

(1)Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. Accumulated amortization on intangible assets, net was $50.8 million and $44.4 million as of September 30, 2021 and December 31, 2020, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company’s consolidated statements of operations by $0.5 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $1.1 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively. These intangible lease assets are amortized over the remaining term of the lease. The amortization expense for in-place leases was $2.8 million and $2.6 million for the three months ended September 30, 2021 and 2020, respectively, and $8.6 million and $7.9 million for the nine months ended September 30, 2021 and 2020, respectively. These amounts are included in “Depreciation and amortization” in the Company’s consolidated statements of operations. As of September 30, 2021, the weighted average remaining amortization period for the Company’s intangible assets was approximately 16.2 years.
(2)Right-of-use lease assets relate primarily to the Company’s leases of office space. Right-of use lease assets initially equal the lease liability. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease and is recorded in “General and administrative” and “Real estate expense” in the Company’s consolidated statements of operations. During the three months ended September 30, 2021 and 2020, the Company recognized $1.2 million and $1.2 million, respectively, in "General and administrative" and $0.9 million and $0.9 million, respectively, in "Real estate expense" in its consolidated statements of operations relating to operating leases. During the nine months ended September 30, 2021 and 2020, the Company recognized $3.7 million and $3.4 million, respectively, in "General and administrative" and $2.7 million and $2.6 million, respectively, in "Real estate expense" in its consolidated statements of operations relating to operating leases.
(3)Other assets primarily includes prepaid expenses, deposits for certain real estate assets and management fees and expense reimbursements due from SAFE (refer to Note 8).
(4)Accumulated amortization of leasing costs was $2.1 million and $2.6 million as of September 30, 2021 and December 31, 2020, respectively.
(5)Accumulated depreciation on corporate furniture, fixtures and equipment was $14.7 million and $14.3 million as of September 30, 2021 and December 31, 2020, respectively.

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

As of

    

September 30, 2021

    

December 31, 2020

Other liabilities(1)

$

65,318

91,513

Accrued expenses

 

112,223

 

94,724

Intangible liabilities, net(2)

 

46,870

 

48,738

Operating lease liabilities (see table above)

 

47,111

 

50,072

Accrued interest payable

 

28,939

 

32,355

Accounts payable, accrued expenses and other liabilities

$

300,461

$

317,402

(1)As of September 30, 2021 and December 31, 2020, other liabilities includes $20.7 million and $36.9 million, respectively, of deferred income. As of September 30, 2021 and December 31, 2020, other liabilities includes $11.7 million and $19.0 million, respectively, of derivative liabilities. As of September 30, 2021 and December 31, 2020, other liabilities includes $0.1 million and $1.0 million, respectively, of expected credit losses for unfunded loan commitments.
(2)Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. Accumulated amortization on below market lease liabilities was $9.0 million and $7.5 million as of September 30, 2021 and December 31, 2020, respectively. The amortization of below market leases increased operating lease income in the Company's consolidated statements of operations by $0.6 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $1.9 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively.

25

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 10—Loan Participations Payable, net

The Company had one loan participation payable with a carrying value of $42.5 million and an interest rate of 6.0% as of December 31, 2020. The loan was repaid in the first quarter 2021.

Loan participations represent transfers of financial assets that did not meet the sales criteria established under ASC Topic 860 and are accounted for as loan participations payable, net as of December 31, 2020. As of December 31, 2020, the corresponding loan receivable balance was $42.5 million and is included in “Loans receivable and other lending investments, net” on the Company’s consolidated balance sheets. The principal and interest due on loan participations payable are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.

26

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 11—Debt Obligations, net

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

Carrying Value as of 

Stated 

Scheduled 

    

September 30, 2021

    

December 31, 2020

    

Interest Rates

            

Maturity Date

Secured credit facilities and mortgages:

 

  

 

  

  

 

  

Revolving Credit Facility

$

$

LIBOR + 2.00

(1)

September 2022

Senior Term Loan

 

491,875

 

491,875

LIBOR + 2.75

(2)

June 2023

Mortgages collateralized by net lease assets

 

701,541

 

721,075

1.63% - 7.19

(3)

  

Total secured credit facilities and mortgages(4)

 

1,193,416

 

1,212,950

  

 

  

Unsecured notes:

 

  

 

  

  

 

  

3.125% senior convertible notes(5)

 

287,500

 

287,500

3.125

%  

September 2022

4.75% senior notes(6)

 

775,000

 

775,000

4.75

%  

October 2024

4.25% senior notes(7)

 

550,000

 

550,000

4.25

%  

August 2025

5.50% senior notes(8)

 

400,000

 

400,000

5.50

%  

February 2026

Total unsecured notes

 

2,012,500

 

2,012,500

  

 

  

Other debt obligations:

 

  

 

  

  

 

  

Trust preferred securities

 

100,000

 

100,000

LIBOR + 1.50

%  

October 2035

Total debt obligations

 

3,305,916

 

3,325,450

  

 

  

Debt discounts and deferred financing costs, net(9)

 

(23,318)

 

(38,475)

  

 

  

Total debt obligations, net(10)

$

3,282,598

$

3,286,975

  

 

  

(1)The Revolving Credit Facility bears interest at the Company’s election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.50% or (c) LIBOR plus 1.0% and subject to a margin ranging from 1.00% to 1.50%; or (ii) LIBOR subject to a margin ranging from 2.00% to 2.50%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2023.
(2)The loan bears interest at the Company’s election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.50% or (c) LIBOR plus 1.0% and subject to a margin of 1.75%; or (ii) LIBOR subject to a margin of 2.75%.
(3)As of September 30, 2021, the weighted average interest rate of these loans is 4.4%, inclusive of the effect of interest rate swaps.
(4)As of September 30, 2021, $2.0 billion net carrying value of assets served as collateral for the Company’s secured debt obligations.
(5)The Company’s 3.125% senior convertible fixed rate notes due September 2022 (“3.125% Convertible Notes”) are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding September 15, 2022. The conversion rate as of September 30, 2021 was 71.5797 shares per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $13.97 per share. The conversion rate is subject to adjustment from time to time for specified events. Upon conversion, the Company will pay or deliver, as the case may be, a combination of cash and shares of its common stock. As of December 31, 2020, the carrying value of the 3.125% Convertible Notes was $275.1 million, net of fees, and the unamortized discount of the 3.125% Convertible Notes was $10.2 million, net of fees. Upon the adoption of ASU 2020-06 on January 1, 2021, the Company reclassed the unamortized discount to shareholders equity (refer to Note 3). During the three months ended September 30, 2021 and 2020, the Company recognized $2.2 million and $2.2 million, respectively, of contractual interest and during the three months ended September 30, 2020, the Company recognized $1.3 million of discount amortization on the 3.125% Convertible Notes. During the nine months ended September 30, 2021 and 2020, the Company recognized $6.7 million and $6.7 million, respectively, of contractual interest and during the nine months ended September 30, 2020, the Company recognized $3.9 million of discount amortization on the 3.125% Convertible Notes. The effective interest rate for the three and nine months ended September 30, 2020 was 5.2%.
(6)The Company can prepay these senior notes without penalty beginning July 1, 2024.
(7)The Company can prepay these senior notes without penalty beginning May 1, 2025.
(8)The Company can prepay these senior notes without penalty beginning August 15, 2024.
(9)On January 1, 2021, the Company adopted ASU 2020-06 and reclassed $10.0 million of debt discount and unamortized fees from the 3.125% Convertible Notes to shareholders’ equity on the Company’s consolidated balance sheet (refer to Note 3).
(10)The Company capitalized interest relating to development activities of $0.2 million and $0.5 million during the three months ended September 30, 2021 and 2020, respectively, and $0.7 million and $1.6 million during the nine months ended September 30, 2021 and 2020, respectively.

27

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Future Scheduled Maturities—As of September 30, 2021, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):

    

Unsecured Debt

    

Secured Debt

    

Total

2021 (remaining three months)

$

$

95,495

$

95,495

2022

 

287,500

 

95,324

 

382,824

2023

 

 

491,875

 

491,875

2024

 

775,000

 

 

775,000

2025

 

550,000

 

269,780

 

819,780

Thereafter

 

500,000

 

240,942

 

740,942

Total principal maturities

 

2,112,500

 

1,193,416

 

3,305,916

Unamortized discounts and deferred financing costs, net

 

(18,426)

 

(4,892)

 

(23,318)

Total debt obligations, net

$

2,094,074

$

1,188,524

$

3,282,598

Senior Term Loan—The Company has a $650.0 million senior term loan (the “Senior Term Loan”) that bears interest at LIBOR plus 2.75% per annum and matures in June 2023. The Senior Term Loan is secured by pledges of equity of certain subsidiaries that own a defined pool of assets. The Senior Term Loan permits substitution of collateral, subject to overall collateral pool coverage and concentration limits, over the life of the facility. The Company may make optional prepayments, subject to prepayment fees. As of September 30, 2021, the outstanding balance on the Company’s Senior Term Loan was $491.9 million.

Revolving Credit Facility—The Company has a secured revolving credit facility (the “Revolving Credit Facility”) with a maximum capacity of $350.0 million that matures in September 2022. Outstanding borrowings under the Revolving Credit Facility are secured by pledges of the equity interests in the Company’s subsidiaries that own a defined pool of assets. Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward based upon the Company’s corporate credit rating, ranging from 1.0% to 1.5% in the case of base rate loans and from 2.0% to 2.5% in the case of LIBOR loans. In addition, there is an undrawn credit facility commitment fee that ranges from 0.25% to 0.45%, based on corporate credit ratings. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2023. As of September 30, 2021, based on the Company’s borrowing base of assets, the Company had the ability to draw $340.2 million without pledging any additional assets to the facility.

Unsecured Notes—As of September 30, 2021, the Company has senior unsecured notes outstanding with varying fixed-rates and maturities ranging from September 2022 to February 2026. The Company’s senior unsecured notes are interest only, are generally redeemable at the option of the Company and contain certain financial covenants (see below).

During the nine months ended September 30, 2020, repayments of unsecured notes prior to maturity resulted in losses on early extinguishment of debt of $12.0 million. This amount is included in “Loss on early extinguishment of debt, net” in the Company’s consolidated statements of operations.

Debt Covenants—The Company’s outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant restricting certain incurrences of debt based on a fixed charge coverage ratio. If any of the Company’s covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of its debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders.

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

28

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, the Company has the option to pay down outstanding borrowings or substitute assets in the borrowing base. Under both the Senior Term Loan and the Revolving Credit Facility the Company is permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and the Company remains in compliance with its financial covenants after giving effect to the dividend.

