SEC Filing | Safehold Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended
	March 31, 2022
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 001-38122

Safehold Inc.

(Exact name of registrant as specified in its charter)


Maryland			30-0971238
(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)

Registrant’s telephone number, including area code: (212) 930-9400

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻ No ☒

As of April 19, 2022, there were 61,941,758 shares, $0.01 par value per share, of Safehold Inc. common stock outstanding.

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TABLE OF CONTENTS


		Page
PART I	Consolidated Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (unaudited) as of March 31, 2022 and December 31, 2021	1
	Consolidated Statements of Operations (unaudited)—For the three months ended March 31, 2022 and 2021	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)—For the three months ended March 31, 2022 and 2021	3
	Consolidated Statements of Changes in Equity (unaudited)—For the three months ended March 31, 2022 and 2021	4
	Consolidated Statements of Cash Flows (unaudited)—For the three months ended March 31, 2022 and 2021	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II	Other Information	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
SIGNATURES		37

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PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Financial Statements

Safehold Inc.

Consolidated Balance Sheets⁽¹⁾

(In thousands)

(unaudited)


	March 31,		December 31,
	2022		2021
ASSETS
Net investment in sales-type leases	$	2,739,924	$	2,412,716
Ground Lease receivables		1,017,160		796,252
Real estate
Real estate, at cost		740,971		740,971
Less: accumulated depreciation		(29,850)		(28,343)
Real estate, net		711,121		712,628
Real estate-related intangible assets, net		222,504		224,182
Total real estate, net and real estate-related intangible assets, net		933,625		936,810
Equity investments in Ground Leases		175,119		173,374
Cash and cash equivalents		30,561		29,619
Restricted cash		125,708		8,897
Deferred operating lease income receivable		125,226		117,311
Deferred expenses and other assets, net		39,726		40,747
Total assets	$	5,187,049	$	4,515,726
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities⁽²⁾	$	177,022	$	67,592
Real estate-related intangible liabilities, net		65,219		65,429
Debt obligations, net		2,913,481		2,697,503
Total liabilities		3,155,722		2,830,524
Commitments and contingencies (refer to Note 9)
Redeemable noncontrolling interests (refer to Note 3)		19,000		—
Equity:
Safehold Inc. shareholders' equity:
Common stock, $0.01 par value, 400,000 shares authorized, 61,942 and 56,619 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		619		566
Additional paid-in capital		1,970,443		1,663,324
Retained earnings		73,711		59,368
Accumulated other comprehensive loss		(35,691)		(40,980)
Total Safehold Inc. shareholders' equity		2,009,082		1,682,278
Noncontrolling interests		3,245		2,924
Total equity		2,012,327		1,685,202
Total liabilities, redeemable noncontrolling interests and equity	$	5,187,049	$	4,515,726

(1)	Refer to Note 2 for details on the Company’s consolidated variable interest entities (“VIEs”).

(2)	As of March 31, 2022 and December 31, 2021, includes $7.6 million and $6.2 million, respectively, due to related parties.

The accompanying notes are an integral part of the consolidated financial statements.

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Safehold Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)


	For the Three Months Ended
	March 31,
	2022		2021
Revenues:
Interest income from sales-type leases⁽¹⁾	$	43,031	$	25,974
Operating lease income		16,966		17,410
Other income		366		123
Total revenues		60,363		43,507
Costs and expenses:
Interest expense		25,321		17,167
Real estate expense		707		598
Depreciation and amortization		2,402		2,385
General and administrative⁽²⁾		9,194		6,655
Other expense		108		369
Total costs and expenses		37,732		27,174
Income from operations before other items		22,631		16,333
Loss on early extinguishment of debt		—		(216)
Earnings from equity method investments		2,276		839
Net income		24,907		16,956
Net income attributable to noncontrolling interests		(34)		(48)
Net income attributable to Safehold Inc. common shareholders	$	24,873	$	16,908

Per common share data:
Net income
Basic	$	0.43	$	0.32
Diluted	$	0.43	$	0.32
Weighted average number of common shares:
Basic		58,122		53,232
Diluted		58,123		53,244

(1)	For the three months ended March 31, 2022 and 2021, the Company recorded $2.1 million and $2.2 million, respectively, of “Interest income from sales-type leases” in its consolidated statements of operations from its Ground Leases with iStar Inc. (“iStar”).

(2)	For the three months ended March 31, 2022 and 2021, includes $7.9 million and $5.5 million, respectively, of general and administrative expenses incurred to related parties that includes management fees, expense reimbursements to the Company’s Manager and equity-based compensation.

The accompanying notes are an integral part of the consolidated financial statements.

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Safehold Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)


	For the Three Months Ended
	March 31,
	2022		2021
Net income	$	24,907	$	16,956
Other comprehensive income (loss):
Reclassification of losses on derivatives into earnings		1,033		358
Unrealized gain (loss) on derivatives		4,256		13,290
Other comprehensive income (loss)		5,289		13,648
Comprehensive income		30,196		30,604
Comprehensive income attributable to noncontrolling interests		(34)		(48)
Comprehensive income (loss) attributable to Safehold Inc.	$	30,162	$	30,556

The accompanying notes are an integral part of the consolidated financial statements.

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Safehold Inc.

Consolidated Statements of Changes in Equity

(In thousands)

(unaudited)


							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 December 31, 2021	$	—	$	566	$	1,663,324	$	59,368	$	(40,980)	$	2,924	$	1,685,202
Net income		—		—		—		24,873		—		34		24,907
Issuance of common stock, net / amortization		—		53		307,290		—		—		280		307,623
Dividends declared ($0.17 per share)		—		—		—		(10,530)		—		—		(10,530)
Change in accumulated other comprehensive income		—		—		—		—		5,289		—		5,289
Contributions from noncontrolling interests, net		18,829		—		—		—		—		18		18
Distributions to noncontrolling interests		—		—		—		—		—		(11)		(11)
Additional paid in capital attributable to redeemable noncontrolling interests		171		—		(171)		—		—		—		(171)
Balance at March 31, 2022	$	19,000	$	619	$	1,970,443	$	73,711	$	(35,691)	$	3,245	$	2,012,327

Balance at December 31, 2020	$	—	$	532	$	1,412,107	$	23,945	$	(57,461)	$	2,180	$	1,381,303
Net income		—		—		—		16,908		—		48		16,956
Issuance of common stock, net / amortization		—		1		4,476		—		—		143		4,620
Dividends declared ($0.16224 per share)		—		—		—		(8,645)		—		—		(8,645)
Change in accumulated other comprehensive loss		—		—		—		—		13,648		—		13,648
Distributions to noncontrolling interests		—		—		—		—		—		(10)		(10)
Balance at March 31, 2021	$	—	$	533	$	1,416,583	$	32,208	$	(43,813)	$	2,361	$	1,407,872

(1)	Refer to Note 3.

The accompanying notes are an integral part of the consolidated financial statements.

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Safehold Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	For the Three Months Ended
	March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	24,907	$	16,956
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		2,402		2,385
Stock-based compensation expense		282		184
Deferred operating lease income		(7,914)		(8,695)
Non-cash interest income from sales-type leases		(15,848)		(9,490)
Non-cash interest expense		3,058		3,077
Amortization of real estate-related intangibles, net		577		620
Loss on early extinguishment of debt		—		216
Earnings from equity method investments		(2,276)		(839)
Distributions from operations of equity method investments		531		442
Amortization of premium, discount and deferred financing costs on debt obligations, net		1,320		655
Non-cash management fees		4,457		3,472
Other operating activities		1,280		896
Changes in assets and liabilities:
Changes in deferred expenses and other assets, net		256		270
Changes in accounts payable, accrued expenses and other liabilities		11,567		(15,005)
Cash flows provided by (used in) operating activities		24,599		(4,856)
Cash flows from investing activities:
Origination/acquisition of net investment in sales-type leases and Ground Lease receivables		(532,268)		(80,901)
Funding reserves received from Ground Lease tenant		98,064		—
Deposits on Ground Lease investments		—		(4,667)
Other investing activities		(981)		593
Cash flows used in investing activities		(435,185)		(84,975)
Cash flows from financing activities:
Proceeds from issuance of common stock		309,160		1,065
Proceeds from debt obligations		940,000		40,000
Repayments of debt obligations		(720,000)		—
Payments for deferred financing costs		(4,455)		(5,594)
Dividends paid to common shareholders		(9,672)		(8,630)
Payment of offering costs		(4,731)		(218)
Payments for withholding taxes upon vesting of stock-based compensation		(970)		—
Distributions to noncontrolling interests		(11)		(10)
Contributions from noncontrolling interests		18		—
Contributions from redeemable noncontrolling interests		19,000		—
Cash flows provided by financing activities		528,339		26,613
Changes in cash, cash equivalents and restricted cash		117,753		(63,218)
Cash, cash equivalents and restricted cash at beginning of period		38,516		96,467
Cash, cash equivalents and restricted cash at end of period	$	156,269	$	33,249


Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows
Cash and cash equivalents	$	30,561	$	25,034
Restricted cash		125,708		8,215
Total cash and cash equivalents and restricted cash	$	156,269	$	33,249
Supplemental disclosure of non-cash investing and financing activity:
Dividends declared to common shareholders	$	10,530	$	8,645
Accrued finance costs		99		375
Accrued offering costs		545		716

The accompanying notes are an integral part of the consolidated financial statements.

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 1—Business and Organization

Business—Safehold Inc. (the “Company”) operates its business through one reportable segment by acquiring, managing and capitalizing ground leases. Ground leases are long-term contracts between the landlord (the Company) and a tenant or leaseholder. The Company believes that it is the first publicly-traded company formed primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon (“Ground Leases”). Under a Ground Lease, the tenant is generally responsible for all property operating expenses, such as maintenance, real estate taxes and insurance and is also responsible for development costs and capital expenditures. Ground Leases are typically long-term (base terms ranging from 30 to 99 years, often with tenant renewal options) and have contractual base rent increases (either at a specified percentage or consumer price index (“CPI”) based, or both) and sometimes include percentage rent participations. The Company’s CPI lookbacks are generally capped between 3.0% - 3.5%. In the event cumulative inflation growth for the lookback period exceeds the cap, these rent adjustments may not keep up fully with changes in inflation.

The Company intends to target investments in long-term Ground Leases in which: (i) the initial cost of its Ground Lease represents 30% to 45% of the combined value of the land and buildings and improvements thereon as if there was no Ground Lease on the land (“Combined Property Value”); (ii) the ratio of property net operating income to the Ground Lease payment due the Company (“Ground Rent Coverage”) is between 2.0x to 4.5x, and for this purpose the Company uses estimates of the stabilized property net operating income if it does not receive current tenant information and for properties under construction or in transition, in each case based on leasing activity at the property and available market information, including leasing activity at comparable properties in the relevant market; and (iii) the Ground Lease contains contractual rent escalation clauses or percentage rent that participates in gross revenues generated by the commercial real estate on the land. A Ground Lease lessor (the Company) typically has the right to regain possession of its land and take ownership of the buildings and improvements thereon upon tenant default and the termination of the Ground Lease on account of such default. The Company believes that the Ground Lease structure provides an opportunity for potential value accretion through the reversion to the Company, as the Ground Lease owner, of the buildings and improvements on the land at the expiration or earlier termination of the lease, for no additional consideration from the Company.

The Company is managed by SFTY Manager, LLC (the “Manager”), a wholly-owned subsidiary of iStar Inc. (“iStar”), the Company’s largest shareholder, pursuant to a management agreement. The Company has no employees, as the Manager provides all services to it. The Company draws on the extensive investment origination and sourcing platform of its Manager to actively promote the benefits of the Ground Lease structure to prospective Ground Lease tenants.

Organization—The Company is a Maryland corporation and completed its initial public offering in June 2017. The Company’s common stock is listed on the New York Stock Exchange under the symbol “SAFE.” The Company elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, commencing with the tax year ended December 31, 2017. The Company is structured as an Umbrella Partnership REIT (“UPREIT”). As such, all of the Company’s properties are owned through a subsidiary partnership, Safehold Operating Partnership LP (the “Operating Partnership”). As of March 31, 2022, the Company owned 100% of the limited partner interests in the Operating Partnership and a wholly-owned subsidiary of the Company owned 100% of the general partner interests in the Operating Partnership. The UPREIT structure may afford the Company certain benefits as it seeks to acquire properties from third parties who may want to defer taxes by contributing their Ground Leases to the Company.

Note 2—Basis of Presentation and Principles of Consolidation

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”).

The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year.

Principles of Consolidation—The consolidated financial statements include the accounts and operations of the Company, its wholly-owned subsidiaries and VIEs for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

Consolidated VIEs—The Company consolidates VIEs for which it is considered the primary beneficiary. As of March 31, 2022, the total assets of these consolidated VIEs were $69.3 million and total liabilities were $29.8 million. The classifications of these assets are primarily within “Net investment in sales-type leases,” “Real estate, net,” “Real estate-related intangible assets, net” and “Deferred operating lease income receivable” on the Company’s consolidated balance sheets. The classifications of liabilities are primarily within “Debt obligations, net” and “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. The liabilities of these VIEs are non-recourse to the Company and can only be satisfied from each VIE’s respective assets. The Company has provided no financial support to VIEs that it was not previously contractually required to provide and did not have any unfunded commitments related to consolidated VIEs as of March 31, 2022.

Note 3—Summary of Significant Accounting Policies

Fair Values—The Company is required to disclose fair value information with regard to its financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practical to estimate fair value. The Financial Accounting Standards Board (“FASB”) guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value: Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The Company determines the estimated fair values of financial assets and liabilities based on a hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the Company and the Company’s own assumptions about market participant assumptions.

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

The following table presents the carrying value and fair value for the Company’s financial instruments ($ in millions):


	As of March 31, 2022				As of December 31, 2021
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets
Net investment in sales-type leases⁽¹⁾	$	2,740	$	3,107	$	2,413	$	2,704
Ground Lease receivables⁽¹⁾		1,017		1,146		796		893
Cash and cash equivalents⁽²⁾		31		31		30		30
Restricted cash⁽²⁾		126		126		9		9

Liabilities
Debt obligations, net⁽¹⁾
Level 1		738		661		738		741
Level 3		2,175		2,040		1,960		2,118
Total debt obligations, net		2,913		2,701		2,698		2,859

(1)

The fair value of the Company’s net investment in sales-type leases and Ground Lease receivables are classified as Level 3 within the fair value hierarchy. The fair value of the Company’s debt obligations traded in secondary markets are classified as Level 1 within the fair value hierarchy and the fair value of the Company’s debt obligations not traded in secondary markets are classified as Level 3 within the fair value hierarchy.

(2)	The Company determined the carrying values of its cash and cash equivalents and restricted cash approximated their fair values and are classified as Level 1 within the fair value hierarchy.

Redeemable Noncontrolling Interests—In February 2022, the Company sold 108,571 Caret Units (refer to Note 11) for $19.0 million to third-party investors and received a commitment from an existing shareholder (which is affiliated with one of the Company’s independent directors) for the purchase of 28,571 Caret Units for $5.0 million. As part of the sale, the Company is obligated to seek to provide a public market listing for the Caret Units, or securities into which they may be exchanged, within two years. If the Company is unable to provide public market liquidity within two years at a value in excess of the new investor’s basis, the investors have the right to cause the Company to redeem their Caret Units at their original purchase price.

The Company classifies these redeemable Caret Units in accordance with Accounting Standards Codification (“ASC”) 480: Distinguishing Liabilities from Equity. ASC 480-10-S99-3A requires that equity securities redeemable at the option of the holder be classified outside of permanent stockholders’ equity. The Company classifies redeemable Caret Units as “Redeemable noncontrolling interests” in its consolidated balance sheets and consolidated statements of changes in equity. The redeemable noncontrolling interest’s carrying amount is equal to the higher of (i) the initial carrying amount, increased or decreased for the redeemable noncontrolling interest’s share of net income or loss and dividends; or (ii) the redemption value. In the case of the Company’s redeemable Caret Units, the carrying amount equals both the initial carrying amount and the redemption value.

