10-Q 1 star-06302015x10q.htm 10-Q STAR-06.30.2015-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to            
Commission File No. 1-15371
_______________________________________________________________________________
iSTAR FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
 
95-6881527
(I.R.S. Employer
Identification Number)
1114 Avenue of the Americas, 39th Floor
 
 
New York, NY
(Address of principal executive offices)
 
10036
(Zip code)
Registrant's telephone number, including area code: (212) 930-9400
_______________________________________________________________________________
Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
As of July 31, 2015, there were 85,568,024 shares of common stock, $0.001 par value per share, of iStar Financial Inc. ("Common Stock") outstanding.
 



TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 




PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1.    Financial Statements
iStar Financial Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(unaudited)
 
As of
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Real estate
 
 
 
Real estate, at cost
$
3,011,978

 
$
3,145,563

Less: accumulated depreciation
(473,162
)
 
(468,849
)
Real estate, net
2,538,816

 
2,676,714

Real estate available and held for sale
288,021

 
285,982

Total real estate
2,826,837

 
2,962,696

Loans receivable and other lending investments, net
1,567,296

 
1,377,843

Other investments
289,500

 
354,119

Cash and cash equivalents
637,136

 
472,061

Accrued interest and operating lease income receivable, net
16,016

 
16,367

Deferred operating lease income receivable, net
98,091

 
98,262

Deferred expenses and other assets, net
238,487

 
181,785

Total assets
$
5,673,363

 
$
5,463,133

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable, accrued expenses and other liabilities
$
183,606

 
$
180,902

Loan participations payable, net
141,452

 

Debt obligations, net
4,151,653

 
4,022,684

Total liabilities
4,476,711

 
4,203,586

Commitments and contingencies

 

Redeemable noncontrolling interests
12,687

 
11,199

Equity:
 
 
 
iStar Financial Inc. shareholders' equity:
 
 
 
Preferred Stock Series D, E, F, G and I, liquidation preference $25.00 per share (see Note 12)
22

 
22

Convertible Preferred Stock Series J, liquidation preference $50.00 per share (see Note 12)
4

 
4

High Performance Units
9,800

 
9,800

Common Stock, $0.001 par value, 200,000 shares authorized, 146,229 issued and 85,568 outstanding at June 30, 2015 and 145,807 issued and 85,191 outstanding at December 31, 2014
146

 
146

Additional paid-in capital
4,007,937

 
4,007,514

Retained earnings (deficit)
(2,611,747
)
 
(2,556,469
)
Accumulated other comprehensive income (loss) (see Note 12)
(4,706
)
 
(971
)
Treasury stock, at cost, $0.001 par value, 60,661 shares at June 30, 2015 and 60,617 shares at December 31, 2014
(263,515
)
 
(262,954
)
Total iStar Financial Inc. shareholders' equity
1,137,941

 
1,197,092

Noncontrolling interests
46,024

 
51,256

Total equity
1,183,965

 
1,248,348

Total liabilities and equity
$
5,673,363

 
$
5,463,133

The accompanying notes are an integral part of the consolidated financial statements.

1


iStar Financial Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Operating lease income
$
56,152

 
$
60,967

 
$
115,291

 
$
123,075

Interest income
33,729

 
35,127

 
68,625

 
63,041

Other income
12,761

 
29,262

 
23,325

 
43,846

Land development revenue
6,543

 
4,487

 
14,801

 
8,630

Total revenues
109,185

 
129,843

 
222,042

 
238,592

Costs and expenses:
 
 
 
 
 
 
 
Interest expense
55,824

 
56,530

 
110,456

 
113,986

Real estate expense
36,355

 
40,554

 
75,989

 
83,167

Land development cost of sales
5,252

 
3,611

 
12,142

 
7,265

Depreciation and amortization
15,516

 
18,822

 
34,017

 
37,435

General and administrative
20,586

 
26,623

 
41,340

 
46,411

Provision for (recovery of) loan losses
19,151

 
(2,792
)
 
23,444

 
(6,192
)
Impairment of assets
1,674

 
3,300

 
1,674

 
6,279

Other expense
888

 
4,690

 
3,011

 
4,911

Total costs and expenses
155,246

 
151,338

 
302,073

 
293,262

Income (loss) before earnings from equity method investments and other items
(46,061
)
 
(21,495
)
 
(80,031
)
 
(54,670
)
Loss on early extinguishment of debt, net
(44
)
 
(23,587
)
 
(212
)
 
(24,767
)
Earnings from equity method investments
8,785

 
24,093

 
15,332

 
27,270

Income (loss) from continuing operations before income taxes
(37,320
)
 
(20,989
)
 
(64,911
)
 
(52,167
)
Income tax (expense) benefit
(811
)
 
215

 
(6,688
)
 
722

Income (loss) from continuing operations(1)
(38,131
)
 
(20,774
)
 
(71,599
)
 
(51,445
)
Income from sales of real estate
18,355

 
17,180

 
39,511

 
33,674

Net income (loss)
(19,776
)
 
(3,594
)
 
(32,088
)
 
(17,771
)
Net (income) loss attributable to noncontrolling interests
629

 
(325
)
 
2,470

 
(779
)
Net income (loss) attributable to iStar Financial Inc. 
(19,147
)
 
(3,919
)
 
(29,618
)
 
(18,550
)
Preferred dividends
(12,830
)
 
(12,830
)
 
(25,660
)
 
(25,660
)
Net (income) loss allocable to HPU holders and Participating Security holders(2)(3)
1,027

 
542

 
1,776

 
1,431

Net income (loss) allocable to common shareholders
$
(30,950
)
 
$
(16,207
)
 
$
(53,502
)
 
$
(42,779
)
Per common share data(1):
 
 
 
 
 
 
 
Income (loss) attributable to iStar Financial Inc. from continuing operations—Basic and diluted
$
(0.36
)
 
$
(0.19
)
 
$
(0.63
)
 
$
(0.50
)
Net income (loss) attributable to iStar Financial Inc.—Basic and diluted
$
(0.36
)
 
$
(0.19
)
 
$
(0.63
)
 
$
(0.50
)
Weighted average number of common shares—Basic and diluted
85,541

 
84,916

 
85,519

 
84,868

Per HPU share data(1)(2):
 
 
 
 
 
 
 
Income (loss) attributable to iStar Financial Inc. from continuing operations—Basic and diluted
$
(68.47
)
 
$
(36.13
)
 
$
(118.40
)
 
$
(95.40
)
Net income (loss) attributable to iStar Financial Inc.—Basic and diluted
$
(68.47
)
 
$
(36.13
)
 
$
(118.40
)
 
$
(95.40
)
Weighted average number of HPU share—Basic and diluted
15

 
15

 
15

 
15

Explanatory Notes:
_______________________________________________________________________________

(1)
Income (loss) from continuing operations attributable to iStar Financial Inc. was $(37.5) million and $(69.1) million for the three and six months ended June 30, 2015, respectively, and $(21.1) million and $(52.2) million for the three and six months ended June 30, 2014, respectively. See Note 14 for details on the calculation of earnings per share.
(2)
HPU holders are current and former Company employees who purchased high performance common stock units under the Company's High Performance Unit Program.
(3)
Participating Security holders are non-employee directors who hold common stock equivalents and restricted stock awards granted under the Company's Long Term Incentive Plans that are eligible to participate in dividends (see Note 13 and Note 14).