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

Note 12—Commitments and Contingencies

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

As of September 30, 2021, the maximum amount of fundings the Company may be required to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and that 100% of its capital committed to Strategic Investments is drawn down, are as follows ($ in thousands):

Loans and Other 

Lending 

Real 

Other 

    

Investments

    

Estate

    

Investments

    

Total

Performance-Based Commitments

$

7,860

$

29,716

$

71,319

$

108,895

Strategic Investments

 

 

1,900

 

7,592

 

9,492

Total

$

7,860

$

31,616

$

78,911

$

118,387

29

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Other Commitments—Future minimum lease obligations under non-cancelable operating and finance leases as of September 30, 2021 are as follows ($ in thousands):

    

Operating(1)(2)

    

Finance(1)

2021 (remaining three months)

$

1,728

$

1,384

2022

 

6,635

 

5,604

2023

 

6,272

 

5,716

2024

 

6,188

 

5,830

2025

 

6,176

 

5,946

Thereafter

 

334

 

1,567,826

Total undiscounted cash flows

 

27,333

 

1,592,306

Present value discount(1)

 

(2,717)

 

(1,439,677)

Other adjustments(2)

 

22,495

 

Lease liabilities

$

47,111

$

152,629

(1)The lease liability equals the present value of the minimum rental payments due under the lease discounted at the rate implicit in the lease or the Company’s incremental secured borrowing rate for similar collateral. For operating leases, lease liabilities were discounted at the Company’s weighted average incremental secured borrowing rate for similar collateral estimated to be 5.0% and the weighted average remaining lease term is 7.6 years. The weighted average remaining lease term for the Company’s operating leases, excluding operating leases for which the Company’s tenants pay rent on its behalf, was 4.9 years and the weighted average discount rate was 4.7%. For finance leases, which relate primarily to the Company’s Ground Leases with SAFE, lease liabilities were discounted at a weighted average rate implicit in the lease of 5.5% and the weighted average remaining lease term is 96.2 years. Right-of-use assets for finance leases are amortized on a straight-line basis over the term of the lease and are recorded in “Depreciation and amortization” in the Company’s consolidated statements of operations. During the three months ended September 30, 2021 and 2020, the Company recognized $2.1 million and $2.0 million, respectively, in "Interest expense" and $0.4 million and $0.4 million, respectively, in "Depreciation and amortization" in its consolidated statements of operations relating to finance leases. During the nine months ended September 30, 2021 and 2020, the Company recognized $6.2 million and $6.1 million, respectively, in "Interest expense" and $1.1 million and $1.1 million, respectively, in "Depreciation and amortization" in its consolidated statements of operations relating to finance leases. During the three months ended September 30, 2021 and 2020, the Company made payments of $0.8 million and $1.0 million, respectively, related to its operating leases and $1.3 million and $1.4 million, respectively, related to its finance leases with SAFE. During the nine months ended September 30, 2021 and 2020, the Company made payments of $2.1 million and $3.2 million, respectively, related to its operating leases and $4.1 million and $4.0 million, respectively, related to its finance leases with SAFE.
(2)The Company is obligated to pay ground rent under certain operating leases; however, the Company’s tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations. The amount shown above is the net present value of the payments to be made by the Company’s tenants on its behalf.

Future minimum lease obligations under non-cancelable operating and finance leases as of December 31, 2020 are as follows ($ in thousands):

    

Operating(1)(2)

    

Finance(1)

2021

$

3,797

$

5,494

2022

 

6,756

 

5,604

2023

 

6,393

 

5,716

2024

 

6,309

 

5,830

2025

 

6,297

 

5,946

Thereafter

 

496

 

1,567,826

Total undiscounted cash flows

 

30,048

 

1,596,416

Present value discount(1)

 

(3,771)

 

(1,445,896)

Other adjustments(2)

 

23,795

 

Lease liabilities

$

50,072

$

150,520

(1)The weighted average remaining lease term for the Company’s operating leases, excluding operating leases for which the Company’s tenants pay rent on its behalf, was 5.6 years and the weighted average discount rate was 5.0%. The weighted average remaining lease term for the Company’s finance leases was 97 years and the weighted average discount rate was 5.5%.
(2)The Company is obligated to pay ground rent under certain operating leases; however, the Company’s tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations. The amount shown above is the net present value of the payments to be made by the Company’s tenants on its behalf.

30

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

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.

Note 13—Derivatives

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

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2021 and December 31, 2020 ($ in thousands):(1)

    

Derivative Liabilities

Balance Sheet 

Fair 

As of September 30, 2021

    

Location

    

Value

Derivatives Designated in Hedging Relationships

Interest rate swaps

 

Accounts payable, accrued expenses and other liabilities

$

11,723

Total

 

  

$

11,723

As of December 31, 2020

 

  

 

  

Derivatives Designated in Hedging Relationships

 

  

 

  

Interest rate swaps

 

Accounts payable, accrued expenses and other liabilities

$

18,926

Total

 

  

$

18,926

(1)Over the next 12 months, the Company expects that $9.1 million related to cash flow hedges will be reclassified from “Accumulated other comprehensive income (loss)” as an increase to interest expense.

31

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

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

    

    

Amount of Gain 

    

Amount of Gain

Location of Gain 

(Loss) Recognized in

(Loss) Reclassified 

(Loss) 

 Accumulated Other 

from Accumulated 

Derivatives Designated in

When Recognized in 

Comprehensive 

Other Comprehensive

Hedging Relationships

    

Income

    

Income

    

 Income into Earnings

For the Three Months Ended September 30, 2021

Interest rate swaps

 

Interest expense

$

278

$

(2,050)

Interest rate swaps

 

Earnings from equity method investments

 

(5)

 

(633)

For the Three Months Ended September 30, 2020

 

  

 

  

 

  

Interest rate swaps

 

Interest expense

$

(401)

$

(2,038)

Interest rate swaps

 

Earnings from equity method investments

 

598

 

(333)

For the Nine Months Ended September 30, 2021

Interest rate swaps

 

Interest expense

$

2,834

$

(6,183)

Interest rate swaps

 

Earnings from equity method investments

 

8,649

 

(1,324)

For the Nine Months Ended September 30, 2020

 

  

 

  

 

  

Interest rate swaps

 

Interest Expense

$

(15,371)

$

(4,926)

Interest rate swaps

 

Earnings from equity method investments

 

(15,559)

 

(866)

32

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 14—Equity

Preferred Stock—The Company had the following series of Cumulative Redeemable Preferred Stock outstanding as of September 30, 2021 and December 31, 2020:

    

    

    

Cumulative Preferential Cash 

    

Dividends(1)(2)

Shares Issued 

and

Annual 

Carrying

 Outstanding 

Par 

Liquidation 

Rate per 

Dividend 

Value

Series

    

(in thousands)

    

Value

    

Preference(3)  

    

Annum

    

per share

    

(in thousands)

D

 

4,000

$

0.001

$

25.00

 

8.00

%  

$

2.00

$

89,041

G

 

3,200

 

0.001

 

25.00

 

7.65

%  

 

1.91

 

72,664

I

 

5,000

 

0.001

 

25.00

 

7.50

%  

 

1.88

 

120,785

Total

 

12,200

 

  

 

  

$

282,490

(1)Holders of shares of the Series D, G and I preferred stock are entitled to receive dividends, when and as declared by the Company’s Board of Directors, out of funds legally available for the payment of dividends. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the preferred stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment date falls or on another date designated by the Company’s Board of Directors for the payment of dividends that is not more than 30 nor less than 10 days prior to the dividend payment date.
(2)The Company declared and paid dividends of $6.0 million, $4.6 million and $7.0 million on its Series D, G and I Cumulative Redeemable Preferred Stock during both the nine months ended September 30, 2021 and 2020. The character of the 2020 dividends was 100% return of capital. There are no dividend arrearages on any of the preferred shares currently outstanding.
(3)The Company may, at its option, redeem the Series G and I Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.

Dividends—To maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate corporate federal income taxes payable by the REIT. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company’s obligation to pay dividends for such periods in order to maintain its REIT qualification. As of December 31, 2020, the Company had $529.6 million of NOL carryforwards at the corporate REIT level that can generally be used to offset both ordinary taxable income and capital gain net income in future years. The NOL carryforwards will begin to expire in 2032 and will fully expire in 2036 if unused. Because taxable income differs from cash flow from operations due to non-cash revenues and expenses (such as depreciation and certain asset impairments), in certain circumstances, the Company may generate operating cash flow in excess of its dividends, or alternatively, may need to make dividend payments in excess of operating cash flows. The Senior Term Loan and the Revolving Credit Facility permit the Company to pay common dividends with no restrictions so long as the Company is not in default on any of its debt obligations. The Company declared common stock dividends of $26.3 million, or $0.36 per share, for the nine months ended September 30, 2021 and $24.6 million, or $0.32 per share, for the nine months ended September 30, 2020. The character of the 2020 dividends was 100% return of capital.

Stock Repurchase Program—The Company may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the nine months ended September 30, 2021, the Company repurchased 4.2 million shares of its outstanding common stock for $91.9 million, for an average cost of $21.70 per share. During the nine months ended September 30, 2020, the Company repurchased 3.7 million shares of its outstanding common stock for $41.4 million, for an average cost of $11.32 per share. The Company is generally authorized to repurchase up to $50.0 million in shares of its common stock. As of September 30, 2021, the Company had remaining authorization to repurchase up to $30.9 million of common stock under its stock repurchase program.

33

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

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

As of

    

September 30, 2021

    

December 31, 2020

Unrealized gains on available-for-sale securities

$

3,681

    

$

4,594

Unrealized losses on cash flow hedges

 

(38,031)

 

(53,075)

Unrealized losses on cumulative translation adjustment

 

 

(4,199)

Accumulated other comprehensive loss

$

(34,350)

$

(52,680)

Note 15—Stock-Based Compensation Plans and Employee Benefits

Stock-Based Compensation—The Company recorded stock-based compensation expense, including the expense related to performance incentive plans (see below), of $3.0 million and $23.3 million for the three and nine months ended September 30, 2021, respectively, and $5.7 million and $26.7 million for the three and nine months ended September 30, 2020, respectively, in “General and administrative” in the Company’s consolidated statements of operations.

Performance Incentive Plans—The Company’s Performance Incentive Plans (“iPIP”) are designed to provide, primarily to senior executives and select professionals engaged in the Company’s investment activities, long-term compensation which has a direct relationship to the realized returns on investments included in the plans. Awards vest over six years, with 40% being vested at the end of the second year and 15% each year thereafter. As of September 30, 2021, there are five iPIP Plans, each covering a two-year investment period beginning with the 2013-2014 Plan through the 2021-2022 Plan.

