Safehold Inc 10-Q for FY2023 Q3

Safehold Inc. (SAFE)

10-Q 2023-11-01 For: 2023-09-30

Added on April 12, 2026

About this 10-Q

Safehold Inc filed this 10-Q on November 1, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $85.56M; up 19.3% from $71.7M a year earlier
Net loss: $122.97M; compared with net income of $66.08M a year earlier
Diluted EPS: -$1.81; compared with $1.04 a year earlier

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(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended
	September 30, 2023
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Maryland			95-6881527
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)
1114 Avenue of the Americas
39th Floor
New York	,	NY	10036
(Address of principal executive offices)			(Zip code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SAFE	NYSE


Large Accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
☒	☐	☐	☐	☐


		Page
PART I	Consolidated Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022	1
	Consolidated Statements of Operations (unaudited)—For the three and nine months ended September 30, 2023 and 2022	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)—For the three and nine months ended September 30, 2023 and 2022	3
	Consolidated Statements of Changes in Equity (unaudited)—For the three and nine months ended September 30, 2023 and 2022	4
	Consolidated Statements of Cash Flows (unaudited)—For the nine months ended September 30, 2023 and 2022	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59
PART II	Other Information	61
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
SIGNATURES		63


	As of
	September 30,		December 31,
	2023		2022
ASSETS
Net investment in sales-type leases ($468 and $0 of allowances as of September 30, 2023 and December 31, 2022, respectively)	$	3,182,592	$	3,106,599
Ground Lease receivables, net ($318 and $0 of allowances as of September 30, 2023 and December 31, 2022, respectively)		1,563,670		1,374,716
Real estate
Real estate, at cost		744,571		740,971
Less: accumulated depreciation		(38,892)		(34,371)
Real estate, net		705,679		706,600
Real estate-related intangible assets, net		212,771		217,795
Real estate available and held for sale		7,216		—
Total real estate, net and real estate-related intangible assets, net and real estate available and held for sale		925,666		924,395
Loans receivable, net - related party ($2,421 of allowances as of September 30, 2023)		112,088		—
Equity investments		287,118		180,388
Cash and cash equivalents		11,483		20,066
Restricted cash		27,978		28,324
Deferred tax asset, net		7,173		—
Deferred operating lease income receivable		172,284		148,870
Deferred expenses and other assets, net⁽²⁾		153,139		67,564
Total assets	$	6,443,191	$	5,850,922
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities⁽³⁾	$	122,986	$	100,357
Real estate-related intangible liabilities, net		63,963		64,591
Debt obligations, net		3,937,827		3,521,359
Total liabilities		4,124,776		3,686,307
Commitments and contingencies (refer to Note 9)
Redeemable noncontrolling interests (refer to Note 3)		19,011		19,011
Equity:
Safehold Inc. shareholders' equity:
Common stock, $0.01 par value, 400,000 shares authorized, 71,066 and 62,397 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		710		624
Additional paid-in capital		2,183,034		1,986,417
Retained earnings		19,124		151,226
Accumulated other comprehensive income		61,459		3,281
Total Safehold Inc. shareholders' equity		2,264,327		2,141,548
Noncontrolling interests		35,077		4,056
Total equity		2,299,404		2,145,604
Total liabilities, redeemable noncontrolling interests and equity	$	6,443,191	$	5,850,922


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenues:
Interest income from sales-type leases⁽¹⁾	$	59,130	$	54,736	$	174,350	$	146,014
Operating lease income		16,715		16,507		54,366		49,925
Interest income - related party⁽²⁾		2,381		—		4,762		—
Other income⁽³⁾		7,335		453		16,073		1,004
Total revenues		85,561		71,696		249,551		196,943
Costs and expenses:
Interest expense		46,553		35,463		133,482		91,050
Real estate expense		1,001		866		3,219		2,272
Depreciation and amortization		2,519		2,407		7,444		7,215
General and administrative⁽⁴⁾		17,860		9,551		51,843		29,203
Impairment of goodwill		145,365		—		145,365		—
Provision for credit losses		336		—		2,625		—
Other expense		2,169		6,073		17,532		6,777
Total costs and expenses		215,803		54,360		361,510		136,517
Gain on sale of net investment in lease		—		55,811		—		55,811
Income (loss) from operations before other items		(130,242)		73,147		(111,959)		116,237
Earnings from equity method investments		7,451		2,244		16,520		6,772
Net income (loss) before income taxes		(122,791)		75,391		(95,439)		123,009
Income tax expense		(55)		—		(580)		—
Net income (loss)		(122,846)		75,391		(96,019)		123,009
Net (income) attributable to noncontrolling interests		(123)		(9,314)		(138)		(9,381)
Net income (loss) attributable to Safehold Inc. common shareholders	$	(122,969)	$	66,077	$	(96,157)	$	113,628

