XNYS:SFI Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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, 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 July 27, 2012, there were 83,617,778 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
 
June 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Loans and other lending investments, net
$
2,300,810

 
$
2,860,762

Net lease assets, net
1,550,113

 
1,702,764

Real estate held for investment, net
1,249,681

 
1,228,134

Other real estate owned
722,167

 
677,458

Other investments
427,501

 
457,835

Cash and cash equivalents
243,843

 
356,826

Restricted cash (see Note 10)
492,973

 
32,630

Accrued interest and operating lease income receivable, net
15,055

 
20,208

Deferred operating lease income receivable
78,769

 
73,368

Deferred expenses and other assets, net
105,300

 
107,852

Total assets
$
7,186,212

 
$
7,517,837

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accounts payable, accrued expenses and other liabilities
$
111,494

 
$
106,693

Debt obligations, net
5,603,939

 
5,837,540

Total liabilities
$
5,715,433

 
$
5,944,233

Commitments and contingencies

 

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, 142,527 issued and 83,610 outstanding at June 30, 2012 and 140,028 issued and 81,920 outstanding at December 31, 2011
142

 
140

Additional paid-in capital
3,828,187

 
3,834,460

Retained earnings (deficit)
(2,196,038
)
 
(2,078,397
)
Accumulated other comprehensive income (loss) (see Note 12)
(707
)
 
(328
)
Treasury stock, at cost, $0.001 par value, 58,917 shares at June 30, 2012 and 58,108 shares at December 31, 2011
(241,969
)
 
(237,341
)
Total iStar Financial Inc. shareholders' equity
$
1,399,437

 
$
1,528,356

Noncontrolling interests
71,342

 
45,248

Total equity
$
1,470,779

 
$
1,573,604

Total liabilities and equity
$
7,186,212

 
$
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
June 30,
 
For the
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Interest income
$
36,448

 
$
80,185

 
$
73,651

 
$
140,953

Operating lease income
37,928

 
37,642

 
76,408

 
75,755

Other income
22,345

 
7,599

 
38,631

 
16,273

Total revenues
$
96,721

 
$
125,426

 
$
188,690

 
$
232,981

Costs and expenses:
 
 
 
 
 
 
 
Interest expense
$
94,474

 
$
95,753

 
$
179,818

 
$
164,846

Operating costs—net lease assets
4,965

 
4,384

 
8,128

 
8,670

Operating costs—REHI and OREO
22,424

 
18,002

 
44,498

 
35,789

Depreciation and amortization
16,960

 
15,011

 
33,475

 
29,824

General and administrative
19,792

 
25,699

 
42,637

 
50,099

Provision for loan losses
26,531

 
10,350

 
44,031

 
21,230

Impairment of assets
7,496

 
2,764

 
23,000

 
4,254

Other expense
3,907

 
459

 
4,360

 
3,181

Total costs and expenses
$
196,549

 
$
172,422

 
$
379,947

 
$
317,893

Income (loss) before earnings from equity method investments and other items
$
(99,828
)
 
$
(46,996
)
 
$
(191,257
)
 
$
(84,912
)
Gain (loss) on early extinguishment of debt, net
(4,868
)
 
(1,047
)
 
(3,164
)
 
105,556

Earnings from equity method investments
18,420

 
19,131

 
53,206

 
44,064

Income (loss) from continuing operations before income taxes
$
(86,276
)
 
$
(28,912
)
 
$
(141,215
)
 
$
64,708

Income tax (expense) benefit
(3,477
)
 
2,675

 
(4,748
)
 
(8,377
)
Income (loss) from continuing operations(1)
$
(89,753
)
 
$
(26,237
)
 
$
(145,963
)
 
$
56,331

Income (loss) from discontinued operations
507

 
217

 
1,530

 
1,553

Gain from discontinued operations
24,851

 

 
27,257

 

Income from sales of residential property
13,266

 

 
19,999

 

Net income (loss)
$
(51,129
)
 
$
(26,020
)
 
$
(97,177
)
 
