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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-24 · 305 added, 414 removed, 212 unchanged (77% of the section changed)

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Executive Overview

Our activities in 2019 primarily focused on improving our credit profile, seeking to simplify our business and scaling our Ground Lease platform.

Improved Credit Profile:

In 2019, we refinanced or repaid an aggregate $1.5 billion of indebtedness, primarily using net proceeds from issuances of $1.325 billion in aggregate principal amount of new unsecured notes in capital markets transactions and proceeds from asset sales.

In addition, a purchaser of a portfolio of net lease assets assumed $228.0 million of indebtedness collateralized by those assets (refer to Note 4).

Through these transactions we reduced our interest costs and improved our debt maturity.

We have no corporate debt maturities through September 2022.

We also enhanced our equity base with the issuance of approximately 16.5 million shares of common stock upon conversions of our Series J preferred stock by the holders thereof.

Our efforts to improve our credit profile have resulted in one or more ratings upgrades from each of the three principal national ratings agencies since the third quarter of 2017.

Simplifying Our Business:

During 2019, we further reduced the size of our legacy asset portfolio by 10% based on gross book value.

As of December 31, 2019, the aggregate gross book value of our legacy asset portfolio was $901 million .

We intend to continue to reduce the size of the legacy portfolio.

We have used the net proceeds from these sales to make additional investments in our Ground Lease business, to pay down debt and for other working capital purposes and we expect these trends to continue.

Scaling Our Ground Lease Business:

In early 2019, we announced that we would focus our new business activities on scaling our Ground Lease business.

In January 2019, we made an additional $250.0 million equity investment in SAFE at a price of $20.00 per share, amended and restated our management agreement with SAFE and entered into certain governance arrangements with SAFE.

Since that January 2019 transaction, we participated alongside public investors in two equity offerings by SAFE in which we invested an aggregate $298.0 million .

SAFE invested the net proceeds of these equity offerings in additional Ground Leases and increased its portfolio from $947 million as of December 31, 2018 to $2.7 billion as of December 31, 2019.

As of December 31, 2019, we owned 65.2% of SAFE's outstanding common stock and the market value of our shares of SAFE was $1.3 billion .

We believe that our Ground Lease strategy is consistent with our history of innovation in the commercial real estate finance and net lease sectors.

In addition to the activities described above, we also saw opportunities in the net lease sector.

In July 2018, we entered into Net Lease Venture II with total capital commitments of $526 million and an investment strategy similar to the Net Lease Venture.

We have an equity interest in the new venture of approximately 51.9% and are responsible for managing the venture in exchange for management and incentive fees.

Through December 31, 2019 , we have made contributions of $42 million to Net Lease Venture II, which acquired approximately $122 million of investments.

For the year ended December 31, 2019 , we recorded net income allocable to common shareholders of $291.5 million , compared to a net loss of $64.8 million during the prior year.

Adjusted income allocable to common shareholders for the year ended December 31, 2019 was $291.3 million , compared to $143.1 million during the prior year (see "Adjusted Income" for a reconciliation of adjusted income to net income).

Our portfolio is well diversified by business, property type and geography.

Our portfolio includes investments in the entertainment/leisure (20.7% of gross book value) and hotel (5.7% of gross book value) sectors, which have been particularly stressed by the coronavirus (COVID-19) pandemic.

We collected 99% of the rent due from our net lease tenants during the fourth quarter (excluding one net lease tenant with whom we entered into lease modifications in the second and third quarter 2020 - refer to Note 5), 89% of the interest payments due in our real estate finance portfolio and 85% of the rent due in our operating properties portfolio.

SAFE reported that it received 100% of the ground rent due under its leases for the year ended December 31, 2020.

We may continue to experience disruptions and collections of rent and interest payments until more normalized business conditions resume.

In 2020, we increased our general allowance for loan losses and we may continue to do so in the future while the COVID-19 pandemic continues to materially affect the U.S.

The COVID-19 pandemic has adversely affected our strategies of monetizing legacy assets and materially scaling SAFE's portfolio in 2020, primarily because of reduced levels of real estate transactions and constrained conditions for equity and debt financing for real estate transactions.

In addition, the pandemic has made it more difficult to execute transactions as people work from home and are reluctant to visit properties, local governmental offices have reduced operations and third parties such as survey, insurance, environmental and similar services have more limited capacities.

These conditions will adversely affect our strategy while they persist.

At this time, we cannot predict the full extent of the impacts of the COVID-19 pandemic on our or SAFE's business.

See the Risk Factors section of this report for additional discussion of certain potential risks to our business arising from the COVID-19 pandemic.

For the year ended December 31, 2020, we recorded a net loss allocable to common shareholders of $65.9 million, compared to net income of $291.5 million during the prior year.

Adjusted earnings allocable to common shareholders for the year ended December 31, 2020 was $40.8 million, compared to $388.0 million during the prior year (see "Adjusted Earnings" for a reconciliation of adjusted earnings to net income).

As of December 31, 2020, we had $99 million of cash and $350 million of credit facility availability.

In August 2020, we took advantage of favorable interest rate and liquidity conditions to refinance debt through the issuance of $400 million of unsecured notes due February 2026.

Proceeds from the issuance were used to repay unsecured notes due September 2022.

We have no corporate debt maturities through September 2022 (refer to Note 11).

We have no corporate debt maturities through September 2022 and expect to use our unrestricted cash balance primarily to fund future investment activities and for general working capital needs.

Portfolio Overview

As of December 31, 2019 , based on our gross book value, including the carrying value of our equity method investments exclusive of accumulated depreciation, our total investment portfolio has the following characteristics:

As of December 31, 2019 , based on carrying values exclusive of accumulated depreciation and general loan loss reserves, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):

Property/Collateral Types

Real Estate Finance

Operating Properties

Land & Development

Office / Industrial

As of December 31, 2020, based on gross book value, our total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):

Property/Collateral Types Net

Lease Real Estate

Finance Operating Properties Land & Development Corporate Total % of

Office $ 937,362 $ 51,629 $ 28 $ — $ — $ 989,019 20.8 %

Entertainment / Leisure 967,886 — 16,188 — — 984,074 20.7 %

Ground Leases 962,386 — — — — 962,386 20.2 %

Industrial 284,084 — 97,663 — 62,961 444,708 9.3 %

Land and Development — 69,952 — 352,368 — 422,320 8.9 %

Mixed Use / Mixed Collateral

Condominium — 159,033 18,355 111,762 — 289,150 6.1 %

Hotel — 187,802 82,997 — — 270,799 5.7 %

Multifamily — 148,031 58,878 — — 206,909 4.3 %

Retail 57,348 56,488 34,877 8,271 — 156,984 3.3 %

Other Property Types — 25,274 — — 6,949 32,223 0.7 %

Strategic Investments

Geographic Region

Real Estate Finance

Operating Properties

Land & Development

Strategic Investments

Total $ 3,209,066 $ 698,209 $ 308,986 $ 472,401 $ 69,910 $ 4,758,572 100.0 %

Percentage of Total 68 % 15 % 6 % 10 % 1 % 100 %

Geographic Region Net

Lease Real Estate

Finance Operating Properties Land & Development Corporate Total % of

Northeast $ 911,690 $ 280,925 $ 93,612 $ 275,859 $ — $ 1,562,086 32.8 %

West 497,171 224,434 56,392 42,286 — 820,283 17.2 %

Mid-Atlantic 561,218 — 6,133 107,275 — 674,626 14.2 %

Central 429,024 73,600 44,749 31,500 — 578,873 12.2 %

Southwest 406,753 — 97,690 8,562 — 513,005 10.8 %

Southeast 393,780 28,535 10,410 6,919 — 439,644 9.2 %

Various 9,430 90,715 — — 69,910 170,055 3.6 %

Total $ 3,209,066 $ 698,209 $ 308,986 $ 472,401 $ 69,910 $ 4,758,572 100.0 %

_______________________________________________________________________________

(1) For net lease, operating properties and land and development, gross book value is defined as the basis assigned to physical real estate property (land and building), net of any impairments taken after acquisition date and net of basis reductions associated with unit/parcel sales, plus our basis in equity method investments, plus lease related intangibles, capitalized leasing costs and excluding accumulated depreciation and amortization, and for equity method investments, excluding the effect of our share of accumulated depreciation and amortization.

For real estate finance, gross book value is defined as principal funded including any deferred capitalized interest receivable, plus protective advances, exit fee receivables and any unamortized origination/modification costs, less purchase discounts and specific allowances.

This amount is not reduced for CECL allowances.

Our net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on our properties.

We target mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combine our capabilities in underwriting, lease structuring, asset management and build-to-suit construction.

Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis.

Under a typical net lease agreement, the tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including taxes, utilities, maintenance and insurance).

We generally intend to hold net lease assets for long-term investment.

However, we may dispose of assets if we deem the disposition to be in our best interests.

The net lease segment includes our Ground Lease investments made primarily through SAFE and our traditional net lease investments.

SAFE —SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted returns.

We believe its business has characteristics comparable to a high-grade fixed income investment business,

but with certain unique advantages.

Relative to alternative fixed income investments generally, SAFE's Ground Leases typically benefit from built-in growth derived from contractual base rent increases and the opportunity to realize value from SAFE's right to regain possession of the buildings and other improvements on its land upon expiration or earlier termination of the lease at no additional cost.

We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments.

As of December 31, 2020, we owned approximately 65.4% of SAFE's common stock outstanding, subject to voting limitations described below.

We account for our investment in SAFE as an equity method investment (refer to Note 8).

We act as SAFE's external manager pursuant to a management agreement.

