Good morning and welcome to Safehold’s Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. As a reminder, today’s conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, Senior Vice President of Capital Markets and Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today for Safehold’s earnings call. On the call, we have Jay Sugarman, Chairman and Chief Executive Officer; Brett Asnas, Chief Financial Officer; and Tim Doherty, Chief Investment Officer. This morning, we plan to walk through a presentation that details our fourth quarter and fiscal year 2023 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 2 p.m. Eastern Time today. The dial-in for the replay is 877-481-4010 with a confirmation code of 49838. Before I turn the call over to Jay, I’d like to remind everyone that statements in this earnings call, which are not historical facts, may be forward-looking. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. Now, with that, I’d like to turn it over to Chairman and CEO, Jay Sugarman. Jay?

Thanks, Pearse, and thank you to everyone for joining us today. It’s a new year and we want to make it a good one with a clear focus and the expectation of a more favorable interest rate backdrop. If the consensus is correct and rates begin to finally fall this year, we are optimistic that we can return to solid growth in EPS, restart the deal in capital market engines, and recapture the interest that was building in Caret. As most of you know and experienced with us, 2023 was a frustrating year. We reached a lot of key milestones and added important long-term positives for the company. But rapidly rising interest rates overshadowed these positives, slowing deal flow and hurting our share price. But as you will see in today’s presentation, 2023’s achievements have set the table for us going forward as we wait for the headwinds we have been dealing with to begin to turn into tailwinds. Now, let’s have Brett take you through the fourth quarter and the year.

