Star Holdings

Previous wording

Please read the following discussion of our consolidated operating results, financial condition and liquidity together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Our discussion related to the results of operations and changes in financial condition for 2022 compared to 2021 is included in Exhibit 99.1 to our Form 10 filed with the SEC on March 20, 2023. Our historical results may not be indicative of our future performance. Certain prior year amounts have been reclassified in our consolidated financial statements and the related notes to conform to the current period presentation.

Current wording

Please read the following discussion of our consolidated operating results, financial condition and liquidity together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Our discussion related to the results of operations and changes in financial condition for 2023 compared to 2022 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Our historical results may not be indicative of our future performance. Certain prior year amounts have been reclassified in our consolidated financial statements and the related notes to conform to the current period presentation.

Previous wording

During 2023, we continued to develop our properties at Asbury Park and Magnolia Green while also monetizing certain development sites at Asbury Park and residential lots at Magnolia Green. We also continued to sell residential condominium units at Asbury Ocean Cub and two units remain unsold as of December 31, 2023. As of December 31, 2023, we also owned assets that we expect to monetize primarily through asset sales, loan repayments or active asset management. These assets included in our portfolio as of December 31, 2023 had an aggregate carrying value of approximately $71.1 million and were comprised primarily of land, loans and other assets.

Current wording

During 2024, we continued to develop our properties at Asbury Park and Magnolia Green while also monetizing certain development sites at Asbury Park and residential lots at Magnolia Green. We also continued to sell residential condominium units at Asbury Ocean Cub and all units had been sold as of December 31, 2024. We also continued to monetize our land and development assets. As of December 31, 2024, we also owned assets that we expect to monetize primarily through asset sales, loan repayments or active asset management. These assets included in our portfolio as of December 31, 2024 had an aggregate carrying value of approximately $120.3 million and were comprised primarily of land, loans and other assets. We used the proceeds from asset sales in 2024 primarily to fund our operations.

Previous wording

Revenue—Operating lease income, which primarily includes income from commercial operating properties, decreased to $6.7 million in 2023 from $12.9 million in 2022. The decrease was primarily due to the sale of assets.

Current wording

Revenue—Operating lease income, which primarily includes income from commercial operating properties, increased to $6.9 million in 2024 from $6.7 million in 2023.

Previous wording

Interest income decreased to $2.1 million in 2023 from $12.3 million in 2022. The decrease in interest income was due primarily to a decrease in the average balance of our performing loans and other lending investments due to loan sales and the repayment of loans during 2023 and 2022.

Current wording

Interest income increased to $2.3 million in 2024 from $2.1 million in 2023. The increase in interest income was due primarily to an increase in the average balance of our performing loans and other lending investments due to loan originations and the acquisition of available for sale securities.

Previous wording

Other income increased to $41.7 million in 2023 from $37.1 million in 2022. Other income consists primarily of dividend income from our investment in Safe, income from our loan portfolio, hotel properties and other operating properties, including Asbury Lanes and the Magnolia Green Golf Club. The increase in 2023 was due primarily to $7.3 million of dividend income from Safe.

Current wording

Other income increased to $44.1 million in 2024 from $41.7 million in 2023. Other income consists primarily of dividend income from our investment in Safe, income from our loan portfolio, hotel properties and other operating properties, including Asbury Lanes and the Magnolia Green Golf Club. The increase was due primarily to an additional $2.4 million of dividend income from Safe for the year ended December 31, 2024 as compared to the same period in 2023.

Previous wording

Land development revenue and cost of sales— In 2023, we sold residential lots and units and recognized land development revenue of $72.4 million which had associated cost of sales of $62.7 million. In 2022, we sold residential lots and units and recognized land development revenue of $61.8 million which had associated cost of sales of $63.4 million. The increase in land development revenue in 2023 was due primarily to bulk parcel sales at our Asbury Park and Magnolia Green properties, which was partially offset by a decrease in revenues from condo sales at our Asbury Park properties and our Naples Reserve property (fully sold out in 2022). As we execute future sales and have fewer remaining residential and development assets, we expect our land development revenue will decline. The timing and amount of such sales cannot be predicted with certainty.

