# Star Holdings: Form 10-Q for the period ended Jun 30, 2023

- Company: [Star Holdings](/companies/stho.md) (CIK 1953366)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 20:03 ET
- Period: 2023-06-30
- Accession: 0001558370-23-014241
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1953366/000155837023014241/stho-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1953366/000155837023014241/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $25.5m | us-gaap:Revenues |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $42.3m | us-gaap:Revenues |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$90.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$180.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$6.75 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$13.56 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$6.75 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$13.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 13,320,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 13,320,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$4.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-06-30 | $54.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $702.4m | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $271.7m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $227.4m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $426.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,702 characters.

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are included with respect to, among other things, Star Holdings’ (the “Company’s”) current business plan, business strategy, portfolio management, prospects and liquidity. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-Q and the uncertainties and risks described in Exhibit 99.1 to our Amendment No. 3 to Form 10 filed with the SEC on March 20, 2023, all of which could affect our future results of operations, financial condition and liquidity. For purposes of Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “we,” “our” and “us” refer to Star Holdings and its combined and consolidated subsidiaries, unless the context indicates otherwise.

The discussion below should be read in conjunction with our combined and consolidated financial statements and related notes in this quarterly report on Form 10-Q and Exhibit 99.1 to our Amendment No. 3 to Form 10 filed with the SEC on March 20, 2023. These historical financial statements may not be indicative of our future performance.

### The Spin-Off

On March 31, 2023, we completed a series of reorganization and separation transactions (collectively, the “Spin-Off”) in accordance with the terms of a Separation and Distribution Agreement (the “Separation and Distribution Agreement”), dated as of March 31, 2023, by and between the Company and iStar Inc., a Maryland corporation ("iStar"). To effectuate the Spin-Off: (i) iStar contributed its remaining legacy non-ground lease assets, 13,522,651 shares of common stock of Safehold Inc. (the "Safe Shares") and certain other assets to us; and (ii) iStar distributed 100% of the common shares of beneficial interest in us to holders of common stock of iStar by way of a pro rata distribution of 0.153 common shares of the Company for each outstanding share of iStar common stock held on the record date of the distribution.

Following the Spin-Off, we became an independent, publicly traded company. Our common shares commenced regular-way trading on the Nasdaq Global Market (the “Nasdaq”) under the symbol “STHO” on March 31, 2023. Shortly after the Spin-Off, iStar completed its previously-announced merger (the "Merger") with Safehold Inc., a Maryland corporation. iStar continued as the surviving corporation in the Merger and changed its name to “Safehold Inc.” ("Safe").

In connection with the Spin-off, the Company entered into the Separation and Distribution Agreement, a management agreement with a subsidiary of Safe (the "Management Agreement"), a governance agreement with Safe (the "Governance Agreement") and a registration rights agreement with Safe (the "Registration Rights Agreement"). We also entered into a credit facility with Safe (the "Safe Credit Facility") and a margin loan facility with a third-party lender (the "Margin Loan Facility").

### Our Development Portfolio

#### Asbury Park Waterfront

We are the managing member in Asbury Partners, LLC, which is the joint venture that owns the Asbury Park Waterfront investment. The aggregate carrying value of the Asbury Park Waterfront investment was approximately $166.6 million as of June 30, 2023.

The Asbury Park Waterfront investment includes the following:

- Asbury Ocean Club Surfside Resort and Residences: a 16-story mixed use project featuring 130 residential condominium units, a 54-key luxury boutique hotel, 24,000 square feet of retail space, 410 structured parking spaces and a 15,000 square foot gym and spa amenity area. The property was completed in 2019. The hotel is managed by a third party. As of June 30, 2023, three residential condominium units remain unsold.
- The Asbury: a 110-key independent boutique hotel with indoor and outdoor event spaces, and a rooftop bar. The hotel was completed in 2016 and is managed by a third party.
- Asbury Lanes: a 12,000 square foot music and entertainment venue. The venue was completed in 2018, connected to The Asbury, and is managed by a third party.