$
57,884

Net (income) loss attributable to noncontrolling interests
722

 
(14
)
 
696

 
(444
)
Net income (loss) attributable to iStar Financial Inc. 
$
(50,407
)
 
$
(26,034
)
 
$
(96,481
)
 
$
57,440

Preferred dividends
(10,580
)
 
(10,580
)
 
(21,160
)
 
(21,160
)
Net (income) loss allocable to HPU holders and Participating Security holders(2)(3)
1,991

 
1,089

 
3,852

 
(2,640
)
Net income (loss) allocable to common shareholders
$
(58,996
)
 
$
(35,525
)
 
$
(113,789
)
 
$
33,640

Per common share data(1):
 
 
 
 
 
 
 
Income (loss) attributable to iStar Financial Inc. from continuing operations:
 
 
 
 
 
 
 
Basic
$
(1.00
)
 
$
(0.38
)
 
$
(1.69
)
 
$
0.34

Diluted
$
(1.00
)
 
$
(0.38
)
 
$
(1.69
)
 
$
0.34

Net income (loss) attributable to iStar Financial Inc.:
 
 
 
 
 
 
 
Basic
$
(0.70
)
 
$
(0.38
)
 
$
(1.36
)
 
$
0.36

Diluted
$
(0.70
)
 
$
(0.38
)
 
$
(1.36
)
 
$
0.36

Weighted average number of common shares—basic
84,113

 
92,621

 
83,834

 
92,580

Weighted average number of common shares—diluted
84,113

 
92,621

 
83,834

 
94,758

Per HPU share data(1)(2):
 
 
 
 
 
 
 
Income (loss) attributable to iStar Financial Inc. from continuing operations:
 
 
 
 
 
 
 
Basic
$
(187.93
)
 
$
(73.00
)
 
$
(319.66
)
 
$
65.80

Diluted
$
(187.93
)
 
$
(73.00
)
 
$
(319.66
)
 
$
64.40

Net income (loss) attributable to iStar Financial Inc.:
 
 
 
 
 
 
 
Basic
$
(132.73
)
 
$
(72.60
)
 
$
(256.80
)
 
$
68.73

Diluted
$
(132.73
)
 
$
(72.60
)
 
$
(256.80
)
 
$
67.27

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 June 30, 2012 and 2011 was $(89.0) million and $(26.3) million, respectively, and for the six months ended June 30, 2012 and 2011 was $(145.3) million and $55.9 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 Notes 13 and 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 June 30,
 
For the Six Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
(51,129
)
 
$
(26,020
)
 
$
(97,177
)
 
$
57,884

Other comprehensive income (loss):
 
 
 
 
 
 
 
Reclassification of (gains)/losses on cash flow hedges into earnings upon realization
(68
)
 
(176
)
 
(240
)
 
(353
)
Unrealized gains/(losses) on available-for-sale securities
477

 
372

 
634

 
628

Unrealized gains/(losses) on cash flow hedges
(85
)
 
(531
)
 
(490
)
 
(592
)
Unrealized gains/(losses) on cumulative translation adjustment
108

 
1,367

 
(283
)
 
1,728

Other comprehensive income (loss)
$
432

 
$
1,032

 
$
(379
)
 
$
1,411

Comprehensive income (loss)
$
(50,697
)
 
$
(24,988
)
 
$
(97,556
)
 
$
59,295

Net (income) loss attributable to noncontrolling interests
722

 
(14
)
 
696

 
(444
)
Comprehensive income (loss) attributable to iStar Financial Inc. 
$
(49,975
)
 
$
(25,002
)
 
$
(96,860
)
 
$
58,851

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

4


iStar Financial Inc.
Consolidated Statement of Changes in Equity
For the Six Months Ended June 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

 

 

 

 
(21,160
)
 

 

 

 
(21,160
)
Repurchase of stock

 

 

 

 

 

 
(4,628
)
 

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

 

 
2

 
(3,545
)
 

 

 

 

 
(3,543
)
Net income (loss) for the period(2)

 

 

 