Thank you, Jay. Good morning, everyone. Let’s begin on Slide 3. 2023 was an important year for CFO. While the overall operating environment was challenged by rate uncertainty and volatility, both of which weighed on transaction activity and our stock price, we were able to achieve a number of positive outcomes that we believe have the company positioned for success as stability and growth return. Internalizing management simplified our corporate architecture. Improved ownership dynamics brought all competitive advantages in-house, meaningfully improved governance and put a cost structure in place that we believe should achieve long-term synergies as we scaled the business. On the investor front, we were pleased to add MSD Partners as a large investor in the business. Not only did they invest $200 million into our common stock when the internalization closed, but they also led our second Caret investment round at a $2 billion valuation. On the credit side, both Moody’s and Fitch appreciated the cleaner corporate structure and consistency in our strategy, which led to positive action from both. Fitch changed our outlook to positive and Moody’s upgraded us to A3, which elevates our credit profile and is expected to result in improved cost and access to capital over the long term. On the capital raising front, we raised $152 million through the issuance of common equity to a diverse investor base, again led by MSD Partners who participated at their pro rata ownership level. We accessed the bank market early in 2023, increasing the size of our revolving credit facilities to $1.85 billion, adding a new bank partner and underscoring our deep relationships with our banking group. We also put in place a $500 million joint venture with a sovereign wealth fund partner that adds liquidity and flexibility to pursue new ground lease opportunities. At year end, the total portfolio was $6.4 billion, UCA was estimated at $9.8 billion, GLTV was 44%, and rent coverage was 3.6x. We ended the year with $752 million of liquidity, which was further enhanced by the unused capacity in our joint venture. Slide 4 provides a snapshot of our portfolio growth. During the fourth quarter, we originated three new multifamily ground leases for $56 million. All three originations were fully funded at closing. Two of the originations are wholly owned. One was done in the joint venture. The credit metrics associated with these deals are in line with our portfolio targets: GLTV of 39%, rent coverage of 2.8x, and an economic yield of 7.4%. In the fourth quarter, we funded a total of $122 million across three categories: $46 million of Q4 new originations earning a 7.4% economic yield, that figure is net of our partners’ $10 million JV interest in one deal, $68 million of ground lease fundings on pre-existing commitments that have a 6.3% economic yield, and lastly, $8 million related to our 53% share of the leasehold loan fund, which earned interest at a weighted average spread of SOFR plus 604 for the quarter. For the full year, we closed on 7 multifamily ground leases for a gross commitment of $204 million. Safehold’s share is $177 million, of which $63 million remains unfunded. The credit metrics associated with these deals are consistent with our portfolio targets, with a weighted average GLTV of 34%, rent coverage of 2.7x, and an economic yield of 7.4%. For the full year, we funded a total of $529 million across 5 categories: $114 million of new ground lease originations earning a 7.4% economic yield; $227 million of ground lease fundings on pre-existing commitments that have a 5.6% economic yield; $43 million related to our 53% share of the leasehold loan fund, which earned interest at a weighted average spread of SOFR plus 508 for the year; $29 million related to our 53% share of the ground lease plus fund, which earns a 7.2% economic yield; and the $115 million Star Holdings term loan earning 8%. Our ground lease portfolio now has 137 assets and the portfolio has grown 19x since the IPO, while the estimated unrealized capital appreciation sitting above our ground leases has grown 22x. In total, the UCA portfolio is comprised of approximately 35 million square feet of institutional quality commercial real estate, consisting of approximately 18,000 units of multifamily, 12.5 million square feet of office, over 5,000 hotel keys, and 2 million square feet of life science and other property types. Continuing on Slide 5 let me detail our quarterly and annual earnings results. For the fourth quarter, GAAP revenue was $103 million, net income was $41.2 million and earnings per share was $0.58. For the full year, GAAP revenues were $352.6 million, net income was negative $55 million, and earnings per share was negative $0.82. 2023 was a noisy year for the P&L, with several non-recurring items, primarily merger-related obscuring true run-rate earnings. After backing out one-time items, net income for the fourth quarter was $25.5 million and earnings per share was $0.36, making the same adjustments for the full year along with backing out merger and carrier related costs, which weren’t incurred in Q4, net income was $96.8 million and earnings per share was $1.45. I won’t spend time on adjustments from Q3 that were discussed on previous calls, but I did want to highlight one notable non-recurring item in the fourth quarter. During the quarter, we realized a $15.2 million hedge gain through other income and our GAAP financials. We employ hedge accounting to reduce P&L volatility because it allows us to attach specific hedges to debt instruments and therefore recognize any gains or losses over the life of the debt rather than on a mark-to-market basis each quarter. In order to qualify for this accounting, we are required to attach the hedge to debt through defined forecast dates. In this case, we allowed a hedge forecast date to expire without attaching debt, and we were required to recognize the value of the gain on that hedge all at once. I will provide more detail in our overall hedging shortly, but I want to be clear that this is strictly an accounting requirement, and we remain economically hedged at an appropriate level. This gain has been excluded from our previously mentioned adjusted earnings. Moving to Q4 and full year EPS, excluding non-recurring items of $0.36 and $1.45, I will highlight a few reasons for the year-over-year decreases. First total G&A net of the Star Holdings management fee was approximately $0.8 million higher in the fourth quarter 2023 and approximately $4.4 million higher for the full year 2023 than the same respective periods in 2022. This increase was expected and has been communicated to the market prior to and when we internalized. Over time, we expect our cost structure to provide meaningful savings versus the previous growing and uncapped external management structure. I will return to G&A after highlighting two more variances. Next, as we mentioned on the last quarter’s earning call, in the third quarter, we recognized a $1.9 million GAAP loss related to terminating an option to purchase a $215 million ground lease beneath a spec office development in the Greater Seattle area. Lastly, interest expense for the fourth quarter and full year 2023 was higher due to elevated SOFR and a larger average drawn balance. Over the last 18 months, we have mitigated the impact of higher rates by putting in place $500 million floating to fixed swaps, fixing SOFR at approximately 3% as well as legging into $400 million of long-term hedges for permanent debt that are meaningfully in the money, but not yet flowing through the P&L. With that, let me now return to our cost structure and provide color on where we stand relative to initial projections. We initially communicated at the time of internalization that target G&A would be approximately $50 million per year net of SPHL management fees. That cost structure was intended to support growth and benefit from strong operating leverage, given the lack of variable costs required to manage a ground lease portfolio. Over the course of 2023, costs trended better than projections. Post internalization results indicated that net G&A was approximately 10% lower than expectations. Due to a pullback in overall real estate