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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-K
(Mark One)
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class:
 
Name of Exchange on which registered:
Common Stock, $0.001 par value
 
New York Stock Exchange
8.00% Series D Cumulative Redeemable
Preferred Stock, $0.001 par value
 
New York Stock Exchange
7.875% Series E Cumulative Redeemable
Preferred Stock, $0.001 par value
 
New York Stock Exchange
7.80% Series F Cumulative Redeemable
Preferred Stock, $0.001 par value
 
New York Stock Exchange
7.65% Series G Cumulative Redeemable
Preferred Stock, $0.001 par value
 
New York Stock Exchange
7.50% Series I Cumulative Redeemable
Preferred Stock, $0.001 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
 
 
 
Title of each class:
 
Name of Exchange on which registered:
4.50% Series J Convertible Perpetual
Preferred Stock, $0.001 par value
 
N/A


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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No ý
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
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 the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act (check one):
 
 
 
 
 
 
 
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 June 30, 2016 the aggregate market value of iStar Inc. common stock, $0.001 par value per share, held by non-affiliates (1) of the registrant was approximately $673 million, based upon the closing price of $9.59 on the New York Stock Exchange composite tape on such date.
As of February 23, 2017, there were 72,042,468 shares of common stock outstanding.
(1)
For purposes of this Annual Report only, includes all outstanding common stock other than common stock held directly by the registrant's directors and executive officers.
DOCUMENTS INCORPORATED BY REFERENCE
1.
Portions of the registrant's definitive proxy statement for the registrant's 2017 Annual Meeting, to be filed within 120 days after the close of the registrant's fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


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PART I

Item 1.    Business
Explanatory Note for Purposes of the "Safe Harbor Provisions" of Section 21E of the Securities Exchange Act of 1934, as amended
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are included with respect to, among other things, iStar Inc.'s current business plan, 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. Important factors that iStar Inc. believes might cause such differences are discussed in the section entitled, "Risk Factors" in Part I, Item 1a of this Form 10-K or otherwise accompany the forward-looking statements contained in this Form 10-K. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-K.
Overview
iStar Inc. (the "Company") 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 four primary business segments are real estate finance, net lease, operating properties and land and development.
The real estate finance portfolio is comprised of senior and mezzanine real estate loans that may be either fixed-rate or variable-rate and are structured to meet the specific financing needs of borrowers. The Company's portfolio also includes preferred equity investments and senior and subordinated loans to business entities, particularly entities engaged in real estate or real estate related businesses, and may be either secured or unsecured. The Company's loan portfolio includes whole loans and loan participations.
The net lease portfolio is primarily comprised of properties owned by the Company and leased to single creditworthy tenants where the properties are subject to long-term leases. Most of the leases provide for expenses at the facilities to be paid by the tenants on a triple net lease basis. The properties in this portfolio are diversified by property type and geographic location. In addition to net lease properties owned by the Company, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets (the "Net Lease Venture"). The Company invests in new net lease investments primarily through the Net Lease Venture, in which it holds a noncontrolling 51.9% interest.
The operating properties portfolio is comprised of commercial and residential properties which represent a diverse pool of assets across a broad range of geographies and property types. The Company generally seeks to reposition or redevelop its transitional properties with the objective of maximizing their value through the infusion of capital and/or intensive asset management efforts. The commercial properties within this portfolio include office, retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects located in major U.S. cities where the Company's strategy is to sell individual condominium units through retail distribution channels.
The land and development portfolio is primarily comprised of land entitled for master planned communities as well as waterfront and urban infill land parcels located throughout the United States. Master planned communities represent large-scale residential projects that the Company will entitle, plan and/or develop and may sell through retail channels to homebuilders or in bulk. Waterfront parcels are generally entitled for residential projects and urban infill parcels are generally entitled for mixed-use projects. The Company may develop these properties itself, or in partnership with commercial real estate developers, or may sell the properties.
The Company's primary sources of revenues are operating lease income, which is comprised of the rent and reimbursements that tenants pay to lease the Company's properties, interest income, which is the interest that borrowers pay on loans, and land

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development revenue from lot and parcel sales. The Company primarily generates income through a “spread” or “margin,” which is the difference between the revenues net of property related expenses generated from leases and loans and interest expense. In addition, the Company generates income from sales of its real estate and income from equity in earnings of its unconsolidated ventures.
Company History and Recent Developments
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 lending and leasing transactions, as well as through corporate acquisitions. During the economic downturn, the composition of the Company's portfolio changed as loans were repaid and the Company acquired title to assets of defaulting borrowers. The composition of the Company's real estate portfolio expanded to include operating properties and land and development assets. The Company has been originating new lending and net lease investments, repositioning or redeveloping its transitional operating properties and progressing on the entitlement, development and sales of its land and development assets. The Company intends to continue these efforts, with the objective of having these assets contribute positively to earnings in the future. The Company's business segments are discussed further in "Industry Segments."
Financing Strategy
The Company uses leverage to enhance its return on assets. Over the past few years, the Company has strengthened its balance sheet through its diverse financing activities. Access to the capital markets has allowed the Company to extend its debt maturity profile and remain primarily an unsecured borrower. In 2016, the Company repaid $926.4 million of maturing unsecured notes and issued $275.0 million of unsecured notes. In addition, the Company entered into a $500.0 million senior secured credit facility and used the proceeds to repay other secured debt. Going forward, the Company will seek to raise capital through a variety of means, which may include unsecured and secured debt financing, debt refinancings, asset sales, sales of interests in business lines, issuances of equity, joint ventures and other third party capital arrangements. A more detailed discussion of the Company's current liquidity and capital resources is provided in Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations."
Investment Strategy
During 2016, the Company committed to new investments totaling $691.8 million and invested $767.3 million associated with new investments, prior financing commitments as well as ongoing development. Investments included $474.0 million in real estate finance, $135.9 million to develop land and development assets, $69.9 million of capital to reposition or redevelop operating properties, $86.9 million to invest in net lease assets and $0.6 million to invest in corporate/other assets.
In originating new investments, the Company's strategy is to focus on the following:
Targeting the origination of custom-tailored mortgage, corporate and lease financings where customers require flexible financial solutions and "one-call" responsiveness;
Avoiding commodity businesses where there is significant direct competition from other providers of capital;
Developing direct relationships with borrowers and corporate customers in addition to sourcing transactions through intermediaries;
Adding value beyond simply providing capital by offering borrowers and corporate customers specific lending expertise, flexibility, certainty of closing and continuing relationships beyond the closing of a particular financing transaction;
Taking advantage of market anomalies in the real estate financing markets when, in the Company's view, credit is mispriced by other providers of capital; and
Evaluating relative risk adjusted returns across multiple investment markets.
Underwriting Process
The Company reviews investment opportunities with its investment professionals, as well as representatives from its legal, credit, risk management and capital markets departments. The Company has developed a process for screening potential investments called the Six Point Methodologysm. Through this proprietary process, the Company internally evaluates an investment opportunity by: (1) evaluating the source of the opportunity; (2) evaluating the quality of the collateral, corporate credit or lessee, as well as the market and industry dynamics; (3) evaluating the borrower equity, corporate sponsorship and/or guarantors; (4) determining the optimal legal and financial structure for the transaction given its risk profile; (5) performing an alternative investment test; and (6) evaluating the liquidity of the investment. Professionals from all disciplines throughout the entire origination process evaluate investments, from the initial consideration of the opportunity, utilizing the Six Point Methodology,sm through the preparation and distribution of an approval memorandum for the Company's internal investment committee and/or Board of Directors and into the documentation and closing process.

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Any commitment to make an investment of $25 million or less in any transaction or series of related transactions requires the approval of the Chief Executive Officer and Chief Investment Officer. Any commitment in excess of $25 million but less than or equal to $60 million requires the further approval of the Company's internal investment committee, consisting of senior management representatives from all of the Company's key disciplines. Any commitment in excess of $60 million, and any strategic investment such as a corporate merger, acquisition or material transaction involving the Company's entry into a new line of business, requires the approval of the Board of Directors.
Hedging Strategy
The Company finances its business with a combination of fixed-rate and variable-rate debt and its asset base consists of fixed-rate and variable-rate investments. Its variable-rate assets and liabilities are intended to be matched against changes in variable interest rates. This means that as interest rates increase, the Company earns more on its variable-rate lending assets and pays more on its variable-rate debt obligations and, conversely, as interest rates decrease, the Company earns less on its variable-rate lending assets and pays less on its variable-rate debt obligations. When the Company's variable-rate debt obligations differ from its variable-rate lending assets, the Company may utilize derivative instruments to limit the impact of changing interest rates on its net income. The Company also uses derivative instruments to limit its exposure to changes in currency rates in respect of certain investments denominated in foreign currencies. The derivative instruments the Company uses are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts.
Portfolio Overview
As of December 31, 2016, based on current gross carrying values, the Company's total investment portfolio has the following characteristics:
Asset Type
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As of December 31, 2016, based on gross carrying values, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands)(1):
Property Type
Property/Collateral Types
 
Real Estate Finance
 
Net Lease
 
Operating Properties
 
Land and Development
 
Total
 
% of
Total
Land and Development
 
$

 
$

 
$

 
$
1,036,855

 
$
1,036,855

 
22.4
%
Office / Industrial
 
168,213

 
771,541

 
122,484

 

 
1,062,238

 
22.9
%
Hotel
 
333,114

 
136,080

 
107,534

 

 
576,728

 
12.5
%
Entertainment / Leisure
 

 
490,200

 

 

 
490,200

 
10.6
%
Condominium
 
380,851

 

 
82,487

 

 
463,338

 
10.0
%
Mixed Use / Mixed Collateral
 
291,526

 

 
171,045

 

 
462,571

 
10.0
%
Other Property Types
 
236,862

 
23,039

 

 

 
259,901

 
5.6
%
Retail
 
63,173

 
57,348

 
124,850

 

 
245,371

 
5.3
%
Strategic Investments
 

 

 

 

 
33,350

 
0.7
%
Total
 
$
1,473,739

 
$
1,478,208

 
$
608,400

 
$
1,036,855

 
$
4,630,552

 
100.0
%

Geography
Geographic Region
 
Real Estate Finance
 
Net Lease
 
Operating Properties
 
Land and Development
 
Total
 
% of
Total
Northeast
 
$
790,113

 
$
379,731

 
$
47,322

 
$
233,672

 
$
1,450,838

 
31.3
%
West
 
87,037

 
304,854

 
37,518

 
362,578

 
791,987

 
17.1
%
Southeast
 
126,814

 
235,490

 
150,066

 
156,326

 
668,696

 
14.4
%
Mid-Atlantic
 
168,213

 
153,084

 
53,774

 
218,982

 
594,053

 
12.8
%
Southwest
 
77,378

 
183,920

 
239,297

 
28,393

 
528,988

 
11.4
%
Central
 
150,829

 
79,411

 
65,869

 
31,500

 
327,609

 
7.1
%
Various(2)
 
73,355

 
141,718

 
14,554

 
5,404

 
235,031

 
5.2
%
Strategic Investments(2)
 

 

 

 

 
33,350

 
0.7
%
Total
 
$
1,473,739

 
$
1,478,208

 
$
608,400

 
$
1,036,855

 
$
4,630,552

 
100.0
%
_______________________________________________________________________________
(1)
Based on the carrying value of our total investment portfolio gross of accumulated depreciation and general loan loss reserves.
(2)
Combined, strategic investments and the various category include $18.3 million of international assets.

