UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | |
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OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File No. 1-15371
iStar Inc.
(Exact name of registrant as specified in its charter)
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Maryland |
| 95-6881527 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
1114 Avenue of the Americas, 39th Floor | |
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New York , NY | | 10036 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (212) 930-9400
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 |
Indicate by check mark whether the registrant: (i)(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii)(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer |
| Accelerated Filer |
| Non‑accelerated Filer |
| Smaller Reporting Company |
| Emerging Growth Company |
☒ | | ☐ | | ☐ | | ☐ | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
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As of November 1, 2021,August 2, 2022, there were 69,475,92785,377,094 shares, $0.001 par value per share, of iStar Inc. common stock outstanding.
TABLE OF CONTENTS
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| Consolidated Balance Sheets (unaudited) as of | 2 |
| 3 | |
| 4 | |
| 5 | |
| 7 | |
| 9 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 | |
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PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements
iStar Inc.
Consolidated Balance Sheets
(In thousands, except per share data)(1)
(unaudited)
| | | | | | | | ��� | | | | | | |
| | As of | | | As of | | ||||||||
| | September 30, | | December 31, | | | June 30, | | December 31, | | ||||
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| 2021 |
| 2020 | |
| 2022 |
| 2021 | | ||||
ASSETS |
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Real estate |
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Real estate, at cost | | $ | 1,657,866 | | $ | 1,752,053 | | | $ | 111,909 | | $ | 113,510 | |
Less: accumulated depreciation | |
| (300,942) | |
| (267,772) | | |
| (21,678) | |
| (21,360) | |
Real estate, net | |
| 1,356,924 | |
| 1,484,281 | | |
| 90,231 | |
| 92,150 | |
Real estate available and held for sale | |
| 1,983 | |
| 5,212 | | |
| 1,970 | |
| 301 | |
Total real estate | |
| 1,358,907 | |
| 1,489,493 | | |
| 92,201 | |
| 92,451 | |
Net investment in leases ($9,136 and $10,871 of allowances as of September 30, 2021 and December 31, 2020, respectively) | |
| 477,360 | |
| 429,101 | | |||||||
Real estate and other assets available and held for sale and classified as discontinued operations(2) | | | 11,518 | | | 2,299,711 | | |||||||
Net investment in leases ($380 and $0 of allowances as of June 30, 2022 and December 31, 2021, respectively) | | | 31,999 | | | 43,215 | | |||||||
Land and development, net | |
| 302,845 | |
| 430,663 | | |
| 259,718 | |
| 286,810 | |
Loans receivable and other lending investments, net ($6,370 and $13,170 of allowances as of September 30, 2021 and December 31, 2020, respectively) | |
| 405,509 | |
| 732,330 | | |||||||
Loans receivable and other lending investments, net ($3,033 and $4,769 of allowances as of June 30, 2022 and December 31, 2021, respectively) | |
| 204,252 | |
| 332,844 | | |||||||
Loans receivable held for sale | | | 42,683 | | | — | | | | — | | | 43,215 | |
Other investments | |
| 1,419,766 | |
| 1,176,560 | | |
| 1,556,792 | |
| 1,297,281 | |
Cash and cash equivalents | |
| 298,886 | |
| 98,633 | | |
| 1,400,658 | |
| 339,601 | |
Finance lease right of use assets | | | 142,615 | | | 143,727 | | |||||||
Accrued interest and operating lease income receivable, net | |
| 5,046 | |
| 10,061 | | |
| 1,601 | |
| 1,813 | |
Deferred operating lease income receivable, net | |
| 66,002 | |
| 58,128 | | |
| 2,941 | |
| 3,159 | |
Deferred expenses and other assets, net | |
| 282,546 | |
| 293,112 | | |
| 48,940 | |
| 100,434 | |
Total assets | | $ | 4,802,165 | | $ | 4,861,808 | | | $ | 3,610,620 | | $ | 4,840,534 | |
LIABILITIES AND EQUITY | |
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Liabilities: | |
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Accounts payable, accrued expenses and other liabilities | | $ | 300,461 | | $ | 317,402 | | | $ | 140,791 | | $ | 236,732 | |
Finance lease liabilities | | | 152,629 | | | 150,520 | | |||||||
Liabilities associated with real estate held for sale and classified as discontinued operations(2) | | | 5,715 | | | 968,419 | | |||||||
Liabilities associated with properties held for sale | |
| 252 | |
| 27 | | |
| — | |
| 3 | |
Loan participations payable, net | |
| — | |
| 42,501 | | |||||||
Debt obligations, net | |
| 3,282,598 | |
| 3,286,975 | | |
| 1,833,250 | |
| 2,572,174 | |
Total liabilities | |
| 3,735,940 | |
| 3,797,425 | | |
| 1,979,756 | |
| 3,777,328 | |
Commitments and contingencies (refer to Note 12) | |
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Commitments and contingencies (refer to Note 11) | |
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Equity: | |
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iStar Inc. shareholders' equity: | |
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Preferred Stock Series D, G and I, liquidation preference $25.00 per share (refer to Note 14) | |
| 12 | |
| 12 | | |||||||
Common Stock, $0.001 par value, 200,000 shares authorized, 70,031 and 73,967 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | |
| 70 | |
| 74 | | |||||||
Preferred Stock Series D, G and I, liquidation preference $25.00 per share | |
| 12 | |
| 12 | | |||||||
Common Stock, $0.001 par value, 200,000 shares authorized, 83,303 and 68,870 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | |
| 84 | |
| 69 | | |||||||
Additional paid-in capital | |
| 3,127,401 | |
| 3,240,535 | | |
| 3,406,422 | |
| 3,100,015 | |
Accumulated deficit | |
| (2,225,552) | |
| (2,316,972) | | |
| (1,774,069) | |
| (2,227,213) | |
Accumulated other comprehensive loss (refer to Note 14) | |
| (34,350) | |
| (52,680) | | |||||||
Accumulated other comprehensive loss | |
| (17,872) | |
| (21,587) | | |||||||
Total iStar Inc. shareholders' equity | |
| 867,581 | |
| 870,969 | | |
| 1,614,577 | |
| 851,296 | |
Noncontrolling interests | |
| 198,644 | |
| 193,414 | | |
| 16,287 | |
| 211,910 | |
Total equity | |
| 1,066,225 | |
| 1,064,383 | | |
| 1,630,864 | |
| 1,063,206 | |
Total liabilities and equity | | $ | 4,802,165 | | $ | 4,861,808 | | | $ | 3,610,620 | | $ | 4,840,534 | |
(1) | Refer to Note 2 for details on the Company’s consolidated variable interest entities (“VIEs”). |
(2) | Refer to Note 3 - Net Lease Sale and Discontinued Operations. |
The accompanying notes are an integral part of the consolidated financial statements.
2
iStar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
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| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
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| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Revenues: |
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Operating lease income | | $ | 44,392 | | $ | 46,370 | | $ | 137,381 | | $ | 140,529 | |
Interest income | |
| 7,951 | |
| 14,270 | |
| 27,574 | |
| 46,925 | |
Interest income from sales-type leases | |
| 9,578 | |
| 8,360 | |
| 26,895 | |
| 25,010 | |
Other income | |
| 40,195 | |
| 25,552 | |
| 64,549 | |
| 56,212 | |
Land development revenue | |
| 93,369 | |
| 20,502 | |
| 157,936 | |
| 116,254 | |
Total revenues | |
| 195,485 | |
| 115,054 | |
| 414,335 | |
| 384,930 | |
Costs and expenses: | |
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Interest expense | |
| 39,471 | |
| 42,407 | |
| 118,451 | |
| 127,748 | |
Real estate expense | |
| 18,724 | |
| 16,935 | |
| 53,907 | |
| 53,708 | |
Land development cost of sales | |
| 87,380 | |
| 21,358 | |
| 147,507 | |
| 114,704 | |
Depreciation and amortization | |
| 14,856 | |
| 14,621 | |
| 44,971 | |
| 43,407 | |
General and administrative | |
| 17,121 | |
| 19,868 | |
| 68,954 | |
| 73,138 | |
(Recovery of) provision for loan losses | |
| (1,556) | |
| (1,976) | |
| (7,613) | |
| 4,093 | |
Provision for (recovery of) losses on net investment in leases | |
| 131 | |
| 175 | |
| (1,735) | |
| 2,001 | |
Impairment of assets | |
| 1,179 | |
| — | |
| 2,965 | |
| 6,491 | |
Other expense | |
| 2,011 | |
| 73 | |
| 2,475 | |
| 351 | |
Total costs and expenses | |
| 179,317 | |
| 113,461 | |
| 429,882 | |
| 425,641 | |
Income from sales of real estate | |
| 25,611 | |
| 6,055 | |
| 28,433 | |
| 6,118 | |
Income (loss) from operations before earnings from equity method investments and other items | |
| 41,779 | |
| 7,648 | |
| 12,886 | |
| (34,593) | |
Loss on early extinguishment of debt, net | |
| 0 | |
| (7,924) | |
| 0 | |
| (12,038) | |
Earnings from equity method investments | |
| 89,209 | |
| 6,805 | |
| 114,675 | |
| 26,003 | |
Net income (loss) before income taxes | |
| 130,988 | |
| 6,529 | |
| 127,561 | |
| (20,628) | |
Income tax benefit (expense) | |
| 6 | |
| (78) | |
| 6 | |
| (165) | |
Net income (loss) | |
| 130,994 | |
| 6,451 | |
| 127,567 | |
| (20,793) | |
Net (income) attributable to noncontrolling interests | |
| (3,264) | |
| (2,646) | |
| (8,037) | |
| (8,435) | |
Net income (loss) attributable to iStar Inc. | |
| 127,730 | |
| 3,805 | |
| 119,530 | |
| (29,228) | |
Preferred dividends | |
| (5,874) | |
| (5,874) | |
| (17,622) | |
| (17,622) | |
Net income (loss) allocable to common shareholders | | $ | 121,856 | | $ | (2,069) | | $ | 101,908 | | $ | (46,850) | |
Per common share data: | |
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Net income (loss) allocable to common shareholders: | |
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Basic | | $ | 1.71 | | $ | (0.03) | | $ | 1.40 | | $ | (0.61) | |
Diluted | | $ | 1.51 | | $ | (0.03) | | $ | 1.30 | | $ | (0.61) | |
Weighted average number of common shares: | |
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Basic | |
| 71,299 | |
| 75,033 | |
| 72,675 | |
| 76,232 | |
Diluted | |
| 80,487 | |
| 75,033 | |
| 78,402 | |
| 76,232 | |
| | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | ||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Revenues: |
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Operating lease income | | $ | 3,182 | | $ | 4,792 | | $ | 6,291 | | $ | 9,723 | |
Interest income | |
| 4,221 | |
| 8,084 | |
| 9,169 | |
| 17,874 | |
Interest income from sales-type leases | |
| 376 | |
| 157 | |
| 732 | |
| 157 | |
Other income | |
| 15,881 | |
| 8,903 | |
| 24,521 | |
| 21,917 | |
Land development revenue | |
| 24,403 | |
| 32,318 | |
| 39,303 | |
| 64,567 | |
Total revenues | |
| 48,063 | |
| 54,254 | |
| 80,016 | |
| 114,238 | |
Costs and expenses: | |
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Interest expense | |
| 24,149 | |
| 28,641 | |
| 53,392 | |
| 57,450 | |
Real estate expense | |
| 13,016 | |
| 11,317 | |
| 23,133 | |
| 20,035 | |
Land development cost of sales | |
| 24,095 | |
| 30,803 | |
| 38,591 | |
| 60,126 | |
Depreciation and amortization | |
| 1,338 | |
| 1,573 | |
| 2,695 | |
| 3,974 | |
General and administrative | |
| (5,179) | |
| 30,394 | |
| (3,804) | |
| 51,833 | |
Provision for (recovery of) loan losses | |
| 22,578 | |
| (2,158) | |
| 22,713 | |
| (5,800) | |
Provision for losses on net investment in leases | |
| 99 | |
| 779 | |
| 380 | |
| 780 | |
Impairment of assets | |
| 1,768 | |
| — | |
| 1,768 | |
| 257 | |
Other expense | |
| 1,523 | |
| 211 | |
| 2,453 | |
| 463 | |
Total costs and expenses | |
| 83,387 | |
| 101,560 | |
| 141,321 | |
| 189,118 | |
Income from sales of real estate | |
| — | |
| 96 | |
| 492 | |
| 708 | |
Loss from operations before earnings from equity method investments and other items | |
| (35,324) | |
| (47,210) | |
| (60,813) | |
| (74,172) | |
Loss on early extinguishment of debt, net | |
| (116,563) | |
| 0 | |
| (117,991) | |
| 0 | |
Earnings from equity method investments | |
| 19,393 | |
| 11,098 | |
| 44,425 | |
| 22,866 | |
Net loss from continuing operations before income taxes | |
| (132,494) | |
| (36,112) | |
| (134,379) | |
| (51,306) | |
Income tax (expense) benefit | |
| — | |
| (619) | |
| (3) | |
| 79 | |
Net loss from continuing operations | | | (132,494) | | | (36,731) | | | (134,382) | | | (51,227) | |
Net income from discontinued operations(1) | |
| — | |
| 25,315 | |
| 797,688 | |
| 47,800 | |
Net income (loss) | | | (132,494) | | | (11,416) | | | 663,306 | | | (3,427) | |
Net (income) loss from continuing operations attributable to noncontrolling interests | |
| (117) | |
| 20 | |
| (99) | |
| 65 | |
Net (income) from discontinued operations attributable to noncontrolling interests | | | — | | | (2,273) | | | (179,089) | | | (4,838) | |
Net income (loss) attributable to iStar Inc. | |
| (132,611) | |
| (13,669) | |
| 484,118 | |
| (8,200) | |
Preferred dividends | |
| (5,874) | |
| (5,874) | |
| (11,748) | |
| (11,748) | |
Net income (loss) allocable to common shareholders | | $ | (138,485) | | $ | (19,543) | | $ | 472,370 | | $ | (19,948) | |
Per common share data: | |
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Net income (loss) allocable to common shareholders | |
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Basic and diluted | | $ | (1.70) | | $ | (0.27) | | $ | 6.28 | | $ | (0.27) | |
Net loss from continuing operations and allocable to common shareholders: | |
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Basic and diluted | | $ | (1.70) | | $ | (0.59) | | $ | (1.94) | | $ | (0.86) | |
Net income from discontinued operations and allocable to common shareholders: | |
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Basic and diluted | | $ | — | | $ | 0.32 | | $ | 8.22 | | $ | 0.59 | |
Weighted average number of common shares: | |
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Basic and diluted | |
| 81,442 | |
| 72,872 | |
| 75,274 | |
| 73,374 | |
(1) | Refer to Note 3 - Net Lease Sale and Discontinued Operations. |
The accompanying notes are an integral part of the consolidated financial statements.
3
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, | | ||||||||||||||||
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| 2021 |
| 2020 | | 2021 |
| 2020 | |
| 2022 |
| 2021 | | 2022 |
| 2021 | | ||||||||
Net income (loss) | | $ | 130,994 | | $ | 6,451 | | $ | 127,567 | | $ | (20,793) | | | $ | (132,494) | | $ | (11,416) | | $ | 663,306 | | $ | (3,427) | |
Other comprehensive income (loss): | |
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Other comprehensive income: | |
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Reclassification of losses on cash flow hedges into earnings upon realization(1) | |
| 2,683 | |
| 2,371 | |
| 7,507 | |
| 5,792 | | |
| 580 | |
| 2,486 | |
| 1,201 | |
| 4,824 | |
Unrealized gains (losses) on available-for-sale securities | |
| (539) | |
| 19 | |
| (913) | |
| 1,195 | | |
| (1,610) | |
| 657 | |
| (4,623) | |
| (374) | |
Unrealized gains (losses) on cash flow hedges |
|
| 273 |
|
| 197 | |
| 11,483 | |
| (30,930) | |
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| 4,382 |
|
| (764) | |
| 7,137 | |
| 11,211 | |
Other comprehensive income (loss) | |
| 2,417 |
|
| 2,587 | |
| 18,077 | |
| (23,943) | | |||||||||||||
Other comprehensive income | |
| 3,352 |
|
| 2,379 | |
| 3,715 | |
| 15,661 | | |||||||||||||
Comprehensive income (loss) | |
| 133,411 | |
| 9,038 | |
| 145,644 | |
| (44,736) | | |
| (129,142) | |
| (9,037) | |
| 667,021 | |
| 12,234 | |
Comprehensive (income) attributable to noncontrolling interests | |
| (4,207) | |
| (3,299) | |
| (11,951) | |
| (2,894) | | |
| (117) | |
| (2,765) | |
| (179,188) | |
| (7,744) | |
Comprehensive income (loss) attributable to iStar Inc. | | $ | 129,204 | | $ | 5,739 | | $ | 133,693 | | $ | (47,630) | | | $ | (129,259) | | $ | (11,802) | | $ | 487,833 | | $ | 4,490 | |
(1) |
(2) | For the three months ended June 30, 2021, $2.8 million of comprehensive income attributable to noncontrolling interests was from discontinued operations. For the six months ended June 30, 2022 and |
The accompanying notes are an integral part of the consolidated financial statements.
4
iStar Inc.
Consolidated Statements of Changes in Equity
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ��� | | |
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| iStar Inc. Shareholders' Equity | | | | | | |
| iStar Inc. Shareholders' Equity | | | | | | | ||||||||||||||||||||||||||
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| | Accumulated |
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| | | | | | Common | | | Additional | | | Retained | | | Other | | | | | | | | | | | | Common | | | Additional | | | Retained | | | Other | | | | | | |
| | | Preferred | | | Stock at | | | Paid-In | | | Earnings | | | Comprehensive | | | Noncontrolling | | Total | | | Preferred | | | Stock at | | | Paid-In | | | Earnings | | | Comprehensive | | | Noncontrolling | | Total | ||
| | | Stock(1) | | | Par | | | Capital | | | (Deficit) | | | Income (Loss) | | | Interests | | Equity | | | Stock(1) | | | Par | | | Capital | | | (Deficit) | | | Income (Loss) | | | Interests | | Equity | ||
Balance as of June 30, 2021 | | $ | 12 | | $ | 72 | | $ | 3,185,748 | | $ | (2,338,454) | | $ | (35,824) | | $ | 197,152 | | $ | 1,008,706 | |||||||||||||||||||||
Balance as of March 31, 2022 | | $ | 12 | | $ | 69 | | $ | 3,100,665 | | $ | (1,625,086) | | $ | (21,224) | | $ | 330,514 | | $ | 1,784,950 | |||||||||||||||||||||
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) |
Dividends declared—common ($0.125 per share) | |
| — | |
| — | |
| — | |
| (8,954) | |
| — | |
| — | |
| (8,954) | |
| — | |
| — | |
| — | |
| (10,498) | |
| — | |
| — | |
| (10,498) |
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 1,158 | |
| — | |
| — | |
| 1,107 | |
| 2,265 | |
| — | |
| 1 | |
| 8,236 | |
| — | |
| — | |
| 1,077 | |
| 9,314 |
Net income | |
| — | |
| — | |
| — | |
| 127,730 | |
| — | |
| 3,264 | |
| 130,994 | |||||||||||||||||||||
Issuance of common stock in connection with 3.125% convertible notes | | | — | | | 14 | | | 297,521 | | | — | | | — | | | — | | | 297,535 | |||||||||||||||||||||
Net income (loss) | |
| — | |
| — | |
| — | |
| (132,611) | |
| — | |
| 117 | |
| (132,494) | |||||||||||||||||||||
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 3,352 | |
| — | |
| 3,352 | |||||||||||||||||||||
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (315,421) | |
| (315,421) | |||||||||||||||||||||
Balance as of June 30, 2022 | | $ | 12 | | $ | 84 | | $ | 3,406,422 | | $ | (1,774,069) | | $ | (17,872) | | $ | 16,287 | | $ | 1,630,864 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Balance as of March 31, 2021 | | $ | 12 | | $ | 73 | | $ | 3,204,862 | | $ | (2,309,763) | | $ | (41,858) | | $ | 197,681 | | $ | 1,051,007 | |||||||||||||||||||||
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) | |||||||||||||||||||||
Dividends declared—common ($0.125 per share) | |
| — | |
| — | |
| — | |
| (9,148) | |
| — | |
| — | |
| (9,148) | |||||||||||||||||||||
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 1,199 | |
| — | |
| — | |
| 168 | |
| 1,367 | |||||||||||||||||||||
Net income (loss) | |
| — | |
| — | |
| — | |
| (13,669) | |
| — | |
| 2,253 | |
| (11,416) | |||||||||||||||||||||
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 1,474 | |
| 943 | |
| 2,417 | |
| — | |
| — | |
| — | |
| — | |
| 6,034 | |
| 512 | |
| 6,546 |
Repurchase of stock | |
| — | |
| (2) | |
| (59,505) | |
| — | |
| — | |
| — | |
| (59,507) | |
| — | |
| (1) | |
| (19,978) | |
| — | |
| — | |
| — | |
| (19,979) |
Contributions from noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 169 | |
| 169 | | | — | | | — | | | — | | | — | | | — | | | 794 | | | 794 |
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (3,917) | |
| (3,917) | |
| — | |
| — | |
| (335) | |
| — | |
| — | |
| (4,256) | |
| (4,591) |
Change to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (74) | | | (74) | |||||||||||||||||||||
Balance as of September 30, 2021 | | $ | 12 | | $ | 70 | | $ | 3,127,401 | | $ | (2,225,552) | | $ | (34,350) | | $ | 198,644 | | $ | 1,066,225 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Balance as of June 30, 2020 | | $ | 12 | | $ | 76 | | $ | 3,260,173 | | $ | (2,279,284) | | $ | (59,045) | | $ | 191,853 | | $ | 1,113,785 | |||||||||||||||||||||
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (5,874) | |
| — | |
| — | |
| (5,874) | |||||||||||||||||||||
Dividends declared—common ($0.11 per share) | |
| — | |
| — | |
| — | |
| (8,315) | |
| — | |
| — | |
| (8,315) | |||||||||||||||||||||
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 903 | |
| — | |
| — | |
| 894 | |
| 1,797 | |||||||||||||||||||||
Net income | |
| — | |
| — | |
| — | |
| 3,805 | |
| — | |
| 2,646 | |
| 6,451 | |||||||||||||||||||||
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 1,934 | |
| 653 | |
| 2,587 | |||||||||||||||||||||
Repurchase of stock | |
| — | |
| (2) | |
| (13,623) | |
| — | |
| — | |
| — | |
| (13,625) | |||||||||||||||||||||
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 444 | | | 444 | |||||||||||||||||||||
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (3,802) | |
| (3,802) | |||||||||||||||||||||
Balance as of September 30, 2020 | | $ | 12 | | $ | 74 | | $ | 3,247,453 | | $ | (2,289,668) | | $ | (57,111) | | $ | 192,688 | | $ | 1,093,448 | |||||||||||||||||||||
Balance as of June 30, 2021 | | $ | 12 | | $ | 72 | | $ | 3,185,748 | | $ | (2,338,454) | | $ | (35,824) | | $ | 197,152 | | $ | 1,008,706 |
5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| iStar Inc. Shareholders' Equity | | | | | | |
| iStar Inc. Shareholders' Equity | | | | | | | ||||||||||||||||||||||||||
|
| | |
| | |
|
| |
|
| |
| | Accumulated |
| | |
| | |
| | |
| | |
|
| |
|
| |
| | Accumulated |
| | |
| | |
| | | | | | Common | | | Additional | | | Retained | | | Other | | | | | | | | | | | | Common | | | Additional | | | Retained | | | Other | | | | | | |
| | | Preferred | | | Stock at | | | Paid-In | | | Earnings | | | Comprehensive | | | Noncontrolling | | Total | | | Preferred | | | Stock at | | | Paid-In | | | Earnings | | | Comprehensive | | | Noncontrolling | | Total | ||
| | | Stock(1) | | | Par | | | Capital | | | (Deficit) | | | Income (Loss) | | | Interests | | Equity | | | Stock(1) | | | Par | | | Capital | | | (Deficit) | | | Income (Loss) | | | Interests | | Equity | ||
Balance as of December 31, 2020 | | $ | 12 | | $ | 74 | | $ | 3,240,535 | | $ | (2,316,972) | | $ | (52,680) | | $ | 193,414 | | $ | 1,064,383 | |||||||||||||||||||||
Impact from adoption of new accounting standards (refer to Note 3) | |
| — | |
| — | |
| (25,869) | |
| 15,850 | |
| — | |
| — | |
| (10,019) | |||||||||||||||||||||
Balance as of December 31, 2021 | | $ | 12 | | $ | 69 | | $ | 3,100,015 | | $ | (2,227,213) | | $ | (21,587) | | $ | 211,910 | | $ | 1,063,206 | |||||||||||||||||||||
Dividends declared—preferred | |
| — | |
| ��� | |
| — | |
| (17,622) | |
| — | |
| — | |
| (17,622) | |
| — | |
| — | |
| — | |
| (11,748) | |
| — | |
| — | |
| (11,748) |
Dividends declared—common ($0.36 per share) | |
| — | |
| — | |
| — | |
| (26,338) | |
| — | |
| — | |
| (26,338) | |||||||||||||||||||||
Dividends declared—common ($0.25 per share) | |
| — | |
| — | |
| — | |
| (19,226) | |
| — | |
| — | |
| (19,226) | |||||||||||||||||||||
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| — | |
| 4,929 | |
| — | |
| — | |
| 2,645 | |
| 7,574 | |
| — | |
| 1 | |
| 8,886 | |
| — | |
| — | |
| 2,427 | |
| 11,314 |
Issuance of common stock in connection with 3.125% convertible notes | | | — | | | 14 | | | 297,521 | | | — | | | — | | | — | | | 297,535 | |||||||||||||||||||||
Net income | |
| — | |
| — | |
| — | |
| 119,530 | |
| — | |
| 8,037 | |
| 127,567 | |
| — | |
| — | |
| — | |
| 484,118 | |
| — | |
| 179,188 | |
| 663,306 |
Change in accumulated other comprehensive income (loss) | |
| — | |
| — | |
| — | |
| — | |
| 18,330 | |
| 3,913 | |
| 22,243 | |
| — | |
| — | |
| — | |
| — | |
| 3,715 | |
| — | |
| 3,715 |
Repurchase of stock | |
| — | |
| (4) | |
| (91,859) | |
| — | |
| — | |
| — | |
| (91,863) | |||||||||||||||||||||
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 1,026 | | | 1,026 | | | — | | | — | | | — | | | — | | | — | | | 7,893 | | | 7,893 |
Distributions to noncontrolling interests | | | — | | | — | | | (335) | | | — | | | — | | | (10,317) | | | (10,652) | | | — | | | — | | | — | | | — | | | — | | | (385,131) | | | (385,131) |
Change to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (74) | | | (74) | |||||||||||||||||||||
Balance as of September 30, 2021 | | $ | 12 | | $ | 70 | | $ | 3,127,401 | | $ | (2,225,552) | | $ | (34,350) | | $ | 198,644 | | $ | 1,066,225 | |||||||||||||||||||||
Balance as of June 30, 2022 | | $ | 12 | | $ | 84 | | $ | 3,406,422 | | $ | (1,774,069) | | $ | (17,872) | | $ | 16,287 | | $ | 1,630,864 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2019 | | $ | 12 | | $ | 78 | | $ | 3,284,877 | | $ | (2,205,838) | | $ | (38,707) | | $ | 197,538 | | $ | 1,237,960 | |||||||||||||||||||||
Balance as of December 31, 2020 | | $ | 12 | | $ | 74 | | $ | 3,240,535 | | $ | (2,316,972) | | $ | (52,680) | | $ | 193,414 | | $ | 1,064,383 | |||||||||||||||||||||
Impact from adoption of new accounting standards | |
| — | |
| — | |
| — | |
| (12,382) | |
| — | |
| — | |
| (12,382) | |
| — | |
| — | |
| (25,869) | |
| 15,850 | |
| — | |
| — | |
| (10,019) |
Dividends declared—preferred | |
| — | |
| — | |
| — | |
| (17,622) | |
| — | |
| — | |
| (17,622) | |
| — | |
| — | |
| — | |
| (11,748) | |
| — | |
| — | |
| (11,748) |
Dividends declared—common ($0.32 per share) | |
| — | |
| — | |
| — | |
| (24,598) | |
| — | |
| — | |
| (24,598) | |||||||||||||||||||||
Dividends declared—common ($0.235 per share) | |
| — | |
| — | |
| — | |
| (17,384) | |
| — | |
| — | |
| (17,384) | |||||||||||||||||||||
Issuance of stock/restricted stock unit amortization, net(2) | |
| — | |
| 1 | |
| 3,985 | |
| — | |
| — | |
| 2,469 | |
| 6,455 | |
| — | |
| — | |
| 3,771 | |
| — | |
| — | |
| 1,538 | |
| 5,309 |
Net income (loss) | |
| — | |
| — | |
| — | |
| (29,228) | |
| — | |
| 8,435 | |
| (20,793) | |
| — | |
| — | |
| — | |
| (8,200) | |
| — | |
| 4,773 | |
| (3,427) |
Change in accumulated other comprehensive income (loss) | | | — | | | — | | | — | | | — | | | (18,404) | | | (5,539) | | | (23,943) | | | — | | | — | | | — | | | — | | | 16,856 | | | 2,970 | | | 19,826 |
Repurchase of stock | | | — | | | (5) | | | (41,409) | | | — | | | — | | | — | | | (41,414) | | | — | | | (2) | | | (32,354) | | | — | | | — | | | — | | | (32,356) |
Contributions from noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | 760 | | | 760 | | | — | | | — | | | — | | | — | | | — | | | 857 | | | 857 |
Distributions to noncontrolling interests | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (10,975) | |
| (10,975) | |
| — | |
| — | |
| (335) | |
| — | |
| — | |
| (6,400) | |
| (6,735) |
Balance as of September 30, 2020 | | $ | 12 | | $ | 74 | | $ | 3,247,453 | | $ | (2,289,668) | | $ | (57,111) | | $ | 192,688 | | $ | 1,093,448 | |||||||||||||||||||||
Balance as of June 30, 2021 | | $ | 12 | | $ | 72 | | $ | 3,185,748 | | $ | (2,338,454) | | $ | (35,824) | | $ | 197,152 | | $ | 1,008,706 |
(1) | Refer to Note |
(2) | Net of payments for withholding taxes upon vesting of stock-based compensation. |
The accompanying notes are an integral part of the consolidated financial statements.
