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    STAR   US45031U1016

ISTAR INC.

(STAR)
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ISTAR : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/23/2021 | 04:31pm EDT
Please read the following discussion of our consolidated operating results,
financial condition and liquidity together with our consolidated financial
statements and related notes included elsewhere in this Annual Report on
Form 10-K. Our discussion of 2018 results is included in   Part II, Item 7 of
our 2019 Annual Report on Form 10-K  . Our historical results may not be
indicative of our future performance. Certain prior year amounts have been
reclassified in our consolidated financial statements and the related notes to
conform to the current period presentation.
Executive Overview
Our portfolio is well diversified by business, property type and geography. Our
portfolio includes investments in the entertainment/leisure (20.7% of gross book
value) and hotel (5.7% of gross book value) sectors, which have been
particularly stressed by the coronavirus (COVID-19) pandemic. We collected 99%
of the rent due from our net lease tenants during the fourth quarter (excluding
one net lease tenant with whom we entered into lease modifications in the second
and third quarter 2020 - refer to Note 5), 89% of the interest payments due in
our real estate finance portfolio and 85% of the rent due in our operating
properties portfolio. SAFE reported that it received 100% of the ground rent due
under its leases for the year ended December 31, 2020. We may continue to
experience disruptions and collections of rent and interest payments until more
normalized business conditions resume. In 2020, we increased our general
allowance for loan losses and we may continue to do so in the future while the
COVID-19 pandemic continues to materially affect the U.S. economy.
The COVID-19 pandemic has adversely affected our strategies of monetizing legacy
assets and materially scaling SAFE's portfolio in 2020, primarily because of
reduced levels of real estate transactions and constrained conditions for equity
and debt financing for real estate transactions. In addition, the pandemic has
made it more difficult to execute transactions as people work from home and 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. At this time, we cannot predict the full
extent of the impacts of the COVID-19 pandemic on our or SAFE's business. See
the Risk Factors section of this report for additional discussion of certain
potential risks to our business arising from the COVID-19 pandemic.
For the year ended December 31, 2020, we recorded a net loss allocable to common
shareholders of $65.9 million, compared to net income of $291.5 million during
the prior year. Adjusted earnings allocable to common shareholders for the year
ended December 31, 2020 was $40.8 million, compared to $388.0 million during the
prior year (see "Adjusted Earnings" for a reconciliation of adjusted earnings to
net income).
As of December 31, 2020, we had $99 million of cash and $350 million of credit
facility availability. 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). We have no corporate debt
maturities through September 2022 and expect to use our unrestricted cash
balance primarily to fund future investment activities and for general working
capital needs.
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Portfolio Overview

As of December 31, 2020, based on gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):(1)

                                          Net               Real Estate           Operating              Land &                                                          % of
Property/Collateral Types                Lease                Finance             Properties           Development          Corporate             Total                 Total
Office                               $   937,362          $     51,629          $        28          $          -          $       -          $   989,019                   20.8  %
Entertainment / Leisure                  967,886                     -               16,188                     -                  -              984,074                   20.7  %
Ground Leases                            962,386                     -                    -                     -                  -              962,386                   20.2  %
Industrial                               284,084                     -               97,663                     -             62,961              444,708                    9.3  %
Land and Development                           -                69,952                    -               352,368                  -              422,320                    8.9  %
Condominium                                    -               159,033               18,355               111,762                  -              289,150                    6.1  %
Hotel                                          -               187,802               82,997                     -                  -              270,799                    5.7  %
Multifamily                                    -               148,031               58,878                     -                  -              206,909                    4.3  %
Retail                                    57,348                56,488               34,877                 8,271                  -              156,984                    3.3  %
Other Property Types                           -                25,274                    -                     -              6,949               32,223                    0.7  %
Total                                $ 3,209,066          $    698,209          $   308,986          $    472,401          $  69,910          $ 4,758,572                  100.0  %


Percentage of Total          68  %      15  %     6  %      10  %     1  %     100  %


                                   Net               Real Estate           Operating              Land &                                                         % of
Geographic Region                 Lease                Finance             Properties           Development          Corporate             Total                 Total
Northeast                     $   911,690          $    280,925          $    93,612          $    275,859          $       -          $ 1,562,086                  32.8  %
West                              497,171               224,434               56,392                42,286                  -              820,283                  17.2  %
Mid-Atlantic                      561,218                     -                6,133               107,275                  -              674,626                  14.2  %
Central                           429,024                73,600               44,749                31,500                  -              578,873                  12.2  %
Southwest                         406,753                     -               97,690                 8,562                  -              513,005                  10.8  %
Southeast                         393,780                28,535               10,410                 6,919                  -              439,644                   9.2  %
Various                             9,430                90,715                    -                     -             69,910              170,055                   3.6  %
Total                         $ 3,209,066          $    698,209          $   308,986          $    472,401          $  69,910          $ 4,758,572                 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 allowances. 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 net
lease assets for long-term investment. However, we may dispose of assets if we
deem the disposition to be in our best interests.
The net lease segment includes our Ground Lease investments made primarily
through SAFE and our traditional net lease investments.
SAFE-SAFE is a publicly-traded company that originates and acquires Ground
Leases in order to generate attractive long-term risk-adjusted returns. We
believe its business has characteristics comparable to a high-grade fixed income
investment business,
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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 base rent increases and the opportunity to
realize value from SAFE's right to regain possession of the buildings and other
improvements on its land upon expiration or earlier termination of the lease at
no additional cost. We believe that these features offer us the opportunity
through our ownership in SAFE to realize superior risk-adjusted total returns
when compared to certain alternative highly-rated investments. As of
December 31, 2020, we owned approximately 65.4% of SAFE's common stock
outstanding, subject to voting limitations described below.
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.
The management agreement generally provides for a base management fee that
ranges from a minimum of 1.0% to a maximum of 1.5% as SAFE's Total Equity (as
defined in the agreement) increases. The management fee is payable in cash or in
shares of SAFE common stock at SAFE's election (as determined by SAFE's
independent directors). The initial term of the management agreement ends on
June 30, 2023 during which the agreement is non-terminable, except for certain
cause events. After the initial term, the agreement will be automatically
renewed for additional one year terms, subject to certain rights of SAFE's
independent directors to terminate the agreement based on the manager's
materially detrimental long-term performance or, beginning with the seventh
annual renewal term after the initial term, unfair management fees that the
manager declines to renegotiate. SAFE will be obligated to pay the manager a
termination fee equal to three times the annual management fee paid in respect
of the last completed fiscal year prior to the termination.