Current wording

Land development revenue and cost of sales—In 2024, we had bulk sales and sold residential lots and recognized land development revenue of $60.0 million which had associated cost of sales of $48.7 million. In 2023, we sold residential lots and units and recognized land development revenue of $72.4 million which had associated cost of sales of $62.7 million. The decrease in land development revenue in 2024 was due primarily to a decrease in revenues from bulk sales and condominium sales at our Asbury properties and a decrease in lot sales at our Magnolia Green property, which was partially offset by a bulk sale at our Coney Island property and the sale of a land parcel to a third party (refer to Note 5 to the combined and consolidated financial statements). As we execute future sales and have fewer remaining residential and development assets, we expect our land development revenue will decline. The timing and amount of such sales cannot be predicted with certainty.

Previous wording

Costs and expenses—Prior to the Spin-Off, interest expense represented an allocation to us from iStar. Interest expense was allocated to us by calculating our average net assets by property type as a percentage of the average net assets of iStar's segments and multiplying that percentage by the interest expense allocated to each of iStar's segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, interest expense represents the interest cost on our Margin Loan Facility. For the year ended December 31, 2023, we incurred $6.2 million of interest expense from our Margin Loan Facility, net of amounts capitalized. We elected to pay interest in kind ("PIK") on the Margin Loan Facility in respect of the $1.7 million interest payment payable for the fourth quarter of 2023. That amount was added to the principal balance of the loan. The applicable margin on the Margin Loan Facility increases by 25 basis points for the entirety of the interest period immediately succeeding any interest period with respect to which we make a PIK election. For the years ended December 31, 2023 and 2022, we were allocated $8.0 million and $42.0 million, respectively, of interest expense. The decrease in interest expense allocated to us in 2023 was due primarily to us not receiving an allocation subsequent to the Spin-Off and a decrease in our average net assets as well as a decrease in iStar’s average outstanding debt and average cost of debt as compared to 2022. For the year ended December 31, 2023, interest expense also included amounts payable to iStar prior to the Spin-Off.

Current wording

Costs and expenses—Prior to the Spin-Off, interest expense represented an allocation to us from iStar. Interest expense was allocated to us by calculating our average net assets by property type as a percentage of the average net assets of iStar's segments and multiplying that percentage by the interest expense allocated to each of iStar's segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, interest expense represents the interest cost on our Margin Loan Facility. For the years ended December 31, 2024 and 2023, we incurred $6.9 million and $6.2 million, respectively, of interest expense from our Margin Loan Facility, net of amounts capitalized. We elected to pay interest in kind ("PIK") on the Margin Loan Facility in respect of interest payments payable for each quarter of 2024. These amounts were added to the principal balance of the loan. The applicable margin on the Margin Loan Facility increases by 25 basis points for the entirety of the interest period immediately succeeding any interest period with respect to which we make a PIK election. For the year ended December 31, 2023, we were allocated $8.0 million of interest expense and interest expense also included amounts payable to iStar prior to the Spin-Off.

Previous wording

Real estate expense decreased to $47.8 million in 2023 from $49.9 million in 2022. Real estate expense primarily represents expenses at our hotel and retail operating properties and land properties. The decrease in 2023 was due primarily to asset sales, which was partially offset by an increase in expense at our hotel properties.

Current wording

Real estate expense increased to $48.3 million in 2024 from $47.8 million in 2023. Real estate expense primarily represents expenses at our hotel and retail operating properties and land properties. The increase in 2024 was due primarily to an increase in expenses at certain properties in our monetizing portfolio, which was partially offset by a decrease in expenses at our Asbury Park properties.

Previous wording

Depreciation and amortization was $4.6 million in 2023 and $4.9 million in 2022 and relates primarily to our operating properties portfolio.