 
(96,481
)
 

 

 
(689
)
 
(97,170
)
Change in accumulated other comprehensive income (loss)

 

 

 

 

 
(379
)
 

 

 
(379
)
Repurchase of convertible notes

 

 

 
(2,728
)
 

 

 

 

 
(2,728
)
Contributions from noncontrolling interests (3)

 

 

 

 

 

 

 
27,389

 
27,389

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(606
)
 
(606
)
Balance at June 30, 2012
$
22

 
$
9,800

 
$
142

 
$
3,828,187

 
$
(2,196,038
)
 
$
(707
)
 
$
(241,969
)
 
$
71,342

 
$
1,470,779

    
Explanatory Notes:
__________________________________________________________

(1)
See Note 12 for details on the Company's Cumulative Redeemable Preferred Stock.
(2)
For the six months ended June 30, 2012, net loss shown above excludes $7 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 Six Months Ended
June 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(97,177
)
 
$
57,884

Adjustments to reconcile net income (loss) to cash flows from operating activities:
 
 
 
Provision for loan losses
44,031

 
21,230

Impairment of assets
25,303

 
4,228

Depreciation and amortization
34,418

 
32,065

Payments for employee taxes upon vesting of stock-based compensation
(11,657
)
 
(812
)
Non-cash expense for stock-based compensation
8,113

 
8,469

Amortization of discounts/premiums and deferred financing costs on debt
17,679

 
14,551

Amortization of discounts/premiums and deferred interest on lending investments
(29,442
)
 
(41,703
)
Earnings from equity method investments
(53,206
)
 
(44,064
)
Distributions from operations of equity method investments
56,769

 
23,410

Deferred operating lease income
(5,466
)
 
(4,853
)
Income from sales of residential property
(19,999
)
 

Gain from discontinued operations
(27,257
)
 

Gain (loss) on early extinguishment of debt, net
3,164

 
(101,832
)
Repayments and repurchases of debt - debt discount (1)
(17,326
)
 
(2,726
)
Other operating activities, net
3,738

 
4,781

Changes in assets and liabilities:
 
 
 
Changes in accrued interest and operating lease income receivable, net
3,278

 
(898
)
Changes in deferred expenses and other assets, net
4,118

 
(22,262
)
Changes in accounts payable, accrued expenses and other liabilities
3,723

 
17,856

Cash flows from operating activities
$
(57,196
)
 
$
(34,676
)
Cash flows from investing activities:
 
 
 
Fundings under existing loan commitments
$
(23,877
)
 
$
(39,772
)
Repayments of and principal collections on loans
322,045

 
798,274

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
168,388

 
92,840

Contributions to unconsolidated entities
(6,145
)
 
(20,219
)
Distributions from unconsolidated entities
41,586

 
4,489

Capital expenditures on net lease assets
(2,988
)
 
(4,902
)
Capital expenditures on REHI and OREO
(29,726
)
 
(15,966
)
Changes in restricted cash held in connection with investing activities
(462,605
)
 
(51,985
)
Other investing activities, net
(243
)
 
(538
)
Cash flows from investing activities
$
206,147

 
$
851,644

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

 
$
2,913,250

Repayments under secured credit facilities
(392,124
)
 
(1,199,362
)
Repayments under unsecured credit facilities
(244,046
)
 
(506,600
)
Borrowings under secured term loans

 
124,575

Repayments under secured term loans
(54,767
)
 
(1,680,118
)
   Borrowings under unsecured notes
264,029

 

Repayments under unsecured notes
(259,584
)
 
(204,405
)
Repurchases and redemptions of secured and unsecured notes
(396,356
)
 
(323,642
)
Payments for deferred financing costs
(3,248
)
 
(35,526
)
Preferred dividends paid
(21,160
)
 
(21,160
)
Purchase of treasury stock
(4,628
)
 
(1,487
)
Other financing activities
(515
)
 
1,588

Cash flows from financing activities
$
(261,934
)
 
$
(932,887
)
Changes in cash and cash equivalents
$
(112,983
)
 