6
iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
| | | | | | | |
|
| For the Nine Months Ended September 30, | | ||||
|
| 2021 |
| 2020 | | ||
Cash flows from operating activities: | | |
|
| |
| |
Net income (loss) | | $ | 127,567 | | $ | (20,793) | |
Adjustments to reconcile net income (loss) to cash flows from operating activities: | |
|
| |
|
| |
(Recovery of) provision for loan losses | |
| (7,613) | |
| 4,093 | |
(Recovery of) provision for losses on net investment in leases | |
| (1,735) | |
| 2,001 | |
Impairment of assets | |
| 2,965 | |
| 6,491 | |
Depreciation and amortization | |
| 44,971 | |
| 43,407 | |
Non-cash interest income from sales-type leases | |
| (22,243) | |
| (15,681) | |
Stock-based compensation expense | |
| 23,300 | |
| 26,675 | |
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | |
| 5,920 | |
| 10,055 | |
Amortization of discounts/premiums and deferred interest on loans, net | |
| (11,730) | |
| (24,360) | |
Deferred interest on loans received | |
| 24,394 | |
| 15,275 | |
Earnings from equity method investments | |
| (114,675) | |
| (26,003) | |
Distributions from operations of other investments | |
| 37,433 | |
| 17,146 | |
Deferred operating lease income | |
| (7,874) | |
| (11,276) | |
Income from sales of real estate | |
| (28,433) | |
| (6,118) | |
Land development revenue in excess of cost of sales | |
| (10,429) | |
| (1,550) | |
Loss on early extinguishment of debt, net | |
| 0 | |
| 12,038 | |
Other operating activities, net | |
| (14,031) | |
| (21,207) | |
Changes in assets and liabilities: | |
| | |
| | |
Origination and fundings of loans receivable held for sale | | | (42,000) | | | 0 | |
Changes in accrued interest and operating lease income receivable | |
| 5,259 | |
| 352 | |
Changes in deferred expenses and other assets, net | |
| (9,186) | |
| (6,079) | |
Changes in accounts payable, accrued expenses and other liabilities | |
| (6,601) | |
| (10,644) | |
Cash flows used in operating activities | |
| (4,741) | |
| (6,178) | |
Cash flows from investing activities: | |
|
| |
|
| |
Originations and fundings of loans receivable, net | |
| (71,921) | |
| (80,635) | |
Capital expenditures on real estate assets | |
| (5,835) | |
| (11,661) | |
Capital expenditures on land and development assets | |
| (15,603) | |
| (33,488) | |
Acquisitions of real estate, net investments in leases and land assets | |
| (42,000) | |
| 0 | |
Repayments of and principal collections on loans receivable and other lending investments, net | |
| 226,065 | |
| 151,612 | |
Net proceeds from sales of loans receivable | |
| 122,609 | |
| 0 | |
Net proceeds from sales of real estate | | | 140,576 | | | 42,684 | |
Net proceeds from sales of land and development assets | |
| 154,094 | |
| 113,670 | |
Net proceeds from sales of other investments | | | 3,000 | | | 0 | |
Distributions from other investments | |
| 34,926 | |
| 12,139 | |
Contributions to and acquisition of interest in other investments | |
| (171,005) | |
| (194,775) | |
Other investing activities, net | |
| (1,184) | |
| (5,214) | |
Cash flows provided by (used in) investing activities | |
| 373,722 | |
| (5,668) | |
Cash flows from financing activities: | |
|
| |
|
| |
Borrowings from debt obligations | |
| 25,000 | |
| 737,913 | |
Repayments and repurchases of debt obligations | |
| (44,534) | |
| (824,740) | |
Preferred dividends paid | |
| (17,622) | |
| (17,622) | |
Common dividends paid | |
| (26,149) | |
| (24,397) | |
Repurchase of stock | |
| (88,946) | |
| (47,272) | |
Payments for debt prepayment or extinguishment costs | | | 0 | | | (8,567) | |
Payments for deferred financing costs | |
| (75) | |
| (7,475) | |
Payments for withholding taxes upon vesting of stock-based compensation | |
| (2,210) | |
| (2,001) | |
Contributions from noncontrolling interests | |
| 233 | |
| 760 | |
Distributions to noncontrolling interests | |
| (10,317) | |
| (10,975) | |
Cash flows used in financing activities | |
| (164,620) | |
| (204,376) | |
Effect of exchange rate changes on cash | |
| (126) | |
| (10) | |
Changes in cash, cash equivalents and restricted cash | |
| 204,235 | |
| (216,232) | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 150,566 | |
| 352,206 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 354,801 | | $ | 135,974 | |
| | | | | | | |
|
| For the Six Months Ended June 30, | | ||||
|
| 2022 |
| 2021 | | ||
Cash flows from operating activities: | | |
|
| |
| |
Net income (loss) | | $ | 663,306 | | $ | (3,427) | |
Adjustments to reconcile net income (loss) to cash flows from operating activities: | |
|
| |
|
| |
Provision for (recovery of) loan losses | |
| 22,713 | |
| (6,057) | |
Provision for losses on net investment in leases | |
| 380 | |
| (1,866) | |
Impairment of assets | |
| 3,260 | |
| 1,785 | |
Depreciation and amortization | |
| 2,695 | |
| 30,115 | |
Non-cash interest income from sales-type leases | |
| (1,706) | |
| (18,808) | |
Stock-based compensation (income) expense | |
| (30,350) | |
| 20,299 | |
Amortization of discounts/premiums and deferred financing costs on debt obligations, net | |
| 5,278 | |
| 3,957 | |
Amortization of discounts/premiums and deferred interest on loans, net | |
| (5,398) | |
| (7,459) | |
Deferred interest on loans received | |
| 4,738 | |
| 23,703 | |
Earnings from equity method investments | |
| (171,305) | |
| (25,466) | |
Distributions from operations of other investments | |
| 130,245 | |
| 18,193 | |
Deferred operating lease income | |
| (2,267) | |
| (5,211) | |
Income from sales of real estate | |
| (684,229) | |
| (2,822) | |
Land development revenue in excess of cost of sales | |
| (712) | |
| (4,441) | |
Loss on early extinguishment of debt, net | |
| 159,399 | |
| 0 | |
Other operating activities, net | |
| (9,958) | |
| (2,148) | |
Changes in assets and liabilities: | |
| | |
| | |
Origination and fundings of loans receivable held for sale | | | 0 | | | (62,525) | |
Changes in accrued interest and operating lease income receivable | |
| 1,937 | |
| 3,572 | |
Changes in deferred expenses and other assets, net | |
| (8,921) | |
| (1,637) | |
Changes in accounts payable, accrued expenses and other liabilities | |
| (51,724) | |
| (4,719) | |
Cash flows provided by (used in) operating activities | |
| 27,381 | |
| (44,962) | |
Cash flows from investing activities: | |
|
| |
|
| |
Originations and fundings of loans receivable, net | |
| (4,762) | |
| (65,208) | |
Capital expenditures on real estate assets | |
| (858) | |
| (4,287) | |
Capital expenditures on land and development assets | |
| (10,165) | |
| (8,382) | |
Acquisitions of real estate, net investments in leases and land assets | |
| (34,115) | |
| (42,000) | |
Repayments of and principal collections on loans receivable and other lending investments, net | |
| 57,273 | |
| 209,779 | |
Net proceeds from sales of loans receivable | |
| 145,583 | |
| 79,560 | |
Net proceeds from sales of real estate | |
| 1,981,599 | |
| 3,259 | |
Net proceeds from sales of land and development assets | |
| 38,004 | |
| 61,945 | |
Net proceeds from sales of net investment in leases | | | 572,251 | | | 12,825 | |
Distributions from other investments | |
| 153,629 | |
| 22,996 | |
Contributions to and acquisition of interest in other investments | |
| (273,179) | |
| (91,419) | |
Other investing activities, net | |
| (138) | |
| 4,910 | |
Cash flows provided by investing activities | |
| 2,625,122 | |
| 183,978 | |
Cash flows from financing activities: | |
|
| |
|
| |
Borrowings from debt obligations | |
| 50,000 | |
| 25,000 | |
Repayments and repurchases of debt obligations | |
| (1,037,079) | |
| (35,900) | |
Purchase of marketable securities in connection with the defeasance of mortgage notes payable | |
| (252,571) | |
| 0 | |
Preferred dividends paid | |
| (11,748) | |
| (11,748) | |
Common dividends paid | |
| (19,385) | |
| (17,304) | |
Repurchase of stock | |
| 0 | |
| (32,556) | |
Payments for deferred financing costs | |
| 0 | |
| (75) | |
Payments for withholding taxes upon vesting of stock-based compensation | |
| (10,428) | |
| (2,181) | |
Contributions from noncontrolling interests | |
| 7,893 | |
| 64 | |
Distributions to noncontrolling interests | |
| (351,005) | |
| (6,401) | |
Payments for debt prepayment or extinguishment costs | |
| (16,289) | |
| 0 | |
Cash flows used in financing activities | |
| (1,640,612) | |
| (81,101) | |
Effect of exchange rate changes on cash | |
| (50) | |
| (111) | |
Changes in cash, cash equivalents and restricted cash | |
| 1,011,841 | |
| 57,804 | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 393,996 | |
| 150,566 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 1,405,837 | | $ | 208,370 | |
7
| | | | | | | |
|
| For the Nine Months Ended September 30, | | ||||
| | 2021 |
| 2020 | | ||
Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows | | | | | | | |
Cash and cash equivalents | | $ | 298,886 | | $ | 88,187 | |
Restricted cash included in deferred expenses and other assets, net | | | 55,915 | | | 47,787 | |
Total cash and cash equivalents and restricted cash | | $ | 354,801 | | $ | 135,974 | |
Supplemental disclosure of non-cash investing and financing activity: |
| |
|
| |
| |
Fundings and (repayments) of loan receivables and loan participations, net | | $ | (42,501) | | $ | 6,160 | |
Accounts payable for capital expenditures on land and development and real estate assets | | | 1,125 | | | — | |
Contributions to other investments | | | 2,000 | | | — | |
Accrued repurchase of stock | | | 3,117 | | | 499 | |
| | | | | | | |
|
| For the Six Months Ended June 30, | | ||||
| | 2022 |
| 2021 | | ||
Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows | | | | | | | |
Cash and cash equivalents | | $ | 1,400,658 | | $ | 154,941 | |
Restricted cash included in deferred expenses and other assets, net | | | 5,179 | | | 53,429 | |
Total cash and cash equivalents and restricted cash | | $ | 1,405,837 | | $ | 208,370 | |
Supplemental disclosure of non-cash investing and financing activity: |
| |
|
| |
| |
Fundings and (repayments) of loan receivables and loan participations, net | | $ | — | | $ | (42,501) | |
Distributions to noncontrolling interests | |
| 34,467 | |
| — | |
Defeasance of mortgage notes payable | |
| 230,452 | |
| — | |
Marketable securities transferred in connection with the defeasance of mortgage notes payable | |
| 252,571 | |
| — | |
Accounts payable for capital expenditures on land and development and real estate assets | |
| 2,839 | |
| 930 | |
Assumption of mortgage by third party | |
| 62,825 | |
| — | |
The accompanying notes are an integral part of the consolidated financial statements.
8
Note 1—Business and Organization
Business—iStar Inc. (the “Company”) finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company also manages entities focused on ground lease and net lease investments (refer to Note 8). The Company has invested over $40 billion of capital over the past two decades and is structured as a real estate investment trust (“REIT”) with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company’s primary reportable business segments are net lease (refer to Note 3 - Net Lease Sale and Discontinued Operations), real estate finance, operating properties and land and development (refer to Note 18)17).
Organization—The Company began its business in 1993 through the management of private investment funds and became publicly traded in 1998. Since that time, the Company has grown through the origination of new investments and corporate acquisitions.
Note 2—Basis of Presentation and Principles of Consolidation
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 (the “2020“2021 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 (refer to Note 3 – Net Lease Sale and Discontinued Operations) to conform to the current period presentation.
Principles of Consolidation—The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, controlled partnerships 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 “Net income from discontinued operations,” “Operating lease income,” “Interest income,” “Earnings from equity method investments,” “Real estate expense” and “Interest expense” in the Company’s consolidated statements of operations. The Company has provided no financial support to those VIEs that it was not previously contractually required to provide.
Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE’s respective assets. The Company did not have any unfunded commitments related to consolidated VIEs as of SeptemberJune 30, 20212022 and December 31,
9
December 31, 2020.2021. The following table presents the assets and liabilities of the Company’s consolidated VIEs as of SeptemberJune 30, 20212022 and December 31, 20202021 ($ in thousands):
| | | | | | | | | | | | |
|
| As of |
| As of | ||||||||
|
| September 30, 2021 |
| December 31, 2020 |
| June 30, 2022 |
| December 31, 2021 | ||||
ASSETS | | |
|
| |
| | |
|
| |
|
Real estate | | |
|
| |
| | |
|
| |
|
Real estate, at cost | | $ | 901,254 | | $ | 899,110 | | $ | 93,835 | | $ | 93,477 |
Less: accumulated depreciation | |
| (80,409) | |
| (61,917) | |
| (16,518) | |
| (14,987) |
Real estate, net | |
| 820,845 | |
| 837,193 | |
| 77,317 | |
| 78,490 |
Real estate and other assets available and held for sale and classified as discontinued operations | | | 198 | | | 886,845 | ||||||
Land and development, net | |
| 190,929 | |
| 240,137 | |
| 153,044 | |
| 176,833 |
Other investments | |
| 26 | |
| 35 | ||||||
Cash and cash equivalents | |
| 25,114 | |
| 22,571 | |
| 21,318 | |
| 23,908 |
Accrued interest and operating lease income receivable, net | |
| 1,282 | |
| 1,472 | ||||||
Deferred operating lease income receivable, net | |
| 36,665 | |
| 29,428 | |
| 7 | |
| 3 |
Deferred expenses and other assets, net | |
| 119,127 | |
| 122,591 | |
| 5,061 | |
| 5,001 |
Total assets | | $ | 1,193,988 | | $ | 1,253,427 | | $ | 256,945 | | $ | 1,171,081 |
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Accounts payable, accrued expenses and other liabilities | | $ | 74,307 | | $ | 115,581 | | $ | 26,151 | | $ | 24,744 |
Debt obligations, net | |
| 478,567 | |
| 488,719 | ||||||
Liabilities associated with real estate held for sale and classified as discontinued operations | | | 291 | | | 493,739 | ||||||
Total liabilities | |
| 552,874 | |
| 604,300 | |
| 26,442 | |
| 518,483 |
Unconsolidated VIEs—The Company has investments in VIEs where it is not the primary beneficiary and accordingly the VIEs have not been consolidated in the Company’s consolidated financial statements. As of SeptemberJune 30, 2021,2022, the Company’s maximum exposure to loss from these investments does not exceed the sum of the $149.4$57.5 million carrying value of the investments, which are classified in “Other investments” on the Company’s consolidated balance sheets, and $7.6$2.2 million of related unfunded commitments.
Note 3—Summary of Significant Accounting Policies
The following paragraph describesNet Lease Sale and Discontinued Operations—A discontinued operation represents: (i) a component of the impactCompany or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on the Company’s operations and financial results or (ii) an acquired business that is classified as held for sale on the date of acquisition.
Net Lease Sale—In March 2022, the Company, through certain subsidiaries of and entities managed by the Company, closed on a definitive purchase and sale agreement to sell a portfolio of net lease properties owned and managed by such subsidiaries and entities to a third party for an aggregate gross sales price of approximately $3.07 billion and recognized a gain of $663.7 million in “Net income from discontinued operations” in the Company’s consolidated financial statements from the adoption of Accounting Standards Updates (“ASUs”) on January 1, 2021.
operations. The Company adopted ASU 2020-06, Debt—Debtrefers to this transaction as the "Net Lease Sale" in this report. The Net Lease Sale is consistent with Conversionthe Company’s stated corporate strategy which is to grow its Ground Lease and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) on January 1, 2021 using the modified retrospective approach method. Under the modified retrospective approach, the Company recorded a cumulative effect adjustment on January 1, 2021 by increasing “Debt obligations, net” by $10.0 million, increasing retained earnings by $15.9 million and decreasing “Additional paid-in capital” by $25.9 million with respect to its 3.125% senior convertible notesGround Lease adjacent businesses (refer to Note 11)8) and simplify its portfolio through sales of other assets.
The portfolio sold consisted of office, entertainment and industrial properties located in the United States comprising approximately 18.3 million square feet. It included assets wholly-owned by the Company and assets owned by 2 joint ventures (see Net Lease Venture and Net Lease Venture II below) managed by the Company and in which it owned 51.9% interests. Periods presented that are priorAt the time of closing, the portfolio was encumbered by an aggregate of $702 million of mortgage indebtedness, including indebtedness from equity method investments, which was repaid with proceeds from the sale. After repayment of the mortgage indebtedness and prepayment penalties, a senior term loan secured by certain of the assets (refer to Note 10), payments to terminate derivative contracts, payments to joint venture partners, and payments of promotes, transaction expenses and amounts due under employee incentive plans, the adoption dateCompany retained net cash proceeds of January 1, 2021 will not be adjusted.$1.2 billion from the transaction. In addition, upon the adoption of ASU 2020-06, the Company is required to use a modified if-converted method when calculating earnings per share. The Company will settle conversionsas part of the 3.125% senior convertible notes by payingtransaction, the conversion value in cash up to the original principal amountbuyer sold 3 of the notes being converted and shares of common stockproperties to the extent of any conversion premium. The if-converted method is modified so that interest expense is not added back to the numerator, and the denominator only includes the net number of incremental shares that would be issued upon conversion.
For the remainder of the Company’s significant accounting policies, refer to the Company’s 2020 Annual Report.Safehold
10
New Accounting Pronouncements—In March 2020,Inc. (“SAFE”) for $122.0 million and entered into 3 Ground Leases with SAFE. NaN net lease properties were sold to different third parties in the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In March 2020, the Company elected to apply the hedge accounting expedients related to probabilityfirst quarter of 2022 and the assessments of effectiveness for future LIBOR-indexed cash flows to assume thatCompany’s net lease assets associated with its Ground Lease businesses were not included in the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation.sale. The Company continues to evaluatereceived net cash proceeds of $33.9 million from the impactsale of the guidance2 net lease properties and may apply other elections as applicable as additional changesrecognized a gain of $23.9 million in “Net income from discontinued operations” in the market occur.Company’s consolidated statements of operations.
Note 4—Real Estate
The Company’s real estate assets were comprised of the following ($ in thousands):
| | | | | | | | | |
|
| Net |
| Operating |
| | | ||
| | Lease(1) | | Properties | | Total | |||
As of September 30, 2021 |
| |
|
| |
|
| |
|
Land, at cost | | $ | 188,418 | | $ | 6,830 | | $ | 195,248 |
Buildings and improvements, at cost | |
| 1,355,984 | |
| 106,634 | |
| 1,462,618 |
Less: accumulated depreciation | |
| (280,521) | |
| (20,421) | |
| (300,942) |
Real estate, net(1) | |
| 1,263,881 | |
| 93,043 | |
| 1,356,924 |
Real estate available and held for sale(2) | |
| 0 | |
| 1,983 | |
| 1,983 |
Total real estate | | $ | 1,263,881 | | $ | 95,026 | | $ | 1,358,907 |
As of December 31, 2020 | |
|
| |
|
| |
|
|
Land, at cost | | $ | 188,418 | | $ | 103,530 | | $ | 291,948 |
Buildings and improvements, at cost | |
| 1,353,683 | |
| 106,422 | |
| 1,460,105 |
Less: accumulated depreciation | |
| (250,198) | |
| (17,574) | |
| (267,772) |
Real estate, net(1) | |
| 1,291,903 | |
| 192,378 | |
| 1,484,281 |
Real estate available and held for sale(2) | |
| 0 | |
| 5,212 | |
| 5,212 |
Total real estate | | $ | 1,291,903 | | $ | 197,590 | | $ | 1,489,493 |
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets (the “Net Lease Venture”) and gave a right of first offer to the venture on all new net lease investments. The Company and its partner had joint decision making rights pertaining to the acquisition of new investments. Upon the expiration of the investment period on June 30, 2018, the Company obtained control of the venture through its unilateral rights of management and disposition of the assets. As a result, the expiration of the investment period resulted in a reconsideration event under GAAP and the Company determined that the Net Lease Venture is a VIE for which the Company is the primary beneficiary. Effective June 30, 2018, the Company consolidated the Net Lease Venture as an asset acquisition under ASC 810. The Net Lease Venture had previously been accounted for as an equity method investment. The Company has an equity interest in the Net Lease Venture of approximately 51.9%. The Company iswas 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 iswas substantially devoted to the Net Lease Venture ownowned a total of 0.6% equity ownership in the venture via co-investment. These senior executives arewere also entitled to an amount equal to 50% of any incentive fee received based on the 47.5% external partner’s interest. Net Lease Venture was part of the Net Lease Sale. As of June 30, 2022, $3.2 million of “Noncontrolling interests” was attributable to the Net Lease Venture and represented proceeds from the Net Lease Sale that were not yet distributed to the Company’s partners in the venture as of June 30, 2022.
Dispositions—
Net Lease Venture II—In July 2018, the Company entered into a new venture (the “Net Lease Venture II”) with an investment strategy similar to the Net Lease Venture. The Company was responsible for managing the venture in exchange for a management fee and incentive fee. During the ninesix months ended SeptemberJune 30, 2022, the Company recorded $0.4 million of management fees from Net Lease Venture II in “Net income from discontinued operations” in the Company’s consolidated statements of operations. During the three and six months ended June 30, 2021, the Company sold an operating property with a carrying value of $96.8 million for $125.0recorded $0.4 million and recognized a gain$0.8 million, respectively, of $25.6management fees from Net Lease Venture II in “Net income from discontinued operations” in the Company’s consolidated statements of operations. Net Lease Venture II was part of the Net Lease Sale. As of June 30, 2022, $2.0 million after selling costs. of “Real estate and other assets available and held for sale and classified as discontinued operations” was attributable to the Net Lease Venture II and represented proceeds from the Net Lease Sale that were not yet distributed to the Company as of June 30, 2022.
Discontinued Operations—The gain isCompany’s net lease assets and liabilities associated with the Net Lease Sale and the Company’s other 2 net lease assets are classified as “Real estate and other assets available and held for sale and classified as discontinued operations” and “Liabilities associated with real estate held for sale and classified as discontinued operations,” respectively, on the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021. For the three months ended June 30, 2021 and the six months ended June 30, 2022 and 2021, the operations of such assets are classified in “Net income from discontinued operations” in the Company’s consolidated statements of operations.
11
recorded in “Income from sales of real estate” inThe following table presents the Company’s consolidated statementsassets and liabilities recorded in “Real estate and other assets available and held for sale and classified as discontinued operations” and “Liabilities associated with real estate held for sale and classified as discontinued operations,” respectively, on the Company’s consolidated balance sheets as of operations. June 30, 2022 and December 31, 2021 ($ in thousands).
| | | | | | | |
| | As of | | ||||
| | June 30, | | December 31, | | ||
| | 2022 |
| 2021 | | ||
ASSETS | | |
|
| |
| |
Real estate | | |
|
| |
| |
Real estate, at cost | | $ | — | | $ | 1,537,655 | |
Less: accumulated depreciation | |
| — | |
| (271,183) | |
Total real estate, net | |
| — | |
| 1,266,472 | |
Net investment in leases | |
| — | |
| 486,389 | |
Loans receivable held for sale | | | — | | | 48,675 | |
Other investments | |
| 1,972 | |
| 103,229 | |
Finance lease right of use assets | | | — | | | 150,099 | |
Accrued interest and operating lease income receivable, net | |
| 548 | |
| 2,997 | |
Deferred operating lease income receivable, net | |
| — | |
| 63,156 | |
Deferred expenses and other assets, net | |
| 8,998 | |
| 178,694 | |
Total real estate and other assets available and held for sale and classified as discontinued operations | | $ | 11,518 | | $ | 2,299,711 | |
| |
|
| |
|
| |
LIABILITIES | |
|
| |
|
| |
Accounts payable, accrued expenses and other liabilities | | $ | 5,715 | | $ | 92,865 | |
Finance lease liabilities | | | — | | | 161,258 | |
Debt obligations, net | |
| — | |
| 714,296 | |
Total liabilities associated with real estate held for sale and classified as discontinued operations | | $ | 5,715 | | $ | 968,419 | |
12
The transaction described above involving the Company's net lease business qualified for discontinued operations and the following table summarizes net income from discontinued operations for the three and six months ended June 30, 2022 and 2021 ($ in thousands):
| | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Revenues: |
| |
|
| |
| | |
|
| |
| |
Operating lease income | | $ | — | | $ | 40,752 | | $ | 35,596 | | $ | 83,265 | |
Interest income | |
| — | |
| 889 | |
| 885 | |
| 1,749 | |
Interest income from sales-type leases | |
| — | |
| 8,532 | |
| 8,803 | |
| 17,159 | |
Other income | |
| — | |
| 1,161 | |
| 4,292 | |
| 2,436 | |
Total revenues | |
| — | |
| 51,334 | |
| 49,576 | |
| 104,609 | |
Costs and expenses: | | | | | | | | | | | | | |
Interest expense(1) | |
| — | |
| 10,776 | |
| 7,484 | |
| 21,530 | |
Real estate expense | |
| — | |
| 6,972 | |
| 5,072 | |
| 15,148 | |
Depreciation and amortization(1) | |
| — | |
| 13,087 | |
| — | |
| 26,141 | |
Recovery of loan losses | | | — | | | (105) | | | — | | | (257) | |
Recovery of losses on net investment in leases | |
| — | |
| (1,044) | |
| — | |
| (2,646) | |
Impairment of assets(2) | |
| — | |
| — | |
| 1,492 | |
| 1,528 | |
Other expense(3) | |
| — | |
| — | |
| (5,669) | |
| — | |
Total costs and expenses | |
| — | |
| 29,686 | |
| 8,379 | |
| 61,444 | |
Income from sales of real estate | |
| — | |
| 2,114 | |
| 683,738 | |
| 2,114 | |
Income from discontinued operations before earnings from equity method investments and other items | |
| — | |
| 23,762 | |
| 724,935 | |
| 45,279 | |
Earnings from equity method investments | |
| — | |
| 1,599 | |
| 127,129 | |
| 2,600 | |
Loss on early extinguishment of debt, net | |
| — | |
| — | |
| (41,408) | |
| — | |
Net income from discontinued operations before income taxes | |
| — | |
| 25,361 | |
| 810,656 | |
| 47,879 | |
Income tax expense | |
| — | |
| (46) | |
| (12,968) | |
| (79) | |
Net income from discontinued operations | |
| — | |
| 25,315 | |
| 797,688 | |
| 47,800 | |
Net (income) from discontinued operations attributable to noncontrolling interests | |
| — | |
| (2,273) | |
| (179,089) | |
| (4,838) | |
Net income from discontinued operations attributable to iStar Inc. | | $ | — | | $ | 23,042 | | $ | 618,599 | | $ | 42,962 | |
(1) | For the six months ended June 30, 2022, the Company recorded $1.3 million of “Interest expense” in its consolidated statements of operations from its Ground Leases with SAFE. For the three and six months ended June 30, 2021, the Company recorded $2.1 million and $4.1 million, respectively, of “Interest expense” and $0.4 million and $0.7 million, respectively, of “Depreciation and amortization” in its consolidated statements of operations from its Ground Leases with SAFE. |
(2) | During both the six months ended June 30, 2022 and 2021, the Company sold assets and recognized aggregate impairments of $1.5 million in connection with the sales. |
(3) | Represents the reversal of other expenses recognized in connection with the settlement of interest rate hedges during the six months ended June 30, 2022. |
The following table presents cash flows provided by operating activities and cash flows used in investing activities from discontinued operations for the six months ended June 30, 2022 and 2021 ($ in thousands):
| | | | | | |
| | For the Six Months Ended June 30, | ||||
| | 2022 |
| 2021 | ||
Cash flows provided by operating activities | | $ | 119,950 | | $ | 43,934 |
Cash flows provided by investing activities | |
| 2,660,531 | |
| 4,845 |
13
Note 4—Real Estate
The Company’s real estate assets were comprised of the following ($ in thousands):
| | | | | | |
|
| As of | ||||
| | June 30, 2022 |
| December 31, 2021 | ||
Land, at cost | | $ | 7,125 | | $ | 6,831 |
Buildings and improvements, at cost | |
| 104,784 | |
| 106,679 |
Less: accumulated depreciation | |
| (21,678) | |
| (21,360) |
Real estate, net | |
| 90,231 | |
| 92,150 |
Real estate available and held for sale(1) | |
| 1,970 | |
| 301 |
Total real estate | | $ | 92,201 | | $ | 92,451 |
(1) | As of June 30, 2022 and December 31, 2021, the Company had $2.0 million and $0.3 million, respectively, of residential homes/condominiums available for sale in its operating properties portfolio. |
Dispositions—Refer to Note 3 - Net Lease Sale and Discontinued Operations.
Impairments—During the ninethree and six months ended SeptemberJune 30, 2020,2022, the Company sold a net lease asset for net proceeds of $7.5 million and recognized an impairment of $1.7 million in connection with the sale.
Impairments— During the three and nine months ended September 30, 2021, the Company recorded an impairment of $0.4$1.8 million on an operating property. Duringproperty based on the nine months ended September 30, 2020, the Company recorded an impairment of $1.7 million in connection with the sale of a net lease asset and an impairment of $3.0 million on a real estate asset held for sale.expected cash flows to be received.
Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements were $5.3$0.7 million and $17.4 million for the three and nine months ended September 30, 2021, respectively, and $5.8 million and $17.11.4 million for the three and ninesix months ended SeptemberJune 30, 2020,2022, respectively, and $0.8 million and $1.4 million for the three and six months ended June 30, 2021, 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, 20212022 and December 31, 2020,2021, the allowance for doubtful accounts related to real estate tenant receivables was $0.4$0.1 million and $1.7$0.1 million, respectively. These amounts are included in “Accrued interest and operating lease income receivable, net” on the Company’s consolidated balance sheets.
Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-cancelable operating leases, excluding customer reimbursements of expenses, in effect as of SeptemberJune 30, 2021,2022, are as follows by year ($ in thousands):
| | | | | | | | | |
|
| Net |
| Operating |
| Operating | |||
Year | | Lease | | Properties | | Properties | |||
2021 (remaining three months) | | $ | 32,800 | | $ | 1,455 | |||
2022 | |
| 133,616 | |
| 6,226 | |||
2022 (remaining six months) | | $ | 3,236 | ||||||
2023 | |
| 125,330 | |
| 5,966 | |
| 6,322 |
2024 | |
| 119,714 | |
| 5,913 | |
| 6,206 |
2025 | |
| 123,248 | |
| 5,318 | |
| 5,600 |
2026 | |
| 5,125 | ||||||
Thereafter | |
| 1,385,609 | |
| 7,825 | |
| 4,361 |
Note 5—Net Investment in Leases
In June 2021, the Company acquired 2 parcels of land for $42.0 million each and simultaneously entered into 2 Ground Leases with the respective tenants. Each Ground Lease also provides for a leasehold improvement allowance up to a maximum of $83.0 million. The Company also concurrently entered into an agreement pursuant to which SAFE would acquire the Ground Leases from the Company. If certain construction conditions are not met within a specified time period, SAFE will have 0 obligation to acquire the Ground Leases or fund the leasehold improvement allowances. The Company classified 1 of the Ground Leases as a sales-type lease and it iswas recorded in “Net investment in leases” on the
14
Company’s consolidated balance sheets.sheet at the time of acquisition. In January 2022, the Company sold the Ground Lease to an investment fund in which the Company owns a 53% noncontrolling interest (refer to Note 8 – Ground Lease Plus Fund). NaN Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheet.sheet at the time of acquisition. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the properties and Ground Leases from the Company. In January 2022, the Company sold the Ground Lease to the Ground Lease Plus Fund (refer to Note 8).
In May 2019,January 2022, the Company entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of 9 bowling centerscommitment to acquire land for $56.7 million, of which 7 were acquired from the lessee for $44.1$36.0 million and a commitment to invest up to $55.0 million in additional bowling centers over the next several years. The new centers were added to the Company’s existing master leases with the tenant. In connection with this transaction, the maturities of the master leases were extended by 15 years to 2047. In the second quarter 2020, the Companysimultaneously structured and entered into a transactionGround Lease as part of the Ground Lease tenant’s recapitalization of an existing multifamily property. As of June 30, 2022, the Company had funded $32.0 million of this commitment. SAFE (refer to Note 8) waived its right of first refusal on this investment but entered into an agreement with the lessee whereby itCompany pursuant to which SAFE would apply $10 millionacquire the land and related Ground Lease when certain construction related conditions are met. SAFE acquired the Ground Lease from the Company in July 2022.
The Company’s net investment in leases were comprised of the net proceeds it received from certain salesfollowing as of the lessee’s facilitiesJune 30, 2022 and December 31, 2021 ($ in thousands):
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Total undiscounted cash flows | | $ | 356,302 | | $ | 524,712 |
Unguaranteed estimated residual value | |
| 21,750 | |
| 42,000 |
Present value discount | |
| (345,673) | |
| (523,497) |
Allowance for losses on net investment in leases | |
| (380) | |
| — |
Net investment in leases(1) | | $ | 31,999 | | $ | 43,215 |
(1) | As of June 30, 2022 and December 31, 2021, the Company’s net investment in lease was current in its payment status and performing in accordance with the terms of the lease. |
Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to the lessee’s upcoming rent obligations to the Company. In exchange, the Company’s obligationbe collected under thesales-type leases, excluding lease topayments that are not fixed and determinable, in effect as of June 30, 2022, are as follows by year ($ in thousands):
| | | |
|
| Amount | |
2022 (remaining six months) | | $ | 520 |
2023 | |
| 1,056 |
2024 | |
| 1,204 |
2025 | |
| 1,240 |
2026 | |
| 1,264 |
Thereafter | |
| 351,018 |
Total undiscounted cash flows | | $ | 356,302 |
1215
acquire an equal amount of new facilities for them or to reduce their rent in the future was terminated. In the third quarter 2020, the Company granted the lessee a nine-month rent deferral on its 2 wholly-owned master leases in exchange for eliminating the Company’s commitment to invest up to $55.0 million in additional bowling centers over the next several years. All deferred amounts are required to be repaid with interest beginning in January 2023.
