10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to            
Commission File No. 1-15371
_______________________________________________________________________________
iStar Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
 
95-6881527
(I.R.S. Employer
Identification Number)
1114 Avenue of the Americas, 39th Floor
 
 
New York, NY
(Address of principal executive offices)
 
10036
(Zip code)
Registrant's telephone number, including area code: (212) 930-9400
_______________________________________________________________________________
Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
As of April 29, 2016, there were 75,409,187 shares, $0.001 par value per share, of iStar Inc. common stock outstanding.
 


Table of Contents

TABLE OF CONTENTS

 
 
Page
 
 
 

 

 

 



Table of Contents

PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1.    Financial Statements
iStar Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
 
As of
 
March 31, 2016 (unaudited)
 
December 31,
2015
ASSETS
 
 
 
Real estate
 
 
 
Real estate, at cost
$
2,040,779

 
$
2,050,541

Less: accumulated depreciation
(462,179
)
 
(456,558
)
Real estate, net
1,578,600

 
1,593,983

Real estate available and held for sale
132,395

 
137,274

Total real estate
1,710,995

 
1,731,257

Land and development, net
1,024,434

 
1,001,963

Loans receivable and other lending investments, net
1,637,387

 
1,601,985

Other investments
233,990

 
254,172

Cash and cash equivalents
591,181

 
711,101

Accrued interest and operating lease income receivable, net
16,020

 
18,436

Deferred operating lease income receivable, net
98,861

 
97,421

Deferred expenses and other assets, net
179,310

 
181,457

Total assets
$
5,492,178

 
$
5,597,792

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable, accrued expenses and other liabilities
$
202,963

 
$
214,835

Loan participations payable, net
154,111

 
152,086

Debt obligations, net
4,110,730

 
4,118,823

Total liabilities
4,467,804

 
4,485,744

Commitments and contingencies (refer to Note 11)

 

Redeemable noncontrolling interests (refer to Note 5)
8,981

 
10,718

Equity:
 
 
 
iStar Inc. shareholders' equity:
 
 
 
Preferred Stock Series D, E, F, G and I, liquidation preference $25.00 per share (refer to Note 13)
22

 
22

Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 13)
4

 
4

Common Stock, $0.001 par value, 200,000 shares authorized, 75,441 and 81,109 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
75

 
81

Additional paid-in capital
3,632,246

 
3,689,330

Retained earnings (deficit)
(2,646,661
)
 
(2,625,474
)
Accumulated other comprehensive income (loss) (refer to Note 13)
(5,577
)
 
(4,851
)
Total iStar Inc. shareholders' equity
980,109

 
1,059,112

Noncontrolling interests
35,284

 
42,218

Total equity
1,015,393

 
1,101,330

Total liabilities and equity
$
5,492,178

 
$
5,597,792

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

1

Table of Contents

iStar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
For the Three Months Ended March 31,
 
2016
 
2015
Revenues:
 
 
 
Operating lease income
$
54,937

 
$
59,139

Interest income
33,219

 
34,896

Other income
11,541

 
10,564

Land development revenue
14,947

 
8,258

Total revenues
114,644

 
112,857

Costs and expenses:
 
 
 
Interest expense
57,021

 
54,632

Real estate expense
34,305

 
39,634

Land development cost of sales
11,575

 
6,891

Depreciation and amortization
14,708

 
18,501

General and administrative
23,102

 
20,753

Provision for (recovery of) loan losses
1,506

 
4,293

Other expense
740

 
2,123

Total costs and expenses
142,957

 
146,827

Income (loss) before earnings from equity method investments and other items
(28,313
)
 
(33,970
)
Loss on early extinguishment of debt, net
(125
)
 
(168
)
Earnings from equity method investments
8,267

 
6,547

Income (loss) from continuing operations before income taxes
(20,171
)
 
(27,591
)
Income tax (expense) benefit
414

 
(5,878
)
Income (loss) from continuing operations(1)
(19,757
)
 
(33,469
)
Income from sales of real estate
10,458

 
21,156

Net income (loss)
(9,299
)
 
(12,313
)
Net (income) loss attributable to noncontrolling interests
942

 
1,841

Net income (loss) attributable to iStar Inc. 
(8,357
)
 
(10,472
)
Preferred dividends
(12,830
)
 
(12,830
)
Net (income) loss allocable to HPU holders and Participating Security holders(2)(3)

 
749

Net income (loss) allocable to common shareholders
$
(21,187
)
 
$
(22,553
)
Per common share data(1):
 
 
 
Income (loss) attributable to iStar Inc. from continuing operations:
 
 
 
Basic and diluted
$
(0.27
)
 
$
(0.26
)
Net income (loss) attributable to iStar Inc.:
 
 
 
Basic and diluted
$
(0.27
)
 
$
(0.26
)
Weighted average number of common shares:
 
 
 
Basic and diluted
77,060

 
85,497

Per HPU share data(1)(2):
 
 
 
Income (loss) attributable to iStar Inc. from continuing operations
 
 
 
Basic and diluted
$

 
$
(49.93
)
Net income (loss) attributable to iStar Inc.:
 
 
 
Basic and diluted
$

 
$
(49.93
)
Weighted average number of HPU shares:
 
 
 
Basic and diluted

 
15

_______________________________________________________________________________
(1)
Income (loss) from continuing operations attributable to iStar Inc. was $(18.8) million and $(31.6) million for the three months ended March 31, 2016 and 2015, respectively. Refer to Note 15 for details on the calculation of earnings per share.
(2)
All of the Company's outstanding High Performance Units ("HPUs") were repurchased and retired on August 13, 2015 (refer to Note 15).
(3)
Participating Security holders are non-employee directors who hold common stock equivalents and restricted stock awards granted under the Company's Long Term Incentive Plans that are eligible to participate in dividends (refer to Note 14 and Note 15).

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

2

Table of Contents

iStar Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)
 
For the Three Months Ended March 31,
 
2016
 
2015
Net income (loss)
$
(9,299
)
 
$
(12,313
)
Other comprehensive income (loss):
 
 
 
Reclassification of (gains)/losses on available-for-sale securities into earnings upon realization(1)

 
(2,531
)
Reclassification of (gains)/losses on cash flow hedges into earnings upon realization(2)
257

 
150

Unrealized gains/(losses) on available-for-sale securities
19

 
(575
)
Unrealized gains/(losses) on cash flow hedges
(962
)
 
(945
)
Unrealized gains/(losses) on cumulative translation adjustment
(40
)
 
(244
)
Other comprehensive income (loss)
(726
)
 
(4,145
)
Comprehensive income (loss)
(10,025
)
 
(16,458
)
Comprehensive (income) loss attributable to noncontrolling interests
942

 
1,844

Comprehensive income (loss) attributable to iStar Inc. 
$
(9,083
)
 
$
(14,614
)
_______________________________________________________________________________
(1)
Reclassified to "Other income" in the Company's consolidated statements of operations.
(2)
Reclassified to "Interest expense" in the Company's consolidated statements of operations are $160 and $35 for the three months ended March 31, 2016 and 2015, respectively. Reclassified to "Earnings from equity method investments" in the Company's consolidated statements of operations are $97 and $115 for the three months ended March 31, 2016 and 2015, respectively.