Current wording

Depreciation and amortization was $4.3 million in 2024 and $4.6 million in 2023 and relates primarily to our operating properties portfolio.

Previous wording

Prior to the Spin-Off, general and administrative expense represented an allocation of costs, including performance-based compensation, to us from iStar. General and administrative expenses, including stock-based compensation, represented a pro rata allocation of costs from iStar's real estate finance, operating properties, land and development and corporate business segments based on our average net assets for those property types as a percentage of iStar's average net assets for those segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, general and administrative expense includes management fees to our Manager and other costs of operating as a public company. During the year ended December 31, 2023, we incurred $36.2 million of general and administrative expense, primarily resulting from management fees to Safe, audit and legal fees and a $14.1 million allocation from iStar. During the year ended December 31, 2022, we were allocated $10.9 million of general and administrative expense from iStar. The increase in the allocation from iStar in 2023 was due primarily to an increase in general and administrative expense at iStar resulting from an increase in performance-based compensation at iStar.

Current wording

Prior to the Spin-Off, general and administrative expense represented an allocation of costs, including performance-based compensation, to us from iStar. General and administrative expenses, including stock-based compensation, represented a pro rata allocation of costs from iStar's real estate finance, operating properties, land and development and corporate business segments based on our average net assets for those property types as a percentage of iStar's average net assets for those segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, general and administrative expense includes management fees to our Manager and other costs of operating as a public company. During the year ended December 31, 2024, we incurred $21.1 million of general and administrative expense, primarily resulting from $18.0 million of management fees to Safe and director fees. During the year ended December 31, 2023, we incurred $36.2 million of general and administrative expense, primarily resulting from management fees to Safe, audit and legal fees and a $14.1 million allocation from iStar. The annual management fee payable to our Manager under the Management Agreement declined from$25.0 million to $15.0 million for the second annual term of the Management Agreement which began on March 31, 2024.

Previous wording

The provision for loan losses was $1.7 million in 2023 as compared to a provision for loan losses of $45.0 million in 2022. The provision for loan losses for the year ended December 31, 2023 resulted primarily from the sale of a non-performing loan, which was partially offset by a reversal of Expected Loss allowances on loans that repaid in full during

Current wording

The provision for loan losses was $0.6 million in 2024 as compared to a provision for loan losses of $1.7 million in 2023. The provision for loan losses for the year ended December 31, 2024 resulted primarily from the addition to a loan during the year and a new loan origination (refer to Note 5 to the combined and consolidated financial statements). The provision for loan losses for the year ended December 31, 2023 resulted primarily from the sale of a non-performing loan, which was partially offset by a reversal of loss allowances on loans that repaid in full during 2023.

Previous wording

Unrealized and realized gains (losses) on equity investments—Unrealized and realized loss on equity investments represents the unrealized loss on our Safe Shares. Subsequent to the Spin-Off, we account for our Safe Shares as an equity investment under ASC 321, which requires that we adjust our investment in the Safe Shares to fair value through income at each reporting period. The unrealized loss represents the difference between the fair value of our investment in the Safe Shares as of December 31, 2023 and iStar’s historical carrying amount of the Safe Shares at the time of the Spin-Off.

Current wording

Unrealized gains (losses) on equity investments—Unrealized gain (loss) on equity investments represents the unrealized gain or loss on our Safe Shares. Subsequent to the Spin-Off, we account for our Safe Shares as an equity investment under ASC 321, which requires that we adjust our investment in the Safe Shares to fair value through income at each reporting period. The unrealized loss for the year ended December 31, 2024 represents the difference between the fair value of our investment in the Safe Shares as of December 31, 2024 and December 31, 2023. The unrealized loss for the year ended December 31, 2023 represents the difference between the fair value of our investment in the Safe Shares as of December 31, 2023 and iStar’s historical carrying amount of the Safe Shares at the time of the Spin-Off.

Previous wording

Income from sales of real estate—Duringthe year ended December 31, 2022, we recorded $25.2 million of income from sales of real estate from the sale of an operating property.