$
(115,919
)
Cash and cash equivalents at beginning of period
356,826

 
504,865

Cash and cash equivalents at end of period
$
243,843

 
$
388,946


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—The Company consolidates OHA Strategic Credit Fund Parallel I, L.P. ("OHA SCF"), which was created to invest in distressed and undervalued loans, bonds, equities and other investments. As of June 30, 2012 and December 31, 2011, OHA SCF had total assets of $51.6 million and $56.9 million, respectively, no debt, and noncontrolling interests of $0.1 million for both periods. The investments held by this entity are presented in "Other investments" on the Company's Consolidated Balance Sheets. As of June 30, 2012, the Company had a total unfunded commitment of $16.9 million to this entity.

The Company also consolidates Madison Deutsche Andau Holdings, LP ("Madison DA"), which was created to invest in mortgage loans collateralized by real estate in Europe. As of June 30, 2012 and December 31, 2011, Madison DA had total assets of $36.0 million and $37.4 million, respectively, no debt, and noncontrolling interests of $5.1 million and $5.4 million, respectively. The investments held by this entity are presented in "Loans and other lending investments, net" on the Company's Consolidated Balance Sheets.

Unconsolidated VIEs—As of June 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 June 30, 2012, the Company's maximum exposure to loss from these investments does not exceed the sum of the $191.5 million carrying value of the investments and $8.2 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 June 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 to the Company's measurements of fair value.

8



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)
June 30,
2012
 
December 31,
2011
Senior mortgages
$
2,237,764

 
$
2,801,213

Subordinate mortgages
149,735

 
211,491

Corporate/Partnership loans
461,425

 
478,892

Total gross carrying value of loans(1)
$
2,848,924

 
$
3,491,596

Reserves for loan losses
(563,786
)
 
(646,624
)
Total carrying value of loans
$
2,285,138

 
$
2,844,972

Other lending investments—securities
15,672

 
15,790

Total loans and other lending investments, net
$
2,300,810

 
$
2,860,762

Explanatory Note:
_______________________________________________________________________________

(1)
The Company's recorded investment in loans as of June 30, 2012 and December 31, 2011 was $2.86 billion and $3.50 billion, respectively, which consists of total gross carrying value of loans plus accrued interest of $10.4 million and $13.3 million, for the same two periods, respectively.

During the six months ended June 30, 2012, the Company funded $23.9 million under existing loan commitments and add-on fundings and received principal repayments of $322.0 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 six months ended June 30, 2012, the Company received title to properties in full or partial satisfaction of non-performing mortgage loans with a gross carrying value of $229.0 million, for which the properties had served as collateral, and recorded charge-offs totaling $43.2 million related to these loans. These properties were recorded as 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 June 30,
 
For the Six Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
Reserve for loan losses at beginning of period
$
567,179

 
$
804,070

 
$
646,624

 
$
814,625

Provision for loan losses
26,531

 
10,350

 
44,031

 
21,230

Charge-offs
(29,924
)
 
(113,192
)
 
(126,869
)
 
(134,627
)
Reserve for loan losses at end of period
$
563,786

 
$
701,228

 
$
563,786

 
$
701,228



9

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

The Company's recorded investment (comprised of a loan's carrying value plus accrued interest) in loans 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 June 30, 2012
 
 
 
 
 
 
 
Loans
$
1,278,305

 
$
1,523,578

 
$
57,461

 
$
2,859,344

Less: Reserve for loan losses
(487,645
)
 
(56,800
)
 
(19,341
)
 
(563,786
)
Total
$
790,660

 
$
1,466,778

 
$
38,120

 
$
2,295,558

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 $1.3 million and a net premium of $0.1 million as of June 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 $2.1 million and $0.2 million as of June 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 June 30, 2012 and December 31, 2011. These loans had cumulative principal balances of $57.7 million and $74.5 million, as of June 30, 2012 and December 31, 2011, 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. 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, 2012
 