The management agreement generally provides for a base management fee that ranges from a minimum of 1.0% to a maximum of 1.5% as SAFE's Total Equity (as defined in the agreement) increases.

The management fee is payable in cash or in shares of SAFE common stock at SAFE's election (as determined by SAFE's independent directors).

The initial term of the management agreement ends on June 30, 2023 during which the agreement is non-terminable, except for certain cause events.

After the initial term, the agreement will be automatically renewed for additional one year terms, subject to certain rights of SAFE's independent directors to terminate the agreement based on the manager's materially detrimental long-term performance or, beginning with the seventh annual renewal term after the initial term, unfair management fees that the manager declines to renegotiate.

SAFE will be obligated to pay the manager a termination fee equal to three times the annual management fee paid in respect of the last completed fiscal year prior to the termination.

We are party to an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.

We are also party to a stockholders agreement with SAFE that:

• limits our discretionary voting power to 41.9% of the outstanding voting power of SAFE's Common Stock until our aggregate ownership of SAFE common stock is less than 41.9%;

• subjects us to certain standstill provisions;

• provides us certain preemptive rights.

The complete management agreement, exclusivity agreement and stockholder's agreement between SAFE and us, as amended, are incorporated by reference as exhibits to this Annual Report on Form 10-K.

Net Lease Venture —In February 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and gave a right of first refusal to the venture on all new net lease investments that met specified investment criteria.

The Net Lease Venture's investment period expired on June 30, 2018 and the remaining term of the venture extends through February 13, 2022, subject to two, one-year extension options at the discretion of us and our partner.

We obtained control over the Net Lease Venture when the investment period expired on June 30, 2018 and consolidated the assets and liabilities of the venture, which had previously been accounted for as an equity method investment.

Net Lease Venture II —In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture.

The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us.

We have an equity interest in the venture of approximately 51.9%, which is accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee.

The Net Lease Venture II's investment period expires on June 30, 2021.

As of December 31, 2020, our consolidated net lease portfolio totaled $2.2 billion.

Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II, exclusive of accumulated depreciation, totaled $3.2 billion.

The table below provides certain statistics for our net lease portfolio.

Wholly-Owned Net Lease

Venture I Consolidated

Real Estate (1)

Venture II SAFE

Ownership % 100.0 % 51.9 % — 51.9 % 65.4 %

Gross book value (millions) (2)

$ 1,255 $ 907 $ 2,162 $ 323 $ 3,201

% Leased 99.0 % 100.0 % 99.3 % 100.0 % 100.0 %

Square feet (thousands) 9,998 5,749 15,747 3,302 N/A

Weighted average lease term (years) (3)

14.9 16.3 15.5 12.9 88.8

Weighted average yield (4)

7.9 % 7.9 % 7.9 % 9.0 % 4.7 %

_______________________________________________________________________________

(1) We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements (refer to Note 4).

(2) Consolidated Real Estate includes amounts recorded as net investment in leases (refer to Note 5) and financing receivables in loans and other lending investments (refer to Note 7).

SAFE includes its 54.8% pro rata share of its unconsolidated equity method investment.

(3) Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options.

SAFE includes its 54.8% pro rata share of its unconsolidated equity method investment.

(4) Yield represents the yield for the fourth quarter 2020.

Yield for SAFE is calculated over the trailing twelve months and excludes management fees earned by us.

Portfolio Activity —During the year ended December 31, 2020, we sold net lease assets with an aggregate carrying value of $38.4 million and recognized gains of $6.1 million in "Income from sales of real estate" in our consolidated statements of operations.

In addition, we also recorded $2.0 million of aggregate impairments in connection with the sale of net lease assets, recorded an initial allowance for losses on net investment in leases of $9.1 million upon the adoption of ASU 2016-13 on January 1, 2020 (refer to Note 3) and recorded a provision for losses on net investment in leases of $1.8 million resulting primarily from the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets.

During the year ended December 31, 2020, we invested approximately $176.3 million in SAFE common stock through a series of private placements and open market transactions and received $21.0 million in distributions from SAFE.

Also during the year ended December 31, 2020, we made contributions of $73.3 million to and received distributions of $27.6 million from Net Lease Venture II.

Summary of Lease Expirations —As of December 31, 2020, future lease expirations on our net lease assets, excluding our equity method investments in SAFE and Net Lease Venture II, are as follows ($ in thousands):

Year of Lease Expiration Number of

Expiring Annualized In-Place

Lease Income and Interest Income from

Sales-type Leases % of Annualized

Lease Income and Interest Income from Sales-type Leases % of Total

Square Feet of Leases Expiring (in thousands)

2021 2 $ 4,087 2.3 % 0.7 % 133

2022 1 7,204 4.0 % 1.2 % 484

2023 2 3,954 2.2 % 0.7 % 29

2024 2 5,747 3.2 % 1.0 % 235

2025 1 7,383 4.1 % 1.3 % 410

2026 5 10,608 5.9 % 1.8 % 640

2027 1 622 0.3 % 0.1 % 153

2028 3 1,948 1.1 % 0.3 % 189

2029 — — — % — % —

2030 1 2,212 1.2 % 0.4 % 591

2031 and thereafter 18 136,625 75.7 % 23.4 % 12,883

Total 36 $ 180,390 100.0 % 30.9 % 15,747

Weighted average remaining lease term (in years) (2)

_______________________________________________________________________________

(1) Reflects the percentage of annualized operating lease income and interest income from sales-type leases for leases in-place as a percentage of annualized total revenue.

(2) Represents the initial maturity and does not include extension options.

Real Estate Finance

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As of December 31,

Total % of Total Total % of Total

Performing loans:

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Subordinate mortgages 11,640 1.6 % 10,876 1.3 %

Subtotal 529,657 71.0 % 665,459 77.7 %

Non-performing loans:

Senior mortgages 53,305 7.2 % 37,820 4.4 %

Subtotal 53,305 7.2 % 37,820 4.4 %

Total carrying value of loans 582,962 78.2 % 703,279 82.1 %

1 unchanged sentence

Total carrying value 745,500 100.0 % 856,495 100.0 %

General reserve for loan losses

Allowance for loan losses (13,170) (28,634)

Total loans receivable and other lending investments, net $ 732,330 $ 827,861

_______________________________________________________________________________

Non-performing loans are presented net of asset-specific loan loss reserves of $21.7 million and $40.4 million , respectively, as of December 31, 2019 and 2018 .

As of December 31, 2019 , includes a $44.3 million financing receivable related to the acquisition of bowling centers from one of our lessees (refer to Note 5).

Portfolio Activity —During the year ended December 31, 2019 , the Company invested $266.9 million (including capitalized deferred interest and excluding seller financing originations) in its real estate finance portfolio and received repayments and proceeds from sales of $457.3 million (including the receipt of previously capitalized deferred interest).

We also charged-off $19.2 million from the specific reserve due to the resolution of a non-performing loan and $12.0 million due to the deterioration of the collateral on a separate non-performing loan.

Portfolio Activity —During the year ended December 31, 2020, the Company invested $138.8 million (including capitalized deferred interest) in its real estate finance portfolio and received repayments and proceeds from sales of $243.2 million (including the receipt of previously capitalized deferred interest).

Summary of Interest Rate Characteristics —Our loans receivable and other lending investments had the following interest rate characteristics ($ in thousands):

As of December 31,

of Total Weighted

Accrual Rate Carrying

of Total Weighted

Fixed-rate loans and other lending investments $ 239,843 32.1 % 7.0 % $ 207,422 24.2 % 7.2 %

Variable-rate loans (1)

Non-performing loans (2)

452,352 60.7 % 5.6 % 611,253 71.4 % 6.2 %

Non-performing loans 53,305 7.2 % N/A 37,820 4.4 % N/A

Total carrying value 745,500 100.0 % 856,495 100.0 %

General reserve for loan losses

Allowance for loan losses (13,170) (28,634)

Total loans receivable and other lending investments, net $ 732,330 $ 827,861

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(1) As of December 31, 2020 and 2019, includes $288.3 million and $400.4 million, respectively, of loans with a weighted average LIBOR floor of 1.7% and 1.3%, respectively.

Non-performing loans are presented net of asset-specific loan loss reserves of $21.7 million and $40.4 million , respectively, as of December 31, 2019 and 2018 .

Summary of Maturities —As of December 31, 2020, our loans receivable and other lending investments had the following maturities ($ in thousands):

Year of Maturity (1)

Year of Maturity Number of

Maturing Carrying

2021 13 $ 493,977 66.2 %

2023 2 110,830 14.9 %

2024 1 3,925 0.5 %

2026 and thereafter 2 36,914 5.0 %

Total performing loans and other securities (1)

18 $ 645,646 86.6 %

Other lending investments 1 46,549 6.2 %

1 unchanged sentence

Total carrying value 20 $ 745,500 100.0 %

General reserve for loan losses

General allowance for loan losses (13,170)

Total loans receivable and other lending investments, net $ 732,330

_______________________________________________________________________________

Year of maturity represents the initial maturity and does not include any extension options.

As of December 31, 2019 , our real estate finance portfolio had a weighted average remaining term, exclusive of any borrower extension options, of 2.3 years .

Non-performing loans are presented net of asset-specific loan loss reserves of $21.7 million .

The tables below summarize our loan portfolio, excluding securities and other lending investments, and the reserves for loan losses associated with our loan portfolio ($ in thousands):

(1) Year of maturity for our performing loans and other securities represents the initial maturity and does not include any extension options.

As of December 31, 2020, our performing loans and other securities had a weighted average remaining term, exclusive of any borrower extension options, of 2.3 years.

