UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| |
(Mark One) | |
ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September |
June 30, 20182019 |
OR |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File No. 1-15371
iStar Inc.
(Exact name of registrant as specified in its charter)
|
| | | | |
Maryland | | 95-6881527 |
(State or other jurisdiction of incorporation or organization) | | 95-6881527
(I.R.S. Employer Identification Number) |
1114 Avenue of the Americas, 39th39th Floor | | |
New York | , | NY | | 10036 |
(Address of principal executive offices) | | 10036
(Zip code) |
Registrant's telephone number, including area code: (212) (212) 930-9400
Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically 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 ý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| | | | | | | | |
Large accelerated filer ýAccelerated Filer | | Accelerated Filer | | Accelerated filer oNon‑accelerated Filer
| | Smaller Reporting Company | | Emerging Growth Company |
☒ | | ☐
| | Non-accelerated ☐
filer o
| | Smaller reporting company o ☐ | | Emerging growth company o ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
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:
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| | | | |
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 OctoberJuly 31, 2018,2019, there were 67,987,75362,166,290 shares, $0.001 par value per share, of iStar Inc. common stock outstanding.
TABLE OF CONTENTS
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements
iStar Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(unaudited)
| | | As of | As of |
| September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
ASSETS | | | | | | |
Real estate | | | | | | |
Real estate, at cost | $ | 2,237,293 |
| | $ | 1,629,436 |
| $ | 1,640,816 |
| | $ | 2,076,333 |
|
Less: accumulated depreciation | (343,504 | ) | | (347,405 | ) | (219,214 | ) | | (305,314 | ) |
Real estate, net | 1,893,789 |
| | 1,282,031 |
| 1,421,602 |
| | 1,771,019 |
|
Real estate available and held for sale | 61,549 |
| | 68,588 |
| 12,770 |
| | 22,551 |
|
Total real estate | 1,955,338 |
| | 1,350,619 |
| 1,434,372 |
| | 1,793,570 |
|
Net investment in leases | | 421,842 |
| | — |
|
Land and development, net | 650,531 |
| | 860,311 |
| 668,656 |
| | 598,218 |
|
Loans receivable and other lending investments, net | 1,029,052 |
| | 1,300,655 |
| 902,146 |
| | 988,224 |
|
Other investments | 302,318 |
| | 321,241 |
| 564,170 |
| | 304,275 |
|
Cash and cash equivalents | 757,384 |
| | 657,688 |
| 330,099 |
| | 931,751 |
|
Accrued interest and operating lease income receivable, net | 9,954 |
| | 11,957 |
| 9,079 |
| | 10,669 |
|
Deferred operating lease income receivable, net | 91,572 |
| | 86,877 |
| 49,111 |
| | 98,302 |
|
Deferred expenses and other assets, net | 283,840 |
| | 141,730 |
| 386,552 |
| | 289,268 |
|
Total assets | $ | 5,079,989 |
| | $ | 4,731,078 |
| $ | 4,766,027 |
| | $ | 5,014,277 |
|
LIABILITIES AND EQUITY | | | | | | |
Liabilities: | | | | | | |
Accounts payable, accrued expenses and other liabilities | $ | 244,833 |
| | $ | 238,004 |
| $ | 345,641 |
| | $ | 316,251 |
|
Liabilities associated with properties held for sale | | 685 |
| | 2,341 |
|
Loan participations payable, net | 18,331 |
| | 102,425 |
| 29,948 |
| | 22,484 |
|
Debt obligations, net | 3,612,809 |
| | 3,476,400 |
| 3,068,556 |
| | 3,609,086 |
|
Total liabilities | 3,875,973 |
| | 3,816,829 |
| 3,444,830 |
| | 3,950,162 |
|
Commitments and contingencies (refer to Note 11) |
|
| |
|
| |
Redeemable noncontrolling interests | 11,814 |
| | — |
| |
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 13) | 12 |
| | 12 |
| |
Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 13) | 4 |
| | 4 |
| |
Common Stock, $0.001 par value, 200,000 shares authorized, 67,988 and 68,236 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 68 |
| | 68 |
| |
Preferred Stock Series D, G and I, liquidation preference $25.00 per share (refer to Note 14) | | 12 |
| | 12 |
|
Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 14) | | 4 |
| | 4 |
|
Common Stock, $0.001 par value, 200,000 shares authorized, 62,202 and 68,085 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively | | 62 |
| | 68 |
|
Additional paid-in capital | 3,351,578 |
| | 3,352,665 |
| 3,297,303 |
| | 3,352,225 |
|
Retained deficit | (2,350,438 | ) | | (2,470,564 | ) | |
Accumulated other comprehensive income (loss) (refer to Note 13) | 392 |
| | (2,482 | ) | |
Accumulated deficit | | (2,139,611 | ) | | (2,472,061 | ) |
Accumulated other comprehensive loss (refer to Note 14) | | (34,137 | ) | | (17,270 | ) |
Total iStar Inc. shareholders' equity | 1,001,616 |
| | 879,703 |
| 1,123,633 |
| | 862,978 |
|
Noncontrolling interests | 190,586 |
| | 34,546 |
| 197,564 |
| | 201,137 |
|
Total equity | 1,192,202 |
| | 914,249 |
| 1,321,197 |
| | 1,064,115 |
|
Total liabilities and equity | $ | 5,079,989 |
| | $ | 4,731,078 |
| $ | 4,766,027 |
| | $ | 5,014,277 |
|
Note - Refer to Note 2 for details on the Company's consolidated variable interest entities ("VIEs").
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Operating lease income | $ | 55,185 |
| | $ | 44,609 |
| | $ | 114,100 |
| | $ | 90,407 |
|
Interest income | 20,341 |
| | 25,212 |
| | 40,716 |
| | 51,909 |
|
Interest income from sales-type leases | 3,817 |
| | — |
| | 3,817 |
| | — |
|
Other income | 10,050 |
| | 20,823 |
| | 24,863 |
| | 36,142 |
|
Land development revenue | 9,075 |
| | 80,927 |
| | 21,774 |
| | 357,356 |
|
Total revenues | 98,468 |
| | 171,571 |
| | 205,270 |
| | 535,814 |
|
Costs and expenses: | | | | | | | |
Interest expense | 43,752 |
| | 43,172 |
| | 90,329 |
| | 88,353 |
|
Real estate expense | 22,038 |
| | 37,043 |
| | 47,978 |
| | 73,224 |
|
Land development cost of sales | 9,236 |
| | 83,361 |
| | 23,684 |
| | 306,768 |
|
Depreciation and amortization | 13,718 |
| | 10,767 |
| | 29,386 |
| | 21,878 |
|
General and administrative | 27,303 |
| | 23,228 |
| | 48,402 |
| | 52,041 |
|
Provision for loan losses | 110 |
| | 18,892 |
| | 13 |
| | 18,037 |
|
Impairment of assets | 1,102 |
| | 6,088 |
| | 4,953 |
| | 10,188 |
|
Other expense | 11,883 |
| | 3,716 |
| | 12,391 |
| | 4,882 |
|
Total costs and expenses | 129,142 |
| | 226,267 |
| | 257,136 |
| | 575,371 |
|
Income from sales of real estate | 220,523 |
| | 56,895 |
| | 229,930 |
| | 73,943 |
|
Income from operations before earnings from equity method investments and other items | 189,849 |
| | 2,199 |
| | 178,064 |
| | 34,386 |
|
Loss on early extinguishment of debt, net | — |
| | (2,164 | ) | | (468 | ) | | (2,536 | ) |
Earnings (losses) from equity method investments | 3,640 |
| | (7,278 | ) | | 8,949 |
| | (3,946 | ) |
Selling profit from sales-type leases | 180,416 |
| | — |
| | 180,416 |
| | — |
|
Gain on consolidation of equity method investment | — |
| | 67,877 |
| | — |
| | 67,877 |
|
Net income before income taxes | 373,905 |
| | 60,634 |
| | 366,961 |
| | 95,781 |
|
Income tax expense | (214 | ) | | (128 | ) | | (240 | ) | | (249 | ) |
Net income | 373,691 |
| | 60,506 |
| | 366,721 |
| | 95,532 |
|
Net (income) attributable to noncontrolling interests | (2,852 | ) | | (9,509 | ) | | (5,323 | ) | | (9,604 | ) |
Net income attributable to iStar Inc. | 370,839 |
| | 50,997 |
| | 361,398 |
| | 85,928 |
|
Preferred dividends | (8,124 | ) | | (8,124 | ) | | (16,248 | ) | | (16,248 | ) |
Net income allocable to common shareholders | $ | 362,715 |
| | $ | 42,873 |
| | $ | 345,150 |
| | $ | 69,680 |
|
Per common share data: | | | | | | | |
Net income allocable to common shareholders: | | | | | | | |
Basic | $ | 5.67 |
| | $ | 0.63 |
| | $ | 5.24 |
| | $ | 1.03 |
|
Diluted | $ | 4.55 |
| | $ | 0.54 |
| | $ | 4.26 |
| | $ | 0.89 |
|
Weighted average number of common shares: | | | | | | | |
Basic | 64,019 |
| | 67,932 |
| | 65,873 |
| | 67,922 |
|
Diluted | 80,259 |
| | 83,694 |
| | 82,011 |
| | 83,682 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues: | | | | | | | |
Operating lease income | $ | 59,109 |
| | $ | 47,806 |
| | $ | 149,516 |
| | $ | 142,155 |
|
Interest income | 22,915 |
| | 25,442 |
| | 74,824 |
| | 83,145 |
|
Other income | 27,808 |
| | 20,662 |
| | 63,951 |
| | 172,037 |
|
Land development revenue | 12,309 |
| | 25,962 |
| | 369,665 |
| | 178,722 |
|
Total revenues | 122,141 |
| | 119,872 |
| | 657,956 |
| | 576,059 |
|
Costs and expenses: | | | | | | | |
Interest expense | 47,219 |
| | 48,732 |
| | 135,572 |
| | 148,684 |
|
Real estate expense | 32,287 |
| | 36,280 |
| | 105,511 |
| | 106,554 |
|
Land development cost of sales | 12,114 |
| | 27,512 |
| | 318,881 |
| | 165,888 |
|
Depreciation and amortization | 19,979 |
| | 11,846 |
| | 41,857 |
| | 37,297 |
|
General and administrative(1) | 21,613 |
| | 20,955 |
| | 73,655 |
| | 73,347 |
|
Provision for (recovery of) loan losses | 200 |
| | (2,600 | ) | | 18,237 |
| | (8,128 | ) |
Impairment of assets | 989 |
| | 595 |
| | 11,177 |
| | 15,292 |
|
Other expense | 298 |
| | 2,704 |
| | 5,180 |
| | 20,849 |
|
Total costs and expenses | 134,699 |
| | 146,024 |
| | 710,070 |
| | 559,783 |
|
Income (loss) before earnings from equity method investments and other items | (12,558 | ) | | (26,152 | ) | | (52,114 | ) | | 16,276 |
|
Loss on early extinguishment of debt, net | (911 | ) | | (616 | ) | | (3,447 | ) | | (4,142 | ) |
Earnings (losses) from equity method investments | (635 | ) | | 2,461 |
| | (4,581 | ) | | 13,677 |
|
Gain on consolidation of equity method investment | — |
| | — |
| | 67,877 |
| | — |
|
Income (loss) from continuing operations before income taxes | (14,104 | ) | | (24,307 | ) | | 7,735 |
| | 25,811 |
|
Income tax (expense) benefit | (137 | ) | | 1,278 |
| | (386 | ) | | (972 | ) |
Income (loss) from continuing operations | (14,241 | ) | | (23,029 | ) | | 7,349 |
| | 24,839 |
|
Income from discontinued operations | — |
| | — |
| | — |
| | 4,939 |
|
Gain from discontinued operations | — |
| | — |
| | — |
| | 123,418 |
|
Income tax expense from discontinued operations | — |
| | — |
| | — |
| | (4,545 | ) |
Income from sales of real estate(2) | 5,409 |
| | 19,313 |
| | 79,353 |
| | 28,267 |
|
Net income (loss) | (8,832 | ) | | (3,716 | ) | | 86,702 |
| | 176,918 |
|
Net (income) loss attributable to noncontrolling interests | (2,028 | ) | | 160 |
| | (11,632 | ) | | (4,450 | ) |
Net income (loss) attributable to iStar Inc. | (10,860 | ) | | (3,556 | ) | | 75,070 |
| | 172,468 |
|
Preferred dividends | (8,124 | ) | | (30,974 | ) | | (24,372 | ) | | (56,634 | ) |
Net income (loss) allocable to common shareholders | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 50,698 |
| | $ | 115,834 |
|
Per common share data: | | | | | | | |
Income (loss) attributable to iStar Inc. from continuing operations: | | | | | | | |
Basic | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.75 |
| | $ | (0.11 | ) |
Diluted | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.69 |
| | $ | (0.11 | ) |
Net income (loss) attributable to iStar Inc.: | | | | | | | |
Basic | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.75 |
| | $ | 1.61 |
|
Diluted | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.69 |
| | $ | 1.61 |
|
Weighted average number of common shares: | | | | | | | |
Basic | 67,975 |
| | 71,713 |
| | 67,940 |
| | 71,972 |
|
Diluted | 67,975 |
| | 71,713 |
| | 83,729 |
| | 71,972 |
|
| | | | | | | |
Dividends declared per share of common stock | $ | 0.09 |
| | $ | — |
| | $ | 0.09 |
| | $ | — |
|
| |
(1) | For the three months ended September 30, 2018 and 2017, includes $2.4 million and $1.9 million, respectively, of equity-based compensation associated with iPIP Plans (refer to Note 14). For the nine months ended September 30, 2018 and 2017, includes $12.6 million and $9.8 million, respectively, of equity-based compensation associated with iPIP Plans (refer to Note 14). These plans are liability-based plans which are marked-to-market quarterly and such marks are based upon the performance of the assets underlying the plans as of the quarterly measurement dates; however, actual amounts cannot be determined until the end date of the plans and the ultimate repayment or monetization of the related assets. |
| |
(2) | Income from sales of real estate represents gains from sales of real estate that do not qualify as discontinued operations. |
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Net income (loss) | $ | (8,832 | ) | | $ | (3,716 | ) | | $ | 86,702 |
| | $ | 176,918 |
| |
Net income | | $ | 373,691 |
| | $ | 60,506 |
| | $ | 366,721 |
| | $ | 95,532 |
|
Other comprehensive income (loss): | | | | | | | | | | | | | | |
Impact from adoption of new accounting standards (refer to Note 3) | — |
| | — |
| | 276 |
| | — |
| |
Impact from adoption of new accounting standards | | — |
| | — |
| | — |
| | 276 |
|
Reclassification of losses on cumulative translation adjustment into earnings upon realization(1) | — |
| | — |
| | 721 |
| | — |
| — |
| | 721 |
| | — |
| | 721 |
|
Reclassification of (gains) losses on cash flow hedges into earnings upon realization(2) | 101 |
| | 56 |
| | (1,683 | ) | | (135 | ) | 12,736 |
| | (1,795 | ) | | 12,743 |
| | (1,786 | ) |
Unrealized gains (losses) on available-for-sale securities | (558 | ) | | (116 | ) | | (1,514 | ) | | 450 |
| 709 |
| | 15 |
| | 1,709 |
| | (956 | ) |
Unrealized gains (losses) on cash flow hedges | 3,900 |
| | (56 | ) | | 6,258 |
| | 338 |
| (20,987 | ) | | 7 |
| | (35,999 | ) | | 2,358 |
|
Unrealized gains (losses) on cumulative translation adjustment | — |
| | (36 | ) | | (364 | ) | | (265 | ) | |
Unrealized losses on cumulative translation adjustment | | — |
| | (256 | ) | | — |
| | (364 | ) |
Other comprehensive income (loss) | 3,443 |
| | (152 | ) |
| 3,694 |
| | 388 |
| (7,542 | ) | | (1,308 | ) |
| (21,547 | ) | | 249 |
|
Comprehensive income (loss) | (5,389 | ) | | (3,868 | ) | | 90,396 |
| | 177,306 |
| |
Comprehensive income | | 366,149 |
| | 59,198 |
| | 345,174 |
| | 95,781 |
|
Comprehensive (income) loss attributable to noncontrolling interests | (2,848 | ) | | 160 |
| | (12,452 | ) | | (4,450 | ) | 147 |
| | (9,509 | ) | | (643 | ) | | (9,604 | ) |
Comprehensive income (loss) attributable to iStar Inc. | $ | (8,237 | ) | | $ | (3,708 | ) | | $ | 77,944 |
| | $ | 172,856 |
| |
Comprehensive income attributable to iStar Inc. | | $ | 366,296 |
| | $ | 49,689 |
| | $ | 344,531 |
| | $ | 86,177 |
|
| |
(1) | Amounts were reclassified to "Earnings (losses) from equity method investments" in the Company's consolidated statements of operations. |
| |
(2) | Amount reclassified to "Interest expense" in the Company's consolidated statements of operations is $144$266 and $417 for the three and ninesix months ended SeptemberJune 30, 2018. Amounts2019, respectively. Amount reclassified to "Interest expense""Income from sales of real estate" in the Company's consolidated statements of operations are $16 and $76is $806 for the three and ninesix months ended SeptemberJune 30, 2017, respectively. Amount2019 and amount reclassified to "Gain on consolidation of equity method investment" in the Company's consolidated statements of operations is $1,876 for the ninethree and six months ended SeptemberJune 30, 2018.2018 is $1,876. Amounts reclassified to "Earnings (losses) from equity method investments" in the Company's consolidated statements of operations are $(43)$(9) and $47$(153) for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, and $40$81 and $204$90 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. Amounts reclassified to "Other expense" in the Company's consolidated statements of operations are $11,673 for the three and six months ended June 30, 2019 resulting from hedged forecasted transactions becoming not probable to occur. |
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2018 and 2017
(In thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | iStar Inc. Shareholders' Equity | | | | |
| | Preferred Stock(1) | | Preferred Stock Series J(1) | | Common Stock at Par | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Balance as of December 31, 2017 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,352,665 |
| | $ | (2,470,564 | ) | | $ | (2,482 | ) | | $ | 34,546 |
| | $ | 914,249 |
|
Dividends declared—preferred | | — |
| | — |
| | — |
| | — |
| | (24,372 | ) | | — |
| | — |
| | (24,372 | ) |
Dividends declared—common | | — |
| | — |
| | — |
| | — |
| | (6,165 | ) | | — |
| | — |
| | (6,165 | ) |
Issuance of stock/restricted stock unit amortization, net | | — |
| | — |
| | 1 |
| | 7,216 |
| | — |
| | — |
| | — |
| | 7,217 |
|
Net income for the period | | — |
| | — |
| | — |
| | — |
| | 75,070 |
| | — |
| | 11,632 |
| | 86,702 |
|
Change in accumulated other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,598 |
| | 820 |
| | 3,418 |
|
Repurchase of stock | | — |
| | — |
| | (1 | ) | | (8,303 | ) | | — |
| | — |
| | — |
| | (8,304 | ) |
Contributions from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,309 |
| | 1,309 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (46,000 | ) | | (46,000 | ) |
Change in noncontrolling interest attributable to consolidation of equity method investment (refer to Note 7) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 188,279 |
| | 188,279 |
|
Impact from adoption of new accounting standards (refer to Note 3) | | — |
| | — |
| | — |
| | — |
| | 75,593 |
| | 276 |
| | — |
| | 75,869 |
|
Balance as of September 30, 2018 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,351,578 |
| | $ | (2,350,438 | ) | | $ | 392 |
| | $ | 190,586 |
| | $ | 1,192,202 |
|
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2016 | | $ | 22 |
| | $ | 4 |
| | $ | 72 |
| | $ | 3,602,172 |
| | $ | (2,581,488 | ) | | $ | (4,218 | ) | | $ | 43,120 |
| | $ | 1,059,684 |
|
Dividends declared—preferred | | — |
| | — |
| | — |
| | — |
| | (38,490 | ) | | — |
| | — |
| | (38,490 | ) |
Issuance of stock/restricted stock unit amortization, net | | — |
| | — |
| | — |
| | 2,248 |
| | — |
| | — |
| | — |
| | 2,248 |
|
Net income for the period(2) | | — |
| | — |
| | — |
| | — |
| | 172,468 |
| | — |
| | 5,785 |
| | 178,253 |
|
Change in accumulated other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 388 |
| | — |
| | 388 |
|
Repurchase of stock | | — |
| | — |
| | (4 | ) | | (45,924 | ) | | — |
| | — |
| | — |
| | (45,928 | ) |
Issuance of unsecured convertible notes (refer to Note 10) | | — |
| | — |
| | — |
| | 22,487 |
| | — |
| | — |
| | — |
| | 22,487 |
|
Dividends declared and payable - Series E and Series F Preferred Stock | | — |
| | — |
| | — |
| | — |
| | (1,830 | ) | | — |
| | — |
| | (1,830 | ) |
Redemption of Series E and Series F Preferred Stocks | | (10 | ) | | — |
| | — |
| | (223,676 | ) | | (16,314 | ) | | — |
| | — |
| | (240,000 | ) |
Change in additional paid in capital attributable to redeemable noncontrolling interest | | — |
| | — |
| | — |
| | 182 |
| | — |
| | — |
| | — |
| | 182 |
|
Contributions from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12 |
| | 12 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (13,117 | ) | | (13,117 | ) |
Balance as of September 30, 2017 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,357,489 |
| | $ | (2,465,654 | ) | | $ | (3,830 | ) | | $ | 35,800 |
| | $ | 923,889 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | iStar Inc. Shareholders' Equity | | | | |
| | Preferred Stock(1) | | Preferred Stock Series J(1) | | Common Stock at Par | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Balance as of March 31, 2019 | | $ | 12 |
| | $ | 4 |
| | $ | 66 |
| | $ | 3,335,719 |
| | $ | (2,495,836 | ) | | $ | (29,594 | ) | | $ | 199,100 |
| | $ | 1,009,471 |
|
Dividends declared—preferred | | — |
| | — |
| | — |
| | — |
| | (8,124 | ) | | — |
| | — |
| | (8,124 | ) |
Dividends declared—common ($0.10 per share) | | — |
| | — |
| | — |
| | — |
| | (6,490 | ) | | — |
| | — |
| | (6,490 | ) |
Issuance of stock/restricted stock unit amortization, net | | — |
| | — |
| | — |
| | 756 |
| | — |
| | — |
| | 927 |
| | 1,683 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 370,839 |
| | — |
| | 2,852 |
| | 373,691 |
|
Change in accumulated other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,543 | ) | | (2,999 | ) | | (7,542 | ) |
Repurchase of stock | | — |
| | — |
| | (4 | ) | | (39,172 | ) | | — |
| | — |
| | — |
| | (39,176 | ) |
Contributions from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,039 |
| | 2,039 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,355 | ) | | (4,355 | ) |
Balance as of June 30, 2019 | | $ | 12 |
| | $ | 4 |
| | $ | 62 |
| | $ | 3,297,303 |
| | $ | (2,139,611 | ) | | $ | (34,137 | ) | | $ | 197,564 |
| | $ | 1,321,197 |
|
| | | | | | | | | | | | | | | | |
Balance as of March 31, 2018 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,350,250 |
| | $ | (2,368,164 | ) | | $ | (925 | ) | | $ | 34,650 |
| | $ | 1,015,895 |
|
Dividends declared—preferred | | — |
| | — |
| | — |
| | — |
| | (8,124 | ) | | — |
| | — |
| | (8,124 | ) |
Issuance of stock/restricted stock unit amortization, net | | — |
| | — |
| | — |
| | 500 |
| | — |
| | — |
| | — |
| | 500 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 50,997 |
| | — |
| | 9,509 |
| | 60,506 |
|
Change in accumulated other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,308 | ) | | — |
| | (1,308 | ) |
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (43,174 | ) | | (43,174 | ) |
Change in noncontrolling interest attributable to consolidation of equity method investment (refer to Note 8) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 188,279 |
| | 188,279 |
|
Balance as of June 30, 2018 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,350,750 |
| | $ | (2,325,291 | ) | | $ | (2,233 | ) | | $ | 189,264 |
| | $ | 1,212,574 |
|
| |
(1) | Refer to Note 1314 for details on the Company's Preferred Stock. |
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | iStar Inc. Shareholders' Equity | | | | |
| | Preferred Stock(1) | | Preferred Stock Series J(1) | | Common Stock at Par | | Additional Paid-In Capital | | Retained Earnings (Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Balance as of December 31, 2018 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,352,225 |
| | $ | (2,472,061 | ) | | $ | (17,270 | ) | | $ | 201,137 |
| | $ | 1,064,115 |
|
Dividends declared—preferred | | — |
| | — |
| | — |
| | — |
| | (16,248 | ) | | — |
| | — |
| | (16,248 | ) |
Dividends declared—common ($0.19 per share) | | — |
| | — |
| | — |
| | — |
| | (12,700 | ) | | — |
| | — |
| | (12,700 | ) |
Issuance of stock/restricted stock unit amortization, net | | — |
| | — |
| | — |
| | 3,417 |
| | — |
| | — |
| | 1,355 |
| | 4,772 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 361,398 |
| | — |
| | 5,323 |
| | 366,721 |
|
Change in accumulated other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | (16,867 | ) | | (4,680 | ) | | (21,547 | ) |
Repurchase of stock | | — |
| | — |
| | (6 | ) | | (58,339 | ) | | — |
| | — |
| | — |
| | (58,345 | ) |
Contributions from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,039 |
| | 2,039 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,610 | ) | | (7,610 | ) |
Balance as of June 30, 2019 | | $ | 12 |
| | $ | 4 |
| | $ | 62 |
| | $ | 3,297,303 |
| | $ | (2,139,611 | ) | | $ | (34,137 | ) | | $ | 197,564 |
| | $ | 1,321,197 |
|
| | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,352,665 |
| | $ | (2,470,564 | ) | | $ | (2,482 | ) | | $ | 34,546 |
| | $ | 914,249 |
|
Dividends declared—preferred | | — |
| | — |
| | — |
| | — |
| | (16,248 | ) | | — |
| | — |
| | (16,248 | ) |
Issuance of stock/restricted stock unit amortization, net | | — |
| | — |
| | 1 |
| | 6,388 |
| | — |
| | — |
| | — |
| | 6,389 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 85,928 |
| | — |
| | 9,604 |
| | 95,532 |
|
Change in accumulated other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) | | — |
| | (27 | ) |
Repurchase of stock | | — |
| | — |
| | (1 | ) | | (8,303 | ) | | — |
| | — |
| | — |
| | (8,304 | ) |
Contributions from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9 |
| | 9 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (43,174 | ) | | (43,174 | ) |
Change in noncontrolling interest attributable to consolidation of equity method investment (refer to Note 8) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 188,279 |
| | 188,279 |
|
Impact from adoption of new accounting standards | | — |
| | — |
| | — |
| | — |
| | 75,593 |
| | 276 |
| | — |
| | 75,869 |
|
Balance as of June 30, 2018 | | $ | 12 |
| | $ | 4 |
| | $ | 68 |
| | $ | 3,350,750 |
| | $ | (2,325,291 | ) | | $ | (2,233 | ) | | $ | 189,264 |
| | $ | 1,212,574 |
|
| |
(2)(1) | ForRefer to Note 14 for details on the nine months ended September 30, 2017, net income (loss) shown above excludes $(1,335) of net loss attributable to redeemable noncontrolling interests.Company's Preferred Stock. |
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
| | | | | | | |
| For the Six Months Ended June 30, |
| 2019 | | 2018 |
Cash flows from operating activities: | | | |
Net income | $ | 366,721 |
| | $ | 95,532 |
|
Adjustments to reconcile net income to cash flows from operating activities: | | | |
Provision for loan losses | 13 |
| | 18,037 |
|
Impairment of assets | 4,953 |
| | 10,188 |
|
Depreciation and amortization | 29,386 |
| | 21,878 |
|
Non-cash interest income from sales-type leases | (704 | ) | | — |
|
Stock-based compensation expense | 13,954 |
| | 12,593 |
|
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | 7,050 |
| | 7,900 |
|
Amortization of discounts/premiums and deferred interest on loans, net | (22,525 | ) | | (18,487 | ) |
Deferred interest on loans received | 5,850 |
| | 39,254 |
|
Gain from consolidation of equity method investment | — |
| | (67,877 | ) |
Selling profit from sales-type leases | (180,416 | ) | | — |
|
Earnings from equity method investments | (8,949 | ) | | 3,946 |
|
Distributions from operations of other investments | 6,895 |
| | 6,745 |
|
Deferred operating lease income | (9,767 | ) | | (3,752 | ) |
Income from sales of real estate | (229,930 | ) | | (73,943 | ) |
Land development revenue in excess of cost of sales | 1,910 |
| | (50,588 | ) |
Loss on early extinguishment of debt, net | 468 |
| | 2,536 |
|
Other operating activities, net | 11,816 |
| | 3,281 |
|
Changes in assets and liabilities: | | | |
Changes in accrued interest and operating lease income receivable | 1,696 |
| | 1,530 |
|
Changes in deferred expenses and other assets, net | (3,768 | ) | | (2,426 | ) |
Changes in accounts payable, accrued expenses and other liabilities | (34,157 | ) | | (27,483 | ) |
Cash flows used in operating activities | (39,504 | ) | | (21,136 | ) |
Cash flows from investing activities: | | | |
Originations and fundings of loans receivable, net | (148,113 | ) | | (294,476 | ) |
Capital expenditures on real estate assets | (12,021 | ) | | (17,805 | ) |
Capital expenditures on land and development assets | (73,314 | ) | | (61,577 | ) |
Acquisitions of real estate, net investments in leases and land assets | (129,856 | ) | | (3,390 | ) |
Repayments of and principal collections on loans receivable and other lending investments, net | 229,955 |
| | 552,696 |
|
Net proceeds from sales of real estate | 294,737 |
| | 238,834 |
|
Net proceeds from sales of land and development assets | 18,095 |
| | 170,662 |
|
Cash, cash equivalents and restricted cash acquired upon consolidation of equity method investment | — |
| | 13,608 |
|
Distributions from other investments | 49,695 |
| | 22,296 |
|
Contributions to and acquisition of interest in other investments | (310,812 | ) | | (53,012 | ) |
Payments for deposits on investments | (20,000 | ) | | — |
|
Other investing activities, net | (22,354 | ) | | (1,357 | ) |
Cash flows provided by (used in) investing activities | (123,988 | ) | | 566,479 |
|
Cash flows from financing activities: | | | |
Borrowings from debt obligations | 63,500 |
| | 332,746 |
|
Repayments and repurchases of debt obligations | (384,723 | ) | | (412,215 | ) |
Preferred dividends paid | (16,248 | ) | | (16,248 | ) |
Common dividends paid | (12,565 | ) | | — |
|
Repurchase of stock | (57,368 | ) | | (8,304 | ) |
Payments for deferred financing costs | (62 | ) | | (4,921 | ) |
Payments for withholding taxes upon vesting of stock-based compensation | (1,842 | ) | | (4,008 | ) |
Distributions to noncontrolling interests
| (7,610 | ) | | (43,174 | ) |
Other financing activities, net | 119 |
| | 8 |
|
Cash flows used in financing activities | (416,799 | ) | | (156,116 | ) |
Effect of exchange rate changes on cash | — |
| | 30 |
|
Changes in cash, cash equivalents and restricted cash | (580,291 | ) | | 389,257 |
|
Cash, cash equivalents and restricted cash at beginning of period | 974,544 |
| | 677,733 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 394,253 |
| | $ | 1,066,990 |
|
iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
| | | | | | | |
| For the Nine Months Ended September 30, |
| 2018 | | 2017 |
Cash flows from operating activities: | | | |
Net income | $ | 86,702 |
| | $ | 176,918 |
|
Adjustments to reconcile net income to cash flows from operating activities: | | | |
Provision for (recovery of) loan losses | 18,237 |
| | (8,128 | ) |
Impairment of assets | 11,177 |
| | 15,292 |
|
Depreciation and amortization | 41,857 |
| | 38,198 |
|
Stock-based compensation expense | 16,245 |
| | 12,730 |
|
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | 11,715 |
| | 9,793 |
|
Amortization of discounts/premiums on loans and deferred interest on loans, net | (29,138 | ) | | (45,189 | ) |
Deferred interest on loans received | 40,463 |
| | 36,253 |
|
Gain from consolidation of equity method investment | (67,877 | ) | | — |
|
Gain from discontinued operations | — |
| | (123,418 | ) |
(Earnings) losses from equity method investments | 4,581 |
| | (13,677 | ) |
Distributions from operations of other investments | 10,875 |
| | 39,076 |
|
Deferred operating lease income | (8,119 | ) | | (4,744 | ) |
Income from sales of real estate | (79,353 | ) | | (28,775 | ) |
Land development revenue in excess of cost of sales | (50,784 | ) | | (12,834 | ) |
Loss on early extinguishment of debt, net | 3,447 |
| | 4,142 |
|
Other operating activities, net | 1,775 |
| | 14,737 |
|
Changes in assets and liabilities: | | | |
Changes in accrued interest and operating lease income receivable | 2,574 |
| | 2,312 |
|
Changes in deferred expenses and other assets, net | (3,767 | ) | | (6,973 | ) |
Changes in accounts payable, accrued expenses and other liabilities | (47,227 | ) | | (5,792 | ) |
Cash flows provided by (used in) operating activities | (36,617 | ) | | 99,921 |
|
Cash flows from investing activities: | | | |
Originations and fundings of loans receivable, net | (421,518 | ) | | (177,952 | ) |
Capital expenditures on real estate assets | (44,211 | ) | | (24,891 | ) |
Capital expenditures on land and development assets | (98,489 | ) | | (84,966 | ) |
Acquisitions of real estate assets | (3,390 | ) | | — |
|
Repayments of and principal collections on loans receivable and other lending investments, net | 714,898 |
| | 491,680 |
|
Net proceeds from sales of real estate | 271,358 |
| | 201,939 |
|
Net proceeds from sales of land and development assets | 183,520 |
| | 174,979 |
|
Cash, cash equivalents and restricted cash acquired upon consolidation of equity method investment | 13,608 |
| | — |
|
Distributions from other investments | 27,086 |
| | 40,772 |
|
Contributions to and acquisition of interest in other investments | (68,666 | ) | | (181,279 | ) |
Other investing activities, net | 5,019 |
| | 646 |
|
Cash flows provided by investing activities | 579,215 |
| | 440,928 |
|
Cash flows from financing activities: | | | |
Borrowings from debt obligations and convertible notes | 349,988 |
| | 1,903,643 |
|
Repayments and repurchases of debt obligations | (690,452 | ) | | (733,429 | ) |
Preferred dividends paid | (24,372 | ) | | (38,490 | ) |
Common dividends paid | (6,103 | ) | | — |
|
Repurchase of common stock | (8,304 | ) | | (45,928 | ) |
Payments for deferred financing costs | (6,276 | ) | | (27,972 | ) |
Payments for withholding taxes upon vesting of stock-based compensation | (4,187 | ) | | (511 | ) |
Payments for debt prepayment or extinguishment costs | — |
| | (5,182 | ) |
Distributions to noncontrolling interests
| (46,000 | ) | | (12,889 | ) |
Other financing activities, net | 7,703 |
| | (599 | ) |
Cash flows provided by (used in) financing activities | (428,003 | ) | | 1,038,643 |
|
Effect of exchange rate changes on cash | 30 |
| | 19 |
|
Changes in cash, cash equivalents and restricted cash | 114,625 |
| | 1,579,511 |
|
Cash, cash equivalents and restricted cash at beginning of period | 677,733 |
| | 354,627 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 792,358 |
| | $ | 1,934,138 |
|
Supplemental disclosure of non-cash investing and financing activity: | | | |
Fundings and repayments of loan receivables and loan participations, net
| $ | (84,213 | ) | | $ | (37,405 | ) |
Accounts payable for capital expenditures on land and development assets | 9,169 |
| | 5,700 |
|
Accounts payable for capital expenditures on real estate assets | 2,184 |
| | 2,574 |
|
Accrued financing costs | — |
| | 3,031 |
|
Acquisitions of land and development assets through foreclosure | 4,600 |
| | — |
|
Financing provided on sales of land and development assets, net | 142,639 |
| | — |
|
Increase in net lease assets upon consolidation of equity method investment | 844,550 |
| | — |
|
Increase in debt obligations upon consolidation of equity method investment | 464,706 |
| | — |
|
Increase in noncontrolling interests upon consolidation of equity method investment | 200,093 |
| | — |
|
Accrual for redemption of preferred stock and preferred stock dividends | — |
| | 241,830 |
|
|
| | | | | | | |
| For the Six Months Ended June 30, |
| 2019 | | 2018 |
Supplemental disclosure of non-cash investing and financing activity: | | | |
Fundings and repayments of loan receivables and loan participations, net | $ | 7,394 |
| | $ | 87,800 |
|
Accrued repurchase of stock | 977 |
| | — |
|
Contributions of land and development assets to equity method investments, net | 4,073 |
| | — |
|
Sales-type lease origination | 411,523 |
| | — |
|
Acquisition of land and development asset through joint venture consolidation | 27,000 |
| | — |
|
Accounts payable for capital expenditures on land and development assets | — |
| | 12,473 |
|
Assumption of mortgage by third party | 228,000 |
| | — |
|
Acquisitions of land and development assets through foreclosure | — |
| | 4,600 |
|
Financing provided on sales of land and development assets, net | — |
| | 142,639 |
|
Increase in net lease assets upon consolidation of equity method investment | — |
| | 844,550 |
|
Increase in debt obligations upon consolidation of equity method investment | — |
| | 464,706 |
|
Increase in noncontrolling interests upon consolidation of equity method investment | — |
| | 200,093 |
|
The accompanying notes are an integral part of the consolidated financial statements.
iStar Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1—Business and Organization
Business—iStar Inc. (the "Company") finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company also provides management services for itsmanages entities focused on ground lease equity method investment and net lease joint venturesinvestments (refer to Note 7)8). The Company has invested approximatelyover $40 billion of capital over the past two decades and is structured as a real estate investment trust ("REIT") with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company's primary reportable business segments are real estate finance, net lease, operating properties and land and development (refer to Note 17)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 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, 20172018 (the "2017"2018 Annual Report").