The accompanying notes are an integral part of the consolidated financial statements.

2


iStar Financial Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(19,776
)
 
$
(3,594
)
 
$
(32,088
)
 
$
(17,771
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Reclassification of (gains)/losses on available-for-sale securities into earnings upon realization(1)

 

 
(2,531
)
 

Reclassification of (gains)/losses on cash flow hedges into earnings upon realization(2)
200

 
3,595

 
350

 
3,730

Realization of (gains)/losses on cumulative translation adjustment into earnings upon realization(1)

 
968

 

 
968

Unrealized gains/(losses) on available-for-sale securities
(63
)
 
43

 
(638
)
 
111

Unrealized gains/(losses) on cash flow hedges
144

 
(2,842
)
 
(801
)
 
(4,604
)
Unrealized gains/(losses) on cumulative translation adjustment
129

 
161

 
(115
)
 
324

Other comprehensive income (loss)
410

 
1,925


(3,735
)
 
529

Comprehensive income (loss)
(19,366
)
 
(1,669
)
 
(35,823
)
 
(17,242
)
Comprehensive (income) loss attributable to noncontrolling interests
629

 
(325
)
 
2,470

 
(779
)
Comprehensive income (loss) attributable to iStar Financial Inc. 
$
(18,737
)
 
$
(1,994
)
 
$
(33,353
)
 
$
(18,021
)
Explanatory Notes:
_______________________________________________________________________________

(1)
Included in "Other income" on the Company's Consolidated Statements of Operations.
(2)
Included in "Interest expense" on the Company's Consolidated Statements of Operations are $84 and $119 for the three and six months ended June 30, 2015, respectively, and $(39) and $96 for the three and six months ended June 30, 2014, respectively. For the three and six months ended June 30, 2015, $116 and $231, respectively, are included in "Earnings from equity method investments" on the Company Consolidated Statements of Operations. For the three and six months ended June 30, 2014, $3,634 is included in "Other expense" on the Company's Consolidated Statements of Operations (see Note 11).

The accompanying notes are an integral part of the consolidated financial statements.

3


iStar Financial Inc.
Consolidated Statements of Changes in Equity
For the Six Months Ended June 30, 2015 and 2014
(In thousands)
(unaudited)



 
 
iStar Financial Inc. Shareholders' Equity
 
 
 
 
 
 
Preferred
Stock(1)
 
Preferred Stock Series J(1)
 
HPU's
 
Common
Stock at
Par
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock at
Cost
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2014
 
$
22

 
$
4

 
$
9,800

 
$
146

 
$
4,007,514

 
$
(2,556,469
)
 
$
(971
)
 
$
(262,954
)
 
$
51,256

 
$
1,248,348

Dividends declared—preferred
 

 

 

 

 

 
(25,660
)
 

 

 

 
(25,660
)
Issuance of stock/restricted stock unit amortization, net
 

 

 

 

 
3,671

 

 

 

 

 
3,671

Net income (loss) for the period(2)
 

 

 

 

 

 
(29,618
)
 

 

 
(710
)
 
(30,328
)
Change in accumulated other comprehensive income (loss)
 

 

 

 

 

 

 
(3,735
)
 

 

 
(3,735
)
Repurchase of stock
 

 

 

 

 

 

 

 
(561
)
 

 
(561
)
Change in additional paid in capital attributable to redeemable noncontrolling interest
 

 

 

 

 
(3,248
)
 

 

 

 

 
(3,248
)
Contributions from noncontrolling interests
 

 

 

 

 

 

 

 

 
115

 
115

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 

 
(4,637
)
 
(4,637
)
Balance at June 30, 2015
 
$
22

 
$
4

 
$
9,800

 
$
146

 
$
4,007,937

 
$
(2,611,747
)
 
$
(4,706
)
 
$
(263,515
)
 
$
46,024

 
$
1,183,965



4


iStar Financial Inc.
Consolidated Statements of Changes in Equity
For the Six Months Ended June 30, 2015 and 2014
(In thousands)
(unaudited)


 
 
iStar Financial Inc. Shareholders' Equity
 
 
 
 
 
 
Preferred
Stock(1)
 
Preferred Stock Series J(1)
 
HPU's
 
Common
Stock at
Par
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock at
Cost
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2013
 
$
22

 
$
4

 
$
9,800

 
$
144

 
$
4,022,138

 
$
(2,521,618
)
 
$
(4,276
)
 
$
(262,954
)
 
$
58,205

 
$
1,301,465

Dividends declared—preferred
 

 

 

 

 

 
(25,660
)
 

 

 

 
(25,660
)
Issuance of stock/restricted stock unit amortization, net
 

 

 

 
2

 
(12,024
)
 

 

 

 

 
(12,022
)
Net income (loss) for the period(2)
 

 

 

 

 

 
(18,550
)
 

 

 
1,588

 
(16,962
)
Change in accumulated other comprehensive income (loss)
 

 

 

 

 

 

 
529

 

 

 
529

Change in additional paid in capital attributable to redeemable noncontrolling interest
 

 

 

 

 
(652
)
 

 

 

 

 
(652
)
Contributions from noncontrolling interests
 

 

 

 

 

 

 

 

 
472

 
472

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 

 
(4,479
)
 
(4,479
)
Balance at June 30, 2014
 
$
22

 
$
4

 
$
9,800

 
$
146

 
$
4,009,462

 
$
(2,565,828
)
 
$
(3,747
)
 
$
(262,954
)
 
$
55,786

 
$
1,242,691


Explanatory Notes:
_______________________________________________________________________________

(1)
See Note 12 for details on the Company's Cumulative Redeemable Preferred Stock.
(2)
For the six months ended June 30, 2015 and 2014, net income (loss) shown above excludes $(1,760) and $(809) of net loss attributable to redeemable noncontrolling interests.
The accompanying notes are an integral part of the consolidated financial statements.