Current wording

Income from sales of real estate—During the year ended December 31, 2024, we sold residential condominiums and recognized income from sales of real estate of $3.7 million.

Previous wording

Earnings from equity method investments—Earnings from equity method investments decreased to $30.8 million in 2023 from $45.6 million in 2022. In 2023, we recognized $1.1 million of income from our historical equity method investment in Safe and $29.7 million of net aggregate income from our remaining equity method investments due to asset sales at the ventures. In 2022, we recognized $33.3 million of income from our equity method investment in Safe, $11.5 million primarily from the sale of a multifamily property at one of our venturers, $5.0 million primarily from the settlement of our interest in a venture and $4.2 million of net aggregate losses from our remaining equity method investments.

Current wording

Earnings from equity method investments—Earnings from equity method investments was $30.8 million in 2023. In 2023, we recognized $1.1 million of income from our historical equity method investment in Safe and $29.7 million of net aggregate income from our remaining equity method investments due to asset sales at the ventures.

Previous wording

Liquidity is a measure of our ability to meet potential cash requirements, including to pay interest and repay borrowings, develop our assets and maintain our operations, make distributions to our shareholders and meet other general business needs. We are a recently formed company and, as a result, we have not paid any dividends. We do not expect to pay regular dividends. We intend to make distributions of available cash from time to time, primarily dependent upon our ability to sell assets and the prices at which we sell our assets.

Current wording

Liquidity is a measure of our ability to meet potential cash requirements, including to pay interest and repay borrowings, develop our assets and maintain our operations, make distributions to our shareholders and meet other general business needs. We were formed in 2023 and we have not paid any dividends. We do not expect to pay regular dividends. We intend to make distributions of available cash from time to time, primarily dependent upon our ability to sell assets and the prices at which we sell our assets.

Previous wording

We expect to meet our short-term liquidity requirements through any cash flows from operations, proceeds from asset sales, borrowings on the incremental facility under the Safe Credit Facility and our unrestricted cash. We expect to meet our long-term liquidity requirements through any cash flows from operations and proceeds from asset sales.

Current wording

We expect to meet our short-term liquidity requirements through any cash flows from operations, proceeds from asset sales, borrowings on the incremental facility under the Safe Credit Facility and our unrestricted cash. We expect to meet our long-term liquidity requirements through any cash flows from operations and proceeds from asset sales and possibly through refinancing maturing debt.

Previous wording

Our future cash sources will be largely dependent on proceeds from asset sales. The amount and timing of asset sales, including the sale of Safe Shares, could be adversely affected by a number of factors, some of which are outside of our control, including the macroeconomic factors discussed below. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions. The uncertainty related to macroeconomic factors such as inflation, interest rate increases, market volatility, disruptions in the banking sector and the availability of financing, and the effects of these factors on the economy generally and on the commercial real estate markets in which we operate, make it impossible for us to predict or to quantify the impact of these or other trends on our financial results or liquidity.

Current wording

Our future cash sources will be largely dependent on proceeds from asset sales. The amount and timing of asset sales, including the sale of Safe Shares, could be adversely affected by a number of factors, some of which are outside of our control, including the macroeconomic factors discussed below. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions. The uncertainty related to macroeconomic factors such as inflation, interest rate increases, market volatility, disruptions in the banking sector, tariff policy, geopolitical uncertainty and the availability of financing, and the effects of these factors on the economy generally and on the commercial real estate markets in which we operate, make it impossible for us to predict or to quantify the impact of these or other trends on our financial results or liquidity.