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year. Certain prior year amounts have been reclassified in the Company's consolidated financial statements and the related notes to conform to the current period presentation.
Principles of Consolidation—The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, controlled partnerships and VIEs for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. The Company's involvement with VIEs affects its financial performance and cash flows primarily through amounts recorded in "Operating lease income," "Interest income," "Earnings from equity method investments," "Real estate expense" and "Interest expense" in the Company's consolidated statements of operations. The Company has provided no financial support to those VIEs that it was not previously contractually required to provide.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE's respective assets. The Company did not have any unfunded commitments related to consolidated VIEs as of SeptemberJune 30, 2018.2019. The following table presents the assets and liabilities of the Company's consolidated VIEs as of SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
|
| | | | | | | |
| As of |
| June 30, 2019 | | December 31, 2018 |
ASSETS | | | |
Real estate | | | |
Real estate, at cost | $ | 851,112 |
| | $ | 848,052 |
|
Less: accumulated depreciation | (25,424 | ) | | (15,365 | ) |
Real estate, net | 825,688 |
| | 832,687 |
|
Land and development, net | 327,319 |
| | 279,031 |
|
Other investments | 56 |
| | 72 |
|
Cash and cash equivalents | 20,655 |
| | 25,219 |
|
Accrued interest and operating lease income receivable, net | 622 |
| | 1,302 |
|
Deferred operating lease income receivable, net | 13,761 |
| | 8,972 |
|
Deferred expenses and other assets, net | 135,908 |
| | 167,324 |
|
Total assets | $ | 1,324,009 |
| | $ | 1,314,607 |
|
LIABILITIES | | | |
Accounts payable, accrued expenses and other liabilities | $ | 114,944 |
| | $ | 106,907 |
|
Debt obligations, net | 481,623 |
| | 485,000 |
|
Total liabilities | 596,567 |
| | 591,907 |
|
|
| | | | | | | |
| As of |
| September 30, 2018 | | December 31, 2017 |
ASSETS | | | |
Real estate | | | |
Real estate, at cost | $ | 857,503 |
| | $ | 47,073 |
|
Less: accumulated depreciation | (9,544 | ) | | (2,732 | ) |
Real estate, net | 847,959 |
| | 44,341 |
|
Land and development, net | 254,773 |
| | 212,408 |
|
Other investments | 81 |
| | — |
|
Cash and cash equivalents | 14,503 |
| | 10,704 |
|
Accrued interest and operating lease income receivable, net | 282 |
| | 230 |
|
Deferred operating lease income receivable, net | 3,251 |
| | — |
|
Deferred expenses and other assets, net | 177,439 |
| | 29,929 |
|
Total assets | $ | 1,298,288 |
| | $ | 297,612 |
|
LIABILITIES | | | |
Accounts payable, accrued expenses and other liabilities | $ | 103,630 |
| | $ | 38,616 |
|
Debt obligations, net | 480,483 |
| | — |
|
Total liabilities | 584,113 |
| | 38,616 |
|
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 SeptemberJune 30, 2018,2019, the Company's maximum exposure to loss from these investments does not exceed the sum of the $92.5$114.8 million carrying value of the investments, which are classified in "Other investments" and "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets, and $25.3$22.0 million of related unfunded commitments.
Note 3—Summary of Significant Accounting Policies
The following paragraphs describe the impact on the Company's consolidated financial statements from the adoption of Accounting Standards Updates ("ASUs") on January 1, 2018.2019.
ASU 2014-09—2016-02 and ASU 2014-09, Revenue from Contracts with Customers2018-11—Accounting Standards Update ("ASU") 2016-02, Leases ("ASU 2014-09"2016-02"), stipulates that an entity should recognize revenue to depict required the transferrecognition of promised goodsright-of-use lease assets and lease liabilities by the Company as lessee for those leases classified as operating or services to customers in an amount that reflectsfinance leases, both measured at the consideration topresent value of the lease payments, on its consolidated balance sheets. For operating lease arrangements as of December 31, 2018 for which the entity expects to be entitledCompany was the lessee, primarily under leases of office space and certain ground leases, and a finance lease the Company entered into during the first quarter of 2019, the Company recorded operating lease right-of-use assets of $31.6 million and a finance lease right-of-use asset of $68.1 million in exchange for those goods or services. Certain contracts with customers, including lease contracts and financial instruments"Deferred expenses and other contractual rights, are not within the scopeassets, net" and operating lease liabilities of the new guidance. The Company's revenue within the scope$31.6 million and a finance lease liability of the guidance is primarily ancillary income related$68.1 million in "Accounts payable, accrued expenses and other liabilities" on its consolidated balance sheets (refer to its operating properties. Significant Accounting Policies below).
The Company, adopted ASU 2014-09 usingas lessor, recognizes certain of its leases on net lease properties as sales-type leases and records the modified retrospective approach and the adoption did not have a material impactleases as "Net investment in leases" on the Company's consolidated financial statements.
ASU 2016-01 and ASU 2018-03—ASU 2016-01, Financial Instruments - Overall: Recognition and Measurementbalance sheets (refer to Note 5). For the Company's leases which qualify as sales-type leases, the Company records "Interest income from sales-type leases" in the Company's consolidated statements of Financial Assets and Financial Liabilities("ASU 2016-01"), addressed certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, provided technical corrections and improvements to ASU 2016-01. ASU 2016-01 requires entities to measure equity investments not accounted foroperations. The amount recorded as interest income from sales-type leases in any given period will likely be different than the straight-line lease income that would have been recorded under the equity method at fair value and recognize changes in fair value in net income. For equity investments without readily determinable fair values, entitiessuperseded guidance.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
mayManagement elected the practical expedient package that allowed the Company: (a) to not reassess whether any expired or existing contracts entered into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease classification for any expired or existing leases entered into prior to January 1, 2019; and (c) to not reassess initial direct costs for any expired or existing leases entered into prior to January 1, 2019. In addition, the Company elected to not record on its consolidated balance sheets leases whose term is less than 12 months at lease inception.
ASU 2018-11, Leases amended ASU 2016-02 so that: (i) entities could elect a measurement alternative that will allow those investments to be recorded at cost, less impairment, and adjusted for subsequent observable price changes. Upon adoption,not recast the comparative periods presented when transitioning to ASC 842 by allowing entities must record a cumulative-effect adjustment to the balance sheet as ofchange their initial application to the beginning of the first reporting period of adoption; and (ii) provided lessors with a practical expedient to not separate non-lease components from the associated lease component of the contractual payments if certain conditions are met. Management elected both of these provisions.
ASU 2018-16—ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes was issued in whichOctober 2018 and expands the standard is adopted. ASU 2016-01 also eliminatedlist of U.S. benchmark interest rates permitted in the requirement for public business entities to discloseapplication of hedge accounting by adding the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized costOIS rate based on the balance sheet.SOFR as an eligible benchmark interest rate. The adoption of ASU 2016-01 and ASU 2018-032018-16 did not have a material impact on the Company's consolidated financial statements.
Significant Accounting Policies
ASU 2016-15—ASU 2016-15, Statement
Real estate available and held for sale—The Company reports real estate assets to be sold at the lower of Cash Flows: Classification of Certain Cash Receiptstheir carrying amount or estimated fair value less costs to sell and Cash Payments ("ASU 2016-15"), was issued to reduce diversity in practice in how certain cash receiptsclassifies them as “Real estate available and cash payments, including debt prepayment or debt extinguishment costs, distributions from equity method investees, and other separately identifiable cash flows, are presented and classified in the statement of cash flows. The adoption of ASU 2016-15 was retrospective and resulted in an increase to cash flows provided by operating activities of $11.8 million and a decrease to cash flows provided by financing activities of $11.8 millionheld for the nine months ended September 30, 2017, primarily resulting from the reclassification of cash payments made related to the extinguishment of debt.
ASU 2016-18—ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18"), requires that restricted cash be included with cash and cash equivalents when reconciling beginning and ending cash and cash equivalents on the statement of cash flows and requires disclosure of what is included in restricted cash. The adoption of ASU 2016-18 did not have a material impactsale” on the Company's consolidated financial statements. balance sheets. If the estimated fair value less costs to sell is less than the carrying value, the difference will be recorded as an impairment charge. Impairment for real estate assets disposed of or classified as held for sale are included in "Impairment of assets" in the Company's consolidated statements of operations. Once a real estate asset is classified as held for sale, depreciation expense is no longer recorded.
The adoptionCompany classifies its real estate assets as held for sale in the period in which all of ASU 2016-18 was retrospectivethe following conditions are met: (i) the Company commits to a plan and resultedhas the authority to sell the asset; (ii) the asset is available for sale in its current condition; (iii) the Company has initiated an increaseactive marketing plan to cash flows provided by operating activities of $1.3 million andlocate a decrease to cash flows provided by investing activities of $5.5 millionbuyer for the nine months ended September 30, 2017.asset; (iv) the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months; (v) the asset is being actively marketed for sale at a price that is reflective of its current fair value; and (vi) the Company does not anticipate changes to its plan to sell the asset.
Net Investment in Leases—Net investment in leases are recognized when the Company's leases qualify as sales-type leases. The net investment in leases is initially measured at the present value of the fixed and determinable lease payments, including any guaranteed or unguaranteed residual value of the asset at the end of the lease, discounted at the rate implicit in the lease. If a lease qualifies as a sales-type lease, it is further evaluated to determine whether the transaction is considered a sale leaseback transaction. If the sales-type lease meets the definition of a failed sale leaseback transaction, the lease is considered a financing receivable and is recognized in accordance with ASC 310 (refer to Note 5).
Interest Income from Sales-Type Leases—Interest income from sales-type leases is recognized in "Interest income from sales-type leases" in the Company's consolidated statements of operations under the effective interest method. The effective interest method produces a constant yield on the net investment in the lease over the term of the lease. Rent payments that are not fixed and determinable at lease inception, such as percentage rent and CPI adjustments, are not included in the effective interest method calculation and are recognized in "Interest income from sales-type leases" in the Company's consolidated statements of operations in the period earned.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Restricted cash—The following table provides a reconciliation of the cash and cash equivalents and restricted cash reported in the Company's consolidated balance sheets that total to the same amount as reported in the consolidated statements of cash flows (in thousands):
| | | | September 30, 2018 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 | | June 30, 2019 | | December 31, 2018 | | June 30, 2018 | | December 31, 2017 |
Cash and cash equivalents | | $ | 757,384 |
| | $ | 657,688 |
| | $ | 1,912,448 |
| | $ | 328,744 |
| | $ | 330,099 |
| | $ | 931,751 |
| | $ | 1,039,591 |
| | $ | 657,688 |
|
Restricted cash included in deferred expenses and other assets, net(1) | | 34,974 |
| | 20,045 |
| | 21,690 |
| | 25,883 |
| | 64,154 |
| | 42,793 |
| | 27,399 |
| | 20,045 |
|
Total cash, cash equivalents and restricted cash reported in the consolidated statements of cash flows | | $ | 792,358 |
| | $ | 677,733 |
| | $ | 1,934,138 |
| | $ | 354,627 |
| | $ | 394,253 |
| | $ | 974,544 |
| | $ | 1,066,990 |
| | $ | 677,733 |
|
| |
(1) | Restricted cash represents amounts required to be maintained under certain of the Company's debt obligations, loans, leasing, land development, sale and derivative transactions. |
ASU 2017-01—The adoption of ASU 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"), did not have a material impact on the Company's consolidated financial statements. Under ASU 2017-01, certain transactions previously accounted for as business combinations under the former accounting guidance will be accounted for as asset acquisitions under ASU 2017-01. As a result, the Company expects more transaction costs to be capitalized relating to real estate acquisitions as a result of ASU 2017-01.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
ASU 2017-05—ASU 2017-05, Other Income - GainsDeferred expenses and Losses from the Derecognition of Nonfinancial Assets ("ASU 2017-05"), simplifies GAAP by eliminating several accounting differences between transactions involvingother assets and transactions involving businesses. The amendments in ASU 2017-05 require an entity to initially measure a retained noncontrolling interest in a nonfinancial asset at fair value consistent with how a retained noncontrolling interest in a business is measured. Also, if an entity transfers ownership interests in a consolidated subsidiary that is within the scope of ASC 610-20accounts payable, accrued expenses and continues to have a controlling financial interest in that subsidiary, ASU 2017-05 requires the entity to account for the transaction as an equity transaction, which is consistent with how changes in ownership interests in a consolidated subsidiary that is a business are recorded when a parent retains a controlling financial interest in the business. The Company adopted ASU 2017-05 using the modified retrospective approach which was applied to all contracts. Onother liabilities—Effective January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its ground lease business (refer to Note 4) and other transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to2019 with the adoption of ASU 2017-05,2016-02, the Company, was requiredas lessee, records right-of-use lease assets in "Deferred expenses and other assets" and lease liabilities in "Accounts payable, accrued expenses and other liabilities" on its consolidated balance sheets for operating and finance leases, both measured at the present value of the lease payments. Some of the Company's lease agreements include extension options, which are not included in the lease payments unless the extensions are reasonably certain to recognize gainsbe exercised.
For operating leases, the Company recognizes a single lease cost for office leases in "General and administrative" and a single lease cost for ground leases in "Real estate expense" in the consolidated statements of operations, calculated so that the cost of the lease is allocated generally on onlya straight-line basis over the term of the lease, and classifies all cash payments within operating activities in the consolidated statements of cash flows. For finance leases, the Company recognizes amortization of the right-of-use assets on a straight-line basis over the term of the lease in "Depreciation and amortization" and interest expense on the lease liability using the effective interest method in "Interest expense" in the consolidated statements of operations. Repayments of the principal portion of itsthe finance lease liability are classified within financing activities in the consolidated statements of cash flows and payments of interest transferred to third parties and was precluded from recognizingon a gain on its retained noncontrolling interest which was carried atfinance lease liability are classified within operating activities in the Company’s historical cost basis. The adoptionconsolidated statement of ASU 2017-05 hadcash flows.
For the following impact onremainder of the Company's consolidated financial statements (in thousands):
|
| | | | | | | | | | | | |
| | | | Impact from ASU 2017-05 on January 1, 2018 | | |
| | December 31, 2017 | | | January 1, 2018 |
Other investments | | $ | 321,241 |
| | $ | 75,869 |
| | $ | 397,110 |
|
Total assets | | 4,731,078 |
| | 75,869 |
| | 4,806,947 |
|
| | | | | | |
Retained earnings (deficit) | | $ | (2,470,564 | ) | | $ | 75,869 |
| | $ | (2,394,695 | ) |
Total equity | | 914,249 |
| | 75,869 |
| | 990,118 |
|
ASU 2017-12—ASU 2017-12, Derivatives and Hedging - Targeted Improvementssignificant accounting policies, refer to Accounting for Hedging Activities ("ASU 2017-12"), was issued to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The Company adopted ASU 2017-12 on January 1, 2018 and the adoption did not have a material impact on the Company's consolidated financial statements.2018 Annual Report.
New Accounting Pronouncements—In June 2016, theFASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity. This amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company currently records a general reserve that covers performing loans and reserves for loan losses are recorded when: (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio; and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. The Company estimates loss rates based on historical realized losses experienced within its portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Management does not believeis currently evaluating the guidance will have a material impact from ASU 2016-13 on the Company's consolidated financial statements.
In February 2016,May 2019, the FASB issued ASU 2016-02, Leases("ASU 2016-02"),2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and in July 2018, the FASB issued ASU 2018-11, LeasesHedging, and Topic 825, Financial Instruments ("ASU 2018-11"2019-04"), to address two requirementsclarify certain accounting topics from previously issued ASUs, including ASU 2016-13. ASU 2019-04 addresses certain aspects of ASU 2016-02.2016-13, including but not limited to, accrued interest receivable, loan recoveries, interest rate projections for variable-rate financial instruments and expected prepayments. ASU 2016-02 and ASU 2018-11 are effective for interim and annual reporting periods beginning after December 15, 2018. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating or finance leases. For operating and finance leases, a lessee will be required2019-04 provides alternatives that allow entities to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its statement of financial position. Lessees under operating leases will be required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term generallymeasure credit losses on a straight-line basis, and classify all cash payments within operating activities in its statement of cash flows. Lessees under finance leases will be required to recognizeaccrued interest expenseseparate from credit losses on the leaseprincipal portion of a loan, clarifies that entities should include expected recoveries in the measurement of credit losses, allows entities to consider future interest rates when measuring credit losses and can elect to adjust effective interest rates used to discount expected cash flows for expected loan prepayments. ASU 2019-04 is effective upon the adoption of ASU 2016-13. Management is currently evaluating the impact of ASU 2019-04 on the Company’s consolidated financial statements.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
liability (under the effective interest method) and amortization expense of the right-of-use asset (generally on a straight line basis), each reflected separately in its statement of operations. For operating lease arrangements for which the Company is the lessee, primarily under leases of office space, the Company expects the adoption of ASU 2016-02 to result in the recognition of a right-of-use asset and lease liability on its consolidated balance sheets. The Company does not expect the right-of-use assets or lease liabilities to be material to the Company's balance sheet. The accounting applied by the Company as a lessor will be mostly unchanged from that applied under previous GAAP.
Management currently expects to elect the practical expedient package that allows the Company: (a) to not reassess whether any expired or existing contracts entered into prior to January 1, 2019 are or contain leases; (b) to not reassess the lease classification for any expired or existing leases entered into prior to January 1, 2019; and (c) to not reassess initial direct costs for any expired or existing leases entered into prior to January 1, 2019. In addition, the Company will elect to not record on its consolidated balance sheets leases whose term is less than 12 months at lease inception.
ASU 2018-11 amends ASU 2016-02 so that: (i) entities may elect to not recast the comparative periods presented when transitioning to ASC 842 by allowing entities to change their initial application to the beginning of the period of adoption; and (ii) provides lessors with a practical expedient to not separate non-lease components from the associated lease component of the contractual payments if certain conditions are met. Management currently expects to elect both of these provisions.
Note 4—Real Estate
The Company's real estate assets were comprised of the following ($ in thousands):
|
| | | | | | | | | | | |
| Net Lease(1) | | Operating Properties | | Total |
As of June 30, 2019 | | | | | |
Land, at cost | $ | 201,658 |
| | $ | 105,770 |
| | $ | 307,428 |
|
Buildings and improvements, at cost | 1,255,681 |
| | 77,707 |
| | 1,333,388 |
|
Less: accumulated depreciation | (207,515 | ) | | (11,699 | ) | | (219,214 | ) |
Real estate, net | 1,249,824 |
| | 171,778 |
| | 1,421,602 |
|
Real estate available and held for sale (2) | — |
| | 12,770 |
| | 12,770 |
|
Total real estate | $ | 1,249,824 |
| | $ | 184,548 |
| | $ | 1,434,372 |
|
As of December 31, 2018 | | | | | |
Land, at cost | $ | 336,740 |
| | $ | 133,599 |
| | $ | 470,339 |
|
Buildings and improvements, at cost | 1,487,270 |
| | 118,724 |
| | 1,605,994 |
|
Less: accumulated depreciation | (287,516 | ) | | (17,798 | ) | | (305,314 | ) |
Real estate, net | 1,536,494 |
| | 234,525 |
| | 1,771,019 |
|
Real estate available and held for sale (2) | 1,055 |
| | 21,496 |
| | 22,551 |
|
Total real estate | $ | 1,537,549 |
| | $ | 256,021 |
| | $ | 1,793,570 |
|
|
| | | | | | | | | | | |
| Net Lease(1) | | Operating Properties | | Total |
As of September 30, 2018 | | | | | |
Land, at cost | $ | 334,818 |
| | $ | 162,959 |
| | $ | 497,777 |
|
Buildings and improvements, at cost | 1,511,844 |
| | 227,672 |
| | 1,739,516 |
|
Less: accumulated depreciation | (302,887 | ) | | (40,617 | ) | | (343,504 | ) |
Real estate, net | 1,543,775 |
| | 350,014 |
| | 1,893,789 |
|
Real estate available and held for sale (2) | 7,289 |
| | 54,260 |
| | 61,549 |
|
Total real estate | $ | 1,551,064 |
| | $ | 404,274 |
| | $ | 1,955,338 |
|
As of December 31, 2017 | | | | | |
Land, at cost | $ | 219,092 |
| | $ | 203,278 |
| | $ | 422,370 |
|
Buildings and improvements, at cost | 888,959 |
| | 318,107 |
| | 1,207,066 |
|
Less: accumulated depreciation | (292,268 | ) | | (55,137 | ) | | (347,405 | ) |
Real estate, net | 815,783 |
| | 466,248 |
| | 1,282,031 |
|
Real estate available and held for sale (2) | — |
| | 68,588 |
| | 68,588 |
|
Total real estate | $ | 815,783 |
| | $ | 534,836 |
| | $ | 1,350,619 |
|
| |
(1) | On June 30, 2018,In May 2019, the Company modified certain of its leases. As a result of these modifications, the Company is required to account for the leases as sales-type leases and recorded $424.1 million in "Net investment in leases" and derecognized $193.4 million from "Real estate, net" and "Real estate available and held for sale" on its consolidated the Net Lease Venturebalance sheet (refer to Note 7) and recorded $743.6 million to "Real estate, net" on the Company's consolidated balance sheet.5). |
| |
(2) | As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company had $29.5$11.8 million and $48.5$20.6 million, respectively, of residential condominiums available for sale in its operating properties portfolio. |
DispositionAcquisitions—During the six months ended June 30, 2019, the Company acquired a net lease asset for $11.5 million and acquired the leasehold interest in another net lease asset for $98.2 million, inclusive of closing costs, and simultaneously entered into a new 98-year Ground Lease Business—In April 2017, institutional investors acquired a controlling interest in the Company's ground lease business through the merger of a Company subsidiary and related transactions (the "Acquisition Transactions"). Ground leases generally represent ownership of the land underlying commercial real estate projects that is triple net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Lease"). The Company's Ground Lease business was a component of the Company's net lease segment and consisted of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five properties). The acquiring entity was a newly formed unconsolidated entity named Safety, Income & Growth Inc. ("SAFE"). The carrying value of the Company's Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assetswith SAFE (refer to Note 10)8). The Company received all of the proceeds
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts for its investment in SAFE as an equity method investment (refer to Note 7). The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05 (refer to Note 3), on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million.
Discontinued Operations—The transactions described above involving the Company's Ground Lease business qualified for discontinued operations and the following table summarizes income from discontinued operations for the nine months ended September 30, 2017 ($ in thousands)(1)(2):
|
| | | | |
Revenues | | $ | 5,922 |
|
Expenses | | (1,491 | ) |
Income from sales of real estate | | 508 |
|
Income from discontinued operations | | $ | 4,939 |
|
| |
(1) | The transactions closed on April 14, 2017. Revenues primarily consisted of operating lease income and expenses primarily consisted of depreciation and amortization and real estate expense. |
| |
(2) | For the nine months ended September 30, 2017, cash flows provided by operating activities and cash flows used in investing activities from discontinued operations was $5.7 million and $0.5 million, respectively. |
Other Dispositions—The following table presents the net proceeds and income recognized for properties sold, by property type ($ in millions):
|
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
Operating Properties | | | | |
Proceeds(1) | | $ | 80.1 |
| | $ | 196.2 |
|
Income from sales of real estate(1) | | 10.2 |
| | 49.0 |
|
| | | | |
Net Lease | | | | |
Proceeds(2) | | $ | 440.1 |
| | $ | 38.4 |
|
Income from sales of real estate(2) | | 219.7 |
| | 24.9 |
|
| | | | |
Total | | | | |
Proceeds | | $ | 520.2 |
| | $ | 234.6 |
|
Income from sales of real estate | | 229.9 |
| | 73.9 |
|
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
Operating Properties | | | | |
Proceeds(1) | | $ | 228.7 |
| | $ | 21.8 |
|
Income from sales of real estate(1) | | 54.5 |
| | 3.3 |
|
| | | | |
Net Lease | | | | |
Proceeds(2) | | $ | 38.4 |
| | $ | 61.7 |
|
Income from sales of real estate(2) | | 24.9 |
| | 25.0 |
|
| | | | |
Total | | | | |
Proceeds | | $ | 267.1 |
| | $ | 83.5 |
|
Income from sales of real estate | | 79.4 |
| | 28.3 |
|
| |
(1) | During the ninesix months ended SeptemberJune 30, 2019, the Company sold commercial and residential operating properties with an aggregate carrying value of $69.9 million and recognized gains of $10.2 million in "Income from sales of real estate" in the Company's consolidated statements of operations. During the six months ended June 30, 2018, the Company sold sixcommercial and residential operating properties and recognized $54.5$49.0 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations, of which $9.8 million was attributable to a noncontrolling interest at one of the properties. |
| |
(2) | During the ninesix months ended SeptemberJune 30, 2019, the Company sold a portfolio of net lease assets with an aggregate carrying value of $220.4 million and recognized gains of $219.7 million in "Income from sales of real estate" in the Company's consolidated statements of operations. In connection with the sale of this portfolio of assets the buyer assumed a $228.0 million non-recourse mortgage. During the six months ended June 30, 2018, the Company sold three net lease assets and recognized $24.9 million of gains in "Income from sales of real estate" in the Company's consolidated statements of operations. |
InImpairments—During the third quarter 2017,six months ended June 30, 2019, the Company recorded an impairment of $3.3 million on a commercial operating property based on an executed purchase and sale agreement and recorded $0.6 million of impairments in conjunctionconnection with the modificationsale of two master leases, the Company exchanged real property with the tenant. The fair value of the property exchanged exceeded the Company's cost basis by approximately $1.5 million which will be deferred and amortized to "Operating lease income" in the Company's consolidated statements of operations over the remaining master lease terms.
Real Estate Available and Held for Sale—residential condominium units. During the ninesix months ended September 30, 2018, the Company transferred one net lease asset and two operating properties with an aggregate carrying value of $30.2 million to held for sale due to executed
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
contracts with third parties. During the nine months ended September 30, 2017, the Company transferred one net lease asset with a carrying value of $0.9 million to held for sale.
Impairments—During the nine months ended SeptemberJune 30, 2018, the Company recorded aggregate impairments of $9.9$8.9 million resulting from the exercise of a below-market lease renewal optiondetermination that the Company's total recovery related to a net lease asset the sale of a commercial operating propertywas less than its carrying value and residential condominium units contracted for sale. During the nine months ended September 30, 2017, the Company recorded an impairment of $4.4 million on a real estate asset held for sale due to shifting demand incontracts to sell the localremaining four condominium market along with a change inunits at the Company's exit strategy and an impairment of $0.6 million in connection with the sale of an outparcel located at a commercial operating property.
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 $5.7$4.5 million and $16.3$9.9 million for the three and ninesix months ended SeptemberJune 30, 2018, respectively. Tenant expense reimbursements were $6.12019, respectively, and $5.0 million and $17.0$10.6 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.
Allowance for Doubtful Accounts—As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the allowance for doubtful accounts related to real estate tenant receivables was $1.2$1.0 million and $1.3$1.5 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.7$1.1 million and $1.3$1.8 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income receivable, net," respectively, on the Company's consolidated balance sheets.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 5—Net Investment in Leases
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 purchase up to $55.0 million of 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.
As a result of the modifications to the leases, the Company classified the leases as sales-type leases and recorded $424.1 million in "Net investment in leases" and derecognized $193.4 million from "Real estate, net" and "Real estate available and held for sale," $25.4 million from "Deferred operating lease income receivable, net," $13.4 million from "Deferred expenses and other assets, net" and $1.9 million from "Accounts payable, accrued expenses and other liabilities" on its consolidated balance sheet. The Company recognized $180.4 million in "Selling profit from sales-type leases" in its consolidated statements of operations for the three and six months ended June 30, 2019 as a result of the transaction. For the three and six months ended June 30, 2019, the Company recognized $3.8 million of "Interest income from sales-type leases" in the Company's consolidated statements of operations. The Company determined that the seven bowling centers acquired from the lessee qualified as a failed sale leaseback transaction and recorded $44.1 million in "Loans receivable and other lending investments, net" on its consolidated balance sheet (refer to Note 3).
Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases, excluding lease payments that are not fixed and determinable, in effect as of June 30, 2019, are as follows by year ($ in thousands):
|
| | | | |
| | Amount |
2019 (remaining six months) | | $ | 13,783 |
|
2020 | | 27,565 |
|
2021 | | 28,062 |
|
2022 | | 30,549 |
|
2023 | | 30,549 |
|
Thereafter | | 925,293 |
|
Total undiscounted cash flows | | 1,055,801 |
|
Unguaranteed estimated residual value | | 350,322 |
|
Present value discount | | (984,281 | ) |
Net investment in leases as of June 30, 2019 | | $ | 421,842 |
|
Note 5—6—Land and Development
The Company's land and development assets were comprised of the following ($ in thousands):
|
| | | | | | | |
| As of |
| June 30, | | December 31, |
| 2019 | | 2018 |
Land and land development, at cost | $ | 677,778 |
| | $ | 606,849 |
|
Less: accumulated depreciation | (9,122 | ) | | (8,631 | ) |
Total land and development, net | $ | 668,656 |
| | $ | 598,218 |
|
|
| | | | | | | |
| As of |
| September 30, | | December 31, |
| 2018 | | 2017 |
Land and land development, at cost(1) | $ | 658,905 |
| | $ | 868,692 |
|
Less: accumulated depreciation | (8,374 | ) | | (8,381 | ) |
Total land and development, net | $ | 650,531 |
| | $ | 860,311 |
|
| |
(1) | During the nine months ended September 30, 2018, the Company funded capital expenditures on land and development assets of $98.5 million. |
Acquisitions—During the ninesix months ended SeptemberJune 30, 2019, the Company acquired a land and development asset from an unconsolidated entity in which the Company owned a noncontrolling 50% equity interest for $34.3 million, which consisted of a $7.3 million cash payment and the assumption of a $27.0 million loan (refer to Note 8).
During the six months ended June 30, 2018, the Company acquired, via foreclosure, title to a land asset which had a total fair value of $4.6 million and had previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with this transaction.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Dispositions—During the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the Company sold land parcels and residential lots and units and recognized land development revenue of $369.7$21.8 million and $178.7$357.4 million, respectively. In connection with the sale of two land parcels totaling 93 acres during the ninesix months ended SeptemberJune 30, 2018, the Company provided an aggregate $145.0 million of financing to the buyers. $81.2buyers, of which $81.0 million was repaid in the second quarter 2018.outstanding as of June 30, 2019. During the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the Company recognized land development cost of sales of $318.9$23.7 million and $165.9$306.8 million, respectively, from its land and development portfolio.
In connection withImpairments—During the resolution of litigation involving a dispute over the purchasethree and sale of approximately 1,250 acres of land in Prince George’s County, Maryland, during the ninesix months ended SeptemberJune 30, 2017,2019, the Company recognized $114.0recorded an impairment of $1.1 million ofon a land and development revenue and $106.3 million of land development cost of sales.
Impairments—asset due to a change in business strategy. During the ninethree and six months ended SeptemberJune 30, 2018, the Company recorded an impairment of $1.3 million on a land and development asset based upon market comparable sales. During the nine months ended September 30, 2017, the Company recorded an impairment of $10.1 million on a land and development asset due to a change in the Company's exit strategy.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 6—7—Loans Receivable and Other Lending Investments, net
The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):
|
| | | | | | | |
| As of |
Type of Investment | June 30, 2019 | | December 31, 2018 |
Senior mortgages | $ | 671,159 |
| | $ | 760,749 |
|
Corporate/Partnership loans | 124,266 |
| | 148,583 |
|
Subordinate mortgages | 10,515 |
| | 10,161 |
|
Total gross carrying value of loans | 805,940 |
| | 919,493 |
|
Reserves for loan losses | (53,408 | ) | | (53,395 | ) |
Total loans receivable, net | 752,532 |
| | 866,098 |
|
Other lending investments(1) | 149,614 |
| | 122,126 |
|
Total loans receivable and other lending investments, net | $ | 902,146 |
| | $ | 988,224 |
|
|
| | | | | | | |
| As of |
Type of Investment | September 30, 2018 | | December 31, 2017 |
Senior mortgages | $ | 801,595 |
| | $ | 791,152 |
|
Corporate/Partnership loans(1) | 152,390 |
| | 488,921 |
|
Subordinate mortgages | 9,990 |
| | 9,495 |
|
Total gross carrying value of loans | 963,975 |
| | 1,289,568 |
|
Reserves for loan losses | (54,695 | ) | | (78,489 | ) |
Total loans receivable, net | 909,280 |
| | 1,211,079 |
|
Other lending investments—securities | 119,772 |
| | 89,576 |
|
Total loans receivable and other lending investments, net | $ | 1,029,052 |
| | $ | 1,300,655 |
|
| |
(1) | InAs of June 30, 2019, includes $44.1 million related to the second quarter 2018,acquisition of bowling centers from one of the Company resolved a non-performing loan with a carrying value of $145.8 million. ReferCompany's lessees (refer to "Impaired Loans" section below. Note 5). |
Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands): |
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Reserve for loan losses at beginning of period | | $ | 53,298 |
| | $ | 69,466 |
| | $ | 53,395 |
| | $ | 78,489 |
|
Provision for loan losses | | 110 |
| | 18,892 |
| | 13 |
| | 18,037 |
|
Charge-offs | | — |
| | (33,863 | ) | | — |
| | (42,031 | ) |
Reserve for loan losses at end of period | | $ | 53,408 |
| | $ | 54,495 |
| | $ | 53,408 |
| | $ | 54,495 |
|
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Reserve for loan losses at beginning of period | | $ | 54,495 |
| | $ | 78,789 |
| | $ | 78,489 |
| | $ | 85,545 |
|
Provision for (recovery of) loan losses | | 200 |
| | (2,600 | ) | | 18,237 |
| | (8,128 | ) |
Charge-offs | | — |
| | — |
| | (42,031 | ) | | (1,228 | ) |
Reserve for loan losses at end of period | | $ | 54,695 |
| | $ | 76,189 |
| | $ | 54,695 |
| | $ | 76,189 |
|
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserve for loan losses were as follows ($ in thousands):
| | | Individually Evaluated for Impairment(1) | | Collectively Evaluated for Impairment(2) | | Total | Individually Evaluated for Impairment(1) | | Collectively Evaluated for Impairment(2) | | Total |
As of September 30, 2018 | | | | | | |
As of June 30, 2019 | | | | | | |
Loans | $ | 66,936 |
| | $ | 901,936 |
| | $ | 968,872 |
| $ | 66,034 |
| | $ | 744,944 |
| | $ | 810,978 |
|
Less: Reserve for loan losses | (40,395 | ) | | (14,300 | ) | | (54,695 | ) | (40,888 | ) | | (12,520 | ) | | (53,408 | ) |
Total(3) | $ | 26,541 |
| | $ | 887,636 |
| | $ | 914,177 |
| $ | 25,146 |
| | $ | 732,424 |
| | $ | 757,570 |
|
As of December 31, 2017 | | | | | | |
As of December 31, 2018 | | | | | | |
Loans | $ | 237,877 |
| | $ | 1,056,944 |
| | $ | 1,294,821 |
| $ | 66,725 |
| | $ | 857,662 |
| | $ | 924,387 |
|
Less: Reserve for loan losses | (60,989 | ) | | (17,500 | ) | | (78,489 | ) | (40,395 | ) | | (13,000 | ) | | (53,395 | ) |
Total(3) | $ | 176,888 |
| | $ | 1,039,444 |
| | $ | 1,216,332 |
| $ | 26,330 |
| | $ | 844,662 |
| | $ | 870,992 |
|
| |
(1) | The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.5 million and $0.7$0.5 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status; therefore, the unamortized amounts associated with these loans are not currently being amortized into income. |
| |
(2) | The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $3.4$1.0 million and net premiums of $6.2$3.1 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
(3) | The Company's recorded investment in loans as of SeptemberJune 30, 20182019 and December 31, 2017,2018, including accrued interest of $5.4$5.0 million and $5.3$4.9 million, respectively, is included in "Accrued interest and operating lease income receivable, net" on the Company's consolidated balance sheets. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the total amounts exclude $119.8$105.5 million and $89.6$122.1 million, respectively, of securities that are evaluated for impairment under ASC 320. |
Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments, which are inherently uncertain, and there can be no assurance that actual performance will be similar to current expectation. The Company designates loans as non-performing at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.