Per common share data:
Net income (loss)
Basic	$	(1.81)	$	1.04	$	(1.47)	$	1.83
Diluted	$	(1.81)	$	1.04	$	(1.47)	$	1.83
Weighted average number of common shares:
Basic		67,979		63,393		65,214		61,991
Diluted		67,979		63,393		65,214		61,991


							Retained		Accumulated
	Redeemable		Common		Additional		Earnings		Other
	Noncontrolling		Stock at		Paid-In		(Accumulated		Comprehensive		Noncontrolling		Total
	Interests⁽¹⁾		Par		Capital		Deficit)		Income (Loss)		Interests		Equity
Balance at June 30, 2023	$	19,011	$	639	$	2,034,678	$	154,826	$	9,119	$	34,480	$	2,233,742
Net income (loss)		—		—		—		(122,969)		—		123		(122,846)
Issuance of common stock, net / amortization		—		71		148,356		—		—		485		148,912
Dividends declared ($0.177 per share)		—		—		—		(12,733)		—		—		(12,733)
Change in accumulated other comprehensive income		—		—		—		—		52,340		—		52,340
Distributions to noncontrolling interests		—		—		—		—		—		(11)		(11)
Balance at September 30, 2023	$	19,011	$	710	$	2,183,034	$	19,124	$	61,459	$	35,077	$	2,299,404

Balance at June 30, 2022	$	19,000	$	621	$	1,975,933	$	85,405	$	(27,950)	$	3,320	$	2,037,329
Net income		658		—		—		66,077		—		8,656		74,733
Issuance of common stock, net / amortization		—		1		5,222		—		—		52		5,275
Dividends declared ($0.177 per share)		—		—		—		(11,007)		—		—		(11,007)
Change in accumulated other comprehensive income		—		—		—		—		19,530		—		19,530
Distributions to noncontrolling interests		—		—		—		—		—		(11)		(11)
Balance at September 30, 2022	$	19,658	$	622	$	1,981,155	$	140,475	$	(8,420)	$	12,017	$	2,125,849

Balance at December 31, 2022	$	19,011	$	624	$	1,986,417	$	151,226	$	3,281	$	4,056	$	2,145,604
Impact from adoption of new accounting standard (refer to Note 3)		—		—		—		(640)		—		—		(640)
Net income (loss)		—		—		—		(96,157)		—		138		(96,019)
Issuance of common stock, net / amortization		—		74		162,484		—		—		982		163,540
Dividends declared ($0.531 per share)		—		—		—		(35,305)		—		—		(35,305)
Change in accumulated other comprehensive income		—		—		—		—		58,178		—		58,178
Contributions from noncontrolling interests, net		—		—		(1,443)		—		—		30,439		28,996
Distributions to noncontrolling interests		—		—		—		—		—		(538)		(538)
Merger consideration (refer to Note 1 and Note 3)		—		12		35,576		—		—		—		35,588
Balance at September 30, 2023	$	19,011	$	710	$	2,183,034	$	19,124	$	61,459	$	35,077	$	2,299,404

Balance at December 31, 2021	$	—	$	566	$	1,663,324	$	59,368	$	(40,980)	$	2,924	$	1,685,202
Net income		658		—		—		113,628		—		8,723		122,351
Issuance of common stock, net / amortization		—		56		318,002		—		—		385		318,443
Dividends declared ($0.524 per share)		—		—		—		(32,521)		—		—		(32,521)
Change in accumulated other comprehensive income		—		—		—		—		32,560		—		32,560
Contributions from noncontrolling interests, net		18,829		—		—		—		—		18		18
Distributions to noncontrolling interests		—		—		—		—		—		(33)		(33)
Additional paid in capital attributable to redeemable noncontrolling interests		171		—		(171)		—		—		—		(171)
Balance at September 30, 2022	$	19,658	$	622	$	1,981,155	$	140,475	$	(8,420)	$	12,017	$	2,125,849


Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows
Cash and cash equivalents	$	11,483	$	35,574
Restricted cash		27,978		58,001
Total cash and cash equivalents and restricted cash	$	39,461	$	93,575
Supplemental disclosure of non-cash investing and financing activity:
Debt obligations assumed (refer to Note 3)	$	99,995	$	—
Issuance of common stock for acquisition of assets (refer to Note 3)		35,588		—
Dividends declared to common shareholders		12,882		11,011
Non-cash interest accrued to debt balances		2,014		—
Accrued offering costs		530		—