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

3


iStar Inc.
Consolidated Statements of Changes in Equity
For the Three Months Ended March 31, 2016 and 2015
(In thousands)
(unaudited)




 
 
iStar Inc. Shareholders' Equity
 
 
 
 
 
 
Preferred
Stock(1)
 
Preferred Stock Series J(1)
 
Common
Stock at
Par
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
Balance as of December 31, 2015
 
$
22

 
$
4

 
$
81

 
$
3,689,330

 
$
(2,625,474
)
 
$
(4,851
)
 
$
42,218

 
$
1,101,330

Dividends declared—preferred
 

 

 

 

 
(12,830
)
 

 

 
(12,830
)
Issuance of stock/restricted stock unit amortization, net
 

 

 

 
604

 

 

 

 
604

Net income (loss) for the period(2)
 

 

 

 

 
(8,357
)
 

 
358

 
(7,999
)
Change in accumulated other comprehensive income (loss)
 

 

 

 

 

 
(726
)
 

 
(726
)
Repurchase of stock
 

 

 
(6
)
 
(58,126
)
 

 

 

 
(58,132
)
Change in additional paid in capital attributable to redeemable noncontrolling interest
 

 

 

 
438

 

 

 

 
438

Change in noncontrolling interest(3)
 

 

 

 

 

 

 
(7,292
)
 
(7,292
)
Balance as of March 31, 2016
 
$
22

 
$
4

 
$
75

 
$
3,632,246

 
$
(2,646,661
)
 
$
(5,577
)
 
$
35,284

 
$
1,015,393



4


iStar Inc.
Consolidated Statements of Changes in Equity
For the Three Months Ended March 31, 2016 and 2015
(In thousands)
(unaudited)



 
 
iStar Inc. Shareholders' Equity
 
 
 
 
 
 
Preferred
Stock(1)
 
Preferred Stock Series J(1)
 
HPU's(4)
 
Common
Stock at
Par
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
Balance as of December 31, 2014
 
$
22

 
$
4

 
$
9,800

 
$
85

 
$
3,744,621

 
$
(2,556,469
)
 
$
(971
)
 
$
51,256

 
$
1,248,348

Dividends declared—preferred
 

 

 

 

 

 
(12,830
)
 

 

 
(12,830
)
Issuance of stock/restricted stock unit amortization, net
 

 

 

 

 
3,054

 

 

 

 
3,054

Net income (loss) for the period(2)
 

 

 

 

 

 
(10,472
)
 

 
(819
)
 
(11,291
)
Change in accumulated other comprehensive income (loss)
 

 

 

 

 

 

 
(4,145
)
 

 
(4,145
)
Repurchase of stock
 

 

 

 

 
(558
)
 

 

 

 
(558
)
Change in additional paid in capital attributable to redeemable noncontrolling interest
 

 

 

 

 
(3,028
)
 

 

 

 
(3,028
)
Contributions from noncontrolling interests
 

 

 

 

 

 

 

 
52

 
52

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(4
)
 
(4
)
Balance as of March 31, 2015
 
$
22

 
$
4

 
$
9,800

 
$
85

 
$
3,744,089

 
$
(2,579,771
)
 
$
(5,116
)
 
$
50,485

 
$
1,219,598

_______________________________________________________________________________
(1)
Refer to Note 13 for details on the Company's Preferred Stock.
(2)
For the three months ended March 31, 2016 and 2015, net income (loss) shown above excludes $(1,300) and $(1,022) of net loss attributable to redeemable noncontrolling interests.
(3)
Includes a payment to acquire a noncontrolling interest (refer to Note 5).
(4)
All of the Company's outstanding HPUs were repurchased and retired on August 13, 2015 (refer to Note 15).


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

5

Table of Contents

iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
For the Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(9,299
)
 
$
(12,313
)
Adjustments to reconcile net income (loss) to cash flows from operating activities:
 
 
 
Provision for (recovery of) loan losses
1,506

 
4,293

Depreciation and amortization
14,708

 
18,501

Payments for withholding taxes upon vesting of stock-based compensation
(1,109
)
 
(1,683
)
Non-cash expense for stock-based compensation
4,577

 
3,238

Amortization of discounts/premiums and deferred financing costs on debt obligations, net
4,601

 
4,025

Amortization of discounts/premiums and deferred interest on loans, net
(22,049
)
 
(19,303
)
Earnings from equity method investments
(8,267
)
 
(6,547
)
Distributions from operations of other investments
26,317

 
3,946

Deferred operating lease income
(2,126
)
 
(1,796
)
Income from sales of real estate
(10,458
)
 
(21,156
)
Land development revenue in excess of cost of sales
(3,372
)
 
(1,367
)
Other operating activities, net
7,745

 
2,463

Changes in assets and liabilities:
 
 
 
Changes in accrued interest and operating lease income receivable, net
2,415

 
(2,083
)
Changes in deferred expenses and other assets, net
1,034

 
5,229

Changes in accounts payable, accrued expenses and other liabilities
(23,023
)
 
(27,801
)
Cash flows used in operating activities
(16,800
)
 
(52,354
)
Cash flows from investing activities:
 
 
 
Originations and fundings of loans receivable, net
(94,343
)
 
(188,044
)
Capital expenditures on real estate assets
(17,735
)
 
(14,716
)
Capital expenditures on land and development assets
(29,375
)
 
(19,953
)
Repayments of and principal collections on loans receivable and other lending investments, net
73,211

 
34,992

Net proceeds from sales of loans receivable

 
5,595

Net proceeds from sales of real estate
35,680

 
147,635

Net proceeds from sales of land and development assets
8,775

 
7,737

Distributions from other investments
7,675

 
4,260

Contributions to other investments
(6,377
)
 
(1,231
)
Changes in restricted cash held in connection with investing activities
1,660

 
(136
)
Other investing activities, net
7,716

 
7,807

Cash flows used in investing activities
(13,113
)
 
(16,054
)
Cash flows from financing activities:
 
 
 
Borrowings from debt obligations
275,000

 
250,000

Repayments of debt obligations
(282,755
)
 
(12,328
)
Preferred dividends paid
(12,830
)
 
(12,830
)
Repurchase of stock
(58,760
)
 
(558
)
Other financing activities, net
(10,686
)
 
(2,585
)
Cash flows from (used in) financing activities
(90,031
)
 
221,699

Effect of exchange rate changes on cash
24

 

Changes in cash and cash equivalents
(119,920
)
 
153,291

Cash and cash equivalents at beginning of period
711,101

 
472,061

Cash and cash equivalents at end of period
$
591,181

 
$
625,352

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

6

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements
(unaudited)





Note 1—Business and Organization

Business—iStar Inc. (the "Company"), doing business as "iStar", finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company has invested more than $35 billion over the past two decades and is structured as a real estate investment trust ("REIT") with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company's primary business segments are real estate finance, land and development, net lease and operating properties (refer to Note 17).