2019-2022 iPIP Plans—The Company’s 2019-2020 and 2021-2022 iPIP plans are equity-classified awards which are measured at the grant date fair value and recognized as compensation cost in “General and administrative” in the Company’s consolidated statements of operations and “Noncontrolling interests” in the Company’s consolidated statements of changes in equity over the requisite service period. Investments in the 2019-2022 iPIP plans are held by consolidated subsidiaries of the Company and have two ownership classes, class A units and class B units. The Company owns 100% of the class A units and the class B units were issued to employees as long-term compensation. Except for certain clawback provisions, participants can retain vested class B units upon their termination of employment with the Company. The class B units are entitled to distributions from the net cash realized from the investments in the plan after the Company, through its ownership of the class A units, has received a specified return on its invested capital and a return of its invested capital. Distributions on the class B units are also subject to reductions under a total shareholder return (“TSR”) adjustment. The fair value of the class B units was determined using a model that forecasts the underlying cash flows from the investments within the entity to which the class B units have ownership rights. During the nine months ended September 30, 2021 and 2020, the Company recorded $2.6 million and $2.5 million, respectively, of expense related to the 2019-2022 iPIP plans. Distributions on the class B units are expected to be 50% in cash and 50% in shares of the Company’s common stock; provided, however, that (a) the cash portion will be increased if the Company does not have sufficient shares available under shareholder approved equity plans; and (b) if the principal remaining material asset in a plan is unsold SAFE shares, the Company may elect to distribute SAFE shares in lieu of cash and Company stock.

The following is a summary of the status of the Company’s equity-classified iPIP plans and changes during the nine months ended September 30, 2021.

iPIP Investment Pool

    

2019-2020

    

2021-2022

Points at beginning of period

 

97.40

 

Granted

94.75

Forfeited

 

(2.20)

 

(10.00)

Points at end of period

 

95.20

 

84.75

34

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

As of September 30, 2021, investments with an aggregate gross book value of $1.2 billion, including 26.7 million shares of SAFE common stock acquired by the Company, were attributable to the 2019-2020 Plan and investments with an aggregate gross book value of $163 million, including 1.0 million shares of SAFE common stock acquired by the Company, were attributable to the 2021-2022 Plan.

2013-2018 iPIP Plans—The remainder of the Company’s iPIP plans, as shown in the table below, are liability-classified awards and are remeasured each reporting period at fair value until the awards are settled. Certain employees will be granted awards that entitle employees to receive the residual cash flows from the investments in the plans after the Company has received a specified return on its invested capital and a return of its invested capital. Awards are also subject to reductions under a TSR adjustment. The fair value of awards is determined using a model that forecasts the Company’s projected investment performance. Settlement of the awards will be 50% in cash and 50% in shares of the Company’s common stock or in shares of SAFE’s common stock owned by the Company.

The following is a summary of the status of the Company’s liability-classified iPIP plans and changes during the nine months ended September 30, 2021.

iPIP Investment Pool

    

20132014

    

20152016

    

20172018

Points at beginning of period

 

80.17

 

70.40

 

73.34

Granted

2.00

Points at end of period

 

80.17

 

70.40

 

75.34

During the nine months ended September 30, 2021 and 2020, the Company recorded $15.0 million and $20.2 million, respectively, of expense related to the 2013-2018 iPIP plans.

As of September 30, 2021, investments with an aggregate gross book value of $387 million were attributable to the 2013-2014 Plan, investments with an aggregate gross book value of $396 million were attributable to the 2015-2016 Plan and investments with an aggregate gross book value of $480 million, including 7.6 million shares of SAFE common stock acquired by the Company, were attributable to the 2017-2018 Plan.

During the nine months ended September 30, 2021, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants received total distributions in the amount of $3.2 million as compensation, comprised of cash and 97,881 shares of the Company’s common stock with a fair value of $17.65 per share, which are fully-vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a total of 57,920 shares of the Company’s common stock were issued.

During the nine months ended September 30, 2020, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants received total distributions in the amount of $1.5 million as compensation, comprised of cash and 54,245 shares of the Company’s common stock with a fair value of $14.51 per share, which are fully-vested and issued under the 2009 LTIP. After deducting statutory minimum tax withholdings, a total of 32,825 shares of the Company’s common stock were issued.

As of September 30, 2021 and December 31, 2020, the Company had accrued compensation costs relating to iPIP of $80.9 million and $69.1 million, respectively, which are included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets.

Long-Term Incentive Plan—The Company’s 2009 Long-Term Incentive Plan (the “2009 LTIP”) is designed to provide incentive compensation for officers, key employees, directors and advisors of the Company. The 2009 LTIP provides for awards of stock options, shares of restricted stock, phantom shares, restricted stock units, dividend equivalent rights and other share-based performance awards. All awards under the 2009 LTIP are made at the discretion of the Company’s Board of Directors or a committee of the Board of Directors. The Company’s shareholders approved the 2009 LTIP in 2009 and approved the performance-based provisions of the 2009 LTIP, as amended, in 2014. In May 2021, the

35

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Company’s shareholders approved an increase in the number of shares available for issuance under the 2009 LTIP from a maximum of 8.9 million to 9.9 million and extended the expiration date of the 2009 LTIP from May 2029 to May 2031.

As of September 30, 2021, an aggregate of 3.1 million shares remain available for issuance pursuant to future awards under the Company’s 2009 LTIP.

Restricted Stock Unit Activity—A summary of the Company’s stock-based compensation awards to certain employees in the form of long-term incentive awards for the nine months ended September 30, 2021, is as follows (in thousands):

Nonvested at beginning of period

531

Granted

372

Vested

(112)

Forfeited

(32)

Nonvested at end of period

 

759

As of September 30, 2021, there was $6.8 million of total unrecognized compensation cost related to all unvested restricted stock units that are expected to be recognized over a weighted average remaining vesting/service period of 1.35 years.

Directors’ Awards—During the nine months ended September 30, 2021, the Company granted 38,186 restricted shares of common stock to non-employee Directors at a fair value of $17.51 at the time of grant for their annual equity awards and also issued 1,592 common stock equivalents (“CSEs”) at a fair value of $20.41 per CSE in respect of dividend equivalents on outstanding CSEs. As of September 30, 2021, a combined total of 129,452 CSEs and restricted shares of common stock granted to members of the Company’s Board of Directors remained outstanding under the Company’s Non-Employee Directors Deferral Plan, with an aggregate intrinsic value of $3.2 million.

401(k) Plan— The Company made contributions of $0.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $0.8 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively, to the Company’s 401(k) Plan.

Note 16—Earnings Per Share

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

For the Three Months Ended September 30, 

For the Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Net income (loss)

$

130,994

$

6,451

$

127,567

$

(20,793)

Net income attributable to noncontrolling interests

 

(3,264)

 

(2,646)

 

(8,037)

 

(8,435)

Preferred dividends

 

(5,874)

 

(5,874)

 

(17,622)

 

(17,622)

Net income (loss) allocable to common shareholders for basic and diluted earnings per common share

$

121,856

$

(2,069)

$

101,908

$

(46,850)

36

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

For the Three Months Ended September 30, 

For the Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Earnings allocable to common shares:

 

  

 

  

  

 

  

Numerator for basic earnings per share:

 

  

 

  

  

 

  

Net income (loss) attributable to iStar Inc. and allocable to common shareholders

$

121,856

$

(2,069)

$

101,908

$

(46,850)

Numerator for diluted earnings per share:

 

  

 

  

 

  

 

  

Net income (loss) allocable to common shareholders

$

121,856

$

(2,069)

$

101,908

$

(46,850)

Denominator for basic and diluted earnings per share:

 

  

 

  

 

  

 

  

Weighted average common shares outstanding for basic earnings per common share

71,299

75,033

72,675

76,232

Add: Effect of assumed shares issued under treasury stock method for restricted stock units

221

206

Add: Effect of convertible debt

8,967

5,521

Weighted average common shares outstanding for basic and diluted earnings per common share

 

80,487

 

75,033

 

78,402

 

76,232

Basic and diluted earnings per common share:(1)

 

  

 

  

 

  

 

  

Net income (loss) allocable to common shareholders

$

1.71

$

(0.03)

$

1.40

$

(0.61)

Diluted earnings per common share:(1)

 

  

 

  

 

  

 

  

Net income (loss) allocable to common shareholders

$

1.51

$

(0.03)

$

1.30

$

(0.61)

(1)For the three and nine months ended September 30, 2020, no shares of common stock would have been issuable upon conversion of the 3.125% Convertible Notes, and therefore the 3.125% Convertible Notes had no effect on diluted EPS for such periods.

Note 17—Fair Values

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

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

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

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

37

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

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

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

Fair Value Using

Quoted 

market

Significant

 prices in

other

Significant

active

 observable

unobservable

markets

 inputs

  inputs

    

Total

    

   (Level 1)

    

  (Level 2)

    

 (Level 3)

As of September 30, 2021

  

  

  

  

Recurring basis:

 

  

 

  

 

  

 

  

Derivative liabilities(1)

 

$

11,723

 

$

 

$

11,723

 

$

Available-for-sale securities(1)

 

27,535

 

 

 

27,535

Non-recurring basis:

 

 

Impaired real estate available and held for sale(2)

1,682

1,682

Other investments(3)

98,461

98,461

As of December 31, 2020

 

  

 

  

 

  

 

  

Recurring basis:

 

  

 

  

 

  

 

  

Derivative liabilities(1)

18,926

18,926

Available-for-sale securities(1)

25,274

25,274

Non-recurring basis:

 

  

 

  

 

  

 

  

Impaired land and development(4)

 

6,078

 

 

 

6,078

(1)The fair value of the Company’s derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company’s available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as Level 3.
(2)The Company recorded a $0.4 million impairment on an operating property held for sale with an estimated fair value of $1.7 million. The estimated fair value is based on an executed sales contract with a third party.
(3)During the nine months ended September 30, 2021, the Company identified an observable price change in an equity security held by the Company as evidenced by an orderly private issuance of similar securities by the same issuer and, as such, classified such observable price change as Level 2.
(4)The Company recorded a $1.3 million impairment on a land and development asset with an estimated fair value of $6.1 million. The estimated fair value is based on future cash flows expected to be received.