5


iStar Financial Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
For the Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(32,088
)
 
$
(17,771
)
Adjustments to reconcile net income (loss) to cash flows from operating activities:
 
 
 
Provision for (recovery of) loan losses
23,444

 
(6,192
)
Impairment of assets
1,674

 
6,279

Depreciation and amortization
34,017

 
37,435

Payments for withholding taxes upon vesting of stock-based compensation
(1,683
)
 
(18,266
)
Non-cash expense for stock-based compensation
7,186

 
5,271

Amortization of discounts/premiums and deferred financing costs on debt, net
8,275

 
9,030

Amortization of discounts/premiums and deferred interest on loans, net
(39,640
)
 
(30,129
)
(Gain) loss from sales of loans

 
(18,995
)
Earnings from equity method investments
(15,332
)
 
(27,270
)
Distributions from operations of equity method investments
7,843

 
10,939

Deferred operating lease income
(3,700
)
 
(4,950
)
Income from sales of real estate and land development
(42,170
)
 
(35,039
)
Loss on early extinguishment of debt, net
212

 
24,767

Debt discount and prepayment penalty on repayments and repurchases of debt
(498
)
 
(14,387
)
Other operating activities, net
4,363

 
6,848

Changes in assets and liabilities:
 
 
 
Changes in accrued interest and operating lease income receivable, net
351

 
606

Changes in deferred expenses and other assets, net
5,293

 
3,042

Changes in accounts payable, accrued expenses and other liabilities
(21,321
)
 
(23,325
)
Cash flows used in operating activities
(63,774
)
 
(92,107
)
Cash flows from investing activities:
 
 
 
Investment originations and fundings
(267,245
)
 
(319,938
)
Capital expenditures on real estate assets
(75,260
)
 
(61,446
)
Acquisitions of real estate assets

 
(2,412
)
Repayments of and principal collections on loans
74,989

 
162,032

Net proceeds from sales of loans
5,595

 
56,404

Net proceeds from sales of real estate and land development
223,887

 
212,866

Distributions from other investments
67,358

 
23,186

Contributions to other investments
(7,449
)
 
(30,561
)
Changes in restricted cash held in connection with investing activities
(14,359
)
 
25,779

Deposits paid to escrow account, net
(25,180
)
 

Other investing activities, net
15,308

 
1,411

Cash flows from (used in) investing activities
(2,356
)
 
67,321

Cash flows from financing activities:
 
 
 
Borrowings from debt obligations
374,000

 
1,323,822

Repayments of debt obligations
(247,055
)
 
(1,408,935
)
Proceeds from loan participations payable
138,075

 

Preferred dividends paid
(25,660
)
 
(25,660
)
Payments for deferred financing costs
(2,255
)
 
(17,491
)
Other financing activities, net
(6,332
)
 
(4,005
)
Cash flows from (used in) financing activities
230,773

 
(132,269
)
Effect of exchange rate changes on cash
432

 

Changes in cash and cash equivalents
165,075

 
(157,055
)
Cash and cash equivalents at beginning of period
472,061

 
513,568

Cash and cash equivalents at end of period
$
637,136

 
$
356,513

The accompanying notes are an integral part of the consolidated financial statements.

6

iStar Financial Inc.
Notes to Consolidated Financial Statements
(unaudited)





Note 1—Business and Organization

Business—iStar Financial Inc., or the "Company," doing business as "iStar", finances, invests in and develops real estate and real estate related projects as part of its fully-integrated investment platform. The Company has invested more than $35 billion over the past two decades and is structured as a real estate investment trust, or "REIT", with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company's primary business segments are real estate finance, net lease, operating properties and land & development (see Note 16).

Organization—The Company began its business in 1993 through the management of private investment funds and became publicly traded in 1998. Since that time, the Company has grown through the origination of new investments, as well as through corporate acquisitions.

Note 2—Basis of Presentation and Principles of Consolidation
Basis of Presentation—The accompanying unaudited Consolidated Financial Statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. These unaudited Consolidated Financial Statements and related Notes should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, as amended on Form 10-K/A on March 27, 2015 (the "2014 Annual Report").
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
In the opinion of management, the accompanying Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year. Certain prior year amounts have been reclassified in the Consolidated Financial Statements and the related Notes to conform to the 2015 presentation.
During the year ended December 31, 2014, the Company determined that its classification of proceeds received from land sales for the quarterly periods ended March 31, June 30 and September 30, 2014 was incorrectly classified as a component of cash flows from operating activities rather than cash flows from investing activities. The Company evaluated the impact on the previously issued statements of cash flows for the aforementioned periods and concluded that it was not material. However, in order to correctly present such cash flows, the Company will revise the amounts as those financial statements are presented in the respective 2015 quarterly filings. The impact of the correction for the six months ended June 30, 2014 is as follows ($ in thousands):
 
 
As Previously Reported
 
Change
 
As Revised
Cash flows from operating activities:
 
 
 
 
 
 
Six months ended June 30, 2014
 
$
(83,477
)
 
$
(8,630
)
 
$
(92,107
)
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
Six months ended June 30, 2014
 
$
58,691

 
$
8,630

 
$
67,321

Principles of Consolidation—The Consolidated Financial Statements include the financial statements of the Company, its wholly owned subsidiaries, controlled partnerships and variable interest entities ("VIEs") for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's involvement with VIEs affects its financial performance and cash flows primarily through amounts recorded in "Operating lease income," "Earnings from equity method investments," "Real estate expense" and "Interest expense" in the Company's Consolidated Statements of Operations. The Company has not provided financial support to those VIEs that it was not previously contractually required to provide.    

7

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Consolidated VIEs—As of June 30, 2015, the Company consolidated 4 VIEs for which it is considered the primary beneficiary. At June 30, 2015, the total assets of these consolidated VIEs were $188.0 million and total liabilities were $19.2 million. The classifications of these assets are primarily within "Real estate, net" and "Other investments" on the Company's Consolidated Balance Sheets. The classifications of liabilities are primarily within "Accounts payable, accrued expenses and other liabilities" on the Company's Consolidated Balance Sheets. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE's respective assets. The Company's total unfunded commitments related to consolidated VIEs was $38.8 million as of June 30, 2015.

Unconsolidated VIEs—As of June 30, 2015, 26 of the Company's investments were in VIEs where it is not the primary beneficiary and accordingly the VIEs have not been consolidated in the Company's Consolidated Financial Statements. As of June 30, 2015, the Company's maximum exposure to loss from these investments does not exceed the sum of the $160.7 million carrying value of the investments, which are classified in "Other investments" on the Company's Consolidated Balance Sheets, and $14.6 million of related unfunded commitments.