December 31, 2011
 
Performing
Loans
 
Weighted
Average
Risk Ratings
 
Performing
Loans
 
Weighted
Average
Risk Ratings
Senior mortgages
$
1,176,248

 
3.00

 
$
1,514,016

 
3.19

Subordinate mortgages
97,520

 
2.41

 
190,342

 
3.36

Corporate/Partnership loans
455,320

 
3.73

 
472,178

 
3.61

Total
$
1,729,088

 
3.16

 
$
2,176,536

 
3.29



10

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

As of June 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
$
1,276,006

 
$
124,371

 
$
842,908

 
$
967,279

 
$
2,243,285

Subordinate mortgages
97,520

 

 
53,109

 
53,109

 
150,629

Corporate/Partnership loans
455,320

 

 
10,110

 
10,110

 
465,430

Total
$
1,828,846

 
$
124,371

 
$
906,127

 
$
1,030,498

 
$
2,859,344


Explanatory Note:
_______________________________________________________________________________

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

Impaired Loans—The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):

 
As of June 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
$
153,956

 
$
153,565

 
$

 
$
219,488

 
$
218,612

 
$

Corporate/Partnership loans
10,110

 
10,160

 

 
10,110

 
10,160

 

Subtotal
$
164,066

 
$
163,725

 
$

 
$
229,598

 
$
228,772

 
$

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,058,007

 
$
1,053,514

 
$
(470,617
)
 
$
1,268,962

 
$
1,263,195

 
$
(540,670
)
Subordinate mortgages
53,109

 
52,881

 
(27,309
)
 
22,480

 
22,558

 
(22,480
)
Corporate/Partnership loans
60,584

 
60,804

 
(9,060
)
 
62,591

 
62,845

 
(9,974
)
Subtotal
$
1,171,700

 
$
1,167,199

 
$
(506,986
)
 
$
1,354,033

 
$
1,348,598

 
$
(573,124
)
Total:
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,211,963

 
$
1,207,079

 
$
(470,617
)
 
$
1,488,450

 
$
1,481,807

 
$
(540,670
)
Subordinate mortgages
53,109

 
52,881

 
(27,309
)
 
22,480

 
22,558

 
(22,480
)
Corporate/Partnership loans
70,694

 
70,964

 
(9,060
)
 
72,701

 
73,005

 
(9,974
)
Total
$
1,335,766

 
$
1,330,924

 
$
(506,986
)
 
$
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 June 30, 2012 and December 31, 2011, certain loans modified through troubled debt restructurings with a recorded investment of $205.5 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 June 30,
 
For the Six Months Ended June 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
$
180,037

 
$
1,799

 
$
352,098

 
$
28,620

 
$
193,187

 
$
2,206

 
$
369,686

 
$
29,586

Corporate/Partnership loans
10,110

 

 
10,110

 
200

 
10,110

 

 
10,110

 
320

Subtotal
$
190,147

 
$
1,799

 
$
362,208

 
$
28,820

 
$
203,297

 
$
2,206

 
$
379,796

 
$
29,906

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,041,613

 
$
1,194

 
$
1,668,373

 
$
2,117

 
$
1,117,396

 
$
2,434

 
$
1,723,584

 
$
4,121

Subordinate mortgages
65,659

 

 
25,624

 

 
51,266

 

 
17,083

 

Corporate/Partnership loans
61,956

 
76

 
69,263

 
86

 
62,168

 
156

 
67,663

 
169

Subtotal
$
1,169,228

 
$
1,270

 
$
1,763,260

 
$
2,203

 
$
1,230,830

 
$
2,590

 
$
1,808,330

 
$
4,290

Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior mortgages
$
1,221,650

 
$
2,993

 
$
2,020,471

 
$
30,737

 
$
1,310,583

 
$
4,640

 
$
2,093,270

 
$
33,707

Subordinate mortgages
65,659

 

 
25,624

 

 
51,266

 

 
17,083

 

