# Safehold Inc. (SAFE) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Safehold Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1095651/000109565122000004/star-20211231x10k.htm
Accession: 0001095651-22-000004
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SAFE/
All MD&A years: /company/SAFE/mda/
Next year: /company/SAFE/mda/fy2022/ (FY 2022)

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 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

Corporate Strategy. In 2021, we continued to execute our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio through sales of other assets. In July 2021, we announced that we intended to explore market interest for possible sales of our net lease assets. In the fourth quarter 2021, we formally marketed the net lease portfolio for sale and, after receiving multiple bids, selected a bid from a potential buyer and commenced the due diligence process. In February 2022, we, through certain subsidiaries of ours and entities managed by us, entered into a definitive agreement for the Net Lease Sale at an aggregate gross purchase price of approximately $3.07 billion, subject to final purchase price adjustments.  

The portfolio being sold consists of office, entertainment and industrial properties located in the United States comprising approximately 18.3 million square feet. It includes assets wholly-owned by us and assets owned by two joint ventures managed by us and in which we own 51.9% interests. As of December 31, 2021, the portfolio was encumbered by an aggregate of $720 million of mortgage indebtedness, including indebtedness of equity method investments, which will be repaid with proceeds from the sale. After repayment of the mortgage indebtedness and prepayment penalties, a corporate term loan secured by certain of the assets, payments to terminate derivative contracts, payments to joint venture partners, and payments of promotes, transaction expenses and amounts due under employee incentive plans, we currently expect to retain net cash proceeds of approximately $1.1 billion from the transaction. Closing of the Net Lease Sale is subject to customary closing conditions. We expect the transaction to close in the first quarter 2022; however, there can be no assurance that the transaction will occur in the expected timeframe or at all. Two net lease properties and our net lease assets associated with our Ground Lease businesses were not included in the sale.

COVID-19 and Other Factors. The COVID-19 pandemic adversely affected our strategies of monetizing legacy assets and materially scaling SAFE’s portfolio in 2020 and the first quarter of 2021, primarily because of reduced levels of real estate transactions and constrained conditions for equity and debt financing for real estate transactions. These conditions improved in the second quarter of 2021 and continued through the end of the year, and we expect them to continue to improve as more normalized activity resumes. At this time, however, we cannot predict with certainty the full extent of the impacts of the COVID-19 pandemic on our or SAFE’s business. In addition, other macroeconomic factors such as interest rates, inflation and the market reaction and response of government policy to inflation may impact 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 and other factors.

​

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Portfolio Overview

Our portfolio is well diversified by business, property type and geography. As of December 31, 2021, based on our gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):(1)  

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Property/Collateral","","Net","","Real Estate","","Operating","","Land &","","\u200b","\u200b","","\u200b","\u200b","","% of"],["Types","\u200b","Lease","\u200b","Finance","\u200b","Properties","\u200b","Development","\u200b","Corporate","\u200b","Total","\u200b","Total"],["Ground Leases","\u200b","$","1,305,384","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","1,305,384","","28.9","%"],["Entertainment / Leisure","\u200b","\u200b","1,024,538","\u200b","","\u2014","\u200b","","16,302","\u200b","","\u2014","\u200b","","\u2014","\u200b","","1,040,840","","23.1","%"],["Office","\u200b","\u200b","852,471","\u200b","\u200b","52,163","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","904,634","","20.0","%"],["Industrial / Lab","\u200b","\u200b","450,440","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","450,440","","10.0","%"],["Land and Development","\u200b","","\u2014","\u200b","","11,909","\u200b","","\u2014","\u200b","","233,959","\u200b","","\u2014","\u200b","","245,868","","5.4","%"],["Hotel","\u200b","","\u2014","\u200b","","109,295","\u200b","","82,881","\u200b","","\u2014","\u200b","","\u2014","\u200b","","192,176","","4.3","%"],["Multifamily","\u200b","","\u2014","\u200b","","107,383","\u200b","","48,095","\u200b","","\u2014","\u200b","","\u2014","\u200b","","155,478","","3.4","%"],["Retail","\u200b","","\u2014","\u200b","","62,120","\u200b","","31,594","\u200b","","8,340","\u200b","","\u2014","\u200b","","102,054","","2.3","%"],["Condominium","\u200b","","\u2014","\u200b","","14,939","\u200b","","301","\u200b","","56,418","\u200b","","\u2014","\u200b","","71,658","","1.6","%"],["Other Property Types","\u200b","","\u2014","\u200b","","28,090","\u200b","","\u2014","\u200b","","\u2014","\u200b","","17,908","\u200b","","45,998","","1.0","%"],["Total","\u200b","$","3,632,833","\u200b","$","385,899","\u200b","$","179,173","\u200b","$","298,717","\u200b","$","17,908","\u200b","$","4,514,530","","100.0","%"],["Percentage of Total","\u200b","\u200b","80%","\u200b","\u200b","9%","\u200b","\u200b","4%","\u200b","\u200b","7%","\u200b","\u200b","1%","\u200b","\u200b","100%","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Net","","Real Estate","","Operating","","Land &","","\u200b","\u200b","","\u200b","\u200b","","% of"],["Geographic Region","\u200b","Lease","\u200b","Finance","\u200b","Properties","\u200b","Development","\u200b","Corporate","\u200b","Total","\u200b","Total"],["Northeast","\u200b","$","983,586","\u200b","$","100,233","\u200b","$","93,669","\u200b","$","182,622","\u200b","$","\u2014","\u200b","$","1,360,110","","30.1","%"],["West","\u200b","","613,648","\u200b","","144,647","\u200b","","43,131","\u200b","","11,847","\u200b","","\u2014","\u200b","","813,273","","18.0","%"],["Mid-Atlantic","\u200b","","598,545","\u200b","","\u2014","\u200b","","6,324","\u200b","","102,539","\u200b","","\u2014","\u200b","","707,408","","15.7","%"],["Southeast","\u200b","","480,649","\u200b","","29,861","\u200b","","5,514","\u200b","","1,709","\u200b","","\u2014","\u200b","","517,733","","11.5","%"],["Southwest","\u200b","","510,658","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","510,658","","11.3","%"],["Central","\u200b","","435,931","\u200b","","14,320","\u200b","","30,535","\u200b","","\u2014","\u200b","","\u2014","\u200b","","480,786","","10.6","%"],["Various","\u200b","","9,816","\u200b","","96,838","\u200b","","\u2014","\u200b","","\u2014","\u200b","","17,908","\u200b","","124,562","","2.8","%"],["Total","\u200b","$","3,632,833","\u200b","$","385,899","\u200b","$","179,173","\u200b","$","298,717","\u200b","$","17,908","\u200b","$","4,514,530","","100.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","For net lease, operating properties and land and development, gross book value is defined as the basis assigned to real estate and net investment in leases, 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, plus our basis in equity method investments less purchase discounts and specific allowances. This amount is not reduced for Expected Loss (refer to Note 3 to the consolidated financial statements) allowances. Real estate finance includes our $49 million pro rata share of loans held within an equity method investment."]]
[[/GREPCENT_TABLE]]

