ISTAR INC. 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 endedDecember 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 theU.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 endedDecember 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 endedDecember 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 ofDecember 31, 2020 , we had$99 million of cash and$350 million of credit facility availability. InAugust 2020 , we took advantage of favorable interest rate and liquidity conditions to refinance debt through the issuance of$400 million of unsecured notes dueFebruary 2026 . Proceeds from the issuance were used to repay unsecured notes dueSeptember 2022 . We have no corporate debt maturities throughSeptember 2022 (refer to Note 11). We have no corporate debt maturities throughSeptember 2022 and expect to use our unrestricted cash balance primarily to fund future investment activities and for general working capital needs. 20 -------------------------------------------------------------------------------- Table of Contents Portfolio Overview
As of
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.
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 -InFebruary 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 onJune 30, 2018 and the remaining term of the venture extends throughFebruary 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 onJune 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-InJuly 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 onJune 30, 2021 . 22 -------------------------------------------------------------------------------- Table of Contents As ofDecember 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)
$ 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 endedDecember 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 onJanuary 1, 2020 (refer to Note 3) and recorded a provision for losses on net investment in leases of$1.8 million resulting primarily from the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets.
During the year ended
Also during the year ended
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Summary of Lease Expirations-As of December 31, 2020 , future lease expirations
on our net lease assets, excluding our equity method investments in SAFE and Net
Lease Venture II, are as follows ($ 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
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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 ofDecember 31, 2020 and 2019, includes$288.3 million and$400.4 million , respectively, of loans with a weighted average LIBOR floor of 1.7% and 1.3%, respectively. Summary of Maturities-As ofDecember 31, 2020 , our loans receivable and other lending investments had the following maturities ($ 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
_______________________________________________________________________________
(1)Year of maturity for our performing loans and other securities represents the initial maturity and does not include any extension options. As ofDecember 31, 2020 , our performing loans and other securities had a weighted average remaining term, exclusive of any borrower extension options, of 2.3 years. 26 -------------------------------------------------------------------------------- Table of Contents 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 ofDecember 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 ofDecember 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 ofDecember 31, 2020 , or 1.8% of total loans and other lending investments, compared to$28.6 million or 3.3% as ofDecember 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 ofDecember 31, 2020 , asset-specific allowances decreased to$0.7 million compared to$21.7 million as ofDecember 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 ofDecember 31, 2020 , compared to$6.9 million or 1.0% of performing loans as ofDecember 31, 2019 . The increase was due to a$0.7 million general allowance recorded upon the adoption of ASU 2016-13 onJanuary 1, 2020 and an increase in the general allowance of$4.8 million during the year endedDecember 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 ofDecember 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 endedDecember 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$2.8 million to our operating property equity method investments.
Land and Development
As ofDecember 31, 2020 , the Company's land and development portfolio, including equity method investments, includes master planned communities, infill land parcels and waterfront land parcels located throughoutthe United States . The Company's land and development portfolio included the following, based on net carrying values ($ 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 endedDecember 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 endedDecember 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
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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 theAsbury Park waterfront redevelopment area inAsbury 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 at1101 Ocean Avenue inAsbury Park, New Jersey .Magnolia Green Magnolia Green is a 3,500 unit multi-generational master planned community just outside ofRichmond, 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-holeJack Nicklaus designed golf course and a full-service golf clubhouse, aquatic center and a tennis facility. 29 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Year EndedDecember 31, 2020 compared to the Year EndedDecember 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 inMay 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 ourNet Lease segment. Same store assets are defined as assets we owned on or prior toJanuary 1, 2019 and were in service throughDecember 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
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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 endedDecember 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. 31 -------------------------------------------------------------------------------- Table of Contents The provision for losses on net investment in leases for the year endedDecember 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 endedDecember 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 endedDecember 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
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 endedDecember 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. 32 -------------------------------------------------------------------------------- Table of Contents 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 ofDecember 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 inthe 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
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
33-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources During the year endedDecember 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
For the Years Ended December 31,
2020 2019
Operating Properties $ 2,233 $ 6,397
Net Lease 13,565 33,549Total capital expenditures on real estate assets $ 15,798
Land and Development $ 40,954
$ 40,954 As ofDecember 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 ofDecember 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-InJune 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 toJune 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-InSeptember 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 toSeptember 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 34 -------------------------------------------------------------------------------- Table of Contents throughSeptember 2023 . As ofDecember 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-InAugust 2020 , we issued$400.0 million principal amount of 5.50% senior unsecured notes dueFebruary 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 dueSeptember 2022 . InDecember 2019 , we issued$550.0 million principal amount of 4.25% senior unsecured notes dueAugust 2025 . Proceeds from the offering were used to redeem the$375.0 million principal amount outstanding ($110.5 million was redeemed inJanuary 2020 ) of the 6.00% senior unsecured notes dueApril 2022 , repay a portion of the borrowings outstanding under the Senior Term Loan and pay related premiums and expenses in connection with the transaction. InSeptember 2019 , we issued$675.0 million principal amount of 4.75% senior unsecured notes dueOctober 2024 . Proceeds from the offering, together with cash on hand, were used inOctober 2019 to repay in full the$400.0 million principal amount outstanding of the 4.625% senior unsecured notes dueSeptember 2020 and the$275.0 million principal amount outstanding of the 6.50% senior unsecured notes dueJuly 2021 . InNovember 2019 , we issued an additional$100.0 million principal amount of 4.75% senior unsecured notes dueOctober 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
Stock Repurchase Program-We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans. During the year endedDecember 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 endedDecember 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 endedDecember 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 ofDecember 31, 2020 , we had authorization to repurchase up to$33.8 million of our common stock. InFebruary 2021 , our board of directors authorized an increase to the stock repurchase program to$50.0 million . Preferred Equity-InDecember 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 onJanuary 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. 36
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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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 31, 2019 , we recorded aggregate impairments on real estate and land and development assets of$13.4 million . During the year endedDecember 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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