Our current strategy for the Asbury Park Waterfront investment is to sell the remaining residential condominium units at Asbury Ocean Club, actively asset manage our operating assets, and strategically monetize the remaining development sites and our operating assets through sales to third party developers and operators while meeting our obligations under the redevelopment agreement with the city of Asbury Park.

#### Magnolia Green

Magnolia Green is an approximately 1,900 acre multi-generational master planned residential community that is entitled for 3,550 single and multifamily dwelling units and approximately 193 acres of land for commercial development. The community is located 19 miles southwest of Richmond, Virginia and offers distinct phases designed for people in different life stages, from first home buyers to empty nesters in single family and townhomes built by the area’s top homebuilders. The project is anchored by the Magnolia Green Golf Club, a semi-private 18-hole Nicklaus Design championship golf course with full-service clubhouse and driving range. There are also numerous community amenities, including the Aquatic Center, featuring multiple pools and a snack bar, Arbor Walk, featuring a junior Olympic competition pool, water slide and sports courts, the Tennis Center, featuring tennis and pickleball courts and a pro shop, and miles of paved trails. The aggregate carrying value of our Magnolia Green assets as of June 30, 2023 was $81.9 million.

As of June 30, 2023, 1,868 residential lots have been sold to homebuilders. We anticipate selling our remaining residential lots to homebuilders either upon completion of horizontal lot development or in bulk as unimproved lots over the next three years and it could take substantially longer. We anticipate selling the golf course operations to a third party upon completion of residential lot sellout. There can be no assurance, however, that these sales will be completed.

### Our Monetizing Portfolio

As of June 30, 2023, we owned assets that we expect to monetize primarily through asset sales, loan repayments or active asset management. These assets included in our portfolio as of June 30, 2023 had an aggregate carrying value of approximately $57.4 million and were comprised primarily of loans, operating properties, land and other assets. Summarized information regarding these assets is set forth below.

***Loans.*** The loans included in our monetizing portfolio as of June 30, 2023 include one asset with an aggregate carrying value of $13.4 million. The asset is secured by equity interests in entities that own directly or indirectly real properties.

***Operating Properties.*** The operating properties included in our portfolio as of June 30, 2023 include two ventures which sold residential active adult properties and have an aggregate carrying value of $0.3 million as the ventures liquidate.

***Land.*** The land assets included in our portfolio as of June 30, 2023 include three assets with an aggregate carrying value of approximately $39.8 million and one interest in a land venture with a carrying value of $0.1 million. Our general strategy is to seek to sell the land assets to third party developers.

***Other.*** The remainder of the monetizing assets primarily consist of two short term leases that we have subleased to third parties, which had an aggregate carrying value of $3.9 million as of June 30, 2023, and a group of loans and equity interests that are recorded as having no carrying value in our financial statements. Our general strategy is to seek to sell the leased assets, although we may hold one or both leases until they expire. For the assets with no carrying value, we may seek to sell these assets but can give no assurance that we will recover any value from them.

***Investment in Safe.*** In addition to the assets described above, we also own the Safe Shares which had a fair value of $320.9 million based on the closing price of $23.73 as of June 30, 2023.

The Safe Shares collateralize our Margin Loan Facility and we are prohibited from transferring any Safe Shares for nine months following the closing of the Merger, except as may be required under the terms of the Margin Loan Facility. After the expiration of the 9 month lockup and repayment of the Margin Loan Facility, our Safe Shares would be available to us as a source of liquidity to address future capital needs subject to market conditions.