transaction activity, we have seen our origination volumes slow accordingly. While we believe that this is a temporary slowdown, we are beholden to stakeholders and want to be responsive in how we manage items in our control, including taking a critical view of costs. As such, we made certain headcount reductions during the fourth quarter in areas that we believe we have grown to be more efficient in. We expect additional savings from these changes. We are expecting net G&A in 2024 to be reduced by approximately 5% from what we incurred in 2023. While we are forecasting a lower cost structure, and we’ll be emphasizing efficiency, this in no way alters our growth ambitions. We will continue to invest in developing talent and growing productivity. Our goal remains to be the best in this large and underserved market, and we have a fantastic team in place to get us there. On Slide 6, we detail our portfolio’s yields. Our ground leases have two different components of value. The first is a rent stream of compounding cash flows, which is akin to a high grade bond, except our leases have additional inflation protection on top of that that bonds do not provide. The second value component is the future ownership rights in the building at lease expiration. As we discussed in depth last quarter, there is a significant disconnect between what we recognized for GAAP versus what we underwrite and expect to earn economically. On our $6.3 billion portfolio, this yield delta equates to real earnings power, and we will continue to speak about this difference and highlight the value components within our business that are less apparent in the financials. The portfolio currently earns a 3.5% cash yield and a 5.2% annualized yield for GAAP earnings. That GAAP annualized yield is punitive for certain legacy style ground leases that we acquired that have a variable rent component such as fair market value resets, percentage rent, or CPI-based escalators. For GAAP, we are required to assume zero go-forward growth and zero go-forward inflation for these components over the term of the lease. As such, we have a number of assets earning unrealistic or atypically low yields relative to our underwriting. To put a finer point on it, approximately 17% of our portfolio earns a 3.0% for GAAP annualized yields, although we expect to earn 5.8% under standard 2% CPI or growth assumption. The second box utilizes basic bond or IRR math that applies conservative underwriting and standard growth expectations of 2%. That approach generates an expected 5.7% economic yield on the portfolio, which is in line with how we have underwritten these assets. The 50 basis point delta between the 5.2% GAAP yield versus the 5.7% economic yield on a $6.3 billion portfolio is a meaningful value component over time. Our yields have further upside when you layer in our periodic CPI look backs. Under the Federal Reserve’s current long-term breakeven rate of 2.24%, our 5.7% economic yield increases to a 5.8% inflation adjusted yield. The second component of value in the portfolio is our future ownership rights, which is the unrealized capital appreciation we track quarterly. Caret is the subsidiary that owns UCI and Safe’s shareholders own 82% of Caret. Caret adjusted yield uses the inflation adjusted yield as a starting point and enumerates the estimated yield benefit from Safehold’s 82% interest in Caret at its latest $2 billion valuation. This adjustment produces a 7.4% Caret adjusted yield, which is an illustrative metric intended to highlight this important value component that remains largely unrecognized by the market today. Turning to Slide 7, we show a geographic breakdown of our portfolio. The slide highlights the portfolio’s diversification by location and underlying property type. Our top 10 markets by GBV are highlighted on the right, representing approximately 70% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page separating the portfolio by region and property type. It is clear that office as an asset class is going through a period of structural change and revaluation. As a result, we are not surprised to see our office GLTVs increase. Based on the natural timing lag from the appraisal process, we would expect these figures to continue to increase over the coming quarters, even after certain assets reached their cyclical bottom. Conversely, when certain assets begin to see more capital flows and better valuation prospects, we would expect a delay in recognizing that benefit. We continue to believe that investing in well-located institutional quality ground leases in the top 30 markets that have attractive risk-adjusted returns will benefit the company and its stakeholders over long periods of time. Lastly, on Slide 8, we provide an overview of our capital structure. At the end of the fourth quarter, we had approximately $4.4 billion of debt, comprised of $1.5 billion of unsecured notes, $1.5 billion of non-recourse secured debt, $1.1 billion drawn on our unsecured revolver, and $272 million of our pro-rata share of debt on ground leases, which we own in joint ventures. Our weighted average debt maturity is approximately 22.2 years, and we had no corporate maturities due until 2026, which is our revolving credit facility. At quarter end, we had approximately $752 million of cash and credit facility availability. We look to manage interest rate risk on floating rate borrowings appropriately, and I have put a number of hedges in place to do so. Of the approximately $1.1 billion revolver balance outstanding, $500 million of swap to fix SOFR at 3%. This is a 5-year swap that we have projection on through April 2028. We currently receive swap payments on a current cash basis each month, and at today’s rates produces cash interest savings of approximately $3 million per quarter that is currently flowing through the P&L. Of the remaining approximately $600 million drawn, we have $400 million of long-term treasury locks at a weighted average rate of approximately 3.6%. Today, our long-term hedges are approximately $55 million in the money. The outstanding hedges are marked-to-market, so no cash changes hands each month. While we do recognize these gains on our balance sheet in AOCI, they are not yet recognized in the P&L. While these hedges can be utilized through the end of 2025, they can be unwound for cash at any point prior. As we look to term out revolver borrowings with long-term debt, we may unwind the hedges and attach the gains to the debt, lowering the effective economic rate we pay while amortizing the gain over a long period of time. The remaining unhedged exposure is largely offset by our higher yielding investments connected with the internalization, including the floating rate income we receive on our leasehold loan fund interest. The weighted average credit spread we earn on those loans exceeds what we pay on our line by 405 basis points. We are levered 1.9x on a total debt to book equity basis. The effective interest rate on permanent debt is 3.9%, which is a 138 basis points spread to the 5.2% GAAP annualized yield on the portfolio. The portfolio’s cash interest rate on permanent debt is 3.3%, which is an 18 basis points spread to the 3.5% annualized cash yield. On the credit ratings front, we have previously discussed the Moody’s A3 upgrade, which was a strong outcome at a difficult time that underscores the fundamental credit strengths of the business, and we believe it should have long-term benefits for the company. Subsequent to quarter end, Fitch, which had put us on positive outlook in the beginning of 2023, recently affirmed our positive outlook. While we have accomplished numerous key drivers for an upgrade and the credit has improved in many important facets, we will continue to work with their team to accomplish our goal of reaching an A minus rating. So to conclude, 2023 was a busy year that brought its fair share of challenges. But we took a number of important steps to solidify the business and position ourselves for success as markets begin to stabilize and inevitably rebound. We remain focused on delivering value to our customers through our attractive capital solution and look forward to what 2024 has to offer. And with that, let me turn it back to Jay.

