Filing scope and business context
Entity mismatch: The supplied filing is iStar Inc.’s Form 10-K for the fiscal year ended December 31, 2020, not Safehold Inc.’s 10-K. Safehold (SAFE) is discussed as an iStar-managed, equity-method investee; iStar owned about 65.4% of SAFE’s common stock at year-end. This is an annual report, not a standalone fourth-quarter report.
iStar finances, invests in and develops real estate. Its segments are net lease, real estate finance, operating properties, and land and development. Management’s strategic priority was scaling SAFE’s ground-lease platform while monetizing legacy assets.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $530.9 million | $479.5 million |
| Net income (loss) | $(30.9) million | $334.3 million |
| Net income (loss) allocable to common shareholders | $(65.9) million; $(0.87) per share | $291.5 million; $4.51 per share |
| Adjusted earnings allocable to common shareholders | $40.8 million | $388.0 million |
| Cash flow from operating activities | $21.9 million | $(45.6) million |
| Cash flow from investing activities | $31.2 million | $(398.1) million |
| Cash flow from financing activities | $(255.0) million | $(178.6) million |
| Cash and cash equivalents at year-end | $98.6 million | $307.2 million |
| Debt obligations, net | $3.287 billion | $3.387 billion |
| Total assets / total equity | $4.862 billion / $1.064 billion | $5.085 billion / $1.238 billion |
Revenue rose 10.7%, but the filing does not present a standard operating-margin measure. At year-end, iStar reported $350 million available under its revolving credit facility in addition to cash. Its unsecured corporate credit ratings were below investment grade. The company reported no corporate debt maturities through September 2022; scheduled debt maturities nevertheless included $156.1 million in 2021, $334.3 million in 2022, and $491.9 million in 2023.
Material changes and notable items
- The swing to a common-shareholder loss largely reflects the absence of substantial 2019 transaction gains: 2019 included $236.6 million of real-estate sale income and $180.4 million of selling profit from sales-type leases. In 2020, real-estate sale income was $6.3 million and there was no sales-type lease selling profit.
- 2020 revenue included $164.7 million of land-development revenue, but related cost of sales was $177.7 million. Other income increased to $83.9 million, including $23.9 million of mark-to-market gains on an equity investment and $12.5 million of reimbursement of legal fees.
- Interest expense fell to $169.6 million from $183.9 million as the weighted-average cost of debt declined to 4.8% from 5.4%. Interest income declined to $60.1 million from $77.7 million as average performing loan and investment balances fell.
- iStar issued $400 million of 5.50% notes due February 2026 and used the proceeds, with cash, to repay $400 million of notes due September 2022. It recorded a $12.0 million loss on early debt extinguishment.
- iStar invested approximately $176 million in SAFE common stock during 2020 and received $21 million in SAFE distributions. Its SAFE investment had a $937.7 million carrying value; the reported market value of its SAFE shares was approximately $2.5 billion at year-end.
- The loan portfolio’s gross carrying value fell to $745.5 million from $856.5 million. One loan remained non-performing, with a $52.6 million carrying value, versus $16.1 million at year-end 2019. The allowance was $13.2 million, or 1.8% of loans and other lending investments, compared with $28.6 million, or 3.3%, in 2019; a $25.9 million specific allowance was charged off following a loan sale.
- Land and development assets, net, declined to $430.7 million from $580.5 million. iStar recognized $164.7 million of land-development revenue and $177.7 million of associated cost of sales in 2020.
Outlook, risks and contingencies
Management said COVID-19 disrupted asset sales and SAFE’s growth by reducing real-estate transaction activity and constraining financing. In fourth-quarter 2020, iStar collected 99% of net-lease rent due, excluding a tenant with lease modifications; 89% of real-estate-finance interest due; and 85% of operating-property rent due. SAFE reported collecting 100% of ground rent due for 2020. Management expected a material decline in SAFE percentage rent in 2021 related to 2020 hotel performance. The filing provides no quantified earnings guidance.
Near-term cash uses were expected to include investments, capital expenditures, shareholder distributions and operating needs. iStar disclosed approximately $104.4 million of maximum unfunded commitments, most expected to be funded over two years subject to conditions, and approximately $494 million of real-estate-finance maturities over the next 12 months before borrower extension options. Liquidity depends on cash, credit-facility borrowings, portfolio income, loan repayments and asset sales.
Key risks include pandemic-related tenant and borrower stress; exposure to entertainment/leisure and hotel assets; tenant concentration (the largest tenant contributed 11.6% of 2020 revenue); loan-credit and collateral valuation uncertainty; leverage, below-investment-grade ratings and debt covenant compliance; interest-rate and LIBOR transition exposure; execution of the ground-lease strategy; and potential conflicts in iStar’s relationship with SAFE. The auditor issued an unqualified opinion on the financial statements and internal controls; the expected-credit-loss estimate was identified as a critical audit matter. Routine litigation was disclosed, with no pending proceeding expected by management to materially affect the consolidated financial statements.
Investor facts to verify
- Confirm whether the intended subject is iStar Inc. or Safehold Inc.; this filing reports iStar, and SAFE has separate SEC filings.
- Review the 2019 one-time gains and the 2020 mark-to-market and litigation-reimbursement income when assessing recurring earnings; adjusted earnings is a non-GAAP measure, not cash available for distribution.
- Check the status and repayment or extension of the roughly $494 million in real-estate-finance maturities, the $104.4 million of commitments, and the debt covenant headroom.
- Track collections, modifications and credit performance for the major entertainment tenant, hotel exposure, and non-performing loan, along with changes in credit-loss allowances.
- Assess SAFE’s separate results, the value and liquidity of iStar’s SAFE stake, voting limits, related-party arrangements, and the expected 2021 hotel percentage-rent decline.