As a result of the May 2019 modifications to the leases, the Company classified the leases as sales-type leases and recorded $424.1 million in “Net investment in leases” on its consolidated balance sheet. As a result of the modifications in the second and third quarter 2020, the Company reassessed this classification as required by ASC 842, and concluded that the leases should continue to be classified as sales-type leases. In May 2019, the Company determined that the 7 bowling centers acquired did not qualify as a sale leaseback transaction and recorded $44.1 million in “Loans receivable and other lending investments, net” on its consolidated balance sheet (refer to Note 7).
For the three and nine months ended September 30, 2021, the Company recognized $7.0 million and $7.3 million, respectively, of cash interest income and $2.5 million and $19.6 million, respectively, of non-cash interest income in “Interest income from sales-type leases” in the Company’s consolidated statements of operations.For the three and nine months ended September 30, 2020, the Company recognized $1.5 million and $10.7 million, respectively, of cash interest income and $6.9 million and $14.3 million, respectively, of non-cash interest income in "Interest income from sales-type leases" in the Company's consolidated statements of operations.
Dispositions—During the nine months ended September 30, 2021, the Company sold net lease assets for net proceeds of $8.7 million and recognized an aggregate impairment of $2.3 million in connection with the sales.
The Company’s net investment in leases were comprised of the following as of September 30, 2021 and December 31, 2020 ($ in thousands):
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Total undiscounted cash flows | | $ | 1,538,758 | | $ | 1,020,921 |
Unguaranteed estimated residual value | |
| 367,804 | |
| 345,284 |
Present value discount | |
| (1,420,066) | |
| (926,233) |
Allowance for losses on net investment in leases | |
| (9,136) | |
| (10,871) |
Net investment in leases(1) | | $ | 477,360 | | $ | 429,101 |
Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases, excluding lease payments that are not fixed and determinable, in effect as of September 30, 2021, are as follows by year ($ in thousands):
| | | |
|
| Amount | |
2021 (remaining three months) | | $ | 7,372 |
2022 | |
| 30,590 |
2023 | |
| 43,272 |
2024 | |
| 43,029 |
2025 | |
| 31,955 |
Thereafter | |
| 1,382,540 |
Total undiscounted cash flows | | $ | 1,538,758 |
13
Allowance for Losses on Net Investment in Leases—Changes in the Company’s allowance for losses on net investment in leases for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 were as follows ($ in thousands):
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 |
| September 30, 2020 | | ||||
Allowance for losses on net investment in leases at beginning of period |
| $ | 9,005 | | $ | 10,937 |
| $ | 10,871 | | $ | — |
|
Initial allowance recorded upon adoption of new accounting standard(1) | |
| — | |
| — | |
| — | |
| 9,111 | |
Provision for (recovery of) losses on net investment in leases(2) | |
| 131 | |
| 176 | |
| (1,735) | |
| 2,002 | |
Allowance for losses on net investment in leases at end of period | | $ | 9,136 | | $ | 11,113 | | $ | 9,136 | | $ | 11,113 | |
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 |
| June 30, 2021 | | ||||
Allowance for losses on net investment in leases at beginning of period(1) |
| $ | 281 | | $ | 9,270 |
| $ | — | | $ | 10,871 |
|
Provision for (recovery of) losses on net investment in leases (2) | | | 99 | | | (265) | | | 380 | | | (1,866) | |
Allowance for losses on net investment in leases at end of period(1) | | $ | 380 | | $ | 9,005 | | $ | 380 | | $ | 9,005 | |
(1) |
(2) | During the three and |
Note 6—Land and Development
The Company’s land and development assets were comprised of the following ($ in thousands):
| | | | | | | | | | | | | | |
|
| As of | |
| As of | | ||||||||
| | September 30, | | December 31, | | | June 30, | | December 31, | | ||||
|
| 2021 |
| 2020 | |
| 2022 |
| 2021 | | ||||
Land and land development, at cost | | $ | 313,428 | | $ | 441,201 | | | $ | 270,978 | | $ | 297,621 | |
Less: accumulated depreciation | |
| (10,583) | |
| (10,538) | | |
| (11,260) | |
| (10,811) | |
Total land and development, net | | $ | 302,845 | | $ | 430,663 | | | $ | 259,718 | | $ | 286,810 | |
Dispositions—During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company sold land parcels and residential lots and units and recognized land development revenue of $157.9$39.3 million and $116.3$64.6 million, respectively. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recognized land development cost of sales of $147.5$38.6 million and $114.7$60.1 million, respectively, from its land and development portfolio.
Impairments—During the nine months ended September 30, 2020, the Company recorded an impairment of $1.5 million on a land and development asset.
1416
Note 7—Loans Receivable and Other Lending Investments, net
The following is a summary of the Company’s loans receivable and other lending investments by class ($ in thousands):
| | | | | | | |
|
| As of | | ||||
|
| September 30, 2021 |
| December 31, 2020 | | ||
Construction loans | | | | | | | |
Senior mortgages | | $ | 191,697 | | $ | 449,733 | |
Corporate/Partnership loans | |
| 3,516 | |
| 65,100 | |
Subtotal - gross carrying value of construction loans(1) | |
| 195,213 | |
| 514,833 | |
Loans | |
|
| |
|
| |
Senior mortgages | |
| 15,181 | |
| 35,922 | |
Corporate/Partnership loans | |
| 17,941 | |
| 20,567 | |
Subordinate mortgages | |
| 12,248 | |
| 11,640 | |
Subtotal - gross carrying value of loans | |
| 45,370 | |
| 68,129 | |
Other lending investments | |
|
| |
|
| |
Financing receivables (refer to Note 5) | |
| 48,503 | |
| 46,549 | |
Held-to-maturity debt securities | |
| 95,258 | |
| 90,715 | |
Available-for-sale debt securities | |
| 27,535 | |
| 25,274 | |
Subtotal - other lending investments | |
| 171,296 | |
| 162,538 | |
Total gross carrying value of loans receivable and other lending investments | |
| 411,879 | |
| 745,500 | |
Allowance for loan losses | |
| (6,370) | |
| (13,170) | |
Total loans receivable and other lending investments, net | | $ | 405,509 | | $ | 732,330 | |
15
Note 7—Loans Receivable and Other Lending Investments, net
The following is a summary of the Company’s loans receivable and other lending investments by class ($ in thousands):
| | | | | | | |
|
| As of | | ||||
|
| June 30, 2022 |
| December 31, 2021 | | ||
Construction loans | | | | | | | |
Senior mortgages | | $ | 133,555 | | $ | 184,643 | |
Corporate/Partnership loans | |
| 0 | |
| 618 | |
Subtotal - gross carrying value of construction loans(1) | |
| 133,555 | |
| 185,261 | |
Loans | |
|
| |
|
| |
Senior mortgages | |
| 2,590 | |
| 14,965 | |
Subordinate mortgages | |
| 12,886 | |
| 12,457 | |
Subtotal - gross carrying value of loans | |
| 15,476 | |
| 27,422 | |
Other lending investments | |
|
| |
|
| |
Held-to-maturity debt securities | |
| 35,000 | |
| 96,838 | |
Available-for-sale debt securities | |
| 23,254 | |
| 28,092 | |
Subtotal - other lending investments | |
| 58,254 | |
| 124,930 | |
Total gross carrying value of loans receivable and other lending investments | |
| 207,285 | |
| 337,613 | |
Allowance for loan losses | |
| (3,033) | |
| (4,769) | |
Total loans receivable and other lending investments, net | | $ | 204,252 | | $ | 332,844 | |
(1) | As of June 30, 2022, 100% of gross carrying value of construction loans had completed construction. |
Allowance for Loan Losses—Changes in the Company’s allowance for loan losses were as follows for the three months ended SeptemberJune 30, 20212022 and 20202021 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| General Allowance | | | | | | |
| General Allowance | | | | | | ||||||||||||||||||
|
| | |
| | |
| Held to |
| | |
| | |
| | |
| | |
| | |
| Held to |
| | |
| | | ||
| | Construction | | | | | Maturity Debt | | Financing | | Specific | | | | | Construction | | | | | Maturity Debt | | Specific | | | | |||||||
Three Months Ended September 30, 2021 | | Loans | | Loans | | Securities | | Receivables | | Allowance | | Total | |||||||||||||||||||||
Three Months Ended June 30, 2022 | | Loans | | Loans | | Securities | | Allowance | | Total | |||||||||||||||||||||||
Allowance for loan losses at beginning of period | | $ | 1,252 | | $ | 674 | | $ | 2,415 | | $ | 591 | | $ | 4,932 | ||||||||||||||||||
Provision for (recovery of) loan losses(1) | |
| (391) | |
| (224) | |
| 23,599 | |
| 117 | |
| 23,101 | ||||||||||||||||||
Charge-offs(1) | |
| — | |
| — | |
| (25,000) | |
| — | |
| (25,000) | ||||||||||||||||||
Allowance for loan losses at end of period | | $ | 861 | | $ | 450 | | $ | 1,014 | | $ | 708 | | $ | 3,033 | ||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||
Three Months Ended June 30, 2021 | | | | | | | | | | | | | | | | ||||||||||||||||||
Allowance for loan losses at beginning of period | | $ | 1,640 | | $ | 1,619 | | $ | 2,393 | | $ | 893 | | $ | 590 | | $ | 7,135 | | $ | 2,893 | | $ | 1,815 | | $ | 2,685 | | $ | 667 | | $ | 8,060 |
(Recovery of) provision for loan losses(1) | |
| (149) | |
| (865) | |
| 145 | |
| 54 | |
| 50 | |
| (765) | |
| (1,253) | |
| (196) | |
| (292) | |
| (77) | |
| (1,818) |
Allowance for loan losses at end of period | | $ | 1,491 | | $ | 754 | | $ | 2,538 | | $ | 947 | | $ | 640 | | $ | 6,370 | | $ | 1,640 | | $ | 1,619 | | $ | 2,393 | | $ | 590 | | $ | 6,242 |
| | | | | | | | | | | | | | | | | | | |||||||||||||||
Three Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | | |||||||||||||||
Allowance for loan losses at beginning of period | | $ | 11,736 | | $ | 905 | | $ | 111 | | $ | 1,159 | | $ | 21,701 | | $ | 35,612 | |||||||||||||||
(Recovery of) provision for loan losses(1) | |
| (2,598) | |
| (427) | |
| (56) | |
| 17 | |
| 899 | |
| (2,165) | |||||||||||||||
Allowance for loan losses at end of period | | $ | 9,138 | | $ | 478 | | $ | 55 | | $ | 1,176 | | $ | 22,600 | | $ | 33,447 |
(1) | During the three months ended |
Changes in the Company’s allowance for loan losses were as follows for the nine months ended September 30, 2021 and 2020 ($ in thousands):
| | | | | | | | | | | | | | | | | | |
|
| General Allowance | | | | | | | ||||||||||
|
| | |
| | |
| Held to |
| | |
| | |
| | | |
| | Construction | | | | | Maturity Debt | | Financing | | Specific | | | | ||||
Nine Months Ended September 30, 2021 | | Loans | | Loans | | Securities | | Receivables | | Allowance | | Total | ||||||
Allowance for loan losses at beginning of period | | $ | 6,541 | | $ | 1,643 | | $ | 3,093 | | $ | 1,150 | | $ | 743 | | $ | 13,170 |
Recovery of loan losses(1) | |
| (5,050) | |
| (889) | |
| (555) | |
| (203) | |
| (103) | |
| (6,800) |
Allowance for loan losses at end of period | | $ | 1,491 | | $ | 754 | | $ | 2,538 | | $ | 947 | | $ | 640 | | $ | 6,370 |
| | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | | | | |
Allowance for loan losses at beginning of period | | $ | 6,668 | | $ | 265 | | $ | — | | $ | — | | $ | 21,701 | | $ | 28,634 |
Adoption of new accounting standard(2) | |
| (353) | |
| 98 | |
| 20 | |
| 964 | |
| — | |
| 729 |
Provision for loan losses(1) | |
| 2,823 | |
| 115 | |
| 35 | |
| 212 | |
| 899 | |
| 4,084 |
Allowance for loan losses at end of period | | $ | 9,138 | | $ | 478 | | $ | 55 | | $ | 1,176 | | $ | 22,600 | | $ | 33,447 |
1617
Changes in the Company’s allowance for loan losses were as follows for the six months ended June 30, 2022 and 2021 ($ in thousands):
| | | | | | | | | | | | | | | |
|
| General Allowance | | | | | | ||||||||
|
| | |
| | |
| Held to |
| | |
| | | |
| | Construction | | | | | Maturity Debt | | Specific | | | | |||
Six Months Ended June 30, 2022 | | Loans | | Loans | | Securities | | Allowance | | Total | |||||
Allowance for loan losses at beginning of period | | $ | 1,213 | | $ | 676 | | $ | 2,304 | | $ | 576 | | $ | 4,769 |
Provision for (recovery of) loan losses(1) | |
| (352) | |
| (226) | |
| 23,710 | |
| 132 | |
| 23,264 |
Charge-offs(1) | |
| — | |
| — | |
| (25,000) | |
| — | |
| (25,000) |
Allowance for loan losses at end of period | | $ | 861 | | $ | 450 | | $ | 1,014 | | $ | 708 | | $ | 3,033 |
| | | | | | | | | | | | | | | |
Six Months Ended June 30, 2021 | | | | | | | | | | | | | | | |
Allowance for loan losses at beginning of period | | $ | 6,541 | | $ | 1,643 | | $ | 3,093 | | $ | 743 | | $ | 12,020 |
Recovery of loan losses(1) | |
| (4,901) | |
| (24) | |
| (700) | |
| (153) | |
| (5,778) |
Allowance for loan losses at end of period | | $ | 1,640 | | $ | 1,619 | | $ | 2,393 | | $ | 590 | | $ | 6,242 |
The Company’s investment in loans and other lending investments and the associated allowance for loan losses were as follows as of SeptemberJune 30, 20212022 and December 31, 20202021 ($ in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | | ||||
| | Evaluated for | | Evaluated for | | | | | Evaluated for | | Evaluated for | | | | ||||
| | Impairment(1) | | Impairment | | Total | | Impairment(1) | | Impairment | | Total | ||||||
As of September 30, 2021 |
| |
|
| |
|
| |
| |||||||||
As of June 30, 2022 |
| |
|
| |
|
| |
| |||||||||
Construction loans(2) | | $ | 58,819 | | $ | 136,394 | | $ | 195,213 | | $ | 60,256 | | $ | 73,299 | | $ | 133,555 |
Loans(2) | |
| 0 | |
| 45,370 | |
| 45,370 | |
| 0 | |
| 15,476 | |
| 15,476 |
Financing receivables | |
| 0 | |
| 48,503 | |
| 48,503 | |||||||||
Held-to-maturity debt securities | |
| 0 | |
| 95,258 | |
| 95,258 | |
| 0 | |
| 35,000 | |
| 35,000 |
Available-for-sale debt securities(3) | |
| 0 | |
| 27,535 | |
| 27,535 | |
| 0 | |
| 23,254 | |
| 23,254 |
Less: Allowance for loan losses | |
| (640) | |
| (5,730) | |
| (6,370) | |
| (708) | |
| (2,325) | |
| (3,033) |
Total | | $ | 58,179 | | $ | 347,330 | | $ | 405,509 | | $ | 59,548 | | $ | 144,704 | | $ | 204,252 |
As of December 31, 2020 | |
|
| |
|
| |
|
| |||||||||
As of December 31, 2021 | |
|
| |
|
| |
|
| |||||||||
Construction loans(2) | | $ | 53,305 | | $ | 461,528 | | $ | 514,833 | | $ | 59,640 | | $ | 125,621 | | $ | 185,261 |
Loans(2) | |
| 0 | |
| 68,129 | |
| 68,129 | |
| 0 | |
| 27,422 | |
| 27,422 |
Financing receivables | |
| 0 | |
| 46,549 | |
| 46,549 | |||||||||
Held-to-maturity debt securities | |
| 0 | |
| 90,715 | |
| 90,715 | |
| 0 | |
| 96,838 | |
| 96,838 |
Available-for-sale debt securities(3) | |
| 0 | |
| 25,274 | |
| 25,274 | |
| 0 | |
| 28,092 | |
| 28,092 |
Less: Allowance for loan losses | |
| (743) | |
| (12,427) | |
| (13,170) | |
| (576) | |
| (4,193) | |
| (4,769) |
Total | | $ | 52,562 | | $ | 679,768 | | $ | 732,330 | | $ | 59,064 | | $ | 273,780 | | $ | 332,844 |
(1) | The carrying value of this loan includes an |
(2) | The carrying value of these loans |
(3) | Available-for-sale debt securities are evaluated for impairment under ASC |
Credit Characteristics—As part of the Company’s process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments which are inherently uncertain, and there can be no assurance that actual performance will be similar to current expectation. The Company designates loans as non-performing at such time as: (1) interest payments become 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.
1718
time as: (1) interest payments become 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.
The Company’s amortized cost basis in performing senior mortgages, corporate/partnership loans and subordinate mortgages, and financing receivables, presented by year of origination and by credit quality, as indicated by risk rating, as of SeptemberJune 30, 20212022 were as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
|
| Year of Origination |
| |
| Year of Origination |
| | ||||||||||||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| Prior to 2017 |
| Total |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| Prior to 2018 |
| Total | ||||||||||||||
Senior mortgages | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Risk rating | | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
| ||
1.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
1.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 2,590 | |
| 2,590 |
2.0 | |
| 0 | |
| 0 | |
| 0 | |
| 11,900 | |
| 0 | |
| 0 | |
| 11,900 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
2.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
3.0 | |
| 0 | |
| 0 | |
| 0 | |
| 109,137 | |
| 0 | |
| 3,281 | |
| 112,418 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 64,323 | |
| 0 | |
| 64,323 |
3.5 | |
| 0 | |
| 0 | |
| 0 | |
| 23,741 | |
| 0 | |
| 0 | |
| 23,741 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 8,976 | |
| 0 | |
| 8,976 |
4.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
4.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
5.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Subtotal(1) | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 144,778 | | $ | 0 | | $ | 3,281 | | $ | 148,059 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 73,299 | | $ | 2,590 | | $ | 75,889 |
Corporate/partnership loans | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |||||||||||||||||||||
Risk rating | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |||||||||||||||||||||
1.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |||||||||||||||||||||
1.5 | |
| 0 | |
| 0 | |
| 0 | |
| 3,516 | |
| 0 | |
| 0 | |
| 3,516 | |||||||||||||||||||||
2.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
2.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
3.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
3.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
4.0 | |
| 0 | |
| 0 | |
| 0 | |
| 17,941 | |
| 0 | |
| 0 | |
| 17,941 | |||||||||||||||||||||
4.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
5.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
Subtotal | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 21,457 | | $ | 0 | | $ | 0 | | $ | 21,457 | |||||||||||||||||||||
Subordinate mortgages | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
1.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 |
1.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
2.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
2.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
3.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 12,248 | |
| 12,248 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 12,886 | |
| 12,886 |
3.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
4.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
4.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
5.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Subtotal | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 12,248 | | $ | 12,248 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 12,886 | | $ | 12,886 |
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Financing receivables | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |||||||||||||||||||||
Risk rating | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |||||||||||||||||||||
1.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |||||||||||||||||||||
1.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
2.0 | |
| 0 | |
| 0 | |
| 48,503 | |
| 0 | |
| 0 | |
| 0 | |
| 48,503 | |||||||||||||||||||||
2.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
3.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
3.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
4.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
4.5 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
5.0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |||||||||||||||||||||
Subtotal | | $ | 0 | | $ | 0 | | $ | 48,503 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 48,503 | |||||||||||||||||||||
Total | | $ | 0 | | $ | 0 | | $ | 48,503 | | $ | 166,235 | | $ | 0 | | $ | 15,529 | | $ | 230,267 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 73,299 | | $ | 15,476 | | $ | 88,775 |
(1) | As of |
The Company’s amortized cost basis in loans, aged by payment status and presented by class, was as follows ($ in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| Less Than |
| Greater |
| | |
| | | ||
| | | | | or Equal | | Than | | Total | | | | |||
| | Current | | to 90 Days | | 90 Days | | Past Due | | Total | |||||
As of June 30, 2022 | | | | | | | | | | | | | | | |
Senior mortgages | | $ | 75,889 | | $ | 0 | | $ | 60,256 | | | 60,256 | | $ | 136,145 |
Subordinate mortgages | |
| 12,886 | |
| 0 | |
| 0 | |
| 0 | |
| 12,886 |
Total | | $ | 88,775 | | $ | 0 | | $ | 60,256 | | $ | 60,256 | | $ | 149,031 |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Senior mortgages | | $ | 139,968 | | $ | 0 | | $ | 59,640 | | | 59,640 | | $ | 199,608 |
Corporate/Partnership loans | |
| 618 | |
| 0 | |
| 0 | |
| 0 | |
| 618 |
Subordinate mortgages | |
| 12,457 | |
| 0 | |
| 0 | |
| 0 | |
| 12,457 |
Total | | $ | 153,043 | | $ | 0 | | $ | 59,640 | | $ | 59,640 | | $ | 212,683 |
1819
The Company’s amortized cost basis in loans, aged by payment status and presented by class, was as follows ($ in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| Less Than |
| Greater |
| | |
| | | ||
| | | | | or Equal | | Than | | Total | | | | |||
| | Current | | to 90 Days | | 90 Days | | Past Due | | Total | |||||
As of September 30, 2021 | | | | | | | | | | | | | | | |
Senior mortgages | | $ | 148,059 | | $ | 0 | | $ | 58,819 | | | 58,819 | | $ | 206,878 |
Corporate/Partnership loans | |
| 21,457 | |
| 0 | |
| 0 | |
| 0 | |
| 21,457 |
Subordinate mortgages | |
| 12,248 | |
| 0 | |
| 0 | |
| 0 | |
| 12,248 |
Total | | $ | 181,764 | | $ | 0 | | $ | 58,819 | | $ | 58,819 | | $ | 240,583 |
As of December 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
|
Senior mortgages | | $ | 443,154 | | $ | 42,501 | | $ | 0 | | $ | 42,501 | | $ | 485,655 |
Corporate/Partnership loans | |
| 42,721 | |
| 42,946 | |
| 0 | |
| 42,946 | |
| 85,667 |
Subordinate mortgages | |
| 11,640 | |
| 0 | |
| 0 | |
| 0 | |
| 11,640 |
Total | | $ | 497,515 | | $ | 85,447 | | $ | 0 | | $ | 85,447 | | $ | 582,962 |
Impaired Loans—The Company’s impaired loan was as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| As of September 30, 2021 |
| As of December 31, 2020 |
| As of June 30, 2022 |
| As of December 31, 2021 | ||||||||||||||||||||||||||||
|
| | |
| Unpaid |
| | |
| | |
| Unpaid |
| | |
| | |
| Unpaid |
| | |
| | |
| Unpaid |
| | | ||||
| | Amortized | | Principal | | Related | | Amortized | | Principal | | Related | | Amortized | | Principal | | Related | | Amortized | | Principal | | Related | ||||||||||||
| | Cost | | Balance | | Allowance | | Cost | | Balance | | Allowance | | Cost | | Balance | | Allowance | | Cost | | Balance | | Allowance | ||||||||||||
With an allowance recorded: | | |
|
| |
|
| |
| | |
|
| |
|
| |
| | |
|
| |
|
| |
| | |
|
| |
|
| |
|
Senior mortgages(1) | | $ | 58,819 | | $ | 58,069 | | $ | (640) | | $ | 53,305 | | $ | 52,552 | | $ | (743) | | $ | 60,256 | | $ | 59,505 | | $ | (708) | | $ | 59,640 | | $ | 58,888 | | $ | (576) |
Total | | $ | 58,819 | | $ | 58,069 | | $ | (640) | | $ | 53,305 | | $ | 52,552 | | $ | (743) | | $ | 60,256 | | $ | 59,505 | | $ | (708) | | $ | 59,640 | | $ | 58,888 | | $ | (576) |
(1) | The Company has 1 non-accrual loan as of |
Loans receivable held for sale—In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be constructed. The Company funded $16.1 million at closing and the Ground Lease documents provided for future funding obligations to the Ground Lease tenant of approximately $11.9 million of deferred purchase price and $52.0 million of leasehold improvement allowance upon achievement of certain milestones. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE would acquire the ground lessor entity from the Company. The Company determined that the transaction did not qualify as a sale leaseback transaction and recorded the Ground Lease in “Loans receivable held for sale” on the Company’s consolidated balance sheet. Subsequent to closing, the Company funded approximately $6.0 million of the deferred purchase price to the Ground Lease tenant. The Company sold the ground lessor entity (and SAFE assumed all future funding obligations to the Ground Lease tenant) to SAFE in September 2021 for $22.1 million and recorded 0 gain or loss on the sale.
In June 2021, the Company acquired a parcel of land for $42.0 million and simultaneously entered into a Ground Lease (refer to Note 5). The Company also concurrently entered into an agreement pursuant to which SAFE would acquire the Ground Lease from the Company. The Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheets.sheet at the time of acquisition. In January 2022, the Company sold its loan receivable held for sale to the Ground Lease Plus Fund (refer to Note 8).
Other lending investments—Other lending investments includes the following securities ($ in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Net |
| | |
| Net | ||
| | | | | Amortized | | Unrealized | | Estimated | | Carrying | ||||
| | Face Value | | Cost Basis | | Gain (Loss) | | Fair Value | | Value | |||||
As of June 30, 2022 |
| |
|
| |
|
| |
|
| |
|
| |
|
Available-for-Sale Securities |
| |
|
| |
|
| |
|
| |
|
| |
|
Municipal debt securities | | $ | 23,640 | | $ | 23,640 | | $ | (386) | | $ | 23,254 | | $ | 23,254 |
Held-to-Maturity Securities | |
| | |
| | |
| | |
|
| |
| |
Debt securities(1) | |
| 35,000 | |
| 35,000 | |
| — | |
| 35,000 | |
| 35,000 |
Total | | $ | 58,640 | | $ | 58,640 | | $ | (386) | | $ | 58,254 | | $ | 58,254 |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
|
Available-for-Sale Securities | |
|
| |
|
| |
|
| |
|
| |
|
|
Municipal debt securities | | $ | 23,855 | | $ | 23,855 | | $ | 4,237 | | $ | 28,092 | | $ | 28,092 |
Held-to-Maturity Securities | |
| | |
| | |
| | |
|
| |
| |
Debt securities | |
| 100,000 | |
| 96,838 | |
| — | |
| 96,838 | |
| 96,838 |
Total | | $ | 123,855 | | $ | 120,693 | | $ | 4,237 | | $ | 124,930 | | $ | 124,930 |
(1) | During the three months ended June 30, 2022, the Company received a $40.0 million repayment, reduced the maturity date by six months to December 30, 2022 and recorded a $25.0 million provision in ‘Provision for (recovery of) loan losses” in its consolidated statements of operations on its debt security. |
1920
Other lending investments—Other lending investments includes the following securities ($ in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| | |
| Net |
| | |
| Net | ||
| | | | | Amortized | | Unrealized | | Estimated | | Carrying | ||||
| | Face Value | | Cost Basis | | Gain | | Fair Value | | Value | |||||
As of September 30, 2021 |
| |
|
| |
|
| |
|
| |
|
| |
|
Available-for-Sale Securities |
| |
|
| |
|
| |
|
| |
|
| |
|
Municipal debt securities | | $ | 23,855 | | $ | 23,855 | | $ | 3,680 | | $ | 27,535 | | $ | 27,535 |
Held-to-Maturity Securities | |
| | |
| | |
| | |
|
| |
| |
Debt securities | |
| 100,000 | |
| 95,258 | |
| — | |
| 95,258 | |
| 95,258 |
Total | | $ | 123,855 | | $ | 119,113 | | $ | 3,680 | | $ | 122,793 | | $ | 122,793 |
As of December 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
|
Available-for-Sale Securities | |
|
| |
|
| |
|
| |
|
| |
|
|
Municipal debt securities | | $ | 20,680 | | $ | 20,680 | | $ | 4,594 | | $ | 25,274 | | $ | 25,274 |
Held-to-Maturity Securities | |
| | |
| | |
|
| |
|
| |
| |
Debt securities | |
| 100,000 | |
| 90,715 | |
| — | |
| 90,715 | |
| 90,715 |
Total | | $ | 120,680 | | $ | 111,395 | | $ | 4,594 | | $ | 115,989 | | $ | 115,989 |
| | | | | | | | | | | | | | | |
As of SeptemberJune 30, 2021,2022, the contractual maturities of the Company’s securities were as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Held-to-Maturity Debt Securities |
| Available-for-Sale Debt Securities |
| Held-to-Maturity Debt Securities |
| Available-for-Sale Debt Securities | ||||||||||||||||
| | Amortized | | Estimated | | Amortized | | Estimated | | Amortized | | Estimated | | Amortized | | Estimated | ||||||||
| | Cost Basis |
| Fair Value |
| Cost Basis |
| Fair Value | | Cost Basis |
| Fair Value |
| Cost Basis |
| Fair Value | ||||||||
Maturities |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Within one year | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 35,000 | | $ | 35,000 | | $ | 0 | | $ | 0 |
After one year through 5 years | |
| 95,258 | |
| 95,258 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
After 5 years through 10 years | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
After 10 years | |
| 0 | |
| 0 | |
| 23,855 | |
| 27,535 | |
| 0 | |
| 0 | |
| 23,640 | |
| 23,254 |
Total | | $ | 95,258 | | $ | 95,258 | | $ | 23,855 | | $ | 27,535 | | $ | 35,000 | | $ | 35,000 | | $ | 23,640 | | $ | 23,254 |
20
Note 8—Other Investments
The Company’s other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Earnings (Losses) from | | Earnings (Losses) from | | | | | | | | Earnings (Losses) from | | Earnings (Losses) from | ||||||||||||||||
| | Carrying Value | | Equity Method Investments (1) | | Equity Method Investments(1) | | Carrying Value | | Equity Method Investments | | Equity Method Investments | ||||||||||||||||||||||||
| | as of | | For the Three Months Ended | | For the Nine Months Ended | | as of | | For the Three Months Ended | | For the Six Months Ended | ||||||||||||||||||||||||
| | September 30, | | December 31, | | September 30, | | September 30, | | June 30, | | December 31, | | June 30, | | June 30, | ||||||||||||||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||||||
Real estate equity investments | | |
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Safehold Inc. ("SAFE") | | $ | 1,113,333 | | $ | 937,712 | | $ | 73,475 | | $ | 9,331 | | $ | 94,590 | | $ | 36,905 | | $ | 1,405,985 | | $ | 1,168,532 | | $ | 14,720 | | $ | 9,703 | | $ | 31,749 | | $ | 21,115 |
iStar Net Lease II LLC ("Net Lease Venture II") | |
| 100,471 | |
| 78,998 | |
| 1,414 | |
| 811 | |
| 4,014 | |
| 1,568 | ||||||||||||||||||
Ground Lease Plus Fund | |
| 65,068 | |
| 17,630 | |
| 520 | |
| — | |
| 1,289 | |
| — | ||||||||||||||||||
Other real estate equity investments | |
| 44,196 | |
| 89,939 | |
| 11,965 | |
| (3,542) | |
| 9,902 | |
| (10,517) | |
| 38,458 | |
| 44,349 | |
| 3,773 | |
| (1,461) | |
| 7,384 | |
| (2,063) |
Subtotal | |
| 1,258,000 | |
| 1,106,649 | |
| 86,854 | |
| 6,600 | |
| 108,506 | |
| 27,956 | |
| 1,509,511 | |
| 1,230,511 | |
| 19,013 | |
| 8,242 | |
| 40,422 | |
| 19,052 |
Other strategic investments | |
| 161,766 | |
| 69,911 | |
| 2,355 | |
| 205 | |
| 6,169 | |
| (1,953) | |
| 47,281 | |
| 66,770 | |
| 380 | |
| 2,856 | |
| 4,003 | |
| 3,814 |
Total | | $ | 1,419,766 | | $ | 1,176,560 | | $ | 89,209 | | $ | 6,805 | | $ | 114,675 | | $ | 26,003 | | $ | 1,556,792 | | $ | 1,297,281 | | $ | 19,393 | | $ | 11,098 | | $ | 44,425 | | $ | 22,866 |
(1) |
As of |
During the |
Safehold Inc.—Safehold Inc. (“SAFE”)SAFE is a publicly-traded company formed by the Company primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon (“Ground Leases”). During the ninesix months ended SeptemberJune 30, 2021,2022, the Company purchased 0.40.2 million shares of SAFE's common stock for $27.9$10.5 million, for an average cost of $71.68$66.83 per share, in open market purchases made in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended. In March 2022, the Company acquired 3,240,000 shares of SAFE’s common stock in a private placement for $191.2 million. As of SeptemberJune 30, 2021,2022, the Company owned approximately 63.6%64.7% of SAFE’s common stock outstanding.
