10-Q 1 sfi-9302012x10q.htm 10-Q SFI-9.30.2012-10Q
 
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 September 30, 2012
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 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 November 2, 2012, there were 83,647,510 shares of common stock, $0.001 par value per share, of iStar Financial Inc. ("Common Stock") outstanding.
 



iStar Financial Inc.
Index to Form 10-Q

 
 
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
 
September 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Loans and other lending investments, net
$
2,118,723

 
$
2,860,762

Net lease assets, net
1,540,464

 
1,702,764

Real estate held for investment, net
1,174,955

 
1,228,134

Other real estate owned
706,715

 
677,458

Other investments
419,648

 
457,835

Cash and cash equivalents
284,659

 
356,826

Restricted cash (see Note 10)
493,386

 
32,630

Accrued interest and operating lease income receivable, net
12,982

 
20,208

Deferred operating lease income receivable
81,416

 
73,368

Deferred expenses and other assets, net
107,471

 
107,852

Total assets
$
6,940,419

 
$
7,517,837

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable, accrued expenses and other liabilities
$
136,658

 
$
105,357

Debt obligations, net
5,388,860

 
5,837,540

Total liabilities
$
5,525,518

 
$
5,942,897

Commitments and contingencies

 

Redeemable noncontrolling interests
14,208

 
1,336

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

High Performance Units
9,800

 
9,800

Common Stock, $0.001 par value, 200,000 shares authorized, 142,556 issued and 83,639 outstanding at September 30, 2012 and 140,028 issued and 81,920 outstanding at December 31, 2011
142

 
140

Additional paid-in capital
3,829,925

 
3,834,460

Retained earnings (deficit)
(2,270,258
)
 
(2,078,397
)
Accumulated other comprehensive income (loss) (see Note 12)
(2,012
)
 
(328
)
Treasury stock, at cost, $0.001 par value, 58,917 shares at September 30, 2012 and 58,108 shares at December 31, 2011
(241,969
)
 
(237,341
)
Total iStar Financial Inc. shareholders' equity
$
1,325,650

 
$
1,528,356

Noncontrolling interests
75,043

 
45,248

Total equity
$
1,400,693

 
$
1,573,604

Total liabilities and equity
$
6,940,419

 
$
7,517,837

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

2


iStar Financial Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)

 
For the
Three Months Ended
September 30,
 
For the
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Interest income
$
31,171

 
$
45,851

 
$
104,822

 
$
186,805

Operating lease income
38,582

 
38,322

 
114,990

 
114,076

Other income
16,494

 
10,140

 
55,125

 
26,412

Total revenues
$
86,247

 
$
94,313

 
$
274,937

 
$
327,293

Costs and expenses:
 
 
 
 
 
 
 
Interest expense
$
91,777

 
$
90,659

 
$
271,595

 
$
255,505

Operating costs—net lease assets
5,548

 
4,845

 
13,676

 
13,515

Operating costs—REHI and OREO
24,454

 
19,792

 
68,952

 
55,582

Depreciation and amortization
16,787

 
13,953

 
50,263

 
43,777

General and administrative
19,037

 
26,978

 
61,674

 
77,077

Provision for loan losses
16,834

 
9,232

 
60,865

 
30,462

Impairment of assets
6,542

 
9,912

 
29,541

 
14,165

Other expense
2,394

 
3,974

 
6,754

 
7,156

Total costs and expenses
$
183,373

 
$
179,345

 
$
563,320

 
$
497,239

Income (loss) before earnings from equity method investments and other items
$
(97,126
)
 
$
(85,032
)
 
$
(288,383
)
 
$
(169,946
)
Gain (loss) on early extinguishment of debt, net
(3,694
)
 
(3,207
)
 
(6,858
)
 
102,348

Earnings from equity method investments
22,719

 
10,817

 
75,925

 
54,881

Income (loss) from continuing operations before income taxes
$
(78,101
)
 
$
(77,422
)
 
$
(219,316
)
 
$
(12,717
)
Income tax expense
(1,791
)
 
(1,354
)
 
(6,540
)
 
(9,731
)
Income (loss) from continuing operations(1)
$
(79,892
)
 
$
(78,776
)
 
$
(225,856
)
 
$
(22,448
)
Income (loss) from discontinued operations
2

 
1,917

 
1,532

 
3,470

Gain from discontinued operations

 
22,198

 
27,257

 
22,198

Income from sales of residential property
15,584

 

 
35,583

 

Net income (loss)
$
(64,306
)
 
$
(54,661
)
 
$
(161,484
)
 
$
3,220

Net (income) loss attributable to noncontrolling interests
666

 
1,002

 
1,363

 
558

Net income (loss) attributable to iStar Financial Inc. 
$
(63,640
)
 
$
(53,659
)
 
$
(160,121
)
 
$
3,778

Preferred dividends
(10,580
)
 
(10,580
)
 
(31,740
)
 
(31,740
)
Net (income) loss allocable to HPU holders and Participating Security holders(2)(3)
2,436

 
2,008

 
6,288

 
845

Net income (loss) allocable to common shareholders
$
(71,784
)
 
$
(62,231
)
 
$
(185,573
)
 
$
(27,117
)
Per common share data(1):
 
 
 
 
 
 
 
Income (loss) attributable to iStar Financial Inc. from continuing operations:
 
 
 
 
 
 
 
Basic
$
(0.86
)
 
$
(0.97
)
 
$
(2.55
)
 
$
(0.58
)
Diluted
$
(0.86
)
 
$
(0.97
)
 