Thanks, Brett. As Brett mentioned, organizationally, we have tightened the ship and have been working to run leaner and more efficiently. We will, of course, add talent as growth justifies it, but feel very good with the team we have in place today. Ultimately, serving our customers and seeking to generate strong risk-adjusted returns for investors is the path forward. So we will focus on these two missions to help get the value of our business more appropriately recognized in the marketplace. And with that, operator, let’s open it up for questions.

Thank you. Our first question is coming from Nate Crossett with BNP. Your line is live.

Hey, good morning. Two questions. First, Jay, maybe you can just speak to the pipeline right now, have you closed anything so far in Q1? When do you think we should maybe expect more activity to ramp this year? And then questions too for Brett, you gave a lot of commentary on the balance sheet on the revolver specifically, how should we be thinking about when you may look to turn that out and what would maybe pricing look like?

Hi, Nate. Good morning. Yes, I found the pipeline. I like what I’m starting to see, not likely to see an impact until the second quarter, but definitely feels like a better foundation to work from than maybe the last couple of quarters of last year, where I think the rate uncertainty was really hitting the pipeline. We had a lot of deals almost get to the finish line, but one way or the other didn’t get there. So like the level of activity we are seeing, but it’s going to take some time to build and turn those into real deals. So first quarter is definitely going to suffer and second quarter, I think we are going to start to see the benefits of all the work our guys are putting in.

Yes, as far as – hey, Nate, it’s Brett. As far as the balance sheet and the revolver, as I mentioned, we are drawn $1.1 billion. We are appropriately hedged. So the current mark-to-market in the money, gains that we have are roughly $55 million. So it feels like from a margin standpoint that we are locked in, but we certainly want to be able to term out some of those borrowings. The market obviously has been much more constructive to start the year versus when we were on our last earnings call a few months ago, when the 30-year and the 10-year were both about 5%. So now we are sitting at a much better level, but we are going to be opportunistic and think about what the right pocket is, think about what the right structure is. We have different options when it comes to tenor. So we really need to be thoughtful about either a public or a private execution, but we are hedged and we have ample liquidity off our revolver as well as the joint venture. So feel pretty good about our capital position as well as our hedging.

Okay, I’ll leave it there. Thanks.

Thank you. Our next question is coming from Anthony Paolone with JPMorgan. Your line is live.

Great. Thank you. Good morning. My first question is, I was wondering if you can maybe give us either an example or some color around what a ground lease structure looks like for a multifamily sponsor today and what kind of leasehold proceeds they would get on GSE debt versus them just keeping a fee simple interest in their property, just trying to understand sort of value proposition that you all have been providing there?