In January 2019, the Company purchased 12.5 million newly designated limited partnership units (the “Investor Units”) in SAFE’s operating partnership (“SAFE OP”), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. In May 2019, after the approval of SAFE’s stockholders,shareholders, the Investor Units were exchanged for shares of SAFE’s common stock on a 1-for-one basis. Following the exchange, the Investor Units were retired.
21
In connection with the Company’s purchase of the Investor Units, it entered into a Stockholder’s Agreement with SAFE on January 2, 2019. The Stockholder’s Agreement:
● | limits the Company’s discretionary voting power to 41.9% of the outstanding voting power of SAFE’s common stock until its aggregate ownership of SAFE common stock is less than 41.9%; |
21
● | provides the Company certain preemptive rights. |
In September 2021, the Company acquired 657,894 shares of SAFE’s common stock in a private placement for $50.0 million.
In March 2020, the Company acquired 1.7 million shares of SAFE’s common stock in a private placement for $80.0 million.
A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. In addition, the Company is also the external manager of a venture in which SAFE is a member. Following are the key terms of the management agreement with SAFE:
● | The Company receives a fee equal to 1.0% of total SAFE equity (as defined in the management agreement) up to $1.5 billion; 1.25% of total SAFE equity (for incremental equity of $1.5 billion - $3.0 billion); 1.375% of total SAFE equity (for incremental equity of $3.0 billion - $5.0 billion); and 1.5% of total SAFE equity (for incremental equity over $5.0 billion); |
● | Fee to be paid in cash or in shares of SAFE common stock, at the discretion of SAFE’s independent directors; |
● | The stock is locked up for two years, subject to certain restrictions; |
● | There is no additional performance or incentive fee; |
● | The management agreement is non-terminable by SAFE through June 30, 2023, except for cause; and |
● | Automatic annual renewals thereafter, subject to non-renewal upon certain findings by SAFE’s independent directors and payment of termination fee equal to 3 times the prior year’s management fee. |
During the three months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recorded $3.6$5.2 million and $3.2$3.5 million, respectively, of management fees pursuant to its management agreement with SAFE. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recorded $10.6$9.7 million and $9.3$7.0 million, respectively, of management fees pursuant to its management agreement with SAFE.
The Company is also entitled to receive certain expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. TheHistorically, pursuant to the Company’s option under the management agreement, the Company has elected to not seek reimbursement for certain expenses. This historical election is not a waiver of reimbursement for similar expenses in future periods and the Company has started to chargeelect to seek, and may further seek in fullthe future, reimbursement of such additional expenses that it has not previously sought, including, without limitation, rent, overhead and certain of the expense reimbursements while SAFE is growing its portfolio. personnel costs.
During the three months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recognized $1.9$3.1 million and $1.3$1.9 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recognized $5.6$6.3 million and $3.8 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE.
The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.
22
Following is a list of investments that the Company has transacted with SAFE for the periods presented, all of which were approved by the Company’s and SAFE’s independent directors, for the periods presented: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 a to-be-built luxury multi-family project. The transaction included a combination of: (i) a newly created Ground Lease and a $7.2 million leasehold improvement allowance, which was fully funded; and (ii) an $80.5 million leasehold first mortgage. During the three and nine months ended September 30, 2020, the Company recorded $0.9 million and $2.5 million, respectively, of interest income on the loan. The Company sold the Ground Lease to SAFE in September 2020 for $34.0 million and recognized a gain of $6.1 million in "Income from sales of real estate" in connection with the saleJanuary 2021 and sold the leasehold first mortgage to an entity in which the Company has a 53% noncontrolling equity interest (refer to “Other strategic investments” below) in January 2021 for $63.3 million.
In January 2019, the Company committed to provide a $13.3 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the conversion of an office building into a multi-family property. The loan was repaid during the fourth quarter 2020. During the three and nine months ended September 30, 2020, the Company recorded $0.3 million and $0.8 million, respectively, of interest income on the loan.
In June 2020, Net Lease Venture II (see below)Note 3) acquired the leasehold interest in an office laboratory property in Honolulu, HI and simultaneously entered into a 99-year Ground Lease with SAFE. In November 2021, the Company acquired the property from Net Lease Venture II. The Company paid $0.6 million to its partner to acquire its equity interest in the property and assumed a $44.4 million mortgage on the property. The Company sold the property in the first quarter of 2022. Prior to the sale, SAFE paid $0.3 million to terminate a purchase option that allowed the Company to purchase the land at the expiration of the Ground Lease.
In February 2021, the Company provided a $50.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the Ground Lease tenant’s recapitalization of a hotel property. The Company received $1.9 million of consideration from SAFE in connection with this transaction. The Company sold the loan in July 2021 and recorded 0 gain or loss on the sale. During the three and nine months ended September 30, 2021, the Company recorded $0.4 million and $2.9 million, respectively, of interest income on the loan.
In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be constructed. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE would acquire the ground lessor entity from the Company. The Company sold the ground lessor entity to SAFE in September 2021 and recognized 0 gain or loss on the sale (refer to Note 7 - Loans receivable held for sale). The Company also committed to provide a $75.0 million construction loan to the Ground Lease tenant. The Company received $2.7 million of consideration from SAFE in connection with this transaction. In September 2021, the construction loan commitment and the $2.7 million of consideration was transferred to an entity in which the Company has a 53.0% noncontrolling equity interestLoan Fund (refer to “Other strategic investments” below).
In June 2021, the Company sold to SAFE its rights under a purchase option agreement for $1.2 million. The Company had previously acquired such purchase option agreement from a third-party property owner for $1.0 million and incurred $0.2 million of expenses. Under the option agreement, upon certain conditions being met by an outside developer who may become the Ground Lease tenant, SAFE has the right to acquire for $215.0 million a property and hold a Ground Lease under approximately 1.1 million square feet of office space that may be developed on the property. NaN gain or loss was recognized by the Company as a result of the sale.
In June 2021, the Company and SAFE entered into 2 agreements pursuant to each of which SAFE would acquire land and a related Ground Lease originated by the Company when certain construction related conditions are met by a specified time period. The purchase price to be paid for each is $42.0 million, plus an amount necessary for the Company to achieve the greater of a 1.25x multiple and a 9% return on its investment. In addition, each Ground Lease provides for a leasehold improvement allowance up to a maximum of $83.0 million, which obligation would be assumed by SAFE upon acquisition. If certain construction conditions are not met within a specified time period, SAFE will have no obligation to acquire the Ground Leases or fund the leasehold improvement allowances. In January 2022, the Company sold the Ground Leases to the Ground Lease Plus Fund (see below). There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the properties and Ground Leases from the Company.Ground Lease Plus Fund.
In November 2021, the Company and SAFE entered into an agreement pursuant to which SAFE would acquire land and a related Ground Lease originated by the Company when certain construction related conditions are met by a specified time period. The purchase price to be paid is $33.3 million, plus an amount necessary for the Company to achieve the greater of a 1.25x multiple and a 12% return on its investment. In addition, the Ground Lease provides for a leasehold
23
improvement allowance up to a maximum of $51.8 million, which obligation would be assumed by SAFE upon acquisition. If certain construction conditions are not met within a specified time period, SAFE will have no obligation to acquire the Ground Lease or fund the leasehold improvement allowance. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the land and Ground Lease from the Ground Lease Plus Fund (refer to Ground Lease Plus Fund below).
In December 2021, the Company’s partner in a venture recapitalized an existing multifamily property, which included a Ground Lease provided by SAFE. As part of the recapitalization, the Company’s partner acquired its 50% equity interest in the entity and the mezzanine loan held by the Company was repaid in full. During the three and six months ended June 30, 2021, the Company recorded $0.6 million and $1.1 million, respectively, of interest income on the mezzanine loan.
In January 2022, the Company and SAFE entered into an agreement pursuant to which SAFE would acquire land and a related Ground Lease originated by the Company when certain construction related conditions are met. The purchase price to be paid is a maximum of $36.0 million (refer to Note 5), plus an amount necessary for the Company to achieve the greater of a 1.05x multiple and a 10% return on its investment. There can be no assurance that the conditions to closing will be satisfied and that SAFE will acquire the land and Ground Lease from the Company.
In February 2022, the Loan Fund (refer to Other Strategic Investments below) committed to provide a $130.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the Ground Lease tenant’s recapitalization of a life science property. The Loan Fund received $9.0 million of consideration from SAFE in connection with this transaction.
In April 2022, the Company sold a Ground Lease on a hotel property to SAFE for $9.0 million. The Company previously owned a 50% equity interest in a venture that owned the hotel property. The Company did 0t recognize any gain or loss on the sale.
In June 2022, the Loan Fund (refer to Other Strategic Investments below) committed to provide a $105.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the Ground Lease tenant’s recapitalization of a mixed-use property. The Loan Fund received $5.0 million of consideration from SAFE in connection with this transaction.
24
NetGround Lease Venture IIPlus Fund—In July 2018, theThe Company entered into a new venture (“Net Lease Venture II”) withformed and manages an investment strategy similar tofund that targets the Netorigination and acquisition of Ground Leases for commercial real estate projects that are in a pre-development phase (the “Ground Lease Venture.Plus Fund”). The Net Lease Venture II hasCompany owns a right of first offer on all new net lease investments (excluding Ground Leases) originated by the Company. In June 2021, Net Lease Venture II’s investment period was extended to December 31, 2021. Net Lease Venture II is a voting interest entity and the Company has an53% noncontrolling equity interest in the venture of approximately 51.9%.Ground Lease Plus Fund. The Company does not have a controlling interest in Netthe Ground Lease Venture IIPlus Fund due to the substantive participating rights of its partner. The Companypartner and accounts for itsthis investment in Net Lease Venture II as an equity method investment and is responsible for managinginvestment. In addition, the venture in exchange for a management fee and incentive fee. During the three months ended September 30,Ground Lease Plus Fund has first look rights through December 2023 on qualifying pre-development projects that SAFE has elected to not originate.
In November 2021, and 2020, the Company recorded $0.4acquired land for $33.3 million and $0.4 million, respectively, of management fees from Netsimultaneously structured and entered into a Ground Lease Venture II.During the nine months ended September 30,on which a multi-family project will be constructed. In December 2021, and 2020, the Company recorded $1.2sold the Ground Lease to the Ground Lease Plus Fund and recognized 0 gain or loss on the sale. The Company and SAFE entered into an agreement pursuant to which SAFE would acquire the land and related Ground Lease from the Ground Lease Plus Fund when certain construction related conditions are met by a specified time period (refer to “Safehold Inc.” above).
In January 2022, the Company sold 2 Ground Leases to the Ground Lease Plus Fund (refer to Note 5) and recognized an aggregate $0.5 million of gains in “Income from sales of real estate” on the sale. The Company and $1.1 million, respectively, of management feesSAFE entered into an agreement pursuant to which SAFE would acquire the land properties and related Ground Leases from Netthe Ground Lease Venture II.Plus Fund when certain construction related conditions are met by a specified time period (refer to “Safehold Inc.” above).
Other real estate equity investments—As of SeptemberJune 30, 2021,2022, the Company’s other real estate equity investments include equity interests in real estate ventures ranging from 48% to 95%, comprised of investments of $43.7$38.2 million in operating properties and $0.5$0.3 million in land assets. As of December 31, 2020,2021, the Company’s other real estate equity investments included $58.7$43.3 million in operating properties and $31.2$1.1 million in land assets.
In August 2018, the Company provided a mezzanine loan with a principal balance of $33.0 million as of September 30, 2021 and December 31, 2020 to an unconsolidated entity in which the Company owns a 50% equity interest. The loan matures in August 2022. As of September 30, 2021, and December 31, 2020, the loan is included in “Loans receivable and other lending investments, net” on the Company’s consolidated balance sheet. During the three months ended September 30, 2021 and 2020, the Company recorded $0.6 million and $0.6 million, respectively, of interest income on the mezzanine loan. During the nine months ended September 30, 2021 and 2020, the Company recorded $1.7 million and $1.8 million, respectively, of interest income on the mezzanine loan.
Other strategic investments—As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company also had investments in real estate related funds and other strategic investments in real estate entities.
In January 2021, the Company sold 2 loans for $83.4 million to a newly formed entity in which the Company hasowns a 53.0% noncontrolling equity interest.interest (the “Loan Fund”). The Company did 0t recognize any gain or loss on the sales. In September 2021, the Company transferred a $75.0 million construction loan commitment to this entity.the Loan Fund. The Company does not have a controlling interest in this entitythe Loan Fund due to the substantive participating rights of its partner. The Company accounts for this investment as an equity method investment and receives a fixed annual fee in exchange for managing the entity.
In February 2022, the Loan Fund committed to provide a $130.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the Ground Lease tenant’s recapitalization of a life science property.
In June 2022, the Loan Fund committed to provide a $105.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the Ground Lease tenant’s recapitalization of a mixed-use property.
Summarized investee financial information—The following table presents the investee level summarized financial information for the Company’s equity method investment that was significant as of SeptemberJune 30, 20212022 ($ in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Revenues |
| Expenses |
| Net Income Attributable to Parent |
| Revenues |
| Expenses |
| Net Income Attributable to Parent | ||||||
For the Nine Months Ended September 30, 2021 | | | | | | | | | | |||||||||
For the Six Months Ended June 30, 2022 | | | | | | | | | | |||||||||
SAFE | | $ | 135,001 | | $ | 88,585 | | $ | 51,844 | | $ | 125,247 | | $ | 82,157 | | $ | 47,551 |
| |
| | | | | | | | |
| | | | | | | |
For the Nine Months Ended September 30, 2020 | | | | | | | | | | |||||||||
For the Six Months Ended June 30, 2021 | | | | | | | | | | |||||||||
SAFE | | $ | 115,518 | | $ | 73,821 | | $ | 44,024 | | $ | 87,720 | | $ | 57,536 | | $ | 31,640 |
2425
Note 9—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):(1)
| | | | | | | | | | | | | | |
| | As of | | | As of | | ||||||||
|
| September 30, 2021 |
| December 31, 2020 | |
| June 30, 2022 |
| December 31, 2021 | | ||||
Intangible assets, net(1) | | $ | 146,588 | | $ | 156,041 | | |||||||
Other assets(2) | | $ | 19,006 | | $ | 16,040 | | |||||||
Operating lease right-of-use assets(3) | |
| 18,101 | |
| 20,437 | | |||||||
Restricted cash | |
| 55,915 | |
| 51,933 | | |
| 5,179 | |
| 54,395 | |
Operating lease right-of-use assets(2) | |
| 43,799 | |
| 48,891 | | |||||||
Other assets(3) | |
| 17,572 | |
| 19,453 | | |||||||
Other receivables | |
| 11,052 | |
| 10,881 | | |
| 3,739 | |
| 5,054 | |
Corporate furniture, fixtures and equipment, net(4) | |
| 1,696 | |
| 1,852 | | |||||||
Leasing costs, net | |
| 4,936 | |
| 2,340 | | |
| 665 | |
| 818 | |
Corporate furniture, fixtures and equipment, net(5) | |
| 1,843 | |
| 2,024 | | |||||||
Intangible assets, net(6) | | | 350 | | | 1,209 | | |||||||
Deferred financing fees, net | |
| 841 | |
| 1,549 | | |
| 204 | |
| 629 | |
Deferred expenses and other assets, net | | $ | 282,546 | | $ | 293,112 | | | $ | 48,940 | | $ | 100,434 | |
(1) |
(2) | Other assets primarily includes prepaid expenses, deposits for certain real estate assets and management fees and expense reimbursements due from SAFE (refer to Note 8). |
(3) | Right-of-use lease assets relate primarily to the Company’s leases of office space. Right-of use lease assets initially equal the lease liability. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease and is recorded in “General and administrative” and “Real estate expense” in the Company’s consolidated statements of operations. During the three months ended |
(4) |
Accumulated depreciation on corporate furniture, fixtures and equipment was |
(5) | Accumulated amortization of leasing costs was $0.4 million and $1.1 million as of June 30, 2022 and December 31, 2021, respectively. |
(6) | Intangible assets, net includes above market and in-place lease assets and lease incentives related to the acquisition of real estate assets. Accumulated amortization on intangible assets, net was $0.1 million and $10.2 million as of June 30, 2022 and December 31, 2021, respectively. These intangible lease assets are amortized over the remaining term of the lease. The amortization expense for in-place leases for the three and six months ended June 30, 2021 was $0.1 million and $0.7 million, respectively. This amount is included in “Depreciation and amortization” in the Company’s consolidated statements of operations. As of June 30, 2022, the weighted average remaining amortization period for the Company’s intangible assets was approximately 5.4 years. |
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
| | | | | | | | | | | | | | |
| | As of | | | As of | | ||||||||
|
| September 30, 2021 |
| December 31, 2020 | |
| June 30, 2022 |
| December 31, 2021 | | ||||
Accrued expenses | | $ | 65,760 | | $ | 151,810 | | |||||||
Accrued interest payable | |
| 27,556 | |
| 31,293 | | |||||||
Other liabilities(1) | | $ | 65,318 | | | 91,513 | | | | 27,120 | | | 30,362 | |
Accrued expenses | |
| 112,223 | |
| 94,724 | | |||||||
Intangible liabilities, net(2) | |
| 46,870 | |
| 48,738 | | |||||||
Operating lease liabilities (see table above) | |
| 47,111 | |
| 50,072 | | |
| 20,355 | |
| 23,267 | |
Accrued interest payable | |
| 28,939 | |
| 32,355 | | |||||||
Accounts payable, accrued expenses and other liabilities | | $ | 300,461 | | $ | 317,402 | | | $ | 140,791 | | $ | 236,732 | |
(1) | As of |
25
Note 10—Loan Participations Payable, net
The Company had 1 loan participation payable with a carrying value of $42.5 million and an interest rate of 6.0% as of December 31, 2020. The loan was repaid in the first quarter 2021.
Loan participations represent transfers of financial assets that did not meet the sales criteria established under ASC Topic 860 and are accounted for as loan participations payable, net as of December 31, 2020. As of December 31, 2020, the corresponding loan receivable balance was $42.5 million and is included in “Loans receivable and other lending investments, net” on the Company’s consolidated balance sheets. The principal and interest due on loan participations payable are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.
26
Note 11—10—Debt Obligations, net
The Company’s debt obligations were as follows ($ in thousands):
| | | | | | �� | | | | | | | | | | | | | | |
| | Carrying Value as of | | Stated | | Scheduled | | Carrying Value as of | | Stated | | Scheduled | ||||||||
|
| September 30, 2021 |
| December 31, 2020 |
| Interest Rates |
| Maturity Date |
| June 30, 2022 |
| December 31, 2021 |
| Interest Rates |
| Maturity Date | ||||
Secured credit facilities and mortgages: |
| |
|
| |
| |
|
|
| ||||||||||
Secured credit facilities: |
| |
|
| |
| |
|
|
| ||||||||||
Revolving Credit Facility | | $ | 0 | | $ | 0 | | LIBOR + 2.00 | % (1) | September 2022 | | $ | 0 | | $ | 0 | | LIBOR + 2.00 | % (1) | September 2022 |
Senior Term Loan | |
| 491,875 | |
| 491,875 | | LIBOR + 2.75 | % (2) | June 2023 | |
| 0 | |
| 491,875 | | LIBOR + 2.75 | % (2) | — |
Mortgages collateralized by net lease assets | |
| 701,541 | |
| 721,075 | | 1.63% - 7.19 | % (3) | | ||||||||||
Total secured credit facilities and mortgages(4) | |
| 1,193,416 | |
| 1,212,950 | |
|
|
| ||||||||||
Total secured credit facilities | |
| 0 | |
| 491,875 | |
|
|
| ||||||||||
Unsecured notes: | |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
|
|
3.125% senior convertible notes(5) | |
| 287,500 | |
| 287,500 | | 3.125 | % | September 2022 | ||||||||||
4.75% senior notes(6) | |
| 775,000 | |
| 775,000 | | 4.75 | % | October 2024 | ||||||||||
4.25% senior notes(7) | |
| 550,000 | |
| 550,000 | | 4.25 | % | August 2025 | ||||||||||
5.50% senior notes(8) | |
| 400,000 | |
| 400,000 | | 5.50 | % | February 2026 | ||||||||||
3.125% senior convertible notes(3) | |
| 93,110 | |
| 287,500 | | 3.125 | % | September 2022 | ||||||||||
4.75% senior notes(4) | |
| 767,941 | |
| 775,000 | | 4.75 | % | October 2024 | ||||||||||
4.25% senior notes(5) | |
| 550,000 | |
| 550,000 | | 4.25 | % | August 2025 | ||||||||||
5.50% senior notes(6) | |
| 346,906 | |
| 400,000 | | 5.50 | % | February 2026 | ||||||||||
Total unsecured notes | |
| 2,012,500 | |
| 2,012,500 | |
|
|
| |
| 1,757,957 | |
| 2,012,500 | |
|
|
|
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 | |
| 3,305,916 | |
| 3,325,450 | |
|
|
| |
| 1,857,957 | |
| 2,604,375 | |
|
|
|
Debt discounts and deferred financing costs, net(9) | |
| (23,318) | |
| (38,475) | |
|
|
| ||||||||||
Total debt obligations, net(10) | | $ | 3,282,598 | | $ | 3,286,975 | |
|
|
| ||||||||||
Debt discounts and deferred financing costs, net | |
| (24,707) | |
| (32,201) | |
|
|
| ||||||||||
Total debt obligations, net(7) | | $ | 1,833,250 | | $ | 2,572,174 | |
|
|
|
(1) | The Revolving Credit Facility bears interest at the Company’s election of either: (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.50% or (c) LIBOR plus 1.0% and subject to a margin ranging from 1.00% to 1.50%; or (ii) LIBOR subject to a margin ranging from 2.00% to 2.50%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2023. |
(2) | The loan |
(3) |
The Company’s 3.125% senior convertible fixed rate notes due September 2022 (“3.125% Convertible Notes”) are convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding September 15, 2022. The conversion rate as of |
The Company can prepay these senior notes without penalty beginning July 1, 2024. |
The Company can prepay these senior notes without penalty beginning May 1, 2025. |
The Company can prepay these senior notes without penalty beginning August 15, 2024. |
The Company capitalized interest relating to development activities of $ |
27
Future Scheduled Maturities—As of SeptemberJune 30, 2021,2022, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Unsecured Debt |
| Secured Debt |
| Total |
| Unsecured Debt |
| Secured Debt |
| Total | ||||||
2021 (remaining three months) | | $ | 0 | | $ | 95,495 | | $ | 95,495 | |||||||||
2022 | |
| 287,500 | |
| 95,324 | |
| 382,824 | |||||||||
2022 (remaining six months) | | $ | 93,110 | | $ | 0 | | $ | 93,110 | |||||||||
2023 | |
| 0 | |
| 491,875 | |
| 491,875 | |
| 0 | |
| 0 | |
| 0 |
2024 | |
| 775,000 | |
| 0 | |
| 775,000 | |
| 767,941 | |
| 0 | |
| 767,941 |
2025 | |
| 550,000 | |
| 269,780 | |
| 819,780 | |
| 550,000 | |
| 0 | |
| 550,000 |
2026 | |
| 346,906 | |
| 0 | |
| 346,906 | |||||||||
Thereafter | |
| 500,000 | |
| 240,942 | |
| 740,942 | |
| 100,000 | |
| 0 | |
| 100,000 |
Total principal maturities | |
| 2,112,500 | |
| 1,193,416 | |
| 3,305,916 | |
| 1,857,957 | |
| 0 | |
| 1,857,957 |
Unamortized discounts and deferred financing costs, net | |
| (18,426) | |
| (4,892) | |
| (23,318) | |
| (24,707) | |
| 0 | |
| (24,707) |
Total debt obligations, net | | $ | 2,094,074 | | $ | 1,188,524 | | $ | 3,282,598 | | $ | 1,833,250 | | $ | 0 | | $ | 1,833,250 |
27
Senior Term Loan—The Company hashad a $650.0 million senior term loan (the “Senior Term Loan”) that bearsaccrued interest at LIBOR plus 2.75% per annum and maturesmatured in June 2023. The Senior Term Loan iswas secured by pledges of equity of certain subsidiaries that own a defined pool of assets. The Senior Term Loan permitspermitted substitution of collateral, subject to overall collateral pool coverage and concentration limits, over the life of the facility. The Company may make optional prepayments, subject to prepayment fees. As of September 30, 2021,repaid the outstanding balance on the Company’s Senior Term Loan was $491.9 million.in full in March 2022 using proceeds from the Net Lease Sale (refer to Note 3 - Net Lease Sale and Discontinued Operations). During the six months ended June 30, 2022, the Company incurred a “Loss on extinguishment of debt” of $1.4 million in connection with the repayment of the Senior Term Loan.
Revolving Credit Facility—The Company has a secured revolving credit facility (the “Revolving Credit Facility”) with a maximum capacity of $350.0 million that matures in September 2022.2022 (the “Revolving Credit Facility”). Outstanding borrowings under the Revolving Credit Facility are secured by pledges of the equity interests in the Company’s subsidiaries that own a defined pool of assets. Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward based upon the Company’s corporate credit rating, ranging from 1.0% to 1.5% in the case of base rate loans and from 2.0% to 2.5% in the case of LIBOR loans. In addition, there is an undrawn credit facility commitment fee that ranges from 0.25% to 0.45%, based on corporate credit ratings. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2023. As of SeptemberJune 30, 2021,2022, based on the Company’s borrowing base of assets, the Company had the ability to draw $340.2$35.2 million without pledging any additional assets to the facility.
Unsecured Notes—As of SeptemberJune 30, 2021,2022, the Company has senior unsecured notes outstanding with varying fixed-rates and maturities ranging from September 2022 to February 2026. In connection with the Net Lease Sale, in the fourth quarter 2021, the Company obtained the consents of holders of its outstanding 4.75% senior notes due 2024, 4.25% senior notes due 2025 and 5.50% senior notes due 2026 to certain amendments to the indentures governing the notes intended to align the indentures with the sale of the Company's net lease assets. The Company paid holders consent fees ranging from 0.75% to 1.00% of the principal amount of consenting notes, depending on the relevant series. The Company’s senior unsecured notes are interest only, are generally redeemable at the option of the Company and contain certain financial covenants (see below).
DuringIn April 2022, the nine months ended September 30, 2020, repaymentsCompany completed separate, privately-negotiated transactions with holders of unsecured$194 million aggregate principal amount of the Company's 3.125% Convertible Notes in which the noteholders exchanged their convertible notes prior to maturity resultedwith the Company for 13.75 million newly issued shares of the Company's common stock and aggregate cash payments of $14 million. The 3.125% Convertible Senior Notes received by the Company were retired. The Company recognized a net increase in lossesshareholders’ equity of $180.6 million inclusive of a $118.1 million loss on early extinguishment of debt in connection with these transactions.
In April 2022, the Company redeemed $7.1 million principal amount of $12.0its 4.75% senior notes due October 2024 for $7.2 million. This amount is included in “LossThe Company recognized a $0.2 million loss on early extinguishment of debt net” in connection with these transactions.
In June 2022, the Company’s consolidated statementsCompany redeemed $53.1 million principal amount of operations.its 5.50% senior notes due February 2026 for $50.6 million. The Company recognized a $1.7 million net gain on extinguishment of debt in connection with these transactions.
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 1.2x1.3x and a covenant restricting certain incurrences of debt based on a fixed charge coverage ratio. If any of the Company’s covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of its debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders.
28
The Company’s Senior Term Loan and the Revolving Credit Facility containcontains certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The Revolving Credit Facility is secured by a borrowing base of assets and requires the Company to maintain both borrowing base asset value
28
of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, the Company has the option to pay down outstanding borrowings or substitute assets in the borrowing base. Under both the Senior Term Loan and the Revolving Credit Facility the Company is permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and the Company remains in compliance with its financial covenants after giving effect to the dividend.
The Company’s Senior Term Loan and the Revolving Credit Facility containcontains cross default provisions that would allow the lenders to declare an event of default and accelerate the Company’s indebtedness to them if the Company fails to pay amounts due in respect of its other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing the Company’s unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company’s indebtedness to them if the Company’s other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated.
Note 12—11—Commitments and Contingencies
Unfunded Commitments—The Company generally funds construction and development loans and build-outs of space in real estate assets over a period of time if and when the borrowers and tenants meet established milestones and other performance criteria. The Company refers to these arrangements as Performance-Based Commitments. In addition, the Company has committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments.
As of SeptemberJune 30, 2021,2022, 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 | | | | | | | | | | | Loans and Other | | | | | | | | | | ||
| | Lending | | Real | | Other | | | | | Lending | | Real | | Other | | | | ||||||
|
| Investments |
| Estate |
| Investments |
| Total |
| Investments |
| Estate |
| Investments |
| Total | ||||||||
Performance-Based Commitments | | $ | 7,860 | | $ | 29,716 | | $ | 71,319 | | $ | 108,895 | | $ | 1,877 | | $ | 4,271 | | $ | 149,502 | | $ | 155,650 |
Strategic Investments | |
| 0 | |
| 1,900 | |
| 7,592 | |
| 9,492 | |
| 0 | |
| 3,161 | |
| 2,249 | |
| 5,410 |
Total | | $ | 7,860 | | $ | 31,616 | | $ | 78,911 | | $ | 118,387 | | $ | 1,877 | | $ | 7,432 | | $ | 151,751 | | $ | 161,060 |
29
Other Commitments—Future minimum lease obligations under non-cancelable operating and finance leases as of SeptemberJune 30, 20212022 are as follows ($ in thousands):(1)
| | | | | | | | | |
|
| Operating(1)(2) |
| Finance(1) | |||||
2021 (remaining three months) | | $ | 1,728 | | $ | 1,384 | |||
2022 | |
| 6,635 | |
| 5,604 | |||
2022 (remaining six months) | | $ | 3,237 | ||||||
2023 | |
| 6,272 | |
| 5,716 | |
| 6,295 |
2024 | |
| 6,188 | |
| 5,830 | |
| 6,178 |
2025 | |
| 6,176 | |
| 5,946 | |
| 6,166 |
2026 | |
| 142 | ||||||
Thereafter | |
| 334 | |
| 1,567,826 | |
| 162 |
Total undiscounted cash flows | |
| 27,333 | |
| 1,592,306 | |
| 22,180 |
Present value discount(1) | |
| (2,717) | |
| (1,439,677) | |
| (1,825) |
Other adjustments(2) | |
| 22,495 | |
| 0 | |||
Lease liabilities | | $ | 47,111 | | $ | 152,629 | | $ | 20,355 |
(1) | The lease liability equals the present value of the minimum rental payments due under the lease discounted at the rate implicit in the lease or the Company’s incremental secured borrowing rate for similar collateral. For operating leases, lease liabilities were discounted at the Company’s weighted average incremental secured borrowing rate for similar collateral estimated to be |
|
Future minimum lease obligations under non-cancelable operating and finance leases as of December 31, 2020 are as follows ($ in thousands):
| | | | | | |
|
| Operating(1)(2) |
| Finance(1) | ||
2021 | | $ | 3,797 | | $ | 5,494 |
2022 | |
| 6,756 | |
| 5,604 |
2023 | |
| 6,393 | |
| 5,716 |
2024 | |
| 6,309 | |
| 5,830 |
2025 | |
| 6,297 | |
| 5,946 |
Thereafter | |
| 496 | |
| 1,567,826 |
Total undiscounted cash flows | |
| 30,048 | |
| 1,596,416 |
Present value discount(1) | |
| (3,771) | |
| (1,445,896) |
Other adjustments(2) | |
| 23,795 | |
| 0 |
Lease liabilities | | $ | 50,072 | | $ | 150,520 |
30
Legal Proceedings—The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to the Company’s business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements.