### Results of Operations for the Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ For the Three Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ ​ ​ $ Change | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- |
| Operating lease income | ​ | $1,610 | ​ | $3,182 | ​ | $(1,572) | ​ |
| Interest income | ​ | 397 | ​ | 4,221 | ​ | (3,824) | ​ |
| Other income | ​ | 11,655 | ​ | 8,937 | ​ | 2,718 | ​ |
| Land development revenue | ​ | 11,818 | ​ | 24,403 | ​ | (12,585) | ​ |
| Total revenue | ​ | 25,480 | ​ | 40,743 | ​ | (15,263) | ​ |
| Interest expense | ​ | 2,609 | ​ | 10,538 | ​ | (7,929) | ​ |
| Interest expense - related party | ​ | ​ 2,100 | ​ | ​ — | ​ | ​ 2,100 | ​ |
| Real estate expense | ​ | 12,395 | ​ | 12,399 | ​ | (4) | ​ |
| Land development cost of sales | ​ | 12,356 | ​ | 24,095 | ​ | (11,739) | ​ |
| Depreciation and amortization | ​ | 1,090 | ​ | 1,196 | ​ | (106) | ​ |
| General and administrative | ​ | 7,552 | ​ | (2,067) | ​ | 9,619 | ​ |
| (Recovery of) provision for loan losses | ​ | (69) | ​ | 22,578 | ​ | (22,647) | ​ |
| Impairment of assets | ​ | — | ​ | 1,750 | ​ | (1,750) | ​ |
| Other expense | ​ | 315 | ​ | 41 | ​ | 274 | ​ |
| Total costs and expenses | ​ | 38,348 | ​ | 70,530 | ​ | (32,182) | ​ |
| Unrealized loss on equity investment | ​ | ​ (76,268) | ​ | ​ — | ​ | ​ (76,268) | ​ |
| Loss on early extinguishment of debt | ​ | ​ (1,040) | ​ | — | ​ | (1,040) | ​ |
| Earnings from equity method investments | ​ | 242 | ​ | 8,904 | ​ | (8,662) | ​ |
| Net income (loss) | ​ | $(89,934) | ​ | $(20,883) | ​ | $(69,051) | ​ |

***Revenue—***Operating lease income, which primarily includes income from commercial operating properties, decreased to $1.6 million during the three months ended June 30, 2023 from $3.2 million for the same period in 2022. The decrease was primarily due to the sale of assets.

Interest income decreased to $0.4 million during the three months ended June 30, 2023 from $4.2 million for the same period in 2022. The decrease in interest income was due primarily to a decrease in the average balance of our performing loans and other lending investments due to loan sales and the repayment of loans during 2022 and 2023.

Other income increased to $11.7 million during the three months ended June 30, 2023 from $8.9 million for the same period in 2022. Other income consists primarily of dividend income from our investment in Safe and income from our hotel properties and other operating properties, including Asbury Lanes and the Magnolia Green Golf Club. The increase in 2023 was due primarily to dividend income from Safe.

***Land development revenue and cost of sales—***During the three months ended June 30, 2023, we sold residential lots and units and recognized land development revenue of $11.8 million which had associated cost of sales of $12.4 million. During the three months ended June 30, 2022, we sold residential lots and units and recognized land development revenue of $24.4 million which had associated cost of sales of $24.1 million. The decrease in land development revenue in 2023 was due primarily to a decrease in revenues from our Magnolia Green and Asbury Park properties. As we execute future sales and have fewer remaining residential and development assets, we expect our land development revenue will further decline. The timing and amount of such sales cannot be predicted with certainty.

***Costs and expenses—***Prior to the Spin-Off, interest expense represented an allocation to us from iStar. Interest expense was allocated to us by calculating our average net assets by property type as a percentage of the average net assets of iStar's segments and multiplying that percentage by the interest expense allocated to each of iStar's segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, interest expense represents the debt service on our Margin Loan Facility. For the three months ended June 30, 2023, we incurred $2.5 million of interest expense on our Margin Loan Facility, net of amounts capitalized. For the three months ended June 30, 2022, we were allocated $10.5 million of interest expense.

Interest expense - related party represents the debt service on our Safe Credit Facility, net of amounts capitalized.

Real estate expense was $12.4 million during the three months ended June 30, 2023 and $12.4 million for the same period in 2022. Real estate expense primarily represents expenses at our hotel and retail operating properties and land properties. An increase in expenses at our hotel properties in 2023 was offset by a decrease in expenses due to properties being sold.