The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands):
|
| | | | | | | | | | | | | |
| As of June 30, 2019 | | As of December 31, 2018 |
| Performing Loans | | Weighted Average Risk Ratings | | Performing Loans | | Weighted Average Risk Ratings |
Senior mortgages | $ | 609,021 |
| | 2.92 |
| | $ | 697,807 |
| | 2.76 |
|
Corporate/Partnership loans | 125,377 |
| | 3.12 |
| | 149,663 |
| | 2.84 |
|
Subordinate mortgages | 10,547 |
| | 3.00 |
| | 10,192 |
| | 3.00 |
|
Total | $ | 744,945 |
| | 2.95 |
| | $ | 857,662 |
| | 2.77 |
|
|
| | | | | | | | | | | | | |
| As of September 30, 2018 | | As of December 31, 2017 |
| Performing Loans | | Weighted Average Risk Ratings | | Performing Loans | | Weighted Average Risk Ratings |
Senior mortgages | $ | 738,570 |
| | 3.18 |
| | $ | 713,057 |
| | 2.72 |
|
Corporate/Partnership loans | 153,346 |
| | 3.39 |
| | 334,364 |
| | 2.85 |
|
Subordinate mortgages | 10,020 |
| | 3.50 |
| | 9,523 |
| | 3.00 |
|
Total | $ | 901,936 |
| | 3.22 |
| | $ | 1,056,944 |
| | 2.77 |
|
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The Company's recorded investment in loans, aged by payment status and presented by class, was as follows ($ in thousands):
| | | Current | | Less Than and Equal to 90 Days | | Greater Than 90 Days(1) | | Total Past Due | | Total | Current | | Less Than and Equal to 90 Days | | Greater Than 90 Days(1) | | Total Past Due | | Total |
As of September 30, 2018 | | | | | | | | | | |
As of June 30, 2019 | | | | | | | | | | |
Senior mortgages | $ | 744,570 |
| | $ | — |
| | $ | 60,936 |
| | $ | 60,936 |
| | $ | 805,506 |
| $ | 615,021 |
| | $ | — |
| | $ | 60,033 |
| | $ | 60,033 |
| | $ | 675,054 |
|
Corporate/Partnership loans | 153,346 |
| | — |
| | — |
| | — |
| | 153,346 |
| 125,377 |
| | — |
| | — |
| | — |
| | 125,377 |
|
Subordinate mortgages | 10,020 |
| | — |
| | — |
| | — |
| | 10,020 |
| 10,547 |
| | — |
| | — |
| | — |
| | 10,547 |
|
Total | $ | 907,936 |
| | $ | — |
| | $ | 60,936 |
| | $ | 60,936 |
| | $ | 968,872 |
| $ | 750,945 |
| | $ | — |
| | $ | 60,033 |
| | $ | 60,033 |
| | $ | 810,978 |
|
As of December 31, 2017 | | | | | | | | | | |
As of December 31, 2018 | | | | | | | | | | |
Senior mortgages | $ | 719,057 |
| | $ | — |
| | $ | 75,343 |
| | $ | 75,343 |
| | $ | 794,400 |
| $ | 703,807 |
| | $ | — |
| | $ | 60,725 |
| | $ | 60,725 |
| | $ | 764,532 |
|
Corporate/Partnership loans | 334,364 |
| | — |
| | 156,534 |
| | 156,534 |
| | 490,898 |
| 149,663 |
| | — |
| | — |
| | — |
| | 149,663 |
|
Subordinate mortgages | 9,523 |
| | — |
| | — |
| | — |
| | 9,523 |
| 10,192 |
| | — |
| | — |
| | — |
| | 10,192 |
|
Total | $ | 1,062,944 |
| | $ | — |
| | $ | 231,877 |
| | $ | 231,877 |
| | $ | 1,294,821 |
| $ | 863,662 |
| | $ | — |
| | $ | 60,725 |
| | $ | 60,725 |
| | $ | 924,387 |
|
| |
(1) | As of SeptemberJune 30, 2019, the Company had two loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 4.0 years to 10.0 years outstanding. As of December 31, 2018, the Company had two loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 4.0 to 9.0 years outstanding. As of December 31, 2017, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal and foreclosure-related proceedings and environmental matters, and ranged from 1.0 to 9.0 years outstanding. |
Impaired Loans—In the second quarter 2018, the Company resolved a non-performing loan with a carrying value of $145.8 million. The Company received a $45.8 million cash payment and a preferred equity investment with a face value of $100.0 million that is mandatorily redeemable in five years. The Company recorded the preferred equity at its fair value of $77.0 million and will accrue interest over the expected duration of the investment. In addition, the Company recorded a $21.4 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.
The Company's recorded investment in impaired loans, presented by class, was as follows ($ in thousands)(1):
| | | As of September 30, 2018 | | As of December 31, 2017 | As of June 30, 2019 | | As of December 31, 2018 |
| Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | |
Senior mortgages | $ | 66,936 |
| | $ | 67,133 |
| | $ | (40,395 | ) | | $ | 81,343 |
| | $ | 81,431 |
| | $ | (48,518 | ) | $ | 66,033 |
| | $ | 65,945 |
| | $ | (40,888 | ) | | $ | 66,725 |
| | $ | 66,777 |
| | $ | (40,395 | ) |
Corporate/Partnership loans | — |
| | — |
| | — |
| | 156,534 |
| | 145,849 |
| | (12,471 | ) | |
Total | $ | 66,936 |
| | $ | 67,133 |
| | $ | (40,395 | ) | | $ | 237,877 |
| | $ | 227,280 |
| | $ | (60,989 | ) | $ | 66,033 |
| | $ | 65,945 |
| | $ | (40,888 | ) | | $ | 66,725 |
| | $ | 66,777 |
| | $ | (40,395 | ) |
| |
(1) | All of the Company's non-accrual loans are considered impaired and included in the table above. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The Company's average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | | | | | | | |
Subordinate mortgages | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 92 |
|
Subtotal | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 92 |
|
With an allowance recorded: | | | | | | | | | | | | | | | |
Senior mortgages | 66,379 |
| | — |
| | 67,252 |
| | — |
| | 66,605 |
| | — |
| | 71,949 |
| | — |
|
Corporate/Partnership loans | — |
| | — |
| | 78,338 |
| | — |
| | — |
| | — |
| | 104,403 |
| | — |
|
Subtotal | 66,379 |
| | — |
| | 145,590 |
| | — |
| | 66,605 |
| | — |
| | 176,352 |
| | — |
|
Total: | | | | | | | | | | | | | | | |
Senior mortgages | 66,379 |
| | — |
| | 67,252 |
| | — |
| | 66,605 |
| | — |
| | 71,949 |
| | — |
|
Corporate/Partnership loans | — |
| | — |
| | 78,338 |
| | — |
| | — |
| | — |
| | 104,403 |
| | — |
|
Subordinate mortgages | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 92 |
|
Total | $ | 66,379 |
| | $ | — |
| | $ | 145,590 |
| | $ | — |
| | $ | 66,605 |
| | $ | — |
| | $ | 176,352 |
| | $ | 92 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
With no related allowance recorded: | | | | | | | | | | | | | | | |
Subordinate mortgages | $ | — |
| | $ | 209 |
| | $ | 5,501 |
| | $ | 385 |
| | $ | — |
| | $ | 301 |
| | $ | 8,227 |
| | $ | 385 |
|
Subtotal | — |
| | 209 |
| | 5,501 |
| | 385 |
| | — |
| | 301 |
| | 8,227 |
| | 385 |
|
With an allowance recorded: | | | | | | | | | | | | | | | |
Senior mortgages | 67,001 |
| | — |
| | 82,007 |
| | — |
| | 70,696 |
| | — |
| | 83,100 |
| | — |
|
Corporate/Partnership loans | — |
| | — |
| | 156,399 |
| | — |
| | 78,302 |
| | — |
| | 156,811 |
| | — |
|
Subtotal | 67,001 |
| | — |
| | 238,406 |
| | — |
| | 148,998 |
| | — |
| | 239,911 |
| | — |
|
Total: | | | | | | | | | | | | | | | |
Senior mortgages | 67,001 |
| | — |
| | 82,007 |
| | — |
| | 70,696 |
| | — |
| | 83,100 |
| | — |
|
Corporate/Partnership loans | — |
| | — |
| | 156,399 |
| | — |
| | 78,302 |
| | — |
| | 156,811 |
| | — |
|
Subordinate mortgages | — |
| | 209 |
| | 5,501 |
| | 385 |
| | — |
| | 301 |
| | 8,227 |
| | 385 |
|
Total | $ | 67,001 |
| | $ | 209 |
| | $ | 243,907 |
| | $ | 385 |
| | $ | 148,998 |
| | $ | 301 |
| | $ | 248,138 |
| | $ | 385 |
|
SecuritiesOther lending investments—Other lending investments—securities includeinvestments includes the following securities ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Face Value | | Amortized Cost Basis | | Net Unrealized Gain | | Estimated Fair Value | | Net Carrying Value |
As of June 30, 2019 | | | | | | | | | |
Available-for-Sale Securities | | | | | | | | | |
Municipal debt securities | $ | 21,140 |
| | $ | 21,140 |
| | $ | 2,184 |
| | $ | 23,324 |
| | $ | 23,324 |
|
Held-to-Maturity Securities | | | | | | | | | |
Debt securities | 100,000 |
| | 82,205 |
| | — |
| | 82,205 |
| | 82,205 |
|
Total | $ | 121,140 |
| | $ | 103,345 |
| | $ | 2,184 |
| | $ | 105,529 |
| | $ | 105,529 |
|
As of December 31, 2018 | | | | | | | | | |
Available-for-Sale Securities | | | | | | | | | |
Municipal debt securities | $ | 21,185 |
| | $ | 21,185 |
| | $ | 476 |
| | $ | 21,661 |
| | $ | 21,661 |
|
Held-to-Maturity Securities | | | | | | | | | |
Debt securities | 120,866 |
| | 100,465 |
| | 7 |
| | 100,472 |
| | 100,465 |
|
Total | $ | 142,051 |
| | $ | 121,650 |
| | $ | 483 |
| | $ | 122,133 |
| | $ | 122,126 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Face Value | | Amortized Cost Basis | | Net Unrealized Gain | | Estimated Fair Value | | Net Carrying Value |
As of September 30, 2018 | | | | | | | | | |
Available-for-Sale Securities | | | | | | | | | |
Municipal debt securities | $ | 21,185 |
| | $ | 21,185 |
| | $ | 97 |
| | $ | 21,282 |
| | $ | 21,282 |
|
Held-to-Maturity Securities | | | | | | | | | |
Debt securities | 120,195 |
| | 98,490 |
| | 1,640 |
| | 100,130 |
| | 98,490 |
|
Total | $ | 141,380 |
| | $ | 119,675 |
| | $ | 1,737 |
| | $ | 121,412 |
| | $ | 119,772 |
|
As of December 31, 2017 | | | | | | | | | |
Available-for-Sale Securities | | | | | | | | | |
Municipal debt securities | $ | 21,230 |
| | $ | 21,230 |
| | $ | 1,612 |
| | $ | 22,842 |
| | $ | 22,842 |
|
Held-to-Maturity Securities | | | | | | | | | |
Debt securities | 66,618 |
| | 66,734 |
| | 1,581 |
| | 68,315 |
| | 66,734 |
|
Total | $ | 87,848 |
| | $ | 87,964 |
| | $ | 3,193 |
| | $ | 91,157 |
| | $ | 89,576 |
|
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Asof SeptemberJune 30, 2018,2019, the contractual maturities of the Company's securities were as follows ($ in thousands):
|
| | | | | | | | | | | | | | | |
| Held-to-Maturity Securities | | Available-for-Sale Securities |
| Amortized Cost Basis | | Estimated Fair Value | | Amortized Cost Basis | | Estimated Fair Value |
Maturities | | | | | | | |
Within one year | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
After one year through 5 years | 82,205 |
| | 82,205 |
| | — |
| | — |
|
After 5 years through 10 years | — |
| | — |
| | — |
| | — |
|
After 10 years | — |
| | — |
| | 21,140 |
| | 23,324 |
|
Total | $ | 82,205 |
| | $ | 82,205 |
| | $ | 21,140 |
| | $ | 23,324 |
|
|
| | | | | | | | | | | | | | | |
| Held-to-Maturity Securities | | Available-for-Sale Securities |
| Amortized Cost Basis | | Estimated Fair Value | | Amortized Cost Basis | | Estimated Fair Value |
Maturities | | | | | | | |
Within one year | $ | 20,184 |
| | $ | 20,434 |
| | $ | — |
| | $ | — |
|
After one year through 5 years | 78,306 |
| | 79,696 |
| | — |
| | — |
|
After 5 years through 10 years | — |
| | — |
| | — |
| | — |
|
After 10 years | — |
| | — |
| | 21,185 |
| | 21,282 |
|
Total | $ | 98,490 |
| | $ | 100,130 |
| | $ | 21,185 |
| | $ | 21,282 |
|
Note 7—8—Other Investments
The Company's other investments and its proportionate share of earnings from equity method investments were as follows ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Equity in Earnings (Losses) |
| Carrying Value as of | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| June 30, 2019 | | December 31, 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Real estate equity investments | | | | | | | | | | | |
Safehold Inc. ("SAFE") | $ | 402,860 |
| | $ | 149,589 |
| | $ | 3,814 |
| | $ | 680 |
| | $ | 11,130 |
| | $ | 2,152 |
|
iStar Net Lease II LLC ("Net Lease Venture II") | 5,397 |
| | 16,215 |
| | (232 | ) | | — |
| | (318 | ) | | — |
|
iStar Net Lease I LLC ("Net Lease Venture")(1) | — |
| | — |
| | — |
| | 2,016 |
| | — |
| | 4,100 |
|
Other real estate equity investments | 111,958 |
| | 130,955 |
| | 293 |
| | (295 | ) | | (1,830 | ) | | (25 | ) |
Subtotal | 520,215 |
| | 296,759 |
| | 3,875 |
| | 2,401 |
| | 8,982 |
| | 6,227 |
|
Other strategic investments(2) | 43,955 |
| | 7,516 |
| | (235 | ) | | (9,679 | ) | | (33 | ) | | (10,173 | ) |
Total | $ | 564,170 |
| | $ | 304,275 |
| | $ | 3,640 |
| | $ | (7,278 | ) | | $ | 8,949 |
| | $ | (3,946 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Equity in Earnings (Losses) |
| Carrying Value as of | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| September 30, 2018 | | December 31, 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Real estate equity investments | | | | | | | | | | | |
iStar Net Lease I LLC ("Net Lease Venture")(1) | $ | — |
| | $ | 121,139 |
| | $ | — |
| | $ | 962 |
| | $ | 4,100 |
| | $ | 2,975 |
|
Safety, Income & Growth Inc. ("SAFE")(2) | 150,533 |
| | 83,868 |
| | 775 |
| | 340 |
| | 2,927 |
| | 388 |
|
Other real estate equity investments(2) | 144,517 |
| | 102,616 |
| | (2,062 | ) | | 549 |
| | (2,087 | ) | | 9,098 |
|
Subtotal | 295,050 |
| | 307,623 |
| | (1,287 | ) | | 1,851 |
| | 4,940 |
| | 12,461 |
|
Other strategic investments(3) | 7,268 |
| | 13,618 |
| | 652 |
| | 610 |
| | (9,521 | ) | | 1,216 |
|
Total | $ | 302,318 |
| | $ | 321,241 |
| | $ | (635 | ) | | $ | 2,461 |
| | $ | (4,581 | ) | | $ | 13,677 |
|
| |
(1) | The Company consolidated the assets and liabilities of the Net Lease Venture on June 30, 2018 (refer to Net Lease Venture below). |
| |
(2) | On January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its Ground Lease business (refer to Note 4) and other transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to the adoption of ASU 2017-05 (refer to Note 3), the Company was required to recognize gains on only the portion of its interest transferred to third parties and was precluded from recognizing a gain on its retained noncontrolling interest, which was carried at the Company’s historical cost basis. |
| |
(3) | For the ninethree and six months ended SeptemberJune 30, 2018, equity in earnings (losses) includes a $10.0$10.0 million impairment on a foreign equity method investment due to local market conditions. |
Safehold Inc.—Safehold Inc. ("SAFE"), formerly known as Safety, Income & Growth Inc., is a publicly-traded company formed by the Company primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Leases").
On January 2, 2019, the Company purchased 12,500,000 newly designated limited partnership units (the "Investor Units") in SAFE's operating partnership ("SAFE OP"), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. The purpose of the investment was to allow SAFE to fund additional Ground Lease acquisitions and originations. Each Investor Unit received distributions equivalent to distributions declared and paid on one share of SAFE's common stock. The Investor Units had no voting rights. They had limited protective consent rights over certain matters such as amendments to the terms of the Investor Units that would adversely affect the Investor Units. 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. As of June 30, 2019, the Company owned approximately 66.5% of SAFE's common stock outstanding.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
In connection with the Company's purchase of the Investor Units, it entered into a Stockholder's Agreement with SAFE on January 2, 2019. The Stockholder's Agreement:
limits the Company's discretionary voting power to 41.9% of the outstanding voting power of SAFE's common stock until its aggregate ownership of SAFE common stock is less than 41.9%;
requires the Company to cast all of its voting power in favor of three director nominees to SAFE's board who are independent of each of the Company and SAFE for three years;
subjects the Company to certain standstill provisions for two years;
restricts the Company's ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one year after their issuance;
prohibits the Company from transferring shares of SAFE common stock representing more than 20% of the outstanding SAFE common stock in one transaction or a series of related transactions to any person or group, other than pursuant to a widely distributed public offering, unless SAFE's other stockholders have participation rights in the transaction; and
provides the Company certain preemptive rights.
A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. Following are the key terms of the management agreement:
The Company received no management fee through June 30, 2018, which covered the first year of the management agreement;
The Company receives a fee equal to 1.0% of total SAFE equity (as defined in the management agreement) up to $1.5 billion; 1.25% of total SAFE equity (for incremental equity of $1.5 billion - $3.0 billion); 1.375% of total SAFE equity (for incremental equity of $3.0 billion - $5.0 billion); and 1.5% of total SAFE equity (for incremental equity over $5.0 billion);
Fee to be paid in cash or in shares of SAFE common stock, at the discretion of SAFE's independent directors;
The stock is locked up for two years, subject to certain restrictions;
There is no additional performance or incentive fee;
From January 1, 2019 through June 30, 2022, the management agreement is non-terminable by SAFE except for cause; and
Automatic annual renewals thereafter, subject to non-renewal upon certain findings by SAFE's independent directors and payment of termination fee equal to three times the prior year's management fee, subject to SAFE having raised $820 million of total equity since inception.
During the three and six months ended June 30, 2019, the Company recorded $1.5 million and $3.1 million, respectively, of management fees and during the three and six months ended June 30, 2018, the Company waived $0.9 million and $1.8 million, respectively, of management fees pursuant to its management agreement with SAFE. During the three and six months ended June 30, 2019, the Company received 75,585 shares and 121,605 shares, respectively, of SAFE common stock for payment of management fees.
The Company is also entitled to receive expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company waived certain of the expense reimbursements through June 30, 2018. For the three and six months ended June 30, 2019, the Company was reimbursed $0.5 million and $1.1 million, respectively, of expense reimbursements. For the three and six months ended June 30, 2018, the Company waived $0.4 million and $0.8 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.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
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 August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the renovation of a medical office building in Atlanta, GA. As of June 30, 2019, $18.0 million of the loan was funded. During the three months ended June 30, 2019 and 2018, the Company recorded $0.5 million and $0.3 million, respectively, of interest income on the loan. During the six months ended June 30, 2019 and 2018, the Company recorded $0.9 million and $0.6 million, respectively, of interest income on the loan.
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 in San Jose, CA. The transaction includes a combination of: (i) a newly created Ground Lease and a $7.2 million leasehold improvement allowance, which was fully funded as of June 30, 2019; and (ii) a $80.5 million leasehold first mortgage. As of June 30, 2019, $14.9 million of the loan was funded. During the three months ended June 30, 2019 and 2018, the Company recorded $0.2 million and $0.1 million, respectively, of interest income on the loan. During the six months ended June 30, 2019 and 2018, the Company recorded $0.3 million and $0.1 million, respectively, of interest income on the loan. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million.
In May 2018, the Company provided a $19.9 million leasehold mortgage loan to the ground lessee of a Ground Lease originated at SAFE. As of June 30, 2019, the loan was fully funded. The loan was for the acquisition of two multi-tenant office buildings in Atlanta, GA. During the three months ended June 30, 2019 and 2018, the Company recorded $0.5 million and $0.2 million, respectively, of interest income on the loan. During the six months ended June 30, 2019 and 2018, the Company recorded $1.1 million and $0.2 million, respectively, of interest income on the loan.
In January 2019, the Company committed to provide a $13.3 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the conversion of an office building into a multi-family property in Washington, DC. As of June 30, 2019, $12.1 million of the loan was funded. During the three and six months ended June 30, 2019, the Company recorded $0.2 million and $0.4 million, respectively, of interest income on the loan.
In February 2019, the Company acquired the leasehold interest in a net lease property and simultaneously entered into a new 98-year Ground Lease with SAFE (refer to Note 4).
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a net lease venture (the "Netthe Net Lease Venture")Venture to acquire and develop net lease assets and gave a right of first offer to the venture on all new net lease investments. The Company and its partner had joint decision making rights pertaining to the acquisition of new investments. Upon the expiration of the investment period on June 30, 2018, the Company obtained control of the venture through its unilateral rights of management and disposition of the assets. As a result, the expiration of the investment period resulted in a reconsideration event under GAAP and the Company determined that the Net Lease Venture is a VIE for which the Company is the primary beneficiary. Effective June 30, 2018, the Company consolidated the Net Lease Venture as an asset acquisition under ASC 810. The Company recorded a gain of $67.9 million in "Gain on consolidation of equity method investment" in the Company's consolidated statement of operations as a result of the consolidation. The Net Lease Venture had previously been accounted for as an equity method investment. The Company has an equity interest in the Net Lease Venture of approximately 51.9% and recorded a $188.3 million increase to "Noncontrolling interests" and $11.8 million increase to "Redeemable noncontrolling interest" on the Company's consolidated balance sheet as a result of the consolidation.interests." The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a management fee and incentive fee. Several of the Company's senior executives whose time is substantially devoted to the Net
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Lease Venture haveown a total of 0.6% equity ownership in the venture via co-investment. These senior executives are also entitled to an amount equal to 50.0%50% of any incentive fee received based on the 47.5% partner's interest.
During the three and six months ended June 30, 2018, the Company recorded $0.7 million and $1.3 million, respectively, of management fees from the Net Lease Venture. The management fees are included in "Other income" in the Company's consolidated statements of operations. Beginning after the Company's consolidation of the Net Lease Venture on June 30, 2018 and after the effect of eliminations, the Company earned $0.4 million and $0.7 million, respectively, of management fees during the three and six months ended June 30, 2019 with respect to services provided to other investors in the Net Lease Venture, which was recorded as a reduction to "Net income attributable to noncontrolling interests" in the Company's consolidated statements of operations.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
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. TheNet Lease Venture II is a voting interest entity and the Company has an equity interest in the new venture of approximately 51.9%, which will be accounted for as an equity method investment, and is responsible for managing the venture in exchange for a management fee and incentive fee.
During the three months ended September 30, 2018, after the effect of eliminations, the Company earned $0.3 million of management fees with respect to services provided to other investors in the Net Lease Venture, which was recorded as a reduction to "Net income attributable to noncontrolling interests" in the Company's consolidated statements of operations. During the nine months ended September 30, 2018, the Company recorded management fees of $1.3 million from the Net Lease Venture. During the three and nine months ended September 30, 2017, the Company recorded management fees of $0.6 million and $1.5 million, respectively, from the Net Lease Venture. These management fees are included in "Other income" in the Company's consolidated statements of operations.
Safety, Income & Growth Inc.—The Company and two institutional investors capitalized SIGI Acquisition, Inc. ("SIGI") on April 14, 2017 to acquire, manage and capitalize Ground Leases. The Company contributed $55.5 million for an initial 49.1% noncontrolling interest in SIGI and the two institutional investors contributed an aggregate $57.5 million for an initial 50.9% controlling interest in SIGI. A wholly-owned subsidiary of the Company that held the Company's Ground Lease business and assets merged with and into SIGI on April 14, 2017 with SIGI surviving the merger and being renamed Safety, Income & Growth Inc. ("SAFE"). Through this merger and related transactions, the institutional investors acquired a controlling interest in the Company's Ground Lease business. The Company's carrying value of the Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05, on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million.
On June 27, 2017, SAFE completed its initial public offering (the "Offering") raising $205.0 million in gross proceeds and concurrently completed a $45.0 million private placement to the Company. In addition, the Company paid $18.9 million in organization and offering costs of the up to $25.0 million in organization and offering costs it agreed to pay in connection with the Offering and concurrent private placement. The Company expensed the portion of offering costs that was attributable to other investors in "Other expense" in the Company's consolidated statements of operations and capitalized the portion of offering costs attributable to the Company's ownership interest in "Other investments" on the Company's consolidated balance sheets. Subsequent to the initial public offering, the Company purchased 2.2 million shares of SAFE's common stock for $41.7 million, for an average cost of $18.67 per share, pursuant to two 10b5-1 plans in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended, under which the Company could buy shares of SAFE's common stock in the open market. During the three months ended September 30, 2018, iStar purchased an additional 133,524 shares of SAFE's common stock in open market and negotiated transactions for $2.2 million, for an average cost of $16.39 per share. As of September 30, 2018, the Company owned approximately 40.5% of SAFE's common stock outstanding.
A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee, payable solely in shares of SAFE's common stock, equal to the sum of 1.0% of SAFE's total equity up to $2.5 billion and 0.75% of SAFE's total equity in excess of $2.5 billion. The Company is not entitled to receive any performance or incentive compensation. The Company is also entitled to receive expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company waived both the management fee and certain of the expense reimbursements through June 30, 2018. For the six months ended June 30, 2018,2019, the Company waived $1.8recorded $0.4 million and $0.8 million, respectively, of management fees and expense reimbursements. Forfrom the three months ended September 30, 2018, the Company recorded $0.9 million and $0.4 million, respectively, of management fees and expense reimbursements. Subsequent to September 30, 2018, the Company was issued 45,941 shares of SAFE's common stock for payment of the management fee for the three months ended September 30, 2018. The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain exceptions, that it will not acquire,Net Lease Venture II.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
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.
Following is a list of investments that the Company has transacted with SAFE:
In August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a GroundDecember 2018, Net Lease originated at SAFE. The loan had an initial term of one year and was extended for an additional year and will be used for the renovation of a medical office building in Atlanta, GA. $15.5 million of the loan was funded as of September 30, 2018. During the three and nine months ended September 30, 2018, the Company recorded $0.4 million and $1.0 million of interest income, respectively, on the loan.The transaction was approved by the Company's and SAFE's independent directors.
In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment to support the ground-up development of Great Oaks Multifamily, a to-be-built 301-unit community within the Great Oaks Master Plan of San Jose, CA. The transaction includes a combination of: (i) a newly created Ground Lease and up to a $7.2 million leasehold improvement allowance; and (ii) a $80.5 million leasehold first mortgage. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million. The forward purchase contract was approved by the Company's and SAFE's independent directors.
In May 2018, the Company provided a $19.9 million leasehold mortgage loan to the ground lessee of a Ground Lease originated at SAFE. The loan has an initial term of one year and will be used for the acquisition of 100 and 200 Glenridge Point, two multi-tenant officeVenture II acquired four buildings in Atlanta, GA. During the three and nine months ended September 30, 2018, the Company recorded $0.6 million and $0.8 million of interest income, respectively, on the loan. The transaction was approved by the Company's and SAFE's independent directors.
In June 2018, the Company sold two industrial facilitiescomprising 168,636 square feet (the "Properties") located in Miami, FL to a third-party and simultaneously structured and entered into two Ground Leases. The Company then soldLivermore, CA. Net Lease Venture II acquired the two Ground Leases to SAFE. Net proceeds from the transactions totaled $36.1Properties for $31.2 million and the Company recognized a $24.5 million gain on sale. The transactions were approved by the Company's and SAFE's independent directors. which are 100% leased with four separate leases that expire in December 2028.
Other real estate equity investments—As of SeptemberJune 30, 2018,2019, the Company's other real estate equity investments include equity interests in real estate ventures ranging from 15.5%16.0% to 95.0%, comprised of investments of $74.1$69.2 million in operating properties and $70.4$42.8 million in land assets. As of December 31, 2017,2018, the Company's other real estate equity investments included $38.8$65.6 million in operating properties and $63.8$65.3 million in land assets.
In August 2018, the Company provided a $33.0 million mezzanine loan with a principal balance of which $28.9$31.9 million was fundedand $30.5 million as of SeptemberJune 30, 2019 and December 31, 2018, respectively, to an unconsolidated entity in which the Company owns a 50% equity interest. As of SeptemberJune 30, 2019 and December 31, 2018, the loan is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheet. During the three and ninesix months ended SeptemberJune 30, 2018,2019, the Company recorded $0.4$0.7 million and $1.4 million, respectively, of interest income on the mezzanine loan.
In December 2016, the Company sold a land and development asset to a newly formed unconsolidated entity in which the Company ownsowned a 50.0% equity interest. The Company provided financing to the entity in the form of a $27.0 million senior loan, commitment,all of which $27.0 million and $25.4 million was funded as of September 30,December 31, 2018 and December 31, 2017, respectively, and iswas included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. In April 2019, the Company acquired the land and development asset from the entity for $34.3 million, which consisted of a $7.3 million cash payment and the assumption of the $27.0 million senior loan. During the three and nine months ended SeptemberJune 30, 2019 and 2018, the Company recorded $0.5$0.1 million and $1.5$0.5 million of interest income, respectively, on the senior loan. During the three and ninesix months ended SeptemberJune 30, 2017,2019 and 2018, the Company recorded $0.5$0.6 million and $1.4$1.0 million, respectively, of interest income respectively, on the senior loan.
