SAFE

Business Context and Reporting Period

This Form 8-K Current Report, dated July 29, 2024, is filed by Safehold Inc. (formerly iStar Inc. following a March 2023 merger). The filing primarily discloses an update regarding the company's estimated Unrealized Capital Appreciation (UCA) in its owned residual portfolio of ground leases as of June 30, 2024. Safehold Inc. operates by acquiring ground leases with residual rights to the underlying land and improvements upon lease expiration or tenant default.

Key Financial Metrics

The filing provides specific valuation metrics for the owned residual portfolio as of June 30, 2024, but does not report standard GAAP financial results such as revenue, net income, or operating cash flow for a specific period.

Note: The Combined Property Value includes $1,142.9 million related to unfunded commitments. The Ground Lease Cost includes $50.6 million of unfunded commitments. These figures exclude term loans to Star Holdings, assets in leasehold loan funds, and amounts attributable to noncontrolling interests.

Material Changes and Valuation Methodology

The filing details the methodology used to calculate the UCA, which represents the aggregate Combined Property Value in excess of the cost basis. Key aspects include:

• Valuation Process: Independent valuations are conducted by CBRE, Inc. using sales comparison and income capitalization approaches. Valuations assume a hypothetical fee simple ownership structure (no ground lease) and stabilized market rents.
• Assumptions: Key assumptions vary by property type (Hotel, Office, Multi-Family, Life Science, Mixed Use). For example, stabilized occupancy rates range from 66% to 99%, and capitalization rates range from 4.00% to 10.00% depending on the asset class.
• Frequency: Properties are valued approximately every 12 months and no less frequently than every 24 months.

Outlook, Risks, and Unusual Items

Management Commentary and Outlook: Management views the UCA as an indicator of the safety of their position in a tenant's capital structure and the quality of long-term cash flows. They believe there is a strong correlation between inflation and commercial real estate values, supporting the expectation that reversionary interest value will increase over time.

Risks and Contingencies:

• Non-GAAP Measure: The UCA is not calculated under U.S. GAAP, is not audited, and may not reflect current market conditions due to rolling valuation schedules.
• Realization Risk: There is no assurance that the UCA will be realized. Ground leases are long-term (30 to 99 years), and value realization depends on lease expiration or tenant default.
• Tenant Rights: Certain tenant rights may limit realized value, including rights to level buildings, purchase properties, buy-out options, and preemptive rights. One property's land is ground leased to a third party expiring in 2044, which could terminate Safehold's rights.
• Information Reliance: Valuations rely on information supplied by tenants, which Safehold does not independently verify.

Caret Units Update: In April 2024, investors in a February 2022 transaction exercised redemption rights for 137,142 Caret units because public market liquidity was not achieved within the required timeframe. These units were redeemed at the original purchase price less distributions. As of June 30, 2024, Safehold owns 84.3% of outstanding Caret units.

Investor Verification Checklist

• Verify the specific assumptions (occupancy rates, cap rates) used by CBRE for the company's largest ground lease assets.
• Review the "Risk Factors" section of the most recent Form 10-K regarding the impact of the office sector and tenant rights on UCA realization.
• Confirm the status of the 137,142 Caret units redeemed in April 2024 and the impact on the company's capital structure.
• Assess the proportion of the portfolio subject to tenant buy-out options or third-party land leases that could limit residual value.
• Understand that the reported UCA is a non-GAAP measure and does not represent current liquidation value or GAAP equity.