Note 3—Summary of Significant Accounting Policies

Loan participations payable, netThe Company accounts for transfers of financial assets under ASC Topic 860, “Transfers and Servicing”, as either sales or secured borrowings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is presented on the balance sheet as "Loan participations payable, net". Financial asset activities that are accounted for as sales are removed from our balance sheet with any realized gain (loss) reflected in earnings during the period of sale.
As of June 30, 2015, the remainder of the Company's significant accounting policies, which are detailed in the Company's 2014 Annual Report, have not changed materially.
New Accounting PronouncementsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") which supersedes existing industry-specific guidance, including ASC 360-20, Real Estate Sales. The new standard is principles-based and requires more estimates and judgment than current guidance. Certain contracts with customers, including lease contracts and financial instruments and other contractual rights, are not within the scope of the new guidance. ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. Management is evaluating the impact of the guidance on the Company's Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12") which requires a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition in accordance with Topic 718, Compensation—Stock Compensation. ASU 2014-12 is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company's Consolidated Financial Statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15") which requires management to evaluate whether there is substantial doubt that the Company is able to continue operating as a going concern within one year after the date the financial statements are issued or available to be issued. If there is substantial doubt, additional disclosure is required, including the principal condition or event that raised the substantial doubt, the Company's evaluation of the condition or event in relation to its ability to meet its obligations and the Company's plan to alleviate (or, which is intended to alleviate) the substantial doubt. ASU 2014-15 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company's Consolidated Financial Statements.
In November 2014, the FASB issued ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity ("ASU 2014-16") which eliminates the diversity in practice for the accounting for hybrid financial instruments issued in the form of a share. ASU 2014-16 requires management to consider all terms and features, whether stated or implied, of a hybrid instrument when determining whether the nature of the instrument is more akin to a debt instrument or an equity instrument. Embedded derivative features, which are accounted for separately from

8

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


host contracts, should also be considered in the analysis of the hybrid instrument. ASU 2014-16 is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company's Consolidated Financial Statements.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02") which updates the consolidation model for limited partnerships and similar legal entities. ASU 2015-02 includes the evaluation of fees paid to a decision maker as a variable interest and amends the effect of fee arrangements and related parties on the primary beneficiary determination. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management is evaluating the impact of the guidance on the Company's Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03") which requires debt issuance costs to be presented as a deduction from the carrying value of the related debt obligation in the balance sheet, which is consistent with the presentation of debt discounts. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company's Consolidated Financial Statements.
Note 4—Real Estate
The Company's real estate assets were comprised of the following ($ in thousands):
 
Net Lease
 
Operating
Properties
 
Land
 
Total
As of June 30, 2015
 
 
 
 
 
 
 
Land and land improvements
$
310,196

 
$
142,892

 
$
874,147

 
$
1,327,235

Buildings and improvements
1,232,001

 
452,742

 

 
1,684,743

Less: accumulated depreciation and amortization
(378,847
)
 
(85,168
)
 
(9,147
)
 
(473,162
)
Real estate, net
1,163,350

 
510,466

 
865,000

 
2,538,816

Real estate available and held for sale
2,708

 
138,187

 
147,126

 
288,021

Total real estate
$
1,166,058

 
$
648,653

 
$
1,012,126

 
$
2,826,837

As of December 31, 2014
 
 
 
 
 
 
 
Land and land improvements
$
311,890

 
$
146,417

 
$
868,650

 
$
1,326,957

Buildings and improvements
1,240,593

 
578,013

 

 
1,818,606

Less: accumulated depreciation and amortization
(364,323
)
 
(96,159
)
 
(8,367
)
 
(468,849
)
Real estate, net
1,188,160

 
628,271

 
860,283

 
2,676,714

Real estate available and held for sale
4,521

 
162,782

 
118,679

 
285,982

Total real estate
$
1,192,681

 
$
791,053

 
$
978,962

 
$
2,962,696


Real Estate Available and Held for Sale—As of June 30, 2015 and December 31, 2014, the Company had $134.1 million and $155.8 million, respectively, of residential properties available for sale in its operating properties portfolio.

During the six months ended June 30, 2015, the Company reclassified residential units and lots with a carrying value of $30.0 million to held for sale due to substantial completion of construction and active marketing for sale. In addition, the Company reclassified net lease assets with a carrying value of $8.2 million, residential lots with a carrying value of $3.9 million and land with a carrying value of $2.8 million to held for sale due to executed contracts with third parties.

During the six months ended June 30, 2015, the Company reclassified a commercial operating property with a carrying value of $2.9 million to held for investment due to a change in business strategy.

9

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Acquisitions—The following acquisitions of real estate were reflected in the Company's Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 ($ in thousands):
 
For the Six Months Ended June 30,
 
 
2015
 
2014
 
Acquisitions of real estate assets

 
2,412

(1)

Explanatory Note:
_______________________________________________________________________________

(1)
During the six months ended June 30, 2014, the Company purchased one condominium unit for $2.4 million.

During the six months ended June 30, 2015, the Company acquired, via deed-in-lieu, title to a residential operating property, which had a total fair value of $13.4 million and previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with this transaction.

During the six months ended June 30, 2014, the Company acquired, via deed-in-lieu, title to three commercial operating properties and a land asset, which had a total fair value of $77.9 million and previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with this transaction. The following table summarizes the Company's pro forma revenues and net income for the three and six months ended June 30, 2014, as if the acquisition of the properties acquired during the six months ended June 30, 2014 was completed on January 1, 2013 ($ in thousands):
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2014
 
2014
Pro forma total revenues
 
131,038

 
242,892

Pro forma net income (loss)
 
(3,614
)
 
(18,001
)