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

Note 2—Basis of Presentation and Principles of Consolidation
Basis of Presentation—The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as amended on Form 10-K/A on March 9, 2016 (the "2015 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 consolidated financial statements and the related notes to conform to the 2016 presentation.
During the year ended December 31, 2015, the Company determined that its classification of common shares repurchased under its share repurchase programs should be classified as a reduction to common stock for the par amount of the common stock repurchased and additional paid in capital and included as shares unissued within the consolidated financial statements. The Company previously classified common shares repurchased under its share repurchase programs as treasury stock. The misclassification eliminates treasury stock and results in corresponding reductions of common stock and additional paid-in capital, which results in no change in total equity within the consolidated balance sheets and consolidated statements of changes in equity. All repurchased shares previously reported as treasury stock will now be reported as unissued common stock. The change has no impact on the previously reported consolidated statements of operations, consolidated statements of comprehensive income or consolidated statements of cash flows. The Company evaluated the impact of this correction on previously issued financial statements and concluded they were not materially misstated. In order to conform previous financial statements with the current period, the Company elected to revise previously issued financial statements the next time such financial statements are filed. The accompanying consolidated statements of changes in equity balances as of March 31, 2015 have been revised as follows:
 
 
As Reported
 
Change
 
As Adjusted
 
 
(in thousands)
March 31, 2015
 
 
 
 
 
 
Additional paid-in capital
 
$
4,007,540

 
$
(263,451
)
 
$
3,744,089

Common stock
 
146

 
(61
)
 
85

Treasury stock, at cost
 
(263,512
)
 
263,512

 

Total
 
3,744,174

 

 
3,744,174


7

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Principles of Consolidation—The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, controlled partnerships and variable interest entities ("VIEs") for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's involvement with VIEs affects its financial performance and cash flows primarily through amounts recorded in "Operating lease income," "Earnings from equity method investments," "Real estate expense" and "Interest expense" in the Company's consolidated statements of operations. The Company has not provided 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. As of March 31, 2016, the total assets of these consolidated VIEs were $351.4 million and total liabilities were $60.9 million. The classifications of these assets are primarily within "Land and development" and "Real estate, net" on the Company's consolidated balance sheets. The classifications of liabilities are primarily within "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets. 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 March 31, 2016.

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 March 31, 2016, the Company's maximum exposure to loss from these investments does not exceed the sum of the $75.2 million carrying value of the investments, which are classified in "Other investments" on the Company's consolidated balance sheets, and $54.2 million of related unfunded commitments.

Note 3—Summary of Significant Accounting Policies

In accordance with the adoption of Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03") the Company presents debt issuance costs as a deduction from the carrying value of "Debt obligations, net" and "Loan participations payable, net" on the Company's consolidated balance sheets, which is consistent with the presentation of debt discounts. These costs were previously recorded in "Deferred expenses and other assets, net" on the Company's consolidated balance sheets. As a result, as of December 31, 2015, "Deferred expenses and other assets, net" excludes $25.1 million of debt issuance costs and "Debt obligations, net" and "Loan participations payable, net" are presented net of debt issuance costs of $24.9 million and $0.2 million, respectively. Debt issuance costs associated with revolving-debt arrangements are recorded in "Deferred expenses and other assets, net" on the Company's consolidated balance sheets.
On January 1, 2016, the Company adopted ASU 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02") which modified the analysis it must perform to determine whether it should consolidate certain types of entities. The guidance does not amend the existing disclosure requirements for VIEs or voting interest entities ("VOEs"). The guidance, however, modified the requirements to qualify under the VOE model. The adoption did not have a material impact on the Company's consolidated financial statements.
On January 1, 2016, the Company adopted ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity ("ASU 2014-16") which eliminated the diversity in practice for the accounting for hybrid financial instruments issued in the form of a share. ASU 2014-16 requires management to consider all terms and features, whether stated or implied, of a hybrid instrument when determining whether the nature of the instrument is more akin to a debt instrument or an equity instrument. Embedded derivative features, which are accounted for separately from host contracts, should also be considered in the analysis of the hybrid instrument. The adoption did not have a material impact on the Company's consolidated financial statements.
As of March 31, 2016, the remainder of the Company's significant accounting policies, which are detailed in the Company's 2015 Annual Report, have not changed materially.
New Accounting PronouncementsIn March 2016, Financial Accounting Standards Board ("FASB") issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09") which was issued to simplify several aspects of the accounting for share-based payment transactions, including income tax, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. Management is evaluating the impact of the guidance on the Company's consolidated financial statements.

8

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. For operating leases, a lessee will be required to do the following: (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis and (iii) classify all cash payments within operating activities in the statement of cash flows. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. Management is evaluating the impact of the guidance on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. Management is evaluating the impact of the guidance on the Company's consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15") which requires management to evaluate whether there is substantial doubt that the Company is able to continue operating as a going concern within one year after the date the financial statements are issued or available to be issued. If there is substantial doubt, additional disclosure is required, including the principal condition or event that raised the substantial doubt, the Company's evaluation of the condition or event in relation to its ability to meet its obligations and the Company's plan to alleviate (or, which is intended to alleviate) the substantial doubt. ASU 2014-15 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") which supersedes existing industry-specific guidance, including ASC 360-20, Real Estate Sales. The new standard is principles-based and requires more estimates and judgment than current guidance. Certain contracts with customers, including lease contracts and financial instruments and other contractual rights, are not within the scope of the new guidance. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date, to defer the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning January 1, 2017. Management is evaluating the impact of the guidance on the Company's consolidated financial statements.

9

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Note 4—Real Estate
The Company's real estate assets were comprised of the following ($ in thousands):
 
Net Lease
 
Operating
Properties
 
Total
As of March 31, 2016
 
 
 
 
 
Land and land improvements, at cost
$
304,929

 
$
132,369

 
$
437,298

Buildings and improvements, at cost
1,177,060

 
426,421

 
1,603,481

Less: accumulated depreciation
(382,501
)
 
(79,678
)
 
(462,179
)
Real estate, net
1,099,488

 
479,112

 
1,578,600

Real estate available and held for sale (1)
717

 
131,678

 
132,395

Total real estate
$
1,100,205

 
$
610,790

 
$
1,710,995

As of December 31, 2015
 
 
 
 
 
Land and land improvements, at cost
$
306,172

 
$
133,275

 
$
439,447

Buildings and improvements, at cost
1,183,723

 
427,371

 
1,611,094

Less: accumulated depreciation
(377,416
)
 
(79,142
)
 
(456,558
)
Real estate, net
1,112,479

 
481,504

 
1,593,983

Real estate available and held for sale (1)

 
137,274

 
137,274

Total real estate
$
1,112,479

 
$
618,778

 
$
1,731,257

_______________________________________________________________________________
(1)
As of March 31, 2016 and December 31, 2015, the Company had $131.7 million and $137.3 million, respectively, of residential properties available for sale in its operating properties portfolio.

Real Estate Available and Held for Sale—During the three months ended March 31, 2016, the Company transferred one net lease asset with a carrying value of $0.7 million to held for sale due to an executed contract with a third party. During the three months ended March 31, 2015, the Company transferred net lease assets with a carrying value of $7.5 million to held for sale due to executed contracts with third parties.

Dispositions—During the three months ended March 31, 2016 and 2015, the Company sold residential condominiums for total net proceeds of $19.7 million and $49.0 million, respectively, and recorded income from sales of real estate totaling $4.9 million and $17.6 million, respectively. During the three months ended March 31, 2016 and 2015, the Company sold net lease assets for net proceeds of $10.0 million and $4.9 million, respectively, resulting in gains of $4.9 million and $3.6 million, respectively. During the three months ended March 31, 2016, the Company also sold a commercial operating property for net proceeds of $5.9 million resulting in a gain of $0.7 million. The gains are recorded in "Income from sales of real estate" in the Company's consolidated statements of operations.
During the three months ended March 31, 2015, the Company, through a consolidated entity, sold a leasehold interest in a commercial operating property for net proceeds of $93.5 million and simultaneously entered into a ground lease with an initial term of 99 years. In connection with this transaction, the Company recorded a lease incentive asset of $38.1 million, which is included in "Deferred expenses and other assets, net" on the Company's consolidated balance sheets, and deferred a gain of $5.3 million, which is included in "Accounts payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets. In December 2015, the Company acquired the noncontrolling interest in the entity for $6.4 million.
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 $6.3 million and $7.0 million for the three months ended March 31, 2016 and 2015, respectively. These amounts are included in "Operating lease income" in the Company's consolidated statements of operations.
Allowance for Doubtful Accounts—As of March 31, 2016 and December 31, 2015, the allowance for doubtful accounts related to real estate tenant receivables was $2.2 million and $1.9 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.5 million as of both dates. These amounts are included in "Accrued interest and

10

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


operating lease income receivable, net" and "Deferred operating lease income receivable, net", respectively, on the Company's consolidated balance sheets.
Note 5—Land and Development

The Company's land and development assets were comprised of the following ($ in thousands):
 
As of
 
March 31,
 
December 31,
 
2016
 
2015
Land and land development, at cost
$
1,030,766

 
$
1,007,995

Less: accumulated depreciation
(6,332
)
 
(6,032
)
Total land and development, net
$
1,024,434

 
$
1,001,963


Acquisitions—In February 2016, the Company acquired an additional 7.2% interest in a consolidated entity for $7.2 million. The Company owns 92.2% of the entity as of March 31, 2016.

Dispositions—For the three months ended March 31, 2016 and 2015, the Company sold residential lots and units and recognized land development revenue of $14.9 million and $8.3 million, respectively, from its land and development portfolio. For the three months ended March 31, 2016 and 2015, the Company recognized land development cost of sales of $11.6 million and $6.9 million, respectively, from its land and development portfolio.

Redeemable Noncontrolling Interest—The Company has an interest in a strategic venture that provides the minority partner an option to redeem its interest at fair value. The Company has reflected the partner's noncontrolling interest in this venture as a component of redeemable noncontrolling interest within its consolidated balance sheets. Changes in fair value are being accreted over the term from the date of issuance to the earliest redemption date using the interest method. As of March 31, 2016 and December 31, 2015, this interest had a carrying value of $6.1 million and $7.2 million, respectively. As of March 31, 2016 and December 31, 2015, this interest had an estimated redemption value of $9.2 million.
Note 6—Loans Receivable and Other Lending Investments, net

The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):
 
As of
Type of Investment
March 31,
2016
 
December 31,
2015
Senior mortgages
$
1,010,329

 
$
975,915

Corporate/Partnership loans
664,564

 
643,270

Subordinate mortgages
25,454

 
28,676

Total gross carrying value of loans
1,700,347

 
1,647,861

Reserves for loan losses
(109,671
)
 
(108,165
)
Total loans receivable, net
1,590,676

 
1,539,696

Other lending investments—securities
46,711

 
62,289

Total loans receivable and other lending investments, net(1)
$
1,637,387

 
$
1,601,985

_______________________________________________________________________________
(1)
The Company's recorded investment in loans as of March 31, 2016 and December 31, 2015 includes accrued interest of $10.1 million and $9.0 million, respectively, which are included in "Accrued interest and operating lease income receivable, net" on the Company's consolidated balance sheets.

During the three months ended March 31, 2015, the Company sold a loan with a carrying value of $5.5 million. No gain or loss was recognized as a result of the transaction.


11

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):
 
 
For the Three Months Ended March 31,
 
 
2016
 
2015
Reserve for loan losses at beginning of period
 
$
108,165

 
$
98,490

Provision for loan losses(1)
 
1,506

 
4,293

Reserve for loan losses at end of period
 
$
109,671

 
$
102,783

_______________________________________________________________________________
(1)
For the three months ended March 31, 2015 the provision for loan losses includes recoveries of previously recorded loan loss reserves of $0.2 million.

The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserve for loan losses were as follows ($ in thousands):
 
Individually
Evaluated for
Impairment(1)
 
Collectively
Evaluated for
Impairment(2)
 
Total
As of March 31, 2016
 
 
 
 
 
Loans
$
141,420

 
$
1,569,029

 
$
1,710,449

Less: Reserve for loan losses
(73,071
)
 
(36,600
)
 
(109,671
)
Total
$
68,349

 
$
1,532,429

 
$
1,600,778

As of December 31, 2015
 
 
 
 
 
Loans
$
132,492

 
$
1,524,347

 
$
1,656,839

Less: Reserve for loan losses
(72,165
)
 
(36,000
)
 
(108,165
)
Total
$
60,327

 
$
1,488,347

 
$
1,548,674

_______________________________________________________________________________
(1)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.2 million as of March 31, 2016 and December 31, 2015. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status and therefore, the unamortized amounts associated with these loans are not currently being amortized into income.
(2)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $6.5 million and $8.2 million as of March 31, 2016 and December 31, 2015, respectively.