The tables below summarize our loan portfolio, excluding securities and other lending investments, and the allowances for loan losses associated with our loan portfolio ($ in thousands):

December 31, 2020

Gross Carrying Value

Reserve for Loan Losses

Carrying Value

Reserve for Loan Losses as a % of Gross Carrying Value

Number Gross Carrying Value Allowance for Loan Losses Carrying Value % of Total Allowance for Loan Losses as a % of Gross Carrying Value

Performing loans 16 $ 529,657 $ (8,184) $ 521,473 71.2% 1.5%

Non-performing loans 1 53,305 (742) 52,563 7.2% 1.4%

Other lending investments 3 162,538 (4,244) 158,294 21.6% 2.6%

Total 20 $ 745,500 $ (13,170) $ 732,330 100.0% 1.8%

December 31, 2019

Gross Carrying Value

Reserve for Loan Losses

Carrying Value

Reserve for Loan Losses as a % of Gross Carrying Value

Number Gross Carrying Value Allowance for Loan Losses Carrying Value % of Total Allowance for Loan Losses as a % of Gross Carrying Value

Performing loans 22 $ 665,459 $ (6,933) $ 658,526 79.6% 1.0%

Non-performing loans 1 37,820 (21,701) 16,119 1.9% 57.4%

Performing Loans —The table below summarizes our performing loans gross of reserves ($ in thousands):

December 31, 2019

December 31, 2018

Other lending investments 3 153,216 — 153,216 18.5% —%

Total 26 $ 856,495 $ (28,634) $ 827,861 100.0% 3.3%

Performing Loans —The table below summarizes our performing loans gross of allowances ($ in thousands):

December 31, 2020 December 31, 2019

Senior mortgages $ 432,350 $ 534,765

1 unchanged sentence

Subordinate mortgages 11,640 10,877

Total $ 529,657 $ 665,460

Weighted average LTV 57 % 56 %

Yield - year to date 7.7 % 8.8 %

Non-Performing Loans —We designate loans as non-performing at such time as:

(1) the loan becomes 90 days delinquent;

(1) interest payments become 90 days delinquent;

(2) the loan has a maturity default;

1 unchanged sentence

All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.

As of December 31, 2019 , we had one non-performing loan with a carrying value of $16.1 million compared to non-performing loans with an aggregate carrying value of $26.3 million as of December 31, 2018 .

As of December 31, 2020, we had one non-performing loan with a carrying value of $52.6 million compared to one non-performing loan with a carrying value of $16.1 million as of December 31, 2019.

We expect that our level of non-performing loans will fluctuate from period to period.

Reserve for Loan Losses —The reserve for loan losses was $28.6 million as of December 31, 2019 , or 4.1% of total loans, compared to $53.4 million or 5.8% as of December 31, 2018 .

For the year ended December 31, 2019 , the provision for loan losses included a $12.5 million provision resulting primarily from the deterioration of the collateral for one of our loans, partially offset by a $6.0 million decrease in the general reserve.

We expect that our level of reserve for loan losses will fluctuate from period to period.

Due to the volatility of the commercial real estate market, the process of estimating collateral values and reserves requires the use of significant judgment.

We currently believe there is adequate collateral and reserves to support the carrying values of the loans.

The reserve for loan losses includes an asset-specific component and a formula-based component.

An asset-specific reserve is established for an impaired loan when the estimated fair value of the loan's collateral less costs to sell is lower than the carrying value of the loan.

As of December 31, 2019 , asset-specific reserves decreased to $21.7 million compared to $40.4 million as of December 31, 2018 .

The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of performing loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment.

During this assessment, we perform a comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management's current judgments and future expectations about their credit quality

based on all known and relevant factors that may affect collectability.

We consider, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors.

This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss.

We estimate loss rates based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience.

The general reserve decreased to $6.9 million or 1.0% of performing loans as of December 31, 2019 , compared to $13.0 million or 1.5% of performing loans as of December 31, 2018 .

The decrease was primarily attributable to a decrease in the size of our loan portfolio and an overall improvement in the risk ratings of our loan portfolio.

Our net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on our properties.

Leases typically provide for expenses at the facility to be paid by the tenant on a triple net lease basis.

We generally intend to hold net lease assets for long-term investment.

However, we may dispose of assets if we deem the disposition to be in our best interests.

The net lease segment includes our Ground Lease investments, made primarily through SAFE, and our traditional net lease investments.

SAFE —SAFE is a publicly-traded company that originates and acquires Ground Leases in order to generate attractive long-term risk-adjusted returns.

We believe its business has characteristics comparable to a high-grade fixed income investment business, but with certain unique advantages.

Relative to alternative fixed income investments generally, SAFE's Ground Leases typically benefit from built-in growth derived from contractual rent increases, and the opportunity to realize value from residual rights to acquire the buildings and other improvements on its land at no additional cost.

We believe that these features offer us the opportunity through our ownership in SAFE to realize superior risk-adjusted total returns when compared to certain alternative highly-rated investments.

As of December 31, 2019 , we owned approximately 65.2% of SAFE's common stock outstanding.

We account for our investment in SAFE as an equity method investment (refer to Note 8).

We act as SAFE's external manager pursuant to a management agreement.

The management agreement generally provides for a base management fee that ranges from a minimum of 1.0% to a maximum of 1.5% as SAFE's Total Equity (as defined in the agreement) increases.

The management fee is payable in cash or at SAFE's election (as determined by SAFE's independent directors), SAFE common stock.

The initial term of the management agreement ends on June 30, 2023 during which the agreement is non-terminable, except for certain cause events.

SAFE will be obligated to pay the manager a termination fee equal to three times the annual management fee paid in respect of the last completed fiscal year prior to the termination.

We are also party to a stockholders agreement with SAFE that:

limits our discretionary voting power to 41.9% of the outstanding voting power of SAFE's Common Stock until our aggregate ownership of SAFE common stock is less than 41.9%;

requires us to cast all of our voting power in favor of three director nominees to SAFE's board who are independent of each of us and SAFE for three years;

subjects us to certain standstill provisions for two years;

restricts our ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one year after their issuance;

prohibits us from transferring shares of SAFE common stock representing more than 20% of the outstanding SAFE common stock in one transaction or a series of related transactions to any person or group, other than

pursuant to a widely distributed public offering, unless SAFE's other stockholders have participation rights in the transaction;

provides us certain preemptive rights.

Net Lease Venture II —In July 2018, we entered into Net Lease Venture II with similar investment strategies as the Net Lease Venture (refer to Note 8).

The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by us.

We have an equity interest in the new venture of approximately 51.9% , which is accounted for as an equity method investment, and are responsible for managing the venture in exchange for a management fee and incentive fee.

As of December 31, 2019 , our consolidated net lease portfolio totaled $2.2 billion .

Our net lease portfolio, including the carrying value of our equity method investments in SAFE and Net Lease Venture II, exclusive of accumulated depreciation, totaled $2.9 billion .

The table below provides certain statistics for our net lease portfolio.

Real Estate (1)

Gross book value (millions) (2)

Square feet (thousands)

Weighted average lease term (years) (3)

Weighted average yield (4)

_______________________________________________________________________________

(1) We own 51.9% of the Net Lease Venture which is consolidated in our GAAP financial statements (refer to Note 8).

Gross book value represents the acquisition cost of real estate and any additional capital invested into the property by us.

For SAFE, includes its 54.8% pro rata share of its unconsolidated equity method investment.

Weighted average lease term is calculated using GAAP rent and the initial maturity and does not include extension options.

For SAFE, includes its 54.8% pro rata share of its unconsolidated equity method investment.

(4) Yield for SAFE is calculated over the trailing twelve months and excludes management fees earned by us.

Portfolio Activity —During the year ended December 31, 2019 , we invested approximately $583.1 million in SAFE common stock through a series of private placements and open market transactions.

Also during the year ended December 31, 2019 , we acquired three net lease assets for an aggregate $220.3 million, inclusive of closing costs, and made contributions of $25.6 million to Net Lease Venture II.

During the year ended December 31, 2019 , we sold a portfolio of net lease assets with an aggregate carrying value of $220.4 million and recognized gains of $219.7 million in "Income from sales of real estate" in our consolidated statements of operations.

In connection with the sale of this portfolio of assets the buyer assumed a $228.0 million non-recourse mortgage.

Summary of Lease Expirations —As of December 31, 2019 , future lease expirations on our net lease assets, excluding our equity method investments in SAFE and Net Lease Venture II, are as follows ($ in thousands):

Year of Lease Expiration

Annualized In-Place

Lease Income and Interest Income from

Sales-type Leases

% of Annualized

Lease Income and Interest Income from Sales-type Leases

Square Feet of Leases Expiring (in thousands)

2030 and thereafter

Weighted average remaining lease term (in years) (2)

_______________________________________________________________________________

Reflects the percentage of annualized operating lease income and interest income from sales-type leases for leases in-place as a percentage of annualized total revenue.

Represents the initial maturity and does not include extension options.

Allowance for Loan Losses —The allowance for loan losses was $13.2 million as of December 31, 2020, or 1.8% of total loans and other lending investments, compared to $28.6 million or 3.3% as of December 31, 2019.

We expect that our level of allowance for loan losses will fluctuate from period to period.

Due to the volatility of the commercial real estate market, the process of estimating collateral values and allowances requires the use of significant judgment.

We currently believe there is adequate collateral and allowances to support the carrying values of the loans and other lending investments.

The allowance for loan losses includes an asset-specific component and a formula-based component.

An asset-specific allowance is established for an impaired loan when the estimated fair value of the loan's collateral less costs to sell is lower than the carrying value of the loan.