Depreciation and amortization was $1.1 million during the three months ended June 30, 2023 and $1.2 million for the same period in 2022.

Prior to the Spin-Off, general and administrative expense represented an allocation of costs, including performance-based compensation, to us from iStar. General and administrative expenses, including stock-based compensation, represented a pro rata allocation of costs from iStar's real estate finance, operating properties, land and development and corporate business segments based on our average net assets for those property types as a percentage of iStar's average net assets for those segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, general and administrative expense includes management fees to our Manager and other costs of operating as a public company. During the three months ended June 30, 2023, we incurred $7.6 million of general and administrative expense, primarily resulting from management fees to Safe and director fees. During the three months ended June 30, 2022, we were allocated ($2.1) million of general and administrative expense from iStar. The recovery in 2022 was due primarily to a decrease in performance based compensation at iStar.

The recovery of loan losses was $0.1 million for the three months ended June 30, 2023 as compared to a provision for loan losses of $22.6 million for the same period in 2022. The recovery of loan losses for the three months ended June 30, 2023 resulted primarily from the repayment of a loan during the quarter. The provision for loan losses for the three months ended June 30, 2022 resulted primarily from a $25.0 million provision on our held-to-maturity security, which was recorded at its repayment proceeds.

During the three months ended June 30, 2022, we recognized an impairment of $1.8 million on an operating property based on the expected cash flows to be received.

Other expense was $0.3 million during the three months ended June 30, 2023 and $0.1 million for the same period in 2022. The increase in other expenses for the three months ended June 30, 2023 was due primarily to an increase in professional fees.

Unrealized loss on equity investment represents the unrealized loss on our Safe Shares. Subsequent to the Spin-Off, we account for our Safe Shares as an equity investment under ASC 321, which requires that we adjust our investment in the Safe Shares to fair value through income at each reporting period. The unrealized loss represents the difference between the fair value of our investment in the Safe Shares as of June 30, 2023 and March 31, 2023.

***Loss on early extinguishment of debt, net—***During the three months ended June 30, 2023, we incurred losses on early extinguishment of debt from the repayment of our Margin Loan Facility (refer to Note 9 to the consolidated financial statements).

***Earnings from equity method investments—***Earnings from equity method investments was $0.2 million during the three months ended June 30, 2023 and $8.9 million for the same period in 2022. During the three months ended June 30, 2023, we recognized $0.2 million of net aggregate income from our land and operating property ventures. During the three months ended June 30, 2022, we recognized $5.5 million of income from our historical equity method investment in Safe and $3.4 million of net aggregate income from our remaining equity method investments. After completion of the Spin-Off, we no longer treat our investment in Safe Shares as an equity method investment.

### Results of Operations for the Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ For the Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ ​ ​ $ Change | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- |
| Operating lease income | ​ | $3,310 | ​ | $6,291 | ​ | $(2,981) | ​ |
| Interest income | ​ | 1,512 | ​ | 9,094 | ​ | (7,582) | ​ |
| Other income | ​ | 16,062 | ​ | 12,926 | ​ | 3,136 | ​ |
| Land development revenue | ​ | 21,382 | ​ | 39,303 | ​ | (17,921) | ​ |
| Total revenue | ​ | 42,266 | ​ | 67,614 | ​ | (25,348) | ​ |
| Interest expense | ​ | 12,708 | ​ | 23,778 | ​ | (11,070) | ​ |
| Interest expense - related party | ​ | ​ 2,100 | ​ | — | ​ | 2,100 | ​ |
| Real estate expense | ​ | 21,989 | ​ | 22,268 | ​ | (279) | ​ |
| Land development cost of sales | ​ | 22,332 | ​ | 38,591 | ​ | (16,259) | ​ |
| Depreciation and amortization | ​ | 2,171 | ​ | 2,411 | ​ | (240) | ​ |
| General and administrative | ​ | 21,650 | ​ | (1,123) | ​ | 22,773 | ​ |
| Provision for loan losses | ​ | 1,632 | ​ | 22,713 | ​ | (21,081) | ​ |
| Impairment of assets | ​ | — | ​ | 1,750 | ​ | (1,750) | ​ |
| Other expense | ​ | 602 | ​ | 156 | ​ | 446 | ​ |
| Total costs and expenses | ​ | 85,184 | ​ | 110,544 | ​ | (25,360) | ​ |
| Unrealized loss on equity investment | ​ | ​ (166,932) | ​ | — | ​ | (166,932) | ​ |
| Loss on early extinguishment of debt, net | ​ | (1,040) | ​ | — | ​ | (1,040) | ​ |
| Earnings from equity method investments | ​ | 30,216 | ​ | 21,509 | ​ | 8,707 | ​ |
| Net income (loss) | ​ | $(180,674) | ​ | $(21,421) | ​ | $(159,253) | ​ |