We are party to 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. We are also party to a stockholders
agreement with SAFE that:

•limits our discretionary voting power to 41.9% of the outstanding voting power
of SAFE's Common Stock until our aggregate ownership of SAFE common stock is
less than 41.9%;
•subjects us to certain standstill provisions; and
•provides us certain preemptive rights.

The complete management agreement, exclusivity agreement and stockholder's agreement between SAFE and us, as amended, are incorporated by reference as exhibits to this Annual Report on Form 10-K.


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. 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. 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 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. The Net Lease Venture II's investment period expires on June 30,
2021.

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As of December 31, 2020, our consolidated net lease portfolio totaled
$2.2 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 $3.2 billion. The table below provides certain
statistics for our net lease portfolio.
                                                              Net Lease           Consolidated          Net Lease
                                         Wholly-Owned         Venture I          Real Estate(1)         Venture II           SAFE
Ownership %                                   100.0  %            51.9  %              -                    51.9  %           65.4  %

Gross book value (millions)(2) $ 1,255 $ 907

    $       2,162          $     323          $  3,201

% Leased                                       99.0  %           100.0  %                99.3  %           100.0  %          100.0  %
Square feet (thousands)                       9,998              5,749                 15,747              3,302              N/A
Weighted average lease term
(years)(3)                                     14.9               16.3                   15.5               12.9              88.8
Weighted average yield(4)                       7.9  %             7.9  %                 7.9  %             9.0  %            4.7  %

_______________________________________________________________________________
(1)We own 51.9% of the Net Lease Venture which is consolidated in our GAAP
financial statements (refer to Note 4).
(2)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 represents the yield for the fourth quarter 2020. Yield for SAFE is
calculated over the trailing twelve months and excludes management fees earned
by us.

Portfolio Activity-During the year ended December 31, 2020, we sold net lease
assets with an aggregate carrying value of $38.4 million and recognized gains of
$6.1 million in "Income from sales of real estate" in our consolidated
statements of operations. In addition, we also recorded $2.0 million of
aggregate impairments in connection with the sale of net lease assets, recorded
an initial allowance for losses on net investment in leases of $9.1 million upon
the adoption of ASU 2016-13 on January 1, 2020 (refer to Note 3) and recorded a
provision for losses on net investment in leases of $1.8 million resulting
primarily from the macroeconomic impact of the COVID-19 pandemic on commercial
real estate markets.

During the year ended December 31, 2020, we invested approximately $176.3 million in SAFE common stock through a series of private placements and open market transactions and received $21.0 million in distributions from SAFE.

Also during the year ended December 31, 2020, we made contributions of $73.3 million to and received distributions of $27.6 million from Net Lease Venture II.

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Summary of Lease Expirations-As of December 31, 2020, future lease expirations
on our net lease assets, excluding our equity method investments in SAFE and Net
Lease Venture II, are as follows ($ in thousands):
                                                           Annualized
                                                            In-Place               % of Annualized
                                                           Operating                   In-Place
                                                        Lease Income and              Operating
                                    Number of           Interest Income            Lease Income and                                     Square Feet of
                                      Leases                  from               Interest Income from            % of Total            Leases Expiring
Year of Lease Expiration             Expiring          Sales-type Leases          Sales-type Leases              Revenue(1)             (in thousands)
2021                                      2            $         4,087                          2.3  %                   0.7  %                133
2022                                      1                      7,204                          4.0  %                   1.2  %                484
2023                                      2                      3,954                          2.2  %                   0.7  %                 29
2024                                      2                      5,747                          3.2  %                   1.0  %                235
2025                                      1                      7,383                          4.1  %                   1.3  %                410
2026                                      5                     10,608                          5.9  %                   1.8  %                640
2027                                      1                        622                          0.3  %                   0.1  %                153
2028                                      3                      1,948                          1.1  %                   0.3  %                189
2029                                      -                          -                            -  %                     -  %                  -
2030                                      1                      2,212                          1.2  %                   0.4  %                591
2031 and thereafter                      18                    136,625                         75.7  %                  23.4  %             12,883
Total                                    36            $       180,390                        100.0  %                  30.9  %             15,747
Weighted average remaining
lease term (in years)(2)                    15.5

_______________________________________________________________________________
(1)Reflects the percentage of annualized operating lease income and interest
income from sales-type leases for leases in-place as a percentage of annualized
total revenue.
(2)Represents the initial maturity and does not include extension options.