Corporate/Partnership loans
72,066

 
76

 
79,373

 
286

 
72,278

 
156

 
77,773

 
489

Total
$
1,359,375

 
$
3,069

 
$
2,125,468

 
$
31,023

 
$
1,434,127

 
$
4,796

 
$
2,188,126

 
$
34,196


Troubled Debt Restructurings—During the three and six months ended June 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 June 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
1

 
$
4,561

 
$
4,561

 
1

 
$
20,380

 
$
20,380



12

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

 
For the Six Months Ended June 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
6

 
$
310,342

 
$
264,868

 
4

 
$
126,051

 
$
125,786



Troubled debt restructurings that subsequently defaulted during the period were as follows ($ in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 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

 
$
26,120

 
1

 
$
28,328

 
1

 
$
26,120

 
1

 
$
28,328


During the three months ended June 30, 2012, the Company restructured one loan that was considered a troubled debt restructuring. The Company extended the term of this performing loan by one year with the interest rate unchanged.

During the six months ended June 30, 2012, the Company restructured six loans that were considered troubled debt restructurings. In addition to the loan modified during the current quarter that is described above, the Company restructured five additional loans. Two of the modified loans were performing loans with a combined recorded investment of $58.1 million that were extended with a new weighted average maturity of 0.4 years and with conditional extension options in certain cases dependent on borrower-specific performance hurdles. The Company believes the borrowers in each case can perform under the modified terms of the loans and continues to classify these loans as performing.

The remaining three modified loans were classified as non-performing prior to their modification and remained non-performing subsequently. One of these loans with a recorded investment of $48.2 million was extended with a new maturity of 0.7 years and another with a recorded investment of $18.0 million was extended with a new maturity of 0.3 years and its interest rate was reduced to 4.5% from 9.0%. The Company agreed to reduce the outstanding principal balance of the third loan that had a recorded investment of $181.5 million prior to the modification, and recorded charge-offs totaling $45.5 million. In addition, the loan's interest rate was reduced to LIBOR + 3.5% from LIBOR + 7.0%.

During the three months ended June 30, 2011, the Company restructured one loan that was considered a troubled debt restructuring. The Company extended the term of this performing loan by six months with the interest rate unchanged and with conditional extension options dependent on pay down hurdles. During the six months ended June 30, 2011, the Company restructured four loans that were considered troubled debt restructurings. In addition to the loan modified during the quarter that is described above, the Company restructured three additional loans. The Company reduced the rate on these loans with a combined recorded investment of $105.7 million, from a combined weighted average rate of 8.3% to 4.7% and extended the loans with a new weighted average maturity of 1.4 years, with conditional extension options in certain cases dependent on pay down hurdles.

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

13

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


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

During the six months ended June 30, 2012, the Company received title to properties with an aggregate estimated fair value at the time of foreclosure of $185.8 million, in full or partial satisfaction of non-performing mortgage loans for which those properties had served as collateral. These properties were classified as OREO, based on management's current intention to market them for sale in the near term.

In addition, during the six months ended June 30, 2012, the Company acquired $27.3 million of REHI land and other assets in a non-cash exchange for a noncontrolling interest in one of its consolidated subsidiaries. In conjunction with this transaction, the same consolidated subsidiary contributed REHI land with a recorded value of $11.6 million in a non-cash exchange for a 40% noncontrolling equity interest in a new venture. The Company did not recognize any gains or losses associated with these transactions.

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

 
As of
 
June 30, 2012
 
December 31, 2011
Land held for investment and development
$
738,459

 
$
711,072

Operating property
 
 
 
Buildings and improvements
382,919

 
379,644

Land
153,568

 
154,445

Less: accumulated depreciation and amortization
(25,265
)
 
(17,027
)
Real estate held for investment, net
$
1,249,681

 
$
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 June 30,
 
For the Six Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
REHI operating income
$
14,756

 
$
6,687

 
$
29,150

 
$
14,149

REHI operating expenses
$
14,557

 
$
8,745

 
$
28,067

 
$
19,291


Other Real Estate Owned—During the six months ended June 30, 2012, the Company sold other real estate owned ("OREO") assets with a carrying value of $149.7 million, primarily comprised of sales of residential property units for which the Company recorded income from sales of $20.0 million. For the three and six months ended June 30, 2012, the Company recorded net impairment charges to OREO properties totaling $1.3 million and $3.9 million, respectively, and recorded net expenses related to holding costs for OREO properties of $7.9 million and $16.4 million, respectively.