Note 13—12—Derivatives
The Company’s use of derivative financial instruments has historically been limited to the utilization of interest rate swaps, interest rate caps and foreign exchange contracts. The principal objective of such financial instruments is to minimize the risks and/or costs associated with the Company’s operating and financial structure and to manage its exposure to interest rates and foreign exchange rates. The Company may have derivatives that are not designated as hedges because they do not meet the strict hedge accounting requirements. Although not designated as hedges, such derivatives are entered into to manage the Company’s exposure to interest rate movements and other identified risks.
30
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, 20212022 and December 31, 20202021 ($ in thousands):(1)
| | | | | | | | | | |
|
| Derivative Liabilities |
| Derivative Liabilities | ||||||
| | Balance Sheet | | Fair | | Balance Sheet | | Fair | ||
As of September 30, 2021 |
| Location |
| Value | ||||||
As of June 30, 2022 |
| Location |
| Value | ||||||
Derivatives Designated in Hedging Relationships | | | | | | | | | | |
Interest rate swaps |
| Accounts payable, accrued expenses and other liabilities | | $ | 11,723 |
| Liabilities associated with real estate held for sale and classified as discontinued operations | | $ | 0 |
Total |
|
| | $ | 11,723 |
|
| | $ | 0 |
| | | | | | | | | | |
As of December 31, 2020 |
|
| |
|
| |||||
As of December 31, 2021 |
|
| |
|
| |||||
Derivatives Designated in Hedging Relationships |
|
| |
|
|
|
| |
|
|
Interest rate swaps |
| Accounts payable, accrued expenses and other liabilities | | $ | 18,926 |
| Liabilities associated with real estate held for sale and classified as discontinued operations | | $ | 8,395 |
Total |
|
| | $ | 18,926 |
|
| | $ | 8,395 |
(1) | Over the next 12 months, the Company expects that |
31
The table below presents the effect of the Company’s derivative financial instruments, including the Company’s share of derivative financial instruments at certain of its equity method investments, in the consolidated statements of operations and the consolidated statements of comprehensive income (loss) ($ in thousands):
| | | | | | | | | | | | | | | | |
|
| |
| Amount of Gain |
| Amount of Gain |
| |
| Amount of Gain |
| Amount of Gain | ||||
| | Location of Gain | | (Loss) Recognized in | | (Loss) Reclassified | | Location of Gain | | (Loss) Recognized in | | (Loss) Reclassified | ||||
| | (Loss) | | Accumulated Other | | from Accumulated | | (Loss) | | Accumulated Other | | from Accumulated | ||||
Derivatives Designated in | | When Recognized in | | Comprehensive | | Other Comprehensive | | When Recognized in | | Comprehensive | | Other Comprehensive | ||||
Hedging Relationships |
| Income |
| Income |
| Income into Earnings |
| Income |
| Income |
| Income into Earnings | ||||
For the Three Months Ended September 30, 2021 | | | | | | | | | ||||||||
For the Three Months Ended June 30, 2022 | | | | | | | | | ||||||||
Interest rate swaps |
| Earnings from equity method investments | | $ | 4,382 | | $ | (580) | ||||||||
For the Three Months Ended June 30, 2021 |
|
| |
|
| |
|
| ||||||||
Interest rate swaps |
| Interest expense | | $ | 278 | | $ | (2,050) |
| Net income from discontinued operations | | $ | (764) | | $ | (2,029) |
Interest rate swaps |
| Earnings from equity method investments | |
| (5) | |
| (633) |
| Earnings from equity method investments | |
| 0 | |
| (457) |
| | | | | | | | | ||||||||
For the Three Months Ended September 30, 2020 |
|
| |
|
| |
|
| ||||||||
For the Six Months Ended June 30, 2022 | | | | | | | | | ||||||||
Interest rate swaps |
| Earnings from equity method investments | | $ | 7,138 | | $ | (1,201) | ||||||||
For the Six Months Ended June 30, 2021 |
|
| |
|
| |
|
| ||||||||
Interest rate swaps |
| Interest expense | | $ | (401) | | $ | (2,038) |
| Net income from discontinued operations | | $ | 2,573 | | $ | (4,133) |
Interest rate swaps |
| Earnings from equity method investments | |
| 598 | |
| (333) |
| Earnings from equity method investments | |
| 8,638 | |
| (691) |
| | | | | | | | | ||||||||
For the Nine Months Ended September 30, 2021 | | | | | | | | | ||||||||
Interest rate swaps |
| Interest expense | | $ | 2,834 | | $ | (6,183) | ||||||||
Interest rate swaps |
| Earnings from equity method investments | |
| 8,649 | |
| (1,324) | ||||||||
| | | | | | | | | ||||||||
For the Nine Months Ended September 30, 2020 |
|
| |
|
| |
|
| ||||||||
Interest rate swaps |
| Interest Expense | | $ | (15,371) | | $ | (4,926) | ||||||||
Interest rate swaps |
| Earnings from equity method investments | |
| (15,559) | |
| (866) |
32
Note 14—13—Equity
Preferred Stock—The Company had the following series of Cumulative Redeemable Preferred Stock outstanding as of SeptemberJune 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | | | | | | |
|
| |
| | |
| Cumulative Preferential Cash |
| | | | ||||||
| | | | | | | Dividends(1)(2) | | | | | ||||||
| | Shares Issued | | | | | | | | | | | | | | | |
| | and | | | | | | | | | | Annual | | Carrying | | ||
| | Outstanding | | Par | | Liquidation | | Rate per | | Dividend | | Value | | ||||
Series |
| (in thousands) |
| Value |
| Preference(3) |
| Annum |
| per share |
| (in thousands) | | ||||
D |
| 4,000 | | $ | 0.001 | | $ | 25.00 |
| 8.00 | % | $ | 2.00 | | $ | 89,041 | |
G |
| 3,200 | |
| 0.001 | |
| 25.00 |
| 7.65 | % |
| 1.91 | |
| 72,664 | |
I |
| 5,000 | |
| 0.001 | |
| 25.00 |
| 7.50 | % |
| 1.88 | |
| 120,785 | |
Total |
| 12,200 | | | | | | |
|
| |
|
| | $ | 282,490 | |
(1) | Holders of shares of the Series D, G and I preferred stock are entitled to receive dividends, when and as declared by the Company’s Board of Directors, out of funds legally available for the payment of dividends. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the preferred stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment date falls or on another date designated by the Company’s Board of Directors for the payment of dividends that is not more than 30 nor less than 10 days prior to the dividend payment date. |
(2) | The Company declared and paid dividends of |
(3) | The Company may, at its option, redeem the Series G and I Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. |
Dividends—To maintain its qualification as a REIT, the Company must annually distribute, at a minimum, an amount equal to 90% of its taxable income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to eliminate corporate federal income taxes payable by the REIT. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company’s obligation to pay dividends for such periods in order to maintain its REIT qualification. As of December 31, 2020,2021, the Company had $529.6$614.6 million of NOL carryforwards at the corporate REIT level that can generally be used to offset both ordinary taxable income and capital gain net income in future years. The NOL carryforwards will begin to expire in 2032 and will fully expire in 2036 if unused.unused, except for $154 million of NOL which never expires. Because taxable income differs from cash flow from operations due to non-cash revenues and expenses (such as depreciation and certain asset impairments), in certain circumstances, the Company may generate operating cash flow in excess of its dividends, or alternatively, may need to make dividend payments in excess of operating cash flows. The Senior Term Loan and the Revolving Credit Facility permit the Company to pay common dividends with no restrictions so long as the Company is not in default on any of its debt obligations. The Company declared common stock dividends of $26.3$19.2 million, or $0.36$0.25 per share, for the ninesix months ended SeptemberJune 30, 20212022 and $24.6$17.4 million, or $0.32$0.235 per share, for the ninesix months ended SeptemberJune 30, 2020.2021. The character of the 20202021 dividends was 100% returncapital gain distribution, of capital.which 18.31% represented unrecaptured section 1250 gain.
Stock Repurchase Program—The Company may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. The Company did not repurchase any shares of its common stock during the six months ended June 30, 2022. During the ninesix months ended SeptemberJune 30, 2021, the Company repurchased 4.21.8 million shares of its outstanding common stock for $91.9$32.4 million, for an average cost of $21.70 per share. During the nine months ended September 30, 2020, the Company repurchased 3.7 million shares of its outstanding common stock for $41.4 million, for an average cost of $11.32$17.57 per share. The Company is generally authorized to repurchase up to $50.0 million in shares of its common stock.stock and in February 2022, the Company's Board of Directors authorized an increase to the stock repurchase program to $50.0 million. As of SeptemberJune 30, 2021,2022, the Company had remaining authorization to repurchase up to $30.9$50.0 million of common stock under its stock repurchase program.
33
Accumulated Other Comprehensive Income (Loss)— “Accumulated other comprehensive income (loss)” reflected in the Company’s shareholders’ equity is comprised of the following ($ in thousands):
| | | | | | | | | | | | | | |
| | As of | | | As of | | ||||||||
|
| September 30, 2021 |
| December 31, 2020 | |
| June 30, 2022 |
| December 31, 2021 | | ||||
Unrealized gains on available-for-sale securities | | $ | 3,681 |
| $ | 4,594 | | |||||||
Unrealized (losses) gains on available-for-sale securities | | $ | (386) |
| $ | 4,237 | | |||||||
Unrealized losses on cash flow hedges | |
| (38,031) | |
| (53,075) | | |
| (17,486) | |
| (25,824) | |
Unrealized losses on cumulative translation adjustment | |
| — | |
| (4,199) | | |||||||
Accumulated other comprehensive loss | | $ | (34,350) | | $ | (52,680) | | | $ | (17,872) | | $ | (21,587) | |
Note 15—14—Stock-Based Compensation Plans and Employee Benefits
Stock-Based Compensation—The Company recorded stock-based compensation, expense, including the expense related to performance incentive plans (see below), of $3.0($17.9) million and $23.3$14.8 million for the three and nine months ended SeptemberJune 30, 2022 and 2021, respectively, and $5.7($30.4) million and $26.7$20.3 million for the three and ninesix months ended SeptemberJune 30, 2020,2022 and 2021, respectively, in “General and administrative” in the Company’s consolidated statements of operations.
Performance Incentive Plans—The Company’s Performance Incentive Plans (“iPIP”) are designed to provide, primarily to senior executives and select professionals engaged in the Company’s investment activities, long-term compensation which has a direct relationship to the realized returns on investments included in the plans. Awards vest over six years, with 40% being vested at the end of the second year and 15% each year thereafter. As of SeptemberJune 30, 2021,2022, there are 5 iPIP Plans, each covering a two-year investment period beginning with the 2013-2014 Plan through the 2021-2022 Plan.
2019-2022 iPIP Plans—The Company’s 2019-2020 and 2021-2022 iPIP plans are equity-classified awards which are measured at the grant date fair value and recognized as compensation cost in “General and administrative” in the Company’s consolidated statements of operations and “Noncontrolling interests” in the Company’s consolidated statements of changes in equity over the requisite service period. Investments in the 2019-2022 iPIP plans are held by consolidated subsidiaries of the Company and have 2 ownership classes, class A units and class B units. The Company owns 100% of the class A units and the class B units were issued to employees as long-term compensation. Except for certain clawback provisions, participants can retain vested class B units upon their termination of employment with the Company. The class B units are entitled to distributions from the net cash realized from the investments in the plan after the Company, through its ownership of the class A units, has received a specified return on its invested capital and a return of its invested capital. Distributions on the class B units are also subject to reductions under a total shareholder return (“TSR”) adjustment. The fair value of the class B units was determined using a model that forecasts the underlying cash flows from the investments within the entity to which the class B units have ownership rights. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recorded $2.6$2.4 million and $2.5$1.5 million, respectively, of expense related to the 2019-2022 iPIP plans. Distributions on the class B units are expected to be 50% in cash and 50% in shares of the Company’s common stock; provided, however, that (a) the cash portion will be increased if the Company does not have sufficient shares available under shareholder approved equity plans; and (b) if the principal remaining material asset in a plan is unsold SAFE shares, the Company may elect to distribute SAFE shares in lieu of cash and Company stock.
The following is a summary of the status of the Company’s equity-classified iPIP plans and changes during the ninesix months ended SeptemberJune 30, 2021.2022.
| | | | | | | | |
| | iPIP Investment Pool | | iPIP Investment Pool | ||||
|
| 2019-2020 |
| 2021-2022 |
| 2019-2020 |
| 2021-2022 |
Points at beginning of period |
| 97.40 |
| 0 |
| 95.20 |
| 84.75 |
Granted | | 0 | | 94.75 | | 0 | | 7.95 |
Forfeited |
| (2.20) |
| (10.00) |
| 0 |
| (0.35) |
Points at end of period |
| 95.20 |
| 84.75 |
| 95.20 |
| 92.35 |
As of June 30, 2022, investments with an aggregate gross book value of $764 million, including 26.7 million shares of SAFE common stock acquired by the Company, were attributable to the 2019-2020 Plan and investments with an
34
As of September 30, 2021, investments with an aggregate gross book value of $1.2 billion, including 26.7 million shares of SAFE common stock acquired by the Company, were attributable to the 2019-2020 Plan and investments with an aggregate gross book value of $163$435 million, including 1.05.0 million shares of SAFE common stock acquired by the Company, were attributable to the 2021-2022 Plan.
2013-2018 iPIP Plans—The remainder of the Company’s iPIP plans, as shown in the table below, are liability-classified awards and are remeasured each reporting period at fair value until the awards are settled. Certain employees will be granted awards that entitle employees to receive the residual cash flows from the investments in the plans after the Company has received a specified return on its invested capital and a return of its invested capital. Awards are also subject to reductions under a TSR adjustment. The fair value of awards is determined using a model that forecasts the Company’s projected investment performance. Settlement of the awards will be 50% in cash and 50% in shares of the Company’s common stock or in shares of SAFE’s common stock owned by the Company.
The following is a summary of the status of the Company’s liability-classified iPIP plans and changes during the ninesix months ended SeptemberJune 30, 2021.2022.
| | | | | | |
| | iPIP Investment Pool | ||||
|
| 2013‑2014 |
| 2015‑2016 |
| 2017‑2018 |
Points at beginning of period |
| 80.17 |
| 70.40 |
| 73.34 |
Granted | | 0 | | 0 | | 2.00 |
Points at end of period |
| 80.17 |
| 70.40 |
| 75.34 |
| | | | | | |
| | iPIP Investment Pool | ||||
|
| 2013‑2014 |
| 2015‑2016(1) |
| 2017‑2018 |
Points at beginning of period |
| 80.17 |
| 70.40 |
| 75.34 |
Granted | | 0 | | 0 | | 0 |
Points at end of period |
| 80.17 |
| 70.40 |
| 75.34 |
(1) | As of June 30, 2022, all awards under the 2015-2016 Plan had been paid. |
During the ninesix months ended September��June 30, 2021 and 2020,2022, the Company recorded $15.0a $37.1 million and $20.2reduction of expense related to the 2013-2018 iPIP plans, primarily due to a decrease in the price per share of SAFE common stock. During the six months ended June 30, 2021, the Company recorded $15.1 million respectively, of expense related to the 2013-2018 iPIP plans.
As of SeptemberJune 30, 2021,2022, investments with an aggregate gross book value of $387$13 million were attributable to the 2013-2014 Plan, investments with an aggregate gross book value of $396 million were attributable to the 2015-2016 Plan and investments with an aggregate gross book value of $480$238 million, including 7.6 million shares of SAFE common stock acquired by the Company, were attributable to the 2017-2018 Plan. As of June 30, 2022 there were 0 investments attributable to the 2015-2016 Plan.
During the ninesix months ended SeptemberJune 30, 2022, the Company made distributions to participants in the 2013-2014 investment pool. The iPIP participants received total distributions in the amount of $19.6 million as compensation, comprised of cash and 412,041 shares of the Company’s common stock with a fair value of $16.06 per share, which are fully-vested and issued under the 2009 LTIP. After deducting statutory minimum tax withholdings, a total of 215,657 shares of the Company’s common stock were issued.
During the six months ended June 30, 2022, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants received total distributions in the amount of $19.2 million as compensation, comprised of cash and 402,731 shares of the Company’s common stock with a fair value of $16.06 per share, which are fully-vested and issued under the 2009 LTIP. After deducting statutory minimum tax withholdings, a total of 193,416 shares of the Company’s common stock were issued.
During the six months ended June 30, 2021, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants received total distributions in the amount of $3.2 million as compensation, comprised of cash and 97,881 shares of the Company’s common stock with a fair value of $17.65 per share, which are fully-vested and issued under the 2009 LTIP (see below).LTIP. After deducting statutory minimum tax withholdings, a total of 57,920 shares of the Company’s common stock were issued.
During the nine months ended September 30, 2020, the Company made distributions to participants in the 2015-2016 investment pool. The iPIP participants received total distributions in the amount of $1.5 million as compensation, comprised of cash and 54,245 shares of the Company’s common stock with a fair value of $14.51 per share, which are fully-vested and issued under the 2009 LTIP. After deducting statutory minimum tax withholdings, a total of 32,825 shares of the Company’s common stock were issued.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had accrued compensation costs relating to iPIP of $80.9$47.0 million and $69.1$116.6 million, respectively, which are included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets.
35
Long-Term Incentive Plan—The Company’s 2009 Long-Term Incentive Plan (the “2009 LTIP”) is designed to provide incentive compensation for officers, key employees, directors and advisors of the Company. The 2009 LTIP provides for awards of stock options, shares of restricted stock, phantom shares, restricted stock units, dividend equivalent rights and other share-based performance awards. All awards under the 2009 LTIP are made at the discretion of the Company’s Board of Directors or a committee of the Board of Directors. The Company’s shareholders approved the 2009 LTIP in 2009 and approved the performance-based provisions of the 2009 LTIP, as amended, in 2014. In May 2021, the
35
Company’s shareholders approved an increase in the number of shares available for issuance under the 2009 LTIP from a maximum of 8.9 million to 9.9 million and extended the expiration date of the 2009 LTIP from May 2029 to May 2031.
As of SeptemberJune 30, 2021,2022, an aggregate of 3.12.3 million shares remain available for issuance pursuant to future awards under the Company’s 2009 LTIP.
Restricted Stock Unit Activity—A summary of the Company’s stock-based compensation awards to certain employees in the form of long-term incentive awards for the ninesix months ended SeptemberJune 30, 2021,2022, is as follows (in thousands):
| | |
Nonvested at beginning of period | |
|
Granted | |
|
Vested | |
|
Forfeited | |
|
Nonvested at end of period |
|
|
As of SeptemberJune 30, 2021,2022, there was $6.8$7.7 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 1.351.54 years.
Directors’ Awards—During the ninesix months ended SeptemberJune 30, 2021,2022, the Company granted 38,18638,953 restricted shares of common stock to non-employee Directors at a fair value of $17.51$16.33 at the time of grant for their annual equity awards and also issued 1,5921,280 common stock equivalents (“CSEs”) at a fair value of $20.41$17.97 per CSE in respect of dividend equivalents on outstanding CSEs. As of SeptemberJune 30, 2021,2022, a combined total of 129,452131,983 CSEs and restricted shares of common stock granted to members of the Company’s Board of Directors remained outstanding under the Company’s Non-Employee Directors Deferral Plan, with an aggregate intrinsic value of $3.2$1.8 million.
401(k) Plan— The Company made contributions of $0.1 million and $0.2$0.1 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $0.8$0.9 million and $1.0$0.7 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, to the Company’s 401(k) Plan.
Note 16—15—Earnings Per Share
The following table presents a reconciliation of income from operations used in the basic and diluted earnings per share (“EPS”) calculations ($ in thousands, except for per share data):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||||||
Net income (loss) | | $ | 130,994 | | $ | 6,451 | | $ | 127,567 | | $ | (20,793) | | |||||||||||||
Net income attributable to noncontrolling interests | |
| (3,264) | |
| (2,646) | |
| (8,037) | |
| (8,435) | | |||||||||||||
Net loss from continuing operations | | $ | (132,494) | | $ | (36,731) | | $ | (134,382) | | $ | (51,227) | | |||||||||||||
Net (income) loss from continuing operations attributable to noncontrolling interests | |
| (117) | |
| 20 | |
| (99) | |
| 65 | | |||||||||||||
Preferred dividends | |
| (5,874) | |
| (5,874) | |
| (17,622) | |
| (17,622) | | |
| (5,874) | |
| (5,874) | |
| (11,748) | |
| (11,748) | |
Net income (loss) allocable to common shareholders for basic and diluted earnings per common share | | $ | 121,856 | | $ | (2,069) | | $ | 101,908 | | $ | (46,850) | | |||||||||||||
Net loss from continuing operations and allocable to common shareholders for basic and diluted earnings per common share | | $ | (138,485) | | $ | (42,585) | | $ | (146,229) | | $ | (62,910) | |
36
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, | | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||||||
Earnings allocable to common shares: |
| |
|
| |
| | |
|
| |
| |
| |
|
| |
| | |
|
| |
| |
Numerator for basic earnings per share: |
| |
|
| |
| | |
|
| |
| | |||||||||||||
Net income (loss) attributable to iStar Inc. and allocable to common shareholders | | $ | 121,856 | | $ | (2,069) | | $ | 101,908 | | $ | (46,850) | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Numerator for diluted earnings per share: | |
|
| |
|
| |
|
| |
|
| | |||||||||||||
Numerator for basic and diluted earnings per share: |
| |
|
| |
| | |
|
| |
| | |||||||||||||
Net loss from continuing operations and allocable to common shareholders | | $ | (138,485) | | $ | (42,585) | | $ | (146,229) | | $ | (62,910) | | |||||||||||||
Net income from discontinued operations | | | — | | | 25,315 | | | 797,688 | | | 47,800 | | |||||||||||||
Net (income) from discontinued operations attributable to noncontrolling interests | | | — | | | (2,273) | | | (179,089) | | | (4,838) | | |||||||||||||
Net income (loss) allocable to common shareholders | | $ | 121,856 | | $ | (2,069) | | $ | 101,908 | | $ | (46,850) | | | $ | (138,485) | | $ | (19,543) | | $ | 472,370 | | $ | (19,948) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Denominator for basic and diluted earnings per share: | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
|
| |
Weighted average common shares outstanding for basic earnings per common share | | | 71,299 | | | 75,033 | | | 72,675 | | | 76,232 | | |||||||||||||
Add: Effect of assumed shares issued under treasury stock method for restricted stock units | | | 221 | | | — | | | 206 | | | — | | |||||||||||||
Add: Effect of convertible debt | | | 8,967 | | | — | | | 5,521 | | | — | | |||||||||||||
Weighted average common shares outstanding for basic and diluted earnings per common share | |
| 80,487 | |
| 75,033 | |
| 78,402 | |
| 76,232 | | |
| 81,442 | |
| 72,872 | |
| 75,274 | |
| 73,374 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted earnings per common share:(1) | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
|
| |
Net loss from continuing operations and allocable to common shareholders | | $ | (1.70) | | $ | (0.59) | | $ | (1.94) | | $ | (0.86) | | |||||||||||||
Net income from discontinued operations and allocable to common shareholders | | | — | | | 0.32 | | | 8.22 | | | 0.59 | | |||||||||||||
Net income (loss) allocable to common shareholders | | $ | 1.71 | | $ | (0.03) | | $ | 1.40 | | $ | (0.61) | | | $ | (1.70) | | $ | (0.27) | | $ | 6.28 | | $ | (0.27) | |
| | | | | | | | | | | | | | |||||||||||||
Diluted earnings per common share:(1) | |
|
| |
|
| |
|
| |
|
| | |||||||||||||
Net income (loss) allocable to common shareholders | | $ | 1.51 | | $ | (0.03) | | $ | 1.30 | | $ | (0.61) | |
(1) | For the three and |
Note 17—16—Fair Values
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
37
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.
37
The following fair value hierarchy table summarizes the Company’s assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Using | | Fair Value Using | ||||||||||||||||||||
| | | | | Quoted | | | | | | | | | | | Quoted | | | | | | | ||
| | | | | market | | Significant | | | | | | | | market | | Significant | | | | ||||
| | | | | prices in | | other | | Significant | | | | | prices in | | other | | Significant | ||||||
| | | | | active | | observable | | unobservable | | | | | active | | observable | | unobservable | ||||||
| | | | | markets | | inputs | | inputs | | | | | markets | | inputs | | inputs | ||||||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||
As of September 30, 2021 | |
| | |
| | |
| | |
| | ||||||||||||
As of June 30, 2022 | |
| | |
| | |
| | |
| | ||||||||||||
Recurring basis: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Available-for-sale securities(1) |
| $ | 23,254 |
| $ | — |
| $ | — |
| $ | 23,254 | ||||||||||||
Non-recurring basis: |
| | |
| | | | | | | | | ||||||||||||
Real estate, net(2) | | | 811 | | | — | | | — | | | 811 | ||||||||||||
Held-to-maturity securities(3) | | | 35,000 | | | — | | | — | | | 35,000 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
As of December 31, 2021 |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Recurring basis: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Derivative liabilities(1) |
| $ | 11,723 |
| $ | — |
| $ | 11,723 |
| $ | — | | $ | 8,395 |
| $ | — |
| $ | 8,395 |
| $ | — |
Available-for-sale securities(1) |
| | 27,535 |
| | — |
| | — |
| | 27,535 | | | 28,092 | | | — | | | — | | | 28,092 |
Non-recurring basis: |
| | |
| | | | | | | | | ||||||||||||
Impaired real estate available and held for sale(2) | | | 1,682 | | | — | | | — | | | 1,682 | ||||||||||||
Other investments(3) | | | 98,461 | | | — | | | 98,461 | | | — | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
As of December 31, 2020 |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Recurring basis: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Derivative liabilities(1) | | | 18,926 | | | — | | | 18,926 | | | — | ||||||||||||
Available-for-sale securities(1) | | | 25,274 | | | — | | | — | | | 25,274 | ||||||||||||
Non-recurring basis: | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Impaired land and development(4) | |
| 6,078 | |
| — | |
| — | |
| 6,078 |
(1) | The fair value of the Company’s derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company’s available-for-sale securities are based upon unadjusted third-party broker quotes and are classified as Level 3. |
(2) | The Company recorded a |
(3) | In the second quarter 2022, the Company received a $40.0 million repayment on a held-to-maturity security. The Company then recorded a $25.0 million charge-off (refer to Note 7) on the held-to-maturity security to record the security at the expected future cash flows to be received. |
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company’s consolidated balance sheets for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 ($ in thousands):
| | | | | | | | | | | | |
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
Beginning balance | | $ | 25,274 | | $ | 23,896 | | $ | 28,092 | | $ | 25,274 |
Purchases | | | 3,375 | | | — | | | 0 | | | 3,375 |
Repayments | |
| (201) | |
| (460) | |
| (215) | |
| (201) |
Unrealized gains (losses) recorded in other comprehensive income | |
| (913) | |
| 1,195 | ||||||
Unrealized losses recorded in other comprehensive income | |
| (4,623) | |
| (374) | ||||||
Ending balance | | $ | 27,535 | | $ | 24,631 | | $ | 23,254 | | $ | 28,074 |
38
Fair values of financial instruments—The following table presents the carrying value and fair value for the Company’s financial instruments ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2021 | | As of December 31, 2020 | | As of June 30, 2022 | | As of December 31, 2021 | ||||||||||||||||
| | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair | ||||||||
|
| Value |
| Value |
| Value |
| Value |
| Value |
| Value |
| Value |
| Value | ||||||||
Net investment in leases(1) | | $ | 477 | | $ | 497 | | $ | 429 | | $ | 431 | ||||||||||||
Assets | | | | | | | | | | | | | ||||||||||||
Net investment in leases (refer to Note 5)(1) | | $ | 32 | | $ | 32 | | $ | 43 | | $ | 43 | ||||||||||||
Loans receivable and other lending investments, net(1) | |
| 406 | |
| 436 | |
| 732 | |
| 772 | | | 204 | | | 204 | | | 333 | | | 345 |
Loans receivable held for sale(1) | | | 0 | | | 0 | | | 43 | | | 43 | ||||||||||||
Cash and cash equivalents(2) | |
| 299 | |
| 299 | |
| 99 | |
| 99 | |
| 1,401 | |
| 1,401 | |
| 340 | |
| 340 |
Restricted cash(2) | |
| 56 | |
| 56 | |
| 52 | |
| 52 | |
| 5 | |
| 5 | |
| 54 | |
| 54 |
Loan participations payable, net(1) | |
| 0 | |
| 0 | |
| 43 | |
| 43 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Liabilities | | | | | | | | | | | | | ||||||||||||
Debt obligations, net(1)(3) | | | 3,283 | | | 3,643 | | | 3,287 | | | 3,414 | | | | | | | | | | | | |
Level 1 | | | 1,734 | | | 1,717 | | | 2,473 | | | 2,799 | ||||||||||||
Level 3 | | | 99 | | | 101 | | | 99 | | | 104 | ||||||||||||
Total debt obligations, net | | | 1,833 | | | 1,818 | | | 2,572 | | | 2,903 |
(1) | The fair value of the Company’s net investment in leases, loans receivable and other lending investments, net, |
(2) | The Company determined the carrying values of its cash and cash equivalents and restricted cash approximated their fair values. Restricted cash is recorded in “Deferred expenses and other assets, net” on the Company’s balance sheet. The fair value of the Company’s cash and cash equivalents and restricted cash are classified as Level 1 within the fair value hierarchy. |
(3) | As of |
Note 18—17—Segment Reporting
The Company has determined that it has 4 reportable segments based on how management reviews and manages its business. These reportable segments include: Net Lease, Real Estate Finance, Operating Properties and Land and Development. The Net Lease segment (refer to Note 3 - Net Lease Sale and Discontinued Operations) includes the Company’s activities and operations related to the ownership of properties generally leased to single corporate tenants and its investments in SAFE and Netits Ground Lease Venture IIadjacent businesses (refer to Note 8). The Real Estate Finance segment includes all of the Company’s activities related to senior and mezzanine real estate loans and real estate related securities. The Operating Properties segment includes the Company’s activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company’s activities related to its developable land portfolio.