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). When we acquire a net lease asset, we generally intend to hold it for long-term investment. However, in light of our strategy to focus on Ground Lease investments, we have entered into a definitive agreement for the Net Lease Sale and expect to use the anticipated proceeds from such sale to repay indebtedness, invest in Ground Lease and Ground Lease adjacent assets, directly and through SAFE, and for general corporate purposes.

​

The net lease segment includes our Ground Lease investments made primarily through SAFE and our traditional net lease investments.

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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, 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, 2021, we owned approximately 64.6% 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 to the consolidated financial statements). 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 shareholders agreement with SAFE that:

[[GREPCENT_TABLE]]
[["","\u25cf","limits our discretionary voting power to 41.9% of the outstanding voting power of SAFE\u2019s Common Stock until our aggregate ownership of SAFE common stock is less than 41.9%;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","subjects us to certain standstill provisions; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","provides us certain preemptive rights."]]
[[/GREPCENT_TABLE]]

The complete management agreement, exclusivity agreement and shareholder’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. 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. The Net Lease Venture is part of the Net Lease Sale (refer to Note 3 to the consolidated financial statements – Net Lease Sale and Discontinued Operations).

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. Net Lease Venture II’s investment period ends on June 30, 2022. 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 is part of the Net Lease Sale (refer to Note 3 to the consolidated financial statements – Net Lease Sale and Discontinued Operations).

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As of December 31, 2021, our consolidated net lease portfolio totaled $2.3 billion. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II, gross of accumulated depreciation, totaled $3.6 billion. The table below provides certain statistics for our net lease portfolio.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Total","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Wholly-","","Net Lease","","Consolidated","","Net Lease","","\u200b","\u200b"],["\u200b","\u200b","Owned","\u200b","Venture","\u200b","Real Estate(1)","\u200b","Venture II","\u200b","SAFE"],["Ownership %","\u200b","\u200b","100.0","%","\u200b","51.9","%","\u200b","\u2014","","\u200b","51.9","%","\u200b","64.6","%"],["Gross book value (millions)(2)","\u200b","$","1,388","\u200b","$","911","\u200b","$","2,299","\u200b","$","286","\u200b","$","4,599","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["% Leased","\u200b","","98.9","%","","100.0","%","","99.3","%","","100.0","%","","100.0","%"],["Square footage (thousands)","\u200b","","9,620","\u200b","","5,755","\u200b","","15,375","\u200b","","3,220","\u200b","","N/A","\u200b"],["Weighted average lease term (years)(3)","\u200b","","19.4","\u200b","","15.9","\u200b","","18.0","\u200b","","10.6","\u200b","","90.5","\u200b"],["Weighted average yield(4)","\u200b","","7.4","%","","8.0","%","","7.7","%","","9.3","%","","4.7","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements (refer to Note 4 to the consolidated financial statements)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Consolidated Real Estate includes amounts recorded as net investment in leases (refer to Note 3 and Note 5 to the consolidated financial statements) and financing receivables in loans and other lending investments (refer to Note 3 and Note 7 to the consolidated financial statements). SAFE includes its pro rata share of its unconsolidated equity method investments."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options. SAFE includes its pro rata share of its unconsolidated equity method investments."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","Yield for SAFE is calculated over the trailing twelve months and excludes dilution gains (refer to Note 8 to the consolidated financial statements) and management fees earned by us."]]
[[/GREPCENT_TABLE]]

Portfolio Activity— In July 2021, we announced that we intended to explore market interest for possible sales of certain of our net lease assets. In the fourth quarter 2021, we formally marketed the net lease portfolio for sale and, after receiving multiple bids, selected a bid from a potential buyer and commenced the due diligence process.  In February 2022, we entered into a purchase and sale agreement to sell the majority of our net lease properties owned directly and through ventures. We currently expect the transaction to close in the first quarter of 2022. Our net lease assets associated with our Ground Lease businesses were not included in the sale. The sale is consistent with our stated corporate strategy which is to grow our Ground Lease and Ground Lease adjacent businesses and simplify our portfolio through sales of other assets.

​

During the year ended December 31, 2021, we invested an aggregate $135.2 million (including management fees to us that were paid in shares) in shares of SAFE common stock.