	As of September 30, 2023				As of December 31, 2022
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets
Net investment in sales-type leases⁽¹⁾	$	3,183	$	3,073	$	3,107	$	3,236
Ground Lease receivables⁽¹⁾		1,564		1,574		1,375		1,501
Loans receivable, net - related party⁽¹⁾		112		114		—		—
Cash and cash equivalents⁽²⁾		11		11		20		20
Restricted cash⁽²⁾		28		28		28		28

Liabilities
Debt obligations, net⁽¹⁾
Level 1		739		558		738		573
Level 3		3,199		2,564		2,783		2,358
Total debt obligations, net		3,938		3,122		3,521		2,931


Total Company shares as purchase price⁽¹⁾		1,195,034
Stock price of the Company’s common stock⁽²⁾	$	29.78
Fair value of the Company's stock transferred		35,588
Cash consideration paid by the Company to iStar		88,685
Purchase consideration	$	124,273


	Preliminary		Measurement		Revised
	Purchase Price Allocation		Period Adjustments		Purchase Price Allocation
Cash and cash equivalents	$	3,213	$	—	$	3,213
Real estate		1,508		—		1,508
Equity investments⁽¹⁾		61,247		—		61,247
Deferred tax asset⁽²⁾		—		6,292		6,292
Deferred expenses and other assets⁽²⁾⁽³⁾		25,442		6,480		31,922
Total assets acquired		91,410		12,772		104,182

Accounts payable, accrued expenses and other liabilities⁽²⁾⁽⁴⁾		(22,939)		(2,340)		(25,279)
Debt obligations⁽⁵⁾		(99,995)		—		(99,995)
Total liabilities assumed		(122,934)		(2,340)		(125,274)

Net identifiable (liabilities assumed) assets acquired		(31,524)		10,432		(21,092)

Purchase consideration	$	124,273	$	—	$	124,273
Add: net identifiable liabilities assumed		31,524		(10,432)		21,092
Goodwill⁽⁶⁾		155,797		(10,432)		145,365


Balance at December 31, 2022	$	—
Goodwill recognized at Merger		155,797
Reduction to goodwill resulting from measurement period adjustments		(10,432)
Impairment		(145,365)
Balance at September 30, 2023	$	—


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Pro forma revenues	$	85,561	$	84,388	$	268,478	$	229,608
Pro forma net income (loss)		(122,846)		45,214		(66,412)		(118,086)



(1)	The pro forma revenues and net income (loss) are presented for informational purposes only and may not be indicative of what the actual results of operations of the Company would have been assuming the transaction occurred on January 1, 2022, nor do they purport to represent the Company’s results of operations for future periods. For the nine months ended September 30, 2022, pro forma net loss includes $47.7 million of merger expenses (including $20.3 million of merger expenses borne by iStar), which are non-recurring in nature. For the three and nine months ended September 30, 2022, pro forma net loss includes $13.2 million and $171.9 million, respectively, of losses on extinguishment of debt, which are non-recurring in nature. From the date of the Merger closing through September 30, 2023, $0.1 million of total revenues and $6.0 million of net income of the acquiree are included in the Company’s consolidated statements of operations.


	September 30, 2023		December 31, 2022
Total undiscounted cash flows⁽¹⁾	$	29,715,761	$	29,586,227
Unguaranteed estimated residual value⁽¹⁾		2,915,013		2,900,218
Present value discount		(29,447,714)		(29,379,846)
Allowance for credit losses		(468)		—
Net investment in sales-type leases⁽²⁾	$	3,182,592	$	3,106,599


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Nine Months Ended September 30, 2023
Beginning balance	$	3,106,599	$	1,374,716	$	4,481,315
Impact from adoption of new accounting standard (refer to Note 3)		(351)		(199)		(550)
Origination/acquisition/fundings⁽¹⁾		33,400		170,194		203,594
Accretion		43,061		19,078		62,139
Provision for credit losses		(117)		(119)		(236)
Ending balance⁽²⁾	$	3,182,592	$	1,563,670	$	4,746,262


	Net investment in sales-type leases
	Stabilized		Development		Unfunded
Three Months Ended September 30, 2023	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	259	$	77	$	1	$	337
Provision for credit losses⁽¹⁾		110		22		—		132
Allowance for credit losses at end of period⁽²⁾	$	369	$	99	$	1	$	469