$
(2.55
)
 
$
(0.58
)
Net income (loss) attributable to iStar Financial Inc.:
 
 
 
 
 
 
 
Basic
$
(0.86
)
 
$
(0.71
)
 
$
(2.22
)
 
$
(0.30
)
Diluted
$
(0.86
)
 
$
(0.71
)
 
$
(2.22
)
 
$
(0.30
)
Weighted average number of common shares—basic
83,629

 
87,951

 
83,765

 
91,020

Weighted average number of common shares—diluted
83,629

 
87,951

 
83,765

 
91,020

Per HPU share data(1)(2):
 
 
 
 
 
 
 
Income (loss) attributable to iStar Financial Inc. from continuing operations:
 
 
 
 
 
 
 
Basic
$
(162.40
)
 
$
(184.14
)
 
$
(482.06
)
 
$
(108.06
)
Diluted
$
(162.40
)
 
$
(184.14
)
 
$
(482.06
)
 
$
(108.06
)
Net income (loss) attributable to iStar Financial Inc.:
 
 
 
 
 
 
 
Basic
$
(162.40
)
 
$
(133.87
)
 
$
(419.20
)
 
$
(56.33
)
Diluted
$
(162.40
)
 
$
(133.87
)
 
$
(419.20
)
 
$
(56.33
)
Weighted average number of HPU shares—basic and diluted
15

 
15

 
15

 
15


Explanatory Notes:
_______________________________________________________________________________

(1)
Income (loss) from continuing operations attributable to iStar Financial Inc. for the three months ended September 30, 2012 and 2011 was $(79.2) million and $(77.8) million, respectively, and for the nine months ended September 30, 2012 and 2011 was $(224.5) million and $(21.9) million, 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 Company employees and directors who hold unvested restricted stock units, restricted stock awards and common stock equivalents 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.

3


iStar Financial Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(unaudited)


 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
(64,306
)
 
$
(54,661
)
 
$
(161,484
)
 
$
3,220

Other comprehensive income (loss):
 
 
 
 
 
 
 
Reclassification of (gains)/losses on cash flow hedges into earnings upon realization
(26
)
 
(178
)
 
(265
)
 
(531
)
Unrealized gains/(losses) on available-for-sale securities
(523
)
 
(129
)
 
111

 
499

Unrealized gains/(losses) on cash flow hedges

 
(284
)
 
(490
)
 
(877
)
Unrealized gains/(losses) on cumulative translation adjustment
(757
)
 
(922
)
 
(1,040
)
 
808

Other comprehensive income (loss)
$
(1,306
)
 
$
(1,513
)
 
$
(1,684
)
 
$
(101
)
Comprehensive income (loss)
$
(65,612
)
 
$
(56,174
)
 
$
(163,168
)
 
$
3,119

Net (income) loss attributable to noncontrolling interests
666

 
1,002

 
1,363

 
558

Comprehensive income (loss) attributable to iStar Financial Inc. 
$
(64,946
)
 
$
(55,172
)
 
$
(161,805
)
 
$
3,677

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

4


iStar Financial Inc.
Consolidated Statement of Changes in Equity
For the Nine Months Ended September 30, 2012
(In thousands)
(unaudited)

 
iStar Financial Inc. Shareholders' Equity
 
 
 
 
 
Preferred
Stock(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, 2011
$
22

 
$
9,800

 
$
140

 
$
3,834,460

 
$
(2,078,397
)
 
$
(328
)
 
$
(237,341
)
 
$
45,248

 
$
1,573,604

Dividends declared—preferred

 

 

 

 
(31,740
)
 

 

 

 
(31,740
)
Repurchase of stock

 

 

 

 

 

 
(4,628
)
 

 
(4,628
)
Issuance of stock/restricted stock unit amortization, net

 

 
2

 
(150
)
 

 

 

 

 
(148
)
Net income (loss) for the period(2)

 

 

 

 
(160,121
)
 

 

 
(1,078
)
 
(161,199
)
Change in accumulated other comprehensive income (loss)

 

 

 

 

 
(1,684
)
 

 

 
(1,684
)
Repurchase of convertible notes

 

 

 
(2,728
)
 

 

 

 

 
(2,728
)
Additional paid-in capital attributable to redeemable noncontrolling interest

 

 

 
(1,657
)
 

 

 

 

 
(1,657
)
Contributions from noncontrolling interests (3)

 

 

 

 

 

 

 
31,547

 
31,547

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(674
)
 
(674
)
Balance at September 30, 2012
$
22

 
$
9,800

 
$
142

 
$
3,829,925

 
$
(2,270,258
)
 
$
(2,012
)
 
$
(241,969
)
 
$
75,043

 
$
1,400,693

    
Explanatory Notes:
__________________________________________________________

(1)
See Note 12 for details on the Company's Cumulative Redeemable Preferred Stock.
(2)
For the nine months ended September 30, 2012, net loss shown above excludes $285 of net loss attributable to redeemable noncontrolling interests.
(3)
Includes $27.3 million of land assets contributed by a noncontrolling partner (see Note 5).
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 Nine Months Ended
September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(161,484
)
 
$
3,220

Adjustments to reconcile net income (loss) to cash flows from operating activities:
 
 
 
Provision for loan losses
60,865

 
30,462

Impairment of assets
31,844

 
14,140

Depreciation and amortization
51,205

 
47,142

Payments for withholding taxes upon vesting of stock-based compensation
(11,775
)
 