​

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Summary of Lease Expirations—As of December 31, 2021, future lease expirations on our net lease assets (refer to Note 3 to the consolidated financial statements – Disposition of Net Lease assets and Discontinued Operations), excluding our equity method investments, are as follows ($ in thousands):

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Represents the initial maturity and does not include extension options."]]
[[/GREPCENT_TABLE]]

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 leasehold loans to Ground Lease tenants, including tenants of SAFE, 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 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 Ground Leases, loans on stabilized and transitional properties and ground-up construction projects. In addition, we also own loans through equity method investments and have preferred equity investments and debt securities classified as other lending investments.

26

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Our real estate finance portfolio included the following ($ in thousands):

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Portfolio Activity—During the year ended December 31, 2021, the Company invested $80.6 million (including capitalized deferred interest) in its real estate finance portfolio and received repayments and proceeds from sales of $420.6 million (including the receipt of previously capitalized deferred interest).

Summary of Interest Rate Characteristics—Our loans receivable and other lending investments, excluding loans held through equity method investments, had the following interest rate characteristics ($ in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","As of December 31,"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","","\u200b","\u200b","","\u200b","","\u200b","Weighted","","\u200b","\u200b","","\u200b","","\u200b","Weighted"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Average","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Average"],["\u200b","\u200b","Carrying","\u200b","%","\u200b","\u200b","Accrual","\u200b","Carrying","\u200b","%","\u200b","\u200b","Accrual"],["\u200b","\u200b","Value","\u200b","of Total","","\u200b","Rate","\u200b","Value","\u200b","of Total","","\u200b","Rate","\u200b"],["Fixed-rate loans and other lending investments","\u200b","$","140,443","","41.6","%","\u200b","7.2","%","$","193,294","","32.1","%","\u200b","6.8","%"],["Variable-rate loans(1)","\u200b","","137,530","","40.7","%","\u200b","5.1","%","","452,352","","64.7","%","\u200b","5.6","%"],["Non-performing loans","\u200b","","59,640","","17.7","%","\u200b","N/A","\u200b","","53,305","","7.6","%","\u200b","N/A","\u200b"],["Total carrying value","\u200b","","337,613","","100.0","%","\u200b","\u200b","\u200b","","698,951","","100.0","%","\u200b","\u200b","\u200b"],["Allowance for loan losses","\u200b","","(4,769)","","\u200b","","\u200b","\u200b","\u200b","","(12,020)","","\u200b","","\u200b","\u200b","\u200b"],["Total loans receivable and other lending investments, net","\u200b","$","332,844","\u200b","\u200b","","\u200b","\u200b","\u200b","$","686,931","\u200b","\u200b","","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","As of December 31, 2021 and 2020, includes $136.9 million and $288.3 million, respectively, of loans with a weighted average LIBOR floor of 2.1% and 1.7%, respectively."]]
[[/GREPCENT_TABLE]]

27

Table of Contents

Summary of Maturities—As of December 31, 2021, our loans receivable and other lending investments had the following maturities ($ in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Number of","","\u200b","\u200b","","\u200b"],["\u200b","\u200b","Loans","\u200b","Carrying","\u200b","\u200b","\u200b"],["Year of Maturity","","Maturing","","Value","","% of Total"],["2022","","6","\u200b","$","137,530","","40.7","%"],["2023","","\u2014","\u200b","","\u2014","","\u2014","%"],["2024","","1","\u200b","","3,056","","0.9","%"],["2025","","\u2014","\u200b","","\u2014","","\u2014","%"],["2026","","\u2014","\u200b","","\u2014","","\u2014","%"],["2027 and thereafter","","1","\u200b","","12,457","","3.7","%"],["Total performing loans and other securities(1)","","8","\u200b","$","153,043","","45.3","%"],["Other lending investments","","2","\u200b","","124,930","","37.0","%"],["Non-performing loans","","1","\u200b","","59,640","","17.7","%"],["Total carrying value","","11","\u200b","$","337,613","","100.0","%"],["Allowance for loan losses","","\u200b","\u200b","\u200b","(4,769)","","","\u200b"],["Total loans receivable and other lending investments, net","\u200b","\u200b","\u200b","$","332,844","","","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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, 2021, our performing loans and other securities had a weighted average remaining term, exclusive of any borrower extension options, of 4.9 years."]]
[[/GREPCENT_TABLE]]

The tables below summarize our loan portfolio, excluding securities and other lending investments and loans held through equity method investments, and the allowances for loan losses associated with our loan portfolio ($ in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31, 2021"],["\u200b","","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","","Allowance for"],["\u200b","\u200b","\u200b","\u200b","Gross","\u200b","Allowance","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Loan Losses as"],["\u200b","\u200b","Number","\u200b","Book","\u200b","for Loan","\u200b","Net Book","\u200b","% of","\u200b","a % of Gross"],["\u200b","","of Loans","","Value","","Losses","","Value","","Total","\u200b","Book Value","\u200b"],["Performing loans","\u200b","8","\u200b","$","153,043","\u200b","$","(1,888)","\u200b","$","151,155","","45.4%","\u200b","1.2%","\u200b"],["Non-performing loans","\u200b","1","\u200b","","59,640","\u200b","","(576)","\u200b","","59,064","","17.7%","\u200b","1.0%","\u200b"],["Other lending investments","\u200b","2","\u200b","","124,930","\u200b","","(2,305)","\u200b","","122,625","","36.8%","\u200b","1.8%","\u200b"],["Total","\u200b","11","\u200b","$","337,613","\u200b","$","(4,769)","\u200b","$","332,844","","100.0%","\u200b","1.4%","\u200b"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31, 2020"],["\u200b","","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","","Allowance for"],["\u200b","\u200b","\u200b","\u200b","Gross","\u200b","Allowance","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Loan Losses as"],["\u200b","\u200b","Number","\u200b","Book","\u200b","for Loan","\u200b","Net Book","\u200b","% of","\u200b","a % of Gross"],["\u200b","\u200b","of Loans","\u200b","Value","\u200b","Losses","\u200b","Value","\u200b","Total","","Book Value","\u200b"],["Performing loans","\u200b","16","\u200b","$","529,657","\u200b","$","(8,184)","\u200b","$","521,473","","71.2%","\u200b","1.5%","\u200b"],["Non-performing loans","\u200b","1","\u200b","","53,305","\u200b","","(743)","\u200b","","52,562","","7.2%","\u200b","1.4%","\u200b"],["Other lending investments","\u200b","2","\u200b","","115,989","\u200b","","(3,093)","\u200b","","112,896","","21.6%","\u200b","2.7%","\u200b"],["Total","\u200b","19","\u200b","$","698,951","\u200b","$","(12,020)","\u200b","$","686,931","","100.0%","\u200b","1.7%","\u200b"]]
[[/GREPCENT_TABLE]]