The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company’s consolidated balance sheets for the nine months ended September 30, 2021 and 2020 ($ in thousands):

    

2021

    

2020

Beginning balance

$

25,274

$

23,896

Purchases

3,375

Repayments

 

(201)

 

(460)

Unrealized gains (losses) recorded in other comprehensive income

 

(913)

 

1,195

Ending balance

$

27,535

$

24,631

38

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Fair values of financial instruments—The following table presents the carrying value and fair value for the Company’s financial instruments ($ in millions):

As of September 30, 2021

As of December 31, 2020

Carrying

Fair 

Carrying

Fair 

    

 Value

    

Value

    

 Value

    

Value

Net investment in leases(1)

$

477

$

497

$

429

$

431

Loans receivable and other lending investments, net(1)

 

406

 

436

 

732

 

772

Cash and cash equivalents(2)

 

299

 

299

 

99

 

99

Restricted cash(2)

 

56

 

56

 

52

 

52

Loan participations payable, net(1)

 

 

 

43

 

43

Debt obligations, net(1)(3)

3,283

3,643

3,287

3,414

(1)The fair value of the Company’s net investment in leases, loans receivable and other lending investments, net, loan participations payable, net and debt obligations, net are classified as Level 3 within the fair value hierarchy.
(2)The Company determined the carrying values of its cash and cash equivalents and restricted cash approximated their fair values. Restricted cash is recorded in “Deferred expenses and other assets, net” on the Company’s balance sheet. The fair value of the Company’s cash and cash equivalents and restricted cash are classified as Level 1 within the fair value hierarchy.
(3)As of September 30, 2021 and December 31, 2020, the fair value of the Company’s 3.125% Senior Convertible Notes was $527.2 million and $338.8 million, respectively.

Note 18—Segment Reporting

The Company has determined that it has four reportable segments based on how management reviews and manages its business. These reportable segments include: Net Lease, Real Estate Finance, Operating Properties and Land and Development. The Net Lease segment includes the Company’s activities and operations related to the ownership of properties generally leased to single corporate tenants and its investments in SAFE and Net Lease Venture II (refer to Note 8). The Real Estate Finance segment includes all of the Company’s activities related to senior and mezzanine real estate loans and real estate related securities. The Operating Properties segment includes the Company’s activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company’s activities related to its developable land portfolio.

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

    

Net

    

Real Estate

    

Operating 

    

Land and 

    

Corporate/ 

    

Company  

 Lease

 Finance

Properties

Development

Other(1)

Total

Three Months Ended September 30, 2021

Operating lease income

$

40,659

$

$

3,637

$

96

$

$

44,392

Interest income

 

1,630

 

6,321

 

 

 

 

7,951

Interest income from sales-type leases

 

9,578

 

 

 

 

 

9,578

Other income

 

4,767

 

1,095

 

16,869

 

3,189

 

14,275

 

40,195

Land development revenue

 

 

 

 

93,369

 

 

93,369

Earnings (losses) from equity method investments

 

74,889

 

872

 

1,129

 

10,836

 

1,483

 

89,209

Income from sales of real estate

 

 

 

25,611

 

 

 

25,611

Total revenue and other earnings

 

131,523

 

8,288

 

47,246

 

107,490

 

15,758

 

310,305

Real estate expense

 

(5,446)

 

 

(9,184)

 

(4,094)

 

 

(18,724)

Land development cost of sales

 

 

 

 

(87,380)

 

 

(87,380)

Other expense

 

(1,327)

 

(270)

 

 

(64)

 

(350)

 

(2,011)

Allocated interest expense

 

(26,467)

 

(3,331)

 

(1,641)

 

(3,679)

 

(4,353)

 

(39,471)

Allocated general and administrative(2)

 

(5,487)

 

(958)

 

(473)

 

(2,173)

 

(5,029)

 

(14,120)

Segment profit (loss)(3)

$

92,796

$

3,729

$

35,948

$

10,100

$

6,026

$

148,599

Other significant items:

 

  

 

  

 

  

 

  

 

  

 

  

Provision for (recovery of) loan losses

$

54

$

(1,610)

$

$

$

$

(1,556)

Provision for losses on net investment in leases

 

131

 

 

 

 

 

131

Impairment of assets

 

757

 

 

422

 

 

 

1,179

Depreciation and amortization

 

13,114

 

 

1,385

 

228

 

129

 

14,856

Capitalized expenditures

 

969

 

 

121

 

7,416

 

 

8,506

39

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Three Months Ended September 30, 2020

 

  

 

  

 

  

 

  

 

  

 

  

Operating lease income

$

41,144

$

$

5,137

$

89

$

$

46,370

Interest income

 

911

 

13,359

 

 

 

 

14,270

Interest income from sales-type leases

 

8,360

 

 

 

 

 

8,360

Other income

 

4,554

 

104

 

2,956

 

3,831

 

14,107

 

25,552

Land development revenue

 

 

 

 

20,502

 

 

20,502

Earnings (losses) from equity method investments

 

10,141

 

 

(4,134)

 

592

 

206

 

6,805

Income from sales of real estate

 

6,055

 

 

 

 

 

6,055

Total revenue and other earnings

 

71,165

 

13,463

 

3,959

 

25,014

 

14,313

 

127,914

Real estate expense

 

(7,136)

 

 

(4,428)

 

(5,371)

 

 

(16,935)

Land development cost of sales

 

 

 

 

(21,358)

 

 

(21,358)

Other expense

 

 

(37)

 

 

 

(36)

 

(73)

Allocated interest expense

 

(26,049)

 

(5,831)

 

(2,289)

 

(4,606)

 

(3,632)

 

(42,407)

Allocated general and administrative(2)

 

(5,161)

 

(1,451)

 

(582)

 

(2,320)

 

(4,693)

 

(14,207)

Segment profit (loss) (3)

 

32,819

$

6,144

$

(3,340)

$

(8,641)

$

5,952

$

32,934

Other significant non-cash items:

 

  

 

  

 

  

 

  

 

  

 

  

Provision for (recovery of) loan losses

$

19

$

(1,995)

$

$

$

$

(1,976)

Provision for losses on net investment in leases

175

175

Depreciation and amortization

 

12,781

 

 

1,287

 

243

 

310

 

14,621

Capitalized expenditures

 

1,896

 

 

84

 

5,170

 

 

7,150

    

Net

    

Real Estate

    

Operating 

    

Land and 

    

Corporate/ 

    

Company 

 Lease

 Finance

Properties

Development

Other(1)

Total

Nine Months Ended September 30, 2021

Operating lease income

$

123,926

$

$

13,176

$

279

$

$

137,381

Interest income

 

3,696

 

23,878

 

 

 

 

27,574

Interest income from sales-type leases

 

26,895

 

 

 

 

 

26,895

Other income

 

14,213

 

1,245

 

23,159

 

5,894

 

20,038

 

64,549

Land development revenue

 

 

 

 

157,936

 

 

157,936

Earnings (losses) from equity method investments

 

98,604

 

2,092

 

(5,553)

 

15,456

 

4,076

 

114,675

Income from sales of real estate

 

2,114

 

 

26,319

 

 

 

28,433

Total revenue and other earnings

 

269,448

 

27,215

 

57,101

 

179,565

 

24,114

 

557,443

Real estate expense

 

(21,065)

 

 

(19,238)

 

(13,604)

 

 

(53,907)

Land development cost of sales

 

 

 

 

(147,507)

 

 

(147,507)

Other expense

 

(1,327)

 

(422)

 

 

(64)

 

(662)

 

(2,475)

Allocated interest expense

 

(76,888)

 

(11,737)

 

(5,714)

 

(11,481)

 

(12,631)

 

(118,451)

Allocated general and administrative(2)

 

(17,544)

 

(3,659)

 

(1,797)

 

(6,968)

 

(15,686)

 

(45,654)

Segment profit (loss)(3)

$

152,624

$

11,397

$

30,352

$

(59)

$

(4,865)

$

189,449

Other significant items:

 

  

 

  

 

  

 

  

 

  

 

  

Recovery of loan losses

$

(202)

$

(7,411)

$

$

$

$

(7,613)

Recovery of losses on net investment in leases

 

(1,735)

 

 

 

 

 

(1,735)

Impairment of assets

 

2,286

 

 

679

 

 

 

2,965

Depreciation and amortization

 

39,255

 

 

4,593

 

674

 

449

 

44,971

Capitalized expenditures

 

2,300

 

 

610

 

16,727

 

 

19,637

Nine Months Ended September 30, 2020

 

 

 

 

 

 

Operating lease income

$

124,109

$

$

16,153

$

267

$

$

140,529

Interest income

 

2,594

 

44,331

 

 

 

 

46,925

Interest income from sales-type leases

 

25,010

 

 

 

 

 

25,010

Other income

 

13,468

 

4,249

 

6,605

 

5,558

 

26,332

 

56,212

Land development revenue

 

 

 

 

116,254

 

 

116,254

Earnings (losses) from equity method investments

 

38,472

 

 

(11,741)

 

1,225

 

(1,953)

 

26,003

Income from sales of real estate

 

6,056

 

 

62

 

 

 

6,118

Total revenue and other earnings

 

209,709

 

48,580

 

11,079

 

123,304

 

24,379

 

417,051

Real estate expense

 

(19,497)

 

 

(16,600)

 

(17,611)

 

 

(53,708)

Land development cost of sales

 

 

 

 

(114,704)

 

 

(114,704)

Other expense

 

 

(80)

 

 

 

(271)

 

(351)

Allocated interest expense

 

(74,915)

 

(17,989)

 

(6,731)

 

(13,598)

 

(14,515)

 

(127,748)

Allocated general and administrative(2)

 

(17,327)

 

(5,123)

 

(1,966)

 

(7,524)

 

(14,523)

 

(46,463)

Segment profit (loss)(3)

$

97,970

$

25,388

$

(14,218)

$

(30,133)

$

(4,930)

$

74,077

Other significant items:

 

  

 

  

 

  

 

  

 

  

 

  

Provision for loan losses

$

212

$

3,881

$

$

$

$

4,093

Provision for losses on net investment in leases

 

2,001

 

 

 

 

 

2,001

40

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Impairment of assets

 

2,036

 

 

2,983

 

1,472

 

 

6,491

Depreciation and amortization

37,924

3,843

729

911

43,407

Capitalized expenditures

 

8,913

 

 

1,421

 

25,222

 

 

35,556

As of September 30, 2021

 

  

 

  

 

  

 

  

 

  

 

  

Real estate, net

$

1,263,881

$

$

93,043

$

$

$

1,356,924

Real estate available and held for sale

 

 

 

1,983

 

 

 

1,983

Total real estate

 

1,263,881

 

 

95,026

 

 

 

1,358,907

Net investment in leases

 

477,360

 

 

 

 

 

477,360

Land and development, net

 

 

 

 

302,845

 

 

302,845

Loans receivable and other lending investments, net

 

47,555

 

357,954

 

 

 

 

405,509

Loan receivable held for sale

 

42,683

 

 

 

 

 