(861
)
Non-cash expense for stock-based compensation
11,625

 
15,622

Amortization of discounts/premiums and deferred financing costs on debt
26,406

 
23,489

Amortization of discounts/premiums and deferred interest on lending investments
(38,435
)
 
(52,027
)
Earnings from equity method investments
(75,925
)
 
(54,881
)
Distributions from operations of equity method investments
77,625

 
45,846

Deferred operating lease income
(8,454
)
 
(6,750
)
Income from sales of residential property
(35,583
)
 

Gain from discontinued operations
(27,257
)
 
(22,198
)
Gain (loss) on early extinguishment of debt, net
6,384

 
(98,624
)
Repayments and repurchases of debt - debt discount (1)
(20,529
)
 
(4,651
)
Other operating activities, net
6,540

 
1,667

Changes in assets and liabilities:
 
 
 
Changes in accrued interest and operating lease income receivable, net
3,581

 
5,747

Changes in deferred expenses and other assets, net
(2,572
)
 
1,720

Changes in accounts payable, accrued expenses and other liabilities
21,366

 
33,214

Cash flows from operating activities
$
(84,573
)
 
$
(17,723
)
Cash flows from investing activities:
 
 
 
Fundings under existing loan commitments
$
(29,152
)
 
$
(58,420
)
Repayments of and principal collections on loans
479,965

 
1,070,039

Net proceeds from sales of loans
56,998

 
88,751

Net proceeds from sales of net lease assets
142,714

 
672

Net proceeds from sales of other real estate owned
315,021

 
139,279

Contributions to unconsolidated entities
(8,466
)
 
(31,462
)
Distributions from unconsolidated entities
51,506

 
16,434

Capital expenditures on net lease assets
(5,565
)
 
(11,138
)
Capital expenditures on REHI and OREO
(40,171
)
 
(34,915
)
Changes in restricted cash held in connection with investing activities
(462,217
)
 
(25,165
)
Other investing activities, net
799

 
(255
)
Cash flows from investing activities
$
501,432

 
$
1,153,820

Cash flows from financing activities:
 
 
 
Borrowings under secured credit facilities
$
850,465

 
$
2,913,250

Repayments under secured credit facilities
(603,419
)
 
(1,381,315
)
Repayments under unsecured credit facilities
(244,046
)
 
(506,600
)
Borrowings under secured term loans
54,500

 
124,575

Repayments under secured term loans
(109,541
)
 
(1,682,009
)
   Borrowings under unsecured notes
264,029

 

Repayments under unsecured notes
(259,584
)
 
(374,775
)
Repurchases and redemptions of secured and unsecured notes
(404,449
)
 
(371,815
)
Payments for deferred financing costs
(4,189
)
 
(35,545
)
Preferred dividends paid
(31,740
)
 
(31,740
)
Purchase of treasury stock
(4,628
)
 
(78,849
)
Other financing activities, net
3,576

 
876

Cash flows from financing activities
$
(489,026
)
 
$
(1,423,947
)
Changes in cash and cash equivalents
$
(72,167
)
 
$
(287,850
)
Cash and cash equivalents at beginning of period
356,826

 
504,865

Cash and cash equivalents at end of period
$
284,659

 
$
217,015


Explanatory Note:
__________________________________________________________

(1)
Represents the portion of debt repayments and repurchases made during the period related to the original issue discount ("OID").  Although these amounts do not reflect contractual interest payments made during the period, the OID is considered an operating cash flow in accordance with GAAP. 

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," is a fully-integrated finance and investment company focused on the commercial real estate industry. The Company provides custom-tailored investment capital to high-end private and corporate owners of real estate and invests directly across a range of real estate sectors. The Company, which is taxed as a real estate investment trust, or "REIT," has invested more than $35 billion over the past two decades. The Company's three primary business segments are real estate lending, net leasing and real estate investment. See Note 10 for discussion of business risks and uncertainties, including the impact of recent economic conditions on the Company and the Company's liquidity and capital resources.

Organization—The Company began its business in 1993 through private investment funds and became publicly traded in 1998. Since that time, the Company has grown through the origination of new lending and leasing transactions, 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, 2011.

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 2012 presentation.

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.
    
Consolidated VIEs—As of September 30, 2012, the Company consolidated five VIEs for which the Company is considered the primary beneficiary. None of these entities had debt as of September 30, 2012 and December 31, 2011. The assets and liabilities of the Company's consolidated VIEs are included in the Company's Consolidated Balance Sheets. The Company's total unfunded commitments related to consolidated VIEs is $61.2 million as of September 30, 2012.

Unconsolidated VIEs—As of September 30, 2012, 26 of the Company's other 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 September 30, 2012, the Company's maximum exposure to loss from these investments does not exceed the sum of the $186.8 million carrying value of the investments and $7.7 million of related unfunded commitments.

7

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


Note 3—Summary of Significant Accounting Policies

As of September 30, 2012, the Company's significant accounting policies, which are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, have not changed materially.

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-05, "Presentation of Comprehensive Income," which requires entities to (1) present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income and (2) present reclassification of other comprehensive income on the face of the income statement. In December 2011, the FASB issued ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which deferred the requirements of entities to present reclassification of other comprehensive income on the face of the income statement. Both standards are effective in interim and fiscal years beginning after December 15, 2011 and applied retrospectively. The Company adopted this ASU beginning with the reporting period ended March 31, 2012, as required, and now presents Consolidated Statements of Comprehensive Income (Loss).