​

28

Table of Contents

Performing Loans-The table below summarizes our performing loans, excluding loans held through equity method investments, gross of allowances ($in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31, 2021","","December 31, 2020"],["Senior mortgages","\u200b","$","139,968","\u200b","$","432,350","\u200b"],["Corporate/Partnership loans","\u200b","","618","\u200b","","85,667","\u200b"],["Subordinate mortgages","\u200b","","12,457","\u200b","","11,640","\u200b"],["Total","\u200b","$","153,043","\u200b","$","529,657","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Weighted average LTV","\u200b","","60%","\u200b","","57%","\u200b"],["Yield - year to date","\u200b","","7.8%","\u200b","","7.7%","\u200b"]]
[[/GREPCENT_TABLE]]

​

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, 2021 and 2020, we had one non-performing loan which had a carrying value of $59.1 million and $52.6 million, respectively. 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 $4.8 million as of December 31, 2021, or 1.4% of total loans and other lending investments, compared to $12.0 million, or 1.7%, as of December 31, 2020. We expect that our level of Expected Losses (refer to Note 3 to the consolidated financial statements) will fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and Expected Losses 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, 2021 and 2020, asset-specific allowances were $0.6 million and $0.7 million, respectively

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

The Expected Loss (refer to Note 3 to the consolidated financial statements) general allowance decreased to $4.2 million, or 1.5% of performing loans and other lending investments, as of December 31, 2021, compared to $11.3 million, or 1.7% of performing loans and other lending investments, as of December 31, 2020. The decrease was due primarily to the repayment of loans during the year ended December 31, 2021 and an improving macroeconomic forecast on commercial real estate markets since 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 and entertainment/leisure properties. As of December 31, 2021, the gross book value of our operating property portfolio, including the carrying value of our equity method investments gross of accumulated depreciation, totaled $179.2 million.

Portfolio Activity—During the year ended December 31, 2021, we sold a legacy commercial operating property with a carrying value of $96.8 million and recognized gains of $25.6 million and sold residential operating properties and recognized gains of $0.7 million in “Income from sales of real estate” in our consolidated statements of operations.

29

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Land and Development

As of December 31, 2021, 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):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","As of December 31,"],["\u200b","","2021","","2020"],["Land and development, net","\u200b","$","286,810","\u200b","$","430,663"],["Other investments","\u200b","","1,096","\u200b","","31,200"],["Total","\u200b","$","287,906","\u200b","$","461,863"]]
[[/GREPCENT_TABLE]]

​

Portfolio Activity—During the year ended December 31, 2021, we sold land parcels and residential lots and units and recognized $189.1 million in "Land development revenue" and $172.0 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, 2021.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Land and Development Portfolio Rollforward"],["\u200b","\u200b","(in millions)"],["\u200b","","Asbury Ocean","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["\u200b","\u200b","Club and","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Asbury Park","\u200b","Magnolia","\u200b","All","\u200b","Total"],["\u200b","\u200b","Waterfront","\u200b","Green","\u200b","Others","\u200b","Segment"],["Beginning balance(1)","\u200b","$","201.1","\u200b","$","101.3","\u200b","$","128.3","\u200b","$","430.7"],["Asset sales(2)","\u200b","","(66.0)","\u200b","","(24.0)","\u200b","","(74.8)","\u200b","","(164.8)"],["Capital expenditures","\u200b","","2.7","\u200b","","21.3","\u200b","","\u2014","\u200b","","24.0"],["Other","\u200b","","\u2014","\u200b","","(2.8)","\u200b","","(0.3)","\u200b","","(3.1)"],["Ending balance(1)","\u200b","$","137.8","\u200b","$","95.8","\u200b","$","53.2","\u200b","$","286.8"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","As of December 31, 2021 and 2020, Total Segment excludes $1.1 million and $31.2 million, respectively, of equity method investments."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Represents gross book value of the assets sold, rather than proceeds received."]]
[[/GREPCENT_TABLE]]

The 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

30

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package features an 18-hole Jack Nicklaus designed golf course and a full-service golf clubhouse, aquatic center and a tennis facility.