	Ground Lease receivables
	Stabilized		Development		Unfunded
Three Months Ended September 30, 2023	Properties		Properties		Commitments		Total
Allowance for credit losses at beginning of period	$	94	$	127	$	60	$	281
Provision for (recovery of) credit losses⁽¹⁾		40		57		(3)		94
Allowance for credit losses at end of period⁽²⁾	$	134	$	184	$	57	$	375


	Year of Origination
	2023		2022		2021		2020		2019		Prior to 2019		Total
Ground Lease receivables
Stabilized properties	$	19,004	$	295,600	$	133,296	$	179,914	$	447,915	$	—	$	1,075,729
Development properties		1		345,220		143,038		—		—		—		488,259
Total	$	19,005	$	640,820	$	276,334	$	179,914	$	447,915	$	—	$	1,563,988


					Fixed Bumps
	Fixed Bumps				with
	with Inflation		Fixed		Percentage
	Adjustments		Bumps		Rent		Total
2023 (remaining three months)	$	24,735	$	561	$	146	$	25,442
2024		101,639		2,256		586		104,481
2025		103,607		2,283		586		106,476
2026		105,567		2,311		586		108,464
2027		107,475		2,339		586		110,400
Thereafter		28,577,374		583,455		99,669		29,260,498
Total undiscounted cash flows	$	29,020,397	$	593,205	$	102,159	$	29,715,761


	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended September 30, 2023	Leases		Receivables		Total
Cash	$	25,309	$	12,767	$	38,076
Non-cash		14,482		6,572		21,054
Total interest income from sales-type leases	$	39,791	$	19,339	$	59,130


	As of September 30, 2023
	Gross		Accumulated		Carrying
	Intangible		Amortization		Value
Above-market lease assets, net⁽¹⁾	$	186,002	$	(17,605)	$	168,397
In-place lease assets, net⁽²⁾		65,345		(21,678)		43,667
Other intangible assets, net		750		(43)		707
Total	$	252,097	$	(39,326)	$	212,771


	Income Statement	For the Three Months Ended September 30,
Intangible asset	Location	2023		2022
Above-market lease assets (decrease to income)	Operating lease income	$	784	$	784
In-place lease assets (decrease to income)	Depreciation and amortization		889		898
Other intangible assets (decrease to income)	Operating lease income		2		2


Year	Amount
2023 (remaining three months)	$	1,658
2024		6,634
2025		6,634
2026		3,725
2027		3,725


	Income Statement	For the Three Months Ended September 30,
Intangible liability	Location	2023		2022
Below-market lease liabilities (increase to income)	Operating lease income	$	209	$	209


					Earnings from				Earnings from
	Carrying Value				Equity Method Investments				Equity Method Investments⁽¹⁾
	as of				For the Three Months Ended				For the Nine Months Ended
	September 30,		December 31,		September 30,				September 30,
	2023		2022		2023		2022		2023		2022
Equity investment
425 Park Avenue	$	134,762	$	133,118	$	938	$	863	$	2,645	$	2,540
32 Old Slip		51,145		47,270		1,406		1,381		4,253		4,232
Ground Lease Plus Fund⁽¹⁾		61,308		—		1,825		—		3,513		—
Leasehold Loan Fund⁽²⁾		39,903		—		3,282		—		6,109		—
Total	$	287,118	$	180,388	$	7,451	$	2,244	$	16,520	$	6,772


	As of				Interest		Scheduled
	September 30, 2023		December 31, 2022		Rate⁽¹⁾		Maturity Date⁽²⁾
Secured credit financing:
Mortgages	$	1,498,113	$	1,498,113	3.99	%	April 2027 to November 2069
Total secured credit financing⁽³⁾		1,498,113		1,498,113
Unsecured financing:
2.80% senior notes		400,000		400,000	2.80	%	June 2031
2.85% senior notes		350,000		350,000	2.85	%	January 2032
3.98% senior notes		475,000		475,000	3.98	%	February 2052
5.15% senior notes		154,001		151,988	5.15	%	May 2052
2021 Unsecured Revolver		1,003,000		690,000	Adjusted SOFR plus 0.90	%	March 2026
2023 Unsecured Revolver		—		—	Adjusted SOFR plus 0.90	%	July 2025
Trust preferred securities		100,000		—	Adjusted SOFR plus 1.50	%	October 2035
Total unsecured financing		2,482,001		2,066,988
Total debt obligations		3,980,114		3,565,101
Debt premium, discount and deferred financing costs, net		(42,287)		(43,742)
Total debt obligations, net	$	3,937,827	$	3,521,359