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Industry Segments
The Company has four business segments: Real Estate Finance, Net Lease, Operating Properties and Land and Development. The following describes the Company's reportable segments as of December 31, 2016 ($ in thousands):
 
Real Estate Finance
 
Net Lease
 
Operating Properties
 
Land and Development
 
Corporate / Other(1)
 
Total
Real estate, at cost
$

 
$
1,384,255

 
$
522,337

 
$

 
$

 
$
1,906,592

Less: accumulated depreciation

 
(368,665
)
 
(46,175
)
 

 

 
(414,840
)
Real estate, net

 
1,015,590

 
476,162

 

 

 
1,491,752

Real estate available and held for sale

 
1,284

 
82,480

 

 

 
83,764

Total real estate

 
1,016,874

 
558,642

 

 

 
1,575,516

Land and development, net

 

 

 
945,565

 

 
945,565

Loans receivable and other lending investments, net
1,450,439

 

 

 

 

 
1,450,439

Other investments

 
92,669

 
3,583

 
84,804

 
33,350

 
214,406

Total portfolio assets
$
1,450,439

 
$
1,109,543

 
$
562,225

 
$
1,030,369

 
$
33,350

 
$
4,185,926

_______________________________________________________________________________
(1)
Corporate/Other includes certain joint venture and strategic investments that are not included in the other reportable segments. See Item 8—"Financial Statements and Supplemental Data—Note 7" for further detail on these investments.

Additional information regarding segment revenue and profit information as well as prior period information is presented in Item 8—"Financial Statements and Supplemental Data—Note 17" and a discussion of operating results is presented in Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations."
Real Estate Finance
The Company's real estate finance business targets sophisticated investors by providing one-stop capabilities that encompass financing alternatives ranging from full envelope senior loans to mezzanine and preferred equity capital positions. The Company's real estate finance portfolio consists of senior mortgage loans that are secured by commercial real estate assets where the Company is the first lien holder, subordinated mortgage loans that are secured by second lien or junior interests in commercial and residential real estate assets, and corporate/partnership loans, which represent mezzanine or subordinated loans to entities for which the Company does not have a lien on the underlying asset, but may have a pledge of underlying equity ownership of such assets. The Company's real estate finance portfolio includes loans on stabilized and transitional properties and ground-up construction projects. In addition, the Company has preferred equity investments and debt securities classified as other lending investments.

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The Company's real estate finance portfolio included the following ($ in thousands):
 
As of December 31,
 
2016
 
2015
 
Total
 
% of Total
 
Total
 
% of Total
Performing loans:
 
 
 
 
 
 
 
Senior mortgages
$
854,805

 
58.0
%
 
$
849,161

 
51.8
%
Corporate/partnership loans
333,244

 
22.6
%
 
637,532

 
38.9
%
Subordinate mortgages
14,078

 
1.0
%
 
28,676

 
1.8
%
Subtotal
1,202,127

 
81.6
%
 
1,515,369

 
92.5
%
Non-performing loans(1):
 
 
 
 
 
 
 
Senior mortgages
36,159

 
2.5
%
 
57,127

 
3.5
%
Corporate/partnership loans
144,674

 
9.8
%
 
3,200

 
0.2
%
Subordinate mortgages
10,863

 
0.7
%
 

 
%
Subtotal
191,696

 
13.0
%
 
60,327

 
3.7
%
Total carrying value of loans
1,393,823

 
94.6
%
 
1,575,696

 
96.2
%
Other lending investments—securities
79,916

 
5.4
%
 
62,289

 
3.8
%
Total carrying value
1,473,739

 
100.0
%
 
1,637,985

 
100.0
%
General reserve for loan losses
(23,300
)
 
 
 
(36,000
)
 
 

Total loans receivable and other lending investments, net
$
1,450,439

 
 

 
$
1,601,985

 
 

_______________________________________________________________________________
(1)
Non-performing loans are presented net of asset-specific loan loss reserves of $62.2 million and $72.2 million, respectively, as of December 31, 2016 and 2015.
Summary of Portfolio Characteristics—As of December 31, 2016, the Company's performing loans and other lending investments had a weighted average loan to value ratio of 64%. Additionally, the Company's performing loans were comprised of 22% fixed-rate loans and 78% variable-rate loans that had a weighted average yield of 8.9% and a weighted average remaining term of 2.1 years.
Portfolio Activity—During the year ended December 31, 2016, the Company invested $474.0 million (including capitalized deferred interest) in its real estate finance portfolio and received repayments of $614.2 million (including the receipt of previously capitalized deferred interest).

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Summary of Interest Rate Characteristics—The Company's loans receivable and other lending investments had the following interest rate characteristics ($ in thousands):
 
 
As of December 31,
 
 
2016
 
2015
 
 
Carrying
Value
 
%
of Total
 
Weighted
Average
Accrual Rate
 
Carrying
Value
 
%
of Total
 
Weighted
Average
Accrual Rate
Fixed-rate loans and other lending investments
 
$
282,810

 
19.2
%
 
9.4
%
 
$
487,514

 
29.8
%
 
9.5
%
Variable-rate loans(1)
 
999,233

 
67.8
%
 
7.3
%
 
1,090,144

 
66.5
%
 
6.6
%
Non-performing loans(2)
 
191,696

 
13.0
%
 
N/A

 
60,327

 
3.7
%
 
N/A

Total carrying value
 
1,473,739

 
100.0
%
 
 
 
1,637,985

 
100.0
%
 
 

General reserve for loan losses
 
(23,300
)
 
 
 
 
 
(36,000
)
 
 

 
 

Total loans receivable and other lending investments, net
 
$
1,450,439

 
 
 
 
 
$
1,601,985

 
 

 
 

__________________________________________________________________________
(1)
As of December 31, 2016 and 2015, includes $657.9 million and $807.8 million, respectively, of loans with a weighted average interest rate floor of 0.2% and 0.8%, respectively.
(2)
Non-performing loans are presented net of asset-specific loan loss reserves of $62.2 million and $72.2 million, respectively, as of December 31, 2016 and 2015.
Summary of Maturities—As of December 31, 2016 the Company's loans receivable and other lending investments had the following maturities ($ in thousands):
Year of Maturity
 
Number of
Loans
Maturing
 
Carrying
Value
 
%
of Total
2017
 
11

 
$
450,100

 
30.5
%
2018
 
13

 
693,695

 
47.1
%
2019
 
5

 
27,615

 
1.9
%
2020
 
3

 
44,569

 
3.0
%
2021
 
1

 

 
%
2022 and thereafter
 
5

 
66,064

 
4.5
%
Total performing loans and other lending investments
 
38

 
$
1,282,043

 
87.0
%
Non-performing loans(1)
 
6

 
191,696

 
13.0
%
Total carrying value
 
44

 
$
1,473,739

 
100.0
%
General reserve for loan losses
 
 

 
(23,300
)
 
 

Total loans receivable and other lending investments, net
 
 

 
$
1,450,439

 
 

_______________________________________________________________________________
(1)
Non-performing loans are presented net of asset-specific loan loss reserves of $62.2 million.
Net Lease
The Company's net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on its properties. The Company targets mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combine its capabilities in underwriting, lease structuring, asset management and build-to-suit construction. Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis. Under a typical net lease agreement, the tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including taxes, utilities, maintenance and insurance). The Company generally intends to hold its net lease assets for long-term investment. However, the Company may dispose of assets if it deems the disposition to be in the Company's best interests.
In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a right of first refusal to the venture on all new net lease investments that meet specified investment criteria (refer to Note 7 in our consolidated financial statements for more information on our Net Lease Venture). Subsequent to December 31, 2016, the Net Lease Venture's investment period was extended through February 1, 2018. The term of the Net Lease Venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of the Company and its partner.

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The Company's net lease portfolio included the following ($ in thousands):
 
 
As of December 31,
 
 
2016
 
2015
Real estate, at cost
 
$
1,384,255

 
$
1,489,895

Less: accumulated depreciation
 
(368,665
)
 
(377,416
)
Real estate, net
 
1,015,590

 
1,112,479

Real estate available and held for sale
 
1,284

 

Other investments
 
92,669

 
69,096

Total
 
$
1,109,543

 
$
1,181,575

Summary of Portfolio Characteristics—As of December 31, 2016, the Company owned or had interests in 282 facilities, encompassing 17.2 million square feet located in 33 states. The Company's net lease assets were 98% leased with a weighted average remaining lease term of approximately 14.7 years. The annual average effective base rent per square foot, net of any tenant concessions, was $8.59 per square foot.
Portfolio Activity—During the year ended December 31, 2016, the Company acquired two net lease assets for $36.6 million and invested an aggregate $7.9 million of tenant improvements and capital expenditures on its existing net lease assets. In addition, during the year ended December 31, 2016, the Net Lease Venture acquired two office properties and the Company made contributions to the Net Lease Venture of $37.7 million. During the year ended December 31, 2016, the Company received proceeds of $123.4 million from its net lease portfolio (refer to Note 4 in the Company's consolidated financial statements for further details on consolidated net lease asset activities).
Summary of Lease Expirations—As of December 31, 2016, lease expirations on the Company's net lease assets, excluding other investments, are as follows ($ in thousands):
Year of Lease Expiration
 
Number of
Leases
Expiring
 
Annualized In-Place
Operating
Lease Income
 
% of In-Place
Operating
Lease Income
 
% of Total
Revenue
(1)
 
Square Feet of Leases Expiring (in thousands)
2017
 
3

 
$
2,738

 
2.1
%
 
0.6
%
 
251

2018
 
1

 
1,589

 
1.2
%
 
0.4
%
 
80

2019
 
2

 
582

 
0.5
%
 
0.1
%
 
61

2020
 
2

 
1,488

 
1.2
%
 
0.3
%
 
235

2021
 
4

 
4,535

 
3.6
%
 
1.1
%
 
240

2022
 
3

 
9,709

 
7.6
%
 
2.3
%
 
584

2023
 
4

 
11,012

 
8.6
%
 
2.6
%
 
366

2024
 
4

 
29,326

 
23.0
%
 
6.9
%
 
6,145

2025
 
2

 
10,924

 
8.6
%
 
2.6
%
 
1,643

2026
 
5

 
10,143

 
7.9
%
 
2.4
%
 
638

2027 and thereafter
 
11

 
45,630

 
35.7
%
 
10.7
%
 
3,610

Total
 
41

 
$
127,676

 
100.0
%
 
30.0
%
 
 

Weighted average remaining lease term (in years)
 
14.8

 
 
 
 

 
 

 
 

_______________________________________________________________________________
(1)
Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.

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Operating Properties
The operating properties portfolio is comprised of commercial and residential properties which represent a diverse pool of assets across a broad range of geographies and property types. The Company generally seeks to reposition or redevelop its transitional properties with the objective of maximizing their value through the infusion of capital and/or intensive asset management efforts. The commercial properties within this portfolio include office, retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects located in major U.S. cities where the Company's strategy is to sell individual condominium units through retail distribution channels.
The Company's operating properties portfolio included the following ($ in thousands):
 
 
Commercial
 
Residential
 
 
As of December 31,
 
As of December 31,
 
 
2016
 
2015
 
2016
 
2015
Real estate, at cost
 
$
522,337

 
$
560,646

 
$

 
$

Less: accumulated depreciation
 
(46,175
)
 
(79,142
)
 

 

Real estate, net
 
$
476,162

 
$
481,504

 
$

 
$

Real estate available and held for sale
 

 

 
82,480

 
137,274

Other investments
 
3,577

 
11,120

 
6

 
4

Total portfolio assets
 
$
479,739

 
$
492,624

 
$
82,486

 
$
137,278

Commercial Properties
Summary of Portfolio Characteristics—As of December 31, 2016, commercial properties within the operating properties portfolio included 19 facilities, encompassing 2.9 million square feet located in 8 states. Commercial properties include office, industrial and retail buildings along with hotels and marinas. The Company’s commercial properties were primarily acquired through foreclosure or deed in lieu of foreclosure in connection with the resolution of loans.
The Company classifies commercial properties as either stabilized or transitional. In determining whether a commercial property is stabilized or transitional, the Company analyzes certain performance metrics, primarily occupancy and yield. Stabilized commercial properties generally have occupancy levels above 80% and/or generate yields resulting in a sufficient return based upon the properties’ risk profiles. Transitional commercial properties are generally those properties that do not meet these criteria. As of December 31, 2016, stabilized commercial properties had a total carrying value of $337.2 million, or 64% of the portfolio, were 86% leased and generated an unleveraged weighted average effective yield of 8.5% on gross carrying value for the three months ended December 31, 2016. As of December 31, 2016, transitional commercial properties had a total carrying value of $189.0 million, or 36% of the portfolio, were 54% leased and generated an unleveraged weighted average effective yield of 1.5% on gross carrying value for the three months ended December 31, 2016.
Portfolio Activity—During the year ended December 31, 2016, the Company sold commercial operating properties for net proceeds of $229.1 million resulting in gains of $49.3 million (see Item 8 —"Financial Statements and Supplemental Data—Note 4" for further details). In addition, the Company received $51.2 million of distributions from its commercial operating property equity method investments. The Company also invested $39.4 million in its commercial operating properties and made contributions of $2.2 million to its commercial operating property equity method investments.