As of December 31, 2020, asset-specific allowances decreased to $0.7 million compared to $21.7 million as of December 31, 2019.

The decrease was due primarily to a $25.9 million charge-off resulting from the sale of a non-performing loan.

We estimate the formula-based component based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market.

In addition, we use third-party market data that includes forecasted economic trends, including unemployment rates.

The general allowance increased to $12.4 million or 1.8% of performing loans and other lending investments as of December 31, 2020, compared to $6.9 million or 1.0% of performing loans as of December 31, 2019.

The increase was due to a $0.7 million general allowance recorded upon the adoption of ASU 2016-13 on January 1, 2020 and an increase in the general allowance of $4.8 million during the year ended December 31, 2020.

Operating Properties

Our operating properties portfolio is comprised of commercial and residential properties, which represent a pool of assets across a broad range of geographies and collateral types including retail, hotel and other properties.

The operating properties are primarily part of our legacy portfolio, and generally represent properties that we acquired in foreclosures of loans on which the borrowers defaulted during the financial crisis.

The Company generally seeks to reposition or redevelop transitional properties with the objective of maximizing their value through the infusion of capital and/or intensive asset management efforts.

Upon stabilization, the Company will generally look to monetize these assets if favorable conditions exist for maximizing value, or if the Company determines that the future prospects of the property indicate that the Company would be better served by disposing of the asset and investing the cash in new assets, paying down debt or otherwise using the cash.

The Company's operating properties portfolio, including equity method investments, included the following ($ in thousands):

As of December 31,

Real estate, at cost

accumulated depreciation

Real estate, net

Real estate available and held for sale

Other investments

Total portfolio assets

As of December 31, 2019 , our operating property portfolio, including the carrying value of our equity method investments, exclusive of accumulated depreciation, totaled $312.4 million .

Portfolio Activity —We have been aggressively monetizing our operating properties and during the year ended December 31, 2019 , we sold commercial and residential operating properties with an aggregate carrying value of $73.1 million and recognized gains of $11.9 million in "Income from sales of real estate" in our consolidated statements of operations.

Our operating properties represent a pool of assets across a broad range of geographies and property types including industrial, hotel, multifamily, retail, condominium, entertainment/leisure and office properties.

As of December 31, 2020, our operating property portfolio, including the carrying value of our equity method investments gross of accumulated depreciation, totaled $309.0 million.

Portfolio Activity —We have been monetizing our operating properties and during the year ended December 31, 2020, we sold commercial and residential operating properties with an aggregate carrying value of $5.7 million and recognized gains of $0.2 million in "Income from sales of real estate" in our consolidated statements of operations.

We also invested $1.6 million in our operating properties and made contributions of $2.8 million to our operating property equity method investments.

As of December 31, 2019 , future lease expirations on commercial properties within the operating properties portfolio, excluding hotels and other investments, were as follows ($ in thousands):

Year of Lease Expiration

Annualized In-Place

% of In-Place

Square Feet of Leases Expiring (in thousands)

2030 and thereafter

Weighted average remaining lease term (in years)

_______________________________________________________________________________

Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.

Includes office leases expiring in commercial properties as well as month-to-month and short term license agreements within our retail properties.

Land and Development

As of December 31, 2020, the Company's land and development portfolio, including equity method investments, includes master planned communities, infill land parcels and waterfront land parcels located throughout the United States.

The Company's land and development portfolio included the following ($ in thousands):

The Company's land and development portfolio included the following, based on net carrying values ($ in thousands):

As of December 31,

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Other investments 31,200 42,866

Total $ 461,863 $ 623,411

Portfolio Activity —During the year ended December 31, 2020, we sold land parcels and residential lots and units and recognized $164.7 million in "Land development revenue" and $177.7 million in "Land development cost of sales" in our consolidated statement of operations.

The following table presents a land and development portfolio rollforward for the year ended December 31, 2019 and certain land and development statistics.

The following table presents a land and development portfolio rollforward for the year ended December 31, 2020.

Land and Development Portfolio Rollforward

(in millions)

Asbury Park Waterfront

Asbury Park Waterfront Magnolia

Beginning balance (1)

$ 234.6 $ 112.9 $ 233.0 $ 580.5

Asset sales (2)

(45.1) (24.1) (103.1) (172.3)

Capital expenditures 11.6 15.1 3.7 30.4

Other — (2.6) (5.3) (7.9)

Ending balance (1)

$ 201.1 $ 101.3 $ 128.3 $ 430.7

(1) As of December 31, 2019 and 2018 , Total Segment excludes $42.9 million and $65.3 million , respectively, of equity method investments.

_______________________________________________________________________

(1) As of December 31, 2020 and 2019, total excludes $31.2 million and $42.9 million, respectively, of equity method investments.

(2) Represents gross book value of the assets sold, rather than proceeds received.

For Asbury Ocean Club and Asbury Park Waterfront, other represents assets transferred to the operating properties segment.

For All Others, includes the acquisition of a land and development asset from an unconsolidated entity in which we owned a noncontrolling 50% equity interest (refer to Note 6).

Following is a description of some of our major land and development projects that we are holding for further development.

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Asbury Ocean Club is a 16-story mixed-use project comprised of 130 residential condominium units, a 54-unit boutique hotel, 24,000 square feet of retail space, a 15,000 square foot spa, 26,000 square feet of outdoor amenity space and 410 structured parking spaces, located at 1101 Ocean Avenue in Asbury Park, New Jersey.

The project was completed in the summer of 2019.

Magnolia Green

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Built on nearly 1,900 acres, Magnolia Green is a community with home designs from the area's top builders.

The community’s amenity package features an 18-hole Jack Nicklaus designed golf course and a full-service golf clubhouse, aquatic center and a new tennis facility completed in 2019.

The community’s amenity package features an 18-hole Jack Nicklaus designed golf course and a full-service golf clubhouse, aquatic center and a tennis facility.

Results of Operations for the Year Ended December 31, 2020 compared to the Year Ended December 31, 2019

For the Years Ended

2020 2019 $ Change

(in thousands)

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Interest income from sales-type leases 33,552 20,496 13,056

Other income 83,857 55,363 28,494

Land development revenue 164,702 119,595 45,107

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Provision for loan losses 9,052 6,482 2,570

Provision for losses on net investment in leases 1,760 — 1,760

Impairment of assets 7,827 13,419 (5,592)

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Loss on early extinguishment of debt, net (12,038) (27,724) 15,686

Earnings (losses) from equity method investments

Earnings from equity method investments 42,126 41,849 277

Selling profit from sales-type leases — 180,416 (180,416)

Gain from consolidation of equity method investment

Income tax benefit (expense)

Income tax expense (235) (438) 203

Net income (loss) $ (30,853) $ 334,325 $ (365,178)

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The following tables summarizes our operating lease income by segment ($ in millions).

2020 2019 Change

Net Lease (1)

$ 167.1 $ 177.7 $ (10.6)

Operating Properties (2)

21.2 28.4 (7.2)

Land and Development 0.4 0.3 0.1

Total $ 188.7 $ 206.4 $ (17.7)

______________________________________________________________

Change primarily due to a $42.6 million increase from the consolidation of the Net Lease Venture on June 30, 2018, an increase of $17.0 million from acquiring new assets in 2019, partially offset by a decrease of $15.8 million from the reclassification of certain operating leases as sales-type leases in May 2019 (refer to Note 5) and $18.1 million from asset sales and lease amendments.

Change primarily due to asset sales in 2019 and 2018.

(1) Change primarily due to asset sales and the reclassification of certain operating leases to sales-type leases in May 2019 (refer to Note 5), partially offset by new acquisitions.

(2) Change primarily due to asset sales and a decrease in percentage rent at certain properties resulting from the impacts of the COVID-19 pandemic.

The following table shows certain same store statistics for our Net Lease segment.

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99.3 % 99.3 %

______________________________________________________________

(1) Occupancy as of December 31, 2020 and 2019.

Interest income decreased to $60.1 million in 2020 from $77.7 million in 2019.

The decrease in interest income was due primarily to a decrease in the average balance of our performing loans and other lending investments, which decreased to $856.6 million for the year ended December 31, 2019 from $1.07 billion in 2018.

The decrease in interest income was due primarily to a decrease in the average balance of our performing loans and other lending investments, which decreased to $706 million for the year ended December 31, 2020 from $857 million in 2019.

The weighted average yield on our performing loans and other lending investments was 7.7% and 8.8% for the years ended December 31, 2020 and 2019, respectively.

On January 1, 2019, we adopted new accounting standards (refer to Note 3) and classified certain of our leases in 2019 as sales-type leases.

Under sales-type leases, we accrue interest income from sales-type leases under the effective interest method as opposed to recognition of operating lease income under the straight-line rent method for our leases that do not qualify as sales-type leases.

Interest income from sales-type leases was $20.5 million for the year ended December 31, 2019 .

Other income decreased to $55.4 million in 2019 from $82.3 million in 2018 .

Other income in 2019 consisted primarily of income from our hotel properties, management fees, lease termination fees, other ancillary income from our operating properties, land and development projects and loan portfolio and interest income on our cash.

Other income in 2018 consisted primarily of income from our hotel properties, income recognized from the termination of a lease, management fees, other ancillary income from our operating properties and interest income earned on our cash balances.

The decrease in 2019 was due primarily to the sale of one of our hotel properties in the fourth quarter 2018, partially offset by an increase in management fees.

Land development revenue and cost of sales —In 2019 , we sold land parcels and residential lots and units and recognized land development revenue of $119.6 million which had associated cost of sales of $109.7 million .

On January 1, 2019, we adopted new accounting standards and classified certain of our new leases in 2019 as sales-type leases.