New Accounting Pronouncements—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity. This new standard replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public entities such as the Company that qualified as smaller reporting companies prior to December 31, 2019, ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2022. Early adoption is permitted. Management is currently evaluating the impact of ASU 2016-13 on the Company’s consolidated financial statements.

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

In May 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) to clarify certain accounting topics from previously issued ASUs, including ASU 2016-13. ASU 2019-04 addresses certain aspects of ASU 2016-13, including but not limited to, accrued interest receivable, loan recoveries, interest rate projections for variable-rate financial instruments and expected prepayments. ASU 2019-04 provides alternatives that allow entities to measure credit losses on accrued interest separate from credit losses on the principal portion of a loan, clarifies that entities should include expected recoveries in the measurement of credit losses, allows entities to consider future interest rates when measuring credit losses and can elect to adjust effective interest rates used to discount expected cash flows for expected loan prepayments. ASU 2019-04 is effective upon the adoption of ASU 2016-13. Management is currently evaluating the impact of ASU 2019-04 on the Company’s consolidated financial statements.

Note 4—Net Investment in Sales-type Leases and Ground Lease Receivables

The Company classifies certain of its Ground Leases as sales-type leases and records the leases within “Net investment in sales-type leases” on the Company’s consolidated balance sheets and records interest income in “Interest income from sales-type leases” in the Company’s consolidated statements of operations. In addition, the Company may enter into transactions whereby it acquires land and enters into Ground Leases with the seller. These Ground Leases qualify as sales-type leases and, as such, do not qualify for sale leaseback accounting and are accounted for as financing receivables in accordance with ASC 310 - Receivables and are included in “Ground Lease receivables” on the Company’s consolidated balance sheets. The Company records interest income from Ground Lease receivables in “Interest income from sales-type leases” in the Company’s consolidated statements of operations.

In September 2021, the Company entered into a lease assignment and modification with one of its tenants under an operating lease. In connection with this transaction, the lease was assigned to a new tenant and the maturity of the lease was extended by 3.5 years to September 2120. As a result of the modification to the lease, the Company re-evaluated the lease classification and classified the lease as a sales-type lease and recorded $40.9 million in "Net investment in leases" and derecognized $11.4 million from "Real estate, net," $9.8 million from "Deferred operating lease income receivable" and $17.9 million from "Real estate-related intangible assets, net" on its consolidated balance sheet.

The Company’s net investment in sales-type leases were comprised of the following ($ in thousands):


	March 31, 2022		December 31, 2021
Total undiscounted cash flows	$	26,395,478	$	23,707,424
Unguaranteed estimated residual value		2,636,521		2,319,761
Present value discount		(26,292,075)		(23,614,469)
Net investment in sales-type leases	$	2,739,924	$	2,412,716

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

The following table presents a rollforward of the Company’s net investment in sales-type leases and Ground Lease receivables for the three months ended March 31, 2022 and 2021 ($ in thousands):


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Three Months Ended March 31, 2022
Beginning balance	$	2,412,716	$	796,252	$	3,208,968
Origination/acquisition/fundings⁽¹⁾		315,503		216,765		532,268
Accretion		11,705		4,143		15,848
Ending balance⁽²⁾	$	2,739,924	$	1,017,160	$	3,757,084


	Net Investment in		Ground Lease
	Sales-type Leases		Receivables		Total
Three Months Ended March 31, 2021
Beginning balance	$	1,305,519	$	577,457	$	1,882,976
Purchase price allocation adjustment		(182)		—		(182)
Origination/acquisition/fundings⁽¹⁾		—		80,902		80,902
Accretion		6,503		2,987		9,490
Ending balance	$	1,311,840	$	661,346	$	1,973,186

(1)

The net investment in sales-type leases is initially measured at the present value of the fixed and determinable lease payments, including any guaranteed or unguaranteed estimated residual value of the asset at the end of the lease, discounted at the rate implicit in the lease. For newly originated or acquired Ground Leases, the Company’s estimate of residual value equals the fair value of the land at lease commencement.

(2)	As of March 31, 2022, the Company’s weighted average accrual rate for its net investment in sales-type leases and Ground Lease receivables was 5.1% and 5.3%, respectively. As of March 31, 2022, the weighted average remaining life of the Company’s 26 Ground Lease receivables was 99.0 years.