Results of Operations for the Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended December 31,","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2021","","2020","","$ Change","\u200b"],["\u200b","\u200b","(in thousands)","\u200b"],["Operating lease income","\u200b","$","16,824","\u200b","$","24,276","\u200b","$","(7,452)","\u200b"],["Interest income","\u200b","","31,229","\u200b","","56,676","\u200b","","(25,447)","\u200b"],["Interest income from sales-type leases","\u200b","","1,215","\u200b","","\u2014","\u200b","","1,215","\u200b"],["Other income","\u200b","","70,259","\u200b","","78,445","\u200b","","(8,186)","\u200b"],["Land development revenue","\u200b","","189,103","\u200b","","164,702","\u200b","","24,401","\u200b"],["Total revenue","\u200b","","308,630","\u200b","","324,099","\u200b","","(15,469)","\u200b"],["Interest expense","\u200b","","115,400","\u200b","","126,828","\u200b","","(11,428)","\u200b"],["Real estate expense","\u200b","","45,994","\u200b","","46,083","\u200b","","(89)","\u200b"],["Land development cost of sales","\u200b","","171,961","\u200b","","177,727","\u200b","","(5,766)","\u200b"],["Depreciation and amortization","\u200b","","7,072","\u200b","","7,327","\u200b","","(255)","\u200b"],["General and administrative","\u200b","","131,703","\u200b","","100,879","\u200b","","30,824","\u200b"],["(Recovery of) provision for loan losses","\u200b","","(8,085)","\u200b","","8,866","\u200b","","(16,951)","\u200b"],["Impairment of assets","\u200b","","678","\u200b","","5,791","\u200b","","(5,113)","\u200b"],["Other expense","\u200b","","8,114","\u200b","","569","\u200b","","7,545","\u200b"],["Total costs and expenses","\u200b","","472,837","\u200b","","474,070","\u200b","","(1,233)","\u200b"],["Income from sales of real estate","\u200b","","26,319","\u200b","","6,318","\u200b","","20,001","\u200b"],["Loss on early extinguishment of debt, net","\u200b","","\u2014","\u200b","","(12,038)","\u200b","","12,038","\u200b"],["Earnings from equity method investments","\u200b","","154,344","\u200b","","39,472","\u200b","","114,872","\u200b"],["Income tax benefit (expense)","\u200b","","118","\u200b","","(89)","\u200b","","207","\u200b"],["Net income from discontinued operations","\u200b","","121,452","\u200b","","85,455","\u200b","","35,997","\u200b"],["Net income (loss)","\u200b","$","138,026","\u200b","$","(30,853)","\u200b","$","168,879","\u200b"]]
[[/GREPCENT_TABLE]]

​

Revenue—Operating lease income, which primarily includes income from commercial operating properties, decreased to $16.8 million in 2021 from $24.3 million in 2020. The following table summarizes our operating lease income by segment ($ in millions).

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,","","\u200b","\u200b"],["\u200b","","2021","","2020","","Change"],["Net Lease(1)","\u200b","$","\u2014","\u200b","$","2.7","\u200b","$","(2.7)"],["Operating Properties(2)","\u200b","","16.4","\u200b","","21.2","\u200b","","(4.8)"],["Land and Development","\u200b","","0.4","\u200b","","0.4","\u200b","","\u2014"],["Total","\u200b","$","16.8","\u200b","$","24.3","\u200b","$","(7.5)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations. Operating lease income shown above is from net lease assets that were not included in discontinued operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Change primarily due to asset sales and a lease termination, partially offset by an increase in rent at certain of our properties."]]
[[/GREPCENT_TABLE]]

​

Interest income decreased to $31.2 million in 2021 from $56.7 million in 2020. 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 $377 million for the year ended December 31, 2021 from $706 million in 2020. The weighted average yield on our performing loans and other lending investments was 7.8% and 7.7% for the years ended December 31, 2021 and 2020, respectively.

Interest income from sales-type leases was $1.2 million for the year ended December 31, 2021 and resulted from the acquisition of a Ground Lease that was classified as a sales-type lease (refer to Note 5 to the consolidated financial statements).

31

Table of Contents

Other income decreased to $70.3 million in 2021 from $78.4 million in 2020. Other income in 2021 consisted primarily of mark-to-market gains on an equity investment, income from our hotel properties, management fees from SAFE, lease termination fees and other ancillary income from our land and development projects and loan portfolio. Other income in 2020 consisted primarily of mark-to-market gains on an equity investment, management fees from SAFE, 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.

Land development revenue and cost of sales— In 2021, we sold residential lots and units and recognized land development revenue of $189.1 million which had associated cost of sales of $172.0 million. 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. The increase in 2021 was primarily due to the sale of three land properties.

Costs and expenses—Interest expense decreased to $115.4 million in 2021 from $126.8 million in 2020. The balance of our average outstanding debt was $2.59 billion for 2021 and $2.65 billion for 2020. Our weighted average cost of debt was 4.4% for 2021 and 4.8% for 2020.

Real estate expense increased to $46.0 million in 2021 from $46.1 million in 2020. The following table summarizes our real estate expenses by segment ($ in millions).

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,","","\u200b","\u200b"],["\u200b","","2021","","2020","","Change"],["Operating Properties(1)","\u200b","$","27.0","\u200b","$","22.9","\u200b","$","4.1"],["Land and Development(2)","\u200b","","18.6","\u200b","","23.0","\u200b","","(4.4)"],["Net Lease(3)","\u200b","","0.4","\u200b","","0.2","\u200b","","0.2"],["Total","\u200b","$","46.0","\u200b","$","46.1","\u200b","$","(0.1)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Change primarily due to an increase in expenses at certain of our hotel operating properties that have increased operations from the prior year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Change primarily due to cost decreases at various properties due to unit sales and asset sales."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations. Net lease expense shown above is from net lease assets that were not included in discontinued operations."]]
[[/GREPCENT_TABLE]]

​

Depreciation and amortization was $7.1 million in 2021 and $7.3 million in 2020 and relates primarily to our operating properties portfolio.

General and administrative expense includes payroll and related costs, performance-based compensation, public company costs and occupancy costs. General and administrative expense increased to $131.7 million in 2021 from $100.9 million in 2020. The increase in 2021 was due primarily to a $34.8 million increase in performance-based compensation, which was partially offset by a $3.3 million decrease in payroll and related costs from 2020. Our primary forms of performance-based compensation are our iPIP Plans and our annual bonus pool (refer to Note 15 to the consolidated financial statements for more information on the iPIP Plans). In addition, illustrative examples of our iPIP Plans may be found in our 2021 definitive proxy statement which is publicly available on the SEC’s website.