***Revenue—***Operating lease income, which primarily includes income from commercial operating properties, decreased to $3.3 million during the six months ended June 30, 2023 from $6.3 million for the same period in 2022. The decrease was primarily due to the sale of assets.

Interest income decreased to $1.5 million during the six months ended June 30, 2023 from $9.1 million for the same period in 2022. The decrease in interest income was due primarily to a decrease in the average balance of our performing loans and other lending investments due to loan sales and the repayment of loans during 2022 and 2023.

Other income increased to $16.1 million during the six months ended June 30, 2023 from $12.9 million for the same period in 2022. Other income consists primarily of dividend income from our investment in Safe, income from our loan portfolio, hotel properties and other operating properties, including Asbury Lanes and the Magnolia Green Golf Club. The increase in 2023 was due primarily to dividend income from Safe.

***Land development revenue and cost of sales—***During the six months ended June 30, 2023, we sold residential lots and units and recognized land development revenue of $21.4 million which had associated cost of sales of $22.3 million. During the six months ended June 30, 2022, we sold residential lots and units and recognized land development revenue of $39.3 million which had associated cost of sales of $38.6 million. The decrease in land development revenue in 2023 was due primarily to a decrease in revenues from our Naples Reserve (fully sold out in 2022), Magnolia Green and Asbury Park properties. As we execute future sales and have fewer remaining residential and development assets, we expect our land development revenue will further decline. The timing and amount of such sales cannot be predicted with certainty.

***Costs and expenses—*** Prior to the Spin-Off, interest expense represented an allocation to us from iStar. Interest expense was allocated to us by calculating our average net assets by property type as a percentage of the average net assets of iStar's segments and multiplying that percentage by the interest expense allocated to each of iStar's segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, interest expense represents the debt service on our Margin Loan Facility. For the six months ended June 30, 2023, we incurred $2.5 million of interest expense from our Margin Loan Facility, net of amounts capitalized. For the six months ended June 30, 2023 and 2022, we were allocated $8.0 million and $23.8 million, respectively, of interest expense. The decrease in interest expense allocated to us in 2023 was due primarily to us not receiving an allocation subsequent to the Spin-Off and a decrease in our average net assets as well as a decrease in iStar’s average outstanding debt and average cost of debt as compared to 2022. For the six months ended June 30, 2023, interest expense also included amounts payable to iStar prior to the Spin-Off.

Interest expense -related party represents the debt service on our Safe Credit Facility, net of amounts capitalized.

Real estate expense was $22.0 million during the six months ended June 30, 2023 and $22.3 million for the same period in 2022. Real estate expense primarily represents expenses at our hotel and retail operating properties and land properties. An increase in expenses at our hotel properties in 2023 was offset by a decrease in expenses due to properties being sold.

Depreciation and amortization was $2.2 million during the six months ended June 30, 2023 and $2.4 million for the same period in 2022.