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As of December 31, 2016, lease expirations on commercial properties, excluding hotels, marinas and other investments, within the operating properties portfolio were as follows ($ in thousands):
Year of Lease Expiration
 
Number of
Leases
Expiring
 
Annualized In-Place
Operating
Lease Income
 
% of In-Place
Operating
Lease Income
 
% of Total
Revenue
(1)
 
Square Feet of Leases Expiring (in thousands)
2017(2)
 
147

 
$
5,263

 
13.2
%
 
1.2
%
 
290
2018
 
33

 
2,735

 
6.9
%
 
0.6
%
 
274
2019
 
41

 
2,805

 
7.1
%
 
0.7
%
 
109
2020
 
35

 
2,349

 
5.9
%
 
0.5
%
 
95
2021
 
27

 
9,685

 
24.4
%
 
2.3
%
 
87
2022
 
25

 
1,817

 
4.6
%
 
0.4
%
 
72
2023
 
7

 
1,158

 
2.9
%
 
0.3
%
 
62
2024
 
10

 
1,523

 
3.8
%
 
0.4
%
 
145
2025
 
9

 
1,938

 
4.9
%
 
0.5
%
 
63
2026
 
12

 
2,245

 
5.6
%
 
0.5
%
 
413
2027 and thereafter
 
33

 
8,233

 
20.7
%
 
1.9
%
 
235
Total
 
379

 
$
39,751

 
100.0
%
 
9.3
%
 
 
Weighted average remaining lease term (in years)
 
5.8

 
 
 
 

 
 

 
 
_______________________________________________________________________________
(1)
Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.
(2)
Includes office leases expiring in commercial properties as well as month-to-month and short term license agreements within our retail properties.
Residential Properties
Summary of Portfolio Characteristics—As of December 31, 2016, residential properties within the operating properties portfolio included 8 residential projects with 61 units located within luxury condominium projects in major cities throughout the United States.
Portfolio Activity—During the year ended December 31, 2016, the Company sold 209 residential condominiums (including fractional units) for net proceeds of $96.9 million resulting in gains of $26.1 million. During the same period, the Company invested $26.5 million of capital expenditures. The Company also acquired two residential condominium units for $1.8 million that are held for sale and had no operations as of December 31, 2016.
Land and Development
The Company's land and development portfolio included the following ($ in thousands):
 
 
As of December 31,
 
 
2016
 
2015
Land and development, net
 
$
945,565

 
$
1,001,963

Other investments
 
84,804

 
100,419

Total
 
$
1,030,369

 
$
1,102,382

Summary of Portfolio Characteristics—As of December 31, 2016, the Company's land and development portfolio included 31 properties, comprised of 10 master planned community ("MPC") projects, 15 infill land parcels and six waterfront land parcels located throughout the United States. MPCs represent large-scale residential projects that the Company has and/or will entitle, plan and/or develop and may sell through retail channels to home builders or in bulk. The remainder of the Company’s land includes infill and waterfront parcels located in and around major cities that the Company will develop, sell to or partner with commercial real estate developers. Waterfront parcels are generally entitled for residential projects and urban infill parcels are generally entitled for mixed-use projects.
Portfolio Activity—Revenue from the Company's land and development portfolio consists primarily of lot and parcel sales from wholly-owned properties, recorded in "Land development revenue," as well as the Company's share of earnings from unconsolidated entities in which the Company holds an interest, which is recorded in "Earnings from equity method investments,"

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both in the Company's consolidated statements of operations. During the year ended December 31, 2016, the Company recognized revenue and cost of sales of $88.3 million and $62.0 million, respectively, from its land and development portfolio. The Company also recognized earnings from equity method investments of $30.0 million during 2016 for unconsolidated land and development investments. In addition, during the year ended December 31, 2016, the Company sold a land and development asset to a newly formed unconsolidated entity in which the Company owns a 50.0% equity interest and recognized a gain of $8.8 million, reflecting the Company's share of the interest sold to a third party, which was recorded as "Income from sales of real estate" in the Company's consolidated statement of operations (refer to Note 5 in the Company's consolidated financial statements for further details). Also, during the year ended December 31, 2016, the Company invested $135.9 million in its land and development portfolio.
As of December 31, 2016, the Company had eight land and development projects in production, nine in development and 14 in the pre-development phase. The Company's land and development projects that contributed to revenues during the year ended December 31, 2016 are listed below ($ in thousands):
Project
 
Property Type
 
Location
 
Anticipated Sales Completion Date(1)
 
2016 Revenue
 
Units Sold in 2016(2)
 
Cumulative Units Sold
 
Estimated Remaining Units(2)
Land and development
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Great Oaks
 
Infill/Mixed Use
 
San Jose, CA
 
2017
 
$
21,545

 
N/A(3)

 
N/A(3)

 
720

Sage Scottsdale
 
Infill/Mixed Use
 
Scottsdale, AZ
 
2017
 
16,052

 
30

 
49

 
23

Magnolia Green
 
MPC
 
Richmond, VA
 
2026
 
12,792

 
177

 
789

 
2,257

Naples Reserve
 
MPC
 
Naples, FL
 
2022
 
12,260

 
92

 
160

 
949

Heath at Tetherow
 
MPC
 
Bend, OR
 
2018
 
10,375

 
53

 
125

 
34

Coney Island
 
Waterfront
 
Brooklyn, NY
 
2021
 
8,316

 
N/A(4)

 
N/A(4)

 

1210 California Circle
 
Infill/
Mixed Use
 
Milpitas, CA
 
N/A(5)
 
7,000

 
N/A(5)

 
N/A(5)

 

Total land and development
 
 
 
 
 
88,340

 
352

 
1,123

 
3,983

Land and development equity method investments
 
 
 
Equity in Earnings
 
Units Sold in 2016(2)
 
Cumulative Units Sold
 
Estimated Remaining Units(2)
Marina Palms(6)(7)
 
Waterfront
 
N. Miami Beach, FL
 
2017
 
22,053

 
63

 
233

 
235

Spring Mountain Ranch Phase 1(6)
 
MPC
 
Riverside, CA
 
2017
 
(306
)
 
183

 
383

 
52

Total land and development equity method investments
 
 
 
21,747

 
246

 
616

 
287

Total Land and Development Projects Contributing to Earnings
 
$
110,087

 
598

 
1,739

 
4,270

_______________________________________________________________________________
(1)
Anticipated completion dates are subject to change as a result of factors that may be outside of the Company's control, such as economic conditions, uncertainty with rezoning, obtaining governmental permits and approvals, concerns of community associations and reliance on third party contractors.
(2)
Units sold in 2016 excludes land bulk parcel sales. Estimated remaining units may include single-family lots, condos, multifamily rental units and hotel keys, as applicable, for the respective properties and are subject to change.
(3)
In 2016, the Company sold two land parcels for land development revenue of $21.5 million.
(4)
In September 2016, the Company sold a land parcel to affordable housing developers and recognized $8.3 million of land development revenue.
(5)
In 2015, the Company sold a 9-acre infill parcel at 1210 California Circle in Milpitas, CA to a national homebuilder. The Company recorded additional land development revenue of $7.0 million in 2016 upon the satisfaction of certain easement agreements.
(6)
These land and development projects are accounted for under the equity method of accounting.
(7)
Sales activity is the result of percentage of completion accounting at the joint venture, 63 closed units and contracts on unsold units as of December 31, 2016.

Great Oaks
Great Oaks is a mixed-use development site re-entitled to include a mix of 720 residential units, big box retail, and industrial/office uses on approximately 73 acres. The Company sold the 11 acre office/industrial site in May 2016 and the 15 acre retail site in September 2016. The Company recorded $21.5 million of land development revenue during the year ended December 31, 2016. The Company did not recognize any land development revenue during the year ended December 31, 2015.

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Sage Scottsdale
Sage Scottsdale is an infill development project in Scottsdale, AZ comprised of 72 two- and three-bedroom condominiums. The community is located next to the waterfront canal and Old Town Scottsdale and provides residents with a wide array of luxury amenities such as a resort pool, clubhouse, fitness room and wine cellar / tasting room.
Sales at Sage Scottsdale commenced in 2015 and the project sold 30 condominiums for $16.1 million of land development revenue during the year ended December 31, 2016 and 19 condominiums for $10.0 million of land development revenue during the year ended December 31, 2015.
Magnolia Green
Magnolia Green is a 3,500 unit multi-generational master planned community just outside of Richmond, Virginia with distinct phases designed for people in different life stages, from first home buyers to empty nesters. Built on nearly 1,900 acres, Magnolia Green is a community with home designs from the area's top builders. The community’s amenity package features an 18-hole Jack Nicklaus designed golf course and a full-service golf clubhouse, aquatic center and tennis facility which are under construction.
Magnolia Green sold 177 residential lots for $12.8 million of land development revenue during the year ended December 31, 2016 and 146 residential lots for $9.9 million of land development revenue during the year ended December 31, 2015.
Naples Reserve
Naples Reserve is a water-themed master planned community in Naples, FL built on 688 acres. The project comprises 1,100 lakefront residences across 22 interconnected lakes, including a 125-acre navigable recreation lake and adjacent resort-style amenity center as its centerpiece. The community also includes a neighborhood, Parrot Cay, designated for custom homes constructed by local builders in the Naples Market.
Naples Reserve sold 92 residential lots for $12.3 million of land development revenue during the year ended December 31, 2016 and 68 residential lots for $7.7 million of land development revenue during the year ended December 31, 2015.
Heath at Tetherow
Tetherow is a 700-acre master planned community located in Bend, OR entitled for 378 residential lots, of which the Company originally acquired 159 lots within the Heath neighborhood. Bend has access to a wide array of recreational activities such as Mount Bachelor and the Cascade Mountains for skiing and hiking, as well as the Deschutes River for kayaking and fishing. In addition, the community’s lodge was named “World’s #1 Resort” on Booking.com and its golf course was ranked among Golf Digest’s “Top 100 Greatest Public Courses.”
Heath at Tetherow sold 53 residential lots for $10.4 million of land development revenue during the year ended December 31, 2016 and 19 residential lots for $4.8 million of land development revenue during the year ended December 31, 2015.
Coney Island
Coney Island is a waterfront development consisting of a 180,000 square foot land parcel adjoining the Coney Island Riegelmann Boardwalk. The site area was rezoned in 2009 to allow for a mixed-use residential development and the floor area ratio was increased, resulting in approximately one million developable square feet. In September 2016, the Company sold a parcel to affordable housing developers and recognized $8.3 million of land development revenue during the year ended December 31, 2016. The Company did not recognize any land development revenue during the year ended December 31, 2015.
Marina Palms
Marina Palms is a waterfront development in North Miami Beach, FL consisting of 468 residential condominium units within two towers and a 110-slip full-service marina. It is the first luxury condominium and yacht club project in Miami in two decades. Situated on 14 acres and over 750 feet of waterfront, Marina Palms offers views over the Intracoastal Waterway and beyond to the Atlantic Ocean. The Company has partnered with local developers for the development of Marina Palms and contributed its land in return for a 47.5% interest in the venture.
As of December 31, 2016, the 234 unit north tower has one unit remaining for sale and the 234 unit south tower is 83% pre-sold (based on unit count). During the years ended December 31, 2016 and 2015, the Company recognized $22.1 million and $23.6 million, respectively, of earnings from equity method investments at the project.

