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MarketScreener Homepage  >  Equities  >  Nyse  >  IStar Inc.    STAR

ISTAR INC.

(STAR)
  Report
Delayed Quote. Delayed Nyse - 01/15 04:10:00 pm
14.95 USD   -1.45%
2020ISTAR : Event Presentation
PU
2020ISTAR INC. : Ex-dividend day for
FA
2020ISTAR TO PRESENT AT NAREIT'S REITWORLD : 2020 Annual Conference
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ISTAR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/03/2020 | 05:08pm EST
Certain statements in this report, other than purely historical information,
including estimates, projections, statements relating to our business plans,
objectives and expected operating results, and the assumptions upon which those
statements are based, are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements are included with respect to, among other things,
iStar Inc.'s (the "Company's") current business plan, business strategy,
portfolio management, prospects and liquidity. These forward-looking statements
generally are identified by the words "believe," "project," "expect,"
"anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will,"
"would," "will be," "will continue," "will likely result," and similar
expressions. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause actual
results or outcomes to differ materially from those contained in the
forward-looking statements. We undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. In assessing all forward-looking statements, readers
are urged to read carefully all cautionary statements contained in this
Form 10-Q and the uncertainties and risks described in Item 1A-"Risk Factors" in
our Annual Report and in this Report, all of which could affect our future
results of operations, financial condition and liquidity. For purposes of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the terms "we," "our" and "us" refer to iStar Inc. and its
consolidated subsidiaries, unless the context indicates otherwise.
The discussion below should be read in conjunction with our consolidated
financial statements and related notes in this quarterly report on Form 10-Q and
our Annual Report. These historical financial statements may not be indicative
of our future performance. We have reclassified certain items in our
consolidated financial statements of prior periods to conform to our current
financial statements presentation.
Executive Overview

In August 2020, we took advantage of favorable interest rate and liquidity
conditions to refinance debt through the issuance of $400 million of unsecured
notes due February 2026. Proceeds from the issuance were used to repay unsecured
notes due September 2022. We have no corporate debt maturities through September
2022 (refer to Note 11).
The coronavirus (COVID-19) outbreak has continued to impact the US and global
economies. The US financial markets have experienced disruption, with heightened
stock market volatility and constrained credit conditions within most sectors,
including real estate. We are focused on ensuring the health and safety of our
personnel and the continuity of business activities at iStar and SAFE,
monitoring the effects of the crisis on our and SAFE's customers, marshalling
available liquidity at both companies, implementing appropriate cost containment
measures and preparing for the eventual resumption of more normalized
activities. At this time, we cannot predict the full extent of the impacts of
the COVID-19 crisis on our or SAFE's business. We will continue to monitor its
effects on a daily basis and will adjust operations as necessary.
Our portfolio is well diversified by business, property type and geography. Our
portfolio includes investments in the entertainment/leisure (20.2% of gross book
value) and hotel (5.6% of gross book value) sectors, which have been
particularly stressed by the pandemic. SAFE reported that it received 100% of
the ground rent due under its leases for the third quarter. We collected 98% of
the rent due from our net lease tenants during the quarter (excluding one net
lease tenant with whom we entered into lease modifications in the second and
third quarter 2020 - refer to Note 5), 92% of the interest payments due in our
real estate finance portfolio and 80% of the rent due in our operating
properties portfolio. We may continue to experience disruptions and collections
of rent and interest payments until more normalized business conditions resume.
We increased our allowance for loan losses and may continue to do so in future
quarters while the COVID-19 pandemic continues to materially affect the US
economy.

The COVID-19 crisis has adversely affected our strategies of monetizing legacy
assets and materially scaling SAFE's portfolio for the time being. Equity and
debt financing for real estate transactions generally is constrained. In
addition, the crisis has made it more difficult to execute transactions as
people are reluctant to visit properties, local governmental offices have
reduced operations and third parties such as survey, insurance, environmental
and similar services have more limited capacities. These conditions will
adversely affect our strategy while they persist. See the Risk Factors section
of this report for additional discussion of certain potential risks to our
business arising from the COVID-19 crisis.
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Portfolio Overview

As of September 30, 2020, based on our gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):(1)

                                                                    Real
                                                Net                Estate            Operating              Land &                                                         % of
Property/Collateral Types                      Lease              Finance            Properties           Development          Corporate             Total                 Total
Office                                     $   944,023$  51,447$        91          $          -          $       -          $   995,561                  20.8  %
Entertainment / Leisure                        946,098                  -               16,188                     -                  -              962,286                  20.2  %
Ground Leases                                  878,438                  -                    -                     -                  -              878,438                  18.4  %
Land and Development                                 -             83,777                    -               399,123                  -              482,900                  10.1  %
Industrial                                     300,859                  -               97,663                     -             62,961              461,483                   9.7  %
Condominium                                          -            169,190               18,903               122,194                  -              310,287                   6.5  %
Hotel                                                -            184,540               83,020                     -                  -              267,560                   5.6  %
Multifamily                                          -            147,825               58,381                     -                  -              206,206                   4.3  %
Retail                                          57,348             68,807               41,424                 8,271                  -              175,850                   3.7  %

Other Property Types                                 -             24,631                    -                     -              9,258               33,889                   0.7  %
Total                                      $ 3,126,766$ 730,217$   315,670$    529,588$  72,219$ 4,774,460                 100.0  %


Percentage of Total          65  %      15  %     7  %      11  %     2  %     100  %


                                                           Real
                                       Net                Estate            Operating              Land &                                                         % of
Geographic Region                     Lease              Finance            Properties           Development          Corporate             Total                Total
Northeast                         $   915,585$ 296,320$    93,587$    285,291          $       -          $ 1,590,783                 33.2  %
West                                  494,722            208,970               56,959                40,414                  -              801,065                 16.8  %
Mid-Atlantic                          521,147             13,296                6,170               112,706                  -              653,319                 13.7  %
Central                               425,558             79,330               44,191                31,500                  -              580,579                 12.2  %
Southwest                             398,264             16,404              104,304                42,975                  -              561,947                 11.8  %
Southeast                             362,152             26,663               10,459                16,702                  -              415,976                  8.7  %
Various                                 9,338             89,234                    -                     -             72,219              170,791                  3.6  %

Total                             $ 3,126,766$ 730,217$   315,670$    529,588$  72,219$ 4,774,460                100.0  %

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

Net Lease

Our net lease business seeks to create stable cash flows through long-term net
leases primarily to single tenants on our properties. We target mission-critical
facilities leased on a long-term basis to tenants, offering structured solutions
that combine our capabilities in underwriting, lease structuring, asset
management and build-to-suit construction. Leases typically provide for expenses
at the facility to be paid by the tenant on a triple net lease basis. Under a
typical net lease agreement, the tenant agrees to pay a base monthly operating
lease payment and most or all of the facility operating expenses (including
taxes, utilities, maintenance and insurance). We generally intend to hold our
net lease assets for long-term investment. However, we may dispose of assets if
we deem the disposition to be in our best interests.