The Company evaluates performance-based on the following financial measures for each segment. The Company’s segment information is as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land and |
| Corporate/ |
| Company |
| Net |
| Real Estate |
| Operating |
| Land and |
| Corporate/ |
| Company | ||||||||||||
| | Lease | | Finance | | Properties | | Development | | Other(1) | | Total | | Lease | | Finance | | Properties | | Development | | Other(1) | | Total | ||||||||||||
Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Three Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Operating lease income | | $ | 40,659 | | $ | — | | $ | 3,637 | | $ | 96 | | $ | — | | $ | 44,392 | | $ | — | | $ | — | | $ | 3,082 | | $ | 100 | | $ | — | | $ | 3,182 |
Interest income |
| | 1,630 |
| | 6,321 |
| | — |
| | — |
| | — |
| | 7,951 |
| | — |
| | 4,221 |
| | — |
| | — |
| | — |
| | 4,221 |
Interest income from sales-type leases |
| | 9,578 |
| | — |
| | — |
| | — |
| | — |
| | 9,578 |
| | 376 |
| | — |
| | — |
| | — |
| | — |
| | 376 |
Other income |
| | 4,767 |
| | 1,095 |
| | 16,869 |
| | 3,189 |
| | 14,275 |
| | 40,195 |
| | 5,219 |
| | 26 |
| | 7,592 |
| | 1,318 |
| | 1,726 |
| | 15,881 |
Land development revenue |
| | — |
| | — |
| | — |
| | 93,369 |
| | — |
| | 93,369 |
| | — |
| | — |
| | — |
| | 24,403 |
| | — |
| | 24,403 |
Earnings (losses) from equity method investments |
| | 74,889 |
| | 872 |
| | 1,129 |
| | 10,836 |
| | 1,483 |
| | 89,209 |
| | 15,240 |
| | 769 |
| | 3,673 |
| | 100 |
| | (389) |
| | 19,393 |
Income from sales of real estate |
| | — |
| | — |
| | 25,611 |
| | — |
| | — |
| | 25,611 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
Total revenue and other earnings |
| | 131,523 |
| | 8,288 |
| | 47,246 |
| | 107,490 |
| | 15,758 |
| | 310,305 |
| | 20,835 |
| | 5,016 |
| | 14,347 |
| | 25,921 |
| | 1,337 |
| | 67,456 |
Real estate expense |
| | (5,446) |
| | — |
| | (9,184) |
| | (4,094) |
| | — |
| | (18,724) |
| | (461) |
| | — |
| | (8,261) |
| | (4,294) |
| | — |
| | (13,016) |
Land development cost of sales |
| | — |
| | — |
| | — |
| | (87,380) |
| | — |
| | (87,380) |
| | — |
| | — |
| | — |
| | (24,095) |
| | — |
| | (24,095) |
Other expense |
| | (1,327) |
| | (270) |
| | — |
| | (64) |
| | (350) |
| | (2,011) |
| | (521) |
| | (40) |
| | — |
| | (238) |
| | (724) |
| | (1,523) |
Allocated interest expense |
| | (26,467) |
| | (3,331) |
| | (1,641) |
| | (3,679) |
| | (4,353) |
| | (39,471) |
| | (13,162) |
| | (2,196) |
| | (1,139) |
| | (2,745) |
| | (4,907) |
| | (24,149) |
Allocated general and administrative(2) |
| | (5,487) |
| | (958) |
| | (473) |
| | (2,173) |
| | (5,029) |
| | (14,120) |
| | (3,838) |
| | (1,226) |
| | (625) |
| | (2,114) |
| | (4,941) |
| | (12,744) |
Segment profit (loss)(3) | | $ | 92,796 | | $ | 3,729 | | $ | 35,948 | | $ | 10,100 | | $ | 6,026 | | $ | 148,599 | ||||||||||||||||||
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Provision for (recovery of) loan losses | | $ | 54 | | $ | (1,610) | | $ | — | | $ | — | | $ | — | | $ | (1,556) | ||||||||||||||||||
Provision for losses on net investment in leases | |
| 131 | |
| — | |
| — | |
| — | |
| — | |
| 131 | ||||||||||||||||||
Impairment of assets | |
| 757 | |
| — | |
| 422 | |
| — | |
| — | |
| 1,179 | ||||||||||||||||||
Depreciation and amortization | |
| 13,114 | |
| — | |
| 1,385 | |
| 228 | |
| 129 | |
| 14,856 | ||||||||||||||||||
Capitalized expenditures | |
| 969 | |
| — | |
| 121 | |
| 7,416 | |
| — | |
| 8,506 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
39
Three Months Ended September 30, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Operating lease income | | $ | 41,144 | | $ | — | | $ | 5,137 | | $ | 89 | | $ | — | | $ | 46,370 |
Interest income | |
| 911 | |
| 13,359 | |
| — | |
| — | |
| — | |
| 14,270 |
Interest income from sales-type leases | |
| 8,360 | |
| — | |
| — | |
| — | |
| — | |
| 8,360 |
Other income | |
| 4,554 | |
| 104 | |
| 2,956 | |
| 3,831 | |
| 14,107 | |
| 25,552 |
Land development revenue | |
| — | |
| — | |
| — | |
| 20,502 | |
| — | |
| 20,502 |
Earnings (losses) from equity method investments | |
| 10,141 | |
| — | |
| (4,134) | |
| 592 | |
| 206 | |
| 6,805 |
Income from sales of real estate | |
| 6,055 | |
| — | |
| — | |
| — | |
| — | |
| 6,055 |
Total revenue and other earnings | |
| 71,165 | |
| 13,463 | |
| 3,959 | |
| 25,014 | |
| 14,313 | |
| 127,914 |
Real estate expense | |
| (7,136) | |
| — | |
| (4,428) | |
| (5,371) | |
| — | |
| (16,935) |
Land development cost of sales | |
| — | |
| — | |
| — | |
| (21,358) | |
| — | |
| (21,358) |
Other expense | |
| — | |
| (37) | |
| — | |
| — | |
| (36) | |
| (73) |
Allocated interest expense | |
| (26,049) | |
| (5,831) | |
| (2,289) | |
| (4,606) | |
| (3,632) | |
| (42,407) |
Allocated general and administrative(2) | |
| (5,161) | |
| (1,451) | |
| (582) | |
| (2,320) | |
| (4,693) | |
| (14,207) |
Segment profit (loss) (3) | |
| 32,819 | | $ | 6,144 | | $ | (3,340) | | $ | (8,641) | | $ | 5,952 | | $ | 32,934 |
Other significant non-cash items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Provision for (recovery of) loan losses | | $ | 19 | | $ | (1,995) | | $ | — | | $ | — | | $ | — | | $ | (1,976) |
Provision for losses on net investment in leases | | | 175 | | | — | | | — | | | — | | | — | | | 175 |
Depreciation and amortization | |
| 12,781 | |
| — | |
| 1,287 | |
| 243 | |
| 310 | |
| 14,621 |
Capitalized expenditures | |
| 1,896 | |
| — | |
| 84 | |
| 5,170 | |
| — | |
| 7,150 |
Segment profit (loss)(3) | | $ | 2,853 | | $ | 1,554 | | $ | 4,322 | | $ | (7,565) | | $ | (9,235) | | $ | (8,071) |
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Provision for loan losses | | $ | — | | $ | 22,578 | | $ | — | | $ | — | | $ | — | | $ | 22,578 |
Provision for losses on net investment in leases | |
| 99 | |
| — | |
| — | |
| — | |
| — | |
| 99 |
Impairment of assets | |
| — | |
| — | |
| 1,750 | |
| — | |
| 18 | |
| 1,768 |
Depreciation and amortization | |
| — | |
| — | |
| 969 | |
| 227 | |
| 142 | |
| 1,338 |
Capitalized expenditures | |
| — | |
| — | |
| 320 | |
| 5,813 | |
| — | |
| 6,133 |
| | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Operating lease income | | $ | — | | $ | — | | $ | 4,703 | | $ | 89 | | $ | — | | $ | 4,792 |
Interest income | |
| 299 | |
| 7,785 | |
| — | |
| — | |
| — | |
| 8,084 |
Interest income from sales-type leases | |
| 157 | |
| — | |
| — | |
| — | |
| — | |
| 157 |
Other income | |
| 3,529 | |
| 52 | |
| 3,953 | |
| 1,315 | |
| 54 | |
| 8,903 |
Land development revenue | |
| — | |
| — | |
| — | |
| 32,318 | |
| — | |
| 32,318 |
Earnings (losses) from equity method investments | |
| 9,703 | |
| 755 | |
| (2,935) | |
| 1,474 | |
| 2,101 | |
| 11,098 |
Income from sales of real estate | |
| — | |
| — | |
| 96 | |
| — | |
| — | |
| 96 |
Total revenue and other earnings | |
| 13,688 | |
| 8,592 | |
| 5,817 | |
| 35,196 | |
| 2,155 | |
| 65,448 |
Real estate expense | |
| (12) | |
| — | |
| (6,256) | |
| (5,049) | |
| — | |
| (11,317) |
Land development cost of sales | |
| — | |
| — | |
| — | |
| (30,803) | |
| — | |
| (30,803) |
Other expense | |
| — | |
| (87) | |
| — | |
| — | |
| (124) | |
| (211) |
Allocated interest expense | |
| (14,566) | |
| (3,828) | |
| (2,030) | |
| (3,864) | |
| (4,353) | |
| (28,641) |
Allocated general and administrative(2) | |
| (6,120) | |
| (1,242) | |
| (664) | |
| (2,367) | |
| (5,210) | |
| (15,603) |
Segment profit (loss) (3) | |
| (7,010) | | $ | 3,435 | | $ | (3,133) | | $ | (6,887) | | $ | (7,532) | | $ | (21,127) |
Other significant non-cash items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Provision for (recovery of) loan losses | | $ | — | | $ | (2,158) | | $ | — | | $ | — | | $ | — | | $ | (2,158) |
Provision for losses on net investment in leases | | | 779 | | | — | | | — | | | — | | | — | | | 779 |
Depreciation and amortization | |
| 1 | |
| — | |
| 1,221 | |
| 228 | |
| 123 | |
| 1,573 |
Capitalized expenditures | |
| — | |
| — | |
| 432 | |
| 4,571 | |
| — | |
| 5,003 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2022 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Operating lease income | | $ | — | | $ | — | | $ | 6,056 | | $ | 235 | | $ | — | | $ | 6,291 | ||||||||||||||||||
Interest income |
| | 75 |
| | 9,094 |
| | — |
| | — |
| | — |
| | 9,169 | ||||||||||||||||||
Interest income from sales-type leases |
| | 732 |
| | — |
| | — |
| | — |
| | — |
| | 732 | ||||||||||||||||||
Other income |
| | 9,680 |
| | 37 |
| | 10,255 |
| | 2,635 |
| | 1,914 |
| | 24,521 | ||||||||||||||||||
Land development revenue |
| | — |
| | — |
| | — |
| | 39,303 |
| | — |
| | 39,303 | ||||||||||||||||||
Earnings from equity method investments |
| | 33,038 |
| | 1,783 |
| | 3,718 |
| | 3,665 |
| | 2,221 |
| | 44,425 | ||||||||||||||||||
Income from sales of real estate |
| | 492 |
| | — |
| | — |
| | — |
| | — |
| | 492 | ||||||||||||||||||
Total revenue and other earnings |
| | 44,017 |
| | 10,914 |
| | 20,029 |
| | 45,838 |
| | 4,135 |
| | 124,933 | ||||||||||||||||||
Real estate expense |
| | (657) |
| | — |
| | (14,133) |
| | (8,343) |
| | — |
| | (23,133) | ||||||||||||||||||
Land development cost of sales |
| | — |
| | — |
| | — |
| | (38,591) |
| | — |
| | (38,591) | ||||||||||||||||||
Other expense |
| | (992) |
| | (159) |
| | — |
| | (320) |
| | (982) |
| | (2,453) | ||||||||||||||||||
Allocated interest expense |
| | (29,377) |
| | (5,336) |
| | (2,480) |
| | (6,988) |
| | (9,211) |
| | (53,392) | ||||||||||||||||||
Allocated general and administrative(3) |
| | (8,854) |
| | (2,350) |
| | (1,103) |
| | (4,369) |
| | (9,870) |
| | (26,546) | ||||||||||||||||||
Segment profit (loss)(4) | | $ | 4,137 | | $ | 3,069 | | $ | 2,313 | | $ | (12,773) | | $ | (15,928) | | $ | (19,182) | ||||||||||||||||||
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Provision for loan losses | | $ | — | | $ | 22,713 | | $ | — | | $ | — | | $ | — | | $ | 22,713 | ||||||||||||||||||
Provision for losses on net investment in leases | |
| 380 | |
| — | |
| — | |
| — | |
| — | |
| 380 | ||||||||||||||||||
Impairment of assets | |
| — | |
| — | |
| 1,750 | |
| — | |
| 18 | |
| 1,768 | ||||||||||||||||||
Depreciation and amortization | |
| — | |
| — | |
| 1,955 | |
| 456 | |
| 284 | |
| 2,695 | ||||||||||||||||||
Capitalized expenditures | |
| — | |
| — | |
| 540 | |
| 10,524 | |
| — | |
| 11,064 | ||||||||||||||||||
|
| Net |
| Real Estate |
| Operating |
| Land and |
| Corporate/ |
| Company | | | | | | | | | | | | | | | | | | | ||||||
| | Lease | | Finance | | Properties | | Development | | Other(1) | | Total | ||||||||||||||||||||||||
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Six Months Ended June 30, 2021 | |
| | |
| | |
| | |
| | |
| | |
| | ||||||||||||||||||
Operating lease income | | $ | 123,926 | | $ | — | | $ | 13,176 | | $ | 279 | | $ | — | | $ | 137,381 | | $ | — | | $ | — | | $ | 9,540 | | $ | 183 | | $ | — | | $ | 9,723 |
Interest income |
| | 3,696 |
| | 23,878 |
| | — |
| | — |
| | — |
| | 27,574 | |
| 317 | |
| 17,557 | |
| — | |
| — | |
| — | |
| 17,874 |
Interest income from sales-type leases |
| | 26,895 |
| | — |
| | — |
| | — |
| | — |
| | 26,895 | |
| 157 | |
| — | |
| — | |
| — | |
| — | |
| 157 |
Other income |
| | 14,213 |
| | 1,245 |
| | 23,159 |
| | 5,894 |
| | 20,038 |
| | 64,549 | |
| 7,007 | |
| 151 | |
| 6,291 | |
| 2,704 | |
| 5,764 | |
| 21,917 |
Land development revenue |
| | — |
| | — |
| | — |
| | 157,936 |
| | — |
| | 157,936 | |
| — | |
| — | |
| — | |
| 64,567 | |
| — | |
| 64,567 |
Earnings (losses) from equity method investments |
| | 98,604 |
| | 2,092 |
| | (5,553) |
| | 15,456 |
| | 4,076 |
| | 114,675 | |
| 21,115 | |
| 1,220 | |
| (6,682) | |
| 4,619 | |
| 2,594 | |
| 22,866 |
Income from sales of real estate |
| | 2,114 |
| | — |
| | 26,319 |
| | — |
| | — |
| | 28,433 | |
| — | |
| — | |
| 708 | |
| — | |
| — | |
| 708 |
Total revenue and other earnings |
| | 269,448 |
| | 27,215 |
| | 57,101 |
| | 179,565 |
| | 24,114 |
| | 557,443 | |
| 28,596 | |
| 18,928 | |
| 9,857 | |
| 72,073 | |
| 8,358 | |
| 137,812 |
Real estate expense |
| | (21,065) |
| | — |
| | (19,238) |
| | (13,604) |
| | — |
| | (53,907) | |
| (468) | |
| — | |
| (10,055) | |
| (9,512) | |
| — | |
| (20,035) |
Land development cost of sales |
| | — |
| | — |
| | — |
| | (147,507) |
| | — |
| | (147,507) | |
| — | |
| — | |
| — | |
| (60,126) | |
| — | |
| (60,126) |
Other expense |
| | (1,327) |
| | (422) |
| | — |
| | (64) |
| | (662) |
| | (2,475) | |
| — | |
| (153) | |
| — | |
| — | |
| (310) | |
| (463) |
Allocated interest expense |
| | (76,888) |
| | (11,737) |
| | (5,714) |
| | (11,481) |
| | (12,631) |
| | (118,451) | |
| (28,891) | |
| (8,406) | |
| (4,073) | |
| (7,802) | |
| (8,278) | |
| (57,450) |
Allocated general and administrative(2) |
| | (17,544) |
| | (3,659) |
| | (1,797) |
| | (6,968) |
| | (15,686) |
| | (45,654) | ||||||||||||||||||
Segment profit (loss)(3) | | $ | 152,624 | | $ | 11,397 | | $ | 30,352 | | $ | (59) | | $ | (4,865) | | $ | 189,449 | ||||||||||||||||||
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Recovery of loan losses | | $ | (202) | | $ | (7,411) | | $ | — | | $ | — | | $ | — | | $ | (7,613) | ||||||||||||||||||
Recovery of losses on net investment in leases | |
| (1,735) | |
| — | |
| — | |
| — | |
| — | |
| (1,735) | ||||||||||||||||||
Impairment of assets | |
| 2,286 | |
| — | |
| 679 | |
| — | |
| — | |
| 2,965 | ||||||||||||||||||
Depreciation and amortization | |
| 39,255 | |
| — | |
| 4,593 | |
| 674 | |
| 449 | |
| 44,971 | ||||||||||||||||||
Capitalized expenditures | |
| 2,300 | |
| — | |
| 610 | |
| 16,727 | |
| — | |
| 19,637 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Nine Months Ended September 30, 2020 | |
| | |
| | |
| | |
| | |
| | |
| | ||||||||||||||||||
Operating lease income | | $ | 124,109 | | $ | — | | $ | 16,153 | | $ | 267 | | $ | — | | $ | 140,529 | ||||||||||||||||||
Interest income | |
| 2,594 | |
| 44,331 | |
| — | |
| — | |
| — | |
| 46,925 | ||||||||||||||||||
Interest income from sales-type leases | |
| 25,010 | |
| — | |
| — | |
| — | |
| — | |
| 25,010 | ||||||||||||||||||
Other income | |
| 13,468 | |
| 4,249 | |
| 6,605 | |
| 5,558 | |
| 26,332 | |
| 56,212 | ||||||||||||||||||
Land development revenue | |
| — | |
| — | |
| — | |
| 116,254 | |
| — | |
| 116,254 | ||||||||||||||||||
Earnings (losses) from equity method investments | |
| 38,472 | |
| — | |
| (11,741) | |
| 1,225 | |
| (1,953) | |
| 26,003 | ||||||||||||||||||
Income from sales of real estate | |
| 6,056 | |
| — | |
| 62 | |
| — | |
| — | |
| 6,118 | ||||||||||||||||||
Total revenue and other earnings | |
| 209,709 | |
| 48,580 | |
| 11,079 | |
| 123,304 | |
| 24,379 | |
| 417,051 | ||||||||||||||||||
Real estate expense | |
| (19,497) | |
| — | |
| (16,600) | |
| (17,611) | |
| — | |
| (53,708) | ||||||||||||||||||
Land development cost of sales | |
| — | |
| — | |
| — | |
| (114,704) | |
| — | |
| (114,704) | ||||||||||||||||||
Other expense | |
| — | |
| (80) | |
| — | |
| — | |
| (271) | |
| (351) | ||||||||||||||||||
Allocated interest expense | |
| (74,915) | |
| (17,989) | |
| (6,731) | |
| (13,598) | |
| (14,515) | |
| (127,748) | ||||||||||||||||||
Allocated general and administrative(2) | |
| (17,327) | |
| (5,123) | |
| (1,966) | |
| (7,524) | |
| (14,523) | |
| (46,463) | ||||||||||||||||||
Segment profit (loss)(3) | | $ | 97,970 | | $ | 25,388 | | $ | (14,218) | | $ | (30,133) | | $ | (4,930) | | $ | 74,077 | ||||||||||||||||||
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||||||||||||||||||
Provision for loan losses | | $ | 212 | | $ | 3,881 | | $ | — | | $ | — | | $ | — | | $ | 4,093 | ||||||||||||||||||
Provision for losses on net investment in leases | |
| 2,001 | |
| — | |
| — | |
| — | |
| — | |
| 2,001 |
40
Impairment of assets | |
| 2,036 | |
| — | |
| 2,983 | |
| 1,472 | |
| — | |
| 6,491 |
Depreciation and amortization | | | 37,924 | | | — | | | 3,843 | | | 729 | | | 911 | | | 43,407 |
Capitalized expenditures | |
| 8,913 | |
| — | |
| 1,421 | |
| 25,222 | |
| — | |
| 35,556 |
| | | | | | | | | | | | | | | | | | |
As of September 30, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | 1,263,881 | | $ | — | | $ | 93,043 | | $ | — | | $ | — | | $ | 1,356,924 |
Real estate available and held for sale | |
| — | |
| — | |
| 1,983 | |
| — | |
| — | |
| 1,983 |
Total real estate | |
| 1,263,881 | |
| — | |
| 95,026 | |
| — | |
| — | |
| 1,358,907 |
Net investment in leases | |
| 477,360 | |
| — | |
| — | |
| — | |
| — | |
| 477,360 |
Land and development, net | |
| — | |
| — | |
| — | |
| 302,845 | |
| — | |
| 302,845 |
Loans receivable and other lending investments, net | |
| 47,555 | |
| 357,954 | |
| — | |
| — | |
| — | |
| 405,509 |
Loan receivable held for sale | |
| 42,683 | |
| — | |
| — | |
| — | |
| — | |
| 42,683 |
Other investments | | | 1,213,804 | | | 47,936 | | | 43,659 | | | 537 | | | 113,830 | | | 1,419,766 |
Total portfolio assets | | | 3,045,283 | | | 405,890 | | | 138,685 | | | 303,382 | | | 113,830 | |
| 4,007,070 |
Cash and other assets | | | | | | | | | | | | | | | | |
| 795,095 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 4,802,165 |
| | | | | | | | | | | | | | | | | | |
As of December 31, 2020 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | 1,291,903 | | $ | — | | $ | 192,378 | | $ | — | | $ | — | | $ | 1,484,281 |
Real estate available and held for sale | |
| — | |
| — | |
| 5,212 | |
| — | |
| — | |
| 5,212 |
Total real estate | |
| 1,291,903 | |
| — | |
| 197,590 | |
| — | |
| — | |
| 1,489,493 |
Net investment in leases | |
| 429,101 | |
| — | |
| — | |
| — | |
| — | |
| 429,101 |
Land and development, net | |
| — | |
| — | |
| — | |
| 430,663 | |
| — | |
| 430,663 |
Loans receivable and other lending investments, net | |
| 45,398 | |
| 686,932 | |
| — | |
| — | |
| — | |
| 732,330 |
Other investments | |
| 1,016,710 | |
| — | |
| 58,739 | |
| 31,200 | |
| 69,911 | |
| 1,176,560 |
Total portfolio assets | | $ | 2,783,112 | | $ | 686,932 | | $ | 256,329 | | $ | 461,863 | | $ | 69,911 | |
| 4,258,147 |
Cash and other assets | |
| | |
|
| |
|
| |
|
| |
|
| | | 603,661 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 4,861,808 |
Allocated general and administrative(3) | |
| (12,057) | |
| (2,701) | |
| (1,324) | |
| (4,795) | |
| (10,657) | |
| (31,534) |
Segment profit (loss)(4) | | $ | (12,820) | | $ | 7,668 | | $ | (5,595) | | $ | (10,162) | | $ | (10,887) | | $ | (31,796) |
Other significant items: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Recovery of loan losses | | $ | — | | $ | (5,800) | | $ | — | | $ | — | | $ | — | | $ | (5,800) |
Provision for losses on net investment in leases | |
| 780 | |
| — | |
| — | |
| — | |
| — | |
| 780 |
Impairment of assets | |
| — | |
| — | |
| 257 | |
| — | |
| — | |
| 257 |
Depreciation and amortization | | | — | | | — | | | 3,208 | | | 446 | | | 320 | | | 3,974 |
Capitalized expenditures | |
| — | |
| — | |
| 489 | |
| 9,311 | |
| — | |
| 9,800 |
| | | | | | | | | | | | | | | | | | |
As of June 30, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | — | | $ | — | | $ | 90,231 | | $ | — | | $ | — | | $ | 90,231 |
Real estate available and held for sale | |
| — | |
| — | |
| 1,970 | |
| — | |
| — | |
| 1,970 |
Total real estate | |
| — | |
| — | |
| 92,201 | |
| — | |
| — | |
| 92,201 |
Real estate and other assets available and held for sale and classified as discontinued operations(1) | | | 11,518 | | | — | | | — | | | — | | | — | | | 11,518 |
Net investment in leases | |
| 31,999 | |
| — | |
| — | |
| — | |
| — | |
| 31,999 |
Land and development, net | |
| — | |
| — | |
| — | |
| 259,718 | |
| — | |
| 259,718 |
Loans receivable and other lending investments, net | |
| — | |
| 204,252 | |
| — | |
| — | |
| — | |
| 204,252 |
Loan receivable held for sale | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Other investments | | | 1,471,053 | | | 23,219 | | | 38,168 | | | 290 | | | 24,062 | | | 1,556,792 |
Total portfolio assets | | | 1,514,570 | | | 227,471 | | | 130,369 | | | 260,008 | | | 24,062 | |
| 2,156,480 |
Cash and other assets | | | | | | | | | | | | | | | | |
| 1,454,140 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 3,610,620 |
| | | | | | | | | | | | | | | | | | |
As of December 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate, net | | $ | — | | $ | — | | $ | 92,150 | | $ | — | | $ | — | | $ | 92,150 |
Real estate available and held for sale | |
| — | |
| — | |
| 301 | |
| — | |
| — | |
| 301 |
Total real estate | |
| — | |
| — | |
| 92,451 | |
| — | |
| — | |
| 92,451 |
Real estate and other assets available and held for sale and classified as discontinued operations(1) | | | 2,299,711 | | | — | | | — | | | — | | | — | | | 2,299,711 |
Net investment in leases | |
| 43,215 | |
| — | |
| — | |
| — | |
| — | |
| 43,215 |
Land and development, net | |
| — | |
| — | |
| — | |
| 286,810 | |
| — | |
| 286,810 |
Loans receivable and other lending investments, net | |
| — | |
| 332,844 | |
| — | |
| — | |
| — | |
| 332,844 |
Loan receivable held for sale | | | 43,215 | | | — | | | — | | | — | | | — | | | 43,215 |
Other investments | |
| 1,186,162 | | | 48,862 | | | 43,252 | | | 1,096 | | | 17,909 | |
| 1,297,281 |
Total portfolio assets | | $ | 3,572,303 | | $ | 381,706 | | $ | 135,703 | | $ | 287,906 | | $ | 17,909 | |
| 4,395,527 |
Cash and other assets | |
| | |
|
| |
|
| |
|
| |
|
| | | 445,007 |
Total assets | | | | |
|
| |
|
| |
|
| |
|
| | $ | 4,840,534 |
(1) | Refer to Note 3 – Net Lease Sale and Discontinued Operations. |
(2) | Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also includes the Company’s joint venture investments and strategic investments that are not included in the other reportable segments above. |
General and administrative excludes stock-based compensation |
The following is a reconciliation of segment profit to net income (loss) ($ in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||||||
Segment profit | | $ | 148,599 | | $ | 32,934 | | $ | 189,449 | | $ | 74,077 | | |||||||||||||
Less: Recovery of (provision for) loan losses | |
| 1,556 | |
| 1,976 | |
| 7,613 | |
| (4,093) | | |||||||||||||
Less: (Provision for) recovery of losses on net investment in leases | |
| (131) | |
| (175) | |
| 1,735 | |
| (2,001) | | |||||||||||||
Segment loss | | $ | (8,071) | | $ | (21,127) | | $ | (19,182) | | $ | (31,796) | | |||||||||||||
Less: (Provision for) recovery of loan losses | |
| (22,578) | |
| 2,158 | |
| (22,713) | |
| 5,800 | | |||||||||||||
Less: Provision for losses on net investment in leases | |
| (99) | |
| (779) | |
| (380) | |
| (780) | | |||||||||||||
Less: Impairment of assets | |
| (1,179) | |
| 0 | |
| (2,965) | |
| (6,491) | | |
| (1,768) | |
| 0 | |
| (1,768) | |
| (257) | |
Less: Stock-based compensation expense | |
| (3,001) | |
| (5,661) | |
| (23,300) | |
| (26,675) | | |||||||||||||
Less: Stock-based compensation income (expense) | |
| 17,923 | |
| (14,791) | |
| 30,350 | |
| (20,299) | | |||||||||||||
Less: Depreciation and amortization | |
| (14,856) | |
| (14,621) | |
| (44,971) | |
| (43,407) | | |
| (1,338) | |
| (1,573) | |
| (2,695) | |
| (3,974) | |
Less: Income tax benefit (expense) | |
| 6 | |
| (78) | |
| 6 | |
| (165) | | |||||||||||||
Less: Income tax (expense) benefit | |
| 0 | |
| (619) | |
| (3) | |
| 79 | | |||||||||||||
Less: Loss on early extinguishment of debt, net | |
| 0 | |
| (7,924) | |
| 0 | |
| (12,038) | | |
| (116,563) | |
| 0 | |
| (117,991) | |
| 0 | |
Less: Net income from discontinued operations | | | — | | | 25,315 | | | 797,688 | | | 47,800 | | |||||||||||||
Net income (loss) | | $ | 130,994 | | $ | 6,451 | | $ | 127,567 | | $ | (20,793) | | | $ | (132,494) | | $ | (11,416) | | $ | 663,306 | | $ | (3,427) | |
41
Note 19—18 – Subsequent Events
Subsequent to the end of the quarter,In July and August 2022, the Company obtained the consentscompleted a series of privately-negotiated exchange transactions with holders of its outstanding 4.75% senior notes due 2024, 4.25% senior notes due 2025 and 5.50% senior notes due 2026 to certain amendments to the indentures governing the notes intended to align the indentures with the potential saleapproximately $47.9 million aggregate principal amount of the Company's net lease assets.3.125% Convertible Notes due 2022 (refer to Note 10) in which the noteholders exchanged their convertible notes with the Company for an aggregate of approximately 2.0 million newly issued shares of the Company's common stock and aggregate cash payments of approximately $24.3 million. The convertible notes received by the Company were retired. The Company paid holders consent fees ranging from 0.75% to 1.00%will recognize a net increase in shareholders’ equity of the principal amount$24.2 million inclusive of consenting notes, dependinga $6.1 million loss on the relevant series. The Company previously announced onextinguishment of debt in connection with these transactions.
In July 6, 2021 that it intended to explore market interest for possible sales of its net lease assets. That process remains ongoing. There can be no assurance as to whether2022, the Company will sell some, all or none of its net lease assets, or assold a Ground Lease to the timing and terms of any sales.SAFE for $36.0 million.
42
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 20202021 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 20202021 Annual Report. These historical financial statements may not be indicative of our future performance.
Executive Overview
OurCorporate Strategy. We continue to execute our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio is well diversifiedthrough sales of other assets. In March 2022, we, through certain subsidiaries of ours and entities managed by business, property typeus, sold our portfolio of net lease assets for an aggregate gross sales price of $3.07 billion (the “Net Lease Sale”).
The portfolio sold consisted of office, entertainment and geography. Our portfolio includes investmentsindustrial properties located in the entertainment/leisure (23.0%United States comprising approximately 18.3 million square feet. It included assets wholly-owned by us and assets owned by two joint ventures managed by us and in which we owned 51.9% interests. At the time of gross book value)the sale, the portfolio was encumbered by an aggregate of $702 million of mortgage indebtedness, including indebtedness of equity method investments, which was repaid with proceeds from the sale. After repayment of the mortgage indebtedness and hotel (4.2%prepayment penalties, repayment of gross book value) sectors, bothour Senior Term Loan (refer to Note 10 to the consolidated financial statements), payments to terminate derivative contracts, payments to joint venture partners, and payments of which have been particularly stressed bypromotes, transaction expenses and amounts due under employee incentive plans, we retained net cash proceeds of $1.2 billion from the COVID-19 pandemic. We may experience disruptions and collections of rent and interest payments until more normalized business conditions resume.
The COVID-19 pandemic adversely affected our strategies of monetizing legacy assets and materially scaling SAFE’s portfoliotransaction. Two net lease properties were not included in 2020 andthe sale but were sold to other third parties in the first quarter of 2021, primarily because of reduced levels of real estate transactions and constrained conditions for equity and debt financing for real estate transactions. These conditions improved2022. Our net lease assets associated with our Ground Lease businesses were not included in the second quartersale.
In April 2022, we completed separate, privately-negotiated transactions with holders of 2021$194 million aggregate principal amount of our 3.125% Convertible Notes (refer to Note 10 to the consolidated financial statements) in which the noteholders exchanged their convertible notes with us for 13.75 million newly issued shares of our common stock and continued intoaggregate cash payments of $14 million. The 3.125% Convertible Senior Notes received by us were retired. We recognized a net increase in shareholders’ equity of $180.6 million inclusive of a $118.1 million loss on extinguishment of debt in connection with these transactions. The exchanges will strengthen our balance sheet and allow us to save interest expense, preserve cash on hand, reduce our outstanding debt and mitigate volatility on the third quarter 2021, andtrading price of our common stock as we expect them to continue to improve as more normalized activity resumes. At this time, however, we cannot predict with certaintyapproach the full extentmaturity of the impacts of the COVID-19 pandemic on our or SAFE’s business. In addition, other macroeconomic factors such as inflation and the market reaction and response of government policy to inflation may impact our or SAFE’s business. See the Risk Factors section of our 2020 Annual Report for additional discussion of certain potential risks to our business arising from the COVID-19 pandemic and other factors.
remaining outstanding 3.125% Convertible Notes in September 2022.