In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU is a result of joint efforts by the FASB and IASB to develop a single, converged framework on how to measure fair value and what disclosures to provide about fair value measurements. This ASU is largely consistent with existing fair value measurement principles of U.S. GAAP, however, it expands existing disclosure requirements for fair value measurements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2011 and applied prospectively. The Company adopted this ASU beginning with the reporting period ended March 31, 2012, as required. Adoption of this guidance resulted in expanded disclosures on fair value measurements, included in Note 15, but did not have an impact on the Company's measurements of fair value.

Note 4—Loans and Other Lending Investments, net

The following is a summary of the Company's loans and other lending investments by class ($ in thousands)(1):

 
As of
Type of Investment(1)
September 30,
2012
 
December 31,
2011
Senior mortgages
$
2,041,784

 
$
2,801,213

Subordinate mortgages
150,917

 
211,491

Corporate/Partnership loans
469,520

 
478,892

Total gross carrying value of loans(1)
$
2,662,221

 
$
3,491,596

Reserves for loan losses
(543,498
)
 
(646,624
)
Total carrying value of loans
$
2,118,723

 
$
2,844,972

Other lending investments—securities

 
15,790

Total loans and other lending investments, net
$
2,118,723

 
$
2,860,762


Explanatory Note:
_______________________________________________________________________________

(1)
The Company's recorded investment in loans as of September 30, 2012 and December 31, 2011, was $2.67 billion and $3.50 billion, respectively, which consists of total gross carrying value of loans plus accrued interest of $9.5 million and $13.3 million, for the same two periods, respectively.


8

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

During the nine months ended September 30, 2012, the Company funded $29.2 million under existing loan commitments and add-on fundings and received principal repayments of $480.0 million. During the same period, the Company sold loans with a total carrying value of $53.9 million, for which it recognized charge-offs of $3.3 million and also recorded income of $6.4 million in "Other income" on the Company's Consolidated Statements of Operations.

During the nine months ended September 30, 2012, the Company received title to properties in full or partial satisfaction of non-performing mortgage loans with a gross carrying value of $264.5 million, for which the properties had served as collateral, and recorded charge-offs totaling $52.5 million related to these loans. These properties were recorded as real estate held for investment ("REHI") or other real estate owned ("OREO") on the Company's Consolidated Balance Sheets (see Note 5).

Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):

 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
Reserve for loan losses at beginning of period
$
563,786

 
$
701,228

 
$
646,624

 
$
814,625

Provision for loan losses
16,834

 
9,232

 
60,865

 
30,462

Charge-offs
(37,122
)
 
(343
)
 
(163,991
)
 
(134,970
)
Reserve for loan losses at end of period
$
543,498

 
$
710,117

 
$
543,498

 
$
710,117


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)
 
Loans Acquired
with Deteriorated
Credit Quality(3)
 
Total
As of September 30, 2012
 
 
 
 
 
 
 
Loans
$
1,239,197

 
$
1,374,838

 
$
57,700

 
$
2,671,735

Less: Reserve for loan losses
(486,557
)
 
(37,600
)
 
(19,341
)
 
(543,498
)
Total
$
752,640

 
$
1,337,238

 
$
38,359

 
$
2,128,237

As of December 31, 2011
 
 
 
 
 
 
 
Loans
$
1,525,337

 
$
1,919,876

 
$
59,648

 
$
3,504,861

Less: Reserve for loan losses
(554,131
)
 
(73,500
)
 
(18,993
)
 
(646,624
)
Total
$
971,206

 
$
1,846,376

 
$
40,655

 
$
2,858,237


Explanatory Notes:
_______________________________________________________________________________

(1)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net discount of $1.8 million and a net premium of $0.1 million as of September 30, 2012 and December 31, 2011, 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 $2.9 million and $0.2 million as of September 30, 2012 and December 31, 2011, respectively.
(3)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net premium of $0.1 million and a net discount of $15.0 million as of September 30, 2012 and December 31, 2011. These loans had cumulative principal balances of $58.1 million and $74.5 million, as of September 30, 2012 and December 31, 2011, respectively.



9

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

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. 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
 
September 30, 2012
 
December 31, 2011
 
Performing
Loans
 
Weighted
Average
Risk Ratings
 
Performing
Loans
 
Weighted
Average
Risk Ratings
Senior mortgages
$
979,560

 
2.84

 
$
1,514,016

 
3.19

Subordinate mortgages
98,572

 
2.44

 
190,342

 
3.36

Corporate/Partnership loans
463,057

 
3.72

 
472,178

 
3.61

Total
$
1,541,189

 
3.08

 
$
2,176,536

 
3.29


As of September 30, 2012, 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(1)
 
Greater
Than
90 Days(1)
 
Total
Past Due
 
Total
Senior mortgages
$
1,152,795

 
$

 
$
893,941

 
$
893,941

 
$
2,046,736

Subordinate mortgages
98,572

 

 
53,260

 
53,260

 
151,832

Corporate/Partnership loans
463,057

 

 
10,110

 
10,110

 
473,167

Total
$
1,714,424

 
$

 
$
957,311

 
$
957,311

 
$
2,671,735


Explanatory Note:
_______________________________________________________________________________

(1)
As of September 30, 2012, all loans that are not current are classified as non-performing and are on non-accrual status.