Interest income from sales-type leases increased to $33.6 million for the year ended December 31, 2020 from $20.5 million for the year ended December 31, 2019.

The increase was due primarily to a full period of interest income for sales-type leases during the year ended December 31, 2020 (refer to Note 5).

Other income increased to $83.9 million in 2020 from $55.4 million in 2019.

Other income in 2020 consisted primarily of mark-to-market gains on an equity investment, management fees, income resulting from the reimbursement of attorneys’ fees in connection with the successful resolution of litigation, income from our hotel properties, other ancillary income from our operating properties, land and development projects and loan portfolio and interest income on our cash.

Other income in 2019 consisted primarily of income from our hotel properties, management fees, lease termination fees, other ancillary income from our operating properties and interest income earned on our cash balances.

The increase in 2020 was primarily due to $23.9 million of mark-to-market gains on an equity investment (refer to Note 8), $12.5 million of income resulting from the reimbursement of attorneys’ fees in connection with the successful resolution of litigation and an increase in management fees from SAFE, partially offset by a decrease in income from our hotel properties and other operating properties.

Land development revenue and cost of sales —In 2020, we sold residential lots and units and recognized land development revenue of $164.7 million which had associated cost of sales of $177.7 million.

In 2019, we sold land parcels and residential lots and units and recognized land development revenue of $119.6 million which had associated cost of sales of $109.7 million.

The decrease in 2019 was primarily the result of two bulk land parcel sales in 2018 that generated $253.3 million in land development revenue.

Costs and expenses —Interest expense was $183.9 million in 2019 and $183.8 million in 2018 .

The balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance-type leases, was $3.50 billion for 2019 and $3.52 billion for 2018 .

The increase in 2020 was due primarily to the sale of a 430 acre site in California for $36.0 million which had associated cost of sales of $35.4 million.

Costs and expenses —Interest expense decreased to $169.6 million in 2020 from $183.9 million in 2019.

The balance of our average outstanding debt, inclusive of loan participations and lease liabilities associated with finance leases, was $3.52 billion for 2020 and $3.50 billion for 2019.

Our weighted average cost of debt was 4.8% for 2020 and 5.4% for 2019.

In addition, we consolidated the Net Lease Venture on June 30, 2018 and during the years ended December 31, 2019 and 2018, we recorded $23.0 million and $10.7 million , respectively, in interest expense as a result of the consolidation of the Net Lease Venture.

We own a 51.9% equity interest in the Net Lease Venture.

Real estate expenses decreased to $72.5 million in 2020 from $92.4 million in 2019.

The following table summarizes our real estate expenses by segment ($ in millions).

2020 2019 Change

Operating Properties (1)

$ 22.9 $ 35.3 $ (12.4)

Land and Development (2)

23.0 32.3 (9.3)

Net Lease (3)

26.6 24.8 1.8

Change primarily due to a sale of assets, partially offset by new assets beginning operations in 2019.

Change primarily due to asset sales, a decrease in legal costs at certain properties and other properties being moved to operating properties after beginning operations, partially offset by new land and development assets and an increase in marketing costs at certain of our properties.

Change primarily due to acquiring new assets in 2019 and the consolidation of the Net Lease Venture on June 30, 2018, partially offset by asset sales.

Depreciation and amortization was $58.3 million in 2019 and $58.7 million in 2018 .

The decrease in 2019 was primarily the result of a $19.8 million decrease from asset sales and the reclassification of certain operating leases to sales-type leases, which was partially offset by an increase in depreciation and amortization of $14.0 million due to the consolidation of the Net Lease Venture on June 30, 2018 and $6.2 million from new acquisitions.

General and administrative expenses increased to $98.6 million in 2019 from $92.1 million in 2018.

Excluding performance based compensation, general and administrative expenses decreased to $52.9 million in 2019 from $61.3 million in 2018, which does not include $7.5 million and $1.8 million , respectively, in management fees earned from SAFE that we record in other income.

General and administrative expenses net of performance based compensation and SAFE management fees was $45.4 million in 2019 and $59.5 million in 2018.

The following table summarizes our general and administrative expenses for the years ended December 31, 2019 and 2018 (in millions):

Payroll and related costs

Performance based compensation (1)

Severance costs (2)

Occupancy costs

Public company costs

Total $ 72.5 $ 92.4 $ (19.9)

______________________________________________________________

For the years ended December 31, 2019 and 2018, includes performance based compensation related to our Performance Incentive Plans and Annual Incentive Plan.

Please refer to Note 15 - Stock-Based Compensation Plans and Employee Benefits for a description of the Performance Incentive Plans.

Represents costs associated with terminated employees.

(1) Change primarily due to asset sales and a decrease in expenses at certain hotel and entertainment/leisure operating properties due to the COVID-19 pandemic.

(2) Change primarily due to a decrease in legal and marketing costs at some properties and asset sales.

(3) Change primarily due to the acquisition of new investments, partially offset by asset sales.

Depreciation and amortization was $58.1 million in 2020 and $58.3 million in 2019.

The slight decrease in 2020 was primarily due to asset sales and the reclassification of certain operating leases to sales-type lease (refer to Note 5), partially offset by new acquisitions.

General and administrative expense increased to $100.9 million in 2020 from $98.6 million in 2019.

The increase in 2020 was due primarily to a $6.1 million increase in performance based compensation, which was partially offset by a decrease in payroll and related costs, a decrease in travel and entertainment costs and a decrease in other office costs.

The provision for loan losses was $9.1 million in 2020 as compared to a provision for loan losses of $6.5 million in 2019.

The provision for loan losses in 2019 included a $12.5 million specific reserve provision resulting primarily from the deterioration of the collateral for one of our loans, partially offset by a $6.0 million decrease in the general reserve due to a decrease in the size of our loan portfolio.

The provision for loan losses in 2018 was due to a specific reserve of $21.4 million resulting from the resolution of a non-performing loan, partially offset by a $4.5 million decrease in the general reserve due to a decrease in the size of our loan portfolio.

In 2019 , we recorded an aggregate impairment of $5.7 million in connection with the sale of net lease properties and a commercial operating property, an aggregate impairment of $5.3 million on two land and development assets based on expected sales proceeds, a $1.1 million impairment on a land and development asset due to a change in business strategy, $0.6 million of impairments in connection with the sale of residential condominium units and an impairment of $0.6 million on an equity investment.

In 2018, we recorded $147.1 million of impairments, which resulted primarily from our decision to accelerate the monetization of certain legacy assets, including several larger assets.

Other expense increased to $13.1 million in 2019 from $6.0 million in 2018 .

The increase in 2019 was due primarily to losses associated with derivative contracts that were terminated.

Income from sales of real estate —Income from sales of real estate increased to $236.6 million in 2019 from $126.0 million in 2018 .

The following table presents our income from sales of real estate by segment ($ in millions).

Net Lease (1)

Operating Properties

Total income from sales of real estate

_______________________________________________________________________________

Loss on early extinguishment of debt, net —In 2019 and 2018 , we incurred losses on early extinguishment of debt of $27.7 million and $10.4 million , respectively.

In 2019 , we incurred losses on early extinguishment of debt primarily from the repayment of senior notes prior to maturity.

In 2018 , we incurred losses on early extinguishment of debt resulting from the opportunistic refinancing of a net lease asset which generated $115.5 million of excess proceeds to us, repayments of our Senior Term Loan prior to its modification, the modification and upsize of our Senior Term Loan and repayment of senior notes prior to maturity.

Earnings (losses) from equity method investments —Earnings (losses) from equity method investments increased to $41.8 million in 2019 from $(5.0) million in 2018 .

In 2019 , we recognized $29.8 million of income from our equity method investment

in SAFE, which includes a dilution gain of $7.6 million resulting from SAFE equity offerings during 2019, $19.3 million resulting primarily from the sale of assets in operating property ventures and $7.3 million of aggregate losses from our remaining equity method investments.

In 2018, we recognized $4.1 million of income related to operations at our Net Lease Venture (which we consolidate as of June 30, 2018), $4.7 million of income from our equity method investment in SAFE and $13.8 million was aggregate losses from our remaining equity method investments, inclusive of a $10.0 million impairment on a non-U.S.

equity method investment due to local market conditions and a $6.1 million impairment on a land and development equity method investment due to a change in business strategy.

Selling profit from sales-type leases— During the year ended December 31, 2019 , we entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of nine bowling centers for $56.7 million and a commitment to invest up to $55.0 million in additional bowling centers over the next several years.

The provision for loan losses for the year ended December 31, 2020 included a $4.2 million provision resulting primarily from the sale of a non-performing loan and an increase of $4.9 million in the general allowance.

The provision for loan losses in 2019 included a $12.5 million specific allowance resulting primarily from the deterioration of the collateral for one of our loans, partially offset by a $6.0 million decrease in the general allowance due to a decrease in the size of our loan portfolio.

The provision for losses on net investment in leases for the year ended December 31, 2020 included an allowance resulting from the adoption of ASU 2016-13 and the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets.

In 2020, we recorded aggregate impairments of $7.8 million in connection with the sale of net lease assets and impairments on a real estate asset held for sale and land and development assets.

In 2019, we recorded aggregate impairments of $5.7 million in connection with the sale of net lease properties and a commercial operating property, an aggregate impairment of $5.3 million on two land and development assets based on sales proceeds, a $1.1 million impairment on a land and development asset due to a change in business strategy, $0.6 million of impairments in connection with the sale of residential condominium units and an impairment of $0.6 million on an equity investment.

Other expense decreased to $0.6 million in 2020 from $13.1 million in 2019.

The decrease in 2020 was due primarily to losses associated with derivative contracts that were terminated in 2019.

