Safehold Inc. (SAFE) — filing identity note
The supplied filing is iStar Inc.’s Form 10-Q, not Safehold Inc.’s. It reports for the quarter and six months ended June 30, 2022. iStar is SAFE’s external manager and, at quarter-end, owned approximately 64.7% of SAFE’s common stock. The figures below are iStar consolidated results unless otherwise noted.
Business context and reporting period
iStar finances, invests in and develops real estate, and manages ground-lease-focused entities. Its stated strategy is to expand its Ground Lease and Ground Lease-adjacent businesses while simplifying its portfolio through asset sales. In March 2022, it sold most of its legacy net-lease portfolio; those results are presented as discontinued operations.
Financial results and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $48.1 million | $54.3 million | $80.0 million | $114.2 million |
| Net income (loss) | ($132.5 million) | ($11.4 million) | $663.3 million | ($3.4 million) |
| Net income (loss) allocable to common shareholders | ($138.5 million) | ($19.5 million) | $472.4 million | ($19.9 million) |
| Basic and diluted EPS | ($1.70) | ($0.27) | $6.28 | ($0.27) |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $27.4 million | ($45.0 million) |
- Quarterly revenue declined 11% year over year; six-month revenue declined 30%, reflecting asset sales and lower interest and land-development revenue. The filing does not provide a clear consolidated operating-margin measure.
- Q2’s $132.5 million net loss included a $116.6 million loss on early debt extinguishment, a $22.6 million loan-loss provision and a $1.8 million asset impairment. General and administrative expense was a $5.2 million net recovery, mainly due to lower performance-based compensation.
- Six-month net income included $797.7 million of discontinued-operations income, primarily associated with the net-lease sale. The sale generated a reported $663.7 million gain; the filing says iStar retained $1.2 billion of net cash proceeds after transaction-related payments and debt repayment.
- Interest expense was $24.1 million in Q2 and $53.4 million for the half year, versus $28.6 million and $57.5 million, respectively, in 2021. The six-month average debt balance fell to $2.20 billion from $2.60 billion, while the weighted average cost of debt rose to 4.9% from 4.4%.
- At June 30, cash and cash equivalents were $1.401 billion; total assets were $3.611 billion, total liabilities $1.980 billion, and total equity $1.631 billion. Debt obligations were $1.833 billion net of discounts and financing costs ($1.858 billion principal).
- Investing cash flow was $2.625 billion and financing cash flow was a $1.641 billion use of cash for the six months, largely reflecting sale proceeds and debt repayments. These sale-related flows are not a recurring operating cash-flow measure.
- iStar reported $350 million of revolving-facility capacity, though its June 30 borrowing base permitted $35.2 million to be drawn without additional collateral. The facility matured in September 2022. The remaining $93.1 million of 3.125% convertible notes was due in September 2022.
Material changes, outlook and risks
- The $3.07 billion gross net-lease portfolio sale covered approximately 18.3 million square feet. It was a major portfolio shift, and the sold properties’ operations are presented as discontinued operations.
- In April, iStar exchanged $194 million of convertible notes for 13.75 million newly issued common shares and $14 million cash, recording a $118.1 million extinguishment loss within the transaction. After quarter-end, July and August exchanges covered a further approximately $47.9 million principal for about 2.0 million shares and $24.3 million cash. iStar also sold a Ground Lease to SAFE for $36 million in July.
- Management said it expected to meet liquidity needs over the next 12 months and the reasonably foreseeable future, using cash, potential revolver borrowings, portfolio income, loan repayments and asset-sale proceeds. It provided no quantified earnings or revenue guidance. Planned cash uses include investments, debt repayment, capital spending, dividends, buybacks and operations.
- Maximum unfunded investment commitments were $161.1 million, mostly subject to performance milestones or drawdowns. Scheduled real-estate-finance maturities over the next 12 months were approximately $108.3 million, excluding borrower extensions. Estimated total iPIP compensation obligations were $133 million, of which $60 million was accrued.
- One $60.3 million senior mortgage loan was non-performing and on non-accrual; net carrying value was $59.5 million. A $25 million charge-off on a held-to-maturity security drove most of the period’s loan-loss provision. Management stated it believed collateral and allowances supported carrying values, while noting valuation uncertainty.
- Interest-rate sensitivity analysis estimated annual net-income increases of $13.5 million for a 100-basis-point rise and decreases of $13.1 million for a 100-basis-point fall, assuming no balance-sheet changes. The filing highlights rate, credit, market-volatility and economic-downturn risks. It reported no material change in previously disclosed risk factors and no litigation expected to materially adversely affect the financial statements.
Important facts for investors to verify
- Confirm the intended issuer: this is iStar’s 10-Q, while the request names Safehold Inc.; SAFE’s own quarterly filing is not included.
- Review the net-lease sale accounting and cash-proceeds bridge, including payments to lenders, joint-venture partners, employees and other transaction costs.
- Check the subsequent resolution of the September 2022 convertible-note maturity and the status or refinancing of the September 2022 revolving facility.
- Assess SAFE’s share price and iStar’s concentration in SAFE: iStar held 40.1 million SAFE shares with a reported June 30 market value of approximately $1.4 billion.
- Monitor the non-performing loan, held-to-maturity security repayment, unfunded commitments and iPIP obligations, as well as the assumptions behind management’s liquidity outlook.