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Spring Mountain Ranch - Phase 1
Spring Mountain Ranch is a 785-acre master planned community located four miles from Riverside, CA. Spring Mountain Ranch offers convenient freeway access and proximity to local job centers. The community plan includes a total of 1,400 homes across several neighborhoods, designed with an emphasis on outdoor recreation. In late 2013, the Company contributed a portion of its land and entered into a joint venture with a national homebuilder to jointly develop residential lots in the first phase of the project, which is comprised of 435 homes. Homes are marketed towards first time, move up and empty nester purchasers. The Company owns a noncontrolling 75.6% interest in the first phase of Spring Mountain Ranch. The remaining phases of Spring Mountain Ranch are wholly owned by the Company.
The first phase of Spring Mountain Ranch sold 183 lots during the year ended December 31, 2016 and 140 lots during the year ended December 31, 2015. During the years ended December 31, 2016 and 2015, the Company recognized $0.3 million and $4.2 million, respectively, of losses from equity method investments at the project. Included in the loss for the year ended December 31, 2015 was an impairment of $4.3 million based on additional costs at the project associated with newly-imposed water regulations implemented by the State of California.
Policies with Respect to Other Activities
The Company's investment, financing and corporate governance policies (including conflicts of interests policies) are managed under the ultimate supervision of the Company's Board of Directors. The Company can amend, revise or eliminate these policies at any time without a vote of its shareholders. The Company intends to originate and manage investments in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code") for the Company to qualify as a REIT.
Investment Restrictions or Limitations
The Company does not have any prescribed allocation among investments or product lines. Instead, the Company focuses on corporate and real estate credit underwriting to develop an analysis of the risk/reward trade-offs in determining the pricing and advisability of each particular transaction.
The Company believes that it is not, and intends to conduct its operations so as not to become, regulated as an investment company under the Investment Company Act. The Investment Company Act generally exempts entities that are "primarily engaged in purchasing or otherwise acquiring mortgages and other liens on and interests in real estate" (collectively, "Qualifying Interests"). The Company intends to rely on current interpretations of the Securities and Exchange Commission in an effort to qualify for this exemption. Based on these interpretations, the Company, among other things, must maintain at least 55% of its assets in Qualifying Interests and at least 25% of its assets in real estate-related assets (subject to reduction to the extent the Company invests more than 55% of its assets in Qualifying Interests). The Company's senior mortgages, real estate assets and certain of its subordinated mortgages generally constitute Qualifying Interests. Subject to the limitations on ownership of certain types of assets and the gross income tests imposed by the Code, the Company also may invest in the securities of other REITs, other entities engaged in real estate activities or other issuers, including for the purpose of exercising control over such entities.
Competition
The Company operates in a competitive market. See Item 1a—Risk factors—"We compete with a variety of financing and leasing sources for our customers," for a discussion of how we may be affected by competition.
Regulation
The operations of the Company are subject, in certain instances, to supervision and regulation by state and federal governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things: (1) regulate credit granting activities; (2) establish maximum interest rates, finance charges and other charges; (3) require disclosures to customers; (4) govern secured transactions; (5) set collection, foreclosure, repossession and claims-handling procedures and other trade practices; (6) govern privacy of customer information; and (7) regulate anti-terror and anti-money laundering activities. Although most states do not regulate commercial finance, certain states impose limitations on interest rates and other charges and on certain collection practices and creditor remedies, and require licensing of lenders and financiers and adequate disclosure of certain contract terms. The Company is also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans.
In the judgment of management, existing statutes and regulations have not had a material adverse effect on the business conducted by the Company. It is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon the future business, financial condition or results of operations or prospects of the Company.

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The Company has elected and expects to continue to qualify to be taxed as a REIT under Section 856 through 860 of the Code. As a REIT, the Company must generally distribute at least 90% of its net taxable income, excluding capital gains, to its shareholders each year. In addition, the Company must distribute 100% of its net taxable income (including net capital gains) each year to eliminate corporate federal income taxes payable by the REIT. REITs are also subject to a number of organizational and operational requirements in order to elect and maintain REIT qualification. These requirements include specific share ownership tests and asset and gross income tests. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its net taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to state and local taxes and to federal income tax and excise tax on its undistributed income.
Code of Conduct
The Company has adopted a code of conduct that sets forth the principles of conduct and ethics to be followed by our directors, officers and employees (the "Code of Conduct"). The purpose of the Code of Conduct is to promote honest and ethical conduct, compliance with applicable governmental rules and regulations, full, fair, accurate, timely and understandable disclosure in periodic reports, prompt internal reporting of violations of the Code of Conduct and a culture of honesty and accountability. A copy of the Code of Conduct has been provided to each of our directors, officers and employees, who are required to acknowledge that they have received and will comply with the Code of Conduct. A copy of the Company's Code of Conduct has been previously filed with the SEC and is incorporated by reference in this Annual Report on Form 10-K as Exhibit 14.0. The Code of Conduct is also available on the Company's website at www.istar.com. The Company will disclose to shareholders material changes to its Code of Conduct, or any waivers for directors or executive officers, if any, within four business days of any such event. As of December 31, 2016, there have been no amendments to the Code of Conduct and the Company has not granted any waivers from any provision of the Code of Conduct to any directors or executive officers.
Employees
As of February 19, 2017, the Company had 193 employees and believes it has good relationships with its employees. The Company's employees are not represented by any collective bargaining agreements.
Other
In addition to this Annual Report on Form 10-K, the Company files quarterly and special reports, proxy statements and other information with the SEC. Through the Company's corporate website, www.istar.com, the Company makes available free of charge its annual proxy statement, annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. You may also read and copy any document filed at the public reference facilities at 100 F Street, N.E., Washington, D.C. 25049. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC's electronic data gathering, analysis and retrieval system via electronic means, including on the SEC's homepage, which can be found at www.sec.gov.
Item 1a.    Risk Factors
In addition to the other information in this report, you should consider carefully the following risk factors in evaluating an investment in the Company's securities. Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows and market price of the Company's common stock. The risks set forth below speak only as of the date of this report and the Company disclaims any duty to update them except as required by law. For purposes of these risk factors, the terms "our Company," "we," "our" and "us" refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise.
Risks Related to Our Business
Changes in general economic conditions may adversely affect our business.
Our success is generally dependent upon economic conditions in the United States, and in particular, the geographic areas in which our investments are located. Substantially all businesses, including ours, were negatively affected by the previous economic recession and resulting illiquidity and volatility in the credit and commercial real estate markets. The commercial real estate and credit markets remain volatile and it is not possible for us to predict whether these trends will continue in the future or quantify the impact of these or other trends on our financial results. Deterioration in economic trends could have a material adverse effect on our financial performance, liquidity and our ability to meet our debt obligations.

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Our credit ratings will impact our borrowing costs.
Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. Our unsecured corporate credit ratings from major national credit rating agencies are currently below investment grade. Having below investment grade credit ratings increases our borrowing costs and caused restrictive covenants in our public debt instruments to become operative. These restrictive covenants are described below in "Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition." These factors have adversely impacted our financial performance and will continue to do so unless our credit ratings improve.
Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.
Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness of at least 1.2x and a restriction on debt incurrence based upon the effect of the debt incurrence on our fixed charge coverage ratio. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders. Limitations on our ability to incur new indebtedness under the fixed charge coverage ratio may limit the amount of new investments we make.
In March 2015, we entered into a secured revolving credit facility with a maximum capacity of $250.0 million (our "2015 Secured Revolving Credit Facility"). In June 2016, we entered into a senior secured credit facility with a maximum capacity of $450.0 million and in August 2016 we upsized the facility to $500.0 million (our "2016 Senior Secured Credit Facility"). Our 2015 Secured Revolving Credit Facility and our 2016 Senior Secured 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, our 2016 Senior Secured Credit Facility requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility and our 2015 Secured Revolving Credit Facility requires us to maintain both collateral coverage of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. In addition, for so long as we maintain our qualification as a REIT, our 2016 Senior Secured Credit Facility and 2015 Secured Revolving Credit Facility permit us to distribute 100% of our REIT taxable income on an annual basis (prior to deducting certain cumulative net operating loss carryforwards). We may not pay common dividends if the Company ceases to qualify as a REIT.
Our 2016 Senior Secured Credit Facility and 2015 Secured Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate our indebtedness to them if we fail to pay amounts due in respect of our other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing our unsecured public debt securities permit the bondholders to declare an event of default and accelerate our indebtedness to them if our other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated. A default by us on our indebtedness would have a material adverse effect on our business, liquidity and the market price of our common stock.
We have significant indebtedness and funding commitments and limitations on our liquidity and ability to raise capital may adversely affect us.
Sufficient liquidity is critical to our ability to grow, the management of our balance sheet and our ability to meet our scheduled debt payments and our funding commitments to borrowers. We have relied on proceeds from the issuance of unsecured debt, secured borrowings, repayments from our loan assets and proceeds from asset sales to fund our operations and meet our debt maturities, and we expect to continue to rely primarily on these sources of liquidity for the foreseeable future. We have $924.7 million of indebtedness maturing in 2017. While we had access to various sources of capital in 2016, our ability to access capital in 2017 and beyond will be subject to a number of factors, many of which are outside of our control, such as general economic conditions, changes in interest rates and conditions prevailing in the credit and real estate markets. There can be no assurance that we will have access to liquidity when needed or on terms that are acceptable to us. We may also encounter difficulty in selling assets or executing capital raising strategies on acceptable terms in a timely manner, which could impact our ability to make scheduled repayments on our outstanding debt. Failure to repay or refinance our borrowings as they come due would be an event of default under the relevant debt instruments, which could result in a cross default and acceleration of our other outstanding debt obligations. Failure to meet funding commitments could cause us to be in default of our financing commitments to borrowers. Any of the foregoing could have a material adverse effect on our business, liquidity and the market price of our common stock.
We may utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks.
The derivative instruments we may use are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts. Interest rate swaps effectively change variable-rate debt obligations to fixed-rate debt obligations or fixed-rate debt

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obligations to variable-rate debt obligations. Interest rate caps limit our exposure to rising interest rates. Foreign exchange contracts limit or offset our exposure to changes in currency rates in respect of certain investments denominated in foreign currencies.
Our use of derivative instruments also involves the risk that a counterparty to a hedging arrangement could default on its obligation and the risk that we may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement is terminated by us. As a matter of policy, we enter into hedging arrangements with counterparties that are large, creditworthy financial institutions typically rated at least "A/A2" by S&P and Moody's, respectively.
Developing an effective strategy for dealing with movements in interest rates and foreign currencies is complex and no strategy can completely insulate us from risks associated with such fluctuations. There can be no assurance that any hedging activities will have the desired beneficial impact on our results of operations or financial condition.
Significant increases in interest rates could have an adverse effect on our operating results.
Our operating results 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 interest earning assets and interest bearing liabilities subject to the impact of interest rate floors and caps, as well as the amounts of floating rate assets and liabilities. Any significant compression of the spreads between interest earning assets and interest bearing liabilities could have a material adverse effect on us. While interest rates remain low by historical standards, rates have recently risen and are generally expected to rise in the coming years, although there is no certainty as to the amount by which they may rise. In the event of a significant rising interest rate environment, rates could exceed the interest rate floors that exist on certain of our floating rate debt and create a mismatch between our floating rate loans and our floating rate debt that could have a significant adverse effect on our operating results. An increase in interest rates could also, 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. In addition, rising interest rates tend to negatively impact the residential mortgage market, which in turn may adversely affect the value of and demand for our land assets, including our residential development projects. 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 are required to make a number of judgments in applying accounting policies, and different estimates and assumptions could result in changes to our financial condition and results of operations.
Material estimates that are particularly susceptible to significant change underlie our determination of the reserve for loan losses, which is based primarily on the estimated fair value of loan collateral, as well as the valuation of real estate assets and deferred tax assets. While we have identified those accounting policies that are considered critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these policies could have a material adverse effect on our financial performance and results of operations and actual results may differ materially from our estimates.
Changes in accounting rules will affect our financial reporting.
The Financial Accounting Standards Board ("FASB") has issued new accounting standards that will affect our financial reporting.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity. This amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Management does not believe the guidance will have a material impact on the Company's consolidated financial statements.
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. For operating lease arrangements for which the Company is the lessee, primarily the lease of office space, the Company expects the impact of ASU 2016-02 to be the recognition of a right-of-use asset and lease liability on its consolidated balance sheets. The accounting applied by the Company as a lessor will be largely unchanged from that applied under previous GAAP. However, in certain instances, a new long-term lease of land subsequent to adoption could be classified as a sales-type lease, which