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The net lease segment includes our Ground Lease investments made primarily
through SAFE and our traditional net lease investments. As of September 30,
2020, our consolidated net lease portfolio totaled $2.1 billion. Our net lease
portfolio, including the carrying value of our equity method investments in SAFE
and Net Lease Venture II, exclusive of accumulated depreciation, totaled $3.1
billion. The table below provides certain statistics for our net lease
portfolio.
                                                                   Total
                                           Net Lease            Consolidated         Net Lease
                       Wholly-Owned        Venture I           Real Estate(1)       Venture II          SAFE
Ownership %                 100.0  %         51.9     %       -                        51.9     %       65.8  %

Gross book value
(millions)(2)         $     1,234$     906$       2,140$     249$ 2,845

% Leased                     97.8  %        100.0     %                98.6  %        100.0     %      100.0  %
Square footage
(thousands)                 9,998           5,707                    15,705           2,273                 N/A
Weighted average
lease term
(years)(3)                   15.2            16.2                      15.6            12.9             89.1
Weighted average
yield(4)                      7.4  %          8.0     %                 7.7  %          9.9     %        4.6  %

_______________________________________________________________________________

(1)We own 51.9% of the Net Lease Venture which is consolidated in our GAAP
financial statements (refer to Note 4).
(2)Gross book value represents the acquisition cost of real estate and any
additional capital invested into the property by us. Consolidated Real Estate
includes amounts recorded as net investment in leases (refer to Note 5) and
financing receivables in loans and other lending investments (refer to Note 7).
SAFE includes its 54.8% pro rata share of its unconsolidated equity method
investment.
(3)Weighted average lease term is calculated using GAAP rent and the initial
maturity and does not include extension options. SAFE includes its 54.8% pro
rata share of its unconsolidated equity method investment.
(4)Yield for SAFE is calculated over the trailing twelve months and excludes
management fees earned by us.
Net Lease Venture-In February 2014, the Company partnered with a sovereign
wealth fund to form a venture to acquire and develop net lease assets and gave a
right of first refusal to the venture on all new net lease investments that met
specified investment criteria (refer to Note 4 in our consolidated financial
statements for more information on our Net Lease Venture). The Net Lease
Venture's investment period expired on June 30, 2018 and the remaining term of
the venture extends through February 13, 2022, subject to two, one-year
extension options at the discretion of us and our partner. We obtained control
over the Net Lease Venture when the investment period expired on June 30, 2018
and consolidated the assets and liabilities of the venture, which had previously
been accounted for as an equity method investment.
Net Lease Venture II-In July 2018, we entered into Net Lease Venture II with
similar investment strategies as the Net Lease Venture (refer to Note 8). The
Net Lease Venture II has a right of first offer on all new net lease investments
(excluding Ground Leases) originated by us. We have an equity interest in the
new venture of approximately 51.9%, which is accounted for as an equity method
investment, and are responsible for managing the venture in exchange for a
management fee and incentive fee.

SAFE-SAFE is a publicly-traded company that originates and acquires Ground
Leases in order to generate attractive long-term risk-adjusted returns from its
investments. We believe its business has characteristics comparable to a
high-grade fixed income investment business, but with certain unique advantages.
Relative to alternative fixed income investments generally, SAFE's Ground Leases
typically benefit from built-in growth derived from contractual rent increases,
and the opportunity to realize value from residual rights to acquire the
buildings and other improvements on its land at no additional cost. We believe
that these features offer us the opportunity through our ownership in SAFE to
realize superior risk-adjusted total returns when compared to certain
alternative highly-rated investments. As of September 30, 2020, we owned
approximately 65.8% of SAFE's common stock outstanding.
We account for our investment in SAFE as an equity method investment (refer to
Note 8). We act as SAFE's external manager pursuant to a management agreement,
and we have an exclusivity agreement with SAFE pursuant to which we agreed,
subject to certain exceptions, that we will not acquire, originate, invest in,
or provide financing for a third party's acquisition of, a Ground Lease unless
we have first offered that opportunity to SAFE and a majority of its independent
directors has declined the opportunity.
Real Estate Finance

Our real estate finance business targets sophisticated and innovative
owner/operators of real estate and real estate related projects by providing
one-stop capabilities that encompass financing alternatives ranging from full
envelope senior loans to mezzanine and preferred equity capital positions. Our
real estate finance portfolio consists of senior mortgage loans that are secured
by commercial and residential real estate assets where we are the first lien
holder, subordinated mortgage loans that are secured by second lien or junior
interests in commercial and residential real estate assets, leasehold loans to
Ground Lease
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tenants, including tenants of SAFE, and corporate/partnership loans, which
represent mezzanine or subordinated loans to entities for which we do not have a
lien on the underlying asset, but may have a pledge of underlying equity
ownership of such assets. Our real estate finance portfolio includes loans on
stabilized and transitional properties, Ground Leases and ground-up construction
projects. In addition, we have preferred equity investments and debt securities
classified as other lending investments.

As of September 30, 2020, our real estate finance portfolio, including
securities and other lending investments, totaled $775.9 million, exclusive of
general loan loss allowance. The portfolio, excluding securities and other
lending investments, included $551.7 million of performing loans with a weighted
average maturity of 1.3 years.