42,683

Other investments

1,213,804

47,936

43,659

537

113,830

1,419,766

Total portfolio assets

3,045,283

405,890

138,685

303,382

113,830

 

4,007,070

Cash and other assets

 

795,095

Total assets

 

  

 

  

 

  

 

  

$

4,802,165

As of December 31, 2020

 

  

 

  

 

  

 

  

 

  

 

  

Real estate, net

$

1,291,903

$

$

192,378

$

$

$

1,484,281

Real estate available and held for sale

 

 

 

5,212

 

 

 

5,212

Total real estate

 

1,291,903

 

 

197,590

 

 

 

1,489,493

Net investment in leases

 

429,101

 

 

 

 

 

429,101

Land and development, net

 

 

 

 

430,663

 

 

430,663

Loans receivable and other lending investments, net

 

45,398

 

686,932

 

 

 

 

732,330

Other investments

 

1,016,710

 

 

58,739

 

31,200

 

69,911

 

1,176,560

Total portfolio assets

$

2,783,112

$

686,932

$

256,329

$

461,863

$

69,911

 

4,258,147

Cash and other assets

 

 

  

 

  

 

  

 

  

603,661

Total assets

 

  

 

  

 

  

 

  

$

4,861,808

(1)Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also includes the Company’s joint venture investments and strategic investments that are not included in the other reportable segments above.
(2)General and administrative excludes stock-based compensation expense of $3.0 million and $23.3 million for the three and nine months ended September 30, 2021, respectively, and $5.7 million and $26.7 million for the three and nine months ended September 30, 2020, respectively.
(3)The following is a reconciliation of segment profit to net income (loss) ($ in thousands):

    

For the Three Months Ended September 30, 

For the Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Segment profit

$

148,599

$

32,934

$

189,449

$

74,077

Less: Recovery of (provision for) loan losses

 

1,556

 

1,976

 

7,613

 

(4,093)

Less: (Provision for) recovery of losses on net investment in leases

 

(131)

 

(175)

 

1,735

 

(2,001)

Less: Impairment of assets

 

(1,179)

 

 

(2,965)

 

(6,491)

Less: Stock-based compensation expense

 

(3,001)

 

(5,661)

 

(23,300)

 

(26,675)

Less: Depreciation and amortization

 

(14,856)

 

(14,621)

 

(44,971)

 

(43,407)

Less: Income tax benefit (expense)

 

6

 

(78)

 

6

 

(165)

Less: Loss on early extinguishment of debt, net

 

 

(7,924)

 

 

(12,038)

Net income (loss)

$

130,994

$

6,451

$

127,567

$

(20,793)

41

iStar Inc.

Notes to Consolidated Financial Statements (Continued)

(unaudited)

Table of Contents

Note 19—Subsequent Events

Subsequent to the end of the quarter, the Company obtained the consents of holders of its outstanding 4.75% senior notes due 2024, 4.25% senior notes due 2025 and 5.50% senior notes due 2026 to certain amendments to the indentures governing the notes intended to align the indentures with the potential sale of the Company's net lease assets. The Company paid holders consent fees ranging from 0.75% to 1.00% of the principal amount of consenting notes, depending on the relevant series. The Company previously announced on July 6, 2021 that it intended to explore market interest for possible sales of its net lease assets. That process remains ongoing. There can be no assurance as to whether the Company will sell some, all or none of its net lease assets, or as to the timing and terms of any sales.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are included with respect to, among other things, iStar Inc.’s (the “Company’s”) current business plan, business strategy, portfolio management, prospects and liquidity. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-Q and the uncertainties and risks described in Item 1A—"Risk Factors’’ in our 2020 Annual Report, all of which could affect our future results of operations, financial condition and liquidity. For purposes of Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “we,” “our” and “us” refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

The discussion below should be read in conjunction with our consolidated financial statements and related notes in this quarterly report on Form 10-Q and our 2020 Annual Report. These historical financial statements may not be indicative of our future performance.

Executive Overview

Our portfolio is well diversified by business, property type and geography. Our portfolio includes investments in the entertainment/leisure (23.0% of gross book value) and hotel (4.2% of gross book value) sectors, both of which have been particularly stressed by the COVID-19 pandemic. We may experience disruptions and collections of rent and interest payments until more normalized business conditions resume.

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 into the third quarter 2021, 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 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 our 2020 Annual 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

As of September 30, 2021, based on our gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):(1)

Property/Collateral

    

Net 

    

Real Estate 

    

Operating 

    

Land & 

    

    

    

% of 

 

Types

Lease

Finance

Properties

Development

Corporate

Total

Total

 

Ground Leases

$

1,229,403

$

$

$

$

$

1,229,403

 

27.1

%

Entertainment / Leisure

1,030,994

 

 

16,297

 

 

 

1,047,291

 

23.0

%

Office

820,048

52,107

872,155

 

19.2

%

Industrial / Lab

433,783

98,461

532,244

 

11.7

%

Land and Development

 

 

11,900

 

 

235,747

 

 

247,647

 

5.4

%

Hotel

 

 

107,505

 

82,292

 

 

 

189,797

 

4.2

%

Multifamily

 

 

122,906

 

59,918

 

 

 

182,824

 

4.0

%

Retail

 

 

61,461

 

31,566

 

8,340

 

 

101,367

 

2.2

%

Condominium

 

 

27,257

 

1,983

 

69,878

 

 

99,118

 

2.2

%

Other Property Types

 

 

27,536

 

 

 

15,369

 

42,905

 

0.9

%

Total

$

3,514,228

$

410,672

$

192,056

$

313,965

$

113,830

$

4,544,751

 

100.0

%

Percentage of Total

77%

9%

4%

7%

3%

100%

    

Net 

    

Real Estate 

    

Operating 

    

Land & 

    

    

    

% of 

 

Geographic Region

Lease

Finance

Properties

Development

Corporate

Total

Total

 

Northeast

$

961,145

$

101,479

$

93,624

$

196,702

$

$

1,352,950

 

29.8

%

West

 

581,022

 

143,774

 

43,083

 

11,847

 

 

779,726

 

17.2

%

Mid-Atlantic

 

573,630

 

 

6,090

 

102,063

 

 

681,783

 

15.0

%

Southwest

 

498,056

 

 

 

2,200

 

 

500,256

 

11.0

%

Southeast

 

461,294

 

28,479

 

6,647

 

1,153

 

 

497,573

 

10.9

%

Central

 

429,594

 

41,682

 

42,612

 

 

 

513,888

 

11.3

%

Various

 

9,487

 

95,258

 

 

 

113,830

 

218,575

 

4.8

%

Total

$

3,514,228

$

410,672

$

192,056

$

313,965

$

113,830

$

4,544,751

 

100.0

%

(1)For net lease, operating properties and land and development, gross book value is defined as the basis assigned to physical real estate property (land and building), net of any impairments taken after acquisition date and net of basis reductions associated with unit/parcel sales, plus our basis in equity method investments, plus lease related intangibles, capitalized leasing costs and excluding accumulated depreciation and amortization, and for equity method investments, excluding the effect of our share of accumulated depreciation and amortization. For real estate finance, gross book value is defined as principal funded including any deferred capitalized interest receivable, plus protective advances, exit fee receivables and any unamortized origination/modification costs, plus our basis in equity method investments, less purchase discounts and specific allowances. This amount is not reduced for CECL allowances. Real estate finance includes our $48 million pro rata share of loans held within an equity method investment.

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).

The net lease segment includes our Ground Lease investments made primarily through SAFE and our traditional net lease investments. As of September 30, 2021, the gross book value of 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 $3.5 billion. In July 2021, we announced that we intend to explore market interest for possible sales of our net lease assets. The potential sale would be consistent with our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio through

44

Table of Contents

sales of other assets. There can be no assurance as to whether we will sell some, all or none of our net lease assets, or as to the timing or terms of any sales. The table below provides certain statistics for our net lease portfolio.

Total

    

Wholly-

    

Net Lease 

    

Consolidated 

    

Net Lease 

    

 

Owned

Venture I

Real Estate(1)

Venture II

SAFE

 

Ownership %

100.0

%

51.9

%  

 

51.9

%

63.6

%

Gross book value (millions)(2)

$

1,348

$

911

$

2,259

$

324

$

3,879

% Leased

 

98.9

%

 

100.0

%  

 

99.3

%

 

100.0

%

 

100.0

%

Square footage (thousands)

 

9,630

 

5,755

 

15,385

 

3,302

 

N/A

Weighted average lease term (years)(3)

 

18.8

 

16.2

 

17.7

 

12.3

 

89.1

Weighted average yield(4)

 

7.6

%

 

8.2

%  

 

7.8

%

 

9.1

%

 

4.6

%

(1)We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements (refer to Note 4).
(2)Consolidated Real Estate includes amounts recorded as net investment in leases (refer to Note 5) and financing receivables in loans and other lending investments (refer to Note 7). SAFE includes its pro rata share of its unconsolidated equity method investments.
(3)Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options. SAFE includes its pro rata share of its unconsolidated equity method investments.
(4)Yield for SAFE is calculated over the trailing twelve months and excludes management fees earned by us.

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 (refer to Note 4 in our consolidated financial statements for more information on our Net Lease Venture). The Net Lease Venture’s investment period expired on June 30, 2018 and the remaining term of the venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of us and our partner. We obtained control over the Net Lease Venture when the investment period expired on June 30, 2018 and consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment.

Net Lease Venture II—In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture (refer to Note 8). The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us. We have an equity interest in the new venture of approximately 51.9%, which is accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee. In June 2021, Net Lease Venture II’s investment period was extended to December 31, 2021.

SAFE—SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted returns from its investments. We believe its business has characteristics comparable to a high-grade fixed income investment business, but with certain unique advantages. Relative to alternative fixed income investments generally, SAFE’s Ground Leases typically benefit from built-in growth derived from contractual rent increases, and the opportunity to realize value from residual rights to acquire the buildings and other improvements on its land at no additional cost. We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments. As of September 30, 2021, we owned approximately 63.6% of SAFE’s common stock outstanding.

We account for our investment in SAFE as an equity method investment (refer to Note 8). We act as SAFE’s external manager pursuant to a management agreement, and we have an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.

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

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loans to mezzanine and preferred equity capital positions. Our real estate finance portfolio consists of 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, leasehold loans to Ground Lease tenants, including tenants of SAFE, 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 loans on stabilized and transitional properties, Ground Leases and ground-up construction projects. In addition, we have preferred equity investments and debt securities classified as other lending investments.

As of September 30, 2021, the gross book value of our consolidated real estate finance portfolio, including securities and other lending investments, totaled $411.2 million, gross of general loan loss allowances. The portfolio, excluding securities and other lending investments, included $181.8 million of performing loans with a weighted average maturity of 2.9 years.