Other strategic investments—As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company also had investments in real estate related funds and other strategic investments in real estate entities.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 8—9—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
|
| | | | | | | |
| As of |
| June 30, 2019 | | December 31, 2018 |
Intangible assets, net(1) | $ | 154,574 |
| | $ | 156,281 |
|
Restricted cash | 64,154 |
| | 42,793 |
|
Finance lease right-of-use assets(2) | 67,901 |
| | — |
|
Operating lease right-of-use assets(2) | 28,908 |
| | — |
|
Other assets(3) | 38,860 |
| | 32,333 |
|
Other receivables(4) | 22,036 |
| | 46,887 |
|
Leasing costs, net(5) | 4,343 |
| | 6,224 |
|
Corporate furniture, fixtures and equipment, net(6) | 3,271 |
| | 3,850 |
|
Deferred financing fees, net | 2,505 |
| | 900 |
|
Deferred expenses and other assets, net | $ | 386,552 |
| | $ | 289,268 |
|
|
| | | | | | | |
| As of |
| September 30, 2018 | | December 31, 2017 |
Intangible assets, net(1) | $ | 158,184 |
| | $ | 27,124 |
|
Other receivables(2) | 46,193 |
| | 56,369 |
|
Restricted cash | 34,974 |
| | 20,045 |
|
Other assets(3) | 32,862 |
| | 23,081 |
|
Leasing costs, net(4) | 6,487 |
| | 9,050 |
|
Corporate furniture, fixtures and equipment, net(5) | 4,123 |
| | 4,652 |
|
Deferred financing fees, net | 1,017 |
| | 1,409 |
|
Deferred expenses and other assets, net | $ | 283,840 |
| | $ | 141,730 |
|
| |
(1) | Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $135.3 million of intangible assets to "Deferred expenses and other assets, net" on the Company's consolidated balance sheet. Accumulated amortization on intangible assets, net was $32.6$27.7 million and $34.9$27.0 million as of SeptemberJune 30, 20182019 and December 31, 2017, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company's consolidated statements of operations by $0.9 million and $1.6 million for the three and nine months ended September 30, 2018, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company's consolidated statements of operations by $0.5 million and $2.0$1.0 million for the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, and $0.4 million and $0.8 million for the three and six months ended June 30, 2018, respectively. These intangible lease assets are amortized over the remaining term of the lease. The amortization expense for in-place leases was $4.0$2.2 million and $4.7$4.5 million for the three and ninesix months ended SeptemberJune 30, 2018, respectively. The amortization expense for in-place leases was $0.32019, respectively, and $0.4 million and $1.5$0.7 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. These amounts are included in "Depreciation and amortization" in the Company's consolidated statements of operations. |
| |
(2) | As of September 30, 2018 and December 31, 2017, includes $26.0 million of reimbursements receivable relatedRight-of-use lease assets relate primarily to the constructionCompany's leases of office space and developmentcertain of anits ground leases. Right-of use lease assets initially equal the lease liability. The lease liability (see table below) equals the present value of the minimum rental payments due under the lease discounted at the rate implicit in the lease or the Company's incremental secured borrowing rate for similar collateral. For operating property.leases, lease liabilities were discounted at the Company's weighted average incremental secured borrowing rate for similar collateral estimated to be 5.6% and the weighted average lease term is 9.7 years. For finance leases, lease liabilities were discounted at a weighted average rate implicit in the lease of 5.7% and the weighted average lease term is 97.7 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 and six months ended June 30, 2019, the Company recognized $1.0 million and $1.3 million, respectively, in "Interest expense" and $0.2 million and $0.2 million, respectively, in "Depreciation and amortization" in its consolidated statement of operations relating to finance leases. Right-of-use assets for operating leases are amortized on a straight-line basis over the term of the lease and are recorded in "General and administrative" and "Real estate expense" in the Company's consolidated statements of operations (refer to Note 3). During the three and six months ended June 30, 2019, the Company recognized $0.9 million and $1.8 million, respectively, in "General and administrative" and $0.6 million and $1.8 million, respectively, in "Real estate expense" in its consolidated statement of operations relating to operating leases. |
| |
(3) | Other assets primarily includes derivative assets, prepaid expenses and deposits for certain real estate assets. |
| |
(4) | As of December 31, 2018, includes $26.0 million of reimbursements receivable related to the construction and development of an operating property that was received in 2019. |
| |
(5) | Accumulated amortization of leasing costs was $4.2$3.2 million and $4.7$4.4 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
(5)(6) | Accumulated depreciation on corporate furniture, fixtures and equipment was $11.5$12.5 million and $10.5$11.9 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
|
| | | | | | | |
| As of |
| June 30, 2019 | | December 31, 2018 |
Other liabilities(1) | $ | 91,502 |
| | 143,325 |
|
Accrued expenses | 75,427 |
| | 95,149 |
|
Finance lease liabilities (see table above) | 68,571 |
| | — |
|
Intangible liabilities, net(2) | 47,708 |
| | 35,108 |
|
Operating lease liabilities (see table above) | 28,917 |
| | — |
|
Accrued interest payable | 33,516 |
| | 42,669 |
|
Accounts payable, accrued expenses and other liabilities | $ | 345,641 |
| | $ | 316,251 |
|
|
| | | | | | | |
| As of |
| September 30, 2018 | | December 31, 2017 |
Accrued expenses(1) | $ | 92,783 |
| | $ | 101,035 |
|
Other liabilities(2) | 84,675 |
| | 79,015 |
|
Intangible liabilities, net(3) | 38,889 |
| | 8,021 |
|
Accrued interest payable | 28,486 |
| | 49,933 |
|
Accounts payable, accrued expenses and other liabilities | $ | 244,833 |
| | $ | 238,004 |
|
| |
(1) | As of SeptemberJune 30, 20182019 and December 31, 2017, accrued expenses includes $2.8 million and $2.5 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance sheets. |
| |
(2) | As of September 30, 2018, and December 31, 2017, other liabilities includes $18.6$0.2 million and $29.2$18.5 million, respectively, related to profit sharing arrangements with developers for certain properties sold. As of SeptemberJune 30, 20182019 and December 31, 2017, includes $1.7 million and $1.6 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance sheets. As of September 30, 2018, and December 31, 2017, other liabilities also includes $11.8$9.1 million and $6.2$9.4 million, respectively, related to tax increment financing bonds which were issued by government entities to fund development within two of the Company's land projects. The amount represents tax assessments associated with each project, which will decrease as the Company sells units. |
| |
(3)(2) | Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7) and recorded $34.3 million of intangible liabilities to "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheet. Accumulated amortization on below market lease liabilities was $8.5$3.9 million and $7.8$2.8 million as of SeptemberJune 30, 20182019 and December 31, 2017, respectively. The amortization of below market leases increased operating lease income in the Company's consolidated statements of operations by $3.1 million and $3.4 million for the three and nine months ended September 30, 2018, respectively. The amortization of below market leases increased operating lease income in the Company's consolidated statements of operations by $0.2$0.6 million and $1.2$1.1 million for the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, and $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 9—10—Loan Participations Payable, net
The Company's loan participations payable, net were as follows ($ in thousands):
| | | | Carrying Value as of | | Carrying Value as of |
| | September 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Loan participations payable(1) | | $ | 18,525 |
| | $ | 102,737 |
| | $ | 30,037 |
| | $ | 22,642 |
|
Debt discounts and deferred financing costs, net | | (194 | ) | | (312 | ) | | (89 | ) | | (158 | ) |
Total loan participations payable, net | | $ | 18,331 |
| | $ | 102,425 |
| | $ | 29,948 |
| | $ | 22,484 |
|
| |
(1) | One loan participation payable with a carrying value of $93.8 million and a corresponding loan receivable balance of $93.6 million was fully repaid during the nine months ended September 30, 2018. As of SeptemberJune 30, 2019 and December 31, 2018, the Company had one loan participation payable with an interest rate of 6.8%. As of December 31, 2017, the Company had two loan participations payable with a weighted average interest rate of 6.5%7.0%. |
Loan participations represent transfers of financial assets that did not meet the sales criteria established under ASC Topic 860 and are accounted for as loan participations payable, net as of SeptemberJune 30, 20182019 and December 31, 2017.2018. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the corresponding loan receivable balances were $18.4$30.1 million and $102.3$22.5 million, respectively, and are included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. The principal and interest due on these loan participations payable are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 10—11—Debt Obligations, net
The Company's debt obligations were as follows ($ in thousands):
| | | Carrying Value as of | | Stated Interest Rates | | Scheduled Maturity Date | Carrying Value as of | | Stated Interest Rates | | Scheduled Maturity Date |
| September 30, 2018 | | December 31, 2017 | | | June 30, 2019 | | December 31, 2018 | | |
Secured credit facilities and mortgages: | | | | | | | | | | | | | | |
2015 $325 million Revolving Credit Facility | $ | — |
| | $ | 325,000 |
| | LIBOR + 2.50% |
| (1) | September 2020 | $ | — |
| | $ | — |
| | LIBOR + 2.50% |
| (1) | September 2020 |
2016 Senior Term Loan | 648,375 |
| | 399,000 |
| | LIBOR + 2.75% |
| (2) | June 2023 | 643,500 |
| | 646,750 |
| | LIBOR + 2.75% |
| (2) | June 2023 |
Mortgages collateralized by net lease assets(3) | 684,503 |
| | 208,491 |
| | 3.62% - 7.26% |
| (4) | | 631,393 |
| | 802,367 |
| | 3.62% - 7.26% |
| (3) | |
Total secured credit facilities and mortgages | 1,332,878 |
| | 932,491 |
| | |
| | | 1,274,893 |
| | 1,449,117 |
| | |
| | |
Unsecured notes: | | | | | | | | | | | | | | |
5.00% senior notes(5)(4) | 497,000 |
| | 770,000 |
| | 5.00 | % | | July 2019 | — |
| | 375,000 |
| | 5.00 | % | | — |
4.625% senior notes(6)(5) | 400,000 |
| | 400,000 |
| | 4.625 | % | | September 2020 | 400,000 |
| | 400,000 |
| | 4.625 | % | | September 2020 |
6.50% senior notes(7)(6) | 275,000 |
| | 275,000 |
| | 6.50 | % | | July 2021 | 275,000 |
| | 275,000 |
| | 6.50 | % | | July 2021 |
6.00% senior notes(8)(7) | 375,000 |
| | 375,000 |
| | 6.00 | % | | April 2022 | 375,000 |
| | 375,000 |
| | 6.00 | % | | April 2022 |
5.25% senior notes(9)(8) | 400,000 |
| | 400,000 |
| | 5.25 | % | | September 2022 | 400,000 |
| | 400,000 |
| | 5.25 | % | | September 2022 |
3.125% senior convertible notes(10) | 287,500 |
| | 287,500 |
| | 3.125 | % | | September 2022 | |
3.125% senior convertible notes(9) | | 287,500 |
| | 287,500 |
| | 3.125 | % | | September 2022 |
Total unsecured notes | 2,234,500 |
| | 2,507,500 |
| | |
| | | 1,737,500 |
| | 2,112,500 |
| | |
| | |
Other debt obligations: |
| | | | | | |
| | | | | | |
Trust preferred securities | 100,000 |
| | 100,000 |
| | LIBOR + 1.50% |
| | October 2035 | 100,000 |
| | 100,000 |
| | LIBOR + 1.50% |
| | October 2035 |
Total debt obligations | 3,667,378 |
| | 3,539,991 |
| | |
| | | 3,112,393 |
| | 3,661,617 |
| | |
| | |
Debt discounts and deferred financing costs, net | (54,569 | ) | | (63,591 | ) | | |
| | | (43,837 | ) | | (52,531 | ) | | |
| | |
Total debt obligations, net(11) | $ | 3,612,809 |
| | $ | 3,476,400 |
| | |
| | | |
Total debt obligations, net(10) | | $ | 3,068,556 |
| | $ | 3,609,086 |
| | |
| | |
| |
(1) | The loan bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.0% and subject to a margin ranging from 1.25% to 1.75%; or (ii) LIBOR subject to a margin ranging from 2.25% to 2.75%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2021. |
| |
(2) | The loan bears interest at the Company's election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.0% and subject to a margin of 1.75%; or (ii) LIBOR subject to a margin of 2.75%. |
| |
(3) | OnIn June 2019, the buyer of a portfolio of net lease assets assumed a $228.0 million non-recourse mortgage (refer to Note 4). As of June 30, 2018, the Company consolidated the Net Lease Venture and recorded $464.7 million to "Debt obligations, net" on the Company's consolidated balance sheet. |
| |
(4) | As of September 30, 2018,2019, the weighted average interest rate of these loans is 4.60%4.5%, inclusive of the effect of interest rate swaps. |
| |
(5)(4) | The Company can prepayprepaid these senior notes in March 2019 without penalty. In July 2018, the Company redeemed $273.0 million of the 5.00% senior notes. Subsequent to September 30, 2018, the Company called for redemption $122.0 million aggregate principal amount of such notes on November 2, 2018. |
| |
(6)(5) | The Company can prepay these senior notes without penalty beginning June 15, 2020. |
| |
(7)(6) | The Company can prepay these senior notes without penalty beginning July 1, 2020. |
| |
(8)(7) | The Company can prepay these senior notes without penalty beginning April 1, 2021. |
| |
(9)(8) | The Company can prepay these senior notes without penalty beginning September 15, 2021. |
| |
(10)(9) | The Company's 3.125% senior convertible fixed rate notes due September 2022 ("3.125% Convertible Notes") are convertible at the option of the holders at a conversion rate of 64.91 shares per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $15.41 per share, at any time prior to the close of business on the business day immediately preceding September 15, 2022. The conversion rate as of June 30, 2019 was 66.8675 shares per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $14.95 per share. The conversion rate is subject to adjustment from time to time for specified events. Upon conversion, the Company will pay or deliver, as the case may be, a combination of cash and shares of its common stock. As such, at issuance in September 2017, the Company valued the debt component at $221.8 million, net of fees, and the equity component of the conversion feature at $22.5 million, net of fees, and recorded the equity component in "Additional paid-in capital" on the Company's consolidated balance sheet. In October 2017, the initial purchasers of the 3.125% Convertible Notes exercised their option to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes. At issuance, the Company valued the debt component at $34.0 million, net of fees, and the equity component of the conversion feature at $3.4 million, net of fees, and recorded the equity component in "Additional paid-in capital" on the Company's consolidated balance sheet. As of SeptemberJune 30, 2018,2019, the carrying value of the 3.125% Convertible Notes was $261.1$265.6 million, net of fees, and the unamortized discount of the 3.125% Convertible Notes was $21.7$18.0 million, net of fees. During the three and ninesix months ended SeptemberJune 30, 2018,2019, the Company recognized $2.2 million and $6.7$4.5 million, respectively, of contractual interest and $1.2 million and $3.5$2.5 million, respectively, of discount amortization on the 3.125% Convertible Notes. During the three and six months ended June 30, 2018, the Company recognized $2.2 million and $4.5 million, respectively, of contractual interest and $1.2 million and $2.3 million, respectively, of discount amortization on the 3.125% Convertible Notes. The effective interest rate was 5.2%. |
| |
(11)(10) | The Company capitalized interest relating to development activities of $4.0$3.5 million and $8.5$6.5 million during the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, and $2.1 million and $6.1$4.5 million during the three and ninesix months ended SeptemberJune 30, 2017, respectively.2018, respectively.. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Future Scheduled Maturities—As of SeptemberJune 30, 20182019, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):
|
| | | | | | | | | | | |
| Unsecured Debt | | Secured Debt | | Total |
2019 (remaining six months) | $ | — |
| | $ | — |
| | $ | — |
|
2020 | 400,000 |
| | — |
| | 400,000 |
|
2021 | 275,000 |
| | 160,511 |
| | 435,511 |
|
2022 | 1,062,500 |
| | 48,438 |
| | 1,110,938 |
|
2023 | — |
| | 643,500 |
| | 643,500 |
|
Thereafter | 100,000 |
| | 422,444 |
| | 522,444 |
|
Total principal maturities | 1,837,500 |
| | 1,274,893 |
| | 3,112,393 |
|
Unamortized discounts and deferred financing costs, net | (35,026 | ) | | (8,811 | ) | | (43,837 | ) |
Total debt obligations, net | $ | 1,802,474 |
| | $ | 1,266,082 |
| | $ | 3,068,556 |
|
|
| | | | | | | | | | | |
| Unsecured Debt | | Secured Debt | | Total |
2018 (remaining three months) | $ | — |
| | $ | 107,428 |
| | $ | 107,428 |
|
2019(1) | 497,000 |
| | 747 |
| | 497,747 |
|
2020 | 400,000 |
| | — |
| | 400,000 |
|
2021 | 275,000 |
| | 268,593 |
| | 543,593 |
|
2022 | 1,062,500 |
| | 57,457 |
| | 1,119,957 |
|
Thereafter | 100,000 |
| | 898,653 |
| | 998,653 |
|
Total principal maturities | 2,334,500 |
| | 1,332,878 |
| | 3,667,378 |
|
Unamortized discounts and deferred financing costs, net | (44,655 | ) | | (9,914 | ) | | (54,569 | ) |
Total debt obligations, net | $ | 2,289,845 |
| | $ | 1,322,964 |
| | $ | 3,612,809 |
|
| |
(1) | Subsequent to September 30, 2018, the Company called for redemption $122.0 million aggregate principal amount of senior notes on November 2, 2018. |
2017 Secured Financing—In March 2017, the predecessor of SAFE (which at the time was comprised of the Company's wholly-owned subsidiaries conducting its Ground Lease business) entered into a $227.0 million secured financing transaction (the "2017 Secured Financing") that accrued interest at 3.795% and matures in April 2027. The 2017 Secured Financing was collateralized by the 12 properties comprising SAFE's initial portfolio. In connection with the 2017 Secured Financing, the Company incurred $7.3 million of lender and third-party fees, substantially all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. In April 2017, the Company derecognized the 2017 Secured Financing when third parties acquired a controlling interest in SAFE's predecessor, prior to SAFE's initial public offering (refer to Note 4).
The Company is providing a limited recourse guaranty and environmental indemnity under the 2017 Secured Financing that will remain in effect until SAFE has achieved either an equity market capitalization of at least $500.0 million (inclusive of the initial portfolio that the Company contributed to SAFE) or a net worth of at least $250.0 million (exclusive of the initial portfolio that the Company contributed to SAFE), and SAFE or another replacement guarantor provides similar guaranties and indemnities to the lenders. The management agreement with SAFE provides that SAFE may not terminate the management agreement unless a successor guarantor reasonably acceptable to the Company has agreed to replace the Company as guarantor and indemnitor or has provided the Company with a reasonably acceptable indemnity for any losses suffered by the Company as guarantor and indemnitor. SAFE has generally agreed to indemnify the Company for any amounts the Company is required to pay, or other losses the Company may suffer, under the limited recourse guaranty and environmental indemnity.
2016 Senior Term Loan—In June 2016, the Company entered into a senior term loan of $450.0 million (the "2016 Senior Term Loan"). In August 2016, the Company upsized the facility to $500.0 million. The initial $450.0 million of the 2016 Senior Term Loan was issued at 99% of par and the upsize was issued at par. In September 2017, the Company reduced, repriced and extended the 2016 Senior Term Loan to $400.0 million priced at LIBOR plus 3.00% with a 0.75% LIBOR floor and maturing in October 2021. In June 2018, the Company increased the 2016 Senior Term Loan to $650.0 million, re-priced at LIBOR plus 2.75% and extended its maturity to June 2023. The facility was also modified to permit substitution of collateral, subject to overall collateral pool coverage and concentration limits, over the life of the facility. This modification eliminates the mandatory amortization upon payoff or sale of collateral which existed prior to the upsize and broadens the types of collateral permitted under the facility. The Company may make optional prepayments, subject to prepayment fees, and is required to repay 0.25% of the principal amount each quarter.
During the ninethree and six months ended SeptemberJune 30, 2018, repayments of the 2016 Senior Term Loan prior to its modification and the modification and upsize of the 2016 Senior Term Loan resulted in losses on early extinguishment of debt of $2.2 million and $2.5 million.million, respectively.
2015 Revolving Credit Facility—In March 2015, the Company entered into a secured revolving credit facility with a maximum capacity of $250.0 million (the "2015 Revolving Credit Facility"). In September 2017, the Company upsized the 2015 Revolving Credit Facility to $325.0 million, added additional lenders to the syndicate, extended the maturity date to September 2020 and made certain other changes. This facility is secured by a pledge of the equity interest in a pool of assets which provide asset value coverage for borrowings under the facility. Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward based upon the Company's corporate credit rating.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
An undrawn credit facility commitment fee ranges from 0.30% to 0.50%, based on corporate credit ratings. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2021. During the nine months ended SeptemberAs of June 30, 2018, the Company repaid from cash on hand the $325.0 million outstanding on the 2015 Revolving Credit Facility and as of September 30, 2018,2019, based on the Company's borrowing base of assets, the Company had $325.0 million of borrowing capacity available under the 2015 Revolving Credit Facility.
Unsecured Notes—In September 2017,March 2019, the Company issued $400.0 million principal amount of 4.625% senior unsecured notes due September 2020, $400.0 million principal amount of 5.25% senior unsecured notes due September 2022 and $250.0 million of 3.125% Convertible Notes due September 2022. The Company incurred approximately $18.6 million in fees related to these offerings, all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. Proceeds from these offerings, together with cash on hand, were used to repayrepaid in full the $550.0 million principal amount outstanding of the 4.0% senior unsecured notes due November 2017, the $300.0 million principal amount outstanding of the 7.125% senior unsecured notes due February 2018 and the $300.0 million principal amount outstanding of the 4.875%5.00% senior unsecured notes due July 2018. In addition, the initial purchasers of the 3.125% Convertible Notes exercised their option to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes.
2019. During the three and ninesix months ended SeptemberJune 30, 2018,2019, repayments of unsecured notes prior to maturity resulted in losses on early extinguishment of debt of $0.9$0.5 million. During the nine months ended September 30, 2017, repayments
iStar Inc.
Notes to maturity resulted in losses on early extinguishment of debt of $3.1 million.Consolidated Financial Statements (Continued)
(unaudited)
Collateral Assets—The carrying value of the Company's assets that are directly pledged or are held by subsidiaries whose equity is pledged as collateral to secure the Company's obligations under its secured debt facilities are as follows, by asset type ($ in thousands):
| | | As of | As of |
| September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| Collateral Assets(1) | | Non-Collateral Assets | | Collateral Assets(1) | | Non-Collateral Assets | Collateral Assets(1) | | Non-Collateral Assets | | Collateral Assets(1) | | Non-Collateral Assets |
Real estate, net | $ | 1,570,920 |
| | $ | 322,869 |
| | $ | 795,321 |
| | $ | 486,710 |
| $ | 1,254,161 |
| | $ | 167,441 |
| | $ | 1,620,008 |
| | $ | 151,011 |
|
Real estate available and held for sale | 31,145 |
| | 30,404 |
| | 20,069 |
| | 48,519 |
| — |
| | 12,770 |
| | 1,055 |
| | 21,496 |
|
Net investment in leases | | 421,842 |
| | — |
| | — |
| | — |
|
Land and development, net | 17,500 |
| | 633,031 |
| | 25,100 |
| | 835,211 |
| 42,300 |
| | 626,356 |
| | 12,300 |
| | 585,918 |
|
Loans receivable and other lending investments, net(2)(3) | 499,895 |
| | 525,103 |
| | 194,529 |
| | 1,021,340 |
| 364,665 |
| | 519,939 |
| | 498,524 |
| | 480,154 |
|
Other investments | — |
| | 302,318 |
| | — |
| | 321,241 |
| — |
| | 564,170 |
| | — |
| | 304,275 |
|
Cash and other assets | 6,398 |
| | 1,136,352 |
| | — |
| | 898,252 |
| 11,010 |
| | 763,831 |
| | — |
| | 1,329,990 |
|
Total | $ | 2,125,858 |
| | $ | 2,950,077 |
| | $ | 1,035,019 |
| | $ | 3,611,273 |
| $ | 2,093,978 |
| | $ | 2,654,507 |
| | $ | 2,131,887 |
| | $ | 2,872,844 |
|
| |
(1) | The 2016 Senior Term Loan and the 2015 Revolving Credit Facility are secured only by pledges of equity of certain of the Company's subsidiaries and not by pledges of the assets held by such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions). As of SeptemberJune 30, 2018,2019, Collateral Assets includes $410.4$403.2 million carrying value of assets held by entities pledged as collateral for the $325.0 million 2015 Revolving Credit Facility that is undrawn as of SeptemberJune 30, 2018.2019. |
| |
(2) | As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the amounts presented exclude general reserves for loan losses of $14.3$12.5 million and $17.5$13.0 million, respectively. |
| |
(3) | As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the amounts presented exclude loan participations of $18.4$30.1 million and $102.3$22.5 million, respectively. |
Debt Covenants
The Company's outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis the Company's consolidated fixed charge coverage ratio, determined in accordance with the indentures governing the Company's debt securities, is 1.5x or lower. If any of the Company's covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of its debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. If the Company's ability to incur additional indebtedness under the fixed charge coverage ratio is limited, the Company is permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The Company's 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2016 Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires the Company to maintain both borrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, the Company has the option to pay down outstanding borrowings or substitute assets in the borrowing base. The Company may not pay common dividends if it ceases to qualify as a REIT. In June 2018, the Company amended the terms of the 2016 Senior Term Loan and the 2015 Revolving Credit Facility to include the ability to pay common dividends with no restrictions so long as the Company is not in default on any of its debt obligations.
The Company's 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate the Company's indebtedness to them if the Company fails to pay amounts due in respect of its other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing the Company's unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company's indebtedness
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
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 11—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 SeptemberJune 30, 20182019, the maximum amount of fundings the Company may be required to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and that 100% of its capital committed to Strategic Investments is drawn down, are as follows ($ in thousands):
|
| | | | | | | | | | | | | | | |
| Loans and Other Lending Investments(1) | | Real Estate(2) | | Other Investments | | Total |
Performance-Based Commitments | $ | 330,592 |
| | $ | 63,415 |
| | $ | — |
| | $ | 394,007 |
|
Strategic Investments | — |
| | — |
| | 24,542 |
| | 24,542 |
|
Total | $ | 330,592 |
| | $ | 63,415 |
| | $ | 24,542 |
| | $ | 418,549 |
|
|
| | | | | | | | | | | | | | | |
| Loans and Other Lending Investments(1) | | Real Estate | | Other Investments | | Total |
Performance-Based Commitments | $ | 479,988 |
| | $ | 17,154 |
| | $ | — |
| | $ | 497,142 |
|
Strategic Investments | — |
| | — |
| | 30,127 |
| | 30,127 |
|
Total | $ | 479,988 |
| | $ | 17,154 |
| | $ | 30,127 |
| | $ | 527,269 |
|
| |
(1) | Excludes $31.5$19.9 million of commitments on loan participations sold that are not the obligation of the Company. |
| |
(2) | Includes a commitment to purchase up to $55.0 million of additional bowling centers over the next several years (refer to Note 5). |
Other Commitments—Future minimum lease obligations under operating and finance leases as of June 30, 2019 are as follows ($ in thousands):
|
| | | | | | | |
| Operating(1)(2) | | Finance(1) |
2019 | $ | 2,147 |
| | $ | 1,295 |
|
2020 | 4,054 |
| | 2,633 |
|
2021 | 1,468 |
| | 2,686 |
|
2022 | 869 |
| | 2,740 |
|
2023 | 728 |
| | 2,794 |
|
Thereafter | 2,074 |
| | 759,082 |
|
Total undiscounted cash flows | 11,340 |
| | 771,230 |
|
Present value discount(1) | (1,586 | ) | | (702,659 | ) |
Other adjustments(2) | 19,163 |
| | — |
|
Lease liabilities | $ | 28,917 |
| | $ | 68,571 |
|
| |
(1) | During the three and six months ended June 30, 2019, the Company made payments of $1.0 million and $2.0 million, respectively, related to its operating leases and $0.7 million and $0.9 million, respectively, related to its finance leases (refer to Note 4). The weighted average lease term for the Company's operating leases, excluding operating leases for which the Company's tenants pay rent on its behalf, was 4.4 years and the weighted average discount rate was 5.6%. The lease term for the Company's finance lease was 97.7 years and the discount rate was 5.7%. |
| |
(2) | The Company is obligated to pay ground rent under certain operating leases; however, the Company's tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations. The amount shown above is the net present value of the payments to be made by the Company's tenants on its behalf. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Future minimum lease obligations under operating leases as of December 31, 2018 are as follows ($ in thousands):
|
| | | |
| Operating(1) |
2019 | $ | 4,340 |
|
2020 | 4,016 |
|
2021 | 1,589 |
|
2022 | 991 |
|
2023 | 849 |
|
Thereafter | 2,469 |
|
| |
(1) | The Company is obligated to pay ground rent under certain operating leases; however, the Company's tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations. |
Legal Proceedings—The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to the Company's business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 12—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, foreign exchange 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 SeptemberJune 30, 2019 and December 31, 2018 ($ in thousands)(1):
| | | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | |
As of June 30, 2019 | | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives Designated in Hedging Relationships | Derivatives Designated in Hedging Relationships | | | | | Derivatives Designated in Hedging Relationships | | | | |
Interest rate swaps | Other assets | | $ | 10,303 |
| | Other liabilities | | $ | — |
| | Deferred expenses and other assets, net | | $ | 228 |
| | Accounts payable, accrued expenses and other liabilities | | $ | 8,720 |
|
Total | | | $ | 10,303 |
| | | | $ | — |
| | | | $ | 228 |
| | | | $ | 8,720 |
|
|
| | | | | | | | | | | | |
| | Derivative Assets | | Derivative Liabilities |
As of December 31, 2018 | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives Designated in Hedging Relationships | | | | |
Interest rate swaps | | Deferred expenses and other assets, net | | $ | 3,669 |
| | Accounts payable, accrued expenses and other liabilities | | $ | 10,244 |
|
Total | | | | $ | 3,669 |
| | | | $ | 10,244 |
|
_________________________________________________________ | |
(1) | The Company did not directly own any derivative financial instruments as of December 31, 2017. On June 30, 2018, the Company consolidated the Net Lease Venture (refer to Note 7), including all derivative financial instruments of the venture. Over the next 12 months, the Company expects that $0.4$4.4 million related to cash flow hedges will be reclassified from "Accumulated other comprehensive income (loss)" as a reduction to interest expense. As of SeptemberJune 30, 2019 and December 31, 2018, the Company posted cash collateral of $17.2 million and $6.4 million, respectively, in connection with its derivatives which were in a liability position and would not have been required to post any additional collateral to settle these contracts had the Company been declared in default on its derivative obligations. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The tables below present the effect of the Company's derivative financial instruments, including the Company's share of derivative financial instruments at certain of its equity method investments, in the consolidated statements of operations and the consolidated statements of comprehensive income (loss) ($ in thousands):
|
| | | | | | | | | | |
Derivatives Designated in Hedging Relationships | | Location of Gain (Loss) When Recognized in Income | | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings |
For the Three Months Ended June 30, 2019 | | | | |
Interest rate swaps | | Earnings from equity method investments | | $ | (8,036 | ) | | $ | 9 |
|
Interest rate swaps | | Interest expense | | (12,951 | ) | | (266 | ) |
| | | | | | |
For the Three Months Ended June 30, 2018 | | | | |
Interest rate swaps | | Interest Expense | | (1,150 | ) | | — |
|
Interest rate swaps | | Earnings from equity method investments | | 1,157 |
| | 81 |
|
| | | | | | |
For the Six Months Ended June 30, 2019 | | |
| | |
|
Interest rate swaps | | Earnings from equity method investments | | (15,226 | ) | | 153 |
|
Interest rate swaps | | Interest expense | | (20,773 | ) | | (417 | ) |
| | | | | | |
For the Six Months Ended June 30, 2018 | | |
| | |
|
Interest rate swaps | | Interest Expense | | (1,150 | ) | | — |
|
Interest rate swaps | | Earnings from equity method investments | | 3,508 |
| | 90 |
|
|
| | | | | | | | | | |
Derivatives Designated in Hedging Relationships | | Location of Gain (Loss) Recognized in Income | | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income | | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings |
For the Three Months Ended September 30, 2018 | | | | |
Interest rate swaps | | Earnings from equity method investments | | $ | 1,197 |
| | $ | 44 |
|
Interest rate swaps | | Interest expense | | 2,702 |
| | (144 | ) |
| | | | | | |
For the Three Months Ended September 30, 2017 | | | | |
Interest rate swaps | | Interest Expense | | 15 |
| | (16 | ) |
Interest rate cap | | Earnings from equity method investments | | (2 | ) | | (2 | ) |
Interest rate swap | | Earnings from equity method investments | | (69 | ) | | (38 | ) |
Foreign exchange contracts | | Earnings from equity method investments | | (1 | ) | | — |
|
| | | | | | |
For the Nine Months Ended September 30, 2018 | | |
| | |
|
Interest rate swaps | | Earnings from equity method investments | | 4,705 |
| | (47 | ) |
Interest rate swaps | | Interest expense | | 1,552 |
| | (144 | ) |
| | | | | | |
For the Nine Months Ended September 30, 2017 | | |
| | |
|
Interest rate swaps | | Interest Expense | | 439 |
| | 339 |
|
Interest rate cap | | Earnings from equity method investments | | (16 | ) | | (16 | ) |
Interest rate swap | | Earnings from equity method investments | | (85 | ) | | (188 | ) |
Foreign exchange contracts | | Earnings from equity method investments | | (371 | ) | | — |
|
|
| | | | | | | | | | | | | | | | | | |
| | Location of Gain (Loss) Recognized in Income | | Amount of Gain (Loss) Recognized in Income |
Derivatives not Designated in Hedging Relationships | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Interest rate cap | | Other Expense | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
Foreign exchange contracts | | Other Expense | | — |
| | (199 | ) | | — |
| | (970 | ) |
During the nine months ended September 30 2017, the Company entered into and settled a rate lock swap in connection with the 2017 Secured Financing and a simultaneous rate lock swap with SAFE. As a result of the settlements, the Company initially recorded a $0.4 million unrealized gain in “Accumulated other comprehensive income” on the Company’s consolidated balance sheets and subsequently derecognized the gain when third parties acquired a controlling interest in the Company's Ground Lease business (refer to Note 4).
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 13—14—Equity
Preferred Stock—The Company had the following series of Cumulative Redeemable and Convertible Perpetual Preferred Stock outstanding as of SeptemberJune 30, 20182019 and December 31, 2017:2018:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Cumulative Preferential Cash Dividends(1)(2) | | |
Series | | Shares Issued and Outstanding (in thousands) | | Par Value | | Liquidation Preference(3)(4) | | Rate per Annum | | Equivalent to Fixed Annual Rate (per share) | | Carrying Value (in thousands) |
D | | 4,000 |
| | $ | 0.001 |
| | $ | 25.00 |
| | 8.00 | % | | $ | 2.00 |
| | $ | 89,041 |
|
G | | 3,200 |
| | 0.001 |
| | 25.00 |
| | 7.65 | % | | 1.91 |
| | 72,664 |
|
I | | 5,000 |
| | 0.001 |
| | 25.00 |
| | 7.50 | % | | 1.88 |
| | 120,785 |
|
J (convertible)(4) | | 4,000 |
| | 0.001 |
| | 50.00 |
| | 4.50 | % | | 2.25 |
| | 193,510 |
|
| | 16,200 |
| | |
| | | | |
| | |
| | $ | 476,000 |
|
| |
(1) | Holders of shares of the Series D, G, I and J preferred stock are entitled to receive dividends, when and as declared by the Company's Board of Directors, out of funds legally available for the payment of dividends. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the preferred stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment date falls or on another date designated by the Company's Board of Directors for the payment of dividends that is not more than 30 nor less than 10 days prior to the dividend payment date. |
| |
(2) | The Company declared and paid dividends of $6.0$4.0 million, $4.6$3.1 million and $7.0$4.7 million on its Series D, G and I Cumulative Redeemable Preferred Stock during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The Company declared and paid dividends of $6.8$4.5 million on its Series J Convertible Perpetual Preferred Stock during the ninesix months ended SeptemberJune 30, 20182019 and 2017. The Company declared and paid dividends of $8.3 million and $5.9 million on its Series E and F Cumulative Redeemable Preferred Stock, respectively, during the nine months ended September 30, 2017. The Company redeemed all of its issued and outstanding Series E and F Cumulative Redeemable Preferred Stock in October 2017.2018. The character of the 20172018 dividends was 100% capital gain distribution, of which 27.90%26.02% represented unrecaptured section 1250 gain and 72.10%73.98% represented long term capital gain. There are no dividend arrearages on any of the preferred shares currently outstanding. |
| |
(3) | The Company may, at its option, redeem the Series G and I Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. |
| |
(4) | Each share of the Series J Preferred Stock is convertible at the holder's option at any time into 3.9423 shares of the Company's common stock (equal to an initial conversion price of approximately $12.68 per share), subject to specified adjustments.stock. The Company may, at its option, redeem the Series J Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $50.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. The conversion rate as of June 30, 2019 was 4.0612 shares of the Company's common stock (equal to a conversion price of approximately $12.31 per share). The conversion rate is subject to adjustment from time to time for specified events. |
Dividends—To maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate corporate federal income taxes payable by the REIT. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company's obligation to pay dividends for such periods in order to maintain its REIT qualification. As of December 31, 2017, the Company had $582.4 million of NOL carryforwards at the corporate REIT level that can generally be used to offset both ordinary taxable income and capital gain net income in future years. The NOL carryforwards will begin to expire beginning in 2029 and throughwill 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 2016 Senior Term Loan and the 2015 Revolving Credit Facility permit the Company to pay common dividends with no restrictions so long as the Company is not in default on any of its debt obligations. The Company declared and paid common stock dividends of $6.2$12.7 million, or $0.09$0.19 per share, for the ninesix months ended SeptemberJune 30, 2018.2019. The Company did not declare or pay any common stock dividends for the ninesix months ended SeptemberJune 30, 2017.2018.
Stock Repurchase Program—The Company may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the threesix months ended March 31,June 30, 2019, the Company repurchased 6.2 million shares of its outstanding common stock for $58.3 million, for an average cost of $9.42 per share. During the six months ended June 30, 2018, the Company repurchased 0.8 million shares of its outstanding common stock for $8.3 million, for an average cost of $10.22 per share. NoAs of June 30, 2019, the Company had remaining authorization to repurchase up to $22.5 million of common stock was repurchased during the six months ended September 30, 2018. During the three months ended September 30, 2017, in connection with the sale of the 3.125% Convertible Notes (refer to Note 10), the Company repurchased 4.0 million shares ofunder its common stock for $45.9 million at an average cost of $11.51 per share in privately negotiated transactions with purchasers of the 3.125% Convertible Notes.repurchase program.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
As of September 30, 2018, the Company had remaining authorization to repurchase up to $41.7 million of common stock under its stock repurchase program.