	Secured⁽¹⁾		Unsecured		Total
2023 (remaining three months)	$	—	$	—	$	—
2024		—		—		—
2025		—		—		—
2026		—		1,003,000		1,003,000
2027		237,000		—		237,000
Thereafter		1,261,113		1,479,001		2,740,114
Total principal maturities		1,498,113		2,482,001		3,980,114
Debt premium, discount and deferred financing costs, net		(26,580)		(15,707)		(42,287)
Total debt obligations, net	$	1,471,533	$	2,466,294	$	3,937,827


2023 (remaining three months)	$	1,422
2024		5,692
2025		5,680
2026		—
2027		—
Thereafter		—
Total undiscounted cash flows		12,794
Present value discount⁽¹⁾		(1,112)
Other adjustments⁽²⁾		5,365
Lease liabilities	$	17,047


				Amount of Gain
		Amount of Gain		(Loss) Reclassified
		(Loss) Recognized		from Accumulated
		in Accumulated		Other
	Location of Gain (Loss)	Other		Comprehensive
	When Recognized in	Comprehensive		Income into
Derivatives Designated in Hedging Relationships	Income	Income		Earnings
For the Three Months Ended September 30, 2023
Interest rate swaps	Interest expense	$	53,834	$	1,494
For the Three Months Ended September 30, 2022
Interest rate swaps	Interest expense	$	18,587	$	(943)
For the Nine Months Ended September 30, 2023
Interest rate swaps	Interest expense	$	59,632	$	1,454
For the Nine Months Ended September 30, 2022
Interest rate swaps	Interest expense	$	29,615	$	(2,945)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income (loss)	$	(122,846)	$	75,391	$	(96,019)	$	123,009
Net (income) attributable to noncontrolling interests		(123)		(9,314)		(138)		(9,381)
Net income (loss) attributable to Safehold Inc. common shareholders for basic and diluted earnings per common share	$	(122,969)	$	66,077	$	(96,157)	$	113,628


Manager		SFTY Manager, LLC, a wholly-owned subsidiary of iStar Inc.
Management Fee		Annual fee of 1.00% of total equity (up to $1.5 billion) Annual fee of 1.25% of total equity (for incremental equity of $1.5 billion to $3.0 billion) Annual fee of 1.375% of total equity (for incremental equity of $3.0 billion to $5.0 billion) and Annual fee of 1.5% of total equity (for incremental equity over $5.0 billion)
Management Fee Consideration		At the discretion of the Company’s independent directors, payment will be made in cash or in shares of the Company’s common stock (valued at the greater of: (i) the volume weighted average market price during a specified pricing period; or (ii) the initial public offering price of $20.00 per share)
Lock-up		Restriction from selling common stock received for management fees for two years from the date of such issuance (restriction will terminate in the event of and effective with the termination of the management agreement)
Incentive Fee		None
Term		Non-terminable through June 30, 2023, except for cause. Automatic annual renewals thereafter, subject to non-renewal upon certain findings by the Company’s independent directors and payment of termination fee.
Termination Fee		3x prior year’s management fee


	September 30, 2023		December 31, 2022
Combined Property Value⁽²⁾	$	16,154	$	16,529
Ground Lease Cost⁽²⁾		6,138		6,008
Unrealized Capital Appreciation in Our Owned Residual Portfolio		10,016		10,521


			Lease
	Property		Expiration /	Rent Escalation	% of Gross
Property Name	Type	Location	As Extended	Structure	Book Value
425 Park Avenue⁽²⁾	Office	New York, NY	2090 / 2090	Fixed with Inflation Adjustments	5.8	%
135 West 50th Street	Office	New York, NY	2123 / 2123	Fixed with Inflation Adjustments	5.1	%
195 Broadway	Office	New York, NY	2118 / 2118	Fixed with Inflation Adjustments	4.8	%
Park Hotels Portfolio⁽³⁾	Hotel	Various	2025 / 2035	% Rent	3.6	%
20 Cambridgeside	Life Science	Cambridge, MA	2121 / 2121	Fixed with Inflation Adjustments	3.8	%
Alohilani	Hotel	Honolulu, HI	2118 / 2118	Fixed with Inflation Adjustments	3.5	%
685 Third Avenue	Office	New York, NY	2123 / 2123	Fixed with Inflation Adjustments	3.2	%
1111 Pennsylvania Avenue	Office	Washington, DC	2117 / 2117	Fixed with Inflation Adjustments	2.5	%
100 Cambridgeside	Mixed Use and Other	Cambridge, MA	2121 / 2121	Fixed with Inflation Adjustments	2.3	%
Columbia Center	Office	Washington, DC	2120 / 2120	Fixed with Inflation Adjustments	2.3	%