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 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.

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Our real estate finance portfolio included the following ($ in thousands):
                                                                                         As of December 31,
                                                                         2020                                          2019
                                                            Total               % of Total                Total               % of Total
Performing loans:
Senior mortgages                                        $  432,350                      57.9  %       $  534,765                      62.4  %
Corporate/partnership loans                                 85,667                      11.5  %          119,818                      14.0  %
Subordinate mortgages                                       11,640                       1.6  %           10,876                       1.3  %
Subtotal                                                   529,657                      71.0  %          665,459                      77.7  %
Non-performing loans:
Senior mortgages                                            53,305                       7.2  %           37,820                       4.4  %

Subtotal                                                    53,305                       7.2  %           37,820                       4.4  %
Total carrying value of loans                              582,962                      78.2  %          703,279                      82.1  %
Other lending investments                                  162,538                      21.8  %          153,216                      17.9  %
Total carrying value                                       745,500                     100.0  %          856,495                     100.0  %
Allowance for loan losses                                  (13,170)                                      (28,634)

Total loans receivable and other lending investments, net

                                                     $  732,330                                    $  827,861


Portfolio Activity-During the year ended December 31, 2020, the Company invested $138.8 million (including capitalized deferred interest) in its real estate finance portfolio and received repayments and proceeds from sales of $243.2 million (including the receipt of previously capitalized deferred interest).

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Summary of Interest Rate Characteristics-Our loans receivable and other lending
investments had the following interest rate characteristics ($ in thousands):
                                                                                                As of December 31,
                                                                     2020                                                               2019
                                                                                       Weighted                                                           Weighted
                                           Carrying               %                    Average                Carrying               %                     Average
                                            Value              of Total              Accrual Rate              Value              of Total              Accrual Rate
Fixed-rate loans and other lending
investments                              $ 239,843                 32.1  %                     7.0  %       $ 207,422                 24.2  %                      7.2  %
Variable-rate loans(1)                     452,352                 60.7  %                     5.6  %         611,253                 71.4  %                      6.2  %

Non-performing loans                        53,305                  7.2  %                        N/A          37,820                  4.4  %                         N/A
Total carrying value                       745,500                100.0  %                                    856,495                100.0  %
Allowance for loan losses                  (13,170)                                                           (28,634)
Total loans receivable and other
lending investments, net                 $ 732,330                                                          $ 827,861


__________________________________________________________________________

(1)As of December 31, 2020 and 2019, includes $288.3 million and $400.4 million,
respectively, of loans with a weighted average LIBOR floor of 1.7% and 1.3%,
respectively.
Summary of Maturities-As of December 31, 2020, our loans receivable and other
lending investments had the following maturities ($ in thousands):
                                                               Number of
                                                                 Loans              Carrying                  %
Year of Maturity                                               Maturing               Value                of Total
2021                                                                13            $  493,977                     66.2  %
2022                                                                 -                     -                        -  %
2023                                                                 2               110,830                     14.9  %
2024                                                                 1                 3,925                      0.5  %
2025                                                                 -                     -                        -  %
2026 and thereafter                                                  2                36,914                      5.0  %
Total performing loans and other securities(1)                      18            $  645,646                     86.6  %
Other lending investments                                            1                46,549                      6.2  %
Non-performing loans                                                 1                53,305                      7.2  %
Total carrying value                                                20            $  745,500                    100.0  %
General allowance for loan losses                                           

(13,170)

Total loans receivable and other lending investments, net

$ 732,330

_______________________________________________________________________________

(1)Year of maturity for our performing loans and other securities represents the
initial maturity and does not include any extension options. As of December 31,
2020, our performing loans and other securities had a weighted average remaining
term, exclusive of any borrower extension options, of 2.3 years.


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The tables below summarize our loan portfolio, excluding securities and other
lending investments, and the allowances for loan losses associated with our loan
portfolio ($ in thousands):
                                                                                          December 31, 2020
                                                                                                                                                 Allowance for
                                                                                                                                               Loan Losses as a
                                                       Gross Carrying       Allowance for                                                         % of Gross
                                       Number              Value             Loan Losses           Carrying Value           % of Total          Carrying Value
Performing loans                          16           $   529,657          $    (8,184)         $       521,473              71.2%                  1.5%
Non-performing loans                       1                53,305                 (742)                  52,563               7.2%                  1.4%
Other lending investments                  3               162,538               (4,244)                 158,294              21.6%                  2.6%
Total                                     20           $   745,500          $   (13,170)         $       732,330              100.0%                 1.8%

                                                                                          December 31, 2019
                                                                                                                                                 Allowance for
                                                                                                                                               Loan Losses as a
                                                       Gross Carrying       Allowance for                                                         % of Gross
                                       Number              Value             Loan Losses           Carrying Value           % of Total          Carrying Value
Performing loans                          22           $   665,459          $    (6,933)         $       658,526              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           $   856,495          $   (28,634)         $       827,861              100.0%                 3.3%