Previous wording

The decrease in cash flows used in operating activities during 2023 was due primarily to the timing of payments on accrued expenses, which was partially offset by a decrease in distributions from equity method investments. The decrease in cash flows provided by investing activities during 2023 was due primarily to a decrease in proceeds from the repayment and sales of loans receivable and a decrease in proceeds from the sale of real estate assets, which was partially offset by an increase in distributions from other investments, an increase from cash acquired from the consolidation of a venture (refer to Note 5 to the consolidated financial statements) and a decrease in contributions to other investments. The decrease in cash flows used in financing activities during 2023 was due primarily to borrowings from debt obligations in 2023, which was partially offset by greater distributions to iStar in 2023 from asset liquidations and an increase in the repayment of debt obligations.

Current wording

The increase in cash flows used in operating activities during 2024 was due primarily to a decrease in distributions from other investments. The decrease in cash flows provided by investing activities during 2024 was due primarily to a decrease in proceeds from the repayment and sale of loans receivable, a decrease in distributions from other investments and a decrease in proceeds from the sale of land and development assets. Cash flows provided by financing activities during 2024 represents borrowings from a construction loan and cash flows used in financing activities during 2023 was due primarily to distributions to iStar in 2023 prior to the Spin-Off, which was partially offset by net borrowings from debt obligations in 2023.

Previous wording

The Safe Credit Facility requires that we comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, indebtedness, liens, investments, mergers, asset sales and the payment of certain dividends. Additionally, the Safe Credit Facility includes customary representations and warranties as well as customary events of default, the occurrence of which, following any applicable grace period, would permit Safe to, among other things, declare the principal, accrued interest and other obligations of ours under the Safe Credit Facility to be immediately due and payable and foreclose on the collateral securing the Safe Credit Facility. In October 2023, we entered into an

Current wording

The Safe Credit Facility requires that we comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, indebtedness, liens, investments, mergers, asset sales and the payment of certain dividends. Additionally, the Safe Credit Facility includes customary representations and warranties as well as customary events of default, the occurrence of which, following any applicable grace period, would permit Safe to, among other things, declare the principal, accrued interest and other obligations of ours under the Safe Credit Facility to be immediately due and payable and foreclose on the collateral securing the Safe Credit Facility. In October 2023, we entered into an amendment to the Safe Credit Facility primarily to enable us to access the $25.0 million incremental facility to replenish funds that we use to make voluntary prepayments under the Margin Loan Facility.

Previous wording

A subsidiary of ours provided a completion and carry guaranty on the Loan (refer to Note 9 to the combined and consolidated financial statements) and is required to maintain a minimum net worth and a minimum liquidity amount both prior to and after the completion of the Project while the Loan is outstanding.

Current wording

A subsidiary of ours provided a completion and carry guaranty on the Loan (refer to Note 9 to the combined and consolidated financial statements) and is required to maintain a minimum net worth and a minimum liquidity amount both

Previous wording

Upon the adoption of ASU 2016-13 on January 1, 2020, we implemented procedures to estimate our expected loss (“Expected Loss”) on our loans (including unfunded loan commitments) and held-to-maturity debt securities based on relevant information including historical realized loss rates, current market conditions and reasonable and supportable forecasts that affect the collectability of our investments. The estimate of our Expected Loss requires significant judgment and we analyze our loan portfolio based upon our different categories of financial assets, which includes: (i) loans and held-to-maturity debt securities and (ii) construction loans.

Current wording

We have procedures to estimate our expected loss (“Expected Loss”) on our loans (including unfunded loan commitments) and held-to-maturity debt securities based on relevant information including historical realized loss rates, current market conditions and reasonable and supportable forecasts that affect the collectability of our investments. The estimate of our Expected Loss requires significant judgment and we analyze our loan portfolio based upon our different categories of financial assets, which includes: (i) loans and held-to-maturity debt securities and (ii) construction loans.