43
Portfolio Overview
As of SeptemberJune 30, 2021,2022, based on our gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property/Collateral |
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
|
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||||||
Types | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| | Lease | | Finance | �� | Properties | | Development | | Corporate | | Total | | Total |
| ||||||||||||
Ground Leases | | $ | 1,229,403 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,229,403 |
| 27.1 | % | | $ | 1,503,347 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,503,347 |
| 70.1 | % |
Entertainment / Leisure | | | 1,030,994 | |
| — | |
| 16,297 | |
| — | |
| — | |
| 1,047,291 |
| 23.0 | % | |||||||||||||||||||||
Office | | | 820,048 | | | 52,107 | | | — | | | — | | | — | | | 872,155 |
| 19.2 | % | |||||||||||||||||||||
Industrial / Lab | | | 433,783 | | | — | | | — | | | — | | | 98,461 | | | 532,244 |
| 11.7 | % | |||||||||||||||||||||
Land and Development | |
| — | |
| 11,900 | |
| — | |
| 235,747 | |
| — | |
| 247,647 |
| 5.4 | % | |
| — | |
| — | |
| — | |
| 222,391 | |
| — | |
| 222,391 |
| 10.4 | % |
Multifamily | |
| — | |
| 77,026 | |
| 39,838 | |
| — | |
| — | |
| 116,864 |
| 5.4 | % | |||||||||||||||||||||
Hotel | |
| — | |
| 107,505 | |
| 82,292 | |
| — | |
| — | |
| 189,797 |
| 4.2 | % | |
| — | |
| 46,498 | |
| 62,881 | |
| — | |
| — | |
| 109,379 |
| 5.1 | % |
Multifamily | |
| — | |
| 122,906 | |
| 59,918 | |
| — | |
| — | |
| 182,824 |
| 4.0 | % | |||||||||||||||||||||
Retail | |
| — | |
| 61,461 | |
| 31,566 | |
| 8,340 | |
| — | |
| 101,367 |
| 2.2 | % | |
| — | |
| 62,062 | |
| 12,620 | |
| 8,340 | |
| — | |
| 83,022 |
| 3.9 | % |
Condominium | |
| — | |
| 27,257 | |
| 1,983 | |
| 69,878 | |
| — | |
| 99,118 |
| 2.2 | % | |
| — | |
| 8,871 | |
| 301 | |
| 29,277 | |
| — | |
| 38,449 |
| 1.8 | % |
Office | | | — | | | 9,761 | | | — | | | — | | | — | | | 9,761 |
| 0.5 | % | |||||||||||||||||||||
Other Property Types | |
| — | |
| 27,536 | |
| — | |
| — | |
| 15,369 | |
| 42,905 |
| 0.9 | % | |
| — | |
| 23,254 | |
| 14,436 | |
| — | |
| 24,061 | |
| 61,751 |
| 2.9 | % |
Total | | $ | 3,514,228 | | $ | 410,672 | | $ | 192,056 | | $ | 313,965 | | $ | 113,830 | | $ | 4,544,751 |
| 100.0 | % | | $ | 1,503,347 | | $ | 227,472 | | $ | 130,076 | | $ | 260,008 | | $ | 24,061 | | $ | 2,144,964 |
| 100.0 | % |
Percentage of Total | | | 77% | | | 9% | | | 4% | | | 7% | | | 3% | | | 100% | | | | | | 70% | | | 11% | | | 6% | | | 12% | | | 1% | | | 100% | | | |
| | | | | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||
Geographic Region | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| ||||||
Northeast | | $ | 961,145 | | $ | 101,479 | | $ | 93,624 | | $ | 196,702 | | $ | — | | $ | 1,352,950 |
| 29.8 | % |
West | |
| 581,022 | |
| 143,774 | |
| 43,083 | |
| 11,847 | |
| — | |
| 779,726 |
| 17.2 | % |
Mid-Atlantic | |
| 573,630 | |
| — | |
| 6,090 | |
| 102,063 | |
| — | |
| 681,783 |
| 15.0 | % |
Southwest | |
| 498,056 | |
| — | |
| — | |
| 2,200 | |
| — | |
| 500,256 |
| 11.0 | % |
Southeast | |
| 461,294 | |
| 28,479 | |
| 6,647 | |
| 1,153 | |
| — | |
| 497,573 |
| 10.9 | % |
Central | |
| 429,594 | |
| 41,682 | |
| 42,612 | |
| — | |
| — | |
| 513,888 |
| 11.3 | % |
Various | |
| 9,487 | |
| 95,258 | |
| — | |
| — | |
| 113,830 | |
| 218,575 |
| 4.8 | % |
Total | | $ | 3,514,228 | | $ | 410,672 | | $ | 192,056 | | $ | 313,965 | | $ | 113,830 | | $ | 4,544,751 |
| 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
|
| Net |
| Real Estate |
| Operating |
| Land & |
| | |
| | |
| % of |
| ||||
Geographic Region | | Lease | | Finance | | Properties | | Development | | Corporate | | Total | | Total |
| ||||||
Northeast | | $ | 598,402 | | $ | 105,076 | | $ | 77,318 | | $ | 157,644 | | $ | — | | $ | 938,440 |
| 43.8 | % |
West | |
| 354,842 | |
| 49,627 | |
| 32,013 | |
| 8,960 | |
| — | |
| 445,442 |
| 20.8 | % |
Mid-Atlantic | |
| 217,385 | |
| — | |
| 6,438 | |
| 93,114 | |
| — | |
| 316,937 |
| 14.8 | % |
Southeast | |
| 156,524 | |
| 29,913 | |
| — | |
| 290 | |
| — | |
| 186,727 |
| 8.7 | % |
Southwest | |
| 136,858 | |
| — | |
| — | |
| — | |
| — | |
| 136,858 |
| 6.4 | % |
Central | |
| 39,336 | |
| 8,871 | |
| 14,307 | |
| — | |
| — | |
| 62,514 |
| 2.9 | % |
Various | |
| — | |
| 33,985 | |
| — | |
| — | |
| 24,061 | |
| 58,046 |
| 2.7 | % |
Total | | $ | 1,503,347 | | $ | 227,472 | | $ | 130,076 | | $ | 260,008 | | $ | 24,061 | | $ | 2,144,964 |
| 100.0 | % |
Net Lease
OurPrior to the Net Lease Sale, our net lease business seeks to createcreated stable cash flows through long-term net leases primarily to single tenants on our properties. We targettargeted mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combinecombined 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).
TheAfter the Net Lease Sale, the net lease segment includes our Ground Lease investments made primarily through SAFE and our traditional net lease investments. As of September 30, 2021, the gross book value of our consolidated net lease portfolio totaled $2.3 billion. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II gross of accumulated depreciation, totaled $3.5 billion. In July 2021, we announced that we intend to explore market interest for possible sales of our net lease assets. The potential sale would be consistent with our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio throughbusinesses.
44
salesAs of other assets. There can be no assurance as to whether we will sell some, all or none ofJune 30, 2022, our net lease assets, or as toportfolio consisted primarily of our equity method investments in SAFE and the timing or terms of any sales.Ground Lease Plus Fund. The table below provides certain statistics for our net lease portfolio.
| | | | | | | | | | | | | | | | | ||||||||||
| | | | | | | | Total | | | | | | | | |||||||||||
|
| Wholly- |
| Net Lease |
| Consolidated |
| Net Lease |
| | |
| | | | | | | | | | | ||||
| | Owned | | Venture I | | Real Estate(1) | | Venture II | | SAFE |
| | Wholly- | | SAFE | | Ground Lease |
| ||||||||
Ownership % | | | 100.0 | % | | 51.9 | % | | — |
| | 51.9 | % | | 63.6 | % | | | 100.0 | % | | 64.7 | % | | 53.0 | % |
Gross book value (millions)(2) | | $ | 1,348 | | $ | 911 | | $ | 2,259 | | $ | 324 | | $ | 3,879 | | ||||||||||
Book value (millions)(1) | | $ | 32 | | $ | 1,406 | | $ | 65 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
% Leased | |
| 98.9 | % |
| 100.0 | % |
| 99.3 | % |
| 100.0 | % |
| 100.0 | % | |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Square footage (thousands) | |
| 9,630 | |
| 5,755 | |
| 15,385 | |
| 3,302 | |
| N/A | | ||||||||||
Weighted average lease term (years)(3) | |
| 18.8 | |
| 16.2 | |
| 17.7 | |
| 12.3 | |
| 89.1 | | ||||||||||
Weighted average yield(4) | |
| 7.6 | % |
| 8.2 | % |
| 7.8 | % |
| 9.1 | % |
| 4.6 | % | ||||||||||
Weighted average lease term (years)(2) | |
| 98.7 | |
| 91.2 | |
| 104.8 | | ||||||||||||||||
Weighted average yield(3) | |
| 5.2 | % |
| 4.8 | % |
| 5.7 | % |
(1) |
Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options. SAFE includes its pro rata share of its unconsolidated equity method investments. |
Yield for SAFE is calculated over the trailing twelve months and excludes dilution gains (refer to Note 8 to the consolidated financial statements) and management fees earned by us. |
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a right of first refusal to the venture on all new net lease investments that met specified investment criteria (refer to Note 4 in our consolidated financial statements for more information on our Net Lease Venture). The Net Lease Venture’s investment period expired on June 30, 2018 and the remaining term of the venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of us and our partner. We obtained control over the Net Lease Venture when the investment period expired on June 30, 2018 and consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment.
Net Lease Venture II—In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture (refer to Note 8). The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us. We have an equity interest in the new venture of approximately 51.9%, which is accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee. In June 2021, Net Lease Venture II’s investment period was extended to December 31, 2021.
SAFE—SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted returns from its investments. We believe its business has characteristics comparable to a high-grade fixed income investment business, but with certain unique advantages. Relative to alternative fixed income investments generally, SAFE’s Ground Leases typically benefit from built-in growth derived from contractual rent escalators that may compound over the duration of the lease. These rent escalators may be based on fixed increases, a CPI lookback or a combination thereof, and may also include a participation in the gross revenues of the property. SAFE also has the opportunity to realize value from residual rightsits right to acquireregain possession of the buildings and other improvements on its land upon expiration or earlier termination of the lease at no additional cost. We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments. As of SeptemberJune 30, 2021,2022, we owned approximately 63.6%64.7% of SAFE’s common stock outstanding.
We account for our investment in SAFE as an equity method investment (refer to Note 8)8 to the consolidated financial statements). We act as SAFE’s external manager pursuant to a management agreement, and we have an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.
Ground Lease Plus Fund—The Company formed and manages an investment fund that targets the origination and acquisition of Ground Leases for commercial real estate projects that are in a pre-development phase (the “Ground Lease Plus Fund”). We own a 53% noncontrolling interest in the Ground Lease Plus Fund. We do not have a controlling interest in the Ground Lease Plus Fund due to the substantive participating rights of our partner and account for this investment as an equity method investment. In addition, the Ground Lease Plus Fund has first look rights on qualifying pre-development projects through December 2023.
Real Estate Finance
Our real estate finance business targets sophisticated and innovative owner/operators of real estate and real estate related projects by providing one-stop capabilities that encompass financing alternatives ranging from full envelope senior
45
loans to mezzanine and preferred equity capital positions. Our real estate finance portfolio consists of leasehold loans to Ground Lease tenants, including tenants of SAFE, senior mortgage loans that are secured by commercial and residential real estate assets where we are the first lien holder, subordinated mortgage loans that are secured by second lien or junior interests in commercial and residential real estate assets, leasehold loans to Ground Lease tenants, including tenants of SAFE, and corporate/partnership loans, which represent mezzanine or subordinated loans to entities for which we do not have a lien on the underlying asset, but may have a pledge of underlying equity ownership of such assets. Our real estate finance portfolio includes Ground Leases, loans on stabilized and
45
transitional properties Ground Leases and ground-up construction projects. In addition, we also own loans through equity method investments and have preferred equity investments and debt securities classified as other lending investments.
As of September 30, 2021, the gross book value ofThe tables below shows certain statistics for our consolidated real estate finance portfolio including securities and other lending investments, totaled $411.2 million, gross of general loan loss allowances. The portfolio, excluding securities and other lending investments, included $181.8 million of performing loans with a weighted average maturity of 2.9 years.
The tables below summarize our loans and the allowance for loan losses associated with our loans ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| September 30, 2021 |
|
| June 30, 2022 |
| ||||||||||||||||||||||||||
|
| |
| | |
| | |
| | |
| |
| Allowance for |
|
| |
| | |
| | |
| | |
| |
| Allowance for |
|
| | | | Gross | | Allowance | | | | | | | Loan Losses as |
| | | | Gross | | Allowance | | | | | | | Loan Losses as |
| ||||
| | Number | | Book | | for Loan | | Net Book | | % of | | a % of Gross |
| | Number | | Book | | for Loan | | Net Book | | % of | | a % of Gross |
| ||||||
|
| of Loans |
| Value |
| Losses |
| Value |
| Total | | Book Value | |
| of Loans |
| Value |
| Losses |
| Value |
| Total | | Book Value | | ||||||
Performing loans | | 9 | | $ | 181,764 | | $ | (2,244) | | $ | 179,520 |
| 44.3% | | 1.2% | | | 7 | | $ | 88,775 | | $ | (1,310) | | $ | 87,465 |
| 42.8% | | 1.5% | |
Non-performing loans | | 1 | |
| 58,819 | |
| (640) | |
| 58,179 |
| 14.3% | | 1.1% | | | 1 | |
| 60,256 | |
| (708) | |
| 59,548 |
| 29.2% | | 1.2% | |
Other lending investments | | 3 | |
| 171,296 | |
| (3,486) | |
| 167,810 |
| 41.4% | | 2.0% | | | 2 | |
| 58,254 | |
| (1,015) | |
| 57,239 |
| 28.0% | | 1.7% | |
Total | | 13 | | $ | 411,879 | | $ | (6,370) | | $ | 405,509 |
| 100.0% | | 1.5% | | | 10 | | $ | 207,285 | | $ | (3,033) | | $ | 204,252 |
| 100.0% | | 1.5% | |
(1) | As of June 30, 2022, our performing loans had a weighted average maturity of 5.5 years and, excluding one performing loan with a maturity of September 2057, had a weighted average maturity of 0.4 years. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| December 31, 2020 |
|
| December 31, 2021 |
| ||||||||||||||||||||||||||
|
| |
| | |
| | |
| | |
| |
| Allowance for |
|
| |
| | |
| | |
| | |
| |
| Allowance for |
|
| | | | Gross | | Allowance | | | | | | | Loan Losses as |
| | | | Gross | | Allowance | | | | | | | Loan Losses as |
| ||||
| | Number | | Book | | for Loan | | Net Book | | % of | | a % of Gross |
| | Number | | Book | | for Loan | | Net Book | | % of | | a % of Gross |
| ||||||
| | of Loans | | Value | | Losses | | Value | | Total |
| Book Value | | | of Loans | | Value | | Losses | | Value | | Total |
| Book Value | | ||||||
Performing loans | | 16 | | $ | 529,657 | | $ | (8,184) | | $ | 521,473 |
| 71.2% | | 1.5% | | | 8 | | $ | 153,043 | | $ | (1,888) | | $ | 151,155 |
| 45.4% | | 1.2% | |
Non-performing loans | | 1 | |
| 53,305 | |
| (742) | |
| 52,563 |
| 7.2% | | 1.4% | | | 1 | |
| 59,640 | |
| (576) | |
| 59,064 |
| 17.7% | | 1.0% | |
Other lending investments | | 3 | |
| 162,538 | |
| (4,244) | |
| 158,294 |
| 21.6% | | 2.6% | | | 2 | |
| 124,930 | |
| (2,305) | |
| 122,625 |
| 36.8% | | 1.8% | |
Total | | 20 | | $ | 745,500 | | $ | (13,170) | | $ | 732,330 |
| 100.0% | | 1.8% | | | 11 | | $ | 337,613 | | $ | (4,769) | | $ | 332,844 |
| 100.0% | | 1.4% | |
Performing Loans—The table below summarizes our performing loans exclusive of allowances ($ in thousands):
| | | | | | | | | | | | | | |
|
| September 30, 2021 |
| December 31, 2020 |
|
| June 30, 2022 |
| December 31, 2021 |
| ||||
Senior mortgages | | $ | 148,059 | | $ | 432,350 | | | $ | 75,889 | | $ | 139,968 | |
Corporate/Partnership loans | |
| 21,457 | |
| 85,667 | | |
| — | |
| 618 | |
Subordinate mortgages | |
| 12,248 | |
| 11,640 | | |
| 12,886 | |
| 12,457 | |
Total | | $ | 181,764 | | $ | 529,657 | | | $ | 88,775 | | $ | 153,043 | |
| | | | | | | | | | | | | | |
Weighted average LTV | |
| 63% | |
| 57% | | |
| 57% | |
| 60% | |
Yield - year to date(1) | |
| 7.9% | |
| 7.9% | | |
| 7.1% | |
| 8.4% | |
(1) | Yields presented are for the |
Non-Performing Loans—We designate loans as non-performing at such time as: (1) interest payments become 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, we had one non-performing loan with a carrying value of $58.2$59.5 million and $52.6$59.1 million, respectively. We expect that our level of non-performing loans will fluctuate from period to period.
46
Allowance for Loan Losses—The allowance for loan losses was $6.4$3.0 million as of SeptemberJune 30, 2021,2022, or 1.5% of total loans and other lending investments, compared to $13.2$4.8 million, or 1.8%1.4%, as of December 31, 2020.2021. We expect that our level of allowance for loan lossesExpected Losses will fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and allowancesExpected Losses requires the use of significant judgment. We currently believe there is adequate collateral and allowances to support the carrying values of the loans and other lending investments.
46
The allowance for loan losses includes an asset-specific component and a formula-based component. An asset-specific allowance is established for an impaired loan when the estimated fair value of the loan’s collateral less costs to sell is lower than the carrying value of the loan. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, asset-specific allowances were $0.6$0.7 million and $0.7$0.6 million, respectively.
We estimate the formula-based component based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market. In addition, we use third-party market data that includes forecasted economic trends, including unemployment rates.
The general allowanceExpected Loss decreased to $5.7$2.3 million, or 1.6%, of performing loans and other lending investments as of SeptemberJune 30, 2021,2022, compared to $12.4$4.2 million, or 1.8%1.5%, of performing loans and other lending investments as of December 31, 2020.2021. The decrease was due primarily to the repayment of loans during the ninesix months ended SeptemberJune 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020.2022.
Operating Properties
Our operating properties represent a pool of assets across a broad range of geographies and property types including industrial, hotel, multifamily, retail, condominium and entertainment/leisure properties. As of SeptemberJune 30, 2021,2022, the gross book value of our operating property portfolio, including the carrying value of our equity method investments, gross of accumulated depreciation, totaled $192.1$129.9 million.
Land and Development
The following table presents a land and development portfolio rollforward for the ninesix months ended SeptemberJune 30, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Land and Development Portfolio Rollforward | | Land and Development Portfolio Rollforward | ||||||||||||||||||||
| | (in millions) | | (in millions) | ||||||||||||||||||||
|
| Asbury Ocean |
| | |
| | |
| | |
| Asbury Ocean |
| | |
| | |
| | | ||
| | Club and | | | | | | | | | | | Club and | | | | | | | | | | ||
| | Asbury Park | | Magnolia | | All | | Total | | Asbury Park | | Magnolia | | All | | Total | ||||||||
| | Waterfront | | Green | | Others | | Segment | | Waterfront | | Green | | Others | | Segment | ||||||||
Beginning balance(1) | | $ | 201.1 | | $ | 101.3 | | $ | 128.3 | | $ | 430.7 | | $ | 137.8 | | $ | 95.8 | | $ | 53.2 | | $ | 286.8 |
Asset sales(2) | |
| (50.2) | |
| (19.1) | |
| (72.6) | |
| (141.9) | |
| (27.1) | |
| (8.9) | |
| (0.5) | |
| (36.5) |
Capital expenditures | |
| 1.0 | |
| 15.6 | |
| — | |
| 16.6 | |
| 3.4 | |
| 7.3 | |
| — | |
| 10.7 |
Other | |
| — | |
| (2.3) | |
| (0.3) | |
| (2.6) | |
| — | |
| (1.2) | |
| (0.1) | |
| (1.3) |
Ending balance(1) | | $ | 151.9 | | $ | 95.5 | | $ | 55.4 | | $ | 302.8 | | $ | 114.1 | | $ | 93.0 | | $ | 52.6 | | $ | 259.7 |
(1) | As of |
(2) | Represents gross book value of the assets sold, rather than proceeds received. |
47
Results of Operations for the Three Months Ended SeptemberJune 30, 20212022 compared to the Three Months Ended SeptemberJune 30, 20202021
| | | | | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended | | | | |
| For the Three Months Ended | | | | | ||||||||
| | September 30, | | | | | | June 30, | | | | | ||||||||
|
| 2021 |
| 2020 |
| $ Change | |
| 2022 |
| 2021 |
| $ Change | | ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Operating lease income | | $ | 44,392 | | $ | 46,370 | | $ | (1,978) | | | $ | 3,182 | | $ | 4,792 | | $ | (1,610) | |
Interest income | |
| 7,951 | |
| 14,270 | |
| (6,319) | | |
| 4,221 | |
| 8,084 | |
| (3,863) | |
Interest income from sales-type leases | |
| 9,578 | |
| 8,360 | |
| 1,218 | | |
| 376 | |
| 157 | |
| 219 | |
Other income | |
| 40,195 | |
| 25,552 | |
| 14,643 | | |
| 15,881 | |
| 8,903 | |
| 6,978 | |
Land development revenue | |
| 93,369 | |
| 20,502 | |
| 72,867 | | |
| 24,403 | |
| 32,318 | |
| (7,915) | |
Total revenue | |
| 195,485 | |
| 115,054 | |
| 80,431 | | |
| 48,063 | |
| 54,254 | |
| (6,191) | |
Interest expense | |
| 39,471 | |
| 42,407 | |
| (2,936) | | |
| 24,149 | |
| 28,641 | |
| (4,492) | |
Real estate expenses | |
| 18,724 | |
| 16,935 | |
| 1,789 | | ||||||||||
Real estate expense | |
| 13,016 | |
| 11,317 | |
| 1,699 | | ||||||||||
Land development cost of sales | |
| 87,380 | |
| 21,358 | |
| 66,022 | | |
| 24,095 | |
| 30,803 | |
| (6,708) | |
Depreciation and amortization | |
| 14,856 | |
| 14,621 | |
| 235 | | |
| 1,338 | |
| 1,573 | |
| (235) | |
General and administrative | |
| 17,121 | |
| 19,868 | |
| (2,747) | | |
| (5,179) | |
| 30,394 | |
| (35,573) | |
(Recovery of) provision for loan losses | |
| (1,556) | |
| (1,976) | |
| 420 | | ||||||||||
Provision for (recovery of) losses on net investment in leases | |
| 131 | |
| 175 | |
| (44) | | ||||||||||
Provision for (recovery of) loan losses | |
| 22,578 | |
| (2,158) | |
| 24,736 | | ||||||||||
Provision for losses on net investment in leases | |
| 99 | |
| 779 | |
| (680) | | ||||||||||
Impairment of assets | |
| 1,179 | |
| — | |
| 1,179 | | |
| 1,768 | |
| — | |
| 1,768 | |
Other expense | |
| 2,011 | |
| 73 | |
| 1,938 | | |
| 1,523 | |
| 211 | |
| 1,312 | |
Total costs and expenses | |
| 179,317 | |
| 113,461 | |
| 65,856 | | |
| 83,387 | |
| 101,560 | |
| (18,173) | |
Income from sales of real estate | |
| 25,611 | |
| 6,055 | |
| 19,556 | | |
| — | |
| 96 | |
| (96) | |
Loss on early extinguishment of debt, net | |
| — | |
| (7,924) | |
| 7,924 | | |
| (116,563) | |
| — | |
| (116,563) | |
Earnings from equity method investments | |
| 89,209 | |
| 6,805 | |
| 82,404 | | |
| 19,393 | |
| 11,098 | |
| 8,295 | |
Income tax benefit (expense) | |
| 6 | |
| (78) | |
| 84 | | ||||||||||
Net income | | $ | 130,994 | | $ | 6,451 | | $ | 124,543 | | ||||||||||
Income tax expense | |
| — | |
| (619) | |
| 619 | | ||||||||||
Net income from discontinued operations | | | — | |
| 25,315 | | | (25,315) | | ||||||||||
Net loss | | $ | (132,494) | | $ | (11,416) | | $ | (121,078) | |
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased $2.0 million to $44.4$3.2 million during the three months ended SeptemberJune 30, 20212022 from $46.4$4.8 million for the same period in 2020.2021. The following table summarizesdecrease was primarily due to the sale of assets, partially offset by an increase in rent at certain of our operating lease income by segment ($ in millions).properties.
| | | | | | | | | |
|
| Three Months Ended September 30, |
| | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Net Lease(1) | | $ | 40.7 | | $ | 41.1 | | $ | (0.4) |
Operating Properties(2) | |
| 3.6 | |
| 5.2 | |
| (1.6) |
Land and Development | |
| 0.1 | |
| 0.1 | |
| — |
Total | | $ | 44.4 | | $ | 46.4 | | $ | (2.0) |
48
The following table shows certain same store statistics for our consolidated Net Lease segment. Same store assets are defined as assets we owned on or prior to July 1, 2020 and were in service through September 30, 2021 (Operating lease income in millions).
| | | | | | | |
|
| Three Months Ended September 30, |
| ||||
|
| 2021 |
| 2020 |
| ||
Operating lease income(1) | | $ | 50.6 | | $ | 49.4 | |
Rent per square foot | | $ | 13.25 | | $ | 12.77 | |
Occupancy(2) | | | 99.3 | % |
| 98.6 | % |
Interest income decreased to $8.0$4.2 million during the three months ended SeptemberJune 30, 20212022 from $14.3$8.1 million for the same period in 2020.2021. The decrease was due primarily to a decrease in the average balance of our performing loans and other lending investments, which was $323$242 million for the three months ended SeptemberJune 30, 20212022 and $703$371 million for the three months ended SeptemberJune 30, 2020.2021. The weighted average yield on our performing loans and other lending investments was 7.8%7.0% and 7.6%8.4%, respectively, for the three months ended SeptemberJune 30, 20212022 and 2020.2021.
Interest income from sales-type leases increased to $9.6$0.4 million for the three months ended SeptemberJune 30, 20212022 from $8.4$0.2 million for the same period in 2020.2021. The increase resulted from the acquisition of a Ground Lease that was due primarilyclassified as a sales-type lease (refer to sales-type leases originated in 2021.Note 5 to the consolidated financial statements).
Other income increased to $40.2$15.9 million during the three months ended SeptemberJune 30, 20212022 from $25.6$8.9 million for the same period in 2020.2021. Other income during the three months ended SeptemberJune 30, 20212022 consisted primarily ofmark-to-market gains on an equity investment, income from our hotel properties, lease termination fees, management feesand other ancillary income from our land and development projects and operating properties. Other income during the three months ended June 30, 2021 consisted primarily of a management fees, income from our hotel properties, other ancillary income from our land and development projects and loan portfolio and interest income on our cash. Other income during the three months ended September 30, 2020 consisted primarily of mark-to-market gains on an equity investment, management fees, other ancillary income from our operating properties, land and development projects and loan portfolio, income from our hotel properties and interest income on our cash.
Land development revenue and cost of sales—During the three months ended SeptemberJune 30, 2021,2022, we sold land parcels and residential lots and units and recognized land development revenue of $93.4$24.4 million which had associated cost of sales of $87.4$24.1 million. During the three months ended SeptemberJune 30, 2020,2021, we sold residential lots and units and recognized land development revenue of $20.5$32.3 million which had associated cost of sales of $21.4$30.8 million. The increase in 2021 was primarily due to the sale of three land properties.
Costs and expenses—Interest expense decreased to $39.5 million during the three months ended September 30, 2021 from $42.4 million for the same period in 2020, due primarily to a decrease in our weighted average cost of debt, which was 4.5% for the three months ended September 30, 2021 compared to 4.8% for the three months ended September 30, 2020. The balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance-type leases, decreased to $3.44 billion for the three months ended September 30, 2021 from $3.47 billion for the same period in 2020.
4948
Real estateCosts and expenses—Interest expense increased $1.8 milliondecreased to $18.7$24.1 million during the three months ended SeptemberJune 30, 20212022 from $16.9$28.6 million for the same period in 2020.2021. Our weighted average cost of debt was 5.0% for the three months ended June 30, 2022 compared to 4.4% for the three months ended June 30, 2021. The following table summarizesaverage balance of our realoutstanding debt was $1.92 billion for the three months ended June 30, 2022 and $2.58 billion for the same period in 2021.
Real estate expenses by segment ($ in millions).
| | | | | | | | | |
|
| Three Months Ended September 30, |
| | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Operating Properties(1) | | $ | 9.2 | | $ | 4.4 | | $ | 4.8 |
Land and Development(2) | |
| 4.1 | |
| 5.4 | |
| (1.3) |
Net Lease(3) | |
| 5.4 | |
| 7.1 | |
| (1.7) |
Total | | $ | 18.7 | | $ | 16.9 | | $ | 1.8 |
Depreciation and amortizationexpense increased to $14.9$13.0 million during the three months ended SeptemberJune 30, 20212022 from $14.6$11.3 million for the same period in 2020.2021. The increase was primarily due to an increase in expenses at certain of our hotel operating properties that have increased operations from the prior year, which was partially offset by asset sales.
Depreciation and amortization decreased to $1.3 million during the three months ended June 30, 2022 from $1.6 million for the same period in 2021.
General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. GeneralWe recognized a net recovery of general and administrative expenses decreased to $17.1of ($5.2) million during the three months ended SeptemberJune 30, 2021 from $19.92022 versus $30.4 million of expense for the same period in 2020.2021. The decrease in 20212022 was due primarily to a $1.8$35.5 million decrease in performance-based compensation and a $0.9 million decrease in payroll and related costs from 2020.compensation. Our primary forms of performance-based compensation are our iPIP Plans and our annual bonus pool (refer to Note 1514 to the consolidated financial statements for more information on the iPIP Plans). In addition, illustrative examples of our iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.
The recovery ofprovision for loan losses was $1.6$22.6 million for the three months ended SeptemberJune 30, 20212022 as compared to a recovery of loan losses of $2.0$2.2 million for the same period in 2020.2021. The provision for loan losses for the three months ended June 30, 2022 resulted primarily from a $25.0 million provision on our held-to-maturity security, which is now recorded at its expected repayment proceeds. The recovery of loan losses for the three months ended SeptemberJune 30, 2021 resulted from the reversal of CECLExpected Loss allowances on loans that repaid in full in the quarter. The recovery of loan losses for the three months ended September 30, 2020 resultedsecond quarter 2021 and from the reversal of CECL allowances on loans that repaid in full in the third quarter 2020 and a more favorable economic outlookan improving macroeconomic forecast on commercial real estate markets in the third quarter 2020 as compared to the second quarter 2020.since March 31, 2021.
The provision for losses on net investment in leases for the three months ended SeptemberJune 30, 20212022 resulted from a changingthe macroeconomic forecast on commercial real estate markets since June 30, 2021.markets. The provision for losses on net investment in leases for the three months ended SeptemberJune 30, 20202021 resulted from the macroeconomic impactacquisition of COVID-19 on commercial real estate markets.two Ground Leases in June 2021 (refer to Note 5 to the consolidated financial statements).
During the three months ended SeptemberJune 30, 2021,2022, we recordedrecognized an aggregate impairment of $0.8 million resulting from the sale of net lease assets and a $0.4$1.8 million on an operating property held for sale.based on the expected cash flows to be received.
Other expense was $2.0$1.5 million during the three months ended SeptemberJune 30, 20212022 and $0.1$0.2 million for the same period in 2020. Other2021. The increase in other expenses for the three months ended SeptemberJune 30, 2021 consisted2022 was due primarily ofto legal costs.
Income from sales of real estate—During the three months ended SeptemberJune 30, 2021, we recorded $25.6$0.1 million of income from sales of real estate primarily from the sale of an operating property. During the three months ended September 30, 2020, we recorded $6.1 million of income from sales of real estate from the sale of a Ground Lease to SAFEresidential condominiums..