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

    

September 30, 2021

 

    

    

    

    

    

    

Allowance for 

    

Gross 

Allowance 

Loan Losses as 

 

Number

Book

for Loan 

Net Book

% of 

a % of Gross 

 

    

of Loans

    

 Value

    

Losses

    

Value

    

Total

Book Value

Performing loans

9

$

181,764

$

(2,244)

$

179,520

 

44.3%

1.2%

Non-performing loans

1

 

58,819

 

(640)

 

58,179

 

14.3%

1.1%

Other lending investments

3

 

171,296

 

(3,486)

 

167,810

 

41.4%

2.0%

Total

13

$

411,879

$

(6,370)

$

405,509

 

100.0%

1.5%

    

December 31, 2020

 

    

    

    

    

    

    

Allowance for 

    

Gross 

Allowance 

Loan Losses as 

 

Number

Book

for Loan 

Net Book

% of 

a % of Gross 

 

of Loans

 Value

Losses

Value

Total

 

Book Value

Performing loans

16

$

529,657

$

(8,184)

$

521,473

 

71.2%

1.5%

Non-performing loans

1

 

53,305

 

(742)

 

52,563

 

7.2%

1.4%

Other lending investments

3

 

162,538

 

(4,244)

 

158,294

 

21.6%

2.6%

Total

20

$

745,500

$

(13,170)

$

732,330

 

100.0%

1.8%

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

    

September 30, 2021

    

December 31, 2020

 

Senior mortgages

$

148,059

$

432,350

Corporate/Partnership loans

 

21,457

 

85,667

Subordinate mortgages

 

12,248

 

11,640

Total

$

181,764

$

529,657

Weighted average LTV

 

63%

 

57%

Yield - year to date(1)

 

7.9%

 

7.9%

(1)Yields presented are for the nine months ended September 30, 2021 and 2020 and represent the yields on performing loans and other lending investments.

Non-Performing Loans—We designate loans as non-performing at such time as: (1) interest payments become 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt. As of September 30, 2021 and December 31, 2020, we had one non-performing loan with a carrying value of $58.2 million and $52.6 million, respectively. We expect that our level of non-performing loans will fluctuate from period to period.

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Allowance for Loan Losses—The allowance for loan losses was $6.4 million as of September 30, 2021, or 1.5% of total loans and other lending investments, compared to $13.2 million, or 1.8%, as of December 31, 2020. We expect that our level of allowance for loan losses will fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and allowances requires the use of significant judgment. We currently believe there is adequate collateral and allowances to support the carrying values of the loans and other lending investments.

The allowance for loan losses includes an asset-specific component and a formula-based component. An asset-specific allowance is established for an impaired loan when the estimated fair value of the loan’s collateral less costs to sell is lower than the carrying value of the loan. As of September 30, 2021 and December 31, 2020, asset-specific allowances were $0.6 million and $0.7 million, respectively.

We estimate the formula-based component based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market. In addition, we use third-party market data that includes forecasted economic trends, including unemployment rates.

The general allowance decreased to $5.7 million, or 1.6%, of performing loans and other lending investments as of September 30, 2021, compared to $12.4 million, or 1.8%, of performing loans and other lending investments as of December 31, 2020. The decrease was due primarily to the repayment of loans during the nine months ended September 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020.

Operating Properties

Our operating properties represent a pool of assets across a broad range of geographies and property types including industrial, hotel, multifamily, retail, condominium and entertainment/leisure properties. As of September 30, 2021, the gross book value of our operating property portfolio, including the carrying value of our equity method investments gross of accumulated depreciation, totaled $192.1 million.

Land and Development

The following table presents a land and development portfolio rollforward for the nine months ended September 30, 2021.

Land and Development Portfolio Rollforward

(in millions)

    

Asbury Ocean 

    

    

    

Club and 

Asbury Park 

Magnolia 

All 

Total

Waterfront

Green

Others

Segment

Beginning balance(1)

$

201.1

$

101.3

$

128.3

$

430.7

Asset sales(2)

 

(50.2)

 

(19.1)

 

(72.6)

 

(141.9)

Capital expenditures

 

1.0

 

15.6

 

 

16.6

Other

 

 

(2.3)

 

(0.3)

 

(2.6)

Ending balance(1)

$

151.9

$

95.5

$

55.4

$

302.8

(1)As of September 30, 2021, and December 31, 2020, Total Segment excludes $0.5 million and $31.2 million, respectively, of equity method investments.
(2)Represents gross book value of the assets sold, rather than proceeds received.

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Results of Operations for the Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

    

For the Three Months Ended

September 30, 

    

2021

    

2020

    

$ Change

(in thousands)

Operating lease income

$

44,392

$

46,370

$

(1,978)

Interest income

 

7,951

 

14,270

 

(6,319)

Interest income from sales-type leases

 

9,578

 

8,360

 

1,218

Other income

 

40,195

 

25,552

 

14,643

Land development revenue

 

93,369

 

20,502

 

72,867

Total revenue

 

195,485

 

115,054

 

80,431

Interest expense

 

39,471

 

42,407

 

(2,936)

Real estate expenses

 

18,724

 

16,935

 

1,789

Land development cost of sales

 

87,380

 

21,358

 

66,022

Depreciation and amortization

 

14,856

 

14,621

 

235

General and administrative

 

17,121

 

19,868

 

(2,747)

(Recovery of) provision for loan losses

 

(1,556)

 

(1,976)

 

420

Provision for (recovery of) losses on net investment in leases

 

131

 

175

 

(44)

Impairment of assets

 

1,179

 

 

1,179

Other expense

 

2,011

 

73

 

1,938

Total costs and expenses

 

179,317

 

113,461

 

65,856

Income from sales of real estate

 

25,611

 

6,055

 

19,556

Loss on early extinguishment of debt, net

 

 

(7,924)

 

7,924

Earnings from equity method investments

 

89,209

 

6,805

 

82,404

Income tax benefit (expense)

 

6

 

(78)

 

84

Net income

$

130,994

$

6,451

$

124,543

Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased $2.0 million to $44.4 million during the three months ended September 30, 2021 from $46.4 million for the same period in 2020. The following table summarizes our operating lease income by segment ($ in millions).

    

Three Months Ended September 30, 

    

    

2021

    

2020

    

Change

Net Lease(1)

$

40.7

$

41.1

$

(0.4)

Operating Properties(2)

 

3.6

 

5.2

 

(1.6)

Land and Development

 

0.1

 

0.1

 

Total

$

44.4

$

46.4

$

(2.0)

(1)Change primarily due to the sale of assets, partially offset by an increase in rent at certain of our properties.
(2)Change primarily due to the sale of assets.

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The following table shows certain same store statistics for our consolidated Net Lease segment. Same store assets are defined as assets we owned on or prior to July 1, 2020 and were in service through September 30, 2021 (Operating lease income in millions).

    

Three Months Ended September 30, 

 

    

2021

    

2020

 

Operating lease income(1)

$

50.6

$

49.4

Rent per square foot

$

13.25

$

12.77

Occupancy(2)

99.3

%  

 

98.6

%

(1)For the three months ended September 30, 2021 and 2020, includes $10.0 million and $9.2 million, respectively, of lease income from one net lease tenant that was recorded to “Interest income from sales-type leases” and “Interest income” in our consolidated statements of operations.
(2)Occupancy as of September 30, 2021 and 2020.

Interest income decreased to $8.0 million during the three months ended September 30, 2021 from $14.3 million for the same period in 2020. The decrease was due primarily to a decrease in the average balance of our performing loans and other lending investments, which was $323 million for the three months ended September 30, 2021 and $703 million for the three months ended September 30, 2020. The weighted average yield on our performing loans and other lending investments was 7.8% and 7.6%, respectively, for the three months ended September 30, 2021 and 2020.

Interest income from sales-type leases increased to $9.6 million for the three months ended September 30, 2021 from $8.4 million for the same period in 2020. The increase was due primarily to sales-type leases originated in 2021.

Other income increased to $40.2 million during the three months ended September 30, 2021 from $25.6 million for the same period in 2020. Other income during the three months ended September 30, 2021 consisted primarily of mark-to-market gains on an equity investment, income from our hotel properties, lease termination fees, management fees, other ancillary income from our land and development projects and loan portfolio and interest income on our cash. Other income during the three months ended September 30, 2020 consisted primarily of mark-to-market gains on an equity investment, management fees, other ancillary income from our operating properties, land and development projects and loan portfolio, income from our hotel properties and interest income on our cash.

Land development revenue and cost of sales—During the three months ended September 30, 2021, we sold land parcels and residential lots and units and recognized land development revenue of $93.4 million which had associated cost of sales of $87.4 million. During the three months ended September 30, 2020, we sold residential lots and units and recognized land development revenue of $20.5 million which had associated cost of sales of $21.4 million. The increase in 2021 was primarily due to the sale of three land properties.

Costs and expenses—Interest expense decreased to $39.5 million during the three months ended September 30, 2021 from $42.4 million for the same period in 2020, due primarily to a decrease in our weighted average cost of debt, which was 4.5% for the three months ended September 30, 2021 compared to 4.8% for the three months ended September 30, 2020. The balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance-type leases, decreased to $3.44 billion for the three months ended September 30, 2021 from $3.47 billion for the same period in 2020.

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Real estate expense increased $1.8 million to $18.7 million during the three months ended September 30, 2021 from $16.9 million for the same period in 2020. The following table summarizes our real estate expenses by segment ($ in millions).

    

Three Months Ended September 30, 

    

    

2021

    

2020

    

Change

Operating Properties(1)

$

9.2

$

4.4

$

4.8

Land and Development(2)

 

4.1

 

5.4

 

(1.3)

Net Lease(3)

 

5.4

 

7.1

 

(1.7)

Total

$

18.7

$

16.9

$

1.8

(1)Change primarily due to an increase in expenses at certain of our hotel operating properties that have increased operations from the prior year.
(2)Change primarily due to asset sales.
(3)Change primarily due to a lease amendment at one property that resulted in a change to recoverable expenses.

Depreciation and amortization increased to $14.9 million during the three months ended September 30, 2021 from $14.6 million for the same period in 2020.

General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. General and administrative expenses decreased to $17.1 million during the three months ended September 30, 2021 from $19.9 million for the same period in 2020. The decrease in 2021 was due primarily to a $1.8 million decrease in performance-based compensation and a $0.9 million decrease in payroll and related costs from 2020. Our primary forms of performance-based compensation are our iPIP Plans and our annual bonus pool (refer to Note 15 for more information on the iPIP Plans). In addition, illustrative examples of our iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.