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's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands):
 
As of March 31, 2016
 
As of December 31, 2015
 
Performing
Loans
 
Weighted
Average
Risk Ratings
 
Performing
Loans
 
Weighted
Average
Risk Ratings
Senior mortgages
$
879,019

 
2.96

 
$
853,595

 
2.96

Corporate/Partnership loans
664,210

 
3.31

 
641,713

 
3.37

Subordinate mortgages
25,800

 
3.92

 
29,039

 
3.64

  Total
$
1,569,029

 
3.13

 
$
1,524,347

 
3.15



12

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


The Company's recorded investment in loans, aged by payment status and presented by class, were as follows ($ in thousands):
 
Current
 
Less Than
and Equal
to 90 Days
 
Greater
Than
90 Days(1)
 
Total
Past Due
 
Total
As of March 31, 2016
 
 
 
 
 
 
 
 
 
Senior mortgages
$
889,128

 
$
9,083

 
$
116,825

 
$
125,908

 
$
1,015,036

Corporate/Partnership loans
669,613

 

 

 

 
669,613

Subordinate mortgages
25,800

 

 

 

 
25,800

Total
$
1,584,541

 
$
9,083

 
$
116,825

 
$
125,908

 
$
1,710,449

As of December 31, 2015
 
 
 
 
 
 
 
 
 
Senior mortgages
$
864,099

 
$

 
$
116,250

 
$
116,250

 
$
980,349

Corporate/Partnership loans
647,451

 

 

 

 
647,451

Subordinate mortgages
29,039

 

 

 

 
29,039

Total
$
1,540,589

 
$

 
$
116,250

 
$
116,250

 
$
1,656,839

_______________________________________________________________________________
(1)
As of March 31, 2016, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal proceedings, environmental concerns and foreclosure-related proceedings, and ranged from 1.0 to 8.0 years outstanding. As of December 31, 2015, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal proceedings, environmental concerns and foreclosure-related proceedings, and ranged from 1.0 to 7.0 years outstanding.

Impaired Loans—The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):
 
As of March 31, 2016
 
As of December 31, 2015
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
9,083

 
$
9,082

 
$

 
$

 
$

 
$

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
126,933

 
125,882

 
(70,533
)
 
126,754

 
125,776

 
(69,627
)
Corporate/Partnership loans
5,404

 
5,402

 
(2,538
)
 
5,738

 
5,738

 
(2,538
)
Subtotal
132,337

 
131,284

 
(73,071
)
 
132,492

 
131,514

 
(72,165
)
Total
$
141,420

 
$
140,366

 
$
(73,071
)
 
$
132,492

 
$
131,514

 
$
(72,165
)
____________________________________________________________
(1)
All of the Company's non-accrual loans are considered impaired and included in the table above.


13

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


The Company's average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands):
 
For the Three Months Ended March 31,
 
2016
 
2015
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
Senior mortgages
$
4,542

 
$

 
$

 
$

With an allowance recorded:
 
 
 
 
 
 
 
Senior mortgages
126,843

 

 
130,491

 
17

Corporate/Partnership loans
5,571

 

 
7,868

 
9

Subtotal
132,414

 

 
138,359

 
26

Total
$
136,956

 
$

 
$
138,359

 
$
26


Securities—Other lending investments—securities includes the following ($ in thousands):
 
Face Value
 
Amortized Cost Basis
 
Net Unrealized Gain (Loss)
 
Estimated Fair Value
 
Net Carrying Value
As of March 31, 2016
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities
 
 
 
 
 
 
 
 
 
Municipal debt securities
$
5,365

 
$
5,365

 
$
171

 
$
5,536

 
$
5,536

Held-to-Maturity Securities
 
 
 
 
 
 
 
 
 
Corporate debt securities
41,563

 
41,175

 

 
41,204

 
41,175

Total
$
46,928

 
$
46,540

 
$
171

 
$
46,740

 
$
46,711

As of December 31, 2015
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities
 
 
 
 
 
 
 
 
 
Municipal debt securities
$
1,010

 
$
1,010

 
$
151

 
$
1,161

 
$
1,161

Held-to-Maturity Securities
 
 
 
 
 
 
 
 
 
Corporate debt securities
54,549

 
61,128

 

 
61,199

 
61,128

Total
$
55,559

 
$
62,138

 
$
151

 
$
62,360

 
$
62,289



14

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Note 7—Other Investments

The Company's other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands):
 
 
 
Equity in Earnings (Losses)
 
Carrying Value as of
 
For the Three Months Ended March 31,
 
March 31, 2016
 
December 31, 2015
 
2016
 
2015
Other real estate equity investments
$
85,122

 
$
81,452

 
$
(1,702
)
 
$
(1,302
)
iStar Net Lease I LLC ("Net Lease Venture")
68,043

 
69,096

 
946

 
1,633

Other investments(1)
57,734

 
73,525

 
802

 
1,696

Marina Palms, LLC ("Marina Palms")
23,091

 
30,099

 
8,221

 
4,520

Total other investments
$
233,990

 
254,172

 
$
8,267

 
$
6,547

_______________________________________________________________________________
(1)
In conjunction with the sale of the Company's interests in Oak Hill Advisors, L.P. in 2011, the Company retained a share of the carried interest related to various funds. During the three months ended March 31, 2016 and 2015, the Company recognized $3.2 million and $1.5 million, respectively, of carried interest income.

Other real estate equity investments—As of March 31, 2016, the Company's other real estate equity investments included equity interests in real estate ventures ranging from 19% to 76%, comprised of investments of $12.0 million in operating properties and $68.6 million in land assets. As of December 31, 2015, the Company's other real estate equity investments included $11.1 million in operating properties and $64.0 million in land assets.
In addition, during 2014 the Company contributed land to a newly formed unconsolidated entity in which the Company received an initial equity interest of 85.7%. This entity is a VIE and the Company does not have controlling interest due to shared control of the entity with its partner. As of March 31, 2016 and December 31, 2015, the Company had a recorded equity interest of $4.5 million and $6.3 million, respectively. Additionally, the Company committed to provide $45.7 million of mezzanine financing to the entity. As of March 31, 2016, the loan balance was $34.5 million and is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. During the three months ended March 31, 2016 and 2015, the Company recorded $1.2 million and $0.6 million of interest income, respectively, relating to this loan.
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a new unconsolidated entity in which the Company has an equity interest of approximately 51.9%. This entity is not a VIE and the Company does not have controlling interest due to the substantive participating rights of its partner. The partners plan to contribute up to an aggregate $500 million of equity to acquire and develop net lease assets over time. The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a promote and management fee. Several of the Company's senior executives whose time is substantially devoted to the net lease venture own a total of 0.6% equity ownership in the venture via co-investment. These senior executives are also entitled to an amount equal to 50% of any promote payment received based on the 47.5% partner's interest. As of March 31, 2016 and December 31, 2015, the venture's carrying value of total assets was $398.8 million and $400.2 million, respectively. During the three months ended March 31, 2016 and 2015, the Company recorded $0.4 million of management fees from the Net Lease Venture and are included in "Other income" in the Company's consolidated statements of operations.
Other investments—As of March 31, 2016, the Company also had smaller investments in real estate related funds and other strategic investments in several other entities that were accounted for under the equity method or cost method. As of March 31, 2016 and December 31, 2015, the carrying value of the Company's cost method investments was $1.5 million. During the three months ended March 31, 2015, the Company sold available-for-sale securities for proceeds of $7.3 million for gains of $2.5 million, which are included in "Other income" in the Company's consolidated statements of operations. The amount reclassified out of accumulated other comprehensive income into earnings was determined based on the specific identification method.
Marina Palms—As of March 31, 2016, the Company owned a 47.5% equity interest in Marina Palms, a residential condominium development. This entity is not a VIE and the Company does not have controlling interest due to shared control of the entity with its partner. As of March 31, 2016 and December 31, 2015, the venture's carrying value of total assets was $230.8 million and $278.5 million, respectively.