Performing Loans-The table below summarizes our performing loans gross of
allowances ($ in thousands):
                               December 31, 2020      December 31, 2019
Senior mortgages              $        432,350       $        534,765
Corporate/Partnership loans             85,667                119,818
Subordinate mortgages                   11,640                 10,877
Total                         $        529,657       $        665,460

Weighted average LTV                        57  %                  56  %
Yield - year to date                       7.7  %                 8.8  %



Non-Performing Loans-We designate loans as non-performing at such time as:
(1) interest payments become 90 days delinquent; (2) the loan has a maturity
default; or (3) management determines it is probable that we will be unable to
collect all amounts due according to the contractual terms of the loan. All
non-performing loans are placed on non-accrual status and income is only
recognized in certain cases upon actual cash receipt. As of December 31, 2020,
we had one non-performing loan with a carrying value of $52.6 million compared
to one non-performing loan with a carrying value of $16.1 million as of
December 31, 2019. We expect that our level of non-performing loans will
fluctuate from period to period.

Allowance for Loan Losses-The allowance for loan losses was $13.2 million as of
December 31, 2020, or 1.8% of total loans and other lending investments,
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 and other lending investments.

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 December 31, 2020,
asset-specific allowances decreased to $0.7 million compared to $21.7 million as
of December 31, 2019. The decrease was due primarily to a $25.9 million
charge-off resulting from the sale of a non-performing loan.

We estimate the formula-based component based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market. In addition, we use third-party market data that includes forecasted economic trends, including unemployment rates.

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The general allowance increased to $12.4 million or 1.8% of performing loans and
other lending investments as of December 31, 2020, compared to $6.9 million or
1.0% of performing loans 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 and an increase in the general allowance of $4.8 million during
the year ended December 31, 2020.

Operating Properties


Our operating properties represent a pool of assets across a broad range of
geographies and property types including industrial, hotel, multifamily, retail,
condominium, entertainment/leisure and office properties. As of December 31,
2020, our operating property portfolio, including the carrying value of our
equity method investments gross of accumulated depreciation, totaled $309.0
million.

Portfolio Activity-We have been monetizing our operating properties and during
the year ended December 31, 2020, we sold commercial and residential operating
properties with an aggregate carrying value of $5.7 million and recognized gains
of $0.2 million in "Income from sales of real estate" in our consolidated
statements of operations. We also invested $1.6 million in our operating
properties and made contributions of $2.8 million to our operating property
equity method investments.

Land and Development


As of December 31, 2020, the Company's land and development portfolio, including
equity method investments, includes master planned communities, infill land
parcels and waterfront land parcels located throughout the United States. The
Company's land and development portfolio included the following, based on net
carrying values ($ in thousands):
                                     As of December 31,
                                    2020           2019
Land and development, net        $ 430,663      $ 580,545
Other investments                   31,200         42,866
Total                            $ 461,863      $ 623,411


Portfolio Activity-During the year ended December 31, 2020, we sold land parcels
and residential lots and units and recognized $164.7 million in "Land
development revenue" and $177.7 million in "Land development cost of sales" in
our consolidated statement of operations.
The following table presents a land and development portfolio rollforward for
the year ended December 31, 2020.
                       Land and Development Portfolio Rollforward
                                     (in millions)
                             Asbury Ocean
                               Club and              Magnolia        All
                        Asbury Park Waterfront        Green        Others        Total
Beginning balance(1)   $                 234.6      $  112.9      $ 233.0      $ 580.5
Asset sales(2)                           (45.1)        (24.1)      (103.1)      (172.3)

Capital expenditures                      11.6          15.1          3.7         30.4
Other                                        -          (2.6)        (5.3)        (7.9)
Ending balance(1)      $                 201.1      $  101.3      $ 128.3      $ 430.7

_______________________________________________________________________

(1)As of December 31, 2020 and 2019, total excludes $31.2 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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  Following is a description of some of our major land and development projects
that we are holding for further development. There can be no assurance that we
will not change our current strategy for any of the projects described below:
Asbury Ocean Club and Asbury Park Waterfront
iStar owns 35 acres of oceanfront property in the Asbury Park waterfront
redevelopment area in Asbury Park, N.J. iStar serves as the master developer and
its land holdings represent approximately 70% of the undeveloped land along the
waterfront. Over the past several years, iStar has strategically developed a
limited number of residential and commercial projects to re-establish the local
housing market and drive momentum for future growth. The existing redeveloper
agreement with the city permits up to approximately 2,500 additional units,
comprised of for-sale residential homes, hotel keys and multi-family apartments.
Future projects are positioned to be developed by iStar or in conjunction with
joint venture partners. These individual land parcels could also be sold to
third party developers.
Asbury Ocean Club is a 16-story mixed-use project comprised of 130 residential
condominium units, a 54-unit boutique hotel, 24,000 square feet of retail space,
a 15,000 square foot spa, 26,000 square feet of outdoor amenity space and 410
structured parking spaces, located at 1101 Ocean Avenue in Asbury Park, New
Jersey.
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 a
tennis facility.
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Results of Operations for the Year Ended December 31, 2020 compared to the Year
Ended December 31, 2019
                                                       For the Years Ended
                                                          December 31,
                                                       2020           2019          $ Change
                                                                 (in thousands)
Operating lease income                             $  188,722      $ 206,388      $  (17,666)
Interest income                                        60,116         77,654         (17,538)
Interest income from sales-type leases                 33,552         20,496          13,056
Other income                                           83,857         55,363          28,494
Land development revenue                              164,702        119,595          45,107
Total revenue                                         530,949        479,496          51,453
Interest expense                                      169,574        183,919         (14,345)
Real estate expenses                                   72,493         92,426         (19,933)
Land development cost of sales                        177,727        109,663          68,064
Depreciation and amortization                          58,092         58,259            (167)
General and administrative                            100,879         98,609           2,270
Provision for loan losses                               9,052          6,482           2,570
Provision for losses on net investment in leases        1,760              -           1,760
Impairment of assets                                    7,827         13,419          (5,592)
Other expense                                             569         13,120         (12,551)
Total costs and expenses                              597,973        575,897          22,076
Income from sales of real estate                        6,318        236,623        (230,305)
Loss on early extinguishment of debt, net             (12,038)       (27,724)         15,686
Earnings from equity method investments                42,126         41,849             277
Selling profit from sales-type leases                       -        180,416        (180,416)
Income tax expense                                       (235)          (438)            203
Net income (loss)                                  $  (30,853)     $ 334,325      $ (365,178)