Accumulated Other Comprehensive Income (Loss)—"Accumulated other comprehensive income (loss)" reflected in the Company's shareholders' equity is comprised of the following ($ in thousands):
|
| | | | | | | |
| As of |
| June 30, 2019 | | December 31, 2018 |
Unrealized gains on available-for-sale securities | $ | 2,185 |
| | $ | 475 |
|
Unrealized losses on cash flow hedges | (32,123 | ) | | (13,546 | ) |
Unrealized losses on cumulative translation adjustment | (4,199 | ) | | (4,199 | ) |
Accumulated other comprehensive loss | $ | (34,137 | ) | | $ | (17,270 | ) |
|
| | | | | | | |
| As of |
| September 30, 2018 | | December 31, 2017 |
Unrealized gains on available-for-sale securities | $ | 97 |
| | $ | 1,335 |
|
Unrealized gains on cash flow hedges | 4,494 |
| | 707 |
|
Unrealized losses on cumulative translation adjustment | (4,199 | ) | | (4,524 | ) |
Accumulated other comprehensive income (loss) | $ | 392 |
| | $ | (2,482 | ) |
Note 14—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 $3.7$9.7 million and $16.2$14.0 million for the three and ninesix months ended SeptemberJune 30, 20182019, respectively, and $2.9$3.5 million and $12.7$12.6 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, in "General and administrative" in the Company's consolidated statements of operations.
Performance Incentive Plans—The Company's Performance Incentive PlanPlans ("iPIP") isare designed to provide, primarily to senior executives and select professionals engaged in the Company's investment activities, long-term compensation which has a direct relationship to the realized returns on investments included in the plan.plans. Awards vest over six years, with 40% being vested at the end of the second year and 15% each year thereafter.
2019-2020 iPIP Plan—The Company's 2019-2020 iPIP plan is an equity-classified award which is measured at the grant date fair value and recognized as compensation cost in "General and administrative" in the Company's consolidated statements of operations and "Noncontrolling interests" in the Company's consolidated statements of changes in equity over the requisite service period. Investments in the 2019-2020 iPIP plan will be held by a consolidated subsidiary of the Company that has two ownership classes, class A units and class B units. The Company owns 100% of the class A units and the class B units were issued to employees as long-term compensation. Except for certain clawback provisions, participants can retain vested class B units upon their termination of employment with the Company. The class B units are entitled to distributions from the net cash realized from the investments in the plan after the Company, through its ownership of the class A units, has received a specified return on its invested capital and a return of its invested capital. Distributions on the class B units are also subject to reductions under a total shareholder return ("TSR") adjustment. The fair value of pointsthe 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 six months ended June 30, 2019, the Company recorded $1.4 million of expense related to the 2019-2020 iPIP plan. Distributions on the class B units will be 50% in cash and 50% in shares of the Company's common stock.
2013-2018 iPIP Plans—The remainder of the Company's iPIP plans, as shown in the table below, are liability-classified awards and are remeasured each reporting period at fair value until the awards are settled. Certain employees will be granted awards that entitle employees to receive the residual cash flows from the investments in the plans after the Company has received a specified return on its invested capital and a return of its invested capital. Awards are also subject to reductions under a TSR adjustment. The fair value of awards is determined using a model that forecasts the Company's projected investment performance. iPIP is a liability-classified award, whichSettlement of the awards will be remeasured each reporting period at fair value until50% in cash and 50% in shares of the awards are settled. Company's common stock.
The following is a summary of the status of the Company’s liability-classified iPIP pointsplans and changes during the ninesix months ended SeptemberJune 30, 2018 and the year ended December 31, 2017.2019.
|
| | | | | | | | |
| iPIP Investment Pool |
| 2013-2014 | | 2015-2016 | | 2017-2018 |
Points at beginning of period | 85.77 |
| | 79.41 |
| | 82.43 |
|
Granted | — |
| | — |
| | — |
|
Forfeited | (1.60 | ) | | (2.73 | ) | | (3.72 | ) |
Points at end of period | 84.17 |
| | 76.68 |
| | 78.71 |
|
|
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | Year Ended December 31, 2017 |
| iPIP Investment Pool | | iPIP Investment Pool |
| 2013-2014 | | 2015-2016 | | 2017-2018 | | 2013-2014 | | 2015-2016 | | 2017-2018 |
Points at beginning of period | 86.57 |
| | 84.16 |
| | 40.97 |
| | 92.00 |
| | 74.10 |
| | 0 |
|
Granted | 0.50 |
| | — |
| | 49.33 |
| | 5.00 |
| | 17.88 |
| | 41.68 |
|
Forfeited | (1.31 | ) | | (4.80 | ) | | (7.88 | ) | | (10.43 | ) | | (7.82 | ) | | (0.71 | ) |
Points at end of period | 85.76 |
| | 79.36 |
| | 82.42 |
| | 86.57 |
| | 84.16 |
| | 40.97 |
|
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company made initial distributions to participants in the 2013-2014 investment pool following a determination that, as of December 31, 2017, the Company had realized a return of all invested capital in the assets included in the 2013-2014 investment pool, together with a return based on leverage and a preferred return hurdle of 9.0%.pool. The amount distributable to participants was reduced by 4.3% based on the Company's total shareholder return in accordance with the provisions of the iPIP and, as a result, iPIP participants received total distributions in the amount of $14.3$7.4 million as compensation, comprised of $7.2$3.8 million
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
in cash and 625,788389,545 shares of the Company's common stock, with a fair value of $7.1$3.6 million or $11.39$9.21 per share, which are fully-vested and issued under the 2009 LTIP (see below). After deducting statutory minimum tax withholdings, a total of 343,402209,118 shares of the Company's common stock were issued. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company had accrued compensation costs relating to iPIP of $36.0$39.9 million and $38.1$37.5 million, respectively, which are included in "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets.
Long-Term Incentive Plan—The Company's 2009 Long-Term Incentive Plan (the "2009 LTIP") is designed to provide incentive compensation for officers, key employees, directors and advisors of the Company. The 2009 LTIP provides for awards of stock options, shares of restricted stock, phantom shares, restricted stock units, dividend equivalent rights and other share-based performance awards. All awards under the 2009 LTIP are made at the discretion of the Company's Board of Directors or a committee of the Board of Directors. The Company's shareholders approved the 2009 LTIP in 2009 and approved the performance-based provisions of the 2009 LTIP, as amended, in 2014.
iStar Inc.
Notesshares available for issuance under the 2009 LTIP from 8.0 million to Consolidated Financial Statements (Continued)
(unaudited)
8.9 million and extended the expiration date of the 2009 LTIP from May 2019 to May 2029.
As of SeptemberJune 30, 2018,2019, an aggregate of 2.63.0 million shares remain available for issuance pursuant to future awards under the Company's 2009 LTIP.
Restricted Share Issuances—During the nine months ended September 30, 2018, the Company granted 213,609 shares of common stock to certain employees under the 2009 LTIP as part of annual incentive awards that included a mix of cash and equity awards. The shares are fully-vested and 135,503 shares were issued net of required, statutory minimum tax withholdings. The employees are restricted from selling these shares for up to 18 months from the date of grant.
Restricted Stock Unit Activity—A summary of the Company’s stock-based compensation awards to certain employees in the form of long-term incentive awards for the ninesix months ended SeptemberJune 30, 2018 and the year ended December 31, 2017, are2019, is as follows (in thousands):
|
| | |
Nonvested at beginning of period | 357 |
|
Granted | 474 |
|
Vested | (52 | ) |
Forfeited | (86 | ) |
Nonvested at end of period | 693 |
|
|
| | | | | |
| Nine Months Ended September 30, 2018 | | Year Ended December 31, 2017 |
Nonvested at beginning of period | 282 |
| | 290 |
|
Granted | 278 |
| | 116 |
|
Vested | (45 | ) | | (75 | ) |
Forfeited | (61 | ) | | (49 | ) |
Nonvested at end of period | 454 |
| | 282 |
|
As of SeptemberJune 30, 2018,2019, there was $2.4$4.0 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 1.81.7 years.
Directors' Awards—During the ninesix months ended SeptemberJune 30, 2018,2019, the Company granted 67,63180,270 restricted shares of common stock to non-employee Directors at a fair value of $10.65$8.74 at the time of grant for their annual equity awards and also issued 1,3643,481 common stock equivalents ("CSEs") at a fair value of $11.19$9.45 per CSE in respect of dividend equivalents on outstanding CSEs. The restricted shares have a vesting term of one year. As of SeptemberJune 30, 2018,2019, a combined total of 238,360255,921 CSEs and restricted shares of common stock granted to members of the Company's Board of Directors remained outstanding under the Company's Non-Employee Directors Deferral Plan, with an aggregate intrinsic value of $2.7$3.2 million.
401(k) Plan—The Company made contributions of $0.1 million and $0.9$0.7 million for the three and ninesix months ended SeptemberJune 30, 20182019, respectively, and $0.2$0.1 million and $1.0$0.8 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 15—16—Earnings Per Share
The following table presents a reconciliation of income (loss) from continuing operations used in the basic and diluted earnings per share ("EPS") calculations ($ in thousands, except for per share data):
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 373,691 |
| | $ | 60,506 |
| | $ | 366,721 |
| | $ | 95,532 |
|
Net income attributable to noncontrolling interests | (2,852 | ) | | (9,509 | ) | | (5,323 | ) | | (9,604 | ) |
Preferred dividends | (8,124 | ) | | (8,124 | ) | | (16,248 | ) | | (16,248 | ) |
Net income allocable to common shareholders for basic earnings per common share | $ | 362,715 |
| | $ | 42,873 |
| | $ | 345,150 |
| | $ | 69,680 |
|
Add: Effect of Series J convertible perpetual preferred stock | 2,250 |
| | 2,250 |
| | 4,500 |
| | 4,500 |
|
Net income allocable to common shareholders for diluted earnings per common share | $ | 364,965 |
| | $ | 45,123 |
| | $ | 349,650 |
| | $ | 74,180 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Income (loss) from continuing operations | $ | (14,241 | ) | | $ | (23,029 | ) | | $ | 7,349 |
| | $ | 24,839 |
|
Income from sales of real estate | 5,409 |
| | 19,313 |
| | 79,353 |
| | 28,267 |
|
Net income attributable to noncontrolling interests | (2,028 | ) | | 160 |
| | (11,632 | ) | | (4,450 | ) |
Preferred dividends | (8,124 | ) | | (12,830 | ) | | (24,372 | ) | | (38,490 | ) |
Preferred dividends declared and payable | — |
| | (1,830 | ) | | — |
| | (1,830 | ) |
Premium in excess of book value on redemption of preferred stock | — |
| | (16,314 | ) | | — |
| | (16,314 | ) |
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders for basic earnings per common share | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 50,698 |
| | $ | (7,978 | ) |
Add: Effect of Series J convertible perpetual preferred stock | — |
| | — |
| | 6,750 |
| | — |
|
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders for diluted earnings per common share | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 57,448 |
| | $ | (7,978 | ) |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Earnings allocable to common shares: | | | | | | | |
Numerator for basic earnings per share: | | | | | | | |
Net income allocable to common shareholders | $ | 362,715 |
| | $ | 42,873 |
| | $ | 345,150 |
| | $ | 69,680 |
|
| | | | | | | |
Numerator for diluted earnings per share: | | | | | | | |
Net income allocable to common shareholders | $ | 364,965 |
| | $ | 45,123 |
| | $ | 349,650 |
| | $ | 74,180 |
|
| | | | | | | |
Denominator for basic and diluted earnings per share: | | | | | | | |
Weighted average common shares outstanding for basic earnings per common share | 64,019 |
| | 67,932 |
| | 65,873 |
| | 67,922 |
|
Add: Effect of assumed shares issued under treasury stock method for restricted stock units | 87 |
| | 127 |
| | 85 |
| | 125 |
|
Add: Effect of series J convertible perpetual preferred stock | 16,153 |
| | 15,635 |
| | 16,053 |
| | 15,635 |
|
Weighted average common shares outstanding for diluted earnings per common share | 80,259 |
| | 83,694 |
| | 82,011 |
| | 83,682 |
|
| | | | | | | |
Basic earnings per common share: | | | | | | | |
Net income allocable to common shareholders | $ | 5.67 |
| | $ | 0.63 |
| | $ | 5.24 |
| | $ | 1.03 |
|
| | | | | | | |
Diluted earnings per common share:(1) | | | | | | | |
Net income allocable to common shareholders | $ | 4.55 |
| | $ | 0.54 |
| | $ | 4.26 |
| | $ | 0.89 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Earnings allocable to common shares: | | | | | | | |
Numerator for basic earnings per share: | | | | | | | |
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 50,698 |
| | $ | (7,978 | ) |
Income from discontinued operations | — |
| | — |
| | — |
| | 4,939 |
|
Gain from discontinued operations | — |
| | — |
| | — |
| | 123,418 |
|
Income tax expense from discontinued operations | — |
| | — |
| | — |
| | (4,545 | ) |
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 50,698 |
| | $ | 115,834 |
|
| | | | | | | |
Numerator for diluted earnings per share: | | | | | | | |
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 57,448 |
| | $ | (7,978 | ) |
Income from discontinued operations | — |
| | — |
| | — |
| | 4,939 |
|
Gain from discontinued operations | — |
| | — |
| | — |
| | 123,418 |
|
Income tax expense from discontinued operations | — |
| | — |
| | — |
| | (4,545 | ) |
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 57,448 |
| | $ | 115,834 |
|
| | | | | | | |
Denominator for basic and diluted earnings per share: | | | | | | | |
Weighted average common shares outstanding for basic earnings per common share | 67,975 |
| | 71,713 |
| | 67,940 |
| | 71,972 |
|
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Add: Effect of assumed shares issued under treasury stock method for restricted stock units | — |
| | — |
| | 131 |
| | — |
|
Add: Effect of series J convertible perpetual preferred stock | — |
| | — |
| | 15,658 |
| | — |
|
Weighted average common shares outstanding for diluted earnings per common share | 67,975 |
| | 71,713 |
| | 83,729 |
| | 71,972 |
|
| | | | | | | |
Basic earnings per common share: | | | | | | | |
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.75 |
| | $ | (0.11 | ) |
Income from discontinued operations | — |
| | — |
| | — |
| | 0.07 |
|
Gain from discontinued operations | — |
| | — |
| | — |
| | 1.71 |
|
Income tax expense from discontinued operations | — |
| | — |
| | — |
| | (0.06 | ) |
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.75 |
| | $ | 1.61 |
|
| | | | | | | |
Diluted earnings per common share: | | | | | | | |
Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.69 |
| | $ | (0.11 | ) |
Income from discontinued operations | — |
| | — |
| | — |
| | 0.07 |
|
Gain from discontinued operations | — |
| | — |
| | — |
| | 1.71 |
|
Income tax expense from discontinued operations | — |
| | — |
| | — |
| | (0.06 | ) |
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | $ | (0.28 | ) | | $ | (0.48 | ) | | $ | 0.69 |
| | $ | 1.61 |
|
The following shares were not included in the diluted EPS calculation because they were anti-dilutive (in thousands)(1):
|
| | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Series J convertible perpetual preferred stock | 15,703 |
| | 15,635 |
| | — |
| | 15,635 |
|
Joint venture shares | — |
| | 298 |
| | — |
| | 298 |
|
| |
(1) | For the three and six monthsended SeptemberJune 30, 2018 and for the three and nine months ended September 30, 2017,2019, the effect of certain of the Company's unvested Units, performance-based Units, CSEs and restricted stock awards were anti-dilutive due to the Company having a net loss for the period.anti-dilutive. The Company will settle conversions of the 3.125% Convertible Notes (refer to Note 11) by paying the conversion value in cash up to the original principal amount of the notes being converted and shares of common stock to the extent of any conversion premium. The amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value calculated for each trading day in a 40 consecutive day observation period. Based upon the conversion price of the 3.125% Convertible Notes, no shares of common stock would have been issuable upon conversion of the 3.125% Convertible Notes for the three and ninesix months ended SeptemberJune 30, 2018 and 20172019 and therefore the 3.125% Convertible Notes had no effect on diluted EPS for such periods. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Note 16—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;
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Certain of the Company's assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a specific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The following fair value hierarchy table summarizes the Company's assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):
|
| | | | | | | | | | | | | | | |
| | | Fair Value Using |
| Total | | Quoted market prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
As of June 30, 2019 | | | | | | | |
Recurring basis: | | | | | | | |
Derivative assets(1) | $ | 228 |
| | $ | — |
| | $ | 228 |
| | $ | — |
|
Derivative liabilities(1) | 8,720 |
| | — |
| | 8,720 |
| | — |
|
Available-for-sale securities(1) | 23,324 |
| | — |
| | 23,324 |
| | — |
|
Non-recurring basis: | | | | | | | |
Impaired land and development(2) | 1,282 |
| | — |
| | — |
| | 1,282 |
|
| | | | | | | |
As of December 31, 2018 | | | | | | | |
Recurring basis: | | | | | | | |
Derivative assets(1) | $ | 3,669 |
| | $ | — |
| | $ | 3,669 |
| | $ | — |
|
Derivative liabilities(1) | 10,244 |
| | — |
| | 10,244 |
| | — |
|
Available-for-sale securities(1) | 21,661 |
| | — |
| | — |
| | 21,661 |
|
Non-recurring basis: | | | | | | | |
Impaired real estate(3) | 29,400 |
| | — |
| | — |
| | 29,400 |
|
Impaired real estate available and held for sale(4) | 19,300 |
| | — |
| | — |
| | 19,300 |
|
Impaired land and development(5) | 78,400 |
| | — |
| | — |
| | 78,400 |
|
|
| | | | | | | | | | | | | | | |
| | | Fair Value Using |
| Total | | Quoted market prices in active markets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
As of September 30, 2018 | | | | | | | |
Recurring basis: | | | | | | | |
Derivative assets(1) | $ | 10,303 |
| | $ | — |
| | $ | 10,303 |
| | $ | — |
|
Available-for-sale securities(1) | 21,282 |
| | $ | — |
| | $ | — |
| | 21,282 |
|
| | | | | | | |
As of December 31, 2017 | | | | | | | |
Recurring basis: | | | | | | | |
Available-for-sale securities(1) | $ | 22,842 |
| | $ | — |
| | $ | — |
| | $ | 22,842 |
|
Non-recurring basis: | | | | | | | |
Impaired real estate(2) | 12,400 |
| | — |
| | — |
| | 12,400 |
|
Impaired real estate available and held for sale(3) | 800 |
| | — |
| | — |
| | 800 |
|
Impaired land and development(4) | 21,400 |
| | — |
| | — |
| | 21,400 |
|
| |
(1) | The fair value of the Company's derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company's available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as Level 3. |
| |
(2) | The Company recorded an impairment of $1.1 million on a real estateland and development asset with aan estimated fair value of $12.4 million$1.3 million. The fair value is based on market comparable sales. |
| |
(3) | The Company recorded aggregate impairments of $76.3 million on three real estate assets with an estimated aggregate fair value of $29.4 million. The impairments were as follows: |
| |
a. | A $23.2 million impairment on a residentialcommercial operating property based on a decline in expected operating performance. The fair value is based on the Company's estimate of the recoverability of its investment in the project. |
| |
b. | A $6.0 million impairment on a property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value. |
| |
c. | A $47.1 million impairment on a commercial operating property based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value. |
| |
(4) | The Company recorded aggregate impairments of $3.7 million on two real estate asset available andassets held for salesale. The fair values are based on market comparable sales. |
| |
(4)(5) | The Company recorded aggregate impairments of $55.4 million on four land and development assets with an estimated aggregate fair value of $78.4 million. The impairments were as follows: |
| |
a. | A $25.0 million impairment on a waterfront land and development asset with a fair value of $21.4 million based on a discount ratestrategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of 6%fair value. |
| |
b. | A $21.6 million impairment on a master planned community based on a strategic decision to sell the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value. |
| |
c. | A $6.9 million impairment on an infill land and development asset based on the deterioration of the asset. The fair value is based on purchase offers received from third parties, which is consistent with the Company's estimate of fair value. |
| |
d. | A $1.9 million impairment on a 10 year holding period.waterfront land and development asset based on the sale of the asset in 2019. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's consolidated balance sheets for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Beginning balance | | $ | 21,661 |
| | $ | 22,842 |
|
Repayments | | (47 | ) | | (46 | ) |
Unrealized gains (losses) recorded in other comprehensive income | | 1,710 |
| | (956 | ) |
Ending balance | | $ | 23,324 |
| | $ | 21,840 |
|
|
| | | | | | | | |
| | 2018 | | 2017 |
Beginning balance | | $ | 22,842 |
| | $ | 21,666 |
|
Repayments | | (46 | ) | | (10 | ) |
Unrealized gains (losses) recorded in other comprehensive income | | (1,514 | ) | | 449 |
|
Ending balance | | $ | 21,282 |
| | $ | 22,105 |
|
Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending investments and outstanding debt was $1.1$0.9 billion and $3.7$3.2 billion, respectively, as of SeptemberJune 30, 20182019 and $1.3$1.0 billion and $3.7$3.5 billion, respectively, as of December 31, 2017.2018. The Company determined that the significant inputs used to value its loans
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
receivable and other lending investments and debt obligations fall within Level 3 of the fair value hierarchy. The carrying value of other financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable, net investment in leases and accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value hierarchy. The fair value of other financial instruments, including derivative assets and liabilities, is included in the fair value hierarchy table above.
Note 17—18—Segment Reporting
The Company has determined that it has four reportable segments based on how management reviews and manages its business. These reportable segments include: Real Estate Finance, Net Lease, Operating Properties and Land and Development. The Real Estate Finance segment includes all of the Company's activities related to senior and mezzanine real estate loans and real estate related securities. The Net Lease segment includes the Company's activities and operations related to the ownership of properties generally leased to single corporate tenants.tenants and its investment in SAFE (refer to Note 8). The Operating Properties segment includes the Company's activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company's activities related to its developable land portfolio.
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
The Company evaluates performance based on the following financial measures for each segment. The Company's segment information is as follows ($ in thousands):
| | | Real Estate Finance | | Net Lease | | Operating Properties | | Land and Development | | Corporate/Other(1) | | Company Total | Real Estate Finance | | Net Lease | | Operating Properties | | Land and Development | | Corporate/Other(1) | | Company Total |
Three Months Ended September 30, 2018: | | | | | | | | | | | |
Three Months Ended June 30, 2019: | | Three Months Ended June 30, 2019: | | | | | | | | | | |
Operating lease income | $ | — |
| | $ | 45,204 |
| | $ | 13,803 |
| | $ | 102 |
| | $ | — |
| | $ | 59,109 |
| $ | — |
| | $ | 48,660 |
| | $ | 6,455 |
| | $ | 70 |
| | $ | — |
| | $ | 55,185 |
|
Interest income | 22,915 |
| | — |
| | — |
| | — |
| | — |
| | 22,915 |
| 19,933 |
| | 408 |
| | — |
| | — |
| | — |
| | 20,341 |
|
Interest income from sales-type leases | | — |
| | 3,817 |
| | — |
| | — |
| | — |
| | 3,817 |
|
Other income | 753 |
| | 1,008 |
| | 21,253 |
| | 857 |
| | 3,937 |
| | 27,808 |
| 532 |
| | 2,937 |
| | 3,974 |
| | 1,311 |
| | 1,296 |
| | 10,050 |
|
Land development revenue | — |
| | — |
| | — |
| | 12,309 |
| | — |
| | 12,309 |
| — |
| | — |
| | — |
| | 9,075 |
| | — |
| | 9,075 |
|
Earnings (losses) from equity method investments | — |
| | 775 |
| | (2,223 | ) | | 161 |
| | 652 |
| | (635 | ) | — |
| | 3,582 |
| | (2,630 | ) | | 2,924 |
| | (236 | ) | | 3,640 |
|
Selling profit from sales-type leases | | — |
| | 180,416 |
| | — |
| | — |
| | — |
| | 180,416 |
|
Income from sales of real estate | — |
| | — |
| | 5,409 |
| | — |
| | — |
| | 5,409 |
| — |
| | 219,742 |
| | 781 |
| | — |
| | — |
| | 220,523 |
|
Total revenue and other earnings | 23,668 |
| | 46,987 |
| | 38,242 |
| | 13,429 |
| | 4,589 |
| | 126,915 |
| 20,465 |
| | 459,562 |
| | 8,580 |
| | 13,380 |
| | 1,060 |
| | 503,047 |
|
Real estate expense | — |
| | (4,774 | ) | | (18,649 | ) | | (8,864 | ) | | — |
| | (32,287 | ) | — |
| | (5,769 | ) | | (8,288 | ) | | (7,981 | ) | | — |
| | (22,038 | ) |
Land development cost of sales | — |
| | — |
| | — |
| | (12,114 | ) | | — |
| | (12,114 | ) | — |
| | — |
| | — |
| | (9,236 | ) | | — |
| | (9,236 | ) |
Other expense | (179 | ) | | — |
| | — |
| | — |
| | (119 | ) | | (298 | ) | (47 | ) | | — |
| | — |
| | — |
| | (11,836 | ) | | (11,883 | ) |
Allocated interest expense | (9,558 | ) | | (16,454 | ) | | (4,547 | ) | | (5,014 | ) | | (11,646 | ) | | (47,219 | ) | (7,936 | ) | | (23,606 | ) | | (2,548 | ) | | (5,493 | ) | | (4,169 | ) | | (43,752 | ) |
Allocated general and administrative(2) | (2,693 | ) | | (5,740 | ) | | (1,429 | ) | | (3,576 | ) | | (4,524 | ) | | (17,962 | ) | (2,279 | ) | | (6,734 | ) | | (726 | ) | | (2,923 | ) | | (4,936 | ) | | (17,598 | ) |
Segment profit (loss)(3) | $ | 11,238 |
| | $ | 20,019 |
| | $ | 13,617 |
| | $ | (16,139 | ) | | $ | (11,700 | ) | | $ | 17,035 |
| $ | 10,203 |
| | $ | 423,453 |
| | $ | (2,982 | ) | | $ | (12,253 | ) | | $ | (19,881 | ) | | $ | 398,540 |
|
Other significant items: | | | | | | | | | | | | | | | | | | | | | | |
Provision for loan losses | $ | 200 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 200 |
| $ | 110 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 110 |
|
Impairment of assets | — |
| | — |
| | 989 |
| | — |
| | — |
| | 989 |
| — |
| | — |
| | 2 |
| | 1,100 |
| | — |
| | 1,102 |
|
Depreciation and amortization | — |
| | 12,554 |
| | 6,857 |
| | 263 |
| | 305 |
| | 19,979 |
| — |
| | 12,272 |
| | 900 |
| | 244 |
| | 302 |
| | 13,718 |
|
Capitalized expenditures | — |
| | 28,315 |
| | 5,860 |
| | 33,608 |
| | — |
| | 67,783 |
| — |
| | 2,105 |
| | 1,646 |
| | 29,414 |
| | — |
| | 33,165 |
|
| | | | | | | | | | | | | | �� | | | | | | | | |
Three Months Ended September 30, 2017: | | | | | | | | | | | |
Three Months Ended June 30, 2018: | | Three Months Ended June 30, 2018: | | | | | | | | | | |
Operating lease income | $ | — |
| | $ | 31,503 |
| | $ | 16,048 |
| | $ | 255 |
| | $ | — |
| | $ | 47,806 |
| $ | — |
| | $ | 29,310 |
| | $ | 15,199 |
| | $ | 100 |
| | $ | — |
| | $ | 44,609 |
|
Interest income | 25,442 |
| | — |
| | — |
| | — |
| | — |
| | 25,442 |
| 25,212 |
| | — |
| | — |
| | — |
| | — |
| | 25,212 |
|
Other income | 1,298 |
| | 953 |
| | 14,097 |
| | 1,174 |
| | 3,140 |
| | 20,662 |
| 3,133 |
| | 698 |
| | 13,351 |
| | 1,313 |
| | 2,328 |
| | 20,823 |
|
Land development revenue | — |
| | — |
| | — |
| | 25,962 |
| | — |
| | 25,962 |
| — |
| | — |
| | — |
| | 80,927 |
| | — |
| | 80,927 |
|
Earnings from equity method investments | — |
| | 1,302 |
| | (399 | ) | | 948 |
| | 610 |
| | 2,461 |
| — |
| | 2,694 |
| | (1,316 | ) | | 1,023 |
| | (9,679 | ) | | (7,278 | ) |
Gain on consolidation of equity method investment | | — |
| | 67,877 |
| | — |
| | — |
| | — |
| | 67,877 |
|
Income from sales of real estate | — |
| | 18,765 |
| | 548 |
| | — |
| | — |
| | 19,313 |
| — |
| | 24,493 |
| | 32,402 |
| | — |
| | — |
| | 56,895 |
|
Total revenue and other earnings | 26,740 |
| | 52,523 |
| | 30,294 |
| | 28,339 |
| | 3,750 |
| | 141,646 |
| 28,345 |
| | 125,072 |
| | 59,636 |
| | 83,363 |
| | (7,351 | ) | | 289,065 |
|
Real estate expense | — |
| | (4,423 | ) | | (23,185 | ) | | (8,672 | ) | | — |
| | (36,280 | ) | — |
| | (3,433 | ) | | (23,818 | ) | | (9,792 | ) | | — |
| | (37,043 | ) |
Land development cost of sales | | — |
| | — |
| | — |
| | (83,361 | ) | | — |
| | (83,361 | ) |
Other expense | | (290 | ) | | — |
| | — |
| | — |
| | (3,426 | ) | | (3,716 | ) |
Allocated interest expense | | (10,648 | ) | | (13,591 | ) | | (4,578 | ) | | (5,308 | ) | | (9,047 | ) | | (43,172 | ) |
Allocated general and administrative(2) | | (3,852 | ) | | (4,853 | ) | | (1,975 | ) | | (3,747 | ) | | (5,298 | ) | | (19,725 | ) |
Segment profit (loss)(3) | | $ | 13,555 |
| | $ | 103,195 |
| | $ | 29,265 |
| | $ | (18,845 | ) | | $ | (25,122 | ) | | $ | 102,048 |
|
Other significant items: | | | | | | | | | | | | |
Provision for loan losses | | $ | 18,892 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,892 |
|
Impairment of assets | | — |
| | 4,342 |
| | 446 |
| | 1,300 |
| | — |
| | 6,088 |
|
Depreciation and amortization | | — |
| | 6,341 |
| | 3,738 |
| | 318 |
| | 370 |
| | 10,767 |
|
Capitalized expenditures | | — |
| | 720 |
| | 4,623 |
| | 42,603 |
| | — |
| | 47,946 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
| | | Real Estate Finance | | Net Lease | | Operating Properties | | Land and Development | | Corporate/Other(1) | | Company Total | Real Estate Finance | | Net Lease | | Operating Properties | | Land and Development | | Corporate/Other(1) | | Company Total |
Land development cost of sales | — |
| | — |
| | — |
| | (27,512 | ) | | — |
| | (27,512 | ) | |
Other expense | (261 | ) | | — |
| | — |
| | — |
| | (2,443 | ) | | (2,704 | ) | |
Allocated interest expense | (9,165 | ) | | (12,255 | ) | | (4,860 | ) | | (6,529 | ) | | (15,923 | ) | | (48,732 | ) | |
Allocated general and administrative(2) | (3,334 | ) | | (4,315 | ) | | (1,866 | ) | | (3,706 | ) | | (4,800 | ) | | (18,021 | ) | |
Segment profit (loss)(3) | $ | 13,980 |
| | $ | 31,530 |
| | $ | 383 |
| | $ | (18,080 | ) | | $ | (19,416 | ) | | $ | 8,397 |
| |
Other significant items: | | | | | | | | | | | | |
Recovery of loan losses | $ | (2,600 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2,600 | ) | |
Impairment of assets | — |
| | — |
| | 595 |
| | — |
| | — |
| | 595 |
| |
Depreciation and amortization | — |
| | 6,623 |
| | 4,343 |
| | 546 |
| | 334 |
| | 11,846 |
| |
Capitalized expenditures | — |
| | 2,384 |
| | 7,644 |
| | 33,788 |
| | — |
| | 43,816 |
| |
| | | | | | | | | | | | |
Nine Months Ended September 30, 2018 | | | | | | | | | | | |
Six Months Ended June 30, 2019: | | Six Months Ended June 30, 2019: | | | | | | | | | | |
Operating lease income | $ | — |
| | $ | 104,241 |
| | $ | 44,818 |
| | $ | 457 |
| | $ | — |
| | $ | 149,516 |
| $ | — |
| | $ | 98,143 |
| | $ | 15,810 |
| | $ | 147 |
| | $ | — |
| | $ | 114,100 |
|
Interest income | 74,824 |
| | — |
| | — |
| | — |
| | — |
| | 74,824 |
| 40,308 |
| | 408 |
| | — |
| | — |
| | — |
| | 40,716 |
|
Interest income from sales-type leases | | — |
| | 3,817 |
| | — |
| | — |
| | — |
| | 3,817 |
|
Other income | 4,271 |
| | 2,755 |
| | 46,748 |
| | 2,640 |
| | 7,537 |
| | 63,951 |
| 2,721 |
| | 6,358 |
| | 6,349 |
| | 4,755 |
| | 4,680 |
| | 24,863 |
|
Land development revenue | — |
| | — |
| | — |
| | 369,665 |
| | — |
| | 369,665 |
| — |
| | — |
| | — |
| | 21,774 |
| | — |
| | 21,774 |
|
Earnings (losses) from equity method investments | — |
| | 7,028 |
| | (4,814 | ) | | 2,726 |
| | (9,521 | ) | | (4,581 | ) | — |
| | 10,812 |
| | (5,040 | ) | | 3,211 |
| | (34 | ) | | 8,949 |
|
Gain on consolidation of equity method investment | — |
| | 67,877 |
| | — |
| | — |
| | — |
| | 67,877 |
| |
Selling profit from sales-type leases | | — |
| | 180,416 |
| | — |
| | — |
| | — |
| | 180,416 |
|
Income from sales of real estate | — |
| | 24,907 |
| | 54,446 |
| | — |
| | — |
| | 79,353 |
| — |
| | 219,742 |
| | 10,188 |
| | — |
| | — |
| | 229,930 |
|
Total revenue and other earnings | 79,095 |
| | 206,808 |
| | 141,198 |
| | 375,488 |
| | (1,984 | ) | | 800,605 |
| 43,029 |
| | 519,696 |
| | 27,307 |
| | 29,887 |
| | 4,646 |
| | 624,565 |
|
Real estate expense | — |
| | (12,186 | ) | | (64,091 | ) | | (29,234 | ) | | — |
| | (105,511 | ) | — |