15

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Summarized investee financial information—The following table presents the investee level summarized financial information of the Company's equity method investments, which were significant subsidiaries for the three months ended March 31, 2016 and 2015 ($ in thousands):
 
Revenues
 
Expenses
 
Net Income Attributable to Parent Entities
For the Three Months Ended March 31, 2016
 
 
 
 
 
Marina Palms
$
50,628

 
$
(25,511
)
 
$
25,117

Net Lease Venture
7,830

 
(5,863
)
 
1,823

 
 
 
 
 
 
For the Three Months Ended March 31, 2015
 
 
 
 
 
Marina Palms
$
34,998

 
$
(22,638
)
 
$
12,360

Net Lease Venture
7,829

 
(4,546
)
 
3,146


Note 8—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
 
As of
 
March 31, 2016
 
December 31, 2015
Intangible assets, net(1)
$
69,647

 
$
71,446

Other assets(2)
39,428

 
36,999

Restricted cash
24,152

 
26,657

Other receivables
22,599

 
22,557

Leasing costs, net(3)
18,855

 
19,393

Corporate furniture, fixtures and equipment, net(4)
4,629

 
4,405

Deferred expenses and other assets, net
$
179,310

 
$
181,457

_______________________________________________________________________________
(1)
Intangible assets, net includes above market and in-place lease assets related to the acquisition of real estate assets. This balance also includes a lease incentive asset of $38.1 million (refer to Note 4). Accumulated amortization on intangible assets, net was $37.7 million and $37.3 million as of March 31, 2016 and December 31, 2015, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company's consolidated statements of operations by $1.2 million and $2.3 million for the three months ended March 31, 2016 and 2015, respectively. These intangible lease assets are amortized over the term of the lease. The amortization expense for in-place leases was $0.5 million and $1.5 million for the three months ended March 31, 2016 and 2015, respectively. These amounts are included in "Depreciation and amortization" in the Company's consolidated statements of operations.
(2)
Includes a $7.0 million receivable related to the sale of a land parcel in 2015.
(3)
Accumulated amortization of leasing costs was $9.4 million and $9.8 million as of March 31, 2016 and December 31, 2015, respectively.
(4)
Accumulated depreciation on corporate furniture, fixtures and equipment was $8.3 million and $8.1 million as of March 31, 2016 and December 31, 2015, respectively.


16

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
 
As of
 
March 31, 2016
 
December 31, 2015
Other liabilities(1)
$
85,327

 
$
80,332

Accrued expenses(2)
65,226

 
68,937

Accrued interest payable
42,220

 
55,081

Intangible liabilities, net(3)
10,190

 
10,485

Accounts payable, accrued expenses and other liabilities(4)
$
202,963

 
$
214,835

_______________________________________________________________________________
(1)
As of March 31, 2016 and December 31, 2015, "Other liabilities" includes $14.5 million related to a profit sharing payable to a developer for residential units sold and $4.6 million and $4.4 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance sheets. As of March 31, 2016 and December 31, 2015, "Other liabilities" also includes $7.3 million and $6.6 million, respectively, related to tax increment financing bonds which were issued by government entities to fund development within two of the Company's land projects. The amount represents tax assessments associated with each project, which will decrease as the Company sells units. As of March 31, 2016 and December 31, 2015, includes $0.3 million and $0.9 million, respectively, related to share repurchases that settled in April 2016 and January 2016, respectively. As of March 31, 2016 and December 31, 2015, includes $6.0 million of deferred net revenue in connection with the sale of a land and development asset. As of March 31, 2016, includes $0.8 million of deferred financing costs that had not yet been paid in cash. As of December 31, 2015, included $5.7 million of deferred revenue in connection with the sale of a land and development asset in 2015. This amount was recognized in land development revenue during the three months ended March 31, 2016.
(2)
As of March 31, 2016 and December 31, 2015, accrued expenses includes $3.9 million and $5.3 million, respectively, associated with "Real estate available and held for sale" on the Company's consolidated balance sheets.
(3)
Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. Accumulated amortization on below market leases was $6.5 million and $6.6 million as of March 31, 2016 and December 31, 2015, respectively. The amortization of below market leases increased operating lease income in the Company's consolidated statements of operations by $0.3 million and $0.4 million for the three months ended March 31, 2016 and 2015, respectively.
(4)
As of March 31, 2016 and December 31, 2015, includes $29.2 million and $26.2 million, respectively, of capital expenditures that had not yet been paid in cash.

Deferred tax assets and liabilities of the Company's TRS entities were as follows ($ in thousands):
 
As of
 
March 31, 2016
 
December 31, 2015
Deferred tax assets (liabilities)(1)
$
53,678

 
$
53,910

Valuation allowance
(53,678
)
 
(53,910
)
Net deferred tax assets (liabilities)
$

 
$

_______________________________________________________________________________
(1)
Deferred tax assets as of March 31, 2016 include timing differences related primarily to asset basis of $36.0 million, deferred expenses and other items of $16.0 million and net operating loss ("NOL") carryforwards of $1.7 million. Deferred tax assets as of December 31, 2015, include timing differences related primarily to asset basis of $40.0 million, deferred expenses and other items of $10.7 million and NOL carryforwards of $3.2 million.

Note 9—Loan Participations Payable, net

During the year ended December 31, 2015, the Company transferred to a third party a $100.0 million junior loan participation in a $250.0 million mezzanine loan commitment that it had previously originated. The Company had funded $38.9 million of the junior loan prior to transfer and received proceeds of $38.9 million upon transfer. The transferee is responsible for funding the remaining $61.1 million under the junior loan commitment, which bears interest at a rate of 5.90%. The Company will fund these commitments if the transferee defaults. For the three months ended March 31, 2016, the transferee funded an additional $1.9 million directly to the borrower. As of March 31, 2016, the balance of the loan was $54.9 million.
During the year ended December 31, 2015, the Company transferred to a third party a $100.0 million senior loan participation in a $220.2 million senior loan commitment that it had previously originated. The transferred participation bears interest at a rate of LIBOR+ 3.50% with a LIBOR floor of 0.25%. The Company had fully funded the $100.0 million transferred participation prior to transfer and received net proceeds of $99.2 million.
These transfers of financial assets did not meet the sales criteria established under ASC Topic 860 and have been accounted for as loan participations payable as of March 31, 2016 and December 31, 2015, with balances, net of a discount and debt issuance costs, of $154.1 million and $152.1 million, respectively. As of March 31, 2016 and December 31, 2015, the corresponding loan

17

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


receivable balances were $154.9 million and $153.0 million, respectively, and are included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. The principal and interest due on these participations are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.
Note 10—Debt Obligations, net

As of March 31, 2016 and December 31, 2015, the Company's debt obligations were as follows ($ in thousands):
 
Carrying Value as of
 
Stated
Interest Rates
 
Scheduled
Maturity Date
 
March 31, 2016
 
December 31, 2015
 
 
Secured credit facilities and term loans:
 
 
 
 
 
 
 