Revenue-Operating lease income, which primarily includes income from net lease
assets and commercial operating properties, decreased to $188.7 million in 2020
from $206.4 million in 2019. The following tables summarizes our operating lease
income by segment ($ in millions).
                                2020         2019        Change
Net Lease(1)                  $ 167.1      $ 177.7      $ (10.6)
Operating Properties(2)          21.2         28.4         (7.2)
Land and Development              0.4          0.3          0.1
Total                         $ 188.7      $ 206.4      $ (17.7)

______________________________________________________________

(1)Change primarily due to asset sales and the reclassification of certain
operating leases to sales-type leases in May 2019 (refer to Note 5), partially
offset by new acquisitions.
(2)Change primarily due to asset sales and a decrease in percentage rent at
certain properties resulting from the impacts of the COVID-19 pandemic.

The following table shows certain same store statistics for our Net Lease
segment. Same store assets are defined as assets we owned on or prior to January
1, 2019 and were in service through December 31, 2020 (Operating lease income in
millions).
                                 2020          2019

Operating lease income        $ 165.3       $ 160.3

Rent per square foot          $ 11.09       $ 10.76

Occupancy(1)                     99.3  %       99.3  %

______________________________________________________________

(1)Occupancy as of December 31, 2020 and 2019.

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Interest income decreased to $60.1 million in 2020 from $77.7 million in 2019.
The decrease in interest income was due primarily to a decrease in the average
balance of our performing loans and other lending investments, which decreased
to $706 million for the year ended December 31, 2020 from $857 million in 2019.
The weighted average yield on our performing loans and other lending investments
was 7.7% and 8.8% for the years ended December 31, 2020 and 2019, respectively.
On January 1, 2019, we adopted new accounting standards and classified certain
of our new leases in 2019 as sales-type leases. Interest income from sales-type
leases increased to $33.6 million for the year ended December 31, 2020 from
$20.5 million for the year ended December 31, 2019. The increase was due
primarily to a full period of interest income for sales-type leases during the
year ended December 31, 2020 (refer to Note 5).
Other income increased to $83.9 million in 2020 from $55.4 million in 2019.
Other income in 2020 consisted primarily of mark-to-market gains on an equity
investment, management fees, income resulting from the reimbursement of
attorneys' fees in connection with the successful resolution of litigation,
income from our hotel properties, other ancillary income from our operating
properties, land and development projects and loan portfolio and interest income
on our cash. Other income in 2019 consisted primarily of income from our hotel
properties, management fees, lease termination fees, other ancillary income from
our operating properties and interest income earned on our cash balances. The
increase in 2020 was primarily due to $23.9 million of mark-to-market gains on
an equity investment (refer to Note 8), $12.5 million of income resulting from
the reimbursement of attorneys' fees in connection with the successful
resolution of litigation 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-In 2020, we sold residential lots and
units and recognized land development revenue of $164.7 million which had
associated cost of sales of $177.7 million. In 2019, we sold land parcels and
residential lots and units and recognized land development revenue of $119.6
million which had associated cost of sales of $109.7 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 to $169.6 million in 2020 from
$183.9 million in 2019. The balance of our average outstanding debt, inclusive
of loan participations and lease liabilities associated with finance leases, was
$3.52 billion for 2020 and $3.50 billion for 2019. Our weighted average cost of
debt was 4.8% for 2020 and 5.4% for 2019.
Real estate expenses decreased to $72.5 million in 2020 from $92.4 million in
2019. The following table summarizes our real estate expenses by segment ($ in
millions).
                                2020        2019       Change

Operating Properties(1)       $ 22.9      $ 35.3      $ (12.4)
Land and Development(2)         23.0        32.3         (9.3)
Net Lease(3)                    26.6        24.8          1.8
Total                         $ 72.5      $ 92.4      $ (19.9)

______________________________________________________________

(1)Change primarily due to asset sales and a decrease in expenses at certain
hotel and entertainment/leisure operating properties due to the COVID-19
pandemic.
(2)Change primarily due to a decrease in legal and marketing costs at some
properties and asset sales.
(3)Change primarily due to the acquisition of new investments, partially offset
by asset sales.

