Safehold Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Safehold acquires, manages and capitalizes long-term ground leases. Its 2023 merger with iStar closed on March 31, 2023 and is accounted for as a reverse acquisition; the comparative quarter primarily reflects Old Safehold’s historical operations, so year-over-year comparisons are affected by the merger and changes in the business.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $93.2 million | $78.3 million; up 19% |
| Net income attributable to common shareholders | $30.7 million; $0.43 per diluted share | $4.7 million; $0.07 per diluted share |
| Operating income before other items | $24.6 million | $2.5 million |
| Interest expense | $48.6 million | $40.9 million |
| Cash from operating activities | $(3.1) million | $(6.8) million |
| Cash from investing activities | $(74.7) million | $(269.9) million |
| Cash from financing activities | $70.2 million | $276.6 million |
| Debt obligations, net, at period end | $4.143 billion | $4.054 billion at December 31, 2023 |
| Cash and cash equivalents at period end | $11.3 million | $18.8 million at December 31, 2023 |
Revenue growth reflected higher sales-type lease interest income, new related-party interest income and other income. Other income included $5.5 million of Star Holdings management fees; $2.4 million of related-party interest income came from the Star Holdings term loan. Equity-method earnings increased to $6.9 million from $2.3 million. Interest expense rose mainly with higher revolver borrowings and rates, and interest on trust preferred securities and the new 6.10% notes. The filing does not provide a stated net or operating margin.
At March 31, 2024, total assets were $6.674 billion and equity was $2.330 billion. The company declared a quarterly dividend of $0.177 per share. Total cash, cash equivalents and restricted cash was $39.2 million, of which $27.9 million was restricted. Cash from operations was negative; investing outflows were principally for ground-lease investments, partly offset by equity-investment distributions and derivative proceeds.
Material changes and notable items
- Sales-type lease interest income increased to $63.2 million from $57.1 million, primarily reflecting acquisitions and additional fundings. The company acquired a ground lease for $38.3 million in January 2024.
- Q1 2023 included $18.7 million of merger expenses and a $2.3 million credit-loss provision on the Star Holdings loan. Q1 2024 other expense was $0.1 million and primarily related to derivatives.
- Credit-loss provision was $0.7 million, compared with $2.2 million in Q1 2023. Management attributed the current-quarter provision primarily to market conditions and an increase in portfolio ground-lease cost-to-value ratios.
- Comprehensive income attributable to Safehold was $58.5 million, versus a loss of $22.8 million, mainly reflecting derivative fair-value changes: a $29.4 million unrealized gain in Q1 2024 versus a $28.4 million loss in Q1 2023.
- Estimated unrealized capital appreciation in the owned residual portfolio was $9.062 billion, down from $9.827 billion at year-end; estimated combined property value declined to $15.236 billion from $16.001 billion. These are estimates, not GAAP balance-sheet values.
Debt, liquidity, outlook and risks
At quarter-end, principal debt was $4.190 billion, including $1.498 billion of secured mortgages and $2.692 billion of unsecured financing. The reported weighted-average cash interest rate on consolidated mortgage debt was 3.32%; combined stated and cash rates for specified debt and venture interests were 4.04% and 3.57%, respectively. The company reported compliance with its financial covenants. A $911 million revolver balance was scheduled for 2026 before the subsequent refinancing.
After quarter-end, Safehold closed a $2.0 billion unsecured revolver, replacing the 2021 and 2023 facilities. The new facility carries a rate of Adjusted SOFR plus 0.85%, has an extended maturity of May 2029 with two six-month extension options, and approximately $916 million of prior borrowings rolled into it. Management said it reduces facility cost, increases liquidity by $150 million and provides greater covenant flexibility. The filing states management expects to meet liquidity requirements over the next 12 months and beyond; it gives no earnings or investment guidance.
- Unfunded ground-lease tenant improvement commitments were $70.2 million; forward ground-lease acquisition and related commitments were $262.5 million; performance-based loan and build-out commitments were $105.9 million. Funding and closing depend on specified conditions.
- In April 2024, holders of certain Caret units exercised redemption rights. The units are redeemable at their original purchase price less prior distributions; the filing does not state the final cash amount.
- Key business risks include higher interest rates and leasehold financing costs, office vacancies and tenant default risk, and CPI rent escalators generally capped at 3.0%–3.5%, which may not fully offset inflation. Office assets represented 42% of portfolio gross book value.
- The company reported no pending legal proceeding believed to have a material adverse effect, no material change to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Review the April 2024 revolver’s final borrowing, availability, covenants and maturity-extension terms, and reconcile liquidity disclosures with quarter-end cash and restricted cash.
- Assess the cash cost and timing of Caret-unit redemptions and the company’s other unfunded commitments.
- Evaluate the valuation assumptions behind the reported decline in combined property value and unrealized capital appreciation.
- Track credit-loss allowances, tenant coverage and office-property leasing conditions, particularly as interest and financing costs evolve.
- Separate recurring ground-lease earnings from related-party management fees, equity-method earnings, derivative fair-value movements and merger-related comparability effects.