The recovery of loan losses was $1.6 million for the three months ended September 30, 2021 as compared to a recovery of loan losses of $2.0 million for the same period in 2020. The recovery of loan losses for the three months ended September 30, 2021 resulted from the reversal of CECL allowances on loans that repaid in full in the quarter. The recovery of loan losses for the three months ended September 30, 2020 resulted from the reversal of CECL allowances on loans that repaid in full in the third quarter 2020 and a more favorable economic outlook on commercial real estate markets in the third quarter 2020 as compared to the second quarter 2020.

The provision for losses on net investment in leases for the three months ended September 30, 2021 resulted from a changing macroeconomic forecast on commercial real estate markets since June 30, 2021. The provision for losses on net investment in leases for the three months ended September 30, 2020 resulted from the macroeconomic impact of COVID-19 on commercial real estate markets.

During the three months ended September 30, 2021, we recorded an aggregate impairment of $0.8 million resulting from the sale of net lease assets and a $0.4 million on an operating property held for sale.

Other expense was $2.0 million during the three months ended September 30, 2021 and $0.1 million for the same period in 2020. Other expenses for the three months ended September 30, 2021 consisted primarily of legal costs.

Income from sales of real estate—During the three months ended September 30, 2021, we recorded $25.6 million of income from sales of real estate primarily from the sale of an operating property. During the three months ended September 30, 2020, we recorded $6.1 million of income from sales of real estate from the sale of a Ground Lease to SAFE.

Loss on early extinguishment of debt, net—During the three months ended September 30, 2020, we incurred losses on early extinguishment of debt of $7.9 million resulting from the repayment of senior notes prior to maturity.

Earnings from equity method investments—Earnings from equity method investments increased to $89.2 million during the three months ended September 30, 2021 from $6.8 million for the same period in 2020. During the three months ended September 30, 2021, we recognized $73.5 million of income from our equity method investment in SAFE (which included a dilution gain of $60.2 million – refer to Note 8), $1.4 million from our equity method investment in Net Lease

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Venture II and $14.3 million of net aggregate income from our remaining equity method investments, which included $10.5 million from one of our equity method investments resulting from our share of income from land sales. During the three months ended September 30, 2020, we recognized $9.3 million of income from our equity method investment in SAFE and $0.8 million from our equity method investment in Net Lease Venture II, which was partially offset by $3.3 million of net aggregate losses from our remaining equity method investments.

Income tax benefit (expense)—Income tax benefit of $6 thousand was recorded for the three months ended September 30, 2021. Income tax expense of $0.1 million was recorded for the three months ended September 30, 2020 and related primarily to state margins taxes and other minimum state taxes.

Results of Operations for the Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

For the Nine Months Ended September 30, 

    

2021

    

2020

    

$ Change

(in thousands)

Operating lease income

$

137,381

$

140,529

$

(3,148)

Interest income

 

27,574

 

46,925

 

(19,351)

Interest income from sales-type leases

 

26,895

 

25,010

 

1,885

Other income

 

64,549

 

56,212

 

8,337

Land development revenue

 

157,936

 

116,254

 

41,682

Total revenue

 

414,335

 

384,930

 

29,405

Interest expense

 

118,451

 

127,748

 

(9,297)

Real estate expense

 

53,907

 

53,708

 

199

Land development cost of sales

 

147,507

 

114,704

 

32,803

Depreciation and amortization

 

44,971

 

43,407

 

1,564

General and administrative

 

68,954

 

73,138

 

(4,184)

(Recovery of) provision for loan losses

 

(7,613)

 

4,093

 

(11,706)

(Recovery of) provision for losses on net investment in leases

 

(1,735)

 

2,001

 

(3,736)

Impairment of assets

 

2,965

 

6,491

 

(3,526)

Other expense

 

2,475

 

351

 

2,124

Total costs and expenses

 

429,882

 

425,641

 

4,241

Income from sales of real estate

 

28,433

 

6,118

 

22,315

Loss on early extinguishment of debt, net

 

 

(12,038)

 

12,038

Earnings from equity method investments

 

114,675

 

26,003

 

88,672

Income tax benefit (expense)

 

6

 

(165)

 

171

Net income (loss)

$

127,567

$

(20,793)

$

148,360

Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased to $137.4 million during the nine months ended September 30, 2021 from $140.5 million for the same period in 2020. The following table summarizes our operating lease income by segment ($ in millions).

    

Nine Months Ended September 30, 

    

    

2021

    

2020

    

Change

Net Lease(1)

$

123.9

$

124.0

$

(0.1)

Operating Properties(2)

 

13.2

 

16.2

 

(3.0)

Land and Development

 

0.3

 

0.3

 

Total

$

137.4

$

140.5

$

(3.1)

(1)Change primarily due to asset sales, partially offset by an increase in rent at certain of our properties.
(2)Change primarily due to asset sales and the termination of certain leases at one of our operating properties.

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The following table shows certain same store statistics for our consolidated Net Lease segment. Same store assets are defined as assets we owned on or prior to January 1, 2020 and were in service through September 30, 2021 (Operating lease income in millions).

    

Nine Months Ended September 30, 

 

    

2021

    

2020

 

Operating lease income(1)

$

152.7

$

147.3

Rent per square foot

$

13.32

$

12.68

Occupancy(2)

 

99.3

%  

 

98.6

%

(1)For the nine months ended September 30, 2021 and 2020, includes $28.9 million and $27.4 million, respectively, of lease income from one net lease tenant that was recorded to “Interest income from sales-type leases” and “Interest income” in our consolidated statements of operations.
(2)Occupancy as of September 30, 2021 and 2020.

Interest income decreased to $27.6 million during the nine months ended September 30, 2021 from $46.9 million for the same period in 2020. The decrease was due primarily to a decrease in the average balance of our performing loans and other lending investments, which was $403 million for the nine months ended September 30, 2021 and $716 million for the nine months ended September 30, 2020. The weighted average yield on our performing loans and other lending investments for both the nine months ended September 30, 2021 and 2020 was 7.9%.

Interest income from sales-type leases increased to $26.9 million for the nine months ended September 30, 2021 from $25.0 million for the same period in 2020. The increase was due primarily to sales-type leases originated in 2021.

Other income increased to $64.5 million during the nine months ended September 30, 2021 from $56.2 million for the same period in 2020. Other income during the nine months ended September 30, 2021 consisted primarily of mark-to-market gains on an equity investment, income from our hotel properties, management fees, lease termination fees, other ancillary income from our land and development projects and loan portfolio and interest income on our cash. Other income during the nine months ended September 30, 2020 consisted primarily of mark-to-market gains on an equity investment, management fees, other ancillary income from our operating properties, land and development projects and loan portfolio, income from our hotel properties and interest income on our cash.

Land development revenue and cost of sales—During the nine months ended September 30, 2021, we sold residential lots and units and recognized land development revenue of $157.9 million which had associated cost of sales of $147.5 million. During the nine months ended September 30, 2020, we sold residential lots and units and recognized land development revenue of $116.3 million which had associated cost of sales of $114.7 million. The increase in 2021 was primarily due to the sale of three land properties.

Costs and expenses—Interest expense decreased to $118.5 million during the nine months ended September 30, 2021 from $127.7 million for the same period in 2020 due primarily to a decrease in our weighted average cost of debt, which was 4.6% for the nine months ended September 30, 2021 compared to 4.8% for the nine months ended September 30, 2020. The balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance-type leases, decreased to $3.45 billion for the nine months ended September 30, 2021 from $3.51 billion for the same period in 2020.

Real estate expenses increased to $53.9 million during the nine months ended September 30, 2021 from $53.7 million for the same period in 2020. The following table summarizes our real estate expenses by segment ($ in millions).

    

Nine Months Ended September 30, 

    

    

2021

    

2020

    

Change

Operating Properties(1)

$

19.2

$

16.6

$

2.6

Land and Development(2)

 

13.6

 

17.6

 

(4.0)

Net Lease(3)

 

21.1

 

19.5

 

1.6

Total

$

53.9

$

53.7

$

0.2

(1)Change primarily due to an increase in expenses at certain of our hotel operating properties that have increased operations from the prior year.
(2)Change primarily due to a decrease in real estate taxes and insurance costs at one property and asset sales.

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(3)Change primarily due to an increase in legal costs and common area expenses at certain properties, partially offset by a lease amendment at one property that resulted in a change to recoverable expenses.

Depreciation and amortization increased to $45.0 million during the nine months ended September 30, 2021 from $43.4 million for the same period in 2020, primarily due to the full amortization of intangible assets associated with terminated leases and placing certain assets in service during 2021.

General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. General and administrative expenses decreased to $69.0 million during the nine months ended September 30, 2021 from $73.1 million for the same period in 2020. The decrease in 2021 was due primarily to a $2.1 million decrease in performance-based compensation and a $2.1 million decrease in payroll and related costs from 2020. Our primary forms of performance-based compensation are our iPIP Plans and our annual bonus pool (refer to Note 15 for more information on the iPIP Plans). In addition, illustrative examples of our iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.

The recovery of loan losses was $7.6 million for the nine months ended September 30, 2021 as compared to a provision for loan losses of $4.1 million for the same period in 2020. The recovery of loan losses for the nine months ended September 30, 2021 resulted from the reversal of CECL allowances on loans that repaid in full during the period and from an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. The provision for loan losses for the nine months ended September 30, 2020 resulted from the macroeconomic impact of COVID-19 on commercial real estate markets.

The recovery of losses on net investment in leases for the nine months ended September 30, 2021 resulted from asset sales and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. The provision for losses on net investment in leases for the nine months ended September 30, 2020 included an allowance resulting from the macroeconomic impact of COVID-19 on commercial real estate markets.

During the nine months ended September 30, 2021, we recorded an aggregate impairment of $2.5 in connection with the sale of net lease assets and residential condominiums and a $0.4 million impairment on an operating property held for sale. During the nine months ended September 30, 2020, we recorded an aggregate impairment of $6.5 million in connection with the sale of net lease assets and impairments on a real estate asset held for sale and a land and development asset.

Other expense increased to $2.5 million during the nine months ended September 30, 2021 from $0.4 million for the same period in 2020. The increase in 2021 was primarily due to an increase in legal costs.

Income from sales of real estate—During the nine months ended September 30, 2021, we recorded $28.4 million of income from sales of real estate from the sale of an operating property, net lease assets and residential condominiums. During the nine months ended September 30, 2020, we recorded $6.1 million of income from sales of real estate primarily from the sale of a Ground Lease to SAFE.

Loss on early extinguishment of debt, net—During the nine months ended September 30, 2020, we incurred losses on early extinguishment of debt of $12.0 million resulting from the repayment of senior notes prior to maturity.