Depreciation and amortization was $58.1 million in 2020 and $58.3 million in
2019. The slight decrease in 2020 was 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 increased to $100.9 million in 2020 from
$98.6 million in 2019. The increase in 2020 was due primarily to a $6.1 million
increase in performance based compensation, which was partially offset by a
decrease in payroll and related costs, a decrease in travel and entertainment
costs and a decrease in other office costs.

The provision for loan losses was $9.1 million in 2020 as compared to a
provision for loan losses of $6.5 million in 2019. The provision for loan losses
for the year ended December 31, 2020 included a $4.2 million provision resulting
primarily from the sale of a non-performing loan and an increase of $4.9 million
in the general allowance. The provision for loan losses in 2019 included a $12.5
million specific allowance resulting primarily from the deterioration of the
collateral for one of our loans, partially offset by a $6.0 million decrease in
the general allowance due to a decrease in the size of our loan portfolio.
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The provision for losses on net investment in leases for the year ended December
31, 2020 included an allowance resulting from the adoption of ASU 2016-13 and
the macroeconomic impact of the COVID-19 pandemic on commercial real estate
markets.
In 2020, we recorded aggregate impairments of $7.8 million in connection with
the sale of net lease assets and impairments on a real estate asset held for
sale and land and development assets. In 2019, we recorded aggregate impairments
of $5.7 million in connection with the sale of net lease properties and a
commercial operating property, an aggregate impairment of $5.3 million on two
land and development assets based on sales proceeds, a $1.1 million impairment
on a land and development asset due to a change in business strategy,
$0.6 million of impairments in connection with the sale of residential
condominium units and an impairment of $0.6 million on an equity investment.
Other expense decreased to $0.6 million in 2020 from $13.1 million in 2019. The
decrease in 2020 was due primarily to losses associated with derivative
contracts that were terminated in 2019.
Income from sales of real estate-Income from sales of real estate decreased to
$6.3 million in 2020 from $236.6 million in 2019. During the year ended December
31, 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) and $0.2 million from the sale
of an operating property. During the year ended December 31, 2019, we recorded
$236.6 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-In 2020 and 2019, we incurred losses on early extinguishment of debt of $12.0 million and $27.7 million, respectively, primarily from the repayment of senior notes prior to maturity.


Earnings from equity method investments-Earnings from equity method investments
increased to $42.1 million in 2020 from $41.8 million in 2019. In 2020, we
recognized $53.5 million of income from our equity method investment in SAFE,
inclusive of $14.4 million of dilution gains resulting from the dilution of our
ownership in SAFE in connection with SAFE equity offerings in 2020, and
$2.7 million from our equity investment in Net Lease Venture II, which were
partially offset by $14.1 million of net aggregate losses from our remaining
equity method investments. In 2019, we recognized $29.8 million of income from
our equity method investment in SAFE, which included a dilution gain of $7.6
million, $19.3 million resulting primarily from the sale of assets in operating
property ventures and $7.3 million of aggregate losses from our remaining equity
method investments.

Selling profit from sales-type leases-During the year ended December 31, 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 invest up to $55.0 million in 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 classified 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-An income tax expense of $0.2 million was recorded in 2020
and a $0.4 million income tax expense was recorded in 2019. The income tax
expense for both periods consists primarily of state margins taxes and other
minimum state franchise taxes.

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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 15% of our overall
portfolio as of December 31, 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 have 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 which
adjusts 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.

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 

Years Ended December 31,

                                                           2020                   2019               2018

Adjusted Earnings
Net income (loss) allocable to common shareholders  $    (65,937)             $ 291,547          $ (64,757)
Add: Depreciation and amortization                        63,882                 58,925             68,056
Add: Stock-based compensation expense                     39,354                 30,436             17,563
Add: Non-cash portion of loss on early
extinguishment of debt                                     3,470                  7,118              4,318

Adjusted earnings allocable to common shareholders  $     40,769              $ 388,026          $  25,180



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Liquidity and Capital Resources

During the year ended December 31, 2020, we invested an aggregate $601 million
in new investments, prior financing commitments and real estate development.
Investments included $332 million in net lease, loan, and strategic investments,
$48 million in the repurchase of our common stock, $45 million of capital
expenditures on legacy assets and $176 million in SAFE common stock. These
amounts are inclusive of fundings from our consolidated investments and our pro
rata share from equity method investments and includes $171 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 for the years ended December 31, 2020 and 2019, by segment ($ in thousands):

                                                             For the Years Ended December 31,
                                                               2020                     2019
Operating Properties                                    $          2,233          $        6,397
Net Lease                                                         13,565                  33,549