Income from sales of real estate —Income from sales of real estate decreased to $6.3 million in 2020 from $236.6 million in 2019.

During the year ended December 31, 2020, we recorded $6.1 million of income from sales of real estate from the sale of a Ground Lease to SAFE (refer to Note 8) and $0.2 million from the sale of an operating property.

During the year ended December 31, 2019, we recorded $236.6 million of income from sales of real estate, primarily from the sale of a portfolio of net lease assets and operating properties.

Loss on early extinguishment of debt, net —In 2020 and 2019, we incurred losses on early extinguishment of debt of $12.0 million and $27.7 million, respectively, primarily from the repayment of senior notes prior to maturity.

Earnings from equity method investments —Earnings from equity method investments increased to $42.1 million in 2020 from $41.8 million in 2019.

In 2020, we recognized $53.5 million of income from our equity method investment in SAFE, inclusive of $14.4 million of dilution gains resulting from the dilution of our ownership in SAFE in connection with SAFE equity offerings in 2020, and $2.7 million from our equity investment in Net Lease Venture II, which were partially offset by $14.1 million of net aggregate losses from our remaining equity method investments.

In 2019, we recognized $29.8 million of income from our equity method investment in SAFE, which included a dilution gain of $7.6 million, $19.3 million resulting primarily from the sale of assets in operating property ventures and $7.3 million of aggregate losses from our remaining equity method investments.

Selling profit from sales-type leases— During the year ended December 31, 2019, we entered into a transaction with an operator of bowling entertainment venues, consisting of the purchase of nine bowling centers for $56.7 million and a commitment to invest up to $55.0 million in additional bowling centers over the next several years (refer to Note 5).

The new centers were added to our existing master leases with the tenant.

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As a result of the modifications to the leases, we classified the leases as sales-type leases and recognized $180.4 million in "Selling profit from sales-type leases" as a result of the transaction.

Gain on consolidation of equity method investment —On June 30, 2018, we gained control of the Net Lease Venture when its investment period expired.

As a result, on that date we consolidated the assets and liabilities of the venture which had previously been accounted for as an equity method investment.

We recorded a gain of $67.9 million as a result of the consolidation.

Income tax (expense) benefit —Income taxes are primarily generated by assets held in our TRS.

An income tax expense of $0.4 million was recorded in 2019 and a $0.8 million income tax expense was recorded in 2018 .

The income tax expense for 2019 consists of federal taxes, including those related to our TRS's, state margins taxes and other minimum state franchise taxes.

The income tax expense for 2018 includes federal taxes related to one of our TRS's, state margins taxes and other minimum state franchise taxes.

Adjusted Income

In addition to net income (loss) prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we use adjusted income, a non-GAAP financial measure, to measure our operating performance.

Adjusted income is used internally as a supplemental performance measure adjusting for certain non-cash GAAP measures to give management a view of income more directly derived from operating activities in the period in which they occur.

Adjusted income is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision for (recovery of) loan losses, impairment of assets, stock-based compensation expense, the liquidation preference recorded as a premium above book value on the redemption of preferred stock, the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes, the non-cash portion of gain (loss) on early extinguishment of debt and is adjusted for the effect of gains or losses on charge-offs and dispositions on carrying value gross of loan loss reserves and impairments ("Adjusted Income").

Adjusted Income should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations.

Adjusted Income should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), or to cash flows from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is Adjusted Income indicative of funds available to fund our cash needs or available for distribution to shareholders.

Rather, Adjusted Income is an additional measure we use to analyze our business performance because it excludes the effects of certain non-cash charges that we believe are not necessarily indicative of our operating performance while including the effect of gains or losses on investments when realized.

It should be noted that our manner of calculating Adjusted Income may differ from the calculations of similarly-titled measures by other companies.

Income tax expense —An income tax expense of $0.2 million was recorded in 2020 and a $0.4 million income tax expense was recorded in 2019.

The income tax expense for both periods consists primarily of state margins taxes and other minimum state franchise taxes.

Adjusted Earnings

In 2019, we announced a new business strategy that would focus our management personnel and our investment resources primarily on scaling our Ground Lease platform.

As part of this strategy, we accelerated the monetization of legacy assets, reducing our legacy portfolio to approximately 15% of our overall portfolio as of December 31, 2020, and deployed a substantial portion of the proceeds into additional investments in SAFE and new loan and net lease originations relating to the Ground Lease business.

Management has determined that, effective for the first quarter 2020, a modified non-GAAP earnings metric, designated "adjusted earnings," is the metric it uses to assess our execution of this strategy and the performance of our operations.

Adjusted earnings reflects impairment charges and loan provisions in the same period in which they are recognized in net income (loss) prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), rather than in a later period when the asset is sold.

We believe this change is appropriate as legacy asset sales have become less central to our business, even though sales may be material to particular periods when they occur.

Adjusted earnings is used internally as a supplemental performance measure which adjusts for certain items to give management a view of income more directly derived from operating activities in the period in which they occur.

Adjusted earnings is calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, including our proportionate share of depreciation and amortization from equity method investments and excluding depreciation and amortization allocable to noncontrolling interests, stock-based compensation expense, the non-cash portion of loss on early extinguishment of debt and the liquidation preference recorded as a premium above book value on the redemption of preferred stock ("Adjusted Earnings").

All prior periods have been calculated in accordance with this definition.

Adjusted Earnings should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations.

Adjusted Earnings should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), or to cash flows from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is Adjusted Earnings indicative of funds available to fund our cash needs or available for distribution to shareholders.

Rather, Adjusted Earnings is an additional measure we use to analyze our business performance because it excludes the effects of certain non-cash charges that we believe are not necessarily indicative of our operating performance.

It should be noted that our manner of calculating Adjusted Earnings may differ from the calculations of similarly-titled measures by other companies.

For the Years Ended December 31,

Adjusted Income

2020 2019 2018

Adjusted Earnings

Net income (loss) allocable to common shareholders $ (65,937) $ 291,547 $ (64,757)

Depreciation and amortization

Provision for (recovery of) loan losses

Impairment of assets (2)

63,882 58,925 68,056

Stock-based compensation expense

Loss on early extinguishment of debt, net

Non-cash interest expense on senior convertible notes

Premium on redemption of preferred stock

Deferred gain on sale (3)

Losses on charge-offs and dispositions (4)

Adjusted income allocable to common shareholders (3)

39,354 30,436 17,563

Depreciation and amortization also includes our proportionate share of depreciation and amortization expense for equity method investments and excludes the portion of depreciation and amortization expense allocable to noncontrolling interests.

Impairment of assets also includes impairments on equity method investments recorded in "Earnings from equity method investments" in our consolidated statements of operations.

Adjusted Income for the year ended December 31, 2018, as previously reported, included a $75.9 million add-back attributable to aggregate deferred gains on our retained interests in entities to which we sold or contributed properties prior to 2018 and a $3.3 million add-back for depreciation related to such properties.

We recognized those gains in our GAAP retained earnings as of January 1, 2018 when we adopted a new accounting standard that mandated such recognition.

We retrospectively modified our presentation of Adjusted Income for 2018 and 2017, as shown in the table above, to reflect the effects of the dispositions in the periods in which they occurred.

Adjusted Income for the year ended December 31, 2017 shown in the table above includes $55.5 million of the aggregate deferred gain, which resulted from the sale of our Ground Lease business to SAFE in the second quarter of 2017.

The remaining $23.7 million of the aggregate deferred gains are not shown in the table above because the disposition transactions occurred prior to 2017.

Adjusted Income as previously reported (i.e., prior to the retrospective modification) for the years ended December 31, 2018 and 2017 was $222.3 million and $214.6 million, respectively.

Represents the impact of charge-offs and dispositions realized during the period.

These charge-offs and dispositions were on assets that were previously impaired for GAAP and reflected in net income but not in Adjusted Income.

Non-cash portion of loss on early extinguishment of debt 3,470 7,118 4,318

Adjusted earnings allocable to common shareholders $ 40,769 $ 388,026 $ 25,180

Liquidity and Capital Resources

During the year ended December 31, 2019 , we invested $1.4 billion in new investments, prior financing commitments and ongoing development.

This amount includes $266.9 million in lending and other investments, $128.9 million to develop our land and development assets, $18.7 million of capital to reposition or redevelop our operating properties, $919.5 million to invest in net lease assets (including $583.1 million to acquire additional common stock of SAFE) and $38.8 million in other investments.

Also during the year ended December 31, 2019 , we generated $1.2 billion from loan repayments and asset sales within our portfolio, comprised of $457.3 million from real estate finance, $113.7 million from operating properties, $482.4 million from net lease assets, $149.9 million from land and development assets and $2.4 million from other investments.

These amounts are inclusive of fundings and proceeds from both consolidated investments and our pro rata share from equity method investments.

During the year ended December 31, 2020, we invested an aggregate $601 million in new investments, prior financing commitments and real estate development.

Investments included $332 million in net lease, loan, and strategic investments, $48 million in the repurchase of our common stock, $45 million of capital expenditures on legacy assets and $176 million in SAFE common stock.

These amounts are inclusive of fundings from our consolidated investments and our pro rata share from equity method investments and includes $171 million of investments made within the Net Lease Venture II, of which we own 51.9%.

The following table outlines our capital expenditures on operating properties, net lease and land and development assets as reflected in our consolidated statements of cash flows for the years ended December 31, 2020 and 2019, by segment ($ in thousands):

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Operating Properties $ 2,233 $ 6,397

Net Lease 13,565 33,549

Total capital expenditures on real estate assets $ 15,798 $ 39,946

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As of December 31, 2020, we had unrestricted cash of $99 million and $350 million of borrowing capacity available under the Revolving Credit Facility.