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

                                                                                           September 30, 2020
                                                                                                                                                       Allowance for Loan
                                                                                                                                                        Losses as a % of
                                                          Gross Carrying         Allowance for                                                           Gross Carrying
                                  Number of Loans             Value               Loan Losses            Carrying Value            % of Total                Value
Performing loans                        17                $   551,674$       (9,615)$       542,059               70.9%                    1.7%
Non-performing loans                     2                     87,277                 (22,600)                  64,677                8.5%                   25.9%
Other lending investments                3                    159,569                  (1,232)                 158,337               20.6%                    0.8%
Total                                   22                    798,520                 (33,447)                 765,073               100.0%                   4.2%

                                                                                            December 31, 2019
                                                                                                                                                       Allowance for Loan
                                                                                                                                                        Losses as a % of
                                                          Gross Carrying         Allowance for                                                           Gross Carrying
                                  Number of Loans             Value               Loan Losses            Carrying Value            % of Total                Value
Performing loans                        22                $   665,460$       (6,933)$       658,527               79.6%                    1.0%
Non-performing loans                     1                     37,820                 (21,701)                  16,119                1.9%                   57.4%
Other lending investments                3                    153,216                       -                  153,216               18.5%                     -%
Total                                   26                    856,496                 (28,634)                 827,862               100.0%                   3.3%


Performing Loans-The table below summarizes our performing loans exclusive of
allowances ($ in thousands):
                               September 30, 2020      December 31, 2019
Senior mortgages              $         433,352       $        534,765
Corporate/Partnership loans             106,877                119,818
Subordinate mortgages                    11,445                 10,877
Total                         $         551,674       $        665,460

Weighted average LTV                         63  %                  61  %
Yield - quarter to date(1)                  7.6  %                 8.7  %
Yield - year to date(1)                     7.9  %                 9.0  %

_______________________________________________________________________

(1)Yields presented are for the three and nine months ended September 30, 2020
and 2019.
Non-Performing Loans-We designate loans as non-performing at such time as:
(1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or
(3) management determines it is probable that we will be unable to collect all
amounts due according to the contractual terms of the loan. All non-performing
loans are placed on non-accrual status and income is only recognized in certain
cases upon actual cash receipt. As of September 30, 2020 and December 31, 2019,
we had two non-performing loans with a carrying value of $64.7 million and one
non-performing loan with a carrying value of $16.1 million, respectively. We
expect that our level of non-performing loans will fluctuate from period to
period.

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Allowance for Loan Losses-The allowance for loan losses was $33.4 million as of
September 30, 2020, or 4.2% of total loans, compared to $28.6 million, or 3.3%,
as of December 31, 2019. We expect that our level of allowance for loan losses
will fluctuate from period to period. Due to the volatility of the commercial
real estate market, the process of estimating collateral values and allowances
requires the use of significant judgment. We currently believe there is adequate
collateral and allowances to support the carrying values of the loans.

The allowance for loan losses includes an asset-specific component and a
formula-based component. An asset-specific allowance is established for an
impaired loan when the estimated fair value of the loan's collateral less costs
to sell is lower than the carrying value of the loan. As of September 30, 2020
and December 31, 2019, asset-specific allowances were $22.6 million and $21.7
million, respectively.

We estimate the formula-based component based on historical realized losses
experienced within our portfolio and take into account current economic
conditions affecting the commercial real estate market. We estimate the
formula-based component on our construction loan portfolio based on historical
realized losses experienced within our portfolio and third-party market data
that includes historical loss rates on commercial real estate loans and
forecasted economic trends, including interest and unemployment rates. We
estimate the formula-based component on our other loans using a loan loss
forecasting tool developed by Trepp LLC that utilizes loan level data including
each loans position in the capital structure, interest rates, maturity dates,
unfunded commitments, debt service coverage ratios, etc. which also utilizes
forward looking macroeconomic variables and pool-level mean loss rates to
produce an expected loss over the life each loan.

The general allowance increased to $10.8 million or 1.5% of performing loans and
other lending investments as of September 30, 2020, compared to $6.9 million or
1.0% of performing loans and other lending investments as of December 31, 2019.
The increase was due to a $0.7 million general allowance recorded upon the
adoption of ASU 2016-13 on January 1, 2020 (refer to Note 3) and an increase in
the general allowance of $3.2 million during the nine months ended September 30,
2020.

Operating Properties

Our operating properties represent a pool of assets across a broad range of geographies and property types including office, retail, hotel and residential properties. As of September 30, 2020, our operating property portfolio, including the carrying value of our equity method investments gross of accumulated depreciation, totaled $315.7 million.


Land and Development
The following table presents a land and development portfolio rollforward for
the nine months ended September 30, 2020.
                         Land and Development Portfolio Rollforward
                                        (in millions)
                                              Asbury Ocean Club
                                               and Asbury Park             Magnolia                All                 Total
                                                  Waterfront                 Green                Others              Segment
Beginning balance(1)                         $           234.6          $      112.9$     233.0$     580.5
Asset sales(2)                                           (35.1)                (15.0)               (60.8)              (110.9)

Capital expenditures                                      11.1                  10.9                  3.2                 25.2
Other                                                        -                  (1.8)                (4.1)                (5.9)
Ending balance(1)                            $           210.6          $      107.0$     171.3$     488.9

_______________________________________________________________________

(1)As of September 30, 2020 and December 31, 2019, Total Segment excludes $30.4 million and $42.9 million, respectively, of equity method investments. (2)Represents gross book value of the assets sold, rather than proceeds received.

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Results of Operations for the Three Months Ended September 30, 2020 compared to
the Three Months Ended September 30, 2019
                                                              For the Three Months Ended
                                                                     September 30,
                                                               2020                 2019              $ Change
                                                                              (in thousands)
Operating lease income                                    $     46,370$   44,110$    2,260
Interest income                                                 14,270              19,701              (5,431)
Interest income from sales-type leases                           8,360               8,339                  21
Other income                                                    25,552              18,270               7,282
Land development revenue                                        20,502              54,918             (34,416)
Total revenue                                                  115,054             145,338             (30,284)
Interest expense                                                42,407              46,522              (4,115)
Real estate expense                                             16,935              23,187              (6,252)
Land development cost of sales                                  21,358              48,101             (26,743)
Depreciation and amortization                                   14,621              14,199                 422
General and administrative                                      19,868              24,110              (4,242)
Recovery of loan losses                                         (1,976)             (3,805)              1,829
Provision for losses on net investment in leases                   175                   -                 175

Other expense                                                       73                 407                (334)
Total costs and expenses                                       113,461             152,721             (39,260)
Income from sales of real estate                                 6,055               3,476               2,579
Loss on early extinguishment of debt, net                       (7,924)                  -              (7,924)
Earnings from equity method investments                          6,805               7,617                (812)

Income tax expense                                                 (78)                (84)                  6
Net income                                                $      6,451$    3,626$    2,825


Revenue-Operating lease income, which primarily includes income from net lease
assets and commercial operating properties, increased $2.3 million, or 5%, to
$46.4 million during the three months ended September 30, 2020 from $44.1
million for the same period in 2019. The following table summarizes our
operating lease income by segment ($ in millions).
                                       Three Months Ended September 30,
                                               2020                        2019       Change
Net Lease(1)                  $            41.1                          $ 38.0$  3.1
Operating Properties(2)                     5.2                             6.0        (0.8)
Land and Development                        0.1                             0.1           -
Total                         $            46.4                          $ 44.1$  2.3

______________________________________________________________

(1)Change primarily due to new acquisitions, partially offset by asset sales. (2)Change primarily due to a decrease in percentage rent at certain properties.

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The following table shows certain same store statistics for our consolidated Net
Lease segment. Same store assets are defined as assets we owned on or prior to
July 1, 2019 and were in service through September 30, 2020 (Operating lease
income in millions).
                                         Three Months Ended September 30,
                                        2020                              2019

Operating lease income(1)        $         44.7                        $  42.7

Rent per square foot             $        11.79$ 11.12

Occupancy(2)                               98.6   %                       99.3  %

______________________________________________________________

(1)For the three months ended September 30, 2020 and 2019, includes $9.3 million
and $9.5 million, respectively, of lease income from one net lease tenant that
was recorded to "Interest income from sales-type leases" in our consolidated
statements of operations.
(2)Occupancy as of September 30, 2020 and 2019.

Interest income decreased $5.4 million, or 28%, to $14.3 million during the
three months ended September 30, 2020 from $19.7 million for the same period in
2019. The decrease was due primarily to a decrease in the average balance of our
performing loans and other lending investments, which was $703 million for the
three months ended September 30, 2020 and $866 million for the three months
ended September 30, 2019. The weighted average yield on our performing loans and
other lending investments was 7.6% and 8.7%, respectively, for the three months
ended September 30, 2020 and 2019.
On January 1, 2019, we adopted new accounting standards and classified certain
of our leases in 2019 as sales-type leases. Under sales-type leases, we accrue
interest income from sales-type leases under the effective interest method as
opposed to recognition of operating lease income under the straight-line rent
method for our leases that do not qualify as sales-type leases. Interest income
from sales-type leases increased to $8.4 million for the three months ended
September 30, 2020 from $8.3 million for the same period in 2019.
Other income increased $7.3 million, or 40%, to $25.6 million during the three
months ended September 30, 2020 from $18.3 million for the same period in 2019.
Other income during the three months ended September 30, 2020 consisted
primarily of mark-to-market gains on an equity investment, management fees,
other ancillary income from our land and development projects and loan
portfolio, income from our hotel properties and interest income on our cash.
Other income during the three months ended September 30, 2019 consisted
primarily of income from our hotel properties, lease termination fees, other
ancillary income from our operating properties and land and development projects
and interest income on our cash. The increase in 2020 was primarily due to a
$14.0 million mark-to-market gain on an equity investment (refer to Note 8) and
an increase in management fees from SAFE, partially offset by a decrease in
income from our hotel properties and other operating properties.
Land development revenue and cost of sales-During the three months ended
September 30, 2020, we sold residential lots and units and recognized land
development revenue of $20.5 million which had associated cost of sales of $21.4
million. During the three months ended September 30, 2019, we sold residential
lots and units and recognized land development revenue of $54.9 million which
had associated cost of sales of $48.1 million.
Costs and expenses-Interest expense decreased $4.1 million, or 9%, to $42.4
million during the three months ended September 30, 2020 from $46.5 million for
the same period in 2019, due primarily to a decrease in our weighted average
cost of debt, which was 4.8% for the three months ended September 30, 2020
compared to 5.3% for the three months ended September 30, 2019. The balance of
our average outstanding debt, inclusive of loan participations and lease
liabilities associated with finance-type leases, decreased to $3.47 billion for
the three months ended September 30, 2020 from $3.50 billion for the same period
in 2019.
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Real estate expenses decreased $6.3 million, or 27%, to $16.9 million during the
three months ended September 30, 2020 from $23.2 million for the same period in
2019. The following table summarizes our real estate expenses by segment ($ in
millions).
                                       Three Months Ended September 30,
                                               2020                        2019       Change
Operating Properties(1)       $             4.4                          $  9.4$ (5.0)
Land and Development(2)                     5.4                             7.4        (2.0)
Net Lease(3)                                7.1                             6.4         0.7
Total                         $            16.9                          $ 23.2$ (6.3)

______________________________________________________________

(1)Change primarily due to a decrease in expenses at certain operating
properties due to COVID-19.
(2)Change primarily due to asset sales and a decrease in expenses at some of our
properties.
(3)Change primarily due to new acquisitions and an increase in expenses at
certain properties, partially offset by asset sales.

Depreciation and amortization increased $0.4 million, or 3%, to $14.6 million
during the three months ended September 30, 2020 from $14.2 million for the same
period in 2019, primarily due to new acquisitions, partially offset by asset
sales.
General and administrative expense includes payroll and related costs,
performance based compensation, public company costs and occupancy costs.
General and administrative expenses decreased $4.2 million, or 18%, to $19.9
million during the three months ended September 30, 2020 from $24.1 million for
the same period in 2019. The decrease in 2020 from 2019 was due primarily to a
$3.6 million decrease in performance based compensation.

The recovery of loan losses was $2.0 million for the three months ended
September 30, 2020 as compared to a recovery of loan losses of $3.8 million for
the same period in 2019. The recovery of loan losses for the three months ended
September 30, 2020 resulted from the reversal of CECL allowances on loans that
repaid in full in the third quarter 2020 and a more favorable economic outlook
on commercial real estate markets in the third quarter 2020 as compared to the
second quarter 2020. The recovery of loan losses for the three months ended
September 30, 2019 was due to a decrease in the general reserve.
The provision for losses on net investment in leases for the three months ended
September 30, 2020 included an allowance resulting from the macroeconomic impact
of COVID-19 on commercial real estate markets.
Other expense decreased to $0.1 million during the three months ended
September 30, 2020 from $0.4 million for the same period in 2019.
Income from sales of real estate-During the three months ended September 30,
2020, we recorded $6.1 million of income from sales of real estate from the sale
of a Ground Lease to SAFE (refer to Note 8). During the three months ended
September 30, 2019, we recorded $3.5 million of income from sales of real estate
from the sale of net lease assets.

Loss on early extinguishment of debt, net-During the three months ended
September 30, 2020, we incurred losses on early extinguishment of debt of $7.9
million resulting from the repayment of senior notes prior to maturity.
Earnings from equity method investments-Earnings from equity method investments
decreased to $6.8 million during the three months ended September 30, 2020 from
$7.6 million for the same period in 2019. During the three months ended
September 30, 2020, we recognized $9.3 million of income from our equity method
investment in SAFE and $0.8 million from our equity method investment in Net
Lease Venture II, which was partially offset by $3.3 million of net aggregate
losses from our remaining equity method investments. During the three months
ended September 30, 2019, we recognized $8.2 million resulting from the sale of
an asset in an operating property venture, $2.9 million of income from our
equity method investment in SAFE and $3.5 million of net aggregate losses from
our remaining equity method investments.
Income tax expense-Income tax expense of $0.1 million was recorded during both
the three months ended September 30, 2020 and 2019 and related primarily to
state margins taxes and other minimum state taxes.
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Results of Operations for the Nine Months Ended September 30, 2020 compared to
the Nine Months Ended September 30, 2019
                                                       For the Nine Months
                                                       Ended September 30,
                                                       2020           2019          $ Change
                                                                 (in thousands)
Operating lease income                             $  140,529$ 158,210$  (17,681)
Interest income                                        46,925         60,417         (13,492)
Interest income from sales-type leases                 25,010         12,157          12,853
Other income                                           56,212         43,133          13,079
Land development revenue                              116,254         76,691          39,563
Total revenue                                         384,930        350,608          34,322
Interest expense                                      127,748        136,851          (9,103)
Real estate expense                                    53,708         71,165         (17,457)
Land development cost of sales                        114,704         71,785          42,919
Depreciation and amortization                          43,407         43,586            (179)
General and administrative                             73,138         72,512             626
Provision for (recovery of) loan losses                 4,093         (3,792)          7,885
Provision for losses on net investment in leases        2,001              -           2,001
Impairment of assets                                    6,491          4,953           1,538
Other expense                                             351         12,798         (12,447)
Total costs and expenses                              425,641        409,858          15,783
Income from sales of real estate                        6,118        233,406        (227,288)
Loss on early extinguishment of debt, net             (12,038)          (468)        (11,570)
Earnings from equity method investments                26,003         16,566           9,437
Selling profit from sales-type leases                       -        180,416        (180,416)

Income tax expense                                       (165)          (323)            158
Net income (loss)                                  $  (20,793)$ 370,347$ (391,140)


Revenue-Operating lease income, which primarily includes income from net lease
assets and commercial operating properties, decreased $17.7 million to $140.5
million during the nine months ended September 30, 2020 from $158.2 million for
the same period in 2019. The following table summarizes our operating lease
income by segment ($ in millions).
                                       Nine Months Ended September 30,
                                              2020                      2019        Change
Net Lease(1)                  $           124.0                       $ 136.2$ (12.2)
Operating Properties(2)                    16.2                          21.8         (5.6)
Land and Development                        0.3                           0.2          0.1
Total                         $           140.5                       $ 158.2$ (17.7)

______________________________________________________________

(1)Change primarily due to the reclassification of certain operating leases to
sales-type leases in May 2019 (refer to Note 5) and asset sales, partially
offset by new acquisitions.
(2)Change primarily due to asset sales.

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The following table shows certain same store statistics for our consolidated Net
Lease segment. Same store assets are defined as assets we owned on or prior to
January 1, 2019 and were in service through September 30, 2020 (Operating lease
income in millions).
                                         Nine Months Ended September 30,
                                        2020                             2019

Operating lease income(1)        $        121.4$ 120.0

Rent per square foot             $        10.98$ 10.70

Occupancy(2)                               98.5   %                      99.3  %

______________________________________________________________

(1)For the nine months ended September 30, 2020 and 2019, includes $24.1 million
and $11.2 million, respectively, of lease income from one net lease tenant that
was recorded to "Interest income from sales-type leases" in our consolidated
statements of operations.
(2)Occupancy as of September 30, 2020 and 2019.

Interest income decreased $13.5 million to $46.9 million during the nine months
ended September 30, 2020 from $60.4 million for the same period in 2019. The
decrease was due primarily to a decrease in the average balance of our
performing loans and other lending investments, which was $716 million for the
nine months ended September 30, 2020 and $880 million for the nine months ended
September 30, 2019. The weighted average yield on our performing loans and other
lending investments for the nine months ended September 30, 2020 and 2019 was
7.9% and 9.0%, respectively.
On January 1, 2019, we adopted new accounting standards and classified certain
of our leases in 2019 as sales-type leases. Under sales-type leases, we accrue
interest income from sales-type leases under the effective interest method as
opposed to recognition of operating lease income under the straight-line rent
method for our leases that do not qualify as sales-type leases. Interest income
from sales-type leases increased to $25.0 million for the nine months ended
September 30, 2020 from $12.2 million for the same period in 2019. The increase
was due primarily to a full period of interest income for sales-type leases
during the nine months ended September 30, 2020 (refer to Note 5).
Other income increased $13.1 million to $56.2 million during the nine months
ended September 30, 2020 from $43.1 million for the same period in 2019. Other
income during the nine months ended September 30, 2020 consisted primarily of
mark-to-market gains on an equity investment, management fees, other ancillary
income from our operating properties, land and development projects and loan
portfolio, income from our hotel properties and interest income on our cash.
Other income during the nine months ended September 30, 2019 consisted primarily
of income from our hotel properties, other ancillary income from our operating
properties and land and development projects and interest income on our cash.
The increase in 2020 was primarily due to $23.9 million of mark-to-market gains
on an equity investment (refer to Note 8) and an increase in management fees
from SAFE, partially offset by a decrease in income from our hotel properties
and other operating properties.
Land development revenue and cost of sales-During the nine months ended
September 30, 2020, we sold residential lots and units and recognized land
development revenue of $116.3 million which had associated cost of sales of
$114.7 million. During the nine months ended September 30, 2019, we sold
residential lots and units and recognized land development revenue of $76.7
million which had associated cost of sales of $71.8 million. The increase in
2020 was due primarily to the sale of a 430 acre site in California for $36.0
million which had associated cost of sales of $35.4 million.

Costs and expenses-Interest expense decreased $9.1 million to $127.7 million
during the nine months ended September 30, 2020 from $136.9 million for the same
period in 2019 due primarily to a decrease in our weighted average cost of debt,
which was 4.8% for the nine months ended September 30, 2020 compared to 5.4% for
the nine months ended September 30, 2019. The balance of our average outstanding
debt, inclusive of loan participations and lease liabilities associated with
finance-type leases, decreased to $3.51 billion for the nine months ended
September 30, 2020 from $3.52 billion for the same period in 2019.
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Real estate expenses decreased $17.5 million to $53.7 million during the nine
months ended September 30, 2020 from $71.2 million for the same period in 2019.
The following table summarizes our real estate expenses by segment ($ in
millions).
                                       Nine Months Ended September 30,
                                              2020                       2019       Change
Operating Properties(1)       $           16.6                         $ 28.8$ (12.2)
Land and Development(2)                   17.6                           24.2         (6.6)
Net Lease(3)                              19.5                           18.2          1.3
Total                         $           53.7                         $ 71.2$ (17.5)

______________________________________________________________

(1)Change primarily due to asset sales and a decrease in expenses at certain
operating properties, partially offset by an asset beginning operations during
2019.
(2)Change primarily due to a decrease in legal and marketing costs at some
properties and asset sales.
(3)Change primarily due to new acquisitions, partially offset by asset sales.

Depreciation and amortization decreased $0.2 million to $43.4 million during the
nine months ended September 30, 2020 from $43.6 million for the same period in
2019, primarily due to asset sales and the reclassification of certain operating
leases to sales-type lease (refer to Note 5), partially offset by new
acquisitions.
General and administrative expense includes payroll and related costs,
performance-based compensation, public company costs and occupancy costs.
General and administrative expenses increased $0.6 million to $73.1 million
during the nine months ended September 30, 2020 from $72.5 million for the same
period in 2019. The increase in 2020 was due primarily to an increase in
performance based compensation, which was partially offset by a decrease in
payroll and related costs and a decrease in travel and entertainment costs.

The provision for loan losses was $4.1 million for the nine months ended
September 30, 2020 as compared to a recovery of loan losses of $3.8 million for
the same period in 2019. The provision for loan losses for the nine months ended
September 30, 2020 resulted from the macroeconomic impact of COVID-19 on
commercial real estate markets. The recovery of loan losses for the nine months
ended September 30, 2019 was due to a decrease in the general reserve of $4.3
million offset by an increase in the specific reserve of $0.5 million.
The provision for losses on net investment in leases for the nine months ended
September 30, 2020 included an allowance resulting from the macroeconomic impact
of COVID-19 on commercial real estate markets.
During the nine months ended September 30, 2020, we recorded an aggregate
impairment of $6.5 million in connection with the sale of net lease assets and
impairments on a real estate asset held for sale and a land and development
asset. During the nine months ended September 30, 2019, we recorded an aggregate
impairment of $5.0 million which included an impairment of $3.3 million on a
commercial operating property based on an executed purchase and sale agreement,
a $1.1 million impairment on a land and development asset due to a change in
business strategy and $0.6 million of impairments in connection with the sale of
residential condominium units.
Other expense decreased to $0.4 million during the nine months ended
September 30, 2020 from $12.8 million for the same period in 2019. The decrease
was due primarily to expenses associated with derivative contracts that were
terminated during the nine months ended September 30, 2019.
Income from sales of real estate-During the nine months ended September 30,
2020, we recorded $6.1 million of income from sales of real estate from the sale
of a Ground Lease to SAFE (refer to Note 8). During the nine months ended
September 30, 2019, we recorded $233.4 million of income from sales of real
estate, primarily from the sale of a portfolio of net lease assets and operating
properties.

Loss on early extinguishment of debt, net-During the nine months ended
September 30, 2020 and 2019, we incurred losses on early extinguishment of debt
of $12.0 million and $0.5 million, respectively, resulting from the repayment of
senior notes prior to maturity.
Earnings from equity method investments-Earnings from equity method investments
increased to $26.0 million during the nine months ended September 30, 2020 from
$16.6 million for the same period in 2019. During the nine months ended
September 30, 2020, we recognized $36.9 million of income from our equity method
investment in SAFE, which included a dilution gain of $7.9 million resulting
from a SAFE equity offering in March 2020, $1.6 million from our equity
investment in Net Lease Venture II, which were partially offset by $12.5 million
of net aggregate losses from our remaining equity method
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investments. During the nine months ended September 30, 2019, we
recognized $14.1 million from our equity method investment in SAFE and $8.2
million from the sale of an asset in an operating property venture, partially
offset by $5.7 million of net aggregate losses from our remaining equity method
investments.
Selling profit from sales-type leases-During the nine months ended September 30,
2019, we entered into a transaction with an operator of bowling entertainment
venues, consisting of the purchase of nine bowling centers for $56.7 million and
a commitment to purchase up to $55.0 million of additional bowling centers over
the next several years (refer to Note 5). The new centers were added to our
existing master leases with the tenant. In connection with this transaction, the
maturities of the leases were extended by 15 years to 2047. As a result of the
modifications to the leases, we accounted for the leases as sales-type leases
and recognized $180.4 million in "Selling profit from sales-type leases" as a
result of the transaction.

Income tax expense-Income tax expense of $0.2 million was recorded during the
nine months ended September 30, 2020 as compared to an income tax expense of
$0.3 million for the same period in 2019. The income tax expense for the nine
months ended September 30, 2020 and 2019 related primarily to state margins
taxes and other minimum state taxes.

Adjusted Earnings


In 2019, we announced a new business strategy that would focus our management
personnel and our investment resources primarily on scaling our Ground Lease
platform. As part of this strategy, we accelerated the monetization of legacy
assets, reducing our legacy portfolio to approximately 17% of our overall
portfolio as of September 30, 2020, and deployed a substantial portion of the
proceeds into additional investments in SAFE and new loan and net lease
originations relating to the Ground Lease business. Management has determined
that, effective for the first quarter 2020, a modified non-GAAP earnings metric,
designated "adjusted earnings," is the metric it uses to assess our execution of
this strategy and the performance of our operations. Adjusted earnings reflects
impairment charges and loan provisions in the same period in which they are
recognized in net income (loss) prepared in conformity with generally accepted
accounting principles in the United States of America ("GAAP"), rather than in a
later period when the asset is sold. We believe this change is appropriate as
legacy asset sales become less central to our business, even though sales may be
material to particular periods when they occur.

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

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

the Three Months Ended September 30,

                                                                     2020                 2019               2018
                                                                                   (in thousands)
Adjusted Earnings
Net loss allocable to common shareholders                      $       (2,069)$ (7,343)$ (18,984)
Add: Depreciation and amortization                                     15,795            14,266             19,873

Add: Stock-based compensation expense                                   5,661             6,740              3,651

Add: Non-cash portion of loss on early extinguishment of debt 2,672

                 -                911

Adjusted earnings allocable to common shareholders             $       22,059$ 13,663$   5,451



                                                                       For

the Nine Months Ended September 30,

                                                                     2020                  2019               2018
                                                                                   (in thousands)
Adjusted Earnings
Net income (loss) allocable to common shareholders             $      (46,850)$ 337,807$  50,698
Add: Depreciation and amortization                                     46,526             44,008             52,153

Add: Stock-based compensation expense                                  26,675             20,694             16,245

Add: Non-cash portion of loss on early extinguishment of debt 3,470

                468              3,447

Adjusted earnings allocable to common shareholders             $       

29,821 $ 402,977$ 122,543

Liquidity and Capital Resources


During the three months ended September 30, 2020, we invested an aggregate $148
million into new investments, prior financing commitments and real estate
development. Investments included $117 million in net lease, loan, and strategic
investments, $14 million in the repurchase of our common stock, $9 million of
capital expenditures on legacy assets and $8 million in SAFE common stock. These
amounts are inclusive of fundings from consolidated investments and our pro rata
share from equity method investments and includes $83 million of investments
made within the Net Lease Venture II, of which we own 51.9%.
The following table outlines our capital expenditures on operating properties,
net lease and land and development assets as reflected in our consolidated
statements of cash flows, by segment ($ in thousands):
                                                           For the Nine 

Months Ended September 30,

                                                                 2020                    2019
Operating Properties                                       $        2,037$       5,965
Net Lease                                                           9,624                 15,116
Total capital expenditures on real estate assets           $       11,661

$ 21,081


Land and Development                                       $       33,488$      93,395
Total capital expenditures on land and development assets  $       33,488

$ 93,395



As of September 30, 2020, we had unrestricted cash of approximately $88 million
and $330 million of borrowing capacity available under the Revolving Credit
Facility. The COVID-19 crisis has for the time being adversely affected our
strategies of monetizing legacy assets and materially scaling SAFE's portfolio
as its Manager. These conditions will adversely affect our
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strategies while they persist. Our primary cash uses over the next 12 months are
expected to be funding of investments, capital expenditures, distributions to
shareholders through dividends and share repurchases and funding ongoing
business operations. In the near term we plan to limit non-investment cash
expenditures to the extent practicable. The amount we actually invest will
depend on the full impact of COVID-19 on our business and the pace of the
economic recovery. We also had approximately $136 of maximum unfunded
commitments associated with our investments of which we expect to fund the
majority over the next two years, assuming borrowers and tenants meet all
milestones, performance hurdles and all other conditions to fundings (see
"Unfunded Commitments" below). We also have approximately $502 million principal
amount of scheduled real estate finance asset maturities over the next 12
months, exclusive of any extension options that can be exercised by our
borrowers. Our capital sources to meet cash uses through the next 12 months and
beyond are expected to include cash on hand, Revolving Credit Facility
borrowings, income from our portfolio, loan repayments from borrowers and
proceeds from asset sales. We cannot predict with certainty the specific
transactions we will undertake to generate sufficient liquidity to meet our
obligations as they come due. We will adjust our plans as appropriate in
response to changes in our expectations and changes in market conditions.
Contractual Obligations-The following table outlines the contractual obligations
related to our long-term debt obligations, loan participations payable and
operating lease obligations as of September 30, 2020 (refer to Note 11 to our
consolidated financial statements).
                                                                                      Amounts Due By Period
                                                             Less Than 1             1 - 3                3 - 5               5 - 10             After 10
                                          Total                 Year                 Years                Years               Years               Years
                                                                                          (in thousands)
Long-Term Debt Obligations:
Unsecured notes                       $ 2,012,500          $          -          $   287,500$ 1,325,000$ 400,000          $         -
Secured credit facilities                 491,875                     -              491,875                    -                  -                    -
Revolving credit facility                  20,000                     -               20,000                    -                  -                    -
Mortgages                                 724,836                72,439              162,037              160,408            323,856                6,096
Trust preferred securities                100,000                     -                    -                    -                  -              100,000
Total principal maturities              3,349,211                72,439    
         961,412            1,485,408            723,856              106,096
Interest Payable(1)                       620,462               132,344              243,831              184,724             50,143                9,420
Loan Participations Payable(2)             41,941                41,941                    -                    -                  -                    -
Lease Obligations(3)                    1,628,887                 8,570               24,570               24,365             33,465            1,537,917

Total                                 $ 5,640,501$    255,294$ 1,229,813$ 1,694,497$ 807,464$ 1,653,433

_______________________________________________________________________________

(1)Variable-rate debt assumes one-month LIBOR of 0.15% and three-month LIBOR of
0.23% that were in effect as of September 30, 2020. Interest payable does not
include payments that may be required under our interest rate derivatives.
(2)Refer to Note 10 to the consolidated financial statements.
(3)We are obligated to pay ground rent under certain operating leases; however,
our tenants at the properties pay this expense directly under the terms of
various subleases and these amounts are excluded from lease obligations.