From the date of acquisition through June 30, 2014, $1.8 million in total revenues and $0.6 million in net loss of the acquiree were included in the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2014. The pro forma revenues and net income are presented for informational purposes only and may not be indicative of what the actual results of operations of the Company would have been assuming the transaction occurred on January 1, 2013, nor do they purport to represent the Company’s results of operations for future periods.
Dispositions—During the six months ended June 30, 2015 and 2014, the Company sold residential condominiums for total net proceeds of $91.3 million and $94.8 million, respectively, and recorded income from sales of real estate totaling $30.9 million and $33.7 million, respectively. During the six months ended June 30, 2015, the Company sold net lease assets for net proceeds of $25.6 million resulting in a gain of $8.6 million. The gain was recorded in "Income from sales of real estate" on the Company's Consolidated Statements of Operations.
During the six months ended June 30, 2015, the Company sold residential lots from three of its master planned community properties, condominium units from an infill property, residential lots from a waterfront property and residential lots from another infill property for proceeds of $14.8 million which had associated cost of sales of $12.1 million. In April 2015, the Company transferred a land asset to a purchaser at a stated price of $16.1 million, as part of an agreement to construct an amphitheater, for which the Company received proceeds of $5.3 million, with the remainder to be received upon completion of the development project. Due to the Company's continuing involvement in the project, no sale was recognized and the proceeds were recorded as unearned revenue in "Accounts payable, accrued expenses and other liabilities" on the Company's Consolidated Balance Sheets (Refer to Note 7). During the six months ended June 30, 2014, the Company sold residential lots from two of our master planned community properties for proceeds of $8.6 million and which had cost of sales of $7.3 million.
During the six months ended June 30, 2015, the Company, through a consolidated entity for which it has a 90% ownership interest, sold a leasehold interest in a commercial operating property for net proceeds of $93.5 million and simultaneously entered into a ground lease with an initial term of 99 years. In connection with this transaction, the Company recorded a lease incentive asset of $38.1 million, which is included in "Deferred expenses and other assets, net" on the Company's Consolidated Balance Sheets, and deferred a gain of $5.3 million, which is included in "Accounts payable, accrued expenses and other liabilities" on the Company's Consolidated Balance Sheets.

10

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


During the six months ended June 30, 2014, the Company sold a net lease asset for net proceeds of $93.7 million which approximated carrying value to a newly formed unconsolidated entity in which the Company has a noncontrolling equity interest of 51.9% and contributed land with a carrying value of $9.5 million to newly formed unconsolidated entities (see Note 6).
During the six months ended June 30, 2014, the Company sold properties with a carrying value of $6.7 million for proceeds that approximated carrying value. During the same period, the Company also sold a net lease asset for net proceeds of $7.8 million. The Company recorded an impairment loss of $3.0 million in connection with the sale.
Impairments—During the six months ended June 30, 2015 and June 30, 2014, the Company recorded impairments on real estate assets totaling $1.7 million and $6.3 million, respectively. The impairment recorded in 2015 resulted from a change in business strategy for a commercial operating property. Of the impairment recorded in 2014, $3.3 million resulted from a change in business strategy for a residential property and $3.0 million resulted from the sale of a net lease asset.
Tenant Reimbursements—The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimbursements were $6.7 million and $13.7 million for the three and six months ended June 30, 2015, respectively, and $7.0 million and $15.6 million for the three and six months ended June 30, 2014. These amounts are included in "Operating lease income" on the Company's Consolidated Statements of Operations.
Redeemable Noncontrolling Interest—At June 30, 2015 and December 31, 2014, the Company had redeemable noncontrolling interests of $8.7 million and $9.9 million, respectively, which are not currently redeemable, for which the Company records changes in the fair value over the redemption periods. These interests had an estimated redemption value of $11.1 million and $23.6 million, respectively.
Allowance for Doubtful Accounts—As of June 30, 2015 and December 31, 2014, the allowance for doubtful accounts related to real estate tenant receivables was $1.6 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $2.4 million at both dates. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred operating lease income receivable, net", respectively, on the Company's Consolidated Balance Sheets.

11

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Note 5—Loans Receivable and Other Lending Investments, net

The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):
 
As of
Type of Investment
June 30,
2015
 
December 31,
2014
Senior mortgages
$
884,927

 
$
737,535

Corporate/Partnership loans
609,843

 
497,796

Subordinate mortgages
28,773

 
53,331

Total gross carrying value of loans
1,523,543

 
1,288,662

Reserves for loan losses
(121,934
)
 
(98,490
)
Total loans receivable, net
1,401,609

 
1,190,172

Other lending investments—securities
165,687

 
187,671

Total loans receivable and other lending investments, net(1)
$
1,567,296

 
$
1,377,843


Explanatory Note:
_______________________________________________________________________________

(1)
The Company's recorded investment in loans as of June 30, 2015 and December 31, 2014 includes accrued interest of $8.8 million and $7.0 million, respectively, which are included in "Accrued interest and operating lease income receivable, net" on the Company's Consolidated Balance Sheets.

In June 2015, the Company received a loan with a fair value of $146.7 million as a non-cash paydown on an existing loan and reduced the principal balance by the same amount. The loan received has been recorded as a loan receivable and is included in "Loans receivable and other lending investments, net" on the Company’s Consolidated Balance Sheet.

During the six months ended June 30, 2015, the Company sold a loan with a carrying value of $5.5 million. No gain or loss was recognized as a result of the transaction. During the six months ended June 30, 2014, the Company sold loans with total carrying values of $30.8 million, which resulted in a realized gain of $19.0 million. Gains and losses on sales of loans are included in "Other income" on the Company's Consolidated Statements of Operations.

Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Reserve for loan losses at beginning of period
$
102,783

 
$
370,076

 
$
98,490

 
$
377,204

Provision for (recovery of) loan losses(1)
19,151

 
(2,792
)
 
23,444

 
(6,192
)
Charge-offs

 
(229,380
)
 

 
(233,108
)
Reserve for loan losses at end of period
$
121,934

 
$
137,904

 
$
121,934

 
$
137,904


Explanatory Note:
_______________________________________________________________________________
(1)
For the three and six months ended June 30, 2015, the provision for loan losses includes recoveries of previously recorded loan loss reserves of $0.3 million and $0.6 million, respectively. For the three and six months ended June 30, 2014, the provision for loan losses includes recoveries of previously recorded loan loss reserves of $2.4 million and $7.6 million, respectively.


12

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserve for loan losses were as follows ($ in thousands):
 
Individually
Evaluated for
Impairment(1)
 
Collectively
Evaluated for
Impairment(2)
 
Total
As of June 30, 2015
 
 
 
 
 
Loans
$
179,589

 
$
1,352,725

 
$
1,532,314

Less: Reserve for loan losses
(94,834
)
 
(27,100
)
 
(121,934
)
Total
$
84,755

 
$
1,325,625

 
$
1,410,380

As of December 31, 2014
 
 
 
 
 
Loans
$
139,672

 
$
1,156,031

 
$
1,295,703

Less: Reserve for loan losses
(64,990
)
 
(33,500
)
 
(98,490
)
Total
$
74,682

 
$
1,122,531

 
$
1,197,213


Explanatory Notes:
_______________________________________________________________________________

(1)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net discount of $0.2 million and $0.2 million as of June 30, 2015 and December 31, 2014, respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status and therefore, the unamortized amounts associated with these loans are not currently being amortized into income.
(2)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net discount of $11.1 million and $10.6 million as of June 30, 2015 and December 31, 2014, respectively.

Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings are based on judgments which are inherently uncertain and there can be no assurance that actual performance will be similar to current expectation.

The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands):
 
As of June 30, 2015
 
As of December 31, 2014
 
Performing
Loans
 
Weighted
Average
Risk Ratings
 
Performing
Loans
 
Weighted
Average
Risk Ratings
Senior mortgages
$
760,515

 
2.71

 
$
611,009

 
2.73

Corporate/Partnership loans
564,461

 
3.30

 
501,620

 
3.88

Subordinate mortgages
29,132

 
3.65

 
53,836

 
2.87

  Total
$
1,354,108

 
2.98

 
$
1,166,465

 
3.23


As of June 30, 2015, the Company's recorded investment in loans, aged by payment status and presented by class, were as follows ($ in thousands):
 
Current
 
Less Than
and Equal
to 90 Days
 
Greater
Than
90 Days(1)
 
Total
Past Due
 
Total
Senior mortgages
$
766,515

 
$
6,083

 
$
116,230

 
$
122,313

 
$
888,828

Corporate/Partnership loans
614,354

 

 

 

 
614,354

Subordinate mortgages
29,132

 

 

 

 
29,132

Total
$
1,410,001

 
$
6,083

 
$
116,230

 
$
122,313

 
$
1,532,314


Explanatory Note:
_______________________________________________________________________________

(1)
As of June 30, 2015, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal proceedings, environmental concerns and foreclosure-related proceedings, and ranged from 1.0 to 7.0 years outstanding.

13

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)



Impaired Loans—The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):
 
As of June 30, 2015
 
As of December 31, 2014
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
129,696

 
$
128,709

 
$
(69,141
)
 
$
130,645

 
$
129,744

 
$
(64,440
)
Corporate/Partnership loans
49,893

 
49,893

 
(25,693
)
 
9,027

 
9,057

 
(550
)
Total
$
179,589

 
$
178,602

 
$
(94,834
)
 
$
139,672

 
$
138,801

 
$
(64,990
)

Explanatory Note:
_______________________________________________________________________________

(1)
All of the Company's non-accrual loans are considered impaired and included in the table above. In addition, as of June 30, 2015 and December 31, 2014, certain loans modified through troubled debt restructurings with a recorded investment of $1.4 million and $10.4 million, respectively, are also included as impaired loans in accordance with GAAP although they are performing and on accrual status. The Company did not have impaired loans without related allowances recorded.

The Company's average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$

 
$

 
$
87,642

 
$
186

 
$

 
$

 
$
59,432

 
$
687

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
130,016

 
17

 
354,695

 
70

 
130,226

 
34

 
453,242

 
123

Corporate/Partnership loans
28,301

 
3

 
63,142

 
52

 
21,876

 
12

 
75,120

 
117

Subtotal
158,317

 
20

 
417,837

 
122

 
152,102

 
46

 
528,362

 
240

Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
130,016

 
17

 
442,337

 
256

 
130,226

 
34

 
512,674

 
810

Corporate/Partnership loans
28,301

 
3

 
63,142

 
52

 
21,876

 
12

 
75,120

 
117

Total
$
158,317

 
$
20

 
$
505,479

 
$
308

 
$
152,102

 
$
46

 
$
587,794

 
$
927


Troubled Debt Restructurings—During the six months ended June 30, 2015 and 2014, the Company did not modify any loans that were determined to be troubled debt restructurings.
Generally when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional collateral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions impacting the loan improve. The Company's determination of credit losses is impacted by troubled debt restructurings whereby loans that have gone through troubled debt restructurings are considered impaired, assessed for specific reserves, and are not included in the Company's assessment of general loan loss reserves. Loans previously restructured under troubled debt restructurings that subsequently default are reassessed to incorporate the Company's current assumptions on expected cash flows and additional provision expense is recorded to the extent necessary. As of June 30, 2015, there were no unfunded commitments associated with modified loans considered troubled debt restructurings.

14

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Securities—Other lending investments—securities includes the following ($ in thousands):
 
Face Value
 
Amortized Cost Basis
 
Net Unrealized Gain (Loss)
 
Estimated Fair Value
 
Net Carrying Value
As of June 30, 2015
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities
 
 
 
 
 
 
 
 
 
Municipal debt securities
$
1,010

 
$
1,010

 
$
90

 
$
1,100

 
$
1,100

Held-to-Maturity Securities
 
 
 
 
 
 
 
 
 
Corporate debt securities
152,576

 
164,587

 

 
168,674

 
164,587

Total
$
153,586

 
$
165,597

 
$
90

 
$
169,774

 
$
165,687

As of December 31, 2014
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities
 
 
 
 
 
 
 
 
 
Municipal debt securities
$
1,020

 
$
1,020

 
$
147

 
$
1,167

 
$
1,167

Held-to-Maturity Securities
 
 
 
 
 
 
 
 
 
Corporate debt securities
176,254

 
186,504

 

 
190,199

 
186,504

Total
$
177,274

 
$
187,524

 
$
147

 
$
191,366

 
$
187,671


Note 6—Other Investments

The Company's other investments and its proportionate share of results from equity method investments were as follows ($ in thousands):
 
Carrying Value as of
 
Equity in Earnings
 
June 30, 2015
 
December 31, 2014
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
 
 
 
 
2015
 
2014
 
2015
 
2014
iStar Net Lease I LLC ("Net Lease Venture")
$
70,409

 
$
125,361

 
$
1,666

 
$
164

 
$
3,299

 
$
(198
)
Other real estate equity investments
84,119

 
88,848

 
(337
)
 
1,561

 
(1,638
)
 
2,495

Other investments(1)
50,088

 
63,262

 
2,765

 
24,640

 
4,498

 
27,974

Madison Funds
44,589

 
45,971

 
(408
)
 
(1,989
)
 
(445
)
 
(2,391
)
Marina Palms, LLC ("Marina Palms")
40,295

 
30,677

 
5,099

 
(283
)
 
9,618

 
(610
)
Total other investments
289,500

 
354,119

 
$
8,785

 
$
24,093

 
$
15,332

 
$
27,270


Explanatory Note:
_______________________________________________________________________________

(1)
For the three and six months ended June 30, 2014, the Company recognized $23.4 million of earnings from equity method investments resulting from asset sales by one of its equity method investees.

Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a new unconsolidated entity in which the Company has a noncontrolling equity interest of approximately 51.9%. This entity is not a VIE and the Company does not have controlling interest due to the substantive participating rights of its partner. The partners plan to contribute up to an aggregate $500 million of equity to acquire and develop net lease assets over time. The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a promote and management fee. Several of the Company's officers whose time is substantially devoted to the net lease venture own a total of 0.6% equity ownership in the venture via co-investment. These officers are also entitled to an amount equal to 50% of any promote payment received based on the 47.5% partner's interest. During the six months ended June 30, 2014, the Company sold a net lease asset for net proceeds of $93.7 million, which approximated carrying value, to the venture. As of June 30, 2015 and December 31, 2014, the venture's carrying value of total assets was $382.2 million and $348.1 million, respectively. In June 2015, the venture placed ten year non-recourse financing of $120.0 million on one of its net lease assets.  Net proceeds from the financing were distributed to its members of which the Company received approximately $61.2 million.

15

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)



Marina Palms—As of June 30, 2015, the Company owned a 47.5% equity interest and a $10.0 million preferred partnership interest in Marina Palms. As of June 30, 2015 and December 31, 2014, the venture's carrying value of total assets was $283.6 million and $265.7 million, respectively.
Other real estate equity investments—During the six months ended June 30, 2014, the Company contributed land to a newly formed unconsolidated entity in which the Company received an initial equity interest of 85.7%. This entity is a VIE and the Company does not have controlling interest due to shared control of the entity with its partner. As of June 30, 2015 and December 31, 2014, the venture's carrying value of total assets was $8.3 million and $9.4 million, respectively. Additionally, the Company committed to provide $45.7 million of mezzanine financing to the entity. As of June 30, 2015, the loan balance was $31.2 million and was included in "Loans receivable and other lending investments, net" on the Company's Consolidated Balance Sheets.
As of June 30, 2015, the Company's other real estate equity investments included equity interests in real estate ventures ranging from 16% to 76%, comprised of investments of $11.4 million in operating properties and $64.4 million in land assets. As of December 31, 2014, the Company's real estate equity investments included $13.2 million in operating properties and $66.1 million in land assets.
Madison Funds—As of June 30, 2015, the Company owned a 29.5% interest in Madison International Real Estate Fund II, LP ("MIRELF II"), a 32.9% interest in Madison International Real Estate Liquidity Fund III, LP ("MIRELF III"), a 32.9% interest in Madison International Real Estate Liquidity Fund III AIV, LP ("MIRELF III AIV") and a 29.5% interest in Madison GP1 Investors, LP (collectively, the "Madison Funds"). The Madison Funds invest in ownership positions of entities that own real estate assets. The Company determined that these entities are VIEs and that the Company is not the primary beneficiary.
Other investments—As of June 30, 2015, the Company also had smaller investments in real estate related funds and other strategic investments in several other entities that were accounted for under the equity method or cost method. During the six months ended June 30, 2015, the Company sold available-for-sale securities for proceeds of $7.3 million for realized gains of $2.5 million, which are included in "Other income" on the Company's Consolidated Statements of Operations. The amount reclassified out of accumulated other comprehensive income into earnings was determined based on the specific identification method.
Summarized investee financial information—The following tables present the investee level summarized financial information of the Company's equity method investments, which were significant subsidiaries as of June 30, 2015 ($ in thousands):
 
Revenues
 
Expenses
 
Net Income Attributable to Parent Entities
For the Six Months Ended June 30, 2015
 
 
 
 
 
Marina Palms
$
71,852

 
$
(45,523
)
 
$
26,329

 
 
 
 
 
 
For the Six Months Ended June 30, 2014
 
 
 
 
 
Marina Palms
$
48

 
$
(1,304
)
 
$
(1,256
)



16

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Note 7—Other Assets and Other Liabilities
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
 
As of
 
June 30, 2015
 
December 31, 2014
Intangible assets, net(1)
$
78,308

 
$
50,088

Other receivables
41,867

 
13,115

Deferred financing fees, net(2)
33,004

 
36,774

Restricted cash
32,742

 
19,283

Other assets
30,881

 
37,085

Leasing costs, net(3)
16,832

 
20,031

Corporate furniture, fixtures and equipment, net(4)
4,853

 
5,409

Deferred expenses and other assets, net
$
238,487

 
$
181,785


Explanatory Notes:
_______________________________________________________________________________

(1)
Intangible assets, net are primarily related to the acquisition of real estate assets. This balance also includes a lease incentive asset of $38.1 million (see Note 4). Accumulated amortization on intangible assets was $37.7 million and $45.1 million as of June 30, 2015 and December 31, 2014, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income on the Company's Consolidated Statements of Operations by $1.4 million and $3.7 million for the three and six months ended June 30, 2015, respectively, and $1.6 million and $4.0 million for the three and six months ended June 30, 2014, respectively. These intangible lease assets are amortized over the term of the lease. The amortization expense for other intangible assets was $0.7 million and $2.2 million for the three and six months ended June 30, 2015, respectively, and $1.5 million and $3.8 million for the three and six months ended June 30, 2014, respectively. These amounts are included in "Depreciation and amortization" on the Company's Consolidated Statements of Operations.
(2)
Accumulated amortization on deferred financing fees was $21.4 million and $15.4 million as of June 30, 2015 and December 31, 2014, respectively.
(3)
Accumulated amortization on leasing costs was $9.3 million and $9.0 million as of June 30, 2015 and December 31, 2014, respectively.
(4)
Accumulated depreciation on corporate furniture, fixtures and equipment was $7.5 million and $7.1 million as of June 30, 2015 and December 31, 2014, respectively.

Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
 
As of
 
June 30, 2015
 
December 31, 2014
Other liabilities(1)
$
66,957

 
$
48,256

Accrued interest payable
55,530

 
57,895

Accrued expenses
49,854

 
62,866

Intangible liabilities, net(2)
11,265

 
11,885

Accounts payable, accrued expenses and other liabilities
$
183,606

 
$
180,902


Explanatory Notes:
_______________________________________________________________________________

(1)
As of June 30, 2015 and December 31, 2014, "Other liabilities" includes $12.4 million and $6.8 million, respectively, related to a profit sharing payable to a developer for residential units sold. As of June 30, 2015 and December 31, 2014, "Other liabilities" also includes $7.3 million and $7.7 million, respectively, related to tax increment financing ("TIF") bonds which were issued by a governmental entity to fund the installation of infrastructure within one of the Company's master planned community developments. The balance represents a special assessment associated with each individual land parcel, which will decrease as the Company sells parcels.
(2)
Intangible liabilities, net are primarily related to the acquisition of real estate assets. Accumulated amortization on intangible liabilities was $5.9 million and $6.2 million as of June 30, 2015 and December 31, 2014, respectively. The amortization of intangible liabilities increased operating lease income on the Company's Consolidated Statements of Operations by $0.4 million and $0.7 million for the three and six months ended June 30, 2015, respectively, and $0.9 million and $1.6 million for the three and six months ended June 30, 2014, respectively.