| | (11,874 | ) | | (19,321 | ) | | (16,783 | ) | | — |
| | (47,978 | ) |
Land development cost of sales | — |
| | — |
| | — |
| | (318,881 | ) | | — |
| | (318,881 | ) | — |
| | — |
| | — |
| | (23,684 | ) | | — |
| | (23,684 | ) |
Other expense | (869 | ) | | — |
| | — |
| | — |
| | (4,311 | ) | | (5,180 | ) | (311 | ) | | — |
| | — |
| | — |
| | (12,080 | ) | | (12,391 | ) |
Allocated interest expense | (31,971 | ) | | (44,246 | ) | | (14,653 | ) | | (16,795 | ) | | (27,907 | ) | | (135,572 | ) | (16,349 | ) | | (45,372 | ) | | (5,466 | ) | | (10,620 | ) | | (12,522 | ) | | (90,329 | ) |
Allocated general and administrative(2) | (10,514 | ) | | (15,179 | ) | | (5,447 | ) | | (11,128 | ) | | (15,142 | ) | | (57,410 | ) | (4,488 | ) | | (12,412 | ) | | (1,487 | ) | | (6,180 | ) | | (9,881 | ) | | (34,448 | ) |
Segment profit (loss)(3) | $ | 35,741 |
| | $ | 135,197 |
| | $ | 57,007 |
| | $ | (550 | ) | | $ | (49,344 | ) | | $ | 178,051 |
| $ | 21,881 |
| | $ | 450,038 |
| | $ | 1,033 |
| | $ | (27,380 | ) | | $ | (29,837 | ) | | $ | 415,735 |
|
Other significant non-cash items: | | | | | | | | | | | | | | | | | | | | | | |
Provision for loan losses | $ | 18,237 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,237 |
| $ | 13 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13 |
|
Impairment of assets | — |
| | 4,342 |
| | 5,535 |
| | 1,300 |
| | — |
| | 11,177 |
| — |
| | — |
| | 3,853 |
| | 1,100 |
| | — |
| | 4,953 |
|
Depreciation and amortization | — |
| | 25,205 |
| | 14,522 |
| | 1,095 |
| | 1,035 |
| | 41,857 |
| — |
| | 25,832 |
| | 2,457 |
| | 490 |
| | 607 |
| | 29,386 |
|
Capitalized expenditures | — |
| | 29,512 |
| | 18,186 |
| | 107,658 |
| | — |
| | 155,356 |
| — |
| | 4,861 |
| | 2,063 |
| | 65,493 |
| | — |
| | 72,417 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2017: | | | | | | | | | | | |
Six Months Ended June 30, 2018: | | Six Months Ended June 30, 2018: | | | | | | | | | | |
Operating lease income | $ | — |
| | $ | 93,606 |
| | $ | 47,977 |
| | $ | 572 |
| | $ | — |
| | $ | 142,155 |
| $ | — |
| | $ | 59,036 |
| | $ | 31,016 |
| | $ | 355 |
| | $ | — |
| | $ | 90,407 |
|
Interest income | 83,145 |
| | — |
| | — |
| | — |
| | — |
| | 83,145 |
| 51,909 |
| | — |
| | — |
| | — |
| | — |
| | 51,909 |
|
Other income | 1,854 |
| | 2,009 |
| | 37,720 |
| | 125,430 |
| | 5,024 |
| | 172,037 |
| 3,516 |
| | 1,746 |
| | 25,496 |
| | 1,784 |
| | 3,600 |
| | 36,142 |
|
Land development revenue | — |
| | — |
| | — |
| | 178,722 |
| | — |
| | 178,722 |
| — |
| | — |
| | — |
| | 357,356 |
| | — |
| | 357,356 |
|
Earnings (losses) from equity method investments | — |
| | 3,363 |
| | 702 |
| | 8,396 |
| | 1,216 |
| | 13,677 |
| — |
| | 6,252 |
| | (2,591 | ) | | 2,566 |
| | (10,173 | ) | | (3,946 | ) |
Income from discontinued operations | — |
| | 4,939 |
| | — |
| | — |
| | — |
| | 4,939 |
| |
Gain from discontinued operations | — |
| | 123,418 |
| | — |
| | — |
| | — |
| | 123,418 |
| |
Gain from consolidation of equity method investment | | — |
| | 67,877 |
| | — |
| | — |
| | — |
| | 67,877 |
|
Income from sales of real estate | — |
| | 24,977 |
| | 3,290 |
| | — |
| | — |
| | 28,267 |
| — |
| | 24,907 |
| | 49,036 |
| | — |
| | — |
| | 73,943 |
|
Total revenue and other earnings | 84,999 |
| | 252,312 |
| | 89,689 |
| | 313,120 |
| | 6,240 |
| | 746,360 |
| 55,425 |
| | 159,818 |
| | 102,957 |
| | 362,061 |
| | (6,573 | ) | | 673,688 |
|
Real estate expense | — |
| | (13,062 | ) | | (67,356 | ) | | (26,136 | ) | | — |
| | (106,554 | ) | — |
| | (7,411 | ) | | (45,443 | ) | | (20,370 | ) | | — |
| | (73,224 | ) |
Land development cost of sales | | — |
| | — |
| | — |
| | (306,768 | ) | | — |
| | (306,768 | ) |
Other expense | | (690 | ) | | — |
| | — |
| | — |
| | (4,192 | ) | | (4,882 | ) |
Allocated interest expense | | (22,413 | ) | | (27,792 | ) | | (10,106 | ) | | (11,781 | ) | | (16,261 | ) | | (88,353 | ) |
Allocated general and administrative(2) | | (7,821 | ) | | (9,439 | ) | | (4,018 | ) | | (7,552 | ) | | (10,618 | ) | | (39,448 | ) |
Segment profit (loss)(3) | | $ | 24,501 |
| | $ | 115,176 |
| | $ | 43,390 |
| | $ | 15,590 |
| | $ | (37,644 | ) | | $ | 161,013 |
|
Other significant non-cash items: | | | | | | | | | | | | |
Provision for loan losses | | $ | 18,037 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,037 |
|
Impairment of assets | | — |
| | 4,342 |
| | 4,546 |
| | 1,300 |
| | — |
| | 10,188 |
|
Depreciation and amortization | | — |
| | 12,652 |
| | 7,664 |
| | 832 |
| | 730 |
| | 21,878 |
|
Capitalized expenditures | | — |
| | 1,198 |
| | 12,324 |
| | 74,050 |
| | — |
| | 87,572 |
|
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
| | | Real Estate Finance | | Net Lease | | Operating Properties | | Land and Development | | Corporate/Other(1) | | Company Total | Real Estate Finance | | Net Lease | | Operating Properties | | Land and Development | | Corporate/Other(1) | | Company Total |
Land development cost of sales | — |
| | — |
| | — |
| | (165,888 | ) | | — |
| | (165,888 | ) | |
Other expense | (1,263 | ) | | — |
| | — |
| | — |
| | (19,586 | ) | | (20,849 | ) | |
Allocated interest expense | (31,561 | ) | | (41,659 | ) | | (15,472 | ) | | (21,769 | ) | | (38,223 | ) | | (148,684 | ) | |
Allocated general and administrative(2) | (11,621 | ) | | (14,878 | ) | | (5,985 | ) | | (12,636 | ) | | (15,497 | ) | | (60,617 | ) | |
Segment profit (loss)(3) | $ | 40,554 |
| | $ | 182,713 |
| | $ | 876 |
| | $ | 86,691 |
| | $ | (67,066 | ) | | $ | 243,768 |
| |
Other significant non-cash items: | | | | | | | | | | | | |
Recovery of loan losses | $ | (8,128 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (8,128 | ) | |
Impairment of assets | — |
| | 219 |
| | 5,009 |
| | 10,064 |
| | — |
| | 15,292 |
| |
Depreciation and amortization | — |
| | 21,662 |
| | 13,305 |
| | 1,337 |
| | 993 |
| | 37,297 |
| |
Capitalized expenditures | — |
| | 4,071 |
| | 24,210 |
| | 90,666 |
| | — |
| | 118,947 |
| |
As of June 30, 2019 | | | | | | | | | | | |
|
Real estate | | |
| | |
| | |
| | |
| | |
| | |
Real estate, net | | $ | — |
| | $ | 1,249,824 |
| | $ | 171,778 |
| | $ | — |
| | $ | — |
| | $ | 1,421,602 |
|
Real estate available and held for sale | | — |
| | — |
| | 12,770 |
| | — |
| | — |
| | 12,770 |
|
Total real estate | | — |
| | 1,249,824 |
| | 184,548 |
| | — |
| | — |
| | 1,434,372 |
|
Net investment in leases | | — |
| | 421,842 |
| | — |
| | — |
| | — |
| | 421,842 |
|
Land and development, net | | — |
| | — |
| | — |
| | 668,656 |
| | — |
| | 668,656 |
|
Loans receivable and other lending investments, net | | 858,061 |
| | 44,085 |
| | — |
| | — |
| | — |
| | 902,146 |
|
Other investments | | — |
| | 408,257 |
| | 69,208 |
| | 42,750 |
| | 43,955 |
| | 564,170 |
|
Total portfolio assets | | $ | 858,061 |
| | $ | 2,124,008 |
| | $ | 253,756 |
| | $ | 711,406 |
| | $ | 43,955 |
| | 3,991,186 |
|
Cash and other assets | | | | | | | | | | | | 774,841 |
|
Total assets | |
|
| |
|
| |
|
| |
|
| |
|
| | $ | 4,766,027 |
|
| | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2018 | | | | | | | | | | |
| |
As of December 31, 2018 | | | | | | | | | | | | |
Real estate | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
| | |
| | |
| | |
Real estate, net | $ | — |
| | $ | 1,543,775 |
| | $ | 350,014 |
| | $ | — |
| | $ | — |
| | $ | 1,893,789 |
| $ | — |
| | $ | 1,536,494 |
| | $ | 234,525 |
| | $ | — |
| | $ | — |
| | $ | 1,771,019 |
|
Real estate available and held for sale | — |
| | 7,289 |
| | 54,260 |
| | — |
| | — |
| | 61,549 |
| — |
| | 1,055 |
| | 21,496 |
| | — |
| | — |
|
| 22,551 |
|
Total real estate | — |
| | 1,551,064 |
| | 404,274 |
| | — |
| | — |
| | 1,955,338 |
| — |
| | 1,537,549 |
| | 256,021 |
| | — |
| | — |
| | 1,793,570 |
|
Land and development, net | — |
| | — |
| | — |
| | 650,531 |
| | — |
| | 650,531 |
| ��� |
| | — |
| | — |
| | 598,218 |
| | — |
| | 598,218 |
|
Loans receivable and other lending investments, net | 1,029,052 |
| | — |
| | — |
| | — |
| | — |
| | 1,029,052 |
| 988,224 |
| | — |
| | — |
| | — |
| | — |
| | 988,224 |
|
Other investments | — |
| | 150,533 |
| | 74,089 |
| | 70,429 |
| | 7,267 |
| | 302,318 |
| — |
| | 165,804 |
| | 65,643 |
| | 65,312 |
| | 7,516 |
| | 304,275 |
|
Total portfolio assets | $ | 1,029,052 |
| | $ | 1,701,597 |
| | $ | 478,363 |
| | $ | 720,960 |
| | $ | 7,267 |
| | 3,937,239 |
| $ | 988,224 |
| | $ | 1,703,353 |
| | $ | 321,664 |
| | $ | 663,530 |
| | $ | 7,516 |
| | 3,684,287 |
|
Cash and other assets | | | | | | | | | | | 1,142,750 |
| | | | | | | | | | | 1,329,990 |
|
Total assets |
|
| |
|
| |
|
| |
|
| |
|
| | $ | 5,079,989 |
|
|
| |
|
| |
|
| |
|
| |
|
| | $ | 5,014,277 |
|
| | | | | | | | | | | | |
As of December 31, 2017 | | | | | | | | | | | | |
Real estate | |
| | |
| | |
| | |
| | |
| | | |
Real estate, net | $ | — |
| | $ | 815,783 |
| | $ | 466,248 |
| | $ | — |
| | $ | — |
| | $ | 1,282,031 |
| |
Real estate available and held for sale | — |
| | — |
| | 68,588 |
| | — |
| | — |
|
| 68,588 |
| |
Total real estate | — |
| | 815,783 |
| | 534,836 |
| | — |
| | — |
| | 1,350,619 |
| |
Land and development, net | — |
| | — |
| | — |
| | 860,311 |
| | — |
| | 860,311 |
| |
Loans receivable and other lending investments, net | 1,300,655 |
| | — |
| | — |
| | — |
| | — |
| | 1,300,655 |
| |
Other investments | — |
| | 205,007 |
| | 38,761 |
| | 63,855 |
| | 13,618 |
| | 321,241 |
| |
Total portfolio assets | $ | 1,300,655 |
| | $ | 1,020,790 |
| | $ | 573,597 |
| | $ | 924,166 |
| | $ | 13,618 |
| | 3,832,826 |
| |
Cash and other assets | | | | | | | | | | | 898,252 |
| |
Total assets |
|
| |
|
| |
|
| |
|
| |
|
| | $ | 4,731,078 |
| |
| |
(1) | Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also includes the Company's joint venture investments and strategic investments that are not included in the other reportable segments above. |
| |
(2) | General and administrative excludes stock-based compensation expense of $3.7$9.7 million and $16.2$14.0 million for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, and $2.9$3.5 million and $12.7$12.6 million for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. |
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
| |
(3) | The following is a reconciliation of segment profit to net income (loss) ($ in thousands): |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Segment profit | $ | 398,540 |
| | $ | 102,048 |
| | $ | 415,735 |
| | $ | 161,013 |
|
Less: Provision for loan losses | (110 | ) | | (18,892 | ) | | (13 | ) | | (18,037 | ) |
Less: Impairment of assets | (1,102 | ) | | (6,088 | ) | | (4,953 | ) | | (10,188 | ) |
Less: Stock-based compensation expense | (9,705 | ) | | (3,503 | ) | | (13,954 | ) | | (12,593 | ) |
Less: Depreciation and amortization | (13,718 | ) | | (10,767 | ) | | (29,386 | ) | | (21,878 | ) |
Less: Income tax expense | (214 | ) | | (128 | ) | | (240 | ) | | (249 | ) |
Less: Loss on early extinguishment of debt, net | — |
| | (2,164 | ) | | (468 | ) | | (2,536 | ) |
Net income | $ | 373,691 |
| | $ | 60,506 |
| | $ | 366,721 |
| | $ | 95,532 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Segment profit | $ | 17,035 |
| | $ | 8,397 |
| | $ | 178,051 |
| | $ | 243,768 |
|
Add: (Provision for) recovery of loan losses | (200 | ) | | 2,600 |
| | (18,237 | ) | | 8,128 |
|
Less: Impairment of assets | (989 | ) | | (595 | ) | | (11,177 | ) | | (15,292 | ) |
Less: Stock-based compensation expense | (3,651 | ) | | (2,934 | ) | | (16,245 | ) | | (12,730 | ) |
Less: Depreciation and amortization | (19,979 | ) | | (11,846 | ) | | (41,857 | ) | | (37,297 | ) |
Less: Income tax (expense) benefit | (137 | ) | | 1,278 |
| | (386 | ) | | (972 | ) |
Less: Income tax expense from discontinued operations | — |
| | — |
| | — |
| | (4,545 | ) |
Less: Loss on early extinguishment of debt, net | (911 | ) | | (616 | ) | | (3,447 | ) | | (4,142 | ) |
Net income (loss) | $ | (8,832 | ) | | $ | (3,716 | ) | | $ | 86,702 |
| | $ | 176,918 |
|
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 20172018 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 20172018 Annual Report. These historical financial statements may not be indicative of our future performance. We have reclassified certain items in our consolidated financial statements of prior periods to conform to our current financial statements presentation.
Introduction
iStar Inc. ("iStar") finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. We also provide management services for ourmanage entities focused on ground lease ("Ground Lease") equity method investment and our net lease ventures.investments. We have invested approximatelyover $40 billion of capital over the past two decades and are structured as a real estate investment trust ("REIT") with a diversified portfolio focused on larger assets located in major metropolitan markets. Our primary business segments are real estate finance, net lease, operating properties and land and development.
Executive Overview
Capital remains cheap and plentiful in most traditional lending sectors of the commercial real estate markets. Recently,markets, and we expect that to continue for the remainder of 2019. In addition, interest rates have begun to move higher and the equity markets are experiencing greaterhave experienced some volatility. We have taken a cautious approach in these conditions, focusing on providing capital to customers with whom we have a pre-existing relationship, originating fewer traditional loans and in continuingaggressively seeking to aggressively market for sale and monetize commercial and residential land and operating properties. For the nine months ended September 30, 2018,legacy assets.
Consistent with our historical approach of offering differentiated capital where we believe we can capture better risk-adjusted returns, we have sold $530.4 millioninvested, and intend to continue to invest, more of legacy assetsour capital and recognized $95.3 million of aggregate gains and expect to sell more land and operating propertiesresources in the fourth quarter 2018 and in 2019.
We believe that iStar’s balance sheet is well-positioned for this environment, with over $1 billion of unrestricted cash and credit facility capacity as of September 30, 2018. Next year’s July senior notes maturity will have been reduced from $770.0 million at the beginning of 2018 to $375.0 million after the upcoming partial redemption in November.
In 2017, we conceived and ultimately launched Safety, Income & Growth Inc. ("SAFE"), a new, publicly-traded REIT focused exclusively on the Ground Lease asset class.business. In January 2019, we expanded our relationship with SAFE through an additional $250.0 million equity investment and an amendment of our management agreement with SAFE that gives us greater protection against a termination of the agreement, and incentivizes us to grow SAFE's portfolio. We have also pursued and will continue to find thepursue joint transactions with SAFE, such as offering customers a SAFE Ground Lease asset class attractive and are excited about the opportunity in that space for us and SAFE to provide a completely proprietary, whole envelope solution to solve customer needs.an iStar leasehold loan.
In July 2018, we entered into a new venture ("Net"Net Lease Venture II") with total capital commitments of $526 million and an investment strategy similar to the Net Lease Venture. We have an equity interest in the new venture of approximately 51.9% and are responsible for managing the venture in exchange for management and incentive fees.
For the three months ended SeptemberJune 30, 2018,2019, we recorded net lossincome allocable to common shareholders of $19.0$362.7 million, compared to $34.5net income of $42.9 million during the same period in the prior year. Adjusted income (loss) allocable to common shareholders for the three months ended SeptemberJune 30, 20182019 was $3.7$316.9 million, compared to $(3.6)$43.6 million during the same period in the prior year (see "Adjusted Income" for a reconciliation of adjusted income to net income). In addition, duringThe increase in 2019 was primarily due to $219.7 million of gains from the three months ended September 30, 2018 we initiatedsale of a quarterly common stock dividendportfolio of $0.09 per share.
net lease assets and $180.4 million in gains resulting from a lease modification (refer to Note 5).
We continue to work on monetizing, repositioning or redeveloping our legacy portfolio, which includes transitional operating properties and progressing on the entitlement and development of our longer-term land and development assets, such as the Asbury Park assemblage and the Magnolia Green and Naples Reserve communities,community (refer to our Annual Report on Form 10-K), in order to maximize their value. We intend to continue these efforts, with the objective of increasing the contribution of these assets to our earnings in the future.
As of SeptemberJune 30, 2018,2019, we had $757.4$330.1 million of cash.cash and $325.0 million of credit facility availability. We have no debt maturities for the remainder of 2019. We expect to use our unrestricted cash balance primarily to fund future investment activities, pay debt service, make distributions to shareholders and for general working capital needs. In addition, we have additional borrowing capacity under the 2015 Revolving Credit Facility (refer to Note 10) of $325.0 million at September 30, 2018.
Portfolio Overview
As of SeptemberJune 30, 2018,2019, based on our gross book value, including the carrying value of our equity method investments grossexclusive of accumulated depreciation, our total investment portfolio has the following characteristics:
As of SeptemberJune 30, 2018,2019, based on our gross book value, including the carrying value of our equity method investments gross of accumulated depreciation, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):
| | Property/Collateral Types | | Real Estate Finance | | Net Lease | | Operating Properties | | Land & Development | | Total | | % of Total | | Real Estate Finance | | Net Lease | | Operating Properties | | Land & Development | | Total | | % of Total |
Office / Industrial | | $ | 56,201 |
| | $ | 1,215,238 |
| | $ | 127,645 |
| | $ | — |
| | $ | 1,399,084 |
| | 31.3 | % | | $ | 93,974 |
| | $ | 1,041,550 |
| | $ | 111,054 |
| | $ | — |
| | $ | 1,246,578 |
| | 28.4 | % |
Entertainment / Leisure | | | — |
| | 934,792 |
| | 15,813 |
| | — |
| | 950,605 |
| | 21.6 | % |
Land and Development | | 90,709 |
| | — |
| | — |
| | 729,346 |
| | 820,055 |
| | 18.2 | % | | 80,350 |
| | — |
| | — |
| | 720,528 |
| | 800,878 |
| | 18.2 | % |
Entertainment / Leisure | | — |
| | 699,410 |
| | 39,244 |
| | — |
| | 738,654 |
| | 16.5 | % | |
Ground Leases | | | — |
| | 428,882 |
| | — |
| | — |
| | 428,882 |
| | 9.8 | % |
Hotel | | 268,510 |
| | — |
| | 84,344 |
| | — |
| | 352,854 |
| | 7.9 | % | | 265,987 |
| | — |
| | 47,578 |
| | — |
| | 313,565 |
| | 7.1 | % |
Mixed Use / Mixed Collateral | | 196,066 |
| | — |
| | 84,833 |
| | — |
| | 280,899 |
| | 6.3 | % | | 194,236 |
| | — |
| | 39,421 |
| | — |
| | 233,657 |
| | 5.3 | % |
Multifamily | | | 111,723 |
| | — |
| | 31,466 |
| | — |
| | 143,189 |
| | 3.3 | % |
Other Property Types | | | 49,178 |
| | 57,348 |
| | — |
| | — |
| | 106,526 |
| | 2.4 | % |
Condominium | | 193,938 |
| | — |
| | 29,459 |
| | — |
| | 223,397 |
| | 5.0 | % | | 53,007 |
| | — |
| | 11,824 |
| | — |
| | 64,831 |
| | 1.5 | % |
Multifamily | | 163,626 |
| | — |
| | 27,332 |
| | — |
| | 190,958 |
| | 4.3 | % | |
Retail | | 23,935 |
| | — |
| | 159,249 |
| | — |
| | 183,184 |
| | 4.1 | % | | 22,126 |
| | — |
| | 38,952 |
| | — |
| | 61,078 |
| | 1.4 | % |
Ground Leases | | — |
| | 170,602 |
| | — |
| | — |
| | 170,602 |
| | 3.8 | % | |
Other Property Types | | 50,367 |
| | 57,348 |
| | — |
| | — |
| | 107,715 |
| | 2.4 | % | |
Strategic Investments | | — |
| | — |
| | — |
| | — |
| | 7,268 |
| | 0.2 | % | | — |
| | — |
| | — |
| | — |
| | 43,955 |
| | 1.0 | % |
Total | | $ | 1,043,352 |
| | $ | 2,142,598 |
| | $ | 552,106 |
| | $ | 729,346 |
| | $ | 4,474,670 |
| | 100.0 | % | | $ | 870,581 |
| | $ | 2,462,572 |
| | $ | 296,108 |
| | $ | 720,528 |
| | $ | 4,393,744 |
| | 100.0 | % |
| | Geographic Region | | Real Estate Finance | | Net Lease | | Operating Properties | | Land & Development | | Total | | % of Total | | Real Estate Finance | | Net Lease | | Operating Properties | | Land & Development | | Total | | % of Total |
Northeast | | $ | 508,201 |
| | $ | 625,548 |
| | $ | 87,143 |
| | $ | 315,261 |
| | $ | 1,536,153 |
| | 34.3 | % | | $ | 366,359 |
| | $ | 739,562 |
| | $ | 63,876 |
| | $ | 362,917 |
| | $ | 1,532,714 |
| | 34.9 | % |
West | | 158,259 |
| | 369,390 |
| | 52,970 |
| | 127,902 |
| | 708,521 |
| | 15.8 | % | | 194,158 |
| | 417,246 |
| | 56,014 |
| | 76,962 |
| | 744,380 |
| | 16.9 | % |
Mid-Atlantic | | | 12,033 |
| | 483,263 |
| | — |
| | 126,540 |
| | 621,836 |
| | 14.2 | % |
Southeast | | 116,396 |
| | 298,397 |
| | 119,062 |
| | 98,536 |
| | 632,391 |
| | 14.1 | % | | 114,429 |
| | 318,809 |
| | 15,400 |
| | 71,543 |
| | 520,181 |
| | 11.8 | % |
Mid-Atlantic | | — |
| | 405,948 |
| | 30,325 |
| | 130,497 |
| | 566,770 |
| | 12.7 | % | |
Southwest | | 76,080 |
| | 228,350 |
| | 149,510 |
| | 25,639 |
| | 479,579 |
| | 10.7 | % | | 29,436 |
| | 262,860 |
| | 117,885 |
| | 51,066 |
| | 461,247 |
| | 10.5 | % |
Central | | 88,582 |
| | 207,958 |
| | 113,096 |
| | 31,511 |
| | 441,147 |
| | 9.9 | % | | 54,210 |
| | 231,522 |
| | 42,933 |
| | 31,500 |
| | 360,165 |
| | 8.2 | % |
Various | | 95,834 |
| | 7,007 |
| | — |
| | — |
| | 102,841 |
| | 2.3 | % | | 99,956 |
| | 9,310 |
| | — |
| | — |
| | 109,266 |
| | 2.5 | % |
Strategic Investments | | — |
| | — |
| | — |
| | — |
| | 7,268 |
| | 0.2 | % | | — |
| | — |
| | — |
| | — |
| | 43,955 |
| | 1.0 | % |
Total | | $ | 1,043,352 |
| | $ | 2,142,598 |
| | $ | 552,106 |
| | $ | 729,346 |
| | $ | 4,474,670 |
| | 100.0 | % | | $ | 870,581 |
| | $ | 2,462,572 |
| | $ | 296,108 |
| | $ | 720,528 |
| | $ | 4,393,744 |
| | 100.0 | % |
Real Estate Finance
Our real estate finance business targets sophisticated and innovative owner/operators of real estate and real estate related projects by providing one-stop capabilities that encompass financing alternatives ranging from full envelope senior loans to mezzanine and preferred equity capital positions. As of SeptemberJune 30, 2018,2019, our real estate finance portfolio, including securities, totaled $1.0 billion,$914.7 million, exclusive of general loan loss reserves. The portfolio, excluding securities, included $897.0$739.9 million of performing loans with a weighted average maturity of 1.81.6 years.
The tables below summarize our loans and the reserves for loan losses associated with our loans ($ in thousands):
| | | September 30, 2018 | June 30, 2019 |
| Number of Loans | | Gross Carrying Value | | Reserve for Loan Losses | | Carrying Value | | % of Total | | Reserve for Loan Losses as a % of Gross Carrying Value | Number of Loans | | Gross Carrying Value | | Reserve for Loan Losses | | Carrying Value | | % of Total | | Reserve for Loan Losses as a % of Gross Carrying Value |
Performing loans | 36 |
| | $ | 897,039 |
| | $ | (14,300 | ) | | $ | 882,739 |
| | 97.1% | | 1.6% | 29 |
| | $ | 739,907 |
| | $ | (12,520 | ) | | $ | 727,387 |
| | 96.7% | | 1.7% |
Non-performing loans | 3 |
| | 66,936 |
| | (40,395 | ) | | 26,541 |
| | 2.9% | | 60.3% | 3 |
| | 66,033 |
| | (40,888 | ) | | 25,145 |
| | 3.3% | | 61.9% |
Total | 39 |
| | $ | 963,975 |
| | $ | (54,695 | ) | | $ | 909,280 |
| | 100.0% | | 5.7% | 32 |
| | $ | 805,940 |
| | $ | (53,408 | ) | | $ | 752,532 |
| | 100.0% | | 6.6% |
| | |
| |
| | | | | |
| |
| | | |
| December 31, 2017 | December 31, 2018 |
| Number of Loans | | Gross Carrying Value | | Reserve for Loan Losses | | Carrying Value | | % of Total | | Reserve for Loan Losses as a % of Gross Carrying Value | Number of Loans | | Gross Carrying Value | | Reserve for Loan Losses | | Carrying Value | | % of Total | | Reserve for Loan Losses as a % of Gross Carrying Value |
Performing loans | 36 |
| | $ | 1,051,691 |
| | $ | (17,500 | ) | | $ | 1,034,191 |
| | 85.4% | | 1.7% | 35 |
| | $ | 852,768 |
| | $ | (13,000 | ) | | $ | 839,768 |
| | 97.0% | | 1.5% |
Non-performing loans | 5 |
| | 237,877 |
| | (60,989 | ) | | 176,888 |
| | 14.6% | | 25.6% | 3 |
| | 66,725 |
| | (40,395 | ) | | 26,330 |
| | 3.0% | | 60.5% |
Total | 41 |
| | $ | 1,289,568 |
| | $ | (78,489 | ) | | $ | 1,211,079 |
| | 100.0% | | 6.1% | 38 |
| | $ | 919,493 |
| | $ | (53,395 | ) | | $ | 866,098 |
| | 100.0% | | 5.8% |
Performing Loans—The table below summarizes our performing loans exclusive of reserves ($ in thousands):
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
Senior mortgages | $ | 734,659 |
| | $ | 709,809 |
| $ | 605,126 |
| | $ | 694,025 |
|
Corporate/Partnership loans | 152,390 |
| | 332,387 |
| 124,266 |
| | 148,583 |
|
Subordinate mortgages | 9,990 |
| | 9,495 |
| 10,515 |
| | 10,160 |
|
Total | $ | 897,039 |
| | $ | 1,051,691 |
| $ | 739,907 |
| | $ | 852,768 |
|
| | | | | | |
Weighted average LTV | 63 | % | | 67 | % | 63 | % | | 63 | % |
Yield | 9.3 | % | | 9.8 | % | 9.1 | % | | 9.2 | % |
Non-Performing Loans—We designate loans as non-performing at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due
according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt. As of SeptemberJune 30, 2018,2019, we had non-performing loans with an aggregate carrying value of $26.5$25.1 million compared to non-performing loans with an aggregate carrying value of $176.9$26.3 million as of December 31, 2017. In the second quarter 2018, we resolved a non-performing loan with a carrying value of $145.8 million. We received a $45.8 million cash payment and a preferred equity investment with a face value of $100.0 million that is mandatorily redeemable in five years. We recorded the preferred equity at its fair value of $77.0 million and will accrue interest over the expected duration of the investment. In addition, we recorded a $21.4 million loan loss provision and simultaneously charged-off of the remaining unpaid balance.2018. We expect that our level of non-performing loans will fluctuate from period to period.
Reserve for Loan Losses—The reserve for loan losses was $54.7$53.4 million as of SeptemberJune 30, 2018,2019, or 5.7%6.6% of total loans, compared to $78.5$53.4 million or 6.1%5.8% as of December 31, 2017.2018. For the ninesix months ended SeptemberJune 30, 2018,2019, the provision for loan losses included $21.4an increase in the specific reserve of $0.5 million resulting from the resolution of a non-performing loan partially offset by a $3.2 million decrease (benefit) in the general reserve.reserve of $0.5 million. We expect that our level of reserve for loan losses will fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and reserves requires the use of significant judgment. We currently believe there is adequate collateral and reserves to support the carrying values of the loans.
The reserve for loan losses includes an asset-specific component and a formula-based component. An asset-specific reserve is established for an impaired loan when the estimated fair value of the loan's collateral less costs to sell is lower than the carrying value of the loan. As of SeptemberJune 30, 2018,2019, asset-specific reserves decreasedincreased to $40.4$40.9 million compared to $61.0$40.4 million as of December 31, 2017.2018.
The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of performing loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management's current judgments and future expectations about their credit quality based on all known and relevant factors that may affect collectability. We consider, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. We estimate loss rates based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.
The general reserve decreased to $14.3 million or 1.6% of performing loans as of September 30, 2018, compared to $17.5$12.5 million or 1.7% of performing loans as of June 30, 2019, compared to $13.0 million or 1.5% of performing loans as of December 31, 2017.2018. The decrease was primarily attributable to an overall improvementa decrease in the risk ratings.balance of our performing loans.
Net Lease
Our net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on our properties. We target mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combine our capabilities in underwriting, lease structuring, asset management and build-to-suit construction. Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis. Under a typical net lease agreement, the tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including taxes, utilities, maintenance and insurance). We generally intend to hold our net lease assets for long-term investment. However, we may dispose of assets if we deem the disposition to be in our best interests.
The net lease segment includes our traditional net lease investments and our investment in SAFE. As of June 30, 2019, our consolidated net lease portfolio totaled $2.0 billion. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II, exclusive of accumulated depreciation, totaled $2.5 billion. The table below provides certain statistics for our net lease portfolio.
|
| | | | | | | | | | | | |
| | Consolidated Real Estate(1) | | Net Lease Venture II | | SAFE |
Ownership % | | 100.0 | % | | 51.9 | % | | 66.5 | % |
Gross book value (millions)(2) | | $ | 2,045 |
| | $ | 31 |
| | $ | 1,051 |
|
| | | | | | |
% Leased | | 98.4 | % | | 100.0 | % | | 100.0 | % |
Square footage (thousands) | | 16,303 |
| | 169 |
| | N/A |
|
Weighted average lease term (years)(3) | | 17.8 |
| | 9.5 |
| | 84.3 |
|
Weighted average yield(4) | | 8.6 | % | | 8.2 | % | | 5.0 | % |
(1)We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements.
(2)Gross book value represents the acquisition cost of real estate and any additional capital invested ininto the property by us.
(3)Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options.
(4)Yield for SAFE is calculated over the trailing twelve months and excludes management fees earned by us.
Net Lease Venture—In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a right of first refusal to the venture on all new net lease investments primarily throughthat met specified investment criteria (refer to Note 8 in our consolidated financial statements for more information on our Net Lease Venture, in which we hold a 51.9% interest.Venture). The Net Lease Venture's investment period expired on June 30, 2018 and the remaining term of the venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of us and our partner. We obtained control over the Net Lease Venture when the investment period expired on June 30, 2018 and consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment. We recorded a gain of $67.9 million as a result of the consolidation.
Net Lease Venture II—In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture (refer to Note 7)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 will beis accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee.
In April 2017, institutional investors acquiredSAFE—SAFE is a controlling interest in our Ground Lease business through the merger of one of our subsidiariespublicly-traded company that originates and related transactions (the "Acquisition Transactions"). Our Ground Lease business was a component of our net lease segment and consisted of 12 properties subject to long-term net leases including sevenacquires Ground Leases and one master lease (covering five properties). Asin order to generate attractive long-term risk-adjusted returns from its investments. We believe its business has characteristics comparable to a result of the Acquisition Transactions, we: (i) recognized a gain of approximately $178.9 million; (ii) deconsolidated the 12 propertieshigh-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 associated 2017 Secured Financing;opportunity to realize value from residual rights to acquire the buildings and (iii)other improvements on its land at no additional cost. We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments. As of June 30, 2019, we owned approximately 66.5% of SAFE's common stock outstanding.
We account for our investment in SAFE as an equity method investment (refer to Note 7)8).
On June 27, 2017, SAFE completed its initial public offering raising $205.0 million in gross proceeds We are SAFE's external manager, and concurrently completed a $45.0 million private placement to us, its largest shareholder. We believe that SAFE is the first publicly-traded company formed primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon. Wewe have an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.
As of September 30, 2018, our consolidated net lease portfolio totaled $2.0 billion. Our net lease portfolio, including the carrying value of our equity method investment in SAFE gross of accumulated depreciation, totaled $2.1 billion. The table below provides certain statistics for our net lease portfolio.
|
| | | | | | | | |
| | Consolidated Real Estate(1) | | SAFE |
Ownership % | | 100.0 | % | | 40.5 | % |
Gross book value (millions)(2) | | $ | 1,987 |
| | $ | 706 |
|
| | | | |
Occupancy | | 98.7 | % | | 100.0 | % |
Square footage (thousands) | | 16,496 |
| | 1,793 |
|
Weighted average lease term (years) | | 15.3 |
| | 77.5 |
|
Weighted average yield | | 8.8 | % | | |
(1)The Net Lease Venture is consolidated in our GAAP financial statements.
(2)Gross book value represents the acquisition cost of real estate and any additional capital invested into the property by us.