Future Minimum Lease Payments under Sales-type Leases—Future minimum lease payments to be collected under sales-type leases accounted for under ASC 842 - Leases, excluding lease payments that are not fixed and determinable, in effect as of March 31, 2022, are as follows by year ($ in thousands):


					Fixed Bumps
	Fixed Bumps				with
	with Inflation		Fixed		Percentage
	Adjustments		Bumps		Rent		Total
2022 (remaining nine months)	$	62,899	$	1,316	$	404	$	64,619
2023		86,230		2,229		586		89,045
2024		90,316		2,256		586		93,158
2025		91,969		2,283		586		94,838
2026		93,721		2,311		586		96,618
Thereafter		25,270,745		585,794		100,661		25,957,200
Total undiscounted cash flows	$	25,695,880	$	596,189	$	103,409	$	26,395,478

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

During the three months ended March 31, 2022 and 2021, the Company recognized interest income from sales-type leases in its consolidated statements of operations as follows ($ in thousands):


	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended March 31, 2022	Leases		Receivables		Total
Cash	$	19,825	$	7,358	$	27,183
Non-cash		11,705		4,143		15,848
Total interest income from sales-type leases	$	31,530	$	11,501	$	43,031


	Net Investment		Ground
	in Sales-type		Lease
Three Months Ended March 31, 2021	Leases		Receivables		Total
Cash	$	11,114	$	5,370	$	16,484
Non-cash		6,503		2,987		9,490
Total interest income from sales-type leases	$	17,617	$	8,357	$	25,974

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 5—Real Estate and Real Estate-Related Intangibles

The Company’s real estate assets consist of the following ($ in thousands):


	As of
	March 31, 2022		December 31, 2021
Land and land improvements, at cost	$	547,739	$	547,739
Buildings and improvements, at cost		193,232		193,232
Less: accumulated depreciation		(29,850)		(28,343)
Total real estate, net	$	711,121	$	712,628
Real estate-related intangible assets, net		222,504		224,182
Total real estate, net and real estate-related intangible assets, net	$	933,625	$	936,810

Real estate-related intangible assets, net consist of the following items ($ in thousands):


	As of March 31, 2022
	Gross		Accumulated		Carrying
	Intangible		Amortization		Value
Above-market lease assets, net⁽¹⁾	$	186,002	$	(12,903)	$	173,099
In-place lease assets, net⁽²⁾		65,102		(16,415)		48,687
Other intangible assets, net		750		(32)		718
Total	$	251,854	$	(29,350)	$	222,504


	As of December 31, 2021
	Gross		Accumulated		Carrying
	Intangible		Amortization		Value
Above-market lease assets, net⁽¹⁾	$	186,002	$	(12,119)	$	173,883
In-place lease assets, net⁽²⁾		65,102		(15,523)		49,579
Other intangible assets, net		750		(30)		720
Total	$	251,854	$	(27,672)	$	224,182

(1)

Above-market lease assets are recognized during asset acquisitions when the present value of market rate rental cash flows over the term of a lease is less than the present value of the contractual in-place rental cash flows. Above-market lease assets are amortized over the non-cancelable term of the leases.

(2)

In-place lease assets are recognized during asset acquisitions and are estimated based on the value associated with the costs avoided in originating leases comparable to the acquired in-place leases as well as the value associated with lost rental revenue during the assumed lease-up period. In-place lease assets are amortized over the non-cancelable term of the leases.

The expense from the amortization of real estate-related intangible assets had the following impact on the Company’s consolidated statements of operations for the three months ended March 31, 2022 and 2021 ($ in thousands):


	Income Statement	For the Three Months Ended March 31,
Intangible asset	Location	2022		2021
Above-market lease assets (decrease to income)	Operating lease income	$	784	$	827
In-place lease assets (decrease to income)	Depreciation and amortization		892		875
Other intangible assets (decrease to income)	Operating lease income		2		2

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

The estimated amortization of real estate-related intangible assets for each of the five succeeding fiscal years is as follows ($ in thousands):⁽¹⁾