Prior to the Spin-Off, general and administrative expense represented an allocation of costs, including performance-based compensation, to us from iStar. General and administrative expenses, including stock-based compensation, represented a pro rata allocation of costs from iStar's real estate finance, operating properties, land and development and corporate business segments based on our average net assets for those property types as a percentage of iStar's average net assets for those segments (refer to Note 2 to the combined and consolidated financial statements). Subsequent to the Spin-Off, general and administrative expense includes management fees to our Manager and other costs of operating as a public company. During the six months ended June 30, 2023, we incurred $21.7 million of general and administrative expense, primarily resulting from management fees to Safe, audit and legal fees and a $14.1 million allocation from iStar. During the six months ended June 30, 2022, we were allocated ($1.1) million of general and administrative expense from iStar. The increase in 2023 from 2022 was due primarily to an increase in general and administrative expense at iStar resulting from an increase in performance-based compensation at iStar.

The provision for loan losses was $1.6 million for the six months ended June 30, 2023 as compared to a provision for loan losses of $22.7 million for the same period in 2022. The provision for loan losses for the six months ended June 30, 2023 resulted primarily from the sale of a non-performing loan, which was partially offset by a reversal of Expected Loss allowances on loans that repaid in full in during 2023. The provision for loan losses for the six months ended June 30, 2022 resulted primarily from a $25.0 million provision on our held-to-maturity security, which was recorded at its repayment proceeds.

During the six months ended June 30, 2022, we recognized an impairment of $1.8 million on an operating property based on the expected cash flows to be received.

Other expense was $0.6 million during the six months ended June 30, 2023 and $0.2 million for the same period in 2022. The increase in other expenses for the six months ended June 30, 2023 was due primarily to legal and consulting costs in connection with the sale and repayments of non-performing loans.

Unrealized loss on equity investment represents the unrealized loss on our Safe Shares. Subsequent to the Spin-Off, we account for our Safe Shares as an equity investment under ASC 321, which requires that we adjust our investment in the Safe Shares to fair value through income at each reporting period. The unrealized loss represents the difference between the fair value of our investment in the Safe Shares as of June 30, 2023 and iStar’s historical carrying amount of the Safe Shares at the time of the Spin-Off.

***Loss on early extinguishment of debt, net—***During the six months ended June 30, 2023, we incurred losses on early extinguishment of debt from the repayment of our Margin Loan Facility (refer to Note 9 to the consolidated financial statements).

***Earnings from equity method investments—***Earnings from equity method investments was $30.2 million during the six months ended June 30, 2023 and $21.5 million for the same period in 2022. During the six months ended June 30, 2023, we recognized $1.1 million of income from our historical equity method investment in Safe and $29.1 million of net aggregate income from our remaining equity method investments due to asset sales at the ventures. During the six months ended June 30, 2022, we recognized $11.9 million of income from our historical equity method investment in Safe and $9.6 million of net aggregate income from our remaining equity method investments. After completion of the Spin-Off, we no longer treat our investment in Safe Shares as an equity method investment.

### Liquidity and Capital Resources

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

Our sources of cash will be largely dependent on asset sales, which are difficult to predict in terms of timing and amount. While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial position, liquidity and results of operations. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed. Our primary sources of liquidity will generally consist of our cash on hand and proceeds from asset sales.

We expect our short-term and long-term liquidity requirements to include:

- capital expenditures on our Asbury Park Waterfront and Magnolia Green development projects;
- debt service on the Safe Credit Facility and the Margin Loan Facility (refer to Note 9 to the combined and consolidated financial statements), and any other indebtedness including any repurchase agreements;
- management fees and expense reimbursements payable to our manager;
- operating expenses; and
- distributions to shareholders if we have any excess cash on hand from asset sales after the repayment of our debt obligations.

We expect to meet our short-term liquidity requirements through any cash flows from operations, proceeds from asset sales and our unrestricted cash. We expect to meet our long-term liquidity requirements through any cash flows from operations and proceeds from asset sales.