10

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 September 30, 2012
 
As of December 31, 2011
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
122,825

 
$
122,634

 
$

 
$
219,488

 
$
218,612

 
$

Corporate/Partnership loans
10,110

 
10,160

 

 
10,110

 
10,160

 

Subtotal
$
132,935

 
$
132,794

 
$

 
$
229,598

 
$
228,772

 
$

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,049,062

 
$
1,045,985

 
$
(469,529
)
 
$
1,268,962

 
$
1,263,195

 
$
(540,670
)
Subordinate mortgages
53,260

 
53,032

 
(27,309
)
 
22,480

 
22,558

 
(22,480
)
Corporate/Partnership loans
61,640

 
61,824

 
(9,060
)
 
62,591

 
62,845

 
(9,974
)
Subtotal
$
1,163,962

 
$
1,160,841

 
$
(505,898
)
 
$
1,354,033

 
$
1,348,598

 
$
(573,124
)
Total:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,171,887

 
$
1,168,619

 
$
(469,529
)
 
$
1,488,450

 
$
1,481,807

 
$
(540,670
)
Subordinate mortgages
53,260

 
53,032

 
(27,309
)
 
22,480

 
22,558

 
(22,480
)
Corporate/Partnership loans
71,750

 
71,984

 
(9,060
)
 
72,701

 
73,005

 
(9,974
)
Total
$
1,296,897

 
$
1,293,635

 
$
(505,898
)
 
$
1,583,631

 
$
1,577,370

 
$
(573,124
)

Explanatory Note:
_______________________________________________________________________________

(1)
All of the Company's non-accrual loans are considered impaired and included in the table above. In addition, as of September 30, 2012 and December 31, 2011, certain loans modified through troubled debt restructurings with a recorded investment of $166.4 million and $255.3 million, respectively, are also included as impaired loans in accordance with GAAP although they are performing and on accrual status.


11

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

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 September 30,
 
For the Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
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
$
138,391

 
$
457

 
$
230,888

 
$
1,788

 
$
175,596

 
$
2,663

 
$
331,478

 
$
31,374

Corporate/Partnership loans
10,110

 

 
10,110

 
240

 
10,110

 

 
10,110

 
560

Subtotal
$
148,501

 
$
457

 
$
240,998

 
$
2,028

 
$
185,706

 
$
2,663

 
$
341,588

 
$
31,934

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,053,534

 
$
774

 
$
1,583,105

 
$
1,873

 
$
1,100,313

 
$
3,208

 
$
1,693,366

 
$
5,994

Subordinate mortgages
53,185

 

 
24,783

 

 
51,765

 

 
18,726

 

Corporate/Partnership loans
61,112

 
75

 
67,446

 
81

 
62,036

 
231

 
66,961

 
250

Subtotal
$
1,167,831

 
$
849

 
$
1,675,334

 
$
1,954

 
$
1,214,114

 
$
3,439

 
$
1,779,053

 
$
6,244

Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,191,925

 
$
1,231

 
$
1,813,993

 
$
3,661

 
$
1,275,909

 
$
5,871

 
$
2,024,844

 
$
37,368

Subordinate mortgages
53,185

 

 
24,783

 

 
51,765

 

 
18,726

 

Corporate/Partnership loans
71,222

 
75

 
77,556

 
321

 
72,146

 
231

 
77,071

 
810

Total
$
1,316,332

 
$
1,306

 
$
1,916,332

 
$
3,982

 
$
1,399,820

 
$
6,102

 
$
2,120,641

 
$
38,178


During the nine months ended September 30, 2011, the Company recorded interest income of $26.3 million related to the resolution of certain non-performing loans. Interest income was not previously recorded while the loans were on non-accrual status.

12

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

Troubled Debt Restructurings—During the three and nine months ended September 30, 2012 and 2011, the Company modified loans that were determined to be troubled debt restructurings. The recorded investment in these loans was impacted by the modifications as follows, presented by class ($ in thousands):

 
For the Three Months Ended September 30,
 
2012
 
2011
 
Number
of Loans
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 
Number
of Loans
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
Senior mortgages
2

 
$
54,192

 
$
54,192

 
3

 
$
65,107

 
$
65,107


 
For the Nine Months Ended September 30,
 
2012
 
2011
 
Number
of Loans
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 
Number
of Loans
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
Senior mortgages
7

 
$
318,227

 
$
272,753

 
7

 
$
191,158

 
$
190,893



Troubled debt restructurings that subsequently defaulted during the period were as follows ($ in thousands):
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
Number
of Loans
 
Outstanding
Recorded
Investment
 
Number
of Loans
 
Outstanding
Recorded
Investment
 
Number
of Loans
 
Outstanding
Recorded
Investment
 
Number
of Loans
 
Outstanding
Recorded
Investment
Senior mortgages

 
$

 
1

 
$
12,257

 
1

 
$
24,604

 
2

 
$
40,262


Troubled debt restructurings that occurred during the three months ended September 30, 2012 included loans that were granted maturity extensions and had interest rates unchanged as a result of the modifications. A performing loan with a recorded investment of $46.3 million was extended three months. The Company believes the borrower can perform under the modified terms and continues to classify the loan as performing.  A loan with a recorded investment of $7.9 million was extended for one year, and was classified as non-performing both before and after the modification.

Troubled debt restructurings that occurred during the nine months ended September 30, 2012 included the modifications of performing loans with a combined recorded investment of $62.6 million. The modified terms of these loans granted maturity extensions ranging from three months to one year and included conditional extension options in certain cases dependent on borrower-specific performance hurdles.  In each case, the Company believes the borrowers can perform under the modified terms of the loans and continues to classify these loans as performing. 