Hey, it’s Tim Doherty. Yes. So on the proposition for, I guess, you used multifamily as the example, our success there in terms of a 70 plus multifamily transaction, I think shows what we are able to provide there with some of these deals now that are being recapitalized as predominantly where the volume is coming in, multifamily side, coming to us with our cost of capital. So we are typically in that 65, over the 30-year treasuries of somewhere, depending on where treasuries are that day and that period of time is somewhere around 5%. And then they are going to the capital markets and getting that capitalized on the debt side, getting similar debt yield dynamics on the leasehold cash flow. And so, the difference in capital on a traditional deal fee simple is somewhere in the 55% to 60% leverage. And then with the ground lease providing approximately 30% of the capital stack, leasehold debt coming in, we are getting to roughly around the low 60s capitalization at a lower blended cost of capital. So that’s the value proposition for our clients that we are talking to.

Okay, so 5 - if I caught all that right, about 5 to 10 points of extra proceeds going the ground lease route, slightly less, maybe blended cash and then obviously, the growth in the ground lease payments over time. That’s the sort of picture is that – did I get cash that all?

Correct. Yes. Yes, correct. And so on the fee simple side, you are seeing that the agencies are in the high 100s to 200 spread is where they are pricing. So their capital today is in the mid-6s, versus our capital, closer to 5 and that’s where you can get to the blend there.

Okay, thanks. And then, second question, you commented about just the ground lease value to total kind of creeping up a little in office, but in general, do you – are there any of your lease holders where the equity is in default? Or can you talk about just the monitoring process, just in terms of the underlying, what’s happening, where there’s debt on the leasehold, and what’s happening with the sponsors there?

Yes. I think, obviously, take a step back. I think all office markets are definitely in a recession, that supply and demand is still somewhat out of whack right now. So, leasing has not really recovered in many gateway cities. And that won’t really change until we see demand pick back up. We have seen a few green shoots, particularly in New York City. You think about the best buildings and the best locations we have recently shopped the market, definitely have seen tightening. It’s not just also – it’s the very best buildings that are location-driven. I would say anecdotally, we are in a 50-year-old building with low ceilings, no amenities, and we have seen rates actually jumping much higher. So, it is going to be a market-by-market situation. But we haven’t seen that in the other gateway cities. So our customers are obviously dependent on leasing activity; that’s their driver. This reminds me a little bit of the hotels in the COVID cycle. We kind of have to watch the whole sector. When a sector gets under pressure and under that kind of stress, we are watching everything and definitely expect some of our customers to have a difficult time here. That means they are going to have conversations with their capital providers. And we are here to be thoughtful and helpful if somebody needs to do something and reposition an asset, but first and foremost, it’s their responsibility and any other capital providers to them. So we are watching that dynamic and certainly think in 2024 we are going to see a lot of office come under that kind of stress. So something we do need to watch.

Okay, thank you.

Thank you. Our next question is coming from Stephen Laws with Raymond James. Your line is live.

Hi, good morning. Follow-up on Nate’s question. I think, Jay, you mentioned in your remarks, some deals are getting close to the finish line, but just weren’t quite getting over. Can you talk about what those – where those deals get hung up or what discussion points are? Is it an uncertain outlook? Is it something at the property level from a valuation standpoint, kind of what’s preventing more deals from getting over the finish line?

Yes, I would tell you that this interest rate environment is the most volatile I’ve ever seen. So, we help craft a capital stack with the leasehold lender with the equity. Sometimes they have got either mezz or preferred in that stack. Everybody is kind of tracking along, and rates move 50 basis points, and it just throws everything out of kilter. Some of those deals come back. We are definitely working on deals that we put our pens down on, and rates at least early in the year started to look a little more favorable. And those customers have come back. So Tim has got a whole bunch of transactions that are going to be rate sensitive. So we are watching. The information comes through. And I know this morning is a step back, but long-term, we definitely see the trend turning more favorably. Customers are definitely trying to activate more than they were last year, but to get a deal across the finish line, all those pieces need to line up. So a little bit of help from the macro environment would certainly be a positive.

Thanks. And as a follow-up on the realm of the new investment side, all multifamily deals, can you talk about what markets those were in, were they previous borrowers coming back for additional loans on new assets with new borrowers that you haven’t worked with before? Can you give us a little more color on those three deals from Q4? And then kind of what the building pipeline looks like, any markets that appear more active than others?