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could result in the Company derecognizing the underlying asset from its books and recording a profit or loss on sale and the net investment in the lease. 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 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. Although most of the Company's revenue is operating lease income generated from lease contracts and interest income generated from financial instruments, certain other of the Company's revenue streams will be impacted by 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.
Changes in accounting standards could affect the comparability of our reported results with prior periods and our ability to comply with financial covenants under our debt instruments. We may also need to change our accounting systems and processes to enable us to comply with the new standards, which may be costly.
For additional information regarding new accounting standards, refer to Note 3 to our consolidated financial statements under the heading "New accounting pronouncements."
Our reserves for loan losses may prove inadequate, which could have a material adverse effect on our financial results.
We maintain loan loss reserves to offset potential future losses. Our general loan loss reserve reflects management's then-current estimation of the probability and severity of losses within our portfolio. In addition, our determination of asset-specific loan loss reserves relies on material estimates regarding the fair value of loan collateral. Estimation of ultimate loan losses, provision expenses and loss reserves is a complex and subjective process. As such, there can be no assurance that management's judgment will prove to be correct and that reserves will be adequate over time to protect against potential future losses. Such losses could be caused by factors including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting specific assets, borrowers, industries in which our borrowers operate or markets in which our borrowers or their properties are located. In particular, during the previous financial crisis, the weak economy and disruption of the credit markets adversely impacted the ability and willingness of many of our borrowers to service their debt and refinance our loans to them at maturity. If our reserves for credit losses prove inadequate we may suffer additional losses which would have a material adverse effect on our financial performance, liquidity and the market price of our common stock.
We have suffered losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may suffer additional losses in the future.
We have suffered losses arising from borrower defaults on our loan assets and we may suffer additional losses in the future. In the event of a default by a borrower on a non-recourse loan, we will only have recourse to the real estate-related assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. Conversely, we sometimes make loans that are unsecured or are secured only by equity interests in the borrowing entities. These loans are subject to the risk that other lenders may be directly secured by the real estate assets of the borrower. In the event of a default, those collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying real estate. In cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the borrower prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.
We sometimes obtain individual or corporate guarantees from borrowers or their affiliates. In cases where guarantees are not fully or partially secured, we typically rely on financial covenants from borrowers and guarantors which are designed to require the borrower or guarantor to maintain certain levels of creditworthiness. Where we do not have recourse to specific collateral pledged to satisfy such guarantees or recourse loans, or where the value of the collateral proves insufficient, we will only have recourse as an unsecured creditor to the general assets of the borrower or guarantor, some or all of which may be pledged to satisfy other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants, or that sufficient assets will be available to pay amounts owed to us under our loans and guarantees. As a result of these factors, we may suffer additional losses which could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

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In the event of a borrower bankruptcy, we may not have full recourse to the assets of the borrower in order to satisfy our loan. In addition, certain of our loans are subordinate to other debts of the borrower. If a borrower defaults on our loan or on debt senior to our loan, or in the event of a borrower bankruptcy, our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through "standstill" periods) and control decisions made in bankruptcy proceedings relating to borrowers. Bankruptcy and borrower litigation can significantly increase collection costs and losses and the time necessary to acquire title to the underlying collateral, during which time the collateral may decline in value, causing us to suffer additional losses.
If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a borrower may not be able to obtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a borrower's ability to refinance our loan because the underlying property cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer additional loss which may adversely impact our financial performance.
We are subject to additional risks associated with loan participations.
Some of our loans are participation interests or co-lender arrangements in which we share the rights, obligations and benefits of the loan with other lenders. We may need the consent of these parties to exercise our rights under such loans, including rights with respect to amendment of loan documentation, enforcement proceedings in the event of default and the institution of, and control over, foreclosure proceedings. Similarly, a majority of the participants may be able to take actions to which we object but to which we will be bound if our participation interest represents a minority interest. We may be adversely affected by this lack of full control.
We are subject to additional risk associated with owning and developing real estate.
We own a number of assets that previously served as collateral on defaulted loans. These assets are predominantly land and development assets and operating properties. These assets expose us to additional risks, including, without limitation:
We must incur costs to carry these assets and in some cases make repairs to defects in construction, make improvements to, or complete the assets, which requires additional liquidity and results in additional expenses that could exceed our original estimates and impact our operating results.
Real estate projects are not liquid and, to the extent we need to raise liquidity through asset sales, we may be limited in our ability to sell these assets in a short-time frame.
Uncertainty associated with economic conditions, rezoning, obtaining governmental permits and approvals, concerns of community associations, reliance on third party contractors, increasing commodity costs and threatened or pending litigation may materially delay our completion of rehabilitation and development activities and materially increase their cost to us.
The values of our real estate investments are subject to a number of factors outside of our control, including changes in the general economic climate, changes in interest rates and the availability of attractive financing, over-building or decreasing demand in the markets where we own assets, and changes in law and governmental regulations.

The residential market has experienced significant downturns that could recur and adversely affect us.
As of December 31, 2016, we owned land and residential condominiums with a net carrying value of $1.1 billion. The housing market in the United States has previously been affected by weakness in the economy, high unemployment levels and low consumer confidence. It is possible another downturn could occur again in the near future and adversely impact our portfolio, and accordingly our financial performance. In addition, rising interest rates tend to negatively impact the residential mortgage market, which in turn may adversely affect the value of and demand for our land assets including our residential development projects.
We may experience losses if the creditworthiness of our tenants deteriorates and they are unable to meet their lease obligations.
We own properties leased to tenants of our real estate assets and receive rents from tenants during the contracted term of such leases. A tenant's ability to pay rent is determined by its creditworthiness, among other factors. If a tenant's credit deteriorates, the tenant may default on its obligations under our lease and may also become bankrupt. The bankruptcy or insolvency of our tenants or other failure to pay is likely to adversely affect the income produced by our real estate assets. If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy, we may not be able to evict the tenant solely because of such bankruptcy or failure to pay. A court, however, may authorize a tenant to reject and terminate its lease with us. In such a case, our claim against the tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. In addition, certain amounts paid to us within

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90 days prior to the tenant's bankruptcy filing could be required to be returned to the tenant's bankruptcy estate. In any event, it is highly unlikely that a bankrupt or insolvent tenant would pay in full amounts it owes us under a lease that it intends to reject. In other circumstances, where a tenant's financial condition has become impaired, we may agree to partially or wholly terminate the lease in advance of the termination date in consideration for a lease termination fee that is likely less than the total contractual rental amount. Without regard to the manner in which the lease termination occurs, we are likely to incur additional costs in the form of tenant improvements and leasing commissions in our efforts to lease the space to a new tenant. In any of the foregoing circumstances, our financial performance could be materially adversely affected.
We are subject to risks relating to our asset concentration.
Our portfolio consists primarily of real estate and commercial real estate loans which are generally diversified by asset type, obligor, property type and geographic location. As of December 31, 2016, approximately 22% of the gross carrying value of our assets related to land and development properties, 23% related to office properties, 12% related to hotel properties and 11% related to entertainment/leisure collateral properties. All of these property types were adversely affected by the previous economic recession. In addition, as of December 31, 2016, approximately 31% of the carrying value of our assets related to properties located in the northeastern United States (including 19% in New York), 17% related to properties located in the western United States (including 13% in California), 14% related to properties located in the southeastern United States, 13% related to properties located in the mid-Atlantic United States and 11% related to properties located in the southwestern United States. These regions include areas that were particularly hard hit by the prior downturn in the residential real estate markets. In addition, we have $18 million of international assets, which are subject to increased risks due to the economic uncertainty abroad. We may suffer additional losses on our assets due to these concentrations.
We underwrite the credit of prospective borrowers and tenants and often require them to provide some form of credit support such as corporate guarantees, letters of credit and/or cash security deposits. Although our loans and real estate assets are geographically diverse and the borrowers and tenants operate in a variety of industries, to the extent we have a significant concentration of interest or operating lease revenues from any single borrower or customer, the inability of that borrower or tenant to make its payment could have a material adverse effect on us. As of December 31, 2016, our five largest borrowers or tenants of net lease assets collectively accounted for approximately 18.4% of our 2016 revenues, of which no single customer accounts for more than 5.9%.
Lease expirations, lease defaults and lease terminations may adversely affect our revenue.
Lease expirations and lease terminations may result in reduced revenues if the lease payments received from replacement tenants are less than the lease payments received from the expiring or terminating corporate tenants. In addition, lease defaults or lease terminations by one or more significant tenants or the failure of tenants under expiring leases to elect to renew their leases could cause us to experience long periods of vacancy with no revenue from a facility and to incur substantial capital expenditures and/or lease concessions in order to obtain replacement tenants. Leases representing approximately 22.4% of our in-place operating lease income are scheduled to expire during the next five years.
We compete with a variety of financing and leasing sources for our customers.
The financial services industry and commercial real estate markets are highly competitive. Our competitors include finance companies, other REITs, commercial banks and thrift institutions, investment banks and hedge funds. Our competitors seek to compete aggressively on the basis of a number of factors including transaction pricing, terms and structure. We may have difficulty competing to the extent we are unwilling to match our competitors' deal terms in order to maintain our interest margins and/or credit standards. To the extent that we match competitors' pricing, terms or structure, we may experience decreased interest margins and/or increased risk of credit losses, which could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.
We face significant competition within our net leasing business from other owners, operators and developers of properties, many of which own properties similar to ours in markets where we operate. Such competition may affect our ability to attract and retain tenants and reduce the rents we are able to charge. These competing properties may have vacancy rates higher than our properties, which may result in their owners offering lower rental rates than we would or providing greater tenant improvement allowances or other leasing concessions. This combination of circumstances could adversely affect our revenues and financial performance.
We are subject to certain risks associated with investing in real estate, including potential liabilities under environmental laws and risks of loss from weather conditions, man-made or natural disasters, climate change and terrorism.