Non-performing loans with a combined recorded investment of $255.6 million were also modified during the nine months ended September 30, 2012 and continued to be classified as non-performing subsequent to modification. Included in this balance was a loan with a recorded investment of $181.5 million prior to modification for which the Company agreed to reduce the outstanding principal balance and recorded charge-offs totaling $45.5 million, and also reduced the loan's interest rate. The remaining non-performing loans were granted maturity extensions ranging from one month to seven months and the interest rate was reduced on one loan.


13

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

Troubled debt restructurings that occurred during the three months ended September 30, 2011 included loans that were granted maturity extensions and had interest rates unchanged as a result of the modifications. Performing loans with a recorded investment of $49.3 million were modified to grant maturity extensions ranging from three months to six months. The Company also extended a discounted payoff option on a loan that was classified as non-performing.

Troubled debt restructurings that occurred during the nine months ended September 30, 2011 included the modifications of performing loans with a combined recorded investment of $129.2 million. The modified terms of these loans granted maturity extensions ranging from three months to five years and included conditional extension options in certain cases dependent on borrower-specific performance hurdles. The Company reduced the rate on loans with a combined recorded investment of $59.5 million from a combined weighted average rate of 6.2% to 4.1%. In each case, the Company believed the borrowers could perform under the modified terms of the loans and classified these loans as performing after the modification. One of these loans subsequently defaulted.

Non-performing loans with a combined recorded investment of $62.0 million were also modified during the nine months ended September 30, 2011 and continued to be classified as non-performing subsequent to modification. Included in this balance was a loan with a recorded investment of $46.1 million for which the Company granted a maturity extension of six months while also reducing the loan's interest rate. The Company also extended a discounted payoff option on another loan that was classified as non-performing.

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 with 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 September 30, 2012, the Company had $6.0 million of unfunded commitments associated with modified loans considered troubled debt restructurings.

Note 5—Real Estate Held for Investment, net and Other Real Estate Owned

During the nine months ended September 30, 2012, the Company received title to properties with an aggregate estimated fair value at the time of foreclosure of $212.0 million, in full or partial satisfaction of non-performing mortgage loans for which those properties had served as collateral. Of these, properties with a value of $3.6 million were classified as REHI and $208.4 million were classified as OREO, based on management's intention to either hold the properties over a longer period or to market them for sale in the near term.

During the nine months ended September 30, 2012, the Company executed transactions related to two separate REHI investments, whereby the Company acquired land and other assets with a combined fair value of $38.8 million from third parties to form two new strategic ventures. In each case, a third party contributed land into the respective venture in a non-cash exchange for a noncontrolling interest and the Company continues to consolidate both subsidiaries. In conjunction with its formation, one of the new strategic ventures contributed land with a recorded value of $11.6 million in a non-cash exchange for a 40% noncontrolling equity interest in a separate new venture. The Company did not recognize any gains or losses associated with these transactions.

Additionally, based upon certain rights held by the minority partner in one of these ventures that provide it with an option to redeem its interest at fair value after seven years, the partner's non-controlling interest in this venture is presented as a redeemable non-controlling interest on the Company's Consolidated Balance Sheet as of September 30, 2012.


14


Real Estate Held for Investment, net—REHI consisted of the following ($ in thousands):

 
As of
 
September 30, 2012
 
December 31, 2011
Land held for investment and development
$
756,588

 
$
711,072

Operating property
 
 
 
Buildings and improvements
350,262

 
379,644

Land
98,340

 
154,445

Less: accumulated depreciation and amortization
(30,235
)
 
(17,027
)
Real estate held for investment, net
$
1,174,955

 
$
1,228,134


The Company records REHI operating income in "Other income" and REHI operating expenses in "Operating costs—REHI and OREO," on the Company's Consolidated Statements of Operations, as follows ($ in thousands):

 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2012
 
2011
 
2012
 
2011
REHI operating income
$
14,276

 
$
8,207

 
$
43,425

 
$
22,356

REHI operating expenses
$
16,422

 
$
12,130

 
$
44,489

 
$
31,422


Other Real Estate Owned—During the nine months ended September 30, 2012, the Company sold OREO assets with a carrying value of $281.0 million, primarily comprised of sales of residential property units for which the Company recorded income from sales of $35.6 million. For the three and nine months ended September 30, 2012, the Company recorded net impairment charges to OREO properties totaling $1.5 million and $5.3 million, respectively, and recorded net expenses related to holding costs for OREO properties of $8.0 million and $24.5 million, respectively.

For the three and nine months ended September 30, 2011, the Company recorded net impairment charges to OREO properties totaling $9.3 million and $12.6 million, respectively, and recorded net expenses related to holding costs for OREO properties of $7.7 million and $24.2 million, respectively.


Note 6—Net Lease Assets, net

The Company's investments in net lease assets, at cost, were as follows ($ in thousands):

 
As of
 
September 30, 2012
 
December 31, 2011
Facilities and improvements
$
1,481,454

 
$
1,601,477

Land and land improvements
411,668

 
447,603

Less: accumulated depreciation
(352,658
)
 
(346,316
)
Net lease assets, net
$
1,540,464

 
$
1,702,764


On April 30, 2012, the Company sold a portfolio of 12 net lease assets with an aggregate carrying value of $105.7 million and recorded a gain of $24.9 million resulting from the transaction. Certain of the properties were subject to secured term loans with a remaining principal balance of $50.8 million that were repaid in full at closing (see Note 9). Additionally, during the nine months ended September 30, 2012, the Company sold net lease assets with a carrying value of $9.8 million, resulting in a net gain of $2.4 million.