Sure. Hey, it’s Tim. The three deals we closed were in the student housing space, and one was a multifamily affordable deal. So the – and then there is a good mix was existing clients as well as new clients. And I would say, look on the student housing side, we’re always focused on top-tier university systems and top schools within those systems. Those were in the sunbelt that fit that bill; and then the multifamily deals in the affordable space were out in California, a super high barrier to entry market. New client, so that was the existing – in terms of the pipeline and where it’s building, predominantly in the multifamily space. Both conventional and student housing, age, and income-restricted is where we are seeing the most volume. And also, I would say it’s most actionable deal. So back to your question on where the markets go and look, the capital markets are going to drive the recovery in transaction volume and you are seeing demand for especially like in the CMBS space, as a good example, are the agencies in the multifamily space. That’s where liquidity is. And so that’s driving volume there because that’s our focus is to go into areas that we see that are actionable, and we actually can close on transactions, so that there is not multiple speed bumps where you are dependent on other market factors other than just the capital market side. So we are paying attention to all the other product types for Jay’s comments; you always have to keep an eye on him and understand where recoveries are or lack thereof are occurring. But again, the pipeline I would say is predominantly on the multifamily side.

Great. Thanks, Tim. Appreciate the comments this morning.

Thank you. Our next question is coming from Mitch Germain with Citizens JMP. Your line is live.

Thanks a lot, guys. So it seems like rent coverage for new originations dipped a little relative to the overall portfolio. What’s driving that factor?

Hi, it’s Tim again. Predominantly, look, I mean rates impact the deals. Also our underwriting standards in terms of how we factor in coverage when we close transactions. I think Brett has alluded to those factors that – what coverage is based on our underwriting versus actual performance, on the development side in particular. But look, these are high-quality transactions that some of them are going through stabilization. So that’s where you see some of these on. I think some of the coverages in particular on the new investments.

So coverage will likely improve over time as the asset stabilizes is what you are implying?

Yes. And I think the other factor you are seeing too is on the multifamily transactions, which tend to be tighter coverages on the other asset classes. It’s a market that has a lot of stability and embedded growth in terms of the macroeconomics of those transactions in the markets we play in versus other product types. I think you are seeing a natural tightening with our portfolio, leading to more heavily into the multifamily space as well.

And does the slowdown in overall development activity potentially reduce an area where you guys have had some success in the past?

Right. Just talking about development activity, volumes declining, and it seems like that was an area where you guys had some success after, obviously, replacing the capital stack as deals were completed. So, is that an area where you are not seeing as much activity these days? Development pipelines are down across the country. It’s hard to make those transactions work when there hasn’t been enough volume on the sales side to see where people should transact. So, again, as the transaction side in terms of investment sales picks up, those transactions that could work are being picked up. On the development side, you are seeing a trickle of those come back in high-quality markets where people aren’t seeing transactions like in the multifamily space, see traded at wide cap rates; they are still tight. In a lot of good high-quality markets, you are seeing people pick up their pens on the development deals there. So, you are seeing some transactions. In terms of our pipeline, look, we are looking across the board, from development to existing value-add transactions, different product types. So, sure, we have done some development transactions in the past when we feel that’s the right place to be, and that’s where there is again, actionable transactions. So, there are some development deals. But as you can see from our – the deals we close, it’s a solid mix.

Thank you.

Thank you. Our next question is coming from Harsh Hemnani from Green Street. Your line is live.

Thank you. Thinking through the pipeline, on the pricing side, a lot of the deals in the fourth quarter were priced, I want to say early in October. How good do you feel about achieving yields in the mid-sevens going forward thinking through 2024?

Hi Harsh. Yes. Look, we think anything in the high sixes is a very attractive yield. You just look back historically. And that’s where you would like to play. I think we got a little bit of a benefit in the fourth quarter, caught some timing just right. As I have said, these deals take time to put together, so by the – between where you start and where you finish, there are a lot of moving parts. So, I would always guide us right now to kind of what Tim said, the T plus 65 over the third 30-year with the bump structures and the inflation kickers, it’s still a sweet spot. So, high fours feel good, nominally and sort of relatively. I don’t think sort of the mid-sevens is the target range where rates are today.