Loss on early extinguishment of debt, net—During the three months ended SeptemberJune 30, 2020,2022, we incurred losses on early extinguishment of debt of $7.9$116.6 million resulting from the repaymentredemption of seniorour unsecured notes prior(refer to maturity.Note 10 to the consolidated financial statements).
Earnings from equity method investments—Earnings from equity method investments increased to $89.2$19.4 million during the three months ended SeptemberJune 30, 20212022 from $6.8$11.1 million for the same period in 2020.2021. During the three months ended SeptemberJune 30, 2021,2022, we recognized $73.5$14.7 million of income from our equity method investment in SAFE, (which included$4.3 million primarily from the settlement of our interest in a dilution gain of $60.2 million – refer to Note 8), $1.4 million from our equity method investment in Net Lease
50
Venture IIventure and $14.3$0.4 million of net aggregate income from our remaining equity method investments, which included $10.5 million from one of our equity method investments resulting from our share of income from land sales.investments. During the three months ended SeptemberJune 30, 2020,2021, we recognized $9.3$9.7 million of income from our equity method investment in SAFE and $0.8 million from our equity method investment in Net Lease Venture II, which was partially offset by $3.3 $1.4 million of net aggregate lossesincome from our remaining equity method investments.
49
Income tax (expense) benefit (expense)—Income tax benefit of $6 thousand was recorded for the three months ended September 30, 2021. Income tax expense of $0.1$0.6 million was recorded for the three months ended SeptemberJune 30, 2020 2021 and related primarily to state marginsa reduction in the amount of expected refund of alternative minimum taxes due us resulting from amended tax returns from prior periods net operating loss carrybacks.
Net income from discontinued operations—In March 2022, we closed on the sale of the majority of our net lease properties owned directly and other minimum state taxes.through ventures. Our net lease assets were comprised of office, entertainment and industrial properties located in the United States. Our net lease assets associated with our Ground Lease businesses were not included in the sale. Net income from discontinued operations represents the operating results from the net lease assets that are not associated with our Ground Lease businesses (refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations).
Results of Operations for the NineSix Months Ended SeptemberJune 30, 20212022 compared to the NineSix Months Ended SeptemberJune 30, 20202021
| | | | | | | | | | |
| | For the Nine Months Ended September 30, | | | | | ||||
|
| 2021 |
| 2020 |
| $ Change | | |||
| | (in thousands) | | |||||||
Operating lease income | | $ | 137,381 | | $ | 140,529 | | $ | (3,148) | |
Interest income | |
| 27,574 | |
| 46,925 | |
| (19,351) | |
Interest income from sales-type leases | |
| 26,895 | |
| 25,010 | |
| 1,885 | |
Other income | |
| 64,549 | |
| 56,212 | |
| 8,337 | |
Land development revenue | |
| 157,936 | |
| 116,254 | |
| 41,682 | |
Total revenue | |
| 414,335 | |
| 384,930 | |
| 29,405 | |
Interest expense | |
| 118,451 | |
| 127,748 | |
| (9,297) | |
Real estate expense | |
| 53,907 | |
| 53,708 | |
| 199 | |
Land development cost of sales | |
| 147,507 | |
| 114,704 | |
| 32,803 | |
Depreciation and amortization | |
| 44,971 | |
| 43,407 | |
| 1,564 | |
General and administrative | |
| 68,954 | |
| 73,138 | |
| (4,184) | |
(Recovery of) provision for loan losses | |
| (7,613) | |
| 4,093 | |
| (11,706) | |
(Recovery of) provision for losses on net investment in leases | |
| (1,735) | |
| 2,001 | |
| (3,736) | |
Impairment of assets | |
| 2,965 | |
| 6,491 | |
| (3,526) | |
Other expense | |
| 2,475 | |
| 351 | |
| 2,124 | |
Total costs and expenses | |
| 429,882 | |
| 425,641 | |
| 4,241 | |
Income from sales of real estate | |
| 28,433 | |
| 6,118 | |
| 22,315 | |
Loss on early extinguishment of debt, net | |
| — | |
| (12,038) | |
| 12,038 | |
Earnings from equity method investments | |
| 114,675 | |
| 26,003 | |
| 88,672 | |
Income tax benefit (expense) | |
| 6 | |
| (165) | |
| 171 | |
Net income (loss) | | $ | 127,567 | | $ | (20,793) | | $ | 148,360 | |
| | | | | | | | | | |
| | For the Six Months Ended June 30, | | | | | ||||
|
| 2022 |
| 2021 |
| $ Change | | |||
| | (in thousands) | | |||||||
Operating lease income | | $ | 6,291 | | $ | 9,723 | | $ | (3,432) | |
Interest income | |
| 9,169 | |
| 17,874 | |
| (8,705) | |
Interest income from sales-type leases | |
| 732 | |
| 157 | |
| 575 | |
Other income | |
| 24,521 | |
| 21,917 | |
| 2,604 | |
Land development revenue | |
| 39,303 | |
| 64,567 | |
| (25,264) | |
Total revenue | |
| 80,016 | |
| 114,238 | |
| (34,222) | |
Interest expense | |
| 53,392 | |
| 57,450 | |
| (4,058) | |
Real estate expense | |
| 23,133 | |
| 20,035 | |
| 3,098 | |
Land development cost of sales | |
| 38,591 | |
| 60,126 | |
| (21,535) | |
Depreciation and amortization | |
| 2,695 | |
| 3,974 | |
| (1,279) | |
General and administrative | |
| (3,804) | |
| 51,833 | |
| (55,637) | |
Provision for (recovery of) loan losses | |
| 22,713 | |
| (5,800) | |
| 28,513 | |
Provision for losses on net investment in leases | |
| 380 | |
| 780 | |
| (400) | |
Impairment of assets | |
| 1,768 | |
| 257 | |
| 1,511 | |
Other expense | |
| 2,453 | |
| 463 | |
| 1,990 | |
Total costs and expenses | |
| 141,321 | |
| 189,118 | |
| (47,797) | |
Income from sales of real estate | |
| 492 | |
| 708 | |
| (216) | |
Loss on early extinguishment of debt, net | |
| (117,991) | |
| — | |
| (117,991) | |
Earnings from equity method investments | |
| 44,425 | |
| 22,866 | |
| 21,559 | |
Income tax benefit (expense) | |
| (3) | |
| 79 | |
| (82) | |
Net income from discontinued operations | |
| 797,688 | |
| 47,800 | |
| 749,888 | |
Net income (loss) | | $ | 663,306 | | $ | (3,427) | | $ | 666,733 | |
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased to $137.4$6.3 million during the ninesix months ended SeptemberJune 30, 20212022 from $140.5$9.7 million for the same period in 2020.2021. The following table summarizes our operating lease income by segment ($ in millions).
| | | | | | | | | |
|
| Nine Months Ended September 30, |
| | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Net Lease(1) | | $ | 123.9 | | $ | 124.0 | | $ | (0.1) |
Operating Properties(2) | |
| 13.2 | |
| 16.2 | |
| (3.0) |
Land and Development | |
| 0.3 | |
| 0.3 | |
| — |
Total | | $ | 137.4 | | $ | 140.5 | | $ | (3.1) |
51
The following table shows certain same store statistics for our consolidated Net Lease segment. Same store assets are defined as assets we owned on or prior to January 1, 2020 and were in service through September 30, 2021 (Operating lease income in millions).
| | | | | | | |
|
| Nine Months Ended September 30, |
| ||||
|
| 2021 |
| 2020 |
| ||
Operating lease income(1) | | $ | 152.7 | | $ | 147.3 | |
Rent per square foot | | $ | 13.32 | | $ | 12.68 | |
Occupancy(2) | |
| 99.3 | % |
| 98.6 | % |
Interest income decreased to $27.6$9.2 million during the ninesix months ended SeptemberJune 30, 20212022 from $46.9$17.9 million for the same period in 2020.2021. The decrease was due primarily to a decrease in the average balance of our performing loans and other lending investments, which was $403$259 million for the ninesix months ended SeptemberJune 30, 20212022 and $716$445 million for the ninesix months ended SeptemberJune 30, 2020.2021. The weighted average yield on our performing loans and other lending investments was 7.1% and 8.0%, respectively, for both the ninesix months ended SeptemberJune 30, 20212022 and 2020 was 7.9%.2021.
Interest income from sales-type leases increased to $26.9$0.7 million for the ninesix months ended SeptemberJune 30, 20212022 from $25.0$0.2 million for the same period in 2020.2021. The increase resulted from the acquisition of a Ground Lease that was due primarilyclassified as a sales-type lease (refer to sales-type leases originated in 2021.Note 5 to the consolidated financial statements).
50
Other income increased to $64.5$24.5 million during the ninesix months ended SeptemberJune 30, 20212022 from $56.2$21.9 million for the same period in 2020.2021. Other income during the ninesix months ended SeptemberJune 30, 20212022 consisted primarily of mark-to-market gains on an equity investment, management fees, income from our hotel properties management fees, lease termination fees,and other ancillary income from our land and development projects and loan portfolio and interest income on our cash.operating properties. Other income during the ninesix months ended SeptemberJune 30, 20202021 consisted primarily of a mark-to-market gainsgain on an equity investment, management fees, other ancillary income from our operating properties, land and development projects and loan portfolio, income from our hotel properties, lease termination fees and interest income on our cash.cash.
Land development revenue and cost of sales—During the ninesix months ended SeptemberJune 30, 2022, we sold land parcels and residential lots and units and recognized land development revenue of $39.3 million which had associated cost of sales of $38.6 million. During the six months ended June 30, 2021, we sold residential lots and units and recognized land development revenue of $157.9$64.6 million which had associated cost of sales of $147.5$60.1 million. During the nine months ended September 30, 2020, we sold residential lots and units and recognized land development revenue of $116.3 million which had associated cost of sales of $114.7 million. The increase in 2021 was primarily due to the sale of three land properties.
Costs and expenses—Interest expense decreased to $118.5$53.4 million during the ninesix months ended SeptemberJune 30, 20212022 from $127.7$57.5 million for the same period in 2020 due primarily to a decrease in our2021. Our weighted average cost of debt which was 4.6%4.9% for the ninesix months ended SeptemberJune 30, 20212022 compared to 4.8%4.4% for the ninesix months ended SeptemberJune 30, 2020.2021. The average balance of our average outstanding debt inclusive of loan participations and lease liabilities associated with finance-type leases, decreased to $3.45was $2.20 billion for the ninesix months ended SeptemberJune 30, 2021 from $3.512022 and $2.60 billion for the same period in 2020.2021.
Real estate expensesexpense increased to $53.9$23.1 million during the ninesix months ended SeptemberJune 30, 20212022 from $53.7$20.0 million for the same period in 2020.2021. The following table summarizesincrease was primarily due to an increase in expenses at certain of our real estate expenseshotel operating properties that have increased operations from the prior year, which was partially offset by segment ($ in millions).asset sales.
| | | | | | | | | |
|
| Nine Months Ended September 30, |
| | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Operating Properties(1) | | $ | 19.2 | | $ | 16.6 | | $ | 2.6 |
Land and Development(2) | |
| 13.6 | |
| 17.6 | |
| (4.0) |
Net Lease(3) | |
| 21.1 | |
| 19.5 | |
| 1.6 |
Total | | $ | 53.9 | | $ | 53.7 | | $ | 0.2 |
52
Depreciation and amortization increaseddecreased to $45.0$2.7 million during the ninesix months ended SeptemberJune 30, 20212022 from $43.4$4.0 million for the same period in 2020, primarily due to the full amortization of intangible assets associated with terminated leases and placing certain assets in service during 2021.
General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. GeneralWe recognized a net recovery of general and administrative expenses decreased to $69.0of ($3.9) million during the ninethree months ended SeptemberJune 30, 2021 from $73.12022 versus $51.8 million of expense for the same period in 2020. 2021. The decrease in 20212022 was due primarily to a $2.1$54.7 million decrease in performance-based compensation and a $2.1 million decrease in payroll and related costs from 2020.compensation. Our primary forms of performance-based compensation are our iPIP Plans and our annual bonus pool (refer to Note 1514 to the consolidated financial statements for more information on the iPIP Plans). In addition, illustrative examples of our iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.
The provision for loan losses was $22.7 million for the six months ended June 30, 2022 as compared to a recovery of loan losses was $7.6 million for the nine months ended September 30, 2021 as compared to a provision for loan losses of $4.1$5.8 million for the same period in 2020.2021. The provision for loan losses for the six months ended June 30, 2022 resulted primarily from a $25.0 million provision on our held-to-maturity security, which is now recorded at its expected repayment proceeds. The recovery of loan losses for the ninesix months ended SeptemberJune 30, 2021 resulted from the reversal of CECLExpected Loss allowances on loans that repaid in full during the period and from an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. The provision for loan losses for the nine months ended September 30, 2020 resulted from the macroeconomic impact of COVID-19 on commercial real estate markets.
The recovery of losses on net investment in leases for the nine months ended September 30, 2021 resulted from asset sales and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. The provision for losses on net investment in leases for the ninesix months ended SeptemberJune 30, 2020 included an allowance resulting2022 resulted from the macroeconomic impact of COVID-19forecast on commercial real estate markets. The provision for losses on net investment in leases for the three months ended June 30, 2021 resulted from the acquisition of two Ground Leases in June 2021 (refer to Note 5 to the consolidated financial statements).
During the ninesix months ended SeptemberJune 30, 2022, we recognized an impairment of $1.8 million on an operating property based on the expected cash flows to be received. During the six months ended June 30, 2021, we recorded an aggregate impairment of $2.5 in connection with the sale of net lease assets and residential condominiums and a $0.4 million impairment on an operating property held for sale. During the nine months ended September 30, 2020, we recorded an aggregate impairment of $6.5$0.3 million in connection with the sale of net lease assets and impairments on a real estate asset held for sale and a land and development asset.residential condominiums.
Other expense increased towas $2.5 million during the ninesix months ended SeptemberJune 30, 2021 from $0.42022 and $0.5 million for the same period in 2020.2021. The increase in 2021other expenses for the six months ended June 30, 2022 was due primarily due to an increase in legal costs.
Income from sales of real estate—During the ninesix months ended SeptemberJune 30, 2021,2022, we recorded $28.4 million of income from sales of real estate from the sale of an operating property, net lease assets and residential condominiums. During the nine months ended September 30, 2020, we recorded $6.1$0.5 million of income from sales of real estate primarily from the sale of a Ground Lease to SAFE.
Leases. During the six months ended June 30, 2021, we recorded $0.7 million of income from sales of real estate from the sale of residential condominiums.
51
Loss on early extinguishment of debt, netnet——During the ninesix months ended SeptemberJune 30, 2020,2022, we incurred losses on early extinguishment of debt of $12.0$118.0 million resulting from the redemption of our unsecured notes (refer to Note 3 and Note 10 to the consolidated financial statements) and the repayment of our senior notes prior to maturity.term loan in connection with our Net Lease Sale.
Earnings from equity method investments—Earnings from equity method investments increased to $114.7$44.4 million during the ninesix months ended SeptemberJune 30, 20212022 from $26.0$22.9 million for the same period in 2020. 2021. During the ninesix months ended SeptemberJune 30, 2021,2022, we recognized $94.6$31.7 million of income from our equity method investment in SAFE, (which included$5.0 million primarily from the settlement of our interest in a dilution gain of $60.7 million – refer to Note 8), $4.0 million from our equity method investment in Net Lease Venture IIventure and $16.1$7.7 million of net aggregate income from our remaining equity method investments, which included $13.3 million from one of our equity method investments resulting from our share of income from land sales. investments. During the ninesix months ended SeptemberJune 30, 2020,2021, we recognized $36.9$21.1 million of income from our equity method investment in SAFE which included a dilution gain of $7.9 million resulting from a SAFE equity offering in March 2020, and$1.6 million from our equity investment in Net Lease Venture II, which were partially offset by $12.5$1.8 million of net aggregate lossesincome from our remaining equity method investments.
53
Income tax expense(expense) benefit—Income tax benefit of $6 thousand was recorded during the nine months ended September 30, 2021. Income tax expense of $0.2$0.1 million was recorded duringfor the ninesix months ended SeptemberJune 30, 2020 2021 and was duerelated primarily to state marginsrefunds due us for alternative minimum taxes paid in prior periods.
Net income from discontinued operations—In March 2022, we closed on the sale of the majority of our net lease properties owned directly and other minimum state taxes.through ventures. Our net lease assets were comprised of office, entertainment and industrial properties located in the United States. Our net lease assets associated with our Ground Lease businesses were not included in the sale. Net income from discontinued operations represents the operating results from the net lease assets that are not associated with our Ground Lease businesses (refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations).
Adjusted Earnings
In 2019, we announced a new business strategy that would focus our management personnel and our investment resources primarily on scaling our Ground Lease platform. As part of this strategy, we accelerated the monetization of legacy assets reducing our legacy portfolio to approximately 10% of our overall portfolio as of September 30, 2021, and deployed a substantial portion of the proceeds into additional investments in SAFE and new loan and net lease originations relating to the Ground Lease business. Adjusted earnings is a non-GAAP metric management uses to assess our execution of this strategy and the performance of our operations.
Adjusted earnings is used internally as a supplemental performance measure adjusting for certain items to give management a view of income more directly derived from operating activities in the period in which they occur. Adjusted earnings is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, including our proportionate share of depreciation and amortization from equity method investments and excluding depreciation and amortization allocable to noncontrolling interests, stock-based compensation expense, the non-cash portion of loss on early extinguishment of debt and the liquidation preference recorded as a premium above book value on the redemption of preferred stock (“Adjusted Earnings”).
52
Adjusted Earnings should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Earnings should not be considered as an alternative to net income (loss) (determined in accordance with generally accepted accounting principles in the United States of America (“GAAP”)), or to cash flows from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is Adjusted Earnings indicative of funds available to fund our cash needs or available for distribution to shareholders. Rather, Adjusted Earnings is an additional measure we use to analyze our business performance because it excludes the effects of certain non-cash charges that we believe are not necessarily indicative of our operating performance. It should be noted that our manner of calculating Adjusted Earnings may differ from the calculations of similarly-titled measures by other companies.
| | | | | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended September 30, | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | ||||||||||||
|
| 2021 |
| 2020 | |
| 2022 |
| 2021 | | 2022 |
| 2021 | | ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Adjusted Earnings | | |
|
| |
| | | |
|
| |
| | |
|
| |
| |
Net income (loss) allocable to common shareholders | | $ | 121,856 | | $ | (2,069) | | | $ | (138,485) | | $ | (19,543) | | $ | 472,370 | | $ | (19,948) | |
Add: Depreciation and amortization | |
| 16,449 | |
| 15,795 | | |
| 3,900 | |
| 16,712 | |
| 7,901 | |
| 34,341 | |
Add: Stock-based compensation expense | |
| 3,001 | |
| 5,661 | | |||||||||||||
Add: Stock-based compensation | |
| (17,923) | |
| 14,791 | |
| (30,350) | |
| 20,299 | | |||||||
Add: Non-cash portion of loss on early extinguishment of debt | |
| — | |
| 2,672 | | |
| 118,303 | |
| — | |
| 123,413 | |
| — | |
Adjusted earnings allocable to common shareholders | | $ | 141,306 | | $ | 22,059 | | |||||||||||||
Adjusted earnings (loss) allocable to common shareholders | | $ | (34,205) | | $ | 11,960 | | $ | 573,334 | | $ | 34,692 | |
| | | | | | | |
|
| For the Nine Months Ended September 30, | | ||||
|
| 2021 |
| 2020 | | ||
| | (in thousands) | | ||||
Adjusted Earnings | | |
|
| |
| |
Net income (loss) allocable to common shareholders | | $ | 101,908 | | $ | (46,850) | |
Add: Depreciation and amortization | |
| 50,790 | |
| 46,526 | |
Add: Stock-based compensation expense | |
| 23,300 | |
| 26,675 | |
Add: Non-cash portion of loss on early extinguishment of debt | |
| — | |
| 3,470 | |
Adjusted earnings allocable to common shareholders | | $ | 175,998 | | $ | 29,821 | |
Liquidity and Capital Resources
During the three months ended September 30, 2021, we invested an aggregate $175 million in new investments, prior financing commitments and real estate development. Investments included $107 million in net lease (including $53 million
54
in shares of SAFE common stock), loan, and strategic investments, $60 million in the repurchase of our common stock and $8 million of capital expenditures on legacy assets. These amounts are inclusive of fundings from our consolidated investments and our pro rata share from equity method investments.
The following table outlines our capital expenditures on operating properties, net lease and land and development assets as reflected in our consolidated statements of cash flows, by segment ($ in thousands):
| | | | | | | |
|
| For the Nine Months Ended September 30, | | ||||
|
| 2021 |
| 2020 | | ||
Operating Properties | | $ | 560 | | $ | 2,037 | |
Net Lease | |
| 5,275 | |
| 9,624 | |
Total capital expenditures on real estate assets | | $ | 5,835 | | $ | 11,661 | |
| | | | | | | |
Land and Development | | $ | 15,603 | | $ | 33,488 | |
Total capital expenditures on land and development assets | | $ | 15,603 | | $ | 33,488 | |
As of SeptemberJune 30, 2021,2022, we had unrestricted cash of $299 million$1.4 billion and $340$350.0 million of borrowing capacity available under the Revolving Credit Facility. The COVID-19 pandemic adversely affected our strategies of monetizing legacy assets and materially scaling SAFE’s portfolio in 2020 and the first quarter of 2021. These conditions improved in the second quarter and third quarter of 2021 and we expect them to continue to improve as more normalized activity resumes. Our primary cash uses over the next 12 months are expected to be funding of investments in our Ground Lease and Ground Lease adjacent businesses, repayment of debt obligations (refer to Note 10 to the consolidated financial statements), capital expenditures on legacy assets, distributions to shareholders through dividends and share repurchases and funding ongoing business operations. operations, including operating lease payments (refer to Note 11 to the consolidated financial statements). The amount we actually invest will depend on the fullclosing of asset sales, the continuing impact of the COVID-19 pandemic, inflation, interest rate increases, market volatility and other macroeconomic factors on our business and the pacebusiness.
In April 2022, we completed separate, privately-negotiated transactions with holders of the economic recovery.
Our $287.5$194 million aggregate principal amount of our 3.125% convertible notes (refer to Note 10 to the consolidated financial statements) in which the noteholders exchanged their convertible notes with us for 13.75 million newly issued shares of our common stock and aggregate cash payments of $14 million. Our remaining $94 million aggregate principal amount of our 3.125% convertible notes mature in September 2022, and we must repay them in a combination of cash and shares of our common stock. We also had approximately $118.4$161.1 million of maximum unfunded commitments associated with our investments as of SeptemberJune 30, 2021,2022, of which we expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones, performance hurdles and all other conditions to fundings (see “Unfunded Commitments” below). We also have approximately $166.2$108.3 million principal amount of scheduled real estate finance asset maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers.
We expect that we will be able to meet our liquidity requirements over the next 12 months and for the reasonably foreseeable future. Our capital sources to meet such cash requirements are expected to include cash on hand, Revolving Credit Facility borrowings, income from our portfolio, loan repayments from borrowers and proceeds from asset sales. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions.
We also have amounts due under our liability-classified and equity-classified iPIP Plans. We currently estimate the total amount due under our iPIP Plans to be $133 million, assuming SAFE is valued at a price of $35.37 per share and our other assets perform with current underwriting expectations. Of this amount, $60 million has been accrued in our financial
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statements (refer to Note 14 to the consolidated financial statements). Distributions on our iPIP Plans are expected to be 50% in cash and 50% in shares of our common stock; provided, however, that (a) the cash portion will be increased if we do not have sufficient shares available under shareholder approved equity plans; and (b) if the principal remaining material asset in a plan is unsold SAFE shares, we may elect to distribute SAFE shares in lieu of cash and our common stock. Additional information on our iPIP Plans can be found in our 2021 Annual Report and our 2021 Proxy Statement, both of which are available on our website.
The following table outlines our cash flows provided by operating activities, cash flows used in investing activities and cash flows provided by financing activities for the six months ended June 30, 2022 and 2021 ($ in thousands):
| | | | | | | |
|
| For the Six Months Ended June 30, | | ||||
| | 2022 |
| 2021 | | ||
| | | | | | | |
Cash flows provided by (used in) operating activities | | $ | 27,381 | | $ | (44,962) | |
Cash flows provided by investing activities | | | 2,625,122 | | | 183,978 | |
Cash flows used in financing activities | | | (1,640,612) | | | (81,101) | |
The increase in cash flows provided by operating activities during 2022 was due primarily to an increase in distributions of earnings from other investments in 2022, which was partially offset by iPIP Plan payments and a decrease in the amount of deferred interest on loans collected in 2022 versus 2021. The increases in cash flows provided by investing activities and cash flows used in financing activities during 2022 was due primarily to the Net Lease Sale (refer to Note 3 to the consolidated financial statements).
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 1.2x1.3x and a covenant restricting certain incurrences of debt based on a fixed charge coverage ratio. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders.
The Senior Term Loan and the Revolving Credit Facility containcontains certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the Senior Term Loan requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The Revolving Credit Facility is secured by a borrowing base of assets and requires us to maintain both borrowing base asset value of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the
55
borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrowings or substitute assets in the borrowing base. Under both the Senior Term Loan and the Revolving Credit Facility we are permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and we remain in compliance with our financial covenants after giving effect to the dividend. We declared common stock dividends of $26.3$19.2 million, or $0.36$0.25 per share, for the ninesix months ended SeptemberJune 30, 2021.2022.
Derivatives—Our use of derivative financial instruments, if necessary, has primarily been limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. Refer to Note 1312 to the consolidated financial statements.
Unfunded Commitments—We generally fund construction and development loans and build-outs of space in net leasereal estate 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
54
committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments.
As of SeptemberJune 30, 2021,2022, the maximum amount of fundings we may be obligated to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and assuming that 100% of our capital committed to Strategic Investments is drawn down, are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans and Other |
| | |
| | |
| | | | Loans and Other |
| | |
| | |
| | | ||
| | Lending | | | | | Other | | | | | Lending | | | | | Other | | | | ||||
|
| Investments |
| | Real Estate |
| Investments |
| Total |
| Investments |
| | Real Estate |
| Investments |
| Total | ||||||
Performance-Based Commitments | | $ | 7,860 | | $ | 29,716 | | $ | 71,319 | | $ | 108,895 | | $ | 1,877 | | $ | 4,271 | | $ | 149,502 | | $ | 155,650 |
Strategic Investments | |
| — | |
| 1,900 | |
| 7,592 | |
| 9,492 | |
| — | |
| 3,161 | |
| 2,249 | |
| 5,410 |
Total | | $ | 7,860 | | $ | 31,616 | | $ | 78,911 | | $ | 118,387 | | $ | 1,877 | | $ | 7,432 | | $ | 151,751 | | $ | 161,060 |
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, 2021, we repurchased 4.21.8 million shares of our outstanding common stock for $91.9$32.4 million, for an average cost of $21.70 per share. During the nine months ended September 30, 2020, we repurchased 3.7 million shares of our outstanding common stock for $41.4 million, for an average cost of $11.32$17.57 per share. We are generally authorized to repurchase up to $50.0 million in shares of our common stock.stock and in February 2022, our board of directors authorized an increase to the stock repurchase program to $50.0 million. As of SeptemberJune 30, 2021,2022, we had remaining authorization to repurchase up to $30.9$50.0 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 20202021 Annual Report.
New Accounting Pronouncements—For a discussion of the impact of new accounting pronouncements on our financial condition or results of operations, refer to Note 3 to the consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risks
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net amount of floating rate assets/liabilities and the impact of interest rate floors and caps. Any significant compression of the spreads between interest-earning assets and interest-bearing liabilities could have a material adverse effect on us.
In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest-earning assets and interest-bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate-related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers.
While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without generating non-qualifying income, use of derivatives for other purposes will generate non-qualified income for REIT income test purposes. This includes hedging asset related risks such as credit and interest rate exposure on our loan assets. As a result, our ability to hedge these types of risks is limited. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.
The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing liabilities, should interest rates decrease or increase by 10, 50 or 100 basis points or decrease by 10 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the one-month LIBOR rate of 0.08%1.79% as of SeptemberJune 30, 2021.2022. Actual results could differ significantly from those estimated in the table.
Estimated Change In Net Income
($ in thousands)
| | | |
Change in Interest Rates |
| | Net Income(1) |
-10 Basis Points | | $ | 187 |
Base Interest Rate | |
| — |
+10 Basis Points | |
| (234) |
+50 Basis Points | |
| (1,159) |
+100 Basis Points | |
| (2,237) |
| | | |
Change in Interest Rates | | Net Income(1) | |
-100 Basis Points | | $ | (13,058) |
-50 Basis Points | | (6,529) | |
-10 Basis Points | | | (1,306) |
Base Interest Rate | | — | |
+10 Basis Points | | 1,306 | |
+50 Basis Points | | 6,628 | |
+100 Basis Points | | 13,523 |
(1) | As of |
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Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief AccountingFinancial Officer who is currently performing the functions of the Company's principal financial officer,, as appropriate, to allow timely decisions regarding required disclosure. The Company has formed a disclosure committee that is responsible for considering the materiality of information and determining the disclosure obligations of the Company on a timely basis. The disclosure committee reports directly to the Company’s Chief Executive Officer and principal financial officer (whose functions are currently being performed by the Company's Chief Accounting Officer)Financial Officer..
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the disclosure committee and other members of management, including its Chief Executive Officer and Chief AccountingFinancial Officer (performing the functions of the principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) or Rule 15d-15. Based upon that evaluation, the Chief Executive Officer and Chief AccountingFinancial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief AccountingFinancial 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 during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to the Company’s business as a finance and investment company focused on the commercial real estate industry, including foreclosure-related proceedings. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements.
Item 1A. Risk Factors
There were no material changes from the risk factors previously disclosed in our 20202021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth the information with respect to purchases made by us or on our behalfWe did not purchase any shares of our common stock during the three months ended SeptemberJune 30, 2022, 2021.. As of June 30, 2022, we had remaining authorization to repurchase up to $50.0 million of common stock under our stock repurchase program.
| | | | | | | | | | |
|
| |
| | |
| Total Number of Shares |
| Maximum Dollar Value | |
| | | | | | | Purchased as Part of a | | of Shares that May Yet | |
| | Total Number of | | Average Price | | Publicly Announced | | be Purchased Under the | ||
| | Shares Purchased | | Paid per Share | | Plan | | Plans(1) | ||
July 1 to July 31 |
| 730,194 | | $ | 23.28 |
| 730,194 | | $ | 33,000,255 |
August 1 to August 31 |
| 915,591 | | $ | 25.50 |
| 915,591 | | $ | 27,648,268 |
September 1 to September 30 |
| 744,981 | | $ | 25.66 |
| 744,981 | | $ | 30,885,618 |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.In July and August 2022, the Company completed a series of privately-negotiated exchange transactions with holders of approximately $47.9 million aggregate principal amount of the Company's 3.125% Convertible Notes due 2022 in which the noteholders exchanged their convertible notes with the Company for an aggregate of approximately 2.0 million newly issued shares of the Company's common stock and aggregate cash payments of approximately $24.3 million.
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Item 6. Exhibits
INDEX TO EXHIBITS
| | |
Exhibit |
| Document Description |
|
| |
|
| |
|
| |
31.0 | | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act. |
32.0 | | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act. |
101* | | The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended |
104 | | Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) |
* | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934 and otherwise is not subject to liability under these sections. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| iStar Inc. | |
| | |
Date: |
| /s/ JAY SUGARMAN |
| Jay Sugarman | |
| Chairman of the Board of Directors and Chief | |
| Executive Officer (principal executive officer) | |
| | |
| | |
| | |
| | |
| iStar Inc. | |
Date: |
| /s/ BRETT ASNAS |
| Brett Asnas | |
| Chief Financial Officer | |
| (principal financial officer) |
RETT | | |
| | |
| iStar Inc. | |
Date: | August 4, 2022 | /s/ GARETT ROSENBLUM |
| Garett Rosenblum | |
| Chief Accounting Officer | |
|
|
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