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Credit Metrics-The following table presents metrics that management reviews as
indicators of the strength of our balance sheet and credit profile. Metrics are
shown both excluding ("Without SAFE MTM") and including ("With SAFE MTM") our
unrealized gain on the shares of common stock of SAFE that we own. Readers are
cautioned that there can be no assurance that the asset values used to calculate
these metrics could be realized on the sale of such assets in a liquidation or
otherwise.
                                                                                            As of
                                                          September 30, 2020                                     December 31, 2019
                                                 Without                      With                      Without                      With
                                                SAFE MTM                  SAFE MTM(1)                  SAFE MTM                  SAFE MTM(1)
                                                                                       ($ in millions)
Unencumbered assets(2)                                 $ 3,399$ 4,633$ 3,585$ 4,112
Unencumbered assets / Unsecured debt(3)                   1.6x                         2.2x                      1.6x                         1.8x
Leverage(4)                                               2.2x                         1.2x                      2.0x                         1.5x
Unsecured debt / Total debt(5)                           68  %                        68  %                     69  %                        69  %


_______________________________________________________________________________
(1)As of September 30, 2020 and December 31, 2019, we owned 33.7 million shares
and 31.2 million shares, respectively, of SAFE common stock. SAFE mark-to-market
is calculated using the SAFE share price of $62.10 as of September 30, 2020 and
the SAFE share price of $40.30 as of December 31, 2019.
(2)Unencumbered assets represents the gross book value of our assets, including
the gross book value of our equity method investments, that are not pledged as
collateral to any of our debt obligations plus intangible assets/liabilities for
all other assets pledged as collateral. As of September 30, 2020, unencumbered
assets includes $610.8 million gross book value of assets held by entities whose
equity interests are pledged as collateral for the Revolving Credit Facility
that had $20.0 million outstanding as of September 30, 2020.
(3)Represents the amount of unencumbered assets as a percentage of our unsecured
debt obligations.
(4)Leverage represents our total debt obligations, net of cash, divided by our
adjusted total equity. Adjusted total equity equals total equity, adjusted to
add the following, each as determined under GAAP: accumulated depreciation and
amortization, CECL allowances and our proportionate share of accumulated
depreciation and amortization from our equity method investments.
(5)Represents the principal amount of our unsecured debt as a percentage of the
principal amount of our total debt and excludes debt attributable to
noncontrolling interests.

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

The Senior Term Loan and the Revolving Credit Facility contain certain
covenants, including covenants relating to collateral coverage, restrictions on
fundamental changes, transactions with affiliates, matters relating to the liens
granted to the lenders and the delivery of information to the lenders. In
particular, the Senior Term Loan requires us to maintain collateral coverage of
at least 1.25x outstanding borrowings on the facility. The Revolving Credit
Facility is secured by a borrowing base of assets and requires us to maintain
both borrowing base asset value of at least 1.5x outstanding borrowings on the
facility and a consolidated ratio of cash flow to fixed charges of at least
1.5x. The Revolving Credit Facility does not require that proceeds from the
borrowing base be used to pay down outstanding borrowings provided the borrowing
base asset value remains at least 1.5x outstanding borrowings on the facility.
To satisfy this covenant, we have the option to pay down outstanding borrowings
or substitute assets in the borrowing base. Under both the Senior Term Loan and
the Revolving Credit Facility we are permitted to pay dividends provided that no
material default (as defined in the relevant agreement) has occurred and is
continuing or would result therefrom and we remain in compliance with our
financial covenants after giving effect to the dividend. We declared common
stock dividends of $24.6 million, or $0.32 per share, for the nine months ended
September 30, 2020.

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

Off-Balance Sheet Arrangements-We are not dependent on the use of any
off-balance sheet financing arrangements for liquidity. We have made investments
in various unconsolidated ventures. Refer to Note 8 to the consolidated
financial statements for further details of our unconsolidated investments. Our
maximum exposure to loss from these investments is limited to the carrying value
of our investments and any unfunded commitments (see below).

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Unfunded Commitments-We generally fund construction and development loans and
build-outs of space in net lease assets over a period of time if and when the
borrowers and tenants meet established milestones and other performance
criteria. We refer to these arrangements as Performance-Based Commitments. In
addition, we have committed to invest capital in several real estate funds and
other ventures. These arrangements are referred to as Strategic Investments. As
of September 30, 2020, the maximum amount of fundings we may be obligated to
make under each category, assuming all performance hurdles and milestones are
met under the Performance-Based Commitments and assuming that 100% of our
capital committed to Strategic Investments is drawn down, are as follows (in
thousands):
                                               Loans and Other
                                                   Lending                                          Other
                                               Investments(1)             Real Estate            Investments               Total
Performance-Based Commitments               $           83,423          $      14,726$      27,902$    126,051
Strategic Investments                                        -                      -                  9,967                 9,967

Total                                       $           83,423          $      14,726$      37,869$    136,018

_______________________________________________________________________________

(1)Excludes $8.0 million of commitments on loan participations sold that are not
our obligation.
Stock Repurchase Program-We may repurchase shares in negotiated transactions or
open market transactions, including through one or more trading plans. During
the nine months ended September 30, 2020, we repurchased 3.7 million shares of
our outstanding common stock for $41.4 million, for an average cost of $11.32
per share. During the nine months ended September 30, 2019, we repurchased 6.2
million shares of our outstanding common stock for $58.8 million, for an average
cost of $9.44 per share. In August 2020, our board of directors authorized an
increase to the stock repurchase program to $50.0 million. As of September 30,
2020, we had remaining authorization to repurchase up to $40.8 million of common
stock under our stock repurchase program.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and judgments in certain circumstances that affect
amounts reported as assets, liabilities, revenues and expenses. We have
established detailed policies and control procedures intended to ensure that
valuation methods, including any judgments made as part of such methods, are
well controlled, reviewed and applied consistently from period to period. We
base our estimates on historical corporate and industry experience and various
other assumptions that we believe to be appropriate under the circumstances. For
all of these estimates, we caution that future events rarely develop exactly as
forecasted, and, therefore, routinely require adjustment.

For a discussion of our critical accounting policies, refer to Note 3 to the consolidated financial statements and our Annual Report on Form 10-K.


New Accounting Pronouncements-For a discussion of the impact of new accounting
pronouncements on our financial condition or results of operations, refer to
Note 3 to the consolidated financial statements.
                                       58

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