17

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Deferred tax assets and liabilities of the Company's TRS entities were as follows ($ in thousands):
 
As of
 
June 30, 2015
 
December 31, 2014
Deferred tax assets(1)
$
64,793

 
$
54,318

Valuation allowance
(64,793
)
 
(54,318
)
Net deferred tax assets (liabilities)
$

 
$

Explanatory Note:
_______________________________________________________________________________

(1)
Deferred tax assets as of June 30, 2015 include timing differences related primarily to real estate basis of $42.4 million, investment basis of $8.5 million, deferred expenses of $7.4 million, and net operating loss carryforwards of $4.2 million. Deferred tax assets as of December 31, 2014, include timing differences related primarily to real estate basis of $39.3 million, investment basis of $5.9 million, net operating loss carryforwards of $4.1 million, and deferred expenses of $2.7 million.

Note 8—Loan Participations Payable, net

During the six months ended June 30, 2015, the Company transferred to a third party a $100.0 million junior loan participation in a $250.0 million mezzanine loan commitment that it had previously originated. The Company had funded $38.9 million of the junior loan prior to transfer and received proceeds of $38.9 million upon transfer. The transferee is responsible for funding the remaining $61.1 million under the junior loan commitment, which bears interest at a rate of 5.90%. The Company will fund these commitments if the transferee defaults. As of June 30, 2015, the transferee funded an additional $3.4 million directly to the borrower.
During the six months ended June 30, 2015, the Company transferred to a third party a $100.0 million senior loan participation in a $220.2 million senior loan commitment that it had previously originated. The transferred participation bears interest at a rate of LIBOR+ 3.50% with a LIBOR floor of 0.25%. The Company had fully funded the $100.0 million transferred participation prior to transfer and received net proceeds of $99.2 million.
These transfers of financial assets did not meet the sales criteria established under ASC Topic 860 and have been accounted for as loan participations payable as of June 30, 2015, with a balance of $141.5 million, net of a discount. As of June 30, 2015, the corresponding loan receivable balances were $142.3 million and are included in "Loans receivable and other lending investments, net" on the Company's Consolidated Balance Sheets. The principal and interest due on these participations are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations.




18

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Note 9—Debt Obligations, net

As of June 30, 2015 and December 31, 2014, the Company's debt obligations were as follows ($ in thousands):
 
Carrying Value as of
 
Stated
Interest Rates
 
Scheduled
Maturity Date
 
June 30, 2015
 
December 31, 2014
 
 
Secured credit facilities and term loans:
 
 
 
 
 
 
 
2012 Tranche A-2 Facility
$
345,048

 
$
358,504

 
LIBOR + 5.75%

(1)
March 2017
2015 Revolving Credit Facility
250,000

 

 
Various
(2)
March 2018
Term loans collateralized by net lease assets
244,623

 
248,955

 
4.851% - 7.26%

(3)
Various through 2026
Total secured credit facilities and term loans
839,671

 
607,459

 
 

 
 
Unsecured notes:
 
 
 
 
 
 
 
6.05% senior notes

 
105,765

 
6.05
%
 
April 2015
5.875% senior notes
261,403

 
261,403

 
5.875
%
 
March 2016
3.875% senior notes
265,000

 
265,000

 
3.875
%
 
July 2016
3.0% senior convertible notes(4)
200,000

 
200,000

 
3.0
%
 
November 2016
1.50% senior convertible notes(5)
200,000

 
200,000

 
1.50
%
 
November 2016
5.85% senior notes
99,722

 
99,722

 
5.85
%
 
March 2017
9.0% senior notes
275,000

 
275,000

 
9.0
%
 
June 2017
4.00% senior notes
550,000

 
550,000

 
4.00
%
 
November 2017
7.125% senior notes
300,000

 
300,000

 
7.125
%
 
February 2018
4.875% senior notes
300,000

 
300,000

 
4.875
%
 
July 2018
5.00% senior notes
770,000

 
770,000

 
5.00
%
 
July 2019
Total unsecured notes
3,221,125

 
3,326,890

 
 

 
 
Other debt obligations:

 
 
 
 
 
 
Other debt obligations
100,000

 
100,000

 
LIBOR + 1.50%

 
October 2035
Total debt obligations
4,160,796

 
4,034,349

 
 

 
 
Debt discounts, net
(9,143
)
 
(11,665
)
 
 

 
 
Total debt obligations, net(6)
$
4,151,653

 
$
4,022,684

 
 

 
 

Explanatory Notes:
_______________________________________________________________________________

(1)
The loan has a LIBOR floor of 1.25%. As of June 30, 2015, inclusive of the floor, the 2012 Tranche A-2 Facility loan incurred interest at a rate of 7.00%.
(2)
The loan bears interest at the Company's election of either (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.00% and subject to a margin ranging from 1.25% to 1.75%, or (ii) LIBOR subject to a margin ranging from 2.25% to 2.75%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through March 2019.
(3)
As of June 30, 2015 and December 31, 2014, includes a loan with a floating rate of LIBOR plus 2.00%. As of June 30, 2015, the weighted average interest rate of these loans is 5.3%.
(4)
The Company's 3.0% senior convertible fixed rate notes due November 2016 ("3.0% Convertible Notes") are convertible at the option of the holders, into 85.0 shares per $1,000 principal amount of 3.0% Convertible Notes, at $11.77 per share at any time prior to the close of business on November 14, 2016.
(5)
The Company's 1.50% senior convertible fixed rate notes due November 2016 ("1.50% Convertible Notes") are convertible at the option of the holders, into 57.8 shares per $1,000 principal amount of 1.50% Convertible Notes, at $17.29 per share at any time prior to the close of business on November 14, 2016.
(6)
The Company capitalized interest relating to development activities of $1.2 million and $2.6 million for the three and six months ended June 30, 2015 and $1.0 million and $1.9 million for the three and six months ended June 30, 2014.


19

iStar Financial Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)


Future Scheduled Maturities—As of June 30, 2015, future scheduled maturities of outstanding long-term debt obligations are as follows ($ in thousands):
 
Unsecured Debt
 
Secured Debt
 
Total
2015 (remaining six months)
$

 
$

 
$

2016
926,403

 

 
926,403

2017
924,722

 
345,048

 
1,269,770

2018
600,000

 
264,282

 
864,282

2019
770,000

 
31,562

 
801,562