Operating Properties
Our commercial operating properties represent a diverse pool of assets across a broad range of geographies and collateral types including office, retail, hotel and hotelresidential properties. As of SeptemberJune 30, 2018,2019, our operating property portfolio, including the carrying value of our equity method investments gross of accumulated depreciation, totaled $552.1$296.1 million. The table below provides certain statistics for our operating properties portfolio.
|
| | | | | | | | | | | | |
| | Gross Book Value (in millions)(1) | | Properties | | Occupancy | | Yield | | Square Feet (in thousands) |
Commercial Assets (Legacy) | | $ | 459.6 |
| | 18 | | 81% | | 8.3% | (2) | 2,565 |
Residential Assets (Legacy) | | 29.5 |
| | | | | | | | |
Strategic Assets (Non-Legacy)(3) | | 63.0 |
| | | | | | | | |
Total Operating Properties | | $ | 552.1 |
| | | | | | | | |
| |
(1) | Gross book value represents the acquisition cost of real estate and any additional capital invested into the property by us. |
| |
(2) | Yield excludes $10.1 million of net operating income recognized in connection with lease terminations. |
| |
(3) | Represents assets acquired over the past two years that represent areas of interest which could grow into larger business opportunities. |
Land and Development
As of September 30, 2018, ourThe following table presents a land and development portfolio exclusive of accumulated depreciation and including equity method investments, totaled $729.3 million, with five projects in production, seven in development and 13 inrollforward for the pre-development phase. These projects are collectively entitled for approximately 9,400 lots and units. The following tables present certain statistics for our land and development portfolio.six months ended June 30, 2019.
| | Land and Development Portfolio Rollforward | (in millions) | | Nine Months Ended September 30, | Asbury Ocean Club | | Asbury Park Waterfront | | Magnolia Green | | All Others | | Total Segment |
| 2018 | | 2017 | |
Beginning balance(1) | $ | 860.3 |
| | $ | 945.6 |
| $ | 165.4 |
| | $ | 74.7 |
| | $ | 109.5 |
| | $ | 248.6 |
| | $ | 598.2 |
|
Asset sales(2) | (280.5 | ) | | (160.4 | ) | — |
| | (4.0 | ) | | (9.4 | ) | | (9.5 | ) | | (22.9 | ) |
Asset transfers in (out)(3) | (32.8 | ) | | — |
| |
Capital expenditures(4) | 107.7 |
| | 91.7 |
| |
Capital expenditures | | 49.1 |
| | 3.1 |
| | 7.8 |
| | 5.5 |
| | 65.5 |
|
Other | (4.2 | ) | | (15.4 | ) | — |
| | — |
| | (1.1 | ) | | 29.0 |
| | 27.9 |
|
Ending balance(1) | $ | 650.5 |
| | $ | 861.5 |
| $ | 214.5 |
| | $ | 73.8 |
| | $ | 106.8 |
| | $ | 273.6 |
| | $ | 668.7 |
|
(1)As of SeptemberJune 30, 20182019 and December 31, 2017,2018, Total Segment excludes $70.4$42.8 million and $63.9$65.3 million, respectively, of equity method investments.
| |
(2) | Represents gross book value of the assets sold, rather than proceeds received. During the nine months ended September 30, 2018, we received approximately $253.4 million in gross proceeds in connection with the sale of two land parcels totaling 93 acres in San Jose, CA and San Pedro, CA. We also completed the monetization of a 785 acre master planned community entitled for 1,458 single family lots in Riverside County, California. |
(3)Assets transferred into land and development segment or out to another segment.
| |
(4) | During the nine months ended September 30, 2018 and 2017, includes $76.9 million and $38.4 million, respectively, of capital expenditures at a luxury mixed-use residential oceanfront development. |
|
| | | | | | | |
Land and Development Statistics |
(in millions) |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
Land development revenue(1) | $ | 369.7 |
| | $ | 178.7 |
|
Land development cost of sales(1) | 318.9 |
| | 165.9 |
|
Gross profit | $ | 50.8 |
| | $ | 12.8 |
|
Earnings from land and development equity method investments | 2.7 |
| | 8.4 |
|
Total | $ | 53.5 |
| | $ | 21.2 |
|
| |
(1) | During the nine months ended September 30, 2018, we recognized approximately $253.4 million in land development revenue and $205.8 million in land development cost of sales in connection with the sale of two land parcels totaling 93 acres in San Jose, CA and San Pedro, CA. |
Results of Operations for the Three Months Ended SeptemberJune 30, 20182019 compared to the Three Months Ended SeptemberJune 30, 20172018
| | | For the Three Months Ended September 30, | | | | | For the Three Months Ended June 30, | | |
| 2018 | | 2017 | | $ Change | | % Change | 2019 | | 2018 | | $ Change |
| (in thousands) | | | (in thousands) |
Operating lease income | $ | 59,109 |
| | $ | 47,806 |
| | $ | 11,303 |
| | 24 | % | $ | 55,185 |
| | $ | 44,609 |
| | $ | 10,576 |
|
Interest income | 22,915 |
| | 25,442 |
| | (2,527 | ) | | (10 | )% | 20,341 |
| | 25,212 |
| | (4,871 | ) |
Interest income from sales-type leases | | 3,817 |
| | — |
| | 3,817 |
|
Other income | 27,808 |
| | 20,662 |
| | 7,146 |
| | 35 | % | 10,050 |
| | 20,823 |
| | (10,773 | ) |
Land development revenue | 12,309 |
| | 25,962 |
| | (13,653 | ) | | (53 | )% | 9,075 |
| | 80,927 |
| | (71,852 | ) |
Total revenue | 122,141 |
| | 119,872 |
| | 2,269 |
| | 2 | % | 98,468 |
| | 171,571 |
| | (73,103 | ) |
Interest expense | 47,219 |
| | 48,732 |
| | (1,513 | ) | | (3 | )% | 43,752 |
| | 43,172 |
| | 580 |
|
Real estate expense | 32,287 |
| | 36,280 |
| | (3,993 | ) | | (11 | )% | 22,038 |
| | 37,043 |
| | (15,005 | ) |
Land development cost of sales | 12,114 |
| | 27,512 |
| | (15,398 | ) | | (56 | )% | 9,236 |
| | 83,361 |
| | (74,125 | ) |
Depreciation and amortization | 19,979 |
| | 11,846 |
| | 8,133 |
| | 69 | % | 13,718 |
| | 10,767 |
| | 2,951 |
|
General and administrative | 21,613 |
| | 20,955 |
| | 658 |
| | 3 | % | 27,303 |
| | 23,228 |
| | 4,075 |
|
Provision for (recovery of) loan losses | 200 |
| | (2,600 | ) | | 2,800 |
| | >(100%) |
| |
Provision for loan losses | | 110 |
| | 18,892 |
| | (18,782 | ) |
Impairment of assets | 989 |
| | 595 |
| | 394 |
| | 66 | % | 1,102 |
| | 6,088 |
| | (4,986 | ) |
Other expense | 298 |
| | 2,704 |
| | (2,406 | ) | | (89 | )% | 11,883 |
| | 3,716 |
| | 8,167 |
|
Total costs and expenses | 134,699 |
| | 146,024 |
| | (11,325 | ) | | (8 | )% | 129,142 |
| | 226,267 |
| | (97,125 | ) |
Income from sales of real estate | | 220,523 |
| | 56,895 |
| | 163,628 |
|
Loss on early extinguishment of debt, net | (911 | ) | | (616 | ) | | (295 | ) | | 48 | % | — |
| | (2,164 | ) | | 2,164 |
|
Earnings (losses) from equity method investments | (635 | ) | | 2,461 |
| | (3,096 | ) | | >(100%) |
| 3,640 |
| | (7,278 | ) | | 10,918 |
|
Income tax (expense) benefit | (137 | ) | | 1,278 |
| | (1,415 | ) | | >(100%) |
| |
Income from sales of real estate | 5,409 |
| | 19,313 |
| | (13,904 | ) | | (72 | )% | |
Net loss | $ | (8,832 | ) | | $ | (3,716 | ) | | $ | (5,116 | ) | | >100% |
| |
Selling profit from sales-type leases | | 180,416 |
| | — |
| | 180,416 |
|
Gain on consolidation of equity method investment | | — |
| | 67,877 |
| | (67,877 | ) |
Income tax expense | | (214 | ) | | (128 | ) | | (86 | ) |
Net income | | $ | 373,691 |
| | $ | 60,506 |
| | $ | 313,185 |
|
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, increased $11.3$10.6 million, or 23.6%24%, to $59.1$55.2 million during the three months ended SeptemberJune 30, 20182019 from $47.8$44.6 million for the same period in 2017.2018. The following table summarizes our operating lease income by segment ($ in millions).
| | | | Three Months Ended September 30, | | | | | Three Months Ended June 30, | | |
| | 2018 | | 2017 | | Change | | Reason for Change | | 2019 | | 2018 | | Change |
Net Lease(1) | | $ | 45.2 |
| | $ | 31.5 |
| | $ | 13.7 |
| | Primarily due to a $16.0 million increase from the consolidation of the Net Lease Venture, partially offset by the sale of net lease assets. | | $ | 48.7 |
| | $ | 29.3 |
| | $ | 19.4 |
|
Operating Properties(2) | | 13.8 |
| | 16.0 |
| | (2.2 | ) | | Operating property sales, partially offset by an increase in operating lease income due to lease terminations. | | 6.4 |
| | 15.2 |
| | (8.8 | ) |
Land and Development | | 0.1 |
| | 0.3 |
| | (0.2 | ) | | | 0.1 |
| | 0.1 |
| | — |
|
Total | | $ | 59.1 |
| | $ | 47.8 |
| | $ | 11.3 |
| | | $ | 55.2 |
| | $ | 44.6 |
| | $ | 10.6 |
|
| |
(1) | Change primarily due to a $23.8 million increase from the consolidation of the Net Lease Venture on June 30, 2018 and acquiring a new asset during the three months ended June 30, 2019, partially offset by $4.4 million from the reclassification of certain net leases as sales-type leases in May 2019 (refer to Note 5) and asset sales. |
| |
(2) | Change primarily due to asset sales. |
The following table shows certain same store operating lease income, rent per square foot and occupancystatistics for our Net Lease and Operating Properties segments, excluding hotels.segment. Same store assets are defined as assets we owned on or prior to JulyApril 1, 20172018 and were in service through SeptemberJune 30, 20182019 (Operating lease income in millions).
|
| | | | | | | | |
| | Three Months Ended September 30, |
| | 2018 | | 2017 |
Operating lease income | | | | |
Net Lease | | $ | 28.3 |
| | $ | 29.0 |
|
Operating Properties | | $ | 12.0 |
| | $ | 10.3 |
|
| | | | |
Rent per square foot | | | | |
Net Lease | | $ | 10.37 |
| | $ | 10.75 |
|
Operating Properties(1) | | $ | 37.59 |
| | $ | 35.44 |
|
| | | | |
Occupancy(2) | | | | |
Net Lease | | 98.1 | % | | 97.8 | % |
Operating Properties | | 73.1 | % | | 84.7 | % |
|
| | | | | | | | |
| | Three Months Ended June 30, |
| | 2019 | | 2018 |
Operating lease income | | $ | 22.6 |
| | $ | 22.1 |
|
Rent per square foot | | $ | 9.11 |
| | $ | 9.27 |
|
Occupancy(1) | | 97.5 | % | | 97.9 | % |
| |
(1) | Excludes $2.6 million of operating lease income recognized during the three months ended September 30, 2018 in connection with the termination of two leases. |
| |
(2) | Occupancy is as of SeptemberJune 30, 20182019 and 2017.2018. |
Interest income decreased $2.5$4.9 million, or 9.9%19%, to $22.9$20.3 million during the three months ended SeptemberJune 30, 20182019 from $25.4$25.2 million for the same period in 2017.2018. The decrease was due primarily to a decrease in the average balance of our performing loans, which was $883.4 million for the three months ended June 30, 2019 and $1.04 billion for the three months ended June 30, 2018. The weighted average yield on our performing loans which was 8.7%9.1% and 10.1%9.7% for the three months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively. The average balance of our performing loans
Interest income from sales-type leases was $1.03 billion for the three months ended September 30, 2018 and $981.0$3.8 million for the three months ended SeptemberJune 30, 2017.2019. On January 1, 2019, we adopted new accounting standards (refer to Note 3) and classify certain of our leases as sales-type leases. Under sales-type leases, we accrue interest income from sales-type leases under the effective interest method as opposed to recognition of operating lease income under the straight-line rent method for our leases that do not qualify as sales-type leases.
Other income increased $7.1decreased $10.8 million, or 34.6%52%, to $27.8$10.1 million during the three months ended SeptemberJune 30, 20182019 from $20.7$20.8 million for the same period in 2017.2018. Other income during the three months ended SeptemberJune 30, 20182019 consisted primarily of income recognized from the termination of a lease, income from our hotel properties, other ancillary income from our operating properties, land and development projects and loan portfolio and interest income on our cash. Other income during the three months ended SeptemberJune 30, 20172018 consisted primarily of income from our hotel properties, other ancillary income from our operating properties and interest income on our cash. The increase was primarily due to $8.7 million of income recognized during the three months ended September 30, 2018 in connection with the termination of a lease.
Land development revenue and cost of sales—During the three months ended SeptemberJune 30, 2019, we sold residential lots and units and recognized land development revenue of $9.1 million which had associated cost of sales of $9.2 million. During the three months ended June 30, 2018, we sold residential lots and units and recognized land development revenue of $12.3$80.9 million which had associated cost of sales of $12.1$83.4 million. DuringThe decrease in 2019 was primarily the result of the monetization during the three months ended SeptemberJune 30, 2017, we sold residential2018 of a 785 acre master planned community entitled for 1,458 single family lots and units and recognized land development revenue of $26.0 million which had associated cost of sales of $27.5 million. The decrease in 2018 was primarily due to a decrease in our land and development portfolio resulting from asset sales.Riverside County, California.
Costs and expenses—Interest expense decreased $1.5increased $0.6 million, or 3.1%1%, to $47.2$43.8 million during the three months ended SeptemberJune 30, 20182019 from $48.7$43.2 million for the same period in 20172018 due to a decreasean increase in the balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance-type leases, which decreasedincreased to $3.69$3.39 billion for the three months ended SeptemberJune 30, 20182019 from $3.71$3.18 billion for the same period in 2017.2018. Our weighted average cost of debt for the three months ended SeptemberJune 30, 2019 and 2018 was 5.5% and 20175.7%, respectively. The increase in debt was 5.4%. In addition, during the three months ended September 30, 2018, we recorded $4.7 million in interest expense as a result ofprimarily attributable to our consolidation of the Net Lease Venture on June 30, 2018, of which we own a 51.9% equity interest.
interest, which increased our interest expense by $5.6 million for the three months ended June 30, 2019.
Real estate expenses decreased $4.0$15.0 million, or 11.0%41%, to $32.3$22.0 million during the three months ended SeptemberJune 30, 20182019 from $36.3$37.0 million for the same period in 2017.2018. The following table summarizes our real estate expenses by segment ($ in millions).
| | | | Three Months Ended September 30, | | | | | Three Months Ended June 30, | | |
| | 2018 | | 2017 | | Change | | Reason for Change | | 2019 | | 2018 | | Change |
Operating Properties(1) | | $ | 18.6 |
| | $ | 23.2 |
| | $ | (4.6 | ) | | Sale of operating properties. | | $ | 8.3 |
| | $ | 23.8 |
| | $ | (15.5 | ) |
Land and Development(2) | | 8.9 |
| | 8.7 |
| | 0.2 |
| | | 8.0 |
| | 9.8 |
| | (1.8 | ) |
Net Lease(3) | | 4.8 |
| | 4.4 |
| | 0.4 |
| | Primarily due to the consolidation of the Net Lease Venture, partially offset by the sale of net lease assets. | | 5.7 |
| | 3.4 |
| | 2.3 |
|
Total | | $ | 32.3 |
| | $ | 36.3 |
| | $ | (4.0 | ) | | | $ | 22.0 |
| | $ | 37.0 |
| | $ | (15.0 | ) |
| |
(1) | Change primarily due to asset sales. |
| |
(2) | Change primarily due to certain assets being moved to operating properties after beginning operations and a decrease in legal and consulting costs, partially offset by an increase in marketing costs at certain properties. |
| |
(3) | Change primarily due to the consolidation of the Net Lease Venture. |
Depreciation and amortization increased $8.1$3.0 million, or 68.7%27%, to $20.0$13.7 million during the three months ended SeptemberJune 30, 20182019 from $11.8$10.8 million for the same period in 2017,2018, primarily due to the consolidation of the Net Lease Venture on June 30, 2018, partially offset by the sale of net lease and commercial operating properties in since October 1, 2017.June 30, 2018.
General and administrative expenses increased $0.6$4.1 million, or 3.1%18%, to $21.6$27.3 million during the three months ended SeptemberJune 30, 20182019 from $21.0$23.2 million for the same period in 2017. We capitalized into our active development projects $0.4 million and $0.3 million of payroll-related costs (including salaries, bonuses, LTIP awards, benefits and taxes) for the three months ended September 30, 2018 and 2017, respectively.2018. The following table summarizes our general and administrative expenses for the three months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
| | | | Three Months Ended September 30, | | | | Three Months Ended June 30, | | |
| | 2018 | | 2017 | | Change | | 2019 | | 2018 | | Change |
Payroll and related costs(1) | | $ | 14.2 |
| | $ | 13.7 |
| | $ | 0.5 |
| | $ | 14.2 |
| | $ | 15.5 |
| | $ | (1.3 | ) |
Performance Incentive Plans(1)(2) | | 2.4 |
| 5.0 |
| 1.9 |
| | 0.5 |
| | 7.9 |
| 5.0 |
| 2.2 |
| | 5.7 |
|
Public company costs | | | 1.4 |
| | 1.3 |
| | 0.1 |
|
Occupancy costs | | 1.2 |
| | 1.3 |
| | (0.1 | ) | | 1.1 |
| | 1.4 |
| | (0.3 | ) |
Public company costs | | 1.0 |
| | 1.7 |
| | (0.7 | ) | |
Other | | 2.8 |
| | 2.4 |
| | 0.4 |
| | 2.7 |
| | 2.8 |
| | (0.1 | ) |
Total | | $ | 21.6 |
| | $ | 21.0 |
| | $ | 0.6 |
| | $ | 27.3 |
| | $ | 23.2 |
| | $ | 4.1 |
|
| |
(1) | Decrease due to a reduction in headcount to 157 employees as of June 30, 2019 from 186 employees as of December 31, 2017. |
| |
(2) | Represents the fair value of points issued and change in fair value of the plans during the periods presented. Such amounts may increase or decrease (except for 2019-2020 Plan) over time until the awards are settled. Please refer to Note 1415 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans. |
The provision for loan losses was $0.2$0.1 million during the three months ended SeptemberJune 30, 20182019 as compared to a net recovery of loan losses of $2.6$18.9 million for the same period in 2017.2018. The provision for loan losses for the three months ended September 30, 2018 was due to an increase in the general reserve. The recovery of loan losses for the three months ended September 30, 2017 was due to a reduction in the general reserve due to an overall improvement in the risk ratings of our loan portfolio.
Impairment of assets was $1.0 million during the three months ended September 30, 2018 and resulted from commercial operating properties and residential condominium units contracted for sale. During the three months ended September 30, 2017, we recorded an impairment of $0.6 million on the sale of an outparcel of land at a commercial operating property.
Other expense decreased to $0.3 million during the three months ended September 30, 2018 from $2.7 million for the same period in 2017. The decrease was primarily the result of costs incurred during the three months ended September 30, 2017 for the repricing of our 2016 Senior Term Loan.
Loss on early extinguishment of debt, net—During the three months ended September 30, 2018 and 2017, we incurred losses on early extinguishment of debt of $0.9 million and $0.6 million, respectively, resulting from repayments of senior notes prior to maturity and repayments of our 2016 Senior Term Loan, respectively.
Earnings (losses) from equity method investments—Earnings (losses) from equity method investments decreased $3.1 million to $(0.6) million during the three months ended September 30, 2018 from $2.5 million for the same period in 2017. During the three months ended September 30, 2018, we recognized $0.8 million of income from our equity method investment in SAFE
and $1.4 million was aggregate losses from our remaining equity method investments. During the three months ended September 30, 2017, we recognized $1.0 million of income related to operations at our Net Lease Venture (which was consolidated on June 30, 2018) and $1.5 million was aggregate income from our remaining equity method investments
Income tax expense—Income tax expense of $0.1 million was recorded during the three months ended September 30, 2018 as compared to an income tax benefit of $1.3 million for the same period in 2017. The income tax expense for the three months ended September 30, 2018 includes federal taxes related to one of our taxable REIT subsidiaries ("TRS"), state margins taxes and other minimum state franchise taxes. The income tax benefit for the three months ended September 30, 2017 resulted from a taxable loss incurred and the deduction for dividends paid to preferred shareholders.
Income from sales of real estate—Income from sales of real estate decreased to $5.4 million during the three months ended September 30, 2018 from $19.3 million for the same period in 2017. The decrease was primarily attributable to the opportunistic sale of two net lease assets during the three months ended September 30, 2017. The following table presents our income from sales of real estate by segment ($ in millions).
|
| | | | | | | | |
| | Three Months Ended September 30, |
| | 2018 | | 2017 |
Operating Properties | | $ | 5.4 |
| | $ | 0.5 |
|
Net Lease | | — |
| | 18.8 |
|
Total | | $ | 5.4 |
| | $ | 19.3 |
|
Results of Operations for the Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, | | | | |
| 2018 | | 2017 | | $ Change | | % Change |
| (in thousands) | | |
Operating lease income | $ | 149,516 |
| | $ | 142,155 |
| | $ | 7,361 |
| | 5 | % |
Interest income | 74,824 |
| | 83,145 |
| | (8,321 | ) | | (10 | )% |
Other income | 63,951 |
| | 172,037 |
| | (108,086 | ) | | (63 | )% |
Land development revenue | 369,665 |
| | 178,722 |
| | 190,943 |
| | >100% |
|
Total revenue | 657,956 |
| | 576,059 |
| | 81,897 |
| | 14 | % |
Interest expense | 135,572 |
| | 148,684 |
| | (13,112 | ) | | (9 | )% |
Real estate expense | 105,511 |
| | 106,554 |
| | (1,043 | ) | | (1 | )% |
Land development cost of sales | 318,881 |
| | 165,888 |
| | 152,993 |
| | 92 | % |
Depreciation and amortization | 41,857 |
| | 37,297 |
| | 4,560 |
| | 12 | % |
General and administrative | 73,655 |
| | 73,347 |
| | 308 |
| | — | % |
Provision for (recovery of) loan losses | 18,237 |
| | (8,128 | ) | | 26,365 |
| | >(100%) |
|
Impairment of assets | 11,177 |
| | 15,292 |
| | (4,115 | ) | | (27 | )% |
Other expense | 5,180 |
| | 20,849 |
| | (15,669 | ) | | (75 | )% |
Total costs and expenses | 710,070 |
| | 559,783 |
| | 150,287 |
| | 27 | % |
Loss on early extinguishment of debt, net | (3,447 | ) | | (4,142 | ) | | 695 |
| | (17 | )% |
Earnings (losses) from equity method investments | (4,581 | ) | | 13,677 |
| | (18,258 | ) | | >(100%) |
|
Gain from consolidation of equity method investment | 67,877 |
| | — |
| | 67,877 |
| | 100 | % |
Income tax expense | (386 | ) | | (972 | ) | | 586 |
| | (60 | )% |
Income from discontinued operations | — |
| | 4,939 |
| | (4,939 | ) | | (100 | )% |
Gain from discontinued operations | — |
| | 123,418 |
| | (123,418 | ) | | (100 | )% |
Income tax expense from discontinued operations | — |
| | (4,545 | ) | | 4,545 |
| | (100 | )% |
Income from sales of real estate | 79,353 |
| | 28,267 |
| | 51,086 |
| | >100% |
|
Net income | $ | 86,702 |
| | $ | 176,918 |
| | $ | (90,216 | ) | | (51 | )% |
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, increased $7.3 million or 5.2%, to $149.5 million during the nine months ended September 30, 2018 from $142.2 million for the same period in 2017. The following table summarizes our operating lease income by segment ($ in millions).
|
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | | |
| | 2018 | | 2017 | | Change | | Reason for Change |
Net Lease | | $ | 104.2 |
| | $ | 93.6 |
| | $ | 10.6 |
| | Primarily due to a $16.0 million increase from the consolidation of the Net Lease Venture, partially offset by the sale of net lease assets. |
Operating Properties | | 44.8 |
| | 48.0 |
| | (3.2 | ) | | Operating property sales, partially offset by an increase in operating lease income due to lease terminations. |
Land and Development | | 0.5 |
| | 0.6 |
| | (0.1 | ) | | |
Total | | $ | 149.5 |
| | $ | 142.2 |
| | $ | 7.3 |
| | |
The following table shows same store operating lease income, rent per square foot and occupancy for our Net Lease and Operating Properties segments, excluding hotels. Same store assets are defined as assets we owned on or prior to January 1, 2017 and were in service through September 30, 2018 (Operating lease income in millions).
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
Operating lease income | | | | |
Net Lease | | $ | 84.5 |
| | $ | 82.9 |
|
Operating Properties | | $ | 31.7 |
| | $ | 30.3 |
|
| | | | |
Rent per square foot | | | | |
Net Lease | | $ | 10.12 |
| | $ | 10.24 |
|
Operating Properties(1) | | $ | 38.76 |
| | $ | 34.89 |
|
| | | | |
Occupancy(2) | | | | |
Net Lease | | 98.1 | % | | 97.8 | % |
Operating Properties | | 73.1 | % | | 84.7 | % |
| |
(1) | Excludes $2.6 million of operating lease income recognized during the nine months ended September 30, 2018 in connection with the termination of two leases. |
| |
(2) | Occupancy is as of September 30, 2018 and 2017. |
Interest income decreased $8.3 million, or 10.0%, to $74.8 million during the nine months ended September 30, 2018 from $83.1 million for the same period in 2017. The decrease was due primarily to a decrease in the average balance of our performing loans, which decreased to $1.07 billion in 2018 from $1.15 billion in 2017. The weighted average yield on our performing loans was 9.3% and 9.6% for the nine months ended September 30, 2018 and 2017, respectively.
Other income decreased $108.1 million, or 62.8%, to $64.0 million during the nine months ended September 30, 2018 from $172.0 million for the same period in 2017. Other income during the nine months ended September 30, 2018 consisted primarily of income recognized from the termination of a lease, income from our hotel properties, other ancillary income from our operating properties and interest income on our cash. Other income during the nine months ended September 30, 2017 consisted primarily of interest income and real estate tax reimbursements resulting from the settlement of litigation involving a dispute over the purchase and sale of land and also included income from our hotel properties and other ancillary income from our operating properties. The decrease in 2018 was related primarily to the judgment in our favor in 2017 relating to litigation involving a dispute over the purchase and sale of land in 2017, which resulted in $123.4 million of other income during the nine months ended September 30, 2017. This was partially offset by $8.7 million of income recognized during the nine months ended September 30, 2018 in connection with the termination of a lease.
Land development revenue and cost of sales—During the nine months ended September 30, 2018, we sold land parcels and residential lots and units and recognized land development revenue of $369.7 million which had associated cost of sales of $318.9 million, representing a $50.8 million gross profit. During the nine months ended September 30, 2017, we sold residential lots and units and one land parcel totaling 1,250 acres and recognized land development revenue of $178.7 million which had associated cost of sales of $165.9 million, representing a $12.8 million gross profit. The increase in 2018 was primarily the result of two bulk land parcel sales.
Costs and expenses—Interest expense decreased $13.1 million, or 8.8%, to $135.6 million during the nine months ended September 30, 2018 from $148.7 million for the same period in 2017 due to a decrease in the balance of our average outstanding debt, which decreased to $3.47 billion for the nine months ended September 30, 2018 from $3.67 billion for the same period in 2017, and lower average borrowing costs. Our weighted average cost of debt for the nine months ended September 30, 2018 and 2017 was 5.5% and 5.6%, respectively. In addition, during the nine months ended September 30, 2018, we recorded $4.7 million in interest expense as a result of our consolidation of the Net Lease Venture of which we own a 51.9% equity interest.
Real estate expenses decreased $1.1 million, or 1.0%, to $105.5 million during the nine months ended September 30, 2018 from $106.6 million for the same period in 2017. The following table summarizes our real estate expenses by segment ($ in millions).
|
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | | |
| | 2018 | | 2017 | | Change | | Reason for Change |
Operating Properties | | $ | 64.1 |
| | $ | 67.4 |
| | $ | (3.3 | ) | | Sale of operating properties. |
Land and Development | | 29.2 |
| | 26.1 |
| | 3.1 |
| | Increase in marketing and other costs associated with launching residential condominium sales. |
Net Lease | | 12.2 |
| | 13.1 |
| | (0.9 | ) | | Sale of net lease assets, partially offset by the consolidation of the Net Lease Venture. |
Total | | $ | 105.5 |
| | $ | 106.6 |
| | $ | (1.1 | ) | | |
Depreciation and amortization increased $4.6 million, or 12.2%, to $41.9 million during the nine months ended September 30, 2018 from $37.3 million for the same period in 2017, primarily from the consolidation of the Net Lease Venture on June 30, 2018 and partially offset by the sale of net lease and commercial operating properties in since October 1, 2017.
General and administrative expenses increased $0.4 million, or 0.4%, to $73.7 million during the nine months ended September 30, 2018 from $73.3 million for the same period in 2017. We capitalized into our active development projects $1.2 million and $1.4 million of payroll-related costs (including salaries, bonuses, LTIP awards, benefits and taxes) for the nine months ended September 30, 2018 and 2017, respectively. The following table summarizes our general and administrative expenses for the nine months ended September 30, 2018 and 2017 (in millions):
|
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | |
| | 2018 | | 2017 | | Change |
Payroll and related costs | | $ | 45.0 |
| | $ | 47.4 |
| | $ | (2.4 | ) |
Performance Incentive Plans(1) | | 12.6 |
| 5.0 |
| 9.8 |
| | 2.8 |
|
Public company costs | | 3.9 |
| | 4.8 |
| | (0.9 | ) |
Occupancy costs | | 3.8 |
| | 3.9 |
| | (0.1 | ) |
Other | | 8.4 |
| | 7.4 |
| | 1.0 |
|
Total | | $ | 73.7 |
| | $ | 73.3 |
| | $ | 0.4 |
|
| |
(1) | Represents the fair value of points issued and change in fair value of the plans during the periods presented. Such amounts may increase or decrease over time until the awards are settled. Please refer to Note 14 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans. |
The provision for loan losses was $18.2 million during the nine months ended September 30, 2018 as compared to a net recovery of loan losses of $8.1 million for the same period in 2017. The provision for loan losses for the nine months ended September 30, 2018 was due to a specific reserve of $21.4 million resulting from the resolution of a non-performing loan partially offset by a $3.2$2.5 million decrease in the general reserve. The net recovery of loan losses for the nine months ended September 30, 2017 was due to a reduction in the general reserve due to an overall improvement in the risk ratings of our loan portfolio.
Impairment of assets was $11.2$1.1 million during the ninethree months ended SeptemberJune 30, 20182019 and resulted from the exercise of a below-market lease renewal option related to a net lease asset, commercial operating properties and residential condominium units contracted for sale and an impairment on a land and development asset based upon market comparable sales. During the nine months ended September 30, 2017, we recorded an aggregate impairment of $15.3 million resulting primarily from an impairment on a land and development asset due to a change in our exit strategybusiness strategy. During the three months ended June 30, 2018, we recorded an aggregate impairment of $6.1 million that resulted from a net lease asset where the total recovery was less than the carrying value and an impairment on a real estateland and development asset held for sale due to shifting demand in the local condominiumbased upon market along with a change in our exit strategy.comparable sales.
Other expense decreasedincreased to $5.2$11.9 million during the ninethree months ended SeptemberJune 30, 20182019 from $20.8$3.7 million for the same period in 2017.2018. The decreaseincrease in 2019 was due primarily the result of paying organization and offering coststo losses associated with the initial public offeringderivative contracts that were terminated.
Income from sales of SAFE (referreal estate—Income from sales of real estate increased to Note 7)$220.5 million during the ninethree months ended SeptemberJune 30, 2017.2019 from $56.9 million for the same period in 2018. The following table presents our income from sales of real estate by segment ($ in millions).
|
| | | | | | | | |
| | Three Months Ended June 30, |
| | 2019 | | 2018 |
Net Lease(1) | | $ | 219.7 |
| | $ | 24.5 |
|
Operating Properties | | 0.8 |
| | 32.4 |
|
Total | | $ | 220.5 |
| | $ | 56.9 |
|
| |
(1) | During the three months ended June 30, 2019, the Company sold a portfolio of net lease assets with an aggregate carrying value of $220.4 million and recognized gains of $219.7 million. |
Loss on early extinguishment of debt, net—During the ninethree months ended SeptemberJune 30, 2018, and 2017, we incurred losses on early extinguishment of debt of $3.4$2.2 million and $4.1 million, respectively. During the nine months ended September 30, 2018,
we incurred losses on early extinguishment of debt resulting from repayments of our 2016 Senior Term Loan prior to its modification, the modification and upsize of our 2016 Senior Term Loan and repayment of senior notes prior to maturity. Duringduring the ninethree months ended SeptemberJune 30, 2017, we incurred losses on early extinguishment of debt resulting from repayments of unsecured notes prior to maturity and the repricing of our 2016 Senior Term Loan.2018.
Earnings (losses) from equity method investments—Earnings (losses) from equity method investments decreased $18.3 millionincreased to $(4.6)$3.6 million during the ninethree months ended SeptemberJune 30, 20182019 from $13.7$(7.3) million for the same period in 2017.2018. During the ninethree months ended SeptemberJune 30, 2018,2019, we recognized $4.1 million of income related to operations at our Net Lease Venture (which we consolidate as of June 30, 2018), $2.9$3.8 million of income from our equity method investment in SAFE, $2.0 million from sales
activity at a land development venture and $11.6$2.2 million was aggregate losses from our remaining equity method investments. During the three months ended June 30, 2018, we recognized $2.0 million related to operations at our Net Lease Venture (which is consolidated as of June 30, 2018), $0.7 million from our equity method investment in SAFE and $10.0 million was aggregate losses from our remaining equity method investments inclusive of a $10.0 million impairment on a foreign equity method investment due to local market conditions.
Selling profit from sales-type leases—During the ninethree months ended SeptemberJune 30, 2017,2019, we recognized $3.8entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of nine bowling centers for $56.7 million primarily from profit participations onand a land development venture, $4.8commitment to purchase up to $55.0 million of income relatedadditional bowling centers over the next several years. The new centers were added to sales activity onour existing master leases with the tenant. In connection with this transaction, the maturities of the leases were extended by 15 years to 2047. As a land development venture, $3.0result of the modifications to the leases, we accounted for the leases as sales-type leases and recognized $180.4 million in "Selling profit from sales-type leases" as a result of income related to operations at our Net Lease Venture and $2.1 million was aggregate income from our remaining equity method investments.the transaction.
Gain on consolidation of equity method investment—On June 30, 2018, we gained control of the Net Lease Venture when its investment period expired. As a result, as of June 30, 2018, we consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment. We recorded a gain of $67.9 million as a result of the consolidation.