2012 Tranche A-2 Facility
$
325,123

 
$
339,717

 
LIBOR + 5.75%

(1) 
March 2017
2015 Revolving Credit Facility
245,000

 
250,000

 
Various
(2) 
March 2018
Term loans collateralized by net lease assets
237,297

 
239,547

 
4.851% - 7.26%

(3) 
Various through 2026
Total secured credit facilities and term loans
807,420

 
829,264

 
 

 
 
Unsecured notes:
 
 
 
 
 
 
 
5.875% senior notes

 
261,403

 
5.875
%
 
3.875% senior notes
265,000

 
265,000

 
3.875
%
 
July 2016
3.00% senior convertible notes(4)
200,000

 
200,000

 
3.00
%
 
November 2016
1.50% senior convertible notes(5)
200,000

 
200,000

 
1.50
%
 
November 2016
5.85% senior notes
99,722

 
99,722

 
5.85
%
 
March 2017
9.00% senior notes
275,000

 
275,000

 
9.00
%
 
June 2017
4.00% senior notes
550,000

 
550,000

 
4.00
%
 
November 2017
7.125% senior notes
300,000

 
300,000

 
7.125
%
 
February 2018
4.875% senior notes
300,000

 
300,000

 
4.875
%
 
July 2018
5.00% senior notes
770,000

 
770,000

 
5.00
%
 
July 2019
6.50% senior notes
275,000

 

 
6.50
%
 
July 2021
Total unsecured notes
3,234,722

 
3,221,125

 
 

 
 
Other debt obligations:

 
 
 
 
 
 
Other debt obligations
100,000

 
100,000

 
LIBOR + 1.50%

 
October 2035
Total debt obligations
4,142,142

 
4,150,389

 
 

 
 
Debt discounts and deferred financing costs, net
(31,412
)
 
(31,566
)
 
 

 
 
Total debt obligations, net(6)
$
4,110,730

 
$
4,118,823

 
 

 
 
_______________________________________________________________________________
(1)
The loan has a LIBOR floor of 1.25%. As of March 31, 2016, inclusive of the floor, the 2012 Tranche A-2 Facility loan incurred interest at a rate of 7.00%.
(2)
The loan bears interest at the Company's election of either (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.00% and subject to a margin ranging from 1.25% to 1.75%, or (ii) LIBOR subject to a margin ranging from 2.25% to 2.75%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through March 2019.
(3)
As of March 31, 2016 and December 31, 2015, includes a loan with a floating rate of LIBOR plus 2.00%. As of March 31, 2016, the weighted average interest rate of these loans is 5.2%.
(4)
The Company's 3.00% senior convertible fixed rate notes due November 2016 ("3.00% Convertible Notes") are convertible at the option of the holders, into 85.0 shares per $1,000 principal amount of 3.00% Convertible Notes, at $11.77 per share at any time prior to the close of business on November 14, 2016.
(5)
The Company's 1.50% senior convertible fixed rate notes due November 2016 ("1.50% Convertible Notes") are convertible at the option of the holders, into 57.8 shares per $1,000 principal amount of 1.50% Convertible Notes, at $17.29 per share at any time prior to the close of business on November 14, 2016.
(6)
The Company capitalized interest relating to development activities of $1.4 million and $1.5 million for the three months ended March 31, 2016 and 2015, respectively.


18

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Future Scheduled Maturities—As of March 31, 2016, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands):
 
Unsecured Debt
 
Secured Debt
 
Total
2016 (remaining nine months)(1)
$
665,000

 
$

 
$
665,000

2017
924,722

 
325,123

 
1,249,845

2018
600,000

 
257,780

 
857,780

2019
770,000

 
30,401

 
800,401

2020

 

 

Thereafter
375,000

 
194,116

 
569,116

Total principal maturities
3,334,722

 
807,420

 
4,142,142

Unamortized discounts and deferred financing costs, net
(28,675
)
 
(2,737
)
 
(31,412
)
Total debt obligations, net
$
3,306,047

 
$
804,683

 
$
4,110,730

_______________________________________________________________________________
(1)
Includes the $265.0 million principal amount of senior unsecured notes due July 2016 that were repaid in full in April 2016.

2015 Revolving Credit Facility—On March 27, 2015, the Company entered into a secured revolving credit facility with a maximum capacity of $250.0 million (the "2015 Revolving Credit Facility"). Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward based upon the Company's corporate credit rating. An undrawn credit facility commitment fee ranges from 0.375% to 0.5%, based on average utilization each quarter. During the three months ended March 31, 2016, the weighted average cost of the credit facility was 3.18%. Commitments under the revolving facility mature in March 2018. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through March 2019.
2012 Secured Credit Facilities—In March 2012, the Company entered into an $880.0 million senior secured credit agreement providing for two tranches of term loans: a $410.0 million 2012 A-1 tranche due March 2016, which accrued interest at a rate of LIBOR + 4.00% (the "2012 Tranche A-1 Facility"), and a $470.0 million 2012 A-2 tranche due March 2017, which bears interest at a rate of LIBOR + 5.75% (the "2012 Tranche A-2 Facility," together the "2012 Secured Credit Facilities"). The 2012 A-1 and A-2 tranches were issued at 98.0% of par and 98.5% of par, respectively, and both tranches include a LIBOR floor of 1.25%. Proceeds from the 2012 Secured Credit Facilities, together with cash on hand, were used to repurchase and repay other outstanding debt.

The 2012 Secured Credit Facilities are collateralized by a first lien on a fixed pool of assets. Proceeds from principal repayments and sales of collateral are applied to amortize the 2012 Secured Credit Facilities. Proceeds received for interest, rent, lease payments and fee income are retained by the Company. The Company may also make optional prepayments, subject to prepayment fees. The 2012 Tranche A-1 Facility was fully repaid in August 2013. Additionally, through March 31, 2016, the Company made cumulative amortization repayments of $144.9 million on the 2012 Tranche A-2 Facility. For the three months ended March 31, 2016 and 2015, repayments of the 2012 Tranche A-2 Facility prior to maturity resulted in losses on early extinguishment of debt of $0.1 million and $0.2 million, respectively, related to the accelerated amortization of discounts and unamortized deferred financing fees on the portion of the facility that was repaid. These amounts are included in "Loss on early extinguishment of debt, net" in the Company's consolidated statements of operations.

Unsecured Notes—In March 2016, the Company repaid its $261.4 million principal amount of 5.875% senior unsecured notes at maturity using available cash. In addition, in March 2016 the Company issued $275.0 million principal amount of 6.50% senior unsecured notes due July 2021. Proceeds from the offering were used to repay $5.0 million of the 2015 Revolving Credit Facility, pay related financing costs and, subsequent to the end of the quarter, repay in full the $265.0 million principal amount of senior unsecured notes due July 2016.