Okay. Thanks for that. And then I noticed there was a smaller gain on sale of an asset, about $0.5 million. Was the ground lease assets sold this quarter? And then if so, could you provide the aggregate value of the sale, any sort of yields that you were able to receive on the sale? And if there was any Caret implication associated with the sale?

Yes. Small situation that started to take up more time than it was worth. So, it wasn’t really a strategic move. It was a dual ground lease with two separate assets. We just decided that it was more complicated than it needed to be and let one of those go so we could focus on the more stable of the assets. So, not a big deal in terms of dollars, but it was taking up too much time and made a small profit and just moved on from that one. Do you have any other color, Brett?

Yes. As Jay said, this was a small ground lease from years ago. So, again, the size of the trade was pretty immaterial, I would say.

Okay. Thank you.

Thank you. Our next question is coming from Rich Anderson with Wedbush. Your line is live.

Thanks. Good morning. On the topic of G&A, maybe you can – I know you had to make some tough decisions in the fourth quarter and you are trending lower than you had originally expected. What is the cadence of G&A just if you could remind us for this year that I believe the fees from Star Holdings come down, is it in April from 25 to 15, I might have that wrong. But if you could give sort of like the sort of the quarter-by-quarter sort of movement of G&A in 2024, as you see it now.

Hi Rich. It’s Brett. So, you are right G&A has come down from last year to what we expect to occur this coming year. I think the quarter-to-quarter fluctuations will be a result of what you mentioned, which is the Star Holdings management fees that we received. So, we received that after internalization from Q2 last year through Q1 of ‘24, and then it will continue to step down the year one through year four $25 million, $15 million, $10 million, $5 million is somewhat different for GAAP accrual. It’s based on timesheets being spent and time spent. So, that amount could fluctuate quarter-to-quarter. But also concurrently, as part of the internalization, the LTIP will also be coming down, so it’s somewhat of an offset. So, quarter-to-quarter over the course of the year, it should continue to decline. We should see some of the efficiencies gained in the fourth quarter from that reduced headcount flow through in Q1 and thereafter. But as I have said in my remarks, certainly feels like the opportunity to take 2024 G&A down another 5% from this past year is an achievable target for the year.

But the 5% down isn’t relative to 2023 because you didn’t have the net number. There is a lower fee component, or are you saying the LTIP more than offsets that so that ultimately is down 5% from 2023?

It actually less than offsets it, right, because the Star Holdings management fees come down at a faster clip than that LTIP accrual. So, we are actually picking up and benefiting even more from the reductions because the LTIP is lower than the management fees decline.

Alright. Okay. Thanks. In terms of the Caret, what happens with Marcos’ Caret ownership, and how does that change? I know you said Safe sold 82%, but will that number change slightly with his departure?

Yes. Just, Marcos forfeited by contract about approximately a quarter of his units, so those go back to the company. So, the 82% that Safe holds will go up by the units coming back into the pot. Our long-term goal, Rich, is obviously to target long-term investors and put those in hands that can demonstrate the value. So, I think Safe’s goal here really is to get that value realized, so they have a little bit more flexibility now, just in terms of those units coming back.

Understood. So, does 82% go to just a nominal increase, or is it – can you share what that change?

Shorter percent, 20%.

Fair enough. Okay. Great. Thanks everyone.

Thank you. Our next question is coming from Kelly Kunath with Morgan Stanley. Your line is live.

Thank you. I just wanted to dig back into the G&A quickly. Is all of that 5% structural and ongoing savings or is there a portion of that that needs to turn back on as origination volumes start to ramp back up?

Yes, as I have said in my remarks, we will definitely want to add some talent as we grow. We think this opportunity is going to be very, very large. But we feel great about the team as it is today. So, we have got the resources we need, but I wouldn’t tell you this is a static number.

Thank you. Our next question is coming from Kenneth Lee with RBC Capital Markets. Your line is live.

Hey. Good morning. Thanks for taking my question. Just one around capital position and leverage, wondering if you just talk a little bit more about how you expect leverage to trend over the near-term? Thanks.