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

The following table outlines our cash flows provided by operating activities, cash flows used in investing activities and cash flows provided by financing activities for the six months ended June 30, 2023 and 2022 ($ in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ For the Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ |
| --- | --- | --- | --- | --- | --- |
| Cash flows provided by (used in) operating activities | ​ | $(4,656) | ​ | $(19,218) | **​** |
| Cash flows provided by (used in) investing activities | ​ | ​ 128,880 | ​ | ​ 59,332 | **​** |
| Cash flows provided by (used in) financing activities | ​ | ​ (73,904) | ​ | ​ (37,921) | **​** |

The decrease in cash flows used in operating activities during 2023 was due primarily to an increase in distributions from equity method investments. The increase in cash flows provided by investing activities during 2023 was due primarily to an increase in distributions from other investments and a decrease in contributions to other investments, which was partially offset by a decrease in proceeds from the repayment and sale of loans receivable and a decrease in proceeds from land and development sales. The increase in cash flows used in financing activities during 2023 was due primarily to greater distributions to iStar in 2023 from asset liquidations and an increase in the repayment of debt obligations, partially offset by an increase in borrowings from debt obligations in 2023.

**Debt Covenants—** The Margin Loan Facility requires that we comply with various covenants, including, without limitation, covenants restricting, subject to certain exceptions, indebtedness, liens, investments and the payment of dividends. Additionally, the Margin Loan Facility includes customary representations and warranties, events of default and other creditor protections for this type of facility. Upon the occurrence of certain events which are customary for this type of facility, we may be required to prepay all amounts due under the Margin Loan Facility or post additional collateral in accordance with the Margin Loan Facility and related agreements.

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

### Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We base our estimates on historical corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment.

The following is a summary of accounting policies that require more significant management estimates and judgments:

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

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

The provision for loan losses for the six months ended June 30, 2023 and 2022 was $1.6 million and $22.7 million, respectively.

***Impairment or disposal of long-lived assets —*** We periodically review real estate to be held for use and land and development assets for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The asset’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value. Such estimate of cash flows considers factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate and land and development assets, when applicable, are recorded in “Impairment of assets” in our combined and consolidated statements of operations. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.

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

## Market risk

As filed, 3,262 characters.

### Market Risks

Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect our floating liabilities. Any significant increase in interest rates on our interest-bearing liabilities could have a material adverse effect on us. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.

In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest-earning assets and interest-bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate-related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers.

The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest-bearing liabilities, should interest rates decrease or increase by 10, 50 or 100 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the three-month SOFR rate of 5.27% as of June 30, 2023. Actual results could differ significantly from those estimated in the table.

### Estimated Change In Net Income

($ in thousands)

| ​ Change in Interest Rates | ​ | ​ ​ ​ Net Income(1) |
| --- | --- | ---: |
| -100 Basis Points | ​ | $601 |
| -50 Basis Points | ​ | 300 |
| -10 Basis Points | ​ | ​ 60 |
| Base Interest Rate | ​ | — |
| +10 Basis Points | ​ | (60) |
| +50 Basis Points | ​ | (300) |
| +100 Basis Points | ​ | (601) |

(1) As of June 30, 2023, we had $115.0 million principal amount of floating-rate debt obligations outstanding and $54.9 million of cash and cash equivalents.

## Controls and procedures

As filed, 2,426 characters.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company has formed a disclosure committee that is responsible for considering the materiality of information and determining the disclosure obligations of the

Company on a timely basis. The disclosure committee reports directly to the Company’s Chief Executive Officer and Chief Financial Officer.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the disclosure committee and other members of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) or Rule 15d-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

There have been no changes in the Company’s internal control over financial reporting during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

## Risk factors

As filed, 439 characters.

There were no material changes from the risk factors previously disclosed in the preliminary information statement included as Exhibit 99.1 to Star Holdings' Registration Statement on Form 10 (File No. 001-41572) initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 16, 2022, the final version of which was included as Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on March 22, 2023.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-014241. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.