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Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real estate (including, in certain circumstances, a secured lender that succeeds to ownership or control of a property) may become liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, under or in its property. Those laws typically impose cleanup responsibility and liability without regard to whether the owner or control party knew of or was responsible for the release or presence of such hazardous or toxic substances. The costs of investigation, remediation or removal of those substances may be substantial. The owner or control party of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners of real properties for personal injuries associated with asbestos-containing materials. While a secured lender is not likely to be subject to these forms of environmental liability, when we foreclose on real property, we become an owner and are subject to the risks of environmental liability. Additionally, our net lease assets require our tenants to undertake the obligation for environmental compliance and indemnify us from liability with respect thereto. There can be no assurance that our tenants will have sufficient resources to satisfy their obligations to us.
Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can damage properties we own. As of December 31, 2016, approximately 20% of the carrying value of our assets was located in the western and northwestern United States, geographic areas at higher risk for earthquakes. Additionally, we own properties located near the coastline and the value of our properties will potentially be subject to the risks associated with long-term effects of climate change. A significant number of our properties are located in major urban areas which, in recent years, have been high risk geographical areas for terrorism and threats of terrorism. Certain forms of terrorism including, but not limited to, nuclear, biological and chemical terrorism, political risks, environmental hazards and/or Acts of God may be deemed to fall completely outside the general coverage limits of our insurance policies or may be uninsurable or cost prohibitive to justify insuring against.  Furthermore, if the U.S. Terrorism Risk Insurance Program Reauthorization Act is repealed or not extended or renewed upon its expiration, the cost for terrorism insurance coverage may increase and/or the terms, conditions, exclusions, retentions, limits and sublimits of such insurance may be materially amended, and may effectively decrease the scope and availability of such insurance to the point where it is effectively unavailable. Future weather conditions, man-made or natural disasters, effects of climate change or acts of terrorism could adversely impact the demand for, and value of, our assets and could also directly impact the value of our assets through damage, destruction or loss, and could thereafter materially impact the availability or cost of insurance to protect against these events. Although we believe our owned real estate and the properties collateralizing our loan assets are adequately covered by insurance, we cannot predict at this time if we or our borrowers will be able to obtain appropriate coverage at a reasonable cost in the future, or if we will be able to continue to pass along all of the costs of insurance to our tenants. Any weather conditions, man-made or natural disasters, terrorist attack or effect of climate change, whether or not insured, could have a material adverse effect on our financial performance, liquidity and the market price of our common stock. In addition, there is a risk that one or more of our property insurers may not be able to fulfill their obligations with respect to claims payments due to a deterioration in its financial condition.
From time to time we make investments in companies over which we do not have sole control. Some of these companies operate in industries that differ from our current operations, with different risks than investing in real estate.
From time to time we make debt or equity investments in other companies that we may not control or over which we may not have sole control. Although these businesses generally have a significant real estate component, some of them may operate in businesses that are different from our primary business segments. Consequently, investments in these businesses, among other risks, subject us to the operating and financial risks of industries other than real estate and to the risk that we do not have sole control over the operations of these businesses.
From time to time we may make additional investments in or acquire other entities that may subject us to similar risks. Investments in entities over which we do not have sole control, including joint ventures, present additional risks such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing with those persons. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us.

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Declines in the market values of our equity investments may adversely affect periodic reported results.
Most of our equity investments are in funds or companies that are not publicly traded and their fair value may not be readily determinable. We may periodically estimate the fair value of these investments, based upon available information and management's judgment. Because such valuations are inherently uncertain, they may fluctuate over short periods of time. In addition, our determinations regarding the fair value of these investments may be materially higher than the values that we ultimately realize upon their disposal, which could result in losses that have a material adverse effect on our financial performance, the market price of our common stock and our ability to pay dividends.
Quarterly results may fluctuate and may not be indicative of future quarterly performance.
Our quarterly operating results could fluctuate; therefore, reliance should not be placed on past quarterly results as indicative of our performance in future quarters. Factors that could cause quarterly operating results to fluctuate include, among others, variations in loan and real estate portfolio performance, levels of non-performing assets and related provisions, market values of investments, costs associated with debt, general economic conditions, the state of the real estate and financial markets and the degree to which we encounter competition in our markets.
Our ability to retain and attract key personnel is critical to our success.
Our success depends on our ability to retain our senior management and the other key members of our management team and recruit additional qualified personnel. We rely in part on equity compensation to retain and incentivize our personnel. In addition, if members of our management join competitors or form competing companies, the competition could have a material adverse effect on our business. Efforts to retain or attract professionals may result in additional compensation expense, which could affect our financial performance.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations and the services we provide to customers, and damage our reputation, which could have a material adverse effect on our business.
We may change certain of our policies without stockholder approval.
Our charter does not set forth specific percentages of the types of investments we may make. We can amend, revise or eliminate our investment financing and conflict of interest policies at any time at our discretion without a vote of our shareholders. A change in these policies could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.
Certain provisions in our charter may inhibit a change in control.
Generally, to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year. The Code defines "individuals" for purposes of the requirement described in the preceding sentence to include some types of entities. Under our charter, no person may own more than 9.8% of our outstanding shares of stock, with some exceptions. The restrictions on transferability and ownership may delay, deter or prevent a change in control or other transaction that might involve a premium price or otherwise be in the best interest of the security holders.
We would be subject to adverse consequences if we fail to qualify as a REIT.
We believe that we have been organized and operated in a manner so as to qualify for taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 1998. Our qualification as a REIT, however, has depended and will continue to depend on our ability to meet various requirements concerning, among other things, the ownership of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our shareholders.

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If we were to fail to qualify as a REIT for any taxable year, we would not be allowed a deduction for distributions to our shareholders in computing our net taxable income and would be subject to U.S. federal income tax, including any applicable alternative minimum tax on our net taxable income at regular corporate rates and applicable state and local taxes. We would also be disqualified from treatment as a REIT for the four subsequent taxable years following the year during which our REIT qualification was lost unless we were entitled to relief under certain Code provisions and obtained a ruling from the IRS. If disqualified and unable to obtain relief, we may need to borrow money or sell assets to pay taxes. As a result, cash available for distribution would be reduced for each of the years involved. Furthermore, it is possible that future economic, market, legal, tax or other considerations may cause our REIT qualification to be revoked. This could have a material adverse effect on our business and the market price of our common stock.
Our 2016 Senior Secured Credit Facility and 2015 Secured Revolving Credit Facility (see Item 8—"Financial Statements and Supplemental Data—Note 10") prohibit us from paying dividends on our common stock if we no longer qualify as a REIT.
To qualify as a REIT, we may be forced to borrow funds, sell assets or take other actions during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our shareholders at least 90% of our net taxable income, excluding net capital gains each year, and we will be subject to U.S. federal income tax, as well as applicable state and local taxes, to the extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
In the event that principal, premium or interest payments with respect to a particular debt instrument that we hold are not made when due, we may nonetheless be required to continue to recognize the unpaid amounts as taxable income. In addition, we may be allocated taxable income in excess of cash flow received from some of our partnership investments. From these and other potential timing differences between income recognition or expense deduction and cash receipts or disbursements, there is a significant risk that we may have substantial taxable income in excess of cash available for distribution. In order to qualify as a REIT and avoid the payment of income and excise taxes, we may need to borrow funds or take other actions to meet our REIT distribution requirements for the taxable year in which the phantom income is recognized.
Complying with the REIT requirements may cause us to forego and/or liquidate otherwise attractive investments.
In order to meet the income, asset and distribution tests under the REIT rules, we may be required to take or forego certain actions. For instance, we may not be able to make certain investments and we may have to liquidate other investments. In addition, we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.
Certain of our business activities may potentially be subject to the prohibited transaction tax, which could reduce the return on your investment.
For so long as we qualify as a REIT, our ability to dispose of certain properties may be restricted under the REIT rules, which generally impose a 100% penalty tax on any gain recognized on "prohibited transactions," which refers to the disposition of property that is deemed to be inventory or held primarily for sale to customers in the ordinary course of our business, subject to certain exceptions. Whether property is inventory or otherwise held primarily for sale depends on the particular facts and circumstances. The Internal Revenue Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited transaction. No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can comply with the safe harbor. The 100% tax does not apply to gains from the sale of foreclosure property or to property that is held through a taxable REIT subsidiary ("TRS") or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our activities to avoid prohibited transaction characterization.
Certain of our activities, including our use of taxable REIT subsidiaries, are subject to taxes that could reduce our cash flows.
Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some U.S. federal, state, local and non-U.S. taxes on our income and property, including taxes on any undistributed income, taxes on income from certain activities conducted as a result of foreclosures, and property and transfer taxes. We would be required to pay taxes on net taxable income that we fail to distribute to our shareholders. In addition, we may be required to limit certain activities that generate non-qualifying REIT income, such as land development and sales of condominiums, and/or we may be required to conduct such activities through TRS. We hold a significant amount of assets in our TRS, including assets that we have acquired through foreclosure, assets that may be treated as dealer property and other assets that could adversely affect our ability to qualify as a REIT if held at the REIT

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level. As a result, we will be required to pay income taxes on the taxable income generated by these assets. There are also limitations on the ability of TRS to make interest payments to affiliated REITs. Furthermore, we will be subject to a 100% penalty tax to the extent our economic arrangements with our TRS are not comparable to similar arrangements among unrelated parties. We will also be subject to a 100% tax to the extent we derive income from the sale of assets to customers in the ordinary course of business other than through our TRS. To the extent we or our TRS are required to pay U.S. federal, state, local or non-U.S. taxes, we will have less cash available for distribution to our shareholders.
We have substantial net operating and net capital loss carry forwards which we use to offset our tax and distribution requirements. In the event that we experience an "ownership change" for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, our ability to use these losses will be limited. An "ownership change" is determined through a set of complex rules which track the changes in ownership that occur in our common stock for a trailing three year period. We have experienced volatility and significant trading in our common stock in recent years. The occurrence of an ownership change is generally beyond our control and, if triggered, may increase our tax and distribution obligations for which we may not have sufficient cash flow.
A failure to comply with the limits on our ownership of and relationship with our TRS would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
No more than 25% (20% for taxable years beginning after December 31, 2017) of the value of a REIT's total assets may consist of stock or securities of one or more TRS. This requirement limits the extent to which we can conduct activities through TRS or expand the activities that we conduct through TRS. The values of some of our assets, including assets that we hold through TRSs may not be subject to precise determination, and values are subject to change in the future. In addition, we hold certain mortgage and mezzanine loans within one or more of our TRS that are secured by real property. We treat these loans as qualifying assets for purposes of the REIT asset tests to the extent that such mortgage loans are secured by real property and such mezzanine loans are secured by an interest in a limited liability company that holds real property. We received from the IRS a private letter ruling which holds we may exclude such loans from the limitation that securities from TRS must constitute no more than 25% (20% for taxable years beginning after December 31, 2017) of our total assets. We are entitled to rely upon this private letter ruling only to the extent that we did not misstate or omit a material fact in the ruling request and that we continue to operate in accordance with the material facts described in such request, and no assurance can be given that we will always be able to do so. To the extent that any loan is recharacterized as equity, it would increase the amount of non-real estate securities that we have in our TRS and could adversely affect our ability to meet the limitation described above. If we were not able to exclude such loans to our TRS from the limitation described above, our ability to meet the REIT asset tests and other REIT requirements could be adversely affected. Accordingly, there can be no assurance that we have met or will be able to continue to comply with the TRS limitation.
In addition, we may from time to time need to make distributions from a TRS in order to keep the value of our TRS below the TRS limitation. TRS dividends, however, generally will not constitute qualifying income for purposes of the 75% REIT gross income test. While we will monitor our compliance with both this income test and the limitation on the percentage of our total assets represented by TRS securities, and intend to conduct our affairs so as to comply with both, the two may at times be in conflict with one another. For example, it is possible that we may wish to distribute a dividend from a TRS in order to reduce the value of our TRS to comply with limitation, but we may be unable to do so without simultaneously violating the 75% REIT gross income test.
Although there are other measures we can take in such circumstances to remain in compliance with the requirements for REIT qualification, there can be no assurance that we will be able to comply with both of these tests in all market conditions.
Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common stock.
The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. shareholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced rates, and therefore may be subject to a 39.6% maximum U.S. federal income tax rate on ordinary income when paid to such shareholders. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
Potential changes to the U.S. tax laws could adversely affect our business operations, financial condition and earnings.

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The Trump administration has included as part of its agenda a potential reform of U.S. tax laws. The details of the potential reform have not yet emerged, but during his presidential campaign, President Trump outlined several changes to business taxes. In addition, House Republicans and Congress have drafted an initial tax reform (“Tax Reform Blueprint”) to significantly amend the current income tax code. The convergence of the President’s plan and the Tax Reform Blueprint’s potential reforms has not yet taken place, however, key changes within the proposals include:
Elective replacement of current depreciation deductions with a cost recovery system for capital asset investments (excluding land investments) in which buildings and equipment are immediately expensed;
Elimination of the deductibility of corporate net interest expense, if a cost recovery system is elected;
Restriction or elimination of benefits of like-kind exchanges that defer capital gains for tax purposes;
Elimination of the corporate alternative minimum tax;
Implementation of a one-time deemed repatriation tax rate of 10 percent on corporate profits held offshore;
Elimination of most corporate tax expenditures except for the Research and Development credit; and
Limitation on net operating loss deductions to 90 percent of taxable income with an unlimited carryover period.

It is not yet known if the potential reform of the U.S. tax laws will include further changes that may impact existing REIT rules under the current Internal Revenue Code. If tax reform is enacted with some or all of the changes outlined above, our taxable income may increase. As a REIT, we are required to distribute at least 90 percent of our taxable income to our shareholders annually.
We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be issued; nor is the long-term impact of proposed tax reforms (including future reforms that may be part of any enacted tax reform) on the real estate industry clear. Furthermore, the proposed tax reform above may negatively impact our tenants and borrowers' operating results, financial condition and future business plans.
Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.
At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.
Our Investment Company Act exemption limits our investment discretion and loss of the exemption would adversely affect us.
We believe that we currently are not, and we intend to operate our company so that we will not be, regulated as an investment company under the Investment Company Act because we are "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." Specifically, we are required to invest at least 55% of our assets in "qualifying real estate assets" (that is, real estate, mortgage loans and other qualifying interests in real estate), and at least an additional 25% of our assets in other "real estate-related assets," such as mezzanine loans and unsecured investments in real estate entities, or additional qualifying real estate assets.
We will need to monitor our assets to ensure that we continue to satisfy the percentage tests. Maintaining our exemption from regulation as an investment company under the Investment Company Act limits our ability to invest in assets that otherwise would meet our investment strategies. If we fail to qualify for this exemption, we could not operate our business efficiently under the regulatory scheme imposed on investment companies under the Investment Company Act, and we could be required to restructure our activities. This would have a material adverse effect on our financial performance and the market price of our securities.
Actions of the U.S. government, including the U.S. Congress, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies, to stabilize or reform the financial markets, or market responses to those actions, may not achieve the intended effect and may adversely affect our business.
The U.S government, including the U.S. Congress, the Federal Reserve, the U.S Treasury and other governmental and regulatory bodies have increased their focus on the regulation of the financial industry in recent years. A changing presidential administration is likely to effect its own regulatory changes. New or modified regulations and related regulatory guidance may have unforeseen or unintended adverse effects on the financial industry. Laws, regulations or policies, including tax laws and accounting standards and interpretations, currently affecting us may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. Therefore, our business may also be adversely affected by future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement.

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Table of Contents

Various legislative bodies have also considered altering the existing framework governing creditors' rights and mortgage products including legislation that would result in or allow loan modifications of various sorts. Such legislation may change the operating environment in substantial and unpredictable ways. We cannot predict whether new legislation will be enacted, and if enacted, the effect that it or any regulations would have on our activities, financial condition, or results of operations.
Item 1b.    Unresolved Staff Comments
None.
Item 2.    Properties
The Company's principal executive and administrative offices are located at 1114 Avenue of the Americas, New York, NY 10036. Its telephone number and web address are (212) 930-9400 and www.istar.com, respectively. The lease for the Company's principal executive and administrative offices expires in February 2021. The Company's principal regional offices are located in the Atlanta, Georgia; Dallas, Texas; Hartford, Connecticut; San Francisco, California and Los Angeles, California metropolitan areas.
See Item 1—"Net Lease," and "Operating Properties" for a discussion of properties held by the Company for investment purposes and Item 8—"Financial Statements and Supplemental Data—Schedule III," for a detailed listing of such facilities.
Item 3.    Legal Proceedings
The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to its real estate and real estate related business activities, including loan foreclosure and foreclosure-related proceedings. In addition to such matters, the Company is a party to the following legal proceedings:
Shareholder Action
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 our current and former senior executives (including our 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 our common stock issued by the Company to our 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 Company’s motion to dismiss all of plaintiffs' claims in this action. Plaintiffs appealed the dismissal of their claims and, on January 28, 2016, the Maryland Court of Special Appeals affirmed the order of the Circuit Court. Plaintiffs filed a petition for certiorari with the Maryland Court of Appeals, which agreed to hear the appeal. On January 20, 2017, the Maryland Court of Appeals (Maryland’s highest court) issued its opinion affirming the dismissal of all of plaintiffs’ claims against the Company and the other defendants.
U.S. Home Corporation ("Lennar") v. Settlers Crossing, LLC, et al. (Civil Action No. DKC 08-1863)
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 is 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. Lennar appealed the Court's judgment and has posted an appeal bond. The Court granted Lennar's motion to stay the judgment pending appeal and 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, oral argument is scheduled to be held on March 23, 2017. There can be no assurance as to the timing or actual receipt by the Company of amounts awarded by the Court or the outcome of the appeal. A third party purchased a participation interest in the Company's original loan and as of December 31, 2016 holds a 4.3% participation interest in all proceeds.
Item 4.    Mine Safety Disclosures
Not applicable.

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Table of Contents

PART II
Item 5.    Market for Registrant's Equity and Related Share Matters
The Company's common stock trades on the New York Stock Exchange ("NYSE") under the symbol "STAR." The high and low sales prices per share of common stock are set forth below for the periods indicated.
 
 
2016
 
2015
Quarter Ended
 
High
 
Low
 
High
 
Low
December 31
 
$
12.83

 
$
10.45

 
$
13.34

 
$
11.55

September 30
 
$
11.21

 
$
9.10

 
$
13.85

 
$
11.54

June 30
 
$
10.68

 
$
8.74

 
$
14.77

 
$
12.89

March 31
 
$
11.64

 
$
7.59

 
$
14.17

 
$
12.40

On February 16, 2017, the closing sale price of the common stock as reported by the NYSE was $11.75. The Company had 1,842 holders of record of common stock as of February 16, 2017.
Dividends
The Company's Board of Directors has not established any minimum distribution level. In order to maintain its qualification as a REIT, the Company intends to pay dividends to its shareholders that, on an annual basis, will represent at least 90% of its taxable income (which may not necessarily equal net income as calculated in accordance with accounting principles generally accepted in the United States ("GAAP")), determined without regard to the deduction for dividends paid and excluding any net capital gains. The Company has recorded net operating losses ("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.
Holders of common stock, certain unvested restricted stock awards and common share equivalents will be entitled to receive distributions if, as and when the Company's Board of Directors authorizes and declares distributions. However, rights to distributions may be subordinated to the rights of holders of preferred stock, when preferred stock is issued and outstanding. In addition, the 2016 Senior Secured Credit Facility and 2015 Secured Revolving Credit Facility (see Item 8—"Financial Statements and Supplemental Data—Note 10") permit the Company to distribute 100% of its REIT taxable income on an annual basis for so long as the Company maintains its qualification as a REIT. The 2016 Senior Secured Credit Facility and 2015 Secured Revolving Credit Facility generally restrict the Company from paying any common dividends if it ceases to qualify as a REIT. In any liquidation, dissolution or winding up of the Company, each outstanding share of common stock will entitle its holder to a proportionate share of the assets that remain after the Company pays its liabilities and any preferential distributions owed to preferred shareholders.
The Company did not declare or pay dividends on its common stock for the years ended December 31, 2016 and 2015. The Company declared and paid dividends of $8.0 million, $11.0 million, $7.8 million, $6.1 million, $9.4 million, and $9.0 million on its Series D, E, F, G, I, and J preferred stock, respectively, during each of the years ended December 31, 2016 and 2015. The character of the 2016 dividends are as follows: 47.30% is a capital gain distribution, of which 76.15% represents unrecaptured section 1250 gain and 23.85% long term capital gain, and 52.70% is ordinary income. All 2015 dividends qualified as return of capital for tax reporting purposes. There are no dividend arrearages on any of the preferred shares currently outstanding.
Distributions to shareholders will generally be taxable as ordinary income, although all or a portion of such distributions may be designated by the Company as capital gain or may constitute a tax-free return of capital. The Company annually furnishes to each of its shareholders a statement setting forth the distributions paid during the preceding year and their characterization as ordinary income, capital gain or return of capital.
No assurance can be given as to the amounts or timing of future distributions, as such distributions are subject to the Company's taxable income after giving effect to its NOL carryforwards, financial condition, capital requirements, debt covenants, any change in the Company's intention to maintain its REIT qualification and such other factors as the Company's Board of Directors deems relevant. The Company may elect to satisfy some of its REIT distribution requirements, if any, through qualifying stock dividends.

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Table of Contents

Issuer Purchases of Equity Securities
The following table sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the three months ended December 31, 2016.
 
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of a Publicly Announced Plan
Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans(1)
October 1 to October 31, 2016

$


$
50,000,000

November 1 to November 30, 2016

$


$
50,000,000

December 1 to December 31, 2016

$


$
50,000,000

_______________________________________________________________________________
(1)
The Company has a publicly announced plan that authorizes the repurchase of common stock from time to time in open market and privately negotiated purchases, including pursuant to one or more trading plans. There is no fixed expiration date to this stock repurchase program. In August 2016, the Company's Board of Directors authorized an increase to $50.0 million in the stock repurchase program.
Disclosure of Equity Compensation Plan Information
Plans Category
 
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans approved by security holders-restricted stock awards(1)(2)
 
622,643

 
N/A
 
3,569,564

_______________________________________________________________________________
(1)
Restricted Stock—The amount shown in column (a) includes 250,188 unvested restricted stock units which may vest in the future based on the employees' continued service to the Company and 39,071 unvested market-based restricted stock units representing the right to receive an equivalent number of shares of the Company's common stock if and when the Units vest. The market-condition is based on the Company's total shareholder return, measured over a performance period ending on the awards cliff vest date. Vesting will range from 0% to 200% of the target, if the employee remains employed by the Company on the vesting date. None of these unvested units are included in the Company's outstanding share balance (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of the Company's restricted stock grants). Substantially all of the restricted stock units included in column (a) are required to be settled on a net, after-tax basis (after deducting shares for minimum required statutory withholdings); therefore, the actual number of shares issued will be less than the gross amount of the awards. The amount shown in column (a) also includes 333,384 of common stock equivalents and restricted stock awarded to our non-employee directors in consideration of their service to the Company as directors. Common stock equivalents represent rights to receive shares of common stock at the date the common stock equivalents are settled. Common stock equivalents have dividend equivalent rights beginning on the date of grant. The amount in column (c) represents the aggregate amount of stock options, shares of restricted stock units or other performance awards that could be granted under compensation plans approved by the Company's security holders after giving effect to previously issued awards of stock options, shares of restricted stock units and other performance awards (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of the Company's Long-Term Incentive Plans).
(2)
The amount shown in column (a) does not include a currently indeterminable number of shares that may be issued upon the satisfaction of performance and vesting conditions of awards made under the Company's Performance Incentive Plan ("iPIP") approved by shareholders. In no event may the number of shares issued exceed the amount available in column (c) unless shareholders authorize additional shares (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of iPIP.)


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Table of Contents

Item 6.    Selected Financial Data
The following table sets forth selected financial data on a consolidated historical basis for the Company. This information should be read in conjunction with the discussions set forth in Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations."
 