For the three and six months ended June 30, 2011, the Company recorded net impairment charges to OREO properties totaling $2.8 million and $3.4 million, respectively, and recorded net expenses related to holding costs for OREO properties of $9.3 million and $16.5 million, respectively.


14



Note 6—Net Lease Assets, net

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

 
As of
 
June 30, 2012
 
December 31, 2011
Facilities and improvements
$
1,480,678

 
$
1,601,477

Land and land improvements
411,668

 
447,603

Less: accumulated depreciation
(342,233
)
 
(346,316
)
Net lease assets, net
$
1,550,113

 
$
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 six months ended June 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.

For the three and six months ended June 30, 2012, the Company recorded impairment charges of $6.2 million and $20.2 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 six months ended June 30, 2012.

The Company receives reimbursements from customers for certain facility operating expenses including common area costs, insurance and real estate taxes. Customer expense reimbursements were $5.9 million and $11.4 million for the three and six months ended June 30, 2012, respectively, and $6.0 million and $11.5 million for the three and six months ended June 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 June 30, 2012 and December 31, 2011, the total allowance for doubtful accounts related to tenant receivables, including deferred operating lease income receivable, was $4.4 million and $3.7 million, respectively.

15

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


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
 
June 30,
2012
 
December 31,
2011
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
 
 
2012
 
2011
 
2012
 
2011
LNR
$
176,600

 
$
159,764

 
$
8,674

 
$
10,079

 
$
20,811

 
$
24,064

Madison Funds
82,683

 
103,305

 
(767
)
 
5,754

 
8,731

 
7,956

Oak Hill Funds
48,368

 
56,817

 
508

 
572

 
3,883

 
6,078

OREO/REHI Investments
39,251

 
52,803

 
8,070

 
(5,450
)
 
14,195

 
(5,450
)
Other equity method investments (1)
69,617

 
73,146

 
1,935

 
8,176

 
5,586

 
11,416

Total equity method investments
$
416,519

 
$
445,835

 
$
18,420

 
$
19,131

 
$
53,206

 
$
44,064

Other
10,982

 
12,000

 
 

 
 

 
 

 
 

Total other investments
$
427,501

 
$
457,835

 
 

 
 

 
 

 
 


Explanatory Note:
_______________________________________________________________________________

(1)
For the three and six months ended June 30, 2011, amounts include $6.4 million and $7.5 million, respectively, of earnings related to Oak Hill Advisors, L.P. and related entities which were sold during in October 2011.

Summarized Financial Information

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

 
For the Three Months
Ended March 31,
 
For the Six Months
Ended March 31,
 
2012
 
2011
 
2012
 
2011
Income Statement
 
 
 
 
 
 
 
Total revenue(2)
$
71,337

 
$
77,394

 
$
148,696

 
$
156,413

Income tax expense (benefit)(3)
$
1,805

 
$
2,025

 
$
3,642

 
$
(32,333
)
Net income attributable to LNR
$
36,178

 
$
42,036

 
$
86,799

 
$
100,366

iStar's ownership percentage
24
%
 
24
%
 
24
%
 
24
%
iStar's equity in earnings from LNR
$
8,674

 
$
10,079

 
$
20,811

 
$
24,064


 
As of March 31,
 
As of September 30,
 
2012
 
2011
Balance Sheet
 
 
 
Total assets(2)
$
1,329,460

 
$
1,288,923

Total debt(2)
$
477,055

 
$
469,631

Total liabilities(2)
$
564,352

 
$
576,835

Noncontrolling interests
$
6,943

 
$
39,940

LNR Property LLC equity
$
758,165

 
$
672,147

iStar's ownership percentage
24
%
 
24
%
iStar's equity in LNR
$
176,600

 
$
159,764


16

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


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 six months ended June 30, 2012 and 2011 are based on balances and results from LNR for the three and six months ended March 31, 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 March 31, 2012 and September 30, 2011, the assets of these trusts, which aggregate approximately $85.19 billion and $126.66 billion, respectively, are the sole source of repayment of the related liabilities, which aggregate approximately $84.92 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 $16.3 million and $30.8 million for the three months ended March 31, 2012 and 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 six months ended March 31, 2011, LNR recorded an income tax benefit from the settlement of certain tax liabilities.