Hey Ken. So, from a leverage standpoint, we have always said that 2x debt to equity on our ground lease position is how we want to be able to fund this business two-thirds debt, one-third equity. Right now, we are creeping closer to that 2x. We have always said there may be moments here and there where that could creep – touch above 2x. When you think about our capital position both on existing commitments as well as having the joint venture on new deals that we do ones that will go through that joint venture, we fund 55% of those dollars. So, when you start thinking about the available capital, we have in addition to the pipeline that Tim and Jay both spoke about, I still feel like that’s the appropriate leverage target. I think it’s also an important one that we are always monitoring when we think about ratings actions. As I mentioned in my remarks, Fitch recently affirmed our positive outlook. They would like to see us continue to maintain leverage around that 2x level. So, we are cognizant of that. But we certainly have enough capital tools in the toolkit to be able to continue to deploy capital here over the coming quarter. So, we will monitor accordingly and think about how and when to term out some of those borrowings on the revolver.

Great. That’s all I had. Thank you very much.

Thank you. Our next question is coming from Matt Howlett with B. Riley. Your line of live.

Hey guys. Thanks for taking my question. With the rally in your bond, did I – maybe you talked about it, but are you looking at a 30-year public or private? On the term deal, what are you kind of looking at given the recent rally?

Yes. The start of the year here has been much more constructive than where we were a few months ago. Feels like the options that we have today are exactly what you pointed to, which is it could be somewhere between 10 years to 30 years. We could execute in the public markets, the private markets. You have seen us do everything from flat fixed rate debt to our stepped coupons. So, we are continuing to monitor those options. And certainly, we will look at the appropriate time to term out some of those borrowings. As I mentioned earlier, we are hedged. We think that’s a significant savings from what the headline costs will be when you start to factor in those mark-to-market gains and we unwind those hedges. So, to your point where we are going to actively look to those markets and see what the best execution is for both the short, medium, and long-term.

And that was my question to recognize that cash is over $50 million, that would be – is that going to be time around the bond deal or when the Fed starts cutting just missed significant, just that cash coming in, can give us any more color on when that may be?

Yes, it’s hung up right now as mark-to-market on our balance sheet. When we execute long-term debt, we would look to unwind the hedges at the same time simultaneously. That’s just to give you an example, if we lock in 10-year or 30-year debt at a specific coupon, and we unwind those hedges today, that could be 75 basis points to 100 basis points savings versus the headline cost; that’s material, right. That’s significant for our business both from a cash flow standpoint. We can use that cash to pay down the revolver from the headline cost versus the effective cost for paying and then also we get to take those gains and amortize them over the life of the debt which helps earnings going forward as well.

Great. Thank you. And just one follow-up, bigger picture question. We got a lot of off-balance sheet items that aren’t the GAAP doesn’t recognize, the Caret fair market value leases, I mean what’s I mean going, is there anything you can do big picture strategically? Do you have any of the purchase ground leases? Do you have anything coming due like the next 10 years, you could kind of demonstrate to the market the value underneath it, selling some of these ground leases that GAAP doesn’t give you full credit for? Just strategically, how can you get the market? Maybe it’s Jay, a bigger picture to recognize the off-balance sheet value, the non-GAAP value in the company today. Thank you.

It’s a great question. We are always looking to chip away at sort of what we think is a little bit of a misperception and misunderstanding of the value in the balance sheet that the biggest catalyst obviously is Caret. In our minds, it’s a multi-billion dollar asset that doesn’t show up on our balance sheet. We think the best way to demonstrate that is to have smart third-party capital validate its intrinsic worth. There is also a lot of little things like you pointed out; some assets that we think from a GAAP accounting probably don’t show as well as we feel like economically, they really are. Hate to sell stuff just to make a point, but sometimes that is the right decision. So we will look at a couple of things where we think that opportunity to really unlock value is worth it, and if there is a fair economic deal to do. I think you are right, every one of those just helps to tell the story a little bit better. And clearly, we need to sharpen the story on some of those assets. I think Brett’s done a great job sort of putting out every quarter what we think the real underlying economic values are and yields are, but obviously doing something in the real world is always helpful.

Appreciate it. Thank you.

Thank you. Mr. Hoffmann, we have no further questions at this time.

Great. Thank you. If you should have more questions, please feel free to reach out to me directly. Holly, can you please give me the replay instructions once more?

Yes, indeed. The dial-in for the replay is as follows. Please call 877-481-4010 with the confirmation code of 49838. This will be available from 2:00 p.m. today. This concludes today’s call, and we thank you for your participation.