Previous wording

We consider a loan to be non-performing and place it on non-accrual status at such time as: (1) interest payments become 90 days delinquent; (2) it has a maturity default; or (3) management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. Non-accrual loans are returned to accrual status when they have become contractually current and management believes all amounts contractually owed will be received. We will record a specific allowance on a non-performing loan if we determine that the collateral fair value less costs to sell is less than the carrying value of the collateral-dependent asset. The specific allowance is increased (decreased) through “Provision for (recovery of) loan losses” in our combined and consolidated statements of operations and is decreased by charge-offs. During delinquency and the foreclosure process, there are typically numerous points of negotiation with the borrower or tenant as we work toward a settlement or other alternative resolution, which can impact the potential for repayment or receipt of collateral. Our policy is to charge off a loan when we determine, based on a variety of factors, that all commercially reasonable means of recovering the loan balance have been exhausted. This may occur at different times, including when we receive cash or other assets in a pre-foreclosure sale or take control of the underlying collateral in full satisfaction of the loan upon foreclosure or deed-in-lieu, or when we have otherwise ceased significant collection efforts. We consider circumstances such as the foregoing to be indicators that the final steps in the loan collection process have

Current wording

We consider a loan to be non-performing and place it on non-accrual status at such time as: (1) interest payments become 90 days delinquent; (2) it has a maturity default; or (3) management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. Non-accrual loans are returned to accrual status when they have become contractually current and management believes all amounts contractually owed will be received. We will record a specific allowance on a non-performing loan if we determine that the collateral fair value less costs to sell is less than the carrying value of the collateral-dependent asset. The specific allowance is increased (decreased) through “Provision for (recovery of) loan losses” in our combined and consolidated statements of operations and is decreased by charge-offs. During delinquency and the foreclosure process, there are typically numerous points of negotiation with the borrower or tenant as we work toward a settlement or other alternative resolution, which can impact the potential for repayment or receipt of collateral. Our policy is to charge off a loan when we determine, based on a variety of factors, that all commercially reasonable means of recovering the loan balance have been exhausted. This may occur at different times, including when we receive cash or other assets in a pre-foreclosure sale or take control of the underlying collateral in full satisfaction of the loan upon foreclosure or deed-in-lieu, or when we have otherwise ceased significant collection efforts. We consider circumstances such as the foregoing to be indicators that the final steps in the loan collection process have occurred and that a loan is uncollectible. At this point, a loss is confirmed and the loan and related allowance will be charged off.

Previous wording

The provision for (recovery of) loan losses for the years ended December 31, 2023, 2022 and 2021 were $1.7 million, $45.0 million and $(8.1) million, respectively.

Current wording

The provision for (recovery of) loan losses for the years ended December 31, 2024, 2023 and 2022 were $0.6 million, $1.7 million and $45.0 million, respectively.

Previous wording

Real estate assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less costs to sell and are included in "Real estate available and held for sale" on our combined and consolidated balance sheets. The difference between the estimated fair value less costs to sell and the carrying value will be recorded as an impairment charge. Once the asset is classified as held for sale, depreciation expense is no longer recorded.

Current wording

Real estate assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less costs to sell and are included in "Real estate available and held for sale" on our consolidated balance sheets. The difference between the estimated fair value less costs to sell and the carrying value will be recorded as an impairment charge. Once the asset is classified as held for sale, depreciation expense is no longer recorded. We classify our real estate assets as held for sale in the period in which all of the following conditions are met: (i) we commit to a plan and have the authority to sell the asset; (ii) the asset is available for sale in its current condition; (iii) we have initiated an active marketing plan to locate a buyer for the asset; (iv) the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months; (v) the asset is being actively marketed for sale at a price that is reflective of its current fair value; and (vi) we do not anticipate changes to its plan to sell the asset. Assets held for sale may qualify as a discontinued operation if certain conditions exist.

Previous wording

We did not record any impairments during the year ended December 31, 2023. During the year ended December 31, 2022, we recognized an impairment of $12.7 million on a land property and a $1.8 million impairment on an operating property. During the year ended December 31, 2021, we recorded an impairment of $0.7 million in connection with the sale of residential condominiums.

Current wording

We did not record any impairments during the years ended December 31, 2024 and 2023. During the year ended December 31, 2022, we recognized an impairment of $12.7 million on a land property and a $1.8 million impairment on an operating property.