 
For the Years Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(In thousands, except per share data and ratios)
OPERATING DATA:
 
 
 
 
 
 
 
 
 
 
Operating lease income
 
$
213,018

 
$
229,720

 
$
243,100

 
$
234,567

 
$
216,291

Interest income
 
129,153

 
134,687

 
122,704

 
108,015

 
133,410

Other income
 
46,515

 
49,931

 
81,033

 
48,208

 
47,838

Land development revenue
 
88,340

 
100,216

 
15,191

 

 

Total revenue
 
477,026

 
514,554

 
462,028

 
390,790

 
397,539

Interest expense
 
221,398

 
224,639

 
224,483

 
266,225

 
355,097

Real estate expense
 
138,422

 
146,750

 
163,389

 
157,441

 
151,458

Land development cost of sales
 
62,007

 
67,382

 
12,840

 

 

Depreciation and amortization
 
54,329

 
65,247

 
73,571

 
71,266

 
68,770

General and administrative
 
84,027

 
81,277

 
88,287

 
92,114

 
80,856

Provision for (recovery of) loan losses
 
(12,514
)
 
36,567

 
(1,714
)
 
5,489

 
81,740

Impairment of assets
 
14,484

 
10,524

 
34,634

 
12,589

 
13,778

Other expense
 
5,883

 
6,374

 
6,340

 
8,050

 
17,266

Total costs and expenses
 
568,036

 
638,760

 
601,830

 
613,174

 
768,965

Income (loss) before earnings from equity method investments and other items
 
(91,010
)
 
(124,206
)
 
(139,802
)
 
(222,384
)
 
(371,426
)
Loss on early extinguishment of debt, net
 
(1,619
)
 
(281
)
 
(25,369
)
 
(33,190
)
 
(37,816
)
Earnings from equity method investments
 
77,349

 
32,153

 
94,905

 
41,520

 
103,009

Loss on transfer of interest to unconsolidated subsidiary
 

 

 

 
(7,373
)
 

Income (loss) from continuing operations before income taxes
 
(15,280
)
 
(92,334
)
 
(70,266
)
 
(221,427
)
 
(306,233
)
Income tax benefit (expense)
 
10,166

 
(7,639
)
 
(3,912
)
 
659

 
(8,445
)
Income (loss) from continuing operations
 
(5,114
)
 
(99,973
)
 
(74,178
)
 
(220,768
)
 
(314,678
)
Income (loss) from discontinued operations
 

 

 

 
644

 
(17,481
)
Gain from discontinued operations
 

 

 

 
22,233

 
27,257

Income from sales of real estate
 
105,296

 
93,816

 
89,943

 
86,658

 
63,472

Net income (loss)
 
100,182

 
(6,157
)
 
15,765

 
(111,233
)
 
(241,430
)
Net (income) loss attributable to noncontrolling interests
 
(4,876
)
 
3,722

 
704

 
(718
)
 
1,500

Net income (loss) attributable to iStar Inc.
 
95,306

 
(2,435
)
 
16,469

 
(111,951
)
 
(239,930
)
Preferred dividends
 
(51,320
)
 
(51,320
)
 
(51,320
)
 
(49,020
)
 
(42,320
)
Net (income) loss allocable to HPU holders and Participating Security holders(1)
 
(14
)
 
1,080

 
1,129

 
5,202

 
9,253

Net income (loss) allocable to common shareholders
 
$
43,972

 
$
(52,675
)
 
$
(33,722
)
 
$
(155,769
)
 
$
(272,997
)
Per common share data(2):
 
 
 
 
 
 
 
 
 
 
Income (loss) attributable to iStar Inc. from continuing operations:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.60

 
$
(0.62
)
 
$
(0.40
)
 
$
(2.09
)
 
$
(3.37
)
Diluted
 
$
0.55

 
$
(0.62
)
 
$
(0.40
)
 
$
(2.09
)
 
$
(3.37
)
Net income (loss) attributable to iStar Inc.:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.60

 
$
(0.62
)
 
$
(0.40
)
 
$
(1.83
)
 
$
(3.26
)
Diluted
 
$
0.55

 
$
(0.62
)
 
$
(0.40
)
 
$
(1.83
)
 
$
(3.26
)
Dividends declared per common share
 
$

 
$

 
$

 
$

 
$


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Table of Contents

 
 
For the Years Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(In thousands, except per share data and ratios)
SUPPLEMENTAL DATA:
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges(3)
 

 

 

 

 

Ratio of earnings to fixed charges and preferred dividends(3)
 

 

 

 

 

Weighted average common shares outstanding—basic
 
73,453

 
84,987

 
85,031

 
84,990

 
83,742

Weighted average common shares outstanding—diluted
 
98,467

 
84,987

 
85,031

 
84,990

 
83,742

Cash flows (used in) from:
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
20,004

 
$
(59,947
)
 
$
(10,342
)
 
$
(180,465
)
 
$
(191,932
)
Investing activities
 
466,543

 
184,028

 
159,793

 
893,447

 
1,267,047

Financing activities
 
(868,911
)
 
114,481

 
(190,958
)
 
(455,758
)
 
(1,175,597
)

 
 
As of December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(In thousands)
BALANCE SHEET DATA:
 


 


 


 


 
 
Total real estate(4)
 
$
1,575,516

 
$
1,731,257

 
$
1,983,734

 
$
2,224,664

 
$
2,409,864

Land and development, net(4)
 
945,565

 
1,001,963

 
978,962

 
932,034

 
965,100

Loans receivable and other lending investments, net
 
1,450,439

 
1,601,985

 
1,377,843

 
1,370,109

 
1,829,985

Total assets
 
4,825,514

 
5,597,792

 
5,426,483

 
5,608,604

 
6,133,687

Debt obligations, net
 
3,389,908

 
4,118,823

 
3,986,034

 
4,124,718

 
4,665,182

Total equity
 
1,059,684

 
1,101,330

 
1,248,348

 
1,301,465

 
1,313,154

_______________________________________________________________________________
(1)
All of the Company's outstanding HPUs were repurchased and retired on August 13, 2015 (see Item 8—"Financial Statements and Supplemental Data—Note 13). Participating Security holders are non-employee directors who hold unvested common stock equivalents and restricted stock awards granted under the Company's Long Term Incentive Plans that are eligible to participate in dividends (see Item 8—"Financial Statements and Supplemental Data—Note 14 and 15).
(2)
See Item 8—"Financial Statements and Supplemental Data—Note 15."
(3)
This ratio of earnings to fixed charges is calculated in accordance with SEC Regulation S-K Item 503. For the years ended December 31, 2016, 2015, 2014, 2013 and 2012, earnings were not sufficient to cover fixed charges by $49,706, $99,825, $89,948, $240,912 and $305,450, respectively, and earnings were not sufficient to cover fixed charges and preferred dividends by $101,026, $151,145, $141,268, $289,932 and $347,770, respectively. The Company's unsecured debt securities have a fixed charge coverage covenant which is calculated differently in accordance with the terms of the agreements governing such securities.
(4)
Prior to December 31, 2015, land and development assets were recorded in total real estate. Prior year amounts have been reclassified to conform to the current period presentation.


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Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity during the three-year period ended December 31, 2016. This discussion should be read in conjunction with our consolidated financial statements and related notes for the three-year period ended December 31, 2016 included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of our future performance. Certain prior year amounts have been reclassified in the Company's consolidated financial statements and the related notes to conform to the current period presentation.
Introduction
We finance, invest in and develop real estate and real estate related projects as part of our fully-integrated investment platform. We have invested more than $35 billion over the past two decades and are structured as a REIT with a diversified portfolio focused on larger assets located in major metropolitan markets. Our primary business segments are real estate finance, net lease, operating properties and land and development.
Our real estate finance portfolio is comprised of senior and mezzanine real estate loans that may be either fixed-rate or variable-rate and are structured to meet the specific financing needs of borrowers. Our portfolio also includes preferred equity investments and senior and subordinated loans to business entities, particularly entities engaged in real estate or real estate related businesses, and may be either secured or unsecured. Our real estate finance portfolio includes whole loans, loan participations and debt securities.
Our net lease portfolio is primarily comprised of properties owned by us and leased to single creditworthy tenants where the properties are subject to long-term leases. Most of the leases provide for expenses at the facilities to be paid by the tenants on a triple net lease basis. The properties in this portfolio are diversified by property type and geographic location. In addition to net lease properties owned by us, we partnered with a sovereign wealth fund in 2014 to form a venture in which the partners would contribute equity to acquire and develop net lease assets.
Our operating properties portfolio is comprised of commercial and residential properties which represent a diverse pool of assets across a broad range of geographies and property types. We generally seek to reposition or redevelop our transitional properties with the objective of maximizing their value through the infusion of capital and/or intensive asset management efforts. The commercial properties within this portfolio include office, retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects located in major U.S. cities where our strategy is to sell individual units through retail distribution channels.
Our land and development portfolio is primarily comprised of land entitled for master planned communities as well as waterfront and urban infill land parcels located throughout the United States. Master planned communities represent large-scale residential projects that we will entitle, plan and/or develop and may sell through retail channels to home builders or in bulk. Waterfront parcels are generally entitled for residential projects and urban infill parcels are generally entitled for mixed-use projects. We may develop these properties ourself or sell to or partner with commercial real estate developers.



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Executive Overview

2016 was a year of solid progress for iStar. We continued to invest in attractive investment opportunities in our real estate finance and net lease businesses while making significant progress in stabilizing and/or monetizing our commercial and residential operating properties. Our land portfolio continues to make significant progress with almost all of our land projects being re-entitled and sales and leasing efforts gaining momentum. Our investment activity has focused on new originations within our core business segments of real estate finance and net lease. In addition, we continue to make significant investments within our operating property and land and development portfolios in order to better position assets for sale and maximize value for our shareholders. Through strategic ventures, we have partnered with other providers of capital within our net lease segment and with developers with residential building expertise within our land and development segment. These partnerships have had a positive impact on our business, particularly in our land and development segment.
We have continued to strengthen our balance sheet through our financing activities. Access to the capital markets has allowed us to extend our debt maturity profile and remain primarily an unsecured borrower. In 2016, we repaid $926.4 million of maturing unsecured notes and issued $275.0 million of unsecured notes. In addition, we entered into a $500.0 million senior secured credit facility and used the proceeds to repay other secured debt. As of December 31, 2016, we had $328.7 million of cash, which we expect to use primarily to fund future investment activities, pay down debt and for general corporate purposes. In addition, we have additional borrowing capacity of $420.0 million bringing total available liquidity to $748.7 million at year end.

During the year ended December 31, 2016, three of our four business segments, including real estate finance, net lease and operating properties, contributed positively to our earnings. We continue to work on repositioning or redeveloping our transitional operating properties and progressing on the entitlement and development of our land and development assets in order to maximize their value. We intend to continue these efforts, with the objective of increasing the contribution of these assets to our earnings in the future. For the year ended December 31, 2016, we recorded net income allocable to common shareholders of $44.0 million, compared to a net loss of $52.7 million during the prior year. Adjusted income allocable to common shareholders for the year ended December 31, 2016 was $112.6 million, compared to $29.7 million during the prior year (see "Adjusted Income" for a reconciliation of adjusted income to net income).
Portfolio Overview

As of December 31, 2016, based on gross carrying values, our total investment portfolio has the following characteristics:

https://cdn.kscope.io/fe057497261ef6c8c2bd03f63761f21d-star-123120_chartx25423.jpg

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As of December 31, 2016, based on gross carrying values, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands)(1):

Property Type
Property/Collateral Types
 
Real Estate Finance
 
Net Lease
 
Operating Properties
 
Land & Development
 
Total
 
% of
Total
Land and Development
 
$

 
$

 
$

 
$
1,036,855

 
$
1,036,855

 
22.4
%
Office / Industrial
 
168,213

 
771,541

 
122,484

 

 
1,062,238

 
22.9
%
Hotel
 
333,114

 
136,080

 
107,534

 

 
576,728

 
12.5
%
Entertainment / Leisure
 

 
490,200

 

 

 
490,200

 
10.6
%
Condominium
 
380,851

 

 
82,487

 

 
463,338

 
10.0
%
Mixed Use / Mixed Collateral
 
291,526

 

 
171,045

 

 
462,571

 
10.0
%
Other Property Types
 
236,862

 
23,039

 

 

 
259,901

 
5.6
%
Retail
 
63,173

 
57,348

 
124,850

 

 
245,371

 
5.3
%
Strategic Investments