Total capital expenditures on real estate assets $ 15,798

$ 39,946


Land and Development                                    $         40,954    

$ 117,514 Total capital expenditures on land and development assets

                                                  $         40,954    

$ 117,514



As of December 31, 2020, we had unrestricted cash of $99 million and $350
million of borrowing capacity available under the Revolving Credit Facility. The
COVID-19 pandemic 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 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. The
amount we actually invest will depend on the full impact of the COVID-19
pandemic on our business and the pace of the economic recovery. As of
December 31, 2020, we also had approximately $104 million of maximum unfunded
commitments associated with our investments of which we expect to fund the
majority of over the next two years, assuming borrowers and tenants meet all
milestones and performance hurdles and all other conditions to fundings (see
"Unfunded Commitments" below). We also have approximately $494 million carrying
amount of scheduled real estate finance maturities over the next 12 months,
exclusive of any extension options that can be exercised by our borrowers. Our
capital sources to meet cash uses through the next 12 months and beyond are
expected to include cash on hand, 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, including conditions arising from the COVID-19
pandemic. While certain economic trends have improved since the onset of the
pandemic, the uncertain duration of the pandemic and its effects, particularly
its effects on the commercial real estate markets in which we operate, make it
impossible for us to predict or to quantify the impact of these or other trends
on our financial results. Furthermore, as more fully described in Item 1a. Risk
Factors, our ability to incur more debt to create cash liquidity is dependent on
our compliance with debt covenants in our unsecured notes and corporate debt
facilities.
Senior Term Loan-In June 2018, we amended our senior secured term loan (the
"Senior Term Loan") to increase the amount of the loan to $650.0 million, reduce
the interest rate to LIBOR plus 2.75% and extend its maturity to June 2023. The
Senior Term Loan is secured by pledges of equity of certain subsidiaries that
own a defined pool of assets. The Senior Term Loan permits substitution of
collateral, subject to overall collateral pool coverage and concentration
limits, over the life of the facility. We may make optional prepayments, subject
to prepayment fees.

Revolving Credit Facility-In September 2019, we amended and restated our secured
revolving credit facility (the "Revolving Credit Facility") to increase the
maximum available principal amount to $350.0 million, extend the maturity date
to September 2022 and make certain other changes. Outstanding borrowings under
the Revolving Credit Facility are secured by pledges of the equity interests in
our subsidiaries that own a defined pool of assets. Borrowings under this credit
facility bear interest at a floating rate indexed to one of several base rates
plus a margin which adjusts upward or downward based upon our corporate credit
rating, ranging from 1.0% to 1.5% in the case of base rate loans and from 2.0%
to 2.5% in the case of LIBOR loans. In addition, there is an undrawn credit
facility commitment fee ranging from 0.25% to 0.45% based on corporate credit
ratings. At maturity, we may convert outstanding borrowings to a one year term
loan which matures in quarterly installments
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through September 2023. As of December 31, 2020, based on our borrowing base of
assets, we had $350.0 million of borrowing capacity available under the
Revolving Credit Facility.

Unsecured Notes-In August 2020, we issued $400.0 million principal amount of
5.50% senior unsecured notes due February 2026. Proceeds from the offering,
together with cash on hand, were used to repay in full the $400.0 million
principal amount outstanding of the 5.25% senior unsecured notes due September
2022. In December 2019, we issued $550.0 million principal amount of 4.25%
senior unsecured notes due August 2025. Proceeds from the offering were used to
redeem the $375.0 million principal amount outstanding ($110.5 million was
redeemed in January 2020) of the 6.00% senior unsecured notes due April 2022,
repay a portion of the borrowings outstanding under the Senior Term Loan and pay
related premiums and expenses in connection with the transaction. In September
2019, we issued $675.0 million principal amount of 4.75% senior unsecured notes
due October 2024. Proceeds from the offering, together with cash on hand, were
used in October 2019 to repay in full the $400.0 million principal amount
outstanding of the 4.625% senior unsecured notes due September 2020 and the
$275.0 million principal amount outstanding of the 6.50% senior unsecured notes
due July 2021. In November 2019, we issued an additional $100.0 million
principal amount of 4.75% senior unsecured notes due October 2024. Proceeds from
the offering were used for general corporate purposes.

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

The 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 collateral coverage of at least 1.5x outstanding borrowings on the facility
and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The
Revolving Credit Facility does not require that proceeds from the borrowing base
be used to pay down outstanding borrowings provided the collateral coverage
remains at least 1.5x outstanding borrowings on the facility. To satisfy this
covenant, 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.

Derivatives-Our use of derivative financial instruments, if necessary, has primarily been limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. See Item 8-"Financial Statements and Supplemental Data-Note 13" for further details.


Unfunded Commitments-We generally fund construction and development loans and
build-outs of space in real estate assets over a period of time if and when the
borrowers and tenants meet established milestones and other performance
criteria. 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.

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As of December 31, 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 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                    $           63,419          $      2,213                $     25,959          $   91,591
Strategic Investments                                             -                     -                      12,810              12,810

Total                                            $           63,419          $      2,213                $     38,769          $  104,401

_______________________________________________________________________________

(1)Excludes $7.5 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 year ended December 31, 2020, we repurchased 4.2 million shares of our
outstanding common stock for $48.4 million, representing an average cost of
$11.48 per share. During the year ended December 31, 2019, we repurchased 7.3
million shares of our outstanding common stock for $74.6 million, representing
an average cost of $10.16 per share. During the year ended December 31, 2018, we
repurchased 0.8 million shares of our outstanding common stock for $8.3 million,
representing an average cost of $10.22 per share. As of December 31, 2020, we
had authorization to repurchase up to $33.8 million of our common stock. In
February 2021, our board of directors authorized an increase to the stock
repurchase program to $50.0 million.
Preferred Equity-In December 2019, we issued 16.5 million shares of our common
stock upon conversions of our Series J preferred stock by the holders thereof.
We redeemed a de minimis amount of the Series J preferred stock for cash at the
liquidation preference plus accrued dividends to the redemption date (refer to
Note 14).
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.
During 2020, management reviewed and evaluated these critical accounting
estimates and believes they are appropriate. Our significant accounting policies
are described in Item 8-"Financial Statements and Supplemental Data-Note 3." The
following is a summary of accounting policies that require more significant
management estimates and judgments:
Allowance for loan losses and net investment in leases-We perform a quarterly
comprehensive analysis of our loan and sales-type lease portfolios and assign
risk ratings that incorporate management's current judgments about credit
quality based on all known and relevant internal and external factors that may
affect collectability. We consider, among other things, payment status, lien
position, borrower or tenant financial resources and investment collateral,
collateral type, project economics and geographical location as well as national
and regional economic factors. This methodology results in loans and sales-type
leases being risk rated, with ratings ranging from "1" to "5" with "1"
representing the lowest risk of loss and "5" representing the highest risk of
loss.
Upon adoption of ASU 2016-13 on January 1, 2020, we estimate our Expected Loss
on our loans (including unfunded loan commitments), held-to-maturity debt
securities and net investment in leases based on relevant information including
historical realized loss rates, current market conditions and reasonable and
supportable forecasts that affect the collectability of our investments. The
estimate of our Expected Loss requires significant judgment and we analyze our
loan portfolio based upon our different categories of financial assets, which
includes: (i) loans and held-to-maturity debt securities; (ii) construction
loans; and (iii) net investment in leases and financings that resulted from the
acquisition of properties that did not qualify as a sale leaseback transaction
and, as such, are accounted for as financing receivables (refer to Note 5).

For our loans, held-to-maturity debt securities, construction loans, net
investment in leases and financings that resulted from the acquisition of
properties that did not qualify as sale leaseback transactions, we analyzed our
historical realized loss experience to estimate our Expected Loss. We adjusted
our Expected Loss through the use of third-party market data that provided
current and future economic conditions that may impact the performance of the
commercial real estate assets securing our investments.
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We consider a loan or sales-type lease to be non-performing and place it on
non-accrual status at such time as: (1) interest payments become 90 days
delinquent; (2) it has a maturity default; or (3) management determines it is
probable that it will be unable to collect all amounts due according to the
contractual terms of the loan or sales-type lease. Non-accrual loans or
sales-type leases are returned to accrual status when they have become
contractually current and management believes all amounts contractually owed
will be received. We will record a specific allowance on a non-performing loan
or sales-type lease if we determine that the collateral fair value less costs to
sell is less than the carrying value of the collateral-dependent asset. The
specific allowance is increased (decreased) through "Provision for (recovery of)
loan losses" or "Provision for losses on net investment in leases" in our
consolidated statements of operations and is decreased by charge-offs. During
delinquency and the foreclosure process, there are typically numerous points of
negotiation with the borrower or tenant as we work toward a settlement or other
alternative resolution, which can impact the potential for repayment or receipt
of collateral. Our policy is to charge off a loan when we determine, based on a
variety of factors, that all commercially reasonable means of recovering the
loan balance have been exhausted. This may occur at different times, including
when we receive cash or other assets in a pre-foreclosure sale or take control
of the underlying collateral in full satisfaction of the loan upon foreclosure
or deed-in-lieu, or when we have otherwise ceased significant collection
efforts. We consider circumstances such as the foregoing to be indicators that
the final steps in the loan collection process have occurred and that a loan is
uncollectible. At this point, a loss is confirmed and the loan and related
allowance will be charged off.
The provision for loan losses for the years ended December 31, 2020, 2019 and
2018 were $9.1 million, $6.5 million and $16.9 million, respectively. The
provision for losses on net investment in leases for the year ended December 31,
2020 was $1.8 million.
Impairment or disposal of long-lived assets-Real estate assets to be disposed of
are reported at the lower of their carrying amount or estimated fair value less
costs to sell and are included in "Real estate available and held for sale" on
our consolidated balance sheets. The difference between the estimated fair value
less costs to sell and the carrying value will be recorded as an impairment
charge. Impairment for real estate assets are included in "Impairment of assets"
in our consolidated statements of operations. Once the asset is classified as
held for sale, depreciation expense is no longer recorded.
We periodically review real estate to be held for use and land and development
assets for impairment in value whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. The
asset's value is impaired only if management's estimate of the aggregate future
cash flows (undiscounted and without interest charges) to be generated by the
asset (taking into account the anticipated holding period of the asset) is less
than the carrying value. Such estimate of cash flows considers factors such as
expected future operating income, trends and prospects, as well as the effects
of demand, competition and other economic factors. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the asset and reflected as an adjustment to the
basis of the asset. Impairments of real estate and land and development assets
are recorded in "Impairment of assets" in our consolidated statements of
operations.
During the year ended December 31, 2020, we recorded an aggregate impairment of
$7.8 million in connection with the sale of net lease assets and impairments on
a real estate asset held for sale and land and development assets. During the
year ended December 31, 2019, we recorded aggregate impairments on real estate
and land and development assets of $13.4 million. During the year ended December
31, 2018, we recorded impairments of $147.1 million on land and development and
real estate assets resulting primarily from our decision to accelerate the
monetization of certain legacy assets, including several larger assets.
                                       37

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