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
	September 30, 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 October 28, 2022, there were 62,187,433 shares, $0.01 par value per share, of Safehold Inc. common stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I	Consolidated Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets (unaudited) as of September 30, 2022 and December 31, 2021	1
	Consolidated Statements of Operations (unaudited)—For the three and nine months ended September 30, 2022 and 2021	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)—For the three and nine months ended September 30, 2022 and 2021	3
	Consolidated Statements of Changes in Equity (unaudited)—For the three and nine months ended September 30, 2022 and 2021	4
	Consolidated Statements of Cash Flows (unaudited)—For the nine months ended September 30, 2022 and 2021	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II	Other Information	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
SIGNATURES		48

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PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Financial Statements

Safehold Inc.

Consolidated Balance Sheets⁽¹⁾

(In thousands)

(unaudited)


	September 30,		December 31,
	2022		2021
ASSETS
Net investment in sales-type leases	$	3,066,113	$	2,412,716
Ground Lease receivables		1,326,632		796,252
Real estate
Real estate, at cost		740,971		740,971
Less: accumulated depreciation		(32,864)		(28,343)
Real estate, net		708,107		712,628
Real estate-related intangible assets, net		219,469		224,182
Total real estate, net and real estate-related intangible assets, net		927,576		936,810
Equity investments in Ground Leases		178,643		173,374
Cash and cash equivalents		35,574		29,619
Restricted cash		58,001		8,897
Deferred operating lease income receivable		141,005		117,311
Deferred expenses and other assets, net		58,330		40,747
Total assets	$	5,791,874	$	4,515,726
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities⁽²⁾	$	122,662	$	67,592
Real estate-related intangible liabilities, net		64,800		65,429
Debt obligations, net		3,458,905		2,697,503
Total liabilities		3,646,367		2,830,524
Commitments and contingencies (refer to Note 9)
Redeemable noncontrolling interests (refer to Note 3)		19,658		—
Equity:
Safehold Inc. shareholders' equity:
Common stock, $0.01 par value, 400,000 shares authorized, 62,187 and 56,619 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		622		566
Additional paid-in capital		1,981,155		1,663,324
Retained earnings		140,475		59,368
Accumulated other comprehensive loss		(8,420)		(40,980)
Total Safehold Inc. shareholders' equity		2,113,832		1,682,278
Noncontrolling interests		12,017		2,924
Total equity		2,125,849		1,685,202
Total liabilities, redeemable noncontrolling interests and equity	$	