Earnings from equity method investments—Earnings from equity method investments increased to $114.7 million during the nine months ended September 30, 2021 from $26.0 million for the same period in 2020. During the nine months ended September 30, 2021, we recognized $94.6 million of income from our equity method investment in SAFE (which included a dilution gain of $60.7 million – refer to Note 8), $4.0 million from our equity method investment in Net Lease Venture II and $16.1 million of net aggregate income from our remaining equity method investments, which included $13.3 million from one of our equity method investments resulting from our share of income from land sales. During the nine months ended September 30, 2020, we recognized $36.9 million of income from our equity method investment in SAFE, which included a dilution gain of $7.9 million resulting from a SAFE equity offering in March 2020, and $1.6 million from our equity investment in Net Lease Venture II, which were partially offset by $12.5 million of net aggregate losses from our remaining equity method investments.

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Income tax expense— Income tax benefit of $6 thousand was recorded during the nine months ended September 30, 2021. Income tax expense of $0.2 million was recorded during the nine months ended September 30, 2020 and was due primarily to state margins taxes and other minimum state taxes.

Adjusted Earnings

In 2019, we announced a new business strategy that would focus our management personnel and our investment resources primarily on scaling our Ground Lease platform. As part of this strategy, we accelerated the monetization of legacy assets, reducing our legacy portfolio to approximately 10% of our overall portfolio as of September 30, 2021, and deployed a substantial portion of the proceeds into additional investments in SAFE and new loan and net lease originations relating to the Ground Lease business. Adjusted earnings is a non-GAAP metric management uses to assess our execution of this strategy and the performance of our operations.

Adjusted earnings is used internally as a supplemental performance measure adjusting for certain items to give management a view of income more directly derived from operating activities in the period in which they occur. Adjusted earnings is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, including our proportionate share of depreciation and amortization from equity method investments and excluding depreciation and amortization allocable to noncontrolling interests, stock-based compensation expense, the non-cash portion of loss on early extinguishment of debt and the liquidation preference recorded as a premium above book value on the redemption of preferred stock (“Adjusted Earnings”).

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

    

For the Three Months Ended September 30, 

    

2021

    

2020

(in thousands)

Adjusted Earnings

  

 

  

Net income (loss) allocable to common shareholders

$

121,856

$

(2,069)

Add: Depreciation and amortization

 

16,449

 

15,795

Add: Stock-based compensation expense

 

3,001

 

5,661

Add: Non-cash portion of loss on early extinguishment of debt

 

 

2,672

Adjusted earnings allocable to common shareholders

$

141,306

$

22,059

    

For the Nine Months Ended September 30, 

    

2021

    

2020

(in thousands)

Adjusted Earnings

  

 

  

Net income (loss) allocable to common shareholders

$

101,908

$

(46,850)

Add: Depreciation and amortization

 

50,790

 

46,526

Add: Stock-based compensation expense

 

23,300

 

26,675

Add: Non-cash portion of loss on early extinguishment of debt

 

 

3,470

Adjusted earnings allocable to common shareholders

$

175,998

$

29,821

Liquidity and Capital Resources

During the three months ended September 30, 2021, we invested an aggregate $175 million in new investments, prior financing commitments and real estate development. Investments included $107 million in net lease (including $53 million

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in shares of SAFE common stock), loan, and strategic investments, $60 million in the repurchase of our common stock and $8 million of capital expenditures on legacy assets. These amounts are inclusive of fundings from our consolidated investments and our pro rata share from equity method investments.

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

    

For the Nine Months Ended September 30, 

    

2021

    

2020

Operating Properties

$

560

$

2,037

Net Lease

 

5,275

 

9,624

Total capital expenditures on real estate assets

$

5,835

$

11,661

Land and Development

$

15,603

$

33,488

Total capital expenditures on land and development assets

$

15,603

$

33,488

As of September 30, 2021, we had unrestricted cash of $299 million and $340 million of borrowing capacity available under the Revolving Credit Facility. 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. These conditions improved in the second quarter and third quarter of 2021 and we expect them to continue to improve as more normalized activity resumes. Our primary cash uses over the next 12 months are expected to be funding of investments, capital expenditures, distributions to shareholders through dividends and share repurchases and funding ongoing business operations. The amount we actually invest will depend on the full impact of the COVID-19 pandemic on our business and the pace of the economic recovery.

Our $287.5 million aggregate principal amount of convertible notes mature in September 2022, and we must repay them in a combination of cash and shares of our common stock. We also had approximately $118.4 million of maximum unfunded commitments associated with our investments as of September 30, 2021, of which we expect to fund the majority over the next two years, assuming borrowers and tenants meet all milestones, performance hurdles and all other conditions to fundings (see “Unfunded Commitments” below). We also have approximately $166.2 million principal amount of scheduled real estate finance asset maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers.

We expect that we will be able to meet our liquidity requirements over the next 12 months and for the reasonably foreseeable future. Our capital sources to meet such cash requirements are expected to include cash on hand, Revolving Credit Facility borrowings, income from our portfolio, loan repayments from borrowers and proceeds from asset sales. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions.

Debt Covenants—Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant restricting certain incurrences of debt based on a fixed charge coverage ratio. 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.

The Senior Term Loan and the Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the Senior Term Loan requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The Revolving Credit Facility is secured by a borrowing base of assets and requires us to maintain both borrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the

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borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrowings or substitute assets in the borrowing base. Under both the Senior Term Loan and the Revolving Credit Facility we are permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and we remain in compliance with our financial covenants after giving effect to the dividend. We declared common stock dividends of $26.3 million, or $0.36 per share, for the nine months ended September 30, 2021.

Derivatives—Our use of derivative financial instruments, if necessary, has primarily been limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. Refer to Note 13 to the consolidated financial statements.

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

As of September 30, 2021, the maximum amount of fundings we may be obligated to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and assuming that 100% of our capital committed to Strategic Investments is drawn down, are as follows (in thousands):

Loans and Other  

    

    

    

Lending

Other

    

Investments

    

Real Estate

    

Investments

    

Total

Performance-Based Commitments

$

7,860

$

29,716

$

71,319

$

108,895

Strategic Investments

 

 

1,900

 

7,592

 

9,492

Total

$

7,860

$

31,616

$

78,911

$

118,387

Stock Repurchase Program—We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the nine months ended September 30, 2021, we repurchased 4.2 million shares of our outstanding common stock for $91.9 million, for an average cost of $21.70 per share. During the nine months ended September 30, 2020, we repurchased 3.7 million shares of our outstanding common stock for $41.4 million, for an average cost of $11.32 per share. We are generally authorized to repurchase up to $50.0 million in shares of our common stock. As of September 30, 2021, we had remaining authorization to repurchase up to $30.9 million of common stock under our stock repurchase program.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We base our estimates on historical corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment.

For a discussion of our critical accounting policies, refer to Note 3 to the consolidated financial statements and our 2020 Annual Report.

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

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Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Market Risks

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

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

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

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

The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing liabilities, should interest rates increase by 10, 50 or 100 basis points or decrease by 10 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the one-month LIBOR rate of 0.08% as of September 30, 2021. Actual results could differ significantly from those estimated in the table.

Estimated Change In Net Income

($ in thousands)

Change in Interest Rates

    

Net Income(1)

-10 Basis Points

$

187

Base Interest Rate

 

+10 Basis Points

 

(234)

+50 Basis Points

 

(1,159)

+100 Basis Points

 

(2,237)

(1)As of September 30, 2021, we have an overall net variable-rate liability position. In addition, as of September 30, 2021, $162.6 million of our floating rate loans have a weighted average interest rate floor of 1.9%.

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Item 4.   Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Accounting Officer, who is currently performing the functions of the Company's principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company has formed a disclosure committee that is responsible for considering the materiality of information and determining the disclosure obligations of the Company on a timely basis. The disclosure committee reports directly to the Company’s Chief Executive Officer and principal financial officer (whose functions are currently being performed by the Company's Chief Accounting Officer).

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the disclosure committee and other members of management, including its Chief Executive Officer and Chief Accounting Officer (performing the functions of the principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) or Rule 15d-15. Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding disclosure.

There have been no changes during the last fiscal quarter in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.   Risk Factors

There were no material changes from the risk factors previously disclosed in our 2020 Annual Report.

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

Issuer Purchases of Equity Securities

The following table sets forth the information with respect to purchases made by us or on our behalf of our common stock during the three months ended September 30, 2021.

    

    

    

Total Number of Shares 

    

Maximum Dollar Value 

Purchased as Part of a 

of Shares that May Yet 

Total Number of 

Average Price 

Publicly Announced 

be Purchased Under the 

Shares Purchased

Paid per Share

Plan

Plans(1)

July 1 to July 31

 

730,194

$

23.28

 

730,194

$

33,000,255

August 1 to August 31

 

915,591

$

25.50

 

915,591

$

27,648,268

September 1 to September 30

 

744,981

$

25.66

 

744,981

$

30,885,618

(1)We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. In September 2021, our board of directors authorized an increase to the stock repurchase program to $50.0 million.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

Not applicable.

Item 5.   Other Information

None.

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Item 6.   Exhibits

INDEX TO EXHIBITS

Exhibit
Number

   

Document Description

4.1

Thirty-Sixth Supplemental Indenture, dated as of October 29, 2021, governing the 4.75% Senior Notes due 2024.

4.2

Thirty-Seventh Supplemental Indenture, dated as of October 29, 2021, governing the 4.25% Senior Notes due 2025.

4.3

Thirty-Eighth Supplemental Indenture, dated as of October 29, 2021, governing the 5.50% Senior Notes due 2026.

31.0

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act.

32.0

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act.

101*

The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021 is formatted in Inline XBRL (“eXtensible Business Reporting Language”): (i) the Consolidated Balance Sheets (unaudited) as of September 30, 2021 and December 31, 2020, (ii) the Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2021 and 2020, (iii) the Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2021 and 2020, (iv) the Consolidated Statements of Changes in Equity (unaudited) for the three and nine months ended September 30, 2021 and 2020, (v) the Consolidated Statements of Cash Flows (unaudited) for nine months ended September 30, 2021 and 2020 and (vi) the Notes to the Consolidated Financial Statements (unaudited).

104

Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

*

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934 and otherwise is not subject to liability under these sections.

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SIGNATURES

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

iStar Inc.
Registrant

Date:

November 2, 2021

/s/ JAY SUGARMAN

Jay Sugarman

Chairman of the Board of Directors and Chief

Executive Officer (principal executive officer)

iStar Inc.
Registrant

Date:

November 2, 2021

/s/ GARETT ROSENBLUM

Garett Rosenblum

Chief Accounting Officer

(principal financial officer)

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