Madison Funds—During the six months ended June 30, 2012, the Madison Funds recorded a significant gain related to the sale of an investment and the Company recorded its proportionate share of approximately $13.7 million.

OREO/REHI Investments—During the three and six months ended June 30, 2012, earnings from equity interests in OREO/REHI investments include $10.2 million and $18.2 million, respectively, related to income recognized on sales of residential property units.


Note 8—Other Assets and Other Liabilities

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

 
As of
 
June 30, 2012
 
December 31, 2011
Other receivables
$
19,639

 
$
13,943

Deferred financing fees, net(1)
17,573

 
21,443

Net lease in-place lease intangibles, net(2)
14,363

 
17,013

Leasing costs, net(3)
12,994

 
12,423

Derivative asset
8,660

 

Corporate furniture, fixtures and equipment, net(4)
8,086

 
9,034

Prepaid expenses
5,380

 
5,441

Other assets
18,605

 
28,555

Deferred expenses and other assets, net
$
105,300

 
$
107,852

Explanatory Notes:
_______________________________________________________________________________

(1)
Accumulated amortization on deferred financing fees was $19.4 million and $13.3 million as of June 30, 2012 and December 31, 2011, respectively.
(2)
Represents unamortized finite lived intangible assets related to the prior acquisition of net lease assets. Accumulated amortization on net lease intangibles was $34.0 million and $33.4 million as of June 30, 2012 and December 31, 2011, respectively. Amortization expense related to these assets was $1.0 million and $1.7 million for the three months ended June 30, 2012 and 2011, respectively, and $2.3 million and $3.4 million for the six months ended June 30, 2012 and 2011, respectively.
(3)
Accumulated amortization on leasing costs was $5.0 million and $5.5 million as of June 30, 2012 and December 31, 2011, respectively.
(4)
Accumulated depreciation on corporate furniture, fixtures and equipment was $7.7 million and $8.1 million as of June 30, 2012 and December 31, 2011, respectively.


17

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

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

 
As of
 
June 30, 2012
 
December 31, 2011
Accrued interest payable
$
38,030

 
$
30,122

Accrued expenses
29,104

 
36,332

Security deposits and other investment deposits
12,463

 
12,192

Unearned operating lease income
8,917

 
10,073

Property taxes payable
8,274

 
6,495

Other liabilities
14,706

 
11,479

Accounts payable, accrued expenses and other liabilities
$
111,494

 
$
106,693


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

 
As of
 
June 30, 2012
 
December 31, 2011
Deferred tax assets(1)
$
57,657

 
$
50,889

Valuation allowance
(57,657
)
 
(50,889
)
Deferred tax assets, net
$

 
$

Explanatory Notes:
_______________________________________________________________________________

(1)
Deferred tax assets as of June 30, 2012 primarily include real estate basis differences of $34.2 million, net operating loss carryforwards of $22.5 million and investment basis differences of $1.0 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.


18

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


Note 9—Debt Obligations, net

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

 
Carrying Value as of
 
 
 
 
 
June 30,
2012
 
December 31,
2011
 
Stated
Interest Rates
 
Scheduled
Maturity Date
Secured credit facilities and term loans:
 
 
 
 
 
 
 
2011 Tranche A-1 Facility
$
646,068

 
$
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
328,605

 

 
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
238,425

 
293,192

 
5.05% - 7.68%

 
Various through 2026
Total secured credit facilities and term loans
$
3,133,098

 
$
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)
469,166

 
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