The recovery of loan losses was $8.1 million in 2021 as compared to a provision for loan losses of $8.9 million in 2020. The recovery of loan losses for the year ended December 31, 2021 resulted from the reversal of Expected Loss (refer to Note 3 to the consolidated financial statements) allowances on loans that repaid in full during the year ended December 31, 2021 and from an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. 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 $4.7 million in the general allowance.

During the year ended December 31, 2021, we recorded an aggregate impairment of $0.7 million in connection with the sale of residential condominiums. During the year ended December 31, 2020, we recorded aggregate impairments of $5.8 million on a real estate asset held for sale and land and development assets.

Other expense increased to $8.1 million in 2021 from $0.6 million in 2020. The increase in 2021 was due primarily to $6.1 million of fees from debt transactions.

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Income from sales of real estate—Income from sales of real estate increased to $26.3 million in 2021 from $6.3 million in 2020. During the year ended December 31, 2021, we recorded $26.3 million of income from sales of real estate from the sale of an operating property and residential condominiums. 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 to the consolidated financial statements) and $0.2 million from the sale of an operating property.

Loss on early extinguishment of debt, net—In 2020, we incurred a loss on early extinguishment of debt of $12.0 million from the repayment of senior notes prior to maturity.

Earnings from equity method investments—Earnings from equity method investments increased to $154.3 million in 2021 from $39.5 million in 2020. In 2021, we recognized $108.4 million of income from our equity method investment in SAFE (which included a dilution gain of $60.7 million – refer to Note 8 to the consolidated financial statements) and $45.9 million of net aggregate income from our remaining equity method investments, which included $18.6 million of income and gains from one equity method investment and $17.3 million from another of our equity method investments resulting from our share of income from land sales at the venture. In 2020, we recognized $53.5 million of income from our equity method investment in SAFE (which included $14.4 million of dilution gains – refer to Note 8 to the consolidated financial statements), which was partially offset by $14.0 million of net aggregate losses from our remaining equity method investments.

Income tax expense—An income tax benefit of $0.1 million was recorded in 2021 and a $0.1 million income tax expense was recorded in 2020.

Net income from discontinued operations— In July 2021, we announced that we intended to explore market interest for possible sales of certain of our net lease assets from our net lease business segment. Our net lease assets were comprised of office, entertainment and industrial properties located in the United States. In February 2022, we entered into a purchase and sale agreement to sell the majority of our net lease properties owned directly and through ventures. We expect the transaction to close in the first quarter of 2022. Our net lease assets associated with our Ground Lease businesses were not included in the sale. Net income from discontinued operations represents the operating results from the net lease assets that are not associated with our Ground Lease businesses (refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations).

​

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Results of Operations for the Year Ended December 31, 2020 compared to the Year Ended December 31, 2019

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended December 31,","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2020","","2019","","$ Change","\u200b"],["\u200b","\u200b","(in thousands)","\u200b"],["Operating lease income","\u200b","$","24,276","\u200b","$","32,294","\u200b","$","(8,018)","\u200b"],["Interest income","\u200b","","56,676","\u200b","","75,636","\u200b","","(18,960)","\u200b"],["Other income","\u200b","","78,445","\u200b","","46,180","\u200b","","32,265","\u200b"],["Land development revenue","\u200b","","164,702","\u200b","","119,595","\u200b","","45,107","\u200b"],["Total revenue","\u200b","","324,099","\u200b","","273,705","\u200b","","50,394","\u200b"],["Interest expense","\u200b","","126,828","\u200b","","141,699","\u200b","","(14,871)","\u200b"],["Real estate expense","\u200b","","46,083","\u200b","","67,837","\u200b","","(21,754)","\u200b"],["Land development cost of sales","\u200b","","177,727","\u200b","","109,663","\u200b","","68,064","\u200b"],["Depreciation and amortization","\u200b","","7,327","\u200b","","7,176","\u200b","","151","\u200b"],["General and administrative","\u200b","","100,879","\u200b","","98,609","\u200b","","2,270","\u200b"],["Provision for loan losses","\u200b","","8,866","\u200b","","6,482","\u200b","","2,384","\u200b"],["Impairment of assets","\u200b","","5,791","\u200b","","10,948","\u200b","","(5,157)","\u200b"],["Other expense","\u200b","","569","\u200b","","13,120","\u200b","","(12,551)","\u200b"],["Total costs and expenses","\u200b","","474,070","\u200b","","455,534","\u200b","","18,536","\u200b"],["Income from sales of real estate","\u200b","","6,318","\u200b","","11,969","\u200b","","(5,651)","\u200b"],["Loss on early extinguishment of debt, net","\u200b","","(12,038)","\u200b","","(27,724)","\u200b","","15,686","\u200b"],["Earnings from equity method investments","\u200b","","39,472","\u200b","","42,378","\u200b","","(2,906)","\u200b"],["Income tax expense","\u200b","","(89)","\u200b","","(369)","\u200b","","280","\u200b"],["Net income from discontinued operations","\u200b","","85,455","\u200b","","489,900","\u200b","","(404,445)","\u200b"],["Net income (loss)","\u200b","$","(30,853)","\u200b","$","334,325","\u200b","$","(365,178)","\u200b"]]
[[/GREPCENT_TABLE]]

​

Revenue—Operating lease income, which primarily includes income from commercial operating properties, decreased to $24.3 million in 2020 from $32.3 million in 2019. The following table summarizes our operating lease income by segment ($ in millions).

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,","","\u200b","\u200b"],["\u200b","","2020","","2019","","Change"],["Operating Properties(1)","\u200b","$","21.2","\u200b","$","28.4","\u200b","","(7.2)"],["Net Lease(2)","\u200b","\u200b","2.7","\u200b","\u200b","3.6","\u200b","\u200b","(0.9)"],["Land and Development","\u200b","","0.4","\u200b","","0.3","\u200b","","0.1"],["Total","\u200b","$","24.3","\u200b","$","32.3","\u200b","$","(8.0)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Change primarily due to asset sales and decreased performance at certain of our operating properties due to the COVID-19 pandemic."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations. Operating lease income shown above is from net lease assets that were not included in discontinued operations."]]
[[/GREPCENT_TABLE]]

​

Interest income decreased to $56.7 million in 2020 from $75.6 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.