15

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

For the three and nine months ended September 30, 2012, the Company recorded impairment charges of $3.6 million and $23.8 million, respectively, on net lease assets, of which $0.5 million was included in "Income (loss) from discontinued operations" on the Company's Consolidated Statements of Operations for the nine months ended September 30, 2012.

During the nine months ended September 30, 2011, the Company realized $22.2 million of a gain previously deferred as part of its June 2010 sale of a portfolio of 32 net lease assets. The gain is presented in "Gain from discontinued operations" on the Company's Consolidated Statements of Operations for the three and nine months ended September 30, 2011.

The Company receives reimbursements from customers for certain facility operating expenses including common area costs, insurance and real estate taxes. Customer expense reimbursements were $5.2 million and $16.6 million for the three and nine months ended September 30, 2012, respectively, and $6.1 million and $17.6 million for the three and nine months ended September 30, 2011, respectively. These amounts were included as a reduction of "Operating costs - net lease assets" on the Company's Consolidated Statements of Operations.

Allowance for doubtful accounts—As of September 30, 2012 and December 31, 2011, the total allowance for doubtful accounts related to net lease asset and REHI tenant receivables, including deferred operating lease income receivable, was $6.2 million and $3.7 million, respectively.

Note 7—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
 
September 30,
2012
 
December 31,
2011
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
 
 
2012
 
2011
 
2012
 
2011
LNR
$
180,671

 
$
159,764

 
$
15,206

 
$
12,509

 
$
36,017

 
$
36,572

Madison Funds
84,360

 
103,305

 
3,206

 
(941
)
 
11,937

 
7,016

Oak Hill Funds
44,052

 
56,817

 
2,049

 
(3,117
)
 
5,932

 
2,961

OREO/REHI Investments
30,880

 
52,803

 
1,553

 
(1,267
)
 
15,747

 
(6,718
)
Other equity method investments (1)
67,345

 
73,146

 
705

 
3,633

 
6,292

 
15,050

Total equity method investments
$
407,308

 
$
445,835

 
$
22,719

 
$
10,817

 
$
75,925

 
$
54,881

Other
12,340

 
12,000

 
 

 
 

 
 

 
 

Total other investments
$
419,648

 
$
457,835

 
 

 
 

 
 

 
 


Explanatory Note:
_______________________________________________________________________________

(1)
For the three and nine months ended September 30, 2011, amounts include $1.4 million and $8.9 million, respectively, of earnings related to Oak Hill Advisors, L.P. and related entities which were sold in October 2011.


16

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

Summarized Financial Information

LNR—The following table represents investee level summarized financial information for LNR ($ in thousands)(1)(2):

 
For the Three Months
Ended June 30,
 
For the Nine Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
Income Statement
 
 
 
 
 
 
 
Total revenue(2)
$
86,038

 
$
104,584

 
$
234,734

 
$
260,997

Income tax expense (benefit)(3)
$
1,293

 
$
1,193

 
$
4,935

 
$
(31,140
)
Net income attributable to LNR
$
63,420

 
$
52,171

 
$
150,219

 
$
152,537

iStar's ownership percentage
24
%
 
24
%
 
24
%
 
24
%
iStar's equity in earnings from LNR
$
15,206

 
$
12,509

 
$
36,017

 
$
36,572



 
As of June 30,
 
As of September 30,
 
2012
 
2011
Balance Sheet
 
 
 
Total assets(2)
$
1,469,158

 
$
1,288,923

Total debt(2)
$
566,099

 
$
469,631

Total liabilities(2)
$
663,963

 
$
576,835

Noncontrolling interests
$
2,101

 
$
39,940

LNR Property LLC equity(4)
$
803,094

 
$
672,147

iStar's ownership percentage
24
%
 
24
%
iStar's equity in LNR(4)
$
180,671

 
$
159,764


Explanatory Notes:
_______________________________________________________________________________

(1)
The Company records its investment in LNR on a one quarter lag, therefore, amounts in the Company's financial statements for the three and nine months ended September 30, 2012 and 2011 are based on balances and results from LNR for the three and nine months ended June 30, 2012 and 2011, respectively.
(2)
LNR consolidates certain commercial mortgage-backed securities and collateralized debt obligation trusts that are considered VIEs (and for which it is the primary beneficiary), that have been excluded from the amounts presented above. As of June 30, 2012 and September 30, 2011, the assets of these trusts, which aggregated approximately $82.79 billion and $126.66 billion, respectively, were the sole source of repayment of the related liabilities, which aggregated approximately $82.52 billion and $126.64 billion, respectively, and are non-recourse to LNR and its equity holders, including the Company. In addition, total revenue presented above includes $27.5 million and $88.3 million for the three and nine months ended June 30, 2012, respectively, and $31.4 million and $72.6 million for the three and nine months ended June 30, 2011, respectively, of servicing fee revenue that is eliminated upon consolidation of the VIE's at the LNR level. This income is then added back through consolidation at the LNR level as an adjustment to income allocable to noncontrolling entities and has no net impact on net income attributable to LNR.
(3)
During the nine months ended June 30, 2011, LNR recorded an income tax benefit from the settlement of certain tax liabilities.
(4)
The Company's equity in LNR at September 30, 2012 reflects a $10.2 million cash distribution made during the third quarter that is not yet reflected in LNR Property LLC's equity shown above as of June 30, 2012.

Madison Funds—During the nine months ended September 30, 2012, the Madison Funds recorded a significant gain related to the sale of an investment for which the Company recorded its $13.7 million proportionate share.