19

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Encumbered/Unencumbered Assets—As of March 31, 2016 and December 31, 2015, the carrying value of the Company's encumbered and unencumbered assets by asset type are as follows ($ in thousands):
 
As of
 
March 31, 2016
 
December 31, 2015
 
Encumbered Assets
 
Unencumbered Assets
 
Encumbered Assets
 
Unencumbered Assets
Real estate, net
$
806,550

 
$
772,050

 
$
816,721

 
$
777,262

Real estate available and held for sale
13,047

 
119,348

 
10,593

 
126,681

Land and development
17,682

 
1,006,752

 
17,714

 
984,249

Loans receivable and other lending investments, net(1)(2)
157,347

 
1,361,735

 
170,162

 
1,314,823

Other investments
15,385

 
218,605

 
22,352

 
231,820

Cash and other assets

 
885,372

 

 
1,008,415

Total
$
1,010,011

 
$
4,363,862

 
$
1,037,542

 
$
4,443,250

_______________________________________________________________________________
(1)
As of March 31, 2016 and December 31, 2015, the amounts presented exclude general reserves for loan losses of $36.6 million and $36.0 million, respectively.
(2)
As of March 31, 2016 and December 31, 2015, the amount presented excludes loan participations of $154.9 million and $153.0 million, respectively.

Debt Covenants

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

The Company's 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, dividend payments, 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 2012 Secured Credit Facilities require the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facilities. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires the Company to maintain both collateral coverage of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the collateral coverage 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. In addition, for so long as the Company maintains its qualification as a REIT, the 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility permit the Company to distribute 100% of its REIT taxable income on an annual basis (prior to deducting certain cumulative NOL carryforwards in the case of the 2015 Revolving Credit Facility). The Company may not pay common dividends if it ceases to qualify as a REIT.

The Company's 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate the Company's indebtedness to them if the Company fails to pay amounts due in respect of its other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing the Company's unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company's indebtedness to them if the Company's other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated.

20

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Note 11—Commitments and Contingencies

Unfunded Commitments—The Company generally funds construction and development loans and build-outs of space in net lease 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 sometimes establishes a maximum amount of additional funding which it will make available to a borrower or tenant for an expansion or addition to a project if it approves of the expansion or addition in its sole discretion. The Company refers to these arrangements as Discretionary Fundings. Finally, 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 March 31, 2016, 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, that it approves all Discretionary Fundings and that 100% of its capital committed to Strategic Investments is drawn down, are as follows ($ in thousands):
 
Loans and Other Lending Investments
 
Real Estate
 
Other
Investments
 
Total
Performance-Based Commitments
$
752,417

 
$
17,161

 
$
19,642

 
$
789,220

Strategic Investments

 

 
45,978

 
45,978

Discretionary Fundings
5,000

 

 

 
5,000

Total
$
757,417

 
$
17,161

 
$
65,620

 
$
840,198


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 loan foreclosure and foreclosure-related proceedings. In addition to such matters, the Company is a party to the following legal proceedings:

On March 7, 2014, a shareholder action purporting to assert derivative, class and individual claims was filed in the Circuit Court for Baltimore City, Maryland naming the Company, a number of its current and former senior executives (including its chief executive officer) and current and former directors as defendants.  The complaint sought unspecified damages and other relief and alleged breach of fiduciary duty, breach of contract and other causes of action arising out of shares of common stock issued by the Company to its senior executives pursuant to restricted stock unit awards granted in December 2008 and modified in July 2011. On October 30, 2014, the Circuit Court granted the defendants’ Motions to Dismiss and plaintiffs’ claims against all of the defendants in this action were dismissed. Plaintiffs appealed the Circuit Court's dismissal of their claims against the Company and all other defendants. On January 28, 2016, the Court of Special Appeals affirmed the order of the Circuit Court, holding that the Circuit Court properly dismissed plaintiffs' claims against all defendants, including the Company. On March 16, 2016, plaintiffs filed a petition for certiorari with the Maryland Court of Appeals, requesting that the Court of Appeals reverse the decision of the Court of Special Appeals. We have filed a response in opposition, arguing that the petition for certiorari should be denied. Action on the petition for certiorari is pending.

On January 22, 2015, the United States District Court for the District of Maryland (the "Court") entered a judgment in favor of the Company in the matter of U.S. Home Corporation ("Lennar") v. Settlers Crossing, LLC, et al. (Civil Action No. DKC 08-1863). The litigation involved a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland. The Court found that the Company was entitled to specific performance and awarded damages to it in the aggregate amount of: (i) the remaining purchase price to be paid by Lennar of $114.0 million; plus (ii) interest on the unpaid amount at a rate of 12% per annum, calculated on a per diem basis, from May 27, 2008, until Lennar proceeds to settlement on the land; plus (iii) real estate taxes paid by the Company; plus (iv) actual and reasonable attorneys' fees and costs incurred by the Company in connection with the litigation. The Court ordered Lennar to proceed to settlement on the land and to pay the total amounts awarded to the Company within 30 days of the judgment. Lennar has appealed the Court's judgment. The Court has granted Lennar's motion to stay the judgment pending appeal, subject to Lennar posting a required appeal bond, which has been posted. The Court also clarified the judgment that the unpaid amount will accrue simple interest at a rate of 12% annually, including while the appeal is pending. In the pending appeal before the United States Court of Appeals for the Fourth Circuit, the parties have filed their respective briefs. Oral argument has not yet been scheduled. There can be no assurance as to the timing or actual

21

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


receipt by the Company of amounts awarded by the Court or the outcome of any appeal. A third party is entitled to a 7.8% participation interest in all proceeds paid to the Company.

On a quarterly basis, the Company evaluates developments in legal proceedings that could require a liability to be accrued and/or disclosed. Based on its current knowledge, and after consultation with legal counsel, 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 12—Derivatives
The Company's use of derivative financial instruments is primarily 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. Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements, foreign exchange rate movements, and other identified risks, but may not meet the strict hedge accounting requirements.
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2016 and December 31, 2015 ($ in thousands):
 
Derivative Assets as of
 
Derivative Liabilities as of
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives Designated in Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
N/A
 
$

 
Other Assets
 
$
39

 
Other Liabilities
 
$
48

 
N/A
 
$

Interest rate swaps
N/A
 

 
N/A
 

 
Other Liabilities
 
564

 
Other Liabilities
 
131

Total
 
 
$

 
 
 
$
39

 
 
 
$
612

 
 
 
$
131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not Designated in Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Other Assets
 
$
106

 
Other Assets
 
$
378

 
Other Liabilities
 
$
317

 
N/A
 
$

Interest rate cap
Other Assets
 
301

 
Other Assets
 
1,105

 
N/A
 

 
N/A
 

Total
 
 
$
407

 
 
 
$
1,483

 
 
 
$
317

 
 
 
$


22

Table of Contents
iStar Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


The tables below present the effect of the Company's derivative financial instruments in the consolidated statements of operations and the consolidated statements of comprehensive income (loss) for the three months ended March 31, 2016 and 2015 ($ in thousands):
Derivatives Designated in Hedging Relationships
 
Location of Gain (Loss)
Recognized in Income
 
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Effective Portion)
 
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion)
 
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
 (Ineffective Portion)
For the Three Months Ended March 31, 2016