Other income increased to $78.4 million in 2020 from $46.2 million in 2019. Other income in 2020 consisted primarily of mark-to-market gains on an equity investment, management fees from SAFE, 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 from SAFE, other ancillary income from our operating properties and land and development projects, 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 to the consolidated financial statements), $12.5 million of income resulting from the

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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 $126.8 million in 2020 from $141.7 million in 2019. The balance of our average outstanding debt, inclusive of loan participations, was $2.65 billion for 2020 and $2.63 billion for 2019. Our weighted average cost of debt was 4.8% for 2020 and 5.6% for 2019.

Real estate expenses decreased to $46.1 million in 2020 from $67.8 million in 2019. The following table summarizes our real estate expenses by segment ($ in millions).

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended December 31,","","\u200b","\u200b"],["\u200b","","2020","","2019","","Change"],["Operating Properties(1)","\u200b","$","22.9","\u200b","$","35.3","\u200b","$","(12.4)"],["Land and Development(2)","\u200b","","23.0","\u200b","","32.3","\u200b","","(9.3)"],["Net Lease(3)","\u200b","\u200b","0.2","\u200b","\u200b","0.2","\u200b","\u200b","\u2014"],["Total","\u200b","$","46.1","\u200b","$","67.8","\u200b","$","(21.7)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Change primarily due to asset sales and a decrease in expenses at certain of our hotel operating properties that have decreased operations from the prior year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Change primarily due to asset sales."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations. Net lease expense shown above is from net lease assets that were not included in discontinued operations."]]
[[/GREPCENT_TABLE]]

​

Depreciation and amortization was $7.3 million in 2020 and $7.2 million in 2019 and relates primarily to our operating properties portfolio.

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 $8.9 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 $4.7 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.

​

In 2020, we recorded aggregate impairments of $5.8 million on a real estate asset held for sale and land and development assets. In 2019, we recorded an impairment of $3.3 million on 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 $12.0 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 to the consolidated financial statements) and $0.2 million from

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the sale of an operating property. During the year ended December 31, 2019, we recorded $12.0 million of income from sales of real estate, primarily from the sale of 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 $39.5 million in 2020 from $42.4 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, which was partially offset by $14.0 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 $6.7 million of aggregate losses from our remaining equity method investments.

Income tax expense— An income tax expense of $0.1 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.

Net income from discontinued operations— In July 2021, we announced that we intended to explore market interest for possible sales of certain of our net lease assets from our net lease business segment. Our net lease assets were comprised of office, entertainment and industrial properties located in the United States. In February 2022, we entered into a purchase and sale agreement to sell the majority of our net lease properties owned directly and through ventures. We expect the transaction to close in the first quarter of 2022. Our net lease assets associated with our Ground Lease businesses were not included in the sale. Net income from discontinued operations represents the operating results from the net lease assets that are not associated with our Ground Lease businesses (refer to Note 3 to the consolidated financial statements - Net Lease Sale and Discontinued Operations).

​

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 9% of our overall portfolio as of December 31, 2021, 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. Adjusted earnings is a non-GAAP metric management uses to assess our execution of this strategy and the performance of our operations.

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

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Adjusted Earnings should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Earnings should not be considered as an alternative to net income (loss) (determined in accordance with generally accepted accounting principles in the United States of America (“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.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","For the Year Ended December 31,","\u200b"],["\u200b","","2021","","2020","\u200b"],["\u200b","\u200b","(in thousands)","\u200b"],["Adjusted Earnings","\u200b","\u200b","","","\u200b","","\u200b"],["Net income (loss) allocable to common shareholders","\u200b","$","108,985","\u200b","$","(65,937)","\u200b"],["Add: Depreciation and amortization","\u200b","","66,629","\u200b","","63,882","\u200b"],["Add: Stock-based compensation expense","\u200b","","69,261","\u200b","","39,354","\u200b"],["Add: Non-cash portion of loss on early extinguishment of debt","\u200b","","\u2014","\u200b","","3,470","\u200b"],["Adjusted earnings allocable to common shareholders","\u200b","$","244,875","\u200b","$","40,769","\u200b"]]
[[/GREPCENT_TABLE]]

​

Liquidity and Capital Resources

During the year ended December 31, 2021, we invested an aggregate $565 million in new investments, prior financing commitments, real estate development and share repurchases. Investments included $415 million in net lease (including $121 million in shares of SAFE common stock), loan, and strategic investments, $122 million in the repurchase of our common stock and $28 million of capital expenditures on legacy assets. These amounts are inclusive of fundings from our consolidated investments and our pro rata share from equity method investments.

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, 2021 and 2020, by segment ($ in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","For the Year Ended December 31,","\u200b"],["\u200b","","2021","","2020","\u200b"],["Operating Properties","\u200b","$","677","\u200b","$","2,233","\u200b"],["Net Lease","\u200b","","6,085","\u200b","","13,565","\u200b"],["Total capital expenditures on real estate assets","\u200b","$","6,762","\u200b","$","15,798","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Land and Development","\u200b","$","23,929","\u200b","$","40,954","\u200b"],["Total capital expenditures on land and development assets","\u200b","$","23,929","\u200b","$","40,954","\u200b"]]
[[/GREPCENT_TABLE]]

​

As of December 31, 2021, we had unrestricted cash of $340 million and $350 million of borrowing capacity available under the Revolving Credit Facility. We expect our primary cash uses over the next 12 months to be funding of investments in the Ground Lease and Ground Lease adjacent businesses, repayment of debt obligations (refer to Note 11 to the consolidated financial statements), capital expenditures on legacy assets, distributions to shareholders through dividends and share repurchases and funding ongoing business operations, including operating lease payments (refer to Note 12 to the consolidated financial statements). The amount we actually invest will depend on the closing of asset sales, including the pending Net Lease Sale, the continuing impact of the COVID-19 pandemic, inflation, interest rate increases, market volatility and other macroeconomic factors on our business and the pace of the economic recovery. As of December 31, 2021, we also had approximately $92 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, performance hurdles and all other conditions to fundings (see “Unfunded Commitments” below). We also have approximately $138 million principal amount of scheduled real estate finance maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers.

