SAFE

Business Context and Reporting Period

Company: Safehold Inc. (formerly iStar Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: February 5, 2025
Reporting Period: As of December 31, 2024
Business Overview: Safehold Inc. operates a ground lease business model, investing in land with residual rights to acquire buildings and improvements upon lease expiration or tenant default. The company tracks "Unrealized Capital Appreciation" (UCA) to monitor the value of its owned residual portfolio.

Key Financial Metrics

This filing focuses on non-GAAP valuation metrics regarding the company's ground lease portfolio rather than standard GAAP financial statements (revenue, profit, cash flow).

Note: Combined Property Value includes applicable percentage interests in unconsolidated ventures and $319.8 million related to unfunded commitments. Ground Lease Cost includes $46.2 million of unfunded commitments. Both exclude term loans to Star Holdings, leasehold loan fund assets, ground lease plus fund assets, and noncontrolling interests.

Material Changes and Valuation Methodology

The filing announces the updated estimate of UCA as of December 31, 2024. The valuation is determined by an independent firm, CBRE, Inc., using a hypothetical fee simple value (assuming no ground lease exists) based on stabilized market rents. Key valuation assumptions by property type include:

• Hotels: Stabilized occupancy 61.00% - 83.00%; Going-in cap rates 5.50% - 8.75%.
• Office: Stabilized occupancy 80.00% - 99.00%; Overall cap rates 5.00% - 10.00%.
• Multi-Family: Stabilized occupancy 93.00% - 98.00%; Overall cap rates 4.00% - 6.50%.
• Life Science: Stabilized occupancy 90.00% - 96.00%; Overall cap rates 5.50% - 7.00%.

The company targets ground lease investments where the initial cost represents 30% to 45% of the Combined Property Value.

Guidance, Risks, and Unusual Items

Management Commentary: Management views UCA as an indicator of cash flow quality and the safety of their position in a tenant's capital structure. They believe there is a strong correlation between inflation and commercial real estate values, supporting long-term value accretion.

Risks and Contingencies:

• Non-GAAP Measure: UCA is not calculated under U.S. GAAP, is not audited, and may not reflect current market conditions due to rolling valuation schedules.
• Realization Uncertainty: There is no assurance that UCA will be realized. Ground leases are long-term (30-99 years), and value realization depends on lease expiration or tenant default.
• Tenant Rights: Certain leases contain provisions that may limit realized value, including tenant rights to level buildings, purchase properties, buy-out options, or preemptive rights.
• Third-Party Land Ownership: A majority of the land underlying one property is owned by a third party with a lease expiring in 2044; UCA for this property is excluded from the total estimate.

Executive Compensation (Caret Units):

• As of December 31, 2024, officers and employees beneficially own approximately 14.4% of outstanding Caret units.
• Safehold Inc. owns 84.3% of outstanding Caret units.
• In April 2024, investors in a February 2022 transaction exercised redemption rights for 137,142 Caret units due to a failure to achieve public market liquidity by the deadline.

Investor Verification Checklist

• Verify the upcoming Form 10-K filing (expected February 6, 2025) for detailed "Risk Factors" regarding office value declines and tenant rights.
• Confirm the specific impact of the April 2024 Caret unit redemptions on the company's capital structure and liquidity.
• Review the "Limitations and Qualifications" section to understand the reliance on tenant-supplied data for valuations.
• Monitor the status of the 25% of executive Caret units subject to re-vesting on March 31, 2025.
• Assess the sensitivity of the $9.1 billion UCA estimate to changes in capitalization rates and occupancy assumptions provided by CBRE.