Income tax expense—Income tax expense of $0.4$0.2 million was recorded during the ninethree months ended SeptemberJune 30, 20182019 as compared to $1.0an income tax expense of $0.1 million for the same period in 2017.2018. The income tax expense for the ninethree months ended SeptemberJune 30, 2019 and 2018 includes federal taxesprimarily related to one of our TRS's, state margins taxes and other minimum state franchise taxes. The income tax expense
Results of Operations for the nineSix Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018
|
| | | | | | | | | | | |
| For the Six Months Ended June 30, | | |
| 2019 | | 2018 | | $ Change |
| (in thousands) |
Operating lease income | $ | 114,100 |
| | $ | 90,407 |
| | $ | 23,693 |
|
Interest income | 40,716 |
| | 51,909 |
| | (11,193 | ) |
Interest income from sales-type leases | 3,817 |
| | — |
| | 3,817 |
|
Other income | 24,863 |
| | 36,142 |
| | (11,279 | ) |
Land development revenue | 21,774 |
| | 357,356 |
| | (335,582 | ) |
Total revenue | 205,270 |
| | 535,814 |
| | (330,544 | ) |
Interest expense | 90,329 |
| | 88,353 |
| | 1,976 |
|
Real estate expense | 47,978 |
| | 73,224 |
| | (25,246 | ) |
Land development cost of sales | 23,684 |
| | 306,768 |
| | (283,084 | ) |
Depreciation and amortization | 29,386 |
| | 21,878 |
| | 7,508 |
|
General and administrative | 48,402 |
| | 52,041 |
| | (3,639 | ) |
Provision for loan losses | 13 |
| | 18,037 |
| | (18,024 | ) |
Impairment of assets | 4,953 |
| | 10,188 |
| | (5,235 | ) |
Other expense | 12,391 |
| | 4,882 |
| | 7,509 |
|
Total costs and expenses | 257,136 |
| | 575,371 |
| | (318,235 | ) |
Income from sales of real estate | 229,930 |
| | 73,943 |
| | 155,987 |
|
Loss on early extinguishment of debt, net | (468 | ) | | (2,536 | ) | | 2,068 |
|
Earnings (losses) from equity method investments | 8,949 |
| | (3,946 | ) | | 12,895 |
|
Selling profit from sales-type leases | 180,416 |
| | — |
| | 180,416 |
|
Gain on consolidation of equity method investment | — |
| | 67,877 |
| | (67,877 | ) |
Income tax expense | (240 | ) | | (249 | ) | | 9 |
|
Net income | $ | 366,721 |
| | $ | 95,532 |
| | $ | 271,189 |
|
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, increased $23.7 million, or 26%, to $114.1 million during the six months ended SeptemberJune 30, 20172019 from $90.4 million for the same period in 2018. The following table summarizes our operating lease income by segment ($ in millions).
|
| | | | | | | | | | | | |
| | For the Six Months Ended June 30, | | |
| | 2019 | | 2018 | | Change |
Net Lease(1) | | $ | 98.1 |
| | $ | 59.0 |
| | $ | 39.1 |
|
Operating Properties(2) | | 15.9 |
| | 31.0 |
| | (15.1 | ) |
Land and Development | | 0.1 |
| | 0.4 |
| | (0.3 | ) |
Total | | $ | 114.1 |
| | $ | 90.4 |
| | $ | 23.7 |
|
| |
(1) | Change primarily due to a $44.7 million increase from the consolidation of the Net Lease Venture on June 30, 2018 and acquiring a new asset during the six months ended June 30, 2019, partially offset by a decrease of $5.4 million from the reclassification of certain net leases as sales-type leases in May 2019 (refer to Note 5) and asset sales. |
| |
(2) | Change primarily due to asset sales. |
The following table shows certain same store statistics for our Net Lease segment. Same store assets are defined as assets we owned on or prior to January 1, 2018 and were in service through June 30, 2019 (Operating lease income in millions).
|
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
Operating lease income | | $ | 44.6 |
| | $ | 44.6 |
|
Rent per square foot | | $ | 9.00 |
| | $ | 9.16 |
|
Occupancy(1) | | 97.5 | % | | 97.9 | % |
| |
(1) | Occupancy as of June 30, 2019 and 2018. |
Interest income decreased $11.2 million, or 22%, to $40.7 million during the six months ended June 30, 2019 from $51.9 million for the same period in 2018. The decrease was due primarily related to federal alternative minimum taxesa decrease in the average balance of our performing loans, which was $891.6 million for the six months ended June 30, 2019 and $1.09 billion for the six months ended June 30, 2018. The weighted average yield on REIT taxableour performing loans was 9.1% and 9.5% for the six months ended June 30, 2019 and 2018, respectively.
Interest income generatedfrom sales-type leases was $3.8 million for the six months ended June 30, 2019. On January 1, 2019, we adopted new accounting standards (refer to Note 3) and classify certain of our leases as sales-type leases. Under sales-type leases, we accrue interest income from sales-type leases under the effective interest method as opposed to recognition of operating lease income under the straight-line rent method for our leases that do not qualify as sales-type leases.
Other income decreased $11.3 million, or 31%, to $24.9 million during the six months ended June 30, 2019 from $36.1 million for the same period in 2018. Other income during the six months ended June 30, 2019 consisted primarily of income from our hotel properties, other ancillary income from our operating properties, land and development projects and loan portfolio and interest income on our cash. Other income during the six months ended June 30, 2018 consisted primarily of income from our hotel properties, other ancillary income from our operating properties and interest income on our cash.
Land development revenue and cost of sales—During the six months ended June 30, 2019, we sold residential lots and units and recognized land development revenue of $21.8 million which had associated cost of sales of $23.7 million. During the six months ended June 30, 2018, we sold land parcels and residential lots and units and recognized land development revenue of $357.4 million which had associated cost of sales of $306.8 million. The decrease in 2019 was primarily the result of two bulk parcel sales during the six months ended June 30, 2018.
Costs and expenses—Interest expense increased $2.0 million, or 2%, to $90.3 million during the six months ended June 30, 2019 from $88.4 million for the same period in 2018 due to an increase in the balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance-type leases, which increased to $3.51 billion for the six months ended June 30, 2019 from $3.29 billion for the same period in 2018. Our weighted average cost of debt for the six months ended June 30, 2019 and 2018 was 5.5% and 5.4%, respectively. The increase in debt was primarily attributable to our consolidation of the Net Lease Venture on June 30, 2018, of which we own a 51.9% equity interest, which increased our interest expense by $11.4 million for the six months ended June 30, 2019. This impact was offset by our repayment in full of the 5.00% senior unsecured notes due July 2019.
Real estate expenses decreased $25.2 million, or 34%, to $48.0 million during the six months ended June 30, 2019 from $73.2 million for the same period in 2018. The following table summarizes our real estate expenses by segment ($ in millions).
|
| | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2019 | | 2018 | | Change |
Operating Properties(1) | | $ | 19.3 |
| | $ | 45.4 |
| | $ | (26.1 | ) |
Land and Development(2) | | 16.8 |
| | 20.4 |
| | (3.6 | ) |
Net Lease(3) | | 11.9 |
| | 7.4 |
| | 4.5 |
|
Total | | $ | 48.0 |
| | $ | 73.2 |
| | $ | (25.2 | ) |
| |
(1) | Change primarily due to asset sales, partially offset by an increase at properties that began operations. |
| |
(2) | Change primarily due to certain properties being moved to operating properties after beginning operations and a decrease in legal costs at properties, partially offset by an increase in marketing costs at certain of our properties. |
| |
(3) | Change primarily due to the consolidation of the Net Lease Venture. |
Depreciation and amortization increased $7.5 million, or 34%, to $29.4 million during the six months ended June 30, 2019 from $21.9 million for the same period in 2018, primarily due to the consolidation of the Net Lease Venture on June 30, 2018, partially offset by the favorable litigation award oversale of commercial operating properties since July 1, 2018.
General and administrative expenses decreased $3.6 million, or 7%, to $48.4 million during the six months ended June 30, 2019 from $52.0 million for the same period in 2018. The following table summarizes our general and administrative expenses for the six months ended June 30, 2019 and 2018 (in millions):
|
| | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2019 | | 2018 | | Change |
Payroll and related costs(1) | | $ | 26.6 |
| | $ | 30.8 |
| | $ | (4.2 | ) |
Performance Incentive Plans(2) | | 11.5 |
| 5.0 |
| 10.2 |
| | 1.3 |
|
Public company costs | | 2.9 |
| | 2.9 |
| | — |
|
Occupancy costs | | 2.2 |
| | 2.6 |
| | (0.4 | ) |
Other | | 5.2 |
| | 5.5 |
| | (0.3 | ) |
Total | | $ | 48.4 |
| | $ | 52.0 |
| | $ | (3.6 | ) |
| |
(1) | Decrease due to a reduction in headcount to 157 employees as of June 30, 2019 from 186 employees as of December 31, 2017. |
| |
(2) | Represents the fair value of points issued and change in fair value of the plans during the periods presented. Such amounts may increase or decrease (except for 2019-2020 Plan) over time until the awards are settled. Please refer to Note 15 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans. |
The provision for loan losses was $13.0 thousand during the six months ended June 30, 2019 as compared to $18.0 million for the same period in 2018. The provision for loan losses for the six months ended June 30, 2019 was due to an increase in the specific reserve of $0.5 million offset by a decrease in the general reserve. The provision for loan losses for the six months ended June 30, 2018 was due to a specific reserve of $21.4 million resulting from the resolution of a non-performing loan partially offset by a $3.4 million decrease in the general reserve.
Impairment of assets was $5.0 million during the six months ended June 30, 2019 and resulted from an impairment of $3.3 million on a commercial operating property based on an executed purchase and sale agreement, a $1.1 million impairment on a land and development asset due to a change in business strategy and $0.6 million of approximately 1,250 acresimpairments in connection with the sale of land in Prince George’s County, Maryland.
Discontinued Operations—In April 2017, institutional investors acquired a controlling interest in our Ground Lease business throughresidential condominium units. During the mergersix months ended June 30, 2018, we recorded an aggregate impairment of one of our subsidiaries and related transactions. We received total consideration of $340.0 million, including $113.0 million in cash, including $55.5$10.2 million that we contributedresulted from a net lease asset where the total recovery was less than the carrying value, an impairment on a real estate asset held for sale due to SAFEcontracts to sell the remaining four condominium units at the property and a land and development asset based upon market comparable sales.
Other expense increased to $12.4 million during the six months ended June 30, 2019 from $4.9 million for the same period in its initial capitalization, and the proceeds from the $227.0 million 2017 Secured Financing (refer2018. The increase in 2019 was due primarily to Note 10). Income from discontinued operations represents the operating results from the 12 properties comprising our Ground Lease business.losses associated with derivative contracts that were terminated.
Income from sales of real estate—Income from sales of real estate increased to $79.4$229.9 million during the ninesix months ended SeptemberJune 30, 20182019 from $28.3$73.9 million for the same period in 2017. The increase was primarily attributable to the sale of two commercial operating properties that resulted in $46.1 million of income from sales of real estate during the nine months ended September 30, 2018. The following table presents our income from sales of real estate by segment ($ in millions).
| | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2019 | | 2018 |
Net Lease(1) | | | $ | 219.7 |
| | $ | 49.0 |
|
Operating Properties | | $ | 54.5 |
| | $ | 3.3 |
| | 10.2 |
| | 24.9 |
|
Net Lease | | 24.9 |
| | 25.0 |
| |
Total | | $ | 79.4 |
| | $ | 28.3 |
| | $ | 229.9 |
| | $ | 73.9 |
|
| |
(1) | During the six months ended June 30, 2019, the Company sold a portfolio of net lease assets with an aggregate carrying value of $220.4 million and recognized gains of $219.7 million in "Income from sales of real estate" in the Company's consolidated statements of operations. |
Loss on early extinguishment of debt, net—During the six months ended June 30, 2019 and 2018, we incurred losses on early extinguishment of debt of $0.5 million and $2.5 million, respectively, resulting from repayments of senior notes prior to maturity during the six months ended June 30, 2019 and from repayments of our 2016 Senior Term Loan prior to its modification and the modification and upsize of our 2016 Senior Term Loan during the six months ended June 30, 2018.
Earnings (losses) from equity method investments—Earnings (losses) from equity method investments increased to $8.9 million during the six months ended June 30, 2019 from $(3.9) million for the same period in 2018. During the six months ended June 30, 2019, we recognized $11.1 million of income from our equity method investment in SAFE, $2.3 million from sales activity at a land development venture and $4.5 million was aggregate losses from our remaining equity method investments. During the six months ended June 30, 2018, we recognized $4.1 million related to operations at our Net Lease Venture (which we consolidate as of June 30, 2018), $2.2 million from our equity method investment in SAFE and $10.2 million was aggregate losses from our remaining equity method investments inclusive of a $10.0 million impairment on a foreign equity method investment due to local market conditions.
Selling profit from sales-type leases—During the six months ended June 30, 2019, we entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of nine bowling centers for $56.7 million and a commitment to purchase up to $55.0 million of additional bowling centers over the next several years. The new centers were added to our existing master leases with the tenant. In connection with this transaction, the maturities of the leases were extended by 15 years to 2047. As a result of the modifications to the leases, we accounted for the leases as sales-type leases and recognized $180.4 million in "Selling profit from sales-type leases" as a result of the transaction.
Gain on consolidation of equity method investment—On June 30, 2018, we gained control of the Net Lease Venture when its investment period expired. As a result, as of June 30, 2018, we consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment. We recorded a gain of $67.9 million as a result of the consolidation.
Income tax expense—Income tax expense of $0.2 million was recorded during the six months ended June 30, 2019 as compared to an income tax expense of $0.2 million for the same period in 2018. The income tax expense for the six months ended June 30, 2019 and 2018 primarily related to state margins taxes and other minimum state franchise taxes.
Adjusted Income
In addition to net income (loss) prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we use adjusted income, a non-GAAP financial measure, to measure our operating performance. Adjusted income is used internally as a supplemental performance measure adjusting for certain non-cash GAAP measures to give management a view of income more directly derived from currentoperating activities in the period activity.in which they occur. Adjusted income is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision for (recovery of) loan losses, impairment of assets, stock-based compensation expense, the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes, the non-cash portion of gain (loss) on early extinguishment of debt and is adjusted for the effect of gains or losses on charge-offs and dispositions on carrying value gross of loan loss reserves and impairments ("Adjusted Income"). In the third quarter 2017, we modified our presentation of Adjusted Income to exclude the effect of the amount of the liquidation preference that was recorded as a premium in excess of book value on the redemption of preferred stock and the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes (refer to Note 10). Adjusted Income includes the impact to retained earnings (income that would have been recognized in prior periods had the accounting standards been effective during those prior periods) resulting from the adoption of new accounting standards on January 1, 2018 (refer to Note 3).
Adjusted Income should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Income should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), or to cash flows from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is Adjusted Income indicative of funds available to fund our cash needs or available for distribution to shareholders. Rather, Adjusted Income is an additional measure we use to analyze our business performance because it excludes the effects of certain non-cash charges that we believe are not necessarily indicative of our operating performance while including the effect of gains or losses on investments when realized. It should be noted that our manner of calculating Adjusted Income may differ from the calculations of similarly-titled measures by other companies.
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| (in thousands) | (in thousands) |
Adjusted Income | | | | | | | | | | | | | | | | | | |
Net income (loss) allocable to common shareholders | $ | (18,984 | ) | | $ | (34,530 | ) | | $ | 50,698 |
| | $ | 115,834 |
| |
Net income allocable to common shareholders | | $ | 362,715 |
| | $ | 42,873 |
| | $ | 177,467 |
| | $ | 345,150 |
| | $ | 69,680 |
| | $ | 150,365 |
|
Add: Depreciation and amortization(1) | 19,873 |
| | 14,765 |
| | 55,456 |
| | 45,438 |
| 14,305 |
| | 15,511 |
| | 15,620 |
| | 29,740 |
| | 32,279 |
| | 30,672 |
|
Add (Less): Provision for (recovery of) loan losses | 200 |
| | (2,600 | ) | | 18,237 |
| | (8,128 | ) | 110 |
| | 18,892 |
| | (600 | ) | | 13 |
| | 18,037 |
| | (5,528 | ) |
Add: Impairment of assets(2) | 989 |
| | 595 |
| | 21,769 |
| | 15,292 |
| 1,102 |
| | 16,680 |
| | 10,284 |
| | 4,953 |
| | 20,780 |
| | 14,696 |
|
Add: Stock-based compensation expense | 3,651 |
| | 2,934 |
| | 16,245 |
| | 12,730 |
| 9,705 |
| | 3,503 |
| | 3,915 |
| | 13,954 |
| | 12,593 |
| | 9,796 |
|
Add: Loss on early extinguishment of debt, net | 911 |
| | 616 |
| | 3,447 |
| | 1,392 |
| — |
| | 2,164 |
| | 565 |
| | 468 |
| | 2,536 |
| | 775 |
|
Add: Non-cash interest expense on senior convertible notes | 1,191 |
| — |
| 110 |
| | 3,527 |
| | 110 |
| 1,238 |
| — |
| 1,176 |
| | — |
| | 2,460 |
| | 2,336 |
| | — |
|
Add: Premium on redemption of preferred stock | — |
| | 16,314 |
| | — |
| | 16,314 |
| |
Add: Impact from adoption of new accounting standards(3) | — |
| | — |
| | 75,869 |
| | — |
| |
Add: Deferred gain on sale(3) | | — |
| | — |
| | 55,500 |
| | — |
| | — |
| | 55,500 |
|
Less: Losses on charge-offs and dispositions(4) | (4,093 | ) | | (1,779 | ) | | (65,553 | ) | | (15,906 | ) | (72,315 | ) | | (57,153 | ) | | (8,811 | ) | | (80,000 | ) | | (61,460 | ) | | (14,127 | ) |
Adjusted income (loss) allocable to common shareholders | $ | 3,738 |
| | $ | (3,575 | ) | | $ | 179,695 |
| | $ | 183,076 |
| |
Adjusted income allocable to common shareholders(3) | | $ | 316,860 |
| | $ | 43,646 |
| | $ | 253,940 |
| | $ | 316,738 |
| | $ | 96,781 |
| | $ | 242,149 |
|
| |
(1) | Depreciation and amortization also includes our proportionate share of depreciation and amortization expense for equity method investments (including from the adoption of ASU 2017-05) and excludes the portion of depreciation and amortization expense allocable to noncontrolling interests. |
| |
(2) | For the nine months ended September 30, 2018, impairmentImpairment of assets includes impairments on equity method investments recorded in earnings (losses)"Earnings from equity method investments.investments" in our consolidated statements of operations. |
| |
(3) | Represents an increaseAdjusted Income for the six months ended June 30, 2018, as previously reported, included a $75.9 million add-back attributable to aggregate deferred gains on our retained interests in entities to which we sold or contributed properties prior to 2018 and a $3.3 million add-back for depreciation related to such properties. We recognized those gains in our GAAP retained earnings onas of January 1, 2018 uponwhen we adopted a new accounting standard that mandated such recognition. We are retrospectively modifying our presentation of Adjusted Income for 2018 and 2017, as shown in the adoptiontable above, to reflect the effects of ASU 2017-05 (referthe dispositions in the periods in which they occurred. Adjusted Income for the three and six months ended June 30, 2017 shown in the table above includes $55.5 million of the aggregate deferred gain, which resulted from the sale of our Ground Lease business to Note 3).SAFE in the second quarter of 2017. The remaining $23.7 million of the aggregate deferred gains are not shown in the table above because the disposition transactions occurred prior to 2017. Adjusted Income as previously reported (i.e., prior to the retrospective modification) for the three and six months ended June 30, 2018 was $43.6 million and $176.0 million, respectively, and for the three and six months ended June 30, 2017 was $198.4 million and $186.6 million, respectively. |
| |
(4) | Represents the impact of charge-offs and dispositions realized during the period. These charge-offs and dispositions were on assets that were previously impaired for GAAP and reflected in net income but not Adjusted Income. |
Liquidity and Capital Resources
During the three months ended SeptemberJune 30, 2018,2019, we invested $214.6$212.7 million into new investments, prior financing commitments and ongoing real estate development. This amount includes $134.9$55.2 million in lending and other investments, $38.0$43.2 million to develop our land and development assets, $21.9$67.5 million to invest in net lease assets and $19.8$9.8 million of capital to reposition or redevelop our operating properties.properties and $37.0 in other investments. Also during the three months ended SeptemberJune 30, 2018,2019, we generated $216.7$544.3 million of proceeds from loan repayments and asset sales within our portfolio, comprised of $163.4$72.0 million from real estate finance, $32.9$458.2 million from operating properties and net lease assets and $20.4$14.1 million from land and development assets. These amounts are inclusive of fundings and proceeds from both consolidated investments and our pro rata share from equity method investments.
The following table outlines our capital expenditures on operating properties, net lease and land and development assets as reflected in our consolidated statements of cash flows, by segment ($ in thousands):
| | | For the Nine Months Ended September 30, | For the Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
Operating Properties | $ | 22,671 |
| | $ | 22,308 |
| $ | 3,636 |
| | $ | 15,951 |
|
Net Lease | 21,540 |
| | 2,583 |
| 8,385 |
| | 1,854 |
|
Total capital expenditures on real estate assets | $ | 44,211 |
| | $ | 24,891 |
| $ | 12,021 |
| | $ | 17,805 |
|
| | | | | | |
Land and Development | $ | 98,489 |
| | $ | 84,966 |
| $ | 73,314 |
| | $ | 61,577 |
|
Total capital expenditures on land and development assets | $ | 98,489 |
| | $ | 84,966 |
| $ | 73,314 |
| | $ | 61,577 |
|
As of SeptemberJune 30, 2018,2019, we had unrestricted cash of $757.4$330.1 million. Our primary cash uses over the next 12 months are expected to be funding of investments, capital expenditures, early redemption of debt securities and repayment of maturing debt,distributions to shareholders and funding ongoing business operations. Subsequent to September 30, 2018, we refinanced a net lease asset using non-recourse mortgage debt that generated $115.5 million of proceeds to us, net of closing costs. These proceeds will be used to repay senior unsecured notes in November 2018. Over the next 12 months, we currently expect to fund in the range of approximately $125.0$50.0 million to $175.0$100.0 million of capital expenditures within our portfolio. The majority of these amounts relate to our land and development projects and operating properties, and include multifamily and residential development activities which are expected to include approximately $70.0$30.0 million in vertical construction. The amount actually invested will depend on the pace of our development activities as well as the extent to which we strategically partner with others to complete these projects. As of SeptemberJune 30, 2018,2019, we also had approximately $527.3$418.5 million of maximum unfunded commitments associated with our investments of which we expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones, performance hurdles and all other conditions to fundings (see "Unfunded Commitments" below). We also have $490.5$357.2 million principal amount of scheduled real estate finance maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers. Our capital sources to meet cash uses through the next 12 months and beyond are expected to include cash on hand, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.
We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions. While economic trends have stabilized, it is not possible for us to predict whether these trends will continue or to quantify the impact of these or other trends on our financial results.
Contractual Obligations—The following table outlines the contractual obligations related to our long-term debt obligations, loan participations payable and operating lease obligations as of SeptemberJune 30, 20182019 (refer to Note 1011 to theour consolidated financial statements).
| | | Amounts Due By Period | Amounts Due By Period |
| Total |
| Less Than 1 Year |
| 1 - 3 Years |
| 3 - 5 Years |
| 5 - 10 Years |
| After 10 Years | Total |
| Less Than 1 Year |
| 1 - 3 Years |
| 3 - 5 Years |
| 5 - 10 Years |
| After 10 Years |
| (in thousands) | (in thousands) |
Long-Term Debt Obligations: | |
| |
| |
| |
| |
| | |
| |
| |
| |
| |
| |
Unsecured notes(1) | $ | 2,234,500 |
|
| $ | 497,000 |
|
| $ | 675,000 |
|
| $ | 1,062,500 |
|
| $ | — |
|
| $ | — |
| $ | 1,737,500 |
|
| $ | — |
|
| $ | 1,050,000 |
|
| $ | 687,500 |
|
| $ | — |
|
| $ | — |
|
Secured credit facilities | 648,375 |
|
| 6,500 |
|
| 13,000 |
|
| 628,875 |
|
| — |
|
| — |
| 643,500 |
|
| 6,500 |
|
| 13,000 |
|
| 624,000 |
|
| — |
|
| — |
|
Mortgages | 684,501 |
|
| 124,538 |
|
| 191,927 |
|
| 166,811 |
|
| 185,759 |
|
| 15,466 |
| 631,393 |
|
| 13,281 |
|
| 179,852 |
|
| 66,749 |
|
| 359,452 |
|
| 12,059 |
|
Trust preferred securities | 100,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 100,000 |
| 100,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 100,000 |
|
Total principal maturities | 3,667,376 |
|
| 628,038 |
|
| 879,927 |
|
| 1,858,186 |
|
| 185,759 |
|
| 115,466 |
| 3,112,393 |
|
| 19,781 |
|
| 1,242,852 |
|
| 1,378,249 |
|
| 359,452 |
|
| 112,059 |
|
Interest Payable(2)(1) | 672,297 |
|
| 179,424 |
|
| 281,476 |
|
| 139,105 |
|
| 42,796 |
|
| 29,496 |
| 592,987 |
|
| 156,236 |
|
| 264,193 |
|
| 90,104 |
|
| 56,549 |
|
| 25,905 |
|
Loan Participations Payable(3)(2) | 14,938 |
| | — |
| | 14,938 |
| | — |
| | — |
| | — |
| 30,037 |
| | 30,037 |
| | — |
| | — |
| | — |
| | — |
|
Operating Lease Obligations | 14,239 |
|
| 4,272 |
|
| 6,045 |
|
| 1,659 |
|
| 2,263 |
|
| — |
| |
Lease Obligations(3) | | 782,556 |
|
| 6,887 |
|
| 9,243 |
|
| 7,006 |
|
| 16,740 |
|
| 742,680 |
|
Total | $ | 4,368,850 |
|
| $ | 811,734 |
|
| $ | 1,182,386 |
|
| $ | 1,998,950 |
|
| $ | 230,818 |
|
| $ | 144,962 |
| $ | 4,517,973 |
|
| $ | 212,941 |
|
| $ | 1,516,288 |
|
| $ | 1,475,359 |
|
| $ | 432,741 |
|
| $ | 880,644 |
|
| |
(1) | Subsequent to September 30, 2018, we called for redemption $122.0 million aggregate principal amount of senior notes on November 2, 2018. Most of the cash used to redeem these notes was generated in October 2018 from the refinancing of a net lease asset using non-recourse mortgage debt maturing in 2028. |
| |
(2) | Variable-rate debt assumes one-month LIBOR of 2.26%2.40% and three-month LIBOR of 2.34%2.32% that were in effect as of SeptemberJune 30, 2018.2019. Interest payable does not include payments that may be required under our interest rate derivatives. |
| |
(3)(2) | Refer to Note 910 to the consolidated financial statements. |
| |
(3) | We are obligated to pay ground rent under certain operating leases; however, our tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations. |
Collateral Assets—The carrying value of our assets that are directly pledged or are held by subsidiaries whose equity is pledged as collateral to secure our obligations under our secured debt facilities are as follows, by asset type ($ in thousands):
| | | As of | As of |
| September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| Collateral Assets(1) | | Non-Collateral Assets | | Collateral Assets(1) | | Non-Collateral Assets | Collateral Assets(1) | | Non-Collateral Assets | | Collateral Assets(1) | | Non-Collateral Assets |
Real estate, net | $ | 1,570,920 |
| | $ | 322,869 |
| | $ | 795,321 |
| | $ | 486,710 |
| $ | 1,254,161 |
| | $ | 167,441 |
| | $ | 1,620,008 |
| | $ | 151,011 |
|
Real estate available and held for sale | 31,145 |
| | 30,404 |
| | 20,069 |
| | 48,519 |
| — |
| | 12,770 |
| | 1,055 |
| | 21,496 |
|
Net investment in leases | | 421,842 |
| | — |
| | — |
| | — |
|
Land and development, net | 17,500 |
| | 633,031 |
| | 25,100 |
| | 835,211 |
| 42,300 |
| | 626,356 |
| | 12,300 |
| | 585,918 |
|
Loans receivable and other lending investments, net(2)(3) | 499,895 |
| | 525,103 |
| | 194,529 |
| | 1,021,340 |
| 364,665 |
| | 519,939 |
| | 498,524 |
| | 480,154 |
|
Other investments | — |
| | 302,318 |
| | — |
| | 321,241 |
| — |
| | 564,170 |
| | — |
| | 304,275 |
|
Cash and other assets | 6,398 |
| | 1,136,352 |
| | — |
| | 898,252 |
| 11,010 |
| | 763,831 |
| | — |
| | 1,329,990 |
|
Total | $ | 2,125,858 |
| | $ | 2,950,077 |
| | $ | 1,035,019 |
| | $ | 3,611,273 |
| $ | 2,093,978 |
| | $ | 2,654,507 |
| | $ | 2,131,887 |
| | $ | 2,872,844 |
|
| |
(1) | The 2016 Senior Term Loan and the 2015 Revolving Credit Facility are secured only by pledges of equity of certain of our subsidiaries and not by pledges of the assets held by such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions). As of SeptemberJune 30, 2018,2019, Collateral Assets includes $410.4$403.2 million carrying value of assets held by entities whose equity interests are pledged as collateral for the $325.0 million 2015 Revolving Credit Facility that is undrawn as of SeptemberJune 30, 2018.2019. |
| |
(2) | As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the amounts presented exclude general reserves for loan losses of $14.3$12.5 million and $17.5$13.0 million, respectively. |
| |
(3) | As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the amounts presented exclude loan participations of $18.4$30.1 million and $102.3$22.5 million, respectively. |
Debt Covenants—Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis our consolidated fixed charge coverage ratio, determined in accordance with the indentures governing our debt securities, is 1.5x or lower. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. If our ability to incur additional indebtedness under the fixed charge coverage ratio is limited, we are permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures.
The 2016 Senior Term Loan and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2016 Senior Term Loan requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires us to maintain both borrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrowings or substitute assets in the borrowing base. We may not pay dividends if we cease to qualify as a REIT. In June 2018, we amended the terms of the 2016 Senior Term Loan and the 2015 Revolving Credit Facility to include the ability to pay common dividends with no restrictions so long as we are not in default on any of our debt obligations. We declared and paid common stock dividends of $6.2$12.7 million, or $0.09$0.19 per share, for the ninesix months ended SeptemberJune 30, 2018.2019.
Derivatives—Our use of derivative financial instruments is primarily limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. Refer to Note 1213 to the consolidated financial statements.
Off-Balance Sheet Arrangements—We are not dependent on the use of any off-balance sheet financing arrangements for liquidity. We have made investments in various unconsolidated ventures. Refer to Note 78 to the consolidated financial statements for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments and any unfunded commitments (see below).
Unfunded Commitments—We generally fund construction and development loans and build-outs of space in net lease assets over a period of time if and when the borrowers and tenants meet established milestones and other performance criteria. We refer to these arrangements as Performance-Based Commitments. In addition, we have committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments. As of SeptemberJune 30, 20182019, the maximum amountsamount of the fundings we may be obligated to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and assuming that 100% of our capital committed to Strategic Investments is drawn down, are as follows (in thousands):
| | | Loans and Other Lending Investments(1) | | Real Estate | | Other Investments | | Total | Loans and Other Lending Investments(1) | | Real Estate(2) | | Other Investments | | Total |
Performance-Based Commitments | $ | 479,988 |
| | $ | 17,154 |
| | $ | — |
| | $ | 497,142 |
| $ | 330,592 |
| | $ | 63,415 |
| | $ | — |
| | $ | 394,007 |
|
Strategic Investments | — |
| | — |
| | 30,127 |
| | 30,127 |
| — |
| | — |
| | 24,542 |
| | 24,542 |
|
Total | $ | 479,988 |
| | $ | 17,154 |
| | $ | 30,127 |
| | $ | 527,269 |
| $ | 330,592 |
| | $ | 63,415 |
| | $ | 24,542 |
| | $ | 418,549 |
|
| |
(1) | Excludes $31.5$19.9 million of commitments on loan participations sold that are not our obligation. |
| |
(2) | Includes a commitment to purchase up to $55.0 million of additional bowling centers over the next several years (refer to Note 5). |
Stock Repurchase Program—We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the ninesix months ended SeptemberJune 30, 2019, we repurchased 6.2 million shares of our outstanding common stock for $58.3 million, for an average cost of $9.42 per share. During the six months ended June 30, 2018, we repurchased 0.8 million shares of our outstanding common stock for $8.3 million, for an average cost of $10.22 per share. As of SeptemberJune 30, 2018,2019, we had remaining authorization to repurchase up to $41.7$22.5 million of common stock under our stock repurchase program.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We base our estimates on historical corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment.
For a discussion of our critical accounting policies, refer to Note 3 to the consolidated financial statements and our 2017 Annual Report on Form 10-K.
New Accounting Pronouncements—For a discussion of the impact of new accounting pronouncements on our financial condition or results of operations, refer to Note 3 to the consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risks
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net amount of floating rate assets/liabilities and the impact of interest rate floors and caps. Any significant compression of the spreads between interest-earning assets and interest-bearing liabilities could have a material adverse effect on us.
In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest-earning assets and interest-bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate-related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers.
While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without generating non-qualifying income, use of derivatives for other purposes will generate non-qualified income for REIT income test purposes. This includes hedging asset related risks such as credit and interest rate exposure on our loan assets. As a result our ability to hedge these types of risks is limited. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.
The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing liabilities, should interest rates increase or decrease by 10, 50 or 100 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the one-month LIBOR rate of 2.26%2.40% as of SeptemberJune 30, 2018.2019. Actual results could differ significantly from those estimated in the table.
Estimated Change In Net Income
($ in thousands)
| | Change in Interest Rates | | Net Income(1) | | Net Income(1) |
-100 Basis Points | | $ | (7,424 | ) | | $ | (2,069 | ) |
-50 Basis Points | | (3,954 | ) | | (1,324 | ) |
-10 Basis Points | | (838 | ) | | (307 | ) |
Base Interest Rate | | — |
| | — |
|
+10 Basis Points | | 838 |
| | 307 |
|
+50 Basis Points | | 4,192 |
| | 1,583 |
|
+100 Basis Points | | 8,384 |
| | 3,179 |
|
| |
(1) | We have an overall net variable-rate asset position, which results in an increase in net income when rates increase and a decrease in net income when rates decrease. As of SeptemberJune 30, 2018, $463.42019, $473.9 million of our floating rate loans have a weighted average interest rate floor of 0.9%1.1% and $18.5$30.0 million of our floating rate debt obligations have a weighted average interest rate floor of 0.4%. |
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and its President and Chief FinancialInvestment 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 President and Chief Financial Officer.Investment 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 President and Chief FinancialInvestment Officer (performing the functions of 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 President and Chief FinancialInvestment 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 President and Chief FinancialInvestment Officer, as appropriate, to allow timely decisions regarding disclosure.
There have been no changes during the last fiscal quarter in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company's periodic reports.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to the Company's business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements.
Item 1a. Risk Factors
There were no material changes from the risk factors previously disclosed in our 20172018 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the information with respect to purchases made by us or on our behalf of our common stock during the three months ended SeptemberJune 30, 2018.2019.
|
| | | | | | | | | | |
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans(1) |
July 1 to July 31 | — |
| $ | — |
| — |
| $ | 41,710,022 |
|
August 1 to August 31 | — |
| $ | — |
| — |
| $ | 41,710,022 |
|
September 1 to September 30 | — |
| $ | — |
| — |
| $ | 41,710,022 |
|
|
| | | | | | | | | | |
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans(1) |
April 1 to April 30 | 1,375,441 |
| $ | 8.47 |
| 1,375,441 |
| $ | 10,930,140 |
|
May 1 to May 31(1) | 1,373,064 |
| $ | 9.93 |
| 1,373,064 |
| $ | 36,365,661 |
|
June 1 to June 30 | 1,180,255 |
| $ | 11.71 |
| 1,180,255 |
| $ | 22,543,167 |
|
| |
(1) | We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. In May 2019, the Company's Board of Directors authorized a new $50.0 million limit on its share repurchase plan after the prior availability was substantially utilized. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
INDEX TO EXHIBITS
|
| |
Exhibit Number | Document Description |
31.0 | |
32.0 | |
101* | The following financial information from the Company's Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 20182019 is formatted in Inline XBRL ("eXtensible Business Reporting Language"): (i) the Consolidated Balance Sheets (unaudited) as of SeptemberJune 30, 20182019 and December 31, 2017,2018, (ii) the Consolidated Statements of Operations (unaudited) for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, (iii) the Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, (iv) the Consolidated Statements of Changes in Equity (unaudited) for the ninethree and six months ended SeptemberJune 30, 20182019 and 2017,2018, (v) the Consolidated Statements of Cash Flows (unaudited) for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 and (vi) the Notes to the Consolidated Financial Statements (unaudited). |
_______________________________________________________________________________ | |
* | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934 and otherwise is not subject to liability under these sections. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | iStar Inc. Registrant |
Date: | NovemberAugust 1, 20182019 | /s/ JAY SUGARMAN |
| | Jay Sugarman Chairman of the Board of Directors and Chief Executive Officer (principal executive officer) |
| | |
| | iStar Inc. Registrant |
Date: | NovemberAugust 1, 20182019 | /s/ ANDREW C. RICHARDSONMARCOS ALVARADO |
| | Andrew C. RichardsonMarcos Alvarado
President and Chief FinancialInvestment Officer (principal (principal financial and accounting officer) |