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We expect that we will be able to meet our liquidity requirements over the next 12 months and for the reasonably foreseeable future. Our capital sources to meet such cash requirements are expected to include proceeds from the Net Lease Sale (refer to Note 3 to the consolidated financial statements), cash on hand, Revolving Credit Facility borrowings, income from our portfolio, loan repayments from borrowers and proceeds from other 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 COVID-19 pandemic, the uncertain duration of the COVID-19 pandemic and the macroeconomic factors referenced in the preceding paragraph and their 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.

The following table outlines our cash flows provided by operating activities, cash flows used in investing activities and cash flows provided by financing activities for the years ended December 31, 2021 and 2020 ($ in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended December 31,","\u200b","\u200b","\u200b"],["\u200b","\u200b","2021","","2020","","Change"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Cash flows provided by (used in) operating activities","\u200b","$","(20,327)","\u200b","$","21,886","\u200b","$","(42,213)"],["Cash flows provided by investing activities","\u200b","\u200b","514,016","\u200b","\u200b","31,179","\u200b","\u200b","482,837"],["Cash flows used in financing activities","\u200b","\u200b","(250,135)","\u200b","\u200b","(254,978)","\u200b","\u200b","4,843"]]
[[/GREPCENT_TABLE]]

​

The decrease in cash flows provided by operating activities during 2021 was due primarily to the origination of loans held for sale in 2021, which was partially offset by an increase in distributions from other investments in 2021. The increase in cash flows provided by investing activities during 2021 was due primarily to an increase in proceeds from the repayments of loans receivable, sales of loans receivable and real estate and an increase in distributions from other investments. The decrease in cash flows used in financing activities during 2021 was due primarily to a decrease in the repayment of debt obligations, which was partially offset by a decrease in borrowings from debt obligations and an increase in the repurchase of common stock.

​

Senior Term Loan— We have a $650.0 million senior term loan that bears interest at LIBOR plus 2.75% per annum and matures in June 2023 (the “Senior Term Loan”). 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. As of December 31, 2021, the outstanding balance on the Senior Term Loan was $491.9 million.

Revolving Credit Facility— We have a secured revolving credit facility with a maximum capacity of $350.0 million that matures in September 2022 (the “Revolving Credit Facility”). 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 through September 2023. As of December 31, 2021, based on our borrowing base of assets, we had $278 million of borrowing capacity available under the Revolving Credit Facility without pledging any additional assets to the facility.

Unsecured Notes— As of December 31, 2021, the Company has senior unsecured notes outstanding with varying fixed-rates and maturities ranging from September 2022 to February 2026. The Company’s senior unsecured notes are interest only, are generally redeemable at the option of the Company and contain certain financial covenants (see below).

Debt Covenants—Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant restricting certain incurrences of debt based on a fixed charge

38

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coverage ratio. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders.

The Senior Term Loan and the Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the Senior Term Loan requires us to maintain borrowing base asset value 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 borrowing base asset value remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrowings or substitute assets in the borrowing base. Under both the Senior Term Loan and the Revolving Credit Facility we are permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and we remain in compliance with our financial covenants after giving effect to the dividend.

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.

As of December 31, 2021, the maximum amount of fundings we may be obligated to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments and assuming that 100% of our capital committed to Strategic Investments is drawn down, are as follows (in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Loans and Other","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["\u200b","\u200b","Lending","\u200b","\u200b","\u200b","\u200b","Other","\u200b","\u200b","\u200b"],["\u200b","","Investments","","\u200b","Real Estate","","Investments","","Total"],["Performance-Based Commitments","\u200b","$","6,980","\u200b","$","29,491","\u200b","$","43,431","\u200b","$","79,902"],["Strategic Investments","\u200b","","\u2014","\u200b","","5,061","\u200b","","6,621","\u200b","","11,682"],["Total","\u200b","$","6,980","\u200b","$","34,552","\u200b","$","50,052","\u200b","$","91,584"]]
[[/GREPCENT_TABLE]]

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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, 2021, we repurchased 5.5 million shares of our outstanding common stock for $122.4 million, for an average cost of $22.38 per share. During the year ended December 31, 2020, we repurchased 4.2 million shares of our outstanding common stock for $48.4 million, for 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, for an average cost of $10.16 per share. We generally maintain continuing authorization to repurchase up to $50.0 million in shares of our common stock. As of December 31, 2021, we had remaining authorization to repurchase up to $0.4 million of our common stock under our stock repurchase program. In February 2022, our board of directors authorized an increase to the stock repurchase program to $50.0 million.

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

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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 2021, 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 losses on 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.

We estimate our expected loss (“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 to the consolidated financial statements).

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.

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 (recovery of) provision for loan losses for the years ended December 31, 2021, 2020 and 2019 were $(8.1) million, $8.9 million and $6.5 million, respectively.

Impairment or disposal of long-lived assets— 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

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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. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.

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.

During the year ended December 31, 2021, we recorded an impairment of $0.7 million in connection with the sale of residential condominiums. During the year ended December 31, 2020, we recorded an aggregate impairment of $5.8 million 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 $10.9 million.

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