OREO/REHI Investments—During the three and nine months ended September 30, 2012, earnings from equity interests in OREO/REHI investments included $4.0 million and $22.2 million, respectively, related to income recognized on sales of residential property units.


17

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


Note 8—Other Assets and Other Liabilities

Deferred expenses and other assets, net, consist of the following items ($ in thousands):

 
As of
 
September 30, 2012
 
December 31, 2011
Other receivables
$
21,765

 
$
23,943

Leasing costs, net(1)
15,950

 
12,423

Deferred financing fees, net(2)
15,786

 
21,443

Net lease in-place lease intangibles, net(3)
13,602

 
17,013

Prepaid expenses
8,525

 
5,441

Corporate furniture, fixtures and equipment, net(4)
7,759

 
9,034

Other assets
24,084

 
18,555

Deferred expenses and other assets, net
$
107,471

 
$
107,852


Explanatory Notes:
_______________________________________________________________________________

(1)
Accumulated amortization on leasing costs was $5.8 million and $5.5 million as of September 30, 2012 and December 31, 2011, respectively.
(2)
Accumulated amortization on deferred financing fees was $22.1 million and $13.3 million as of September 30, 2012 and December 31, 2011, respectively.
(3)
Represents unamortized finite lived intangible assets related to the prior acquisition of net lease assets. Accumulated amortization on net lease intangibles was $34.7 million and $33.4 million as of September 30, 2012 and December 31, 2011, respectively. Amortization expense related to these assets was $0.8 million and $1.7 million for the three months ended September 30, 2012 and 2011, respectively, and $3.0 million and $5.1 million for the nine months ended September 30, 2012 and 2011, respectively.
(4)
Accumulated depreciation on corporate furniture, fixtures and equipment was $8.0 million and $8.1 million as of September 30, 2012 and December 31, 2011, respectively.

Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):

 
As of
 
September 30, 2012
 
December 31, 2011
Accrued interest payable
$
46,252

 
$
30,122

Accrued expenses
33,430

 
36,332

Property taxes payable
13,565

 
6,495

Security deposits and other investment deposits
12,690

 
12,192

Unearned operating lease income
8,020

 
10,073

Derivative liabilities
7,392

 
2,373

Other liabilities
15,309

 
7,770

Accounts payable, accrued expenses and other liabilities
$
136,658

 
$
105,357



18

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

Deferred tax assets of the Company's TRS entities were as follows ($ in thousands):

 
As of
 
September 30, 2012
 
December 31, 2011
Deferred tax assets(1)
$
60,164

 
$
50,889

Valuation allowance
(60,164
)
 
(50,889
)
Deferred tax assets, net
$

 
$


Explanatory Note:
_______________________________________________________________________________

(1)
Deferred tax assets as of September 30, 2012 include real estate basis differences of $38.7 million, net operating loss carryforwards of $20.3 million and investment basis differences of $1.1 million. Deferred tax assets as of December 31, 2011 include real estate basis differences of $28.7 million, net operating loss carryforwards of $22.8 million, and investment basis differences of $(0.6) million.

19

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


Note 9—Debt Obligations, net

As of September 30, 2012 and December 31, 2011, the Company's debt obligations were as follows ($ in thousands):

 
Carrying Value as of
 
 
 
 
 
September 30,
2012
 
December 31,
2011
 
Stated
Interest Rates
 
Scheduled
Maturity Date
Secured credit facilities and term loans:
 
 
 
 
 
 
 
2011 Tranche A-1 Facility
$
498,320

 
$
961,580

 
LIBOR + 3.75%

(1)
June 2013
2011 Tranche A-2 Facility
1,450,000

 
1,450,000

 
LIBOR + 5.75%

(1)
June 2014
2012 Tranche A-1 Facility
262,253

 

 
LIBOR + 4.00%

(2)
March 2016
2012 Tranche A-2 Facility
470,000

 

 
LIBOR + 5.75%

(2)
March 2017
Term loans collateralized by net lease assets
238,152

 
293,192

 
4.851% - 7.68%

 
Various through 2026
Total secured credit facilities and term loans
$
2,918,725

 
$
2,704,772

 
 

 
 
Unsecured credit facility:
 
 
 
 
 
 
 
Line of credit
$

 
$
243,650

 
LIBOR + 0.85%

 
June 2012
Unsecured notes:
 
 
 
 
 
 
 
5.15% senior notes

 
263,466

 
5.15
%
 
March 2012
5.50% senior notes

 
92,845

 
5.50
%
 
June 2012
LIBOR + 0.50% senior convertible notes(3)
460,660

 
784,750

 
LIBOR + 0.50%

 
October 2012
8.625% senior notes
501,701

 
501,701

 
8.625
%
 
June 2013
5.95% senior notes
448,453

 
448,453

 
5.95
%
 
October 2013
6.5% senior notes
67,055

 
67,055

 
6.5
%
 
December 2013
5.70% senior notes
200,601

 
200,601

 
5.70
%
 
March 2014
6.05% senior notes
105,765

 
105,765

 
6.05
%
 
April 2015
5.875% senior notes
261,403

 
261,403

 
5.875
%
 
March 2016
5.85% senior notes
99,722

 
99,722

 
5.85
%
 
March 2017
9.0% senior notes
275,000

 

 
9.0
%
 
June 2017
Total unsecured notes
$
2,420,360

 
$
2,825,761

 
 

 
 
Other debt obligations:
 
 
 
 
 
 
 
Other debt obligations
$
100,000

 
$
100,000

 
LIBOR + 1.5%

 
October 2035