Our primary cash uses over the next 12 months are expected to be funding of investments, capital expenditures and funding ongoing business operations.

Over the next 12 months, we currently expect to fund in the range of approximately $25 million to $75 million of capital expenditures within our portfolio.

The majority of these amounts relate to our land and development projects and operating properties, and include multifamily and residential development activities which are expected to include approximately $15 million in vertical construction.

The amount actually invested will depend on the pace of our development activities as well as the extent to which we strategically partner with others to complete these projects.

The COVID-19 pandemic has for the time being adversely affected our strategies of monetizing legacy assets and materially scaling SAFE's portfolio as its Manager.

These conditions will adversely affect our strategies while they persist.

Our primary cash uses over the next 12 months are expected to be funding of investments, capital expenditures, distributions to shareholders through dividends and share repurchases and funding ongoing business operations.

The amount we actually invest will depend on the full impact of the COVID-19 pandemic on our business and the pace of the economic recovery.

As of December 31, 2020, we also had approximately $104 million of maximum unfunded commitments associated with our investments of which we expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones and performance hurdles and all other conditions to fundings (see "Unfunded Commitments" below).

We also have $322.2 million carrying amount of scheduled real estate finance maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers.

Our capital sources to meet cash uses through the next 12 months and beyond are expected to include cash on hand, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.

We also have approximately $494 million carrying amount of scheduled real estate finance maturities over the next 12 months, exclusive of any extension options that can be exercised by our borrowers.

Our capital sources to meet cash uses through the next 12 months and beyond are expected to include cash on hand, Revolving Credit Facility borrowings, income from our portfolio, loan repayments from borrowers and proceeds from asset sales.

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.

While economic trends have stabilized, it is not possible for us to predict whether these trends will continue or to quantify the impact of these or other trends on our financial results.

We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions, including conditions arising from the COVID-19 pandemic.

While certain economic trends have improved since the onset of the pandemic, the uncertain duration of the pandemic and its effects, particularly its effects 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.

Furthermore, as more fully described in Item 1a.

Risk Factors, our ability to incur more debt to create cash liquidity is dependent on our compliance with debt covenants in our unsecured notes and corporate debt facilities.

Contractual Obligations —The following table outlines the contractual obligations related to our long-term debt obligations, loan participations payable and lease obligations as of December 31, 2019 .

Amounts Due By Period

(in thousands)

Long-Term Debt Obligations :

Unsecured notes (1)

Secured credit facilities

Trust preferred securities

Total principal maturities

Interest Payable (2)

Loan Participations Payable (3)

Lease Obligations (4)

_______________________________________________________________________________

We repaid the remaining $110.5 million aggregate principal amount of the 6.00% senior unsecured notes due 2022 in January 2020 (refer to 11).

Variable-rate debt assumes one-month LIBOR of 1.76% and three-month LIBOR of 1.91% that were in effect as of December 31, 2019 .

Refer to Note 10 to the consolidated financial statements.

We are obligated to pay ground rent under certain operating leases;

however, our tenants at the properties pay this expense directly under the terms of various subleases and these amounts are excluded from lease obligations.

Senior Term Loan —In June 2018, we amended our senior secured term loan (the "Senior Term Loan") to increase the amount of the loan to $650.0 million, reduce the interest rate to LIBOR plus 2.75% and extend its maturity to June 2023.

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The Senior Term Loan permits substitution of collateral, subject to overall collateral pool coverage and concentration limits, over the life of the facility.

We may make optional prepayments, subject to prepayment fees, and are required to repay 0.25% of the principal amount of the Senior Term Loan each quarter.

We may make optional prepayments, subject to prepayment fees.

Revolving Credit Facility —In September 2019, we amended and restated our secured revolving credit facility (the "Revolving Credit Facility") to increase the maximum available principal amount to $350.0 million, extend the maturity date to September 2022 and make certain other changes.

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In addition, there is an undrawn credit facility commitment fee ranging from 0.25% to 0.45% based on corporate credit ratings.

At maturity, we may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2023.

At maturity, we may convert outstanding borrowings to a one year term loan which matures in quarterly installments

through September 2023.

As of December 31, 2020, based on our borrowing base of assets, we had $350.0 million of borrowing capacity available under the Revolving Credit Facility.

Unsecured Notes —In March 2019, the Company repaid in full the 5.00% senior unsecured notes due July 2019.

Unsecured Notes —In August 2020, we issued $400.0 million principal amount of 5.50% senior unsecured notes due February 2026.

Proceeds from the offering, together with cash on hand, were used to repay in full the $400.0 million principal amount outstanding of the 5.25% senior unsecured notes due September 2022.

In December 2019, we issued $550.0 million principal amount of 4.25% senior unsecured notes due August 2025.

Proceeds from the offering were used to redeem the $375.0 million principal amount outstanding ($110.5 million was redeemed in January 2020) of the 6.00% senior unsecured notes due April 2022, repay a portion of the borrowings outstanding under the Senior Term Loan and pay related premiums and expenses in connection with the transaction.

In September 2019, we issued $675.0 million principal amount of 4.75% senior unsecured notes due October 2024.

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In November 2019, we issued an additional $100.0 million principal amount of 4.75% senior unsecured notes due October 2024.

Proceeds from the offering will be used for general corporate purposes.

In December 2019, we issued $550.0 million principal amount of 4.25% senior unsecured notes due August 2025.

Collateral Assets —The carrying value of our assets that are directly pledged or are held by subsidiaries whose equity is pledged as collateral to secure our obligations under our secured debt facilities are as follows, by asset type ($ in thousands):

As of December 31,

Collateral Assets (1)

Non-Collateral Assets

Collateral Assets (1)

Non-Collateral Assets

Real estate, net

Real estate available and held for sale

Net investment in leases

Land and development, net

Loans receivable and other lending investments, net (2)(3)

Other investments

Cash and other assets

___________________________________________________________

The Senior Term Loan and the Revolving Credit Facility are secured only by pledges of equity of certain of our subsidiaries and not by pledges of the assets held by such subsidiaries.

Such subsidiaries are subject to contractual restrictions under the terms of such credit facilities, including restrictions on incurring new debt (subject to certain exceptions).

As of December 31, 2019 , Collateral Assets includes $438.7 million carrying value of assets held by entities whose equity interests are pledged as collateral for the Revolving Credit Facility that is undrawn as of December 31, 2019 .

As of December 31, 2019 and 2018 , the amounts presented exclude general reserves for loan losses of $6.9 million and $13.0 million , respectively.

As of December 31, 2019 and 2018 , the amounts presented exclude loan participations of $35.6 million and $22.5 million , respectively.

Debt Covenants

Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2 x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis, our consolidated fixed charge coverage ratio, determined in accordance with the indentures governing our debt securities, is 1.5x or lower.

Proceeds from the offering were used for general corporate purposes.

Debt Covenants —Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness, as such terms are defined in the indentures governing the debt securities, of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis, our consolidated fixed charge coverage ratio, determined in accordance with the indentures governing our debt securities, is 1.5x or lower.

If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders.

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Under both the Senior Term Loan and the Revolving Credit Facility we are permitted to pay dividends provided that no material default (as defined in the relevant agreement) has occurred and is continuing or would result therefrom and we remain in compliance with our financial covenants after giving effect to the dividend.

Derivatives —Our use of derivative financial instruments is primarily limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies.

Derivatives —Our use of derivative financial instruments, if necessary, has primarily been limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies.

See Item 8—"Financial Statements and Supplemental Data—Note 13" for further details.

Off-Balance Sheet Arrangements —We are not dependent on the use of any off-balance sheet financing arrangements for liquidity.

We have made investments in various unconsolidated ventures.

See Item 8—"Financial Statements and Supplemental Data—Note 8" for further details of our unconsolidated investments.

Our maximum exposure to loss from these investments is limited to the carrying value of our investments and any unfunded commitments (see below).

Unfunded Commitments —We generally fund construction and development loans and build-outs of space in real estate assets over a period of time if and when the borrowers and tenants meet established milestones and other performance criteria.

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Loans and Other Lending Investments (1)

Real Estate (2)

Real Estate Other

Investments Total

Performance-Based Commitments $ 63,419 $ 2,213 $ 25,959 $ 91,591

Strategic Investments — — 12,810 12,810

Total $ 63,419 $ 2,213 $ 38,769 $ 104,401

_______________________________________________________________________________

(1) Excludes $7.5 million of commitments on loan participations sold that are not our obligation.

Includes a commitment to invest up to $55.0 million in additional bowling centers over the next several years (refer to Note 5).

Stock Repurchase Program —We may repurchase shares in negotiated transactions or open market transactions, including through one or more trading plans.

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During the year ended December 31, 2019, we repurchased 7.3 million shares of our outstanding common stock for $74.6 million, representing an average cost of $10.16 per share.

During the year ended December 31, 2018, we repurchased 0.8 million shares of our outstanding common stock for $8.3 million, representing an average cost of $10.22 per share.

As of December 31, 2020, we had authorization to repurchase up to $33.8 million of our common stock.

In February 2021, our board of directors authorized an increase to the stock repurchase program to $50.0 million.

Preferred Equity —In December 2019, we issued 16.5 million shares of our common stock upon conversions of our Series J preferred stock by the holders thereof.

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Our significant accounting policies are described in Item 8—"Financial Statements and Supplemental Data—Note 3." The following is a summary of accounting policies that require more significant management estimates and judgments:

Reserve for loan losses— The reserve for loan losses reflects management's estimate of loan losses inherent in the loan portfolio, including financing receivables (refer to Note 5), as of the balance sheet date.

If we determine that the collateral fair value less costs to sell is less than the carrying value of a collateral-dependent loan, we will record a reserve.

The reserve is increased (decreased) through "Provision for (recovery of) loan losses" in our 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 as we work toward a settlement or other alternative resolution, which can impact the potential for loan repayment or receipt of collateral.

Allowance for loan losses and net investment in leases— We perform a quarterly comprehensive analysis of our loan and sales-type lease portfolios and assign risk ratings that incorporate management's current judgments about credit quality based on all known and relevant internal and external factors that may affect collectability.

We consider, among other things, payment status, lien position, borrower or tenant financial resources and investment collateral, collateral type, project economics and geographical location as well as national and regional economic factors.

This methodology results in loans and sales-type leases being risk rated, with ratings ranging from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss.

Upon adoption of ASU 2016-13 on January 1, 2020, we estimate our Expected Loss on our loans (including unfunded loan commitments), held-to-maturity debt securities and net investment in leases 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;

(ii) construction loans;

and (iii) net investment in leases and financings that resulted from the acquisition of properties that did not qualify as a sale leaseback transaction and, as such, are accounted for as financing receivables (refer to Note 5).

For our loans, held-to-maturity debt securities, construction loans, net investment in leases and financings that resulted from the acquisition of properties that did not qualify as sale leaseback transactions, we analyzed our historical realized loss experience to estimate our Expected Loss.

We adjusted our Expected Loss through the use of third-party market data that provided current and future economic conditions that may impact the performance of the commercial real estate assets securing our investments.

We consider a loan or sales-type lease 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 or sales-type lease.

Non-accrual loans or sales-type leases 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 or sales-type lease 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" or "Provision for losses on net investment in leases" in our 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.

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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 reserve will be charged off.

We have one portfolio segment, represented by commercial real estate lending, whereby we utilize a uniform process for determining our reserves for loan losses.

The reserve for loan losses includes a general, formula-based component and an asset-specific component.

The general reserve component covers performing loans and reserves for loan losses are recorded when:

(i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio;

and (ii) the amount of the loss can be reasonably estimated.

The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment.

During this assessment, we perform a comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability.

This methodology results in loans being segmented by risk classification into risk rating categories

that are associated with estimated probabilities of default and principal loss.

Ratings range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss.

The asset-specific reserve component relates to reserves for losses on impaired loans.

We consider a loan to be impaired when, based upon current information and events, we believe that it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement.

This assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors.

A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.

Our one impaired loan is collateral dependent and impairment is measured using the estimated fair value of collateral, less costs to sell.

We generally use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans.

In some cases, we obtain external "as is" appraisals for loan collateral, generally when third party participations exist.

Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred.

In limited cases, appraised values may be discounted when real estate markets rapidly deteriorate.

A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR").

A TDR occurs when we grant a concession to a debtor that is experiencing financial difficulties.

Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan.

The provision for (recovery of) loan losses for the years ended December 31, 2019 , 2018 and 2017 were $6.5 million , $16.9 million and $(5.8) million , respectively.

The total reserve for loan losses as of December 31, 2019 and 2018 , included asset specific reserves of $21.7 million and $40.4 million , respectively, and general reserves of $6.9 million and $13.0 million , respectively.

Reserve for losses on net investment in leases — We evaluate our net investment in leases for impairment under ASC 310.

As part of our process for monitoring the credit quality of our net investment in leases, we perform a quarterly assessment for each of our net investment leases.

We consider a net investment in lease to be impaired when, based upon current information and events, we believe that it is probable that we will be unable to collect all amounts due under the contractual terms of the lease.

As of December 31, 2019 , all of our net investment in leases were performing in accordance with the terms of the respective leases.

Any potential reserve for losses on net investment in leases will reflect management's estimate of losses inherent in the portfolio as of the balance sheet date.

If we determine that the cash flows we expect to receive from the underlying collateral over the lease term is less than the carrying value of the net investment in lease, we will record a reserve.

The reserve, if applicable, will be increased (decreased) through "Reserve for losses on net investment in leases" in our consolidated statements of operations.

Acquisition of real estate —We generally acquire real estate assets or land and development assets through purchases or through foreclosure or deed-in-lieu of foreclosure in full or partial satisfaction of non-performing loans.

When we acquire assets these properties are classified as "Real estate, net" or "Land and development, net" on our consolidated balance sheets.

When we intend to hold, operate or develop the property for a period of at least 12 months, assets are classified as "Real estate, net," and when we intend to market these properties for sale in the near term, assets are classified as "Real estate available and held for sale." When we purchase assets the properties are recorded at cost.

Foreclosed assets classified as real estate and land and development are initially recorded at their estimated fair value and assets classified as assets held for sale are recorded at their estimated fair value less costs to sell.

The excess of the carrying value of the loan over these amounts is charged-off against the reserve for loan losses.

In both cases, upon acquisition, tangible and intangible assets and liabilities acquired are recorded at their estimated fair values.

During the year ended December 31, 2018 , we received title to a property in satisfaction of a mortgage loan with a fair value of $4.6 million for which the property had served as collateral.

We did not take title to any properties during the years ended December 31, 2019 and 2017.

Net Investment in Leases —Net investment in leases are recognized when our leases qualify as sales-type leases.

The net investment in leases is initially measured at the present value of the fixed and determinable lease payments, including any guaranteed or unguaranteed residual value of the asset at the end of the lease, discounted at the rate implicit in the lease.

If a lease qualifies as a sales-type lease, it is further evaluated to determine whether the transaction is considered a sale leaseback transaction.

If the sales-type lease does not qualify as a sale leaseback transaction, the lease is considered a financing receivable and is recognized in accordance with ASC 310 and recorded in "Loans receivable and other lending investments, net" on our consolidated balance sheets.

At this point, a loss is confirmed and the loan and related allowance will be charged off.

The provision for loan losses for the years ended December 31, 2020, 2019 and 2018 were $9.1 million, $6.5 million and $16.9 million, respectively.

The provision for losses on net investment in leases for the year ended December 31, 2020 was $1.8 million.

Impairment or disposal of long-lived assets —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.

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Impairments of real estate and land and development assets are recorded in "Impairment of assets" in our consolidated statements of operations.

During the year ended December 31, 2020, we recorded an aggregate impairment of $7.8 million in connection with the sale of net lease assets and impairments on a real estate asset held for sale and land and development assets.

During the year ended December 31, 2019, we recorded aggregate impairments on real estate and land and development assets of $13.4 million.

During the year ended December 31, 2018, we recorded impairments of $147.1 million on land and development and real estate assets resulting primarily from our decision to accelerate the monetization of certain legacy assets, including several larger assets.

During the year ended December 31, 2017, we recorded impairments on real estate and land and development assets totaling $32.4 million .

The impairments recorded in 2017 were primarily the result of impairments on land and development assets of $20.5 million resulting from a decrease in expected cash flows on one asset and a change in exit strategy on another asset, and impairments of $11.9 million on real estate assets due to shifting demand in the local condominium markets and changes in our exit strategy on other real estate assets.

Identified intangible assets and liabilities —We record intangible assets and liabilities acquired at their estimated fair values, and determine whether such intangible assets and liabilities have finite or indefinite lives.

As of December 31, 2019 , all such acquired intangible assets and liabilities have finite lives.

We amortize finite lived intangible assets and liabilities over the period which the assets and liabilities are expected to contribute directly or indirectly to the future cash flows of the business acquired.

We review finite lived intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

If we determine the carrying value of an intangible asset is not recoverable we will record an impairment charge to the extent its carrying value exceeds its estimated fair value.

Impairments of intangibles are recorded in "Impairment of assets" in our consolidated statements of operations.

Valuation of deferred tax assets —Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards.

We evaluate our ability to realize our deferred tax assets and recognize a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of our deferred tax assets will not be realized.

When evaluating our ability to realize our deferred tax assets, we consider, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook.

This analysis is inherently subjective, as it requires us to forecast our business and general economic environment in future periods.

Changes in estimate of our ability to realize our deferred tax asset, if any, are included in "Income tax (expense) benefit" in the consolidated statements of operations.

While certain entities with NOLs may generate profits in the future, which may allow us to utilize the NOLs, we continue to record a full valuation allowance on the net deferred tax asset due to the history of losses and the uncertainty of the entities' ability to generate such profits.

We recorded a full valuation allowance of $79.6 million and $78.1 million as of December 31, 2019 and 2018 , respectively.

Variable interest entities —We evaluate our investments and other contractual arrangements to determine if our interests constitute variable interests in a variable interest entity ("VIE") and if we are the primary beneficiary.

There is a significant amount of judgment required to determine if an entity is considered a VIE and if we are the primary beneficiary.

We first perform a qualitative analysis, which requires certain subjective decisions regarding our assessment, including, but not limited to, which interests create or absorb variability, the contractual terms, the key decision making powers, impact on the VIE's economic performance and related party relationships.

An iterative quantitative analysis is required if our qualitative analysis proves inconclusive as to whether the entity is a VIE or we are the primary beneficiary and consolidation is required.

Fair value of assets and liabilities —The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters.

For financial and nonfinancial assets and liabilities that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value.

When observable market prices and parameters are not fully available,

management judgment is necessary to estimate fair value.

In addition, changes in market conditions may reduce the availability of quoted prices or observable data.

For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable.

Therefore, when market data is not available, we would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.

See Item 8—"Financial Statements and Supplemental Data—Note 17" for a complete discussion on how we determine fair value of financial and non-financial assets and financial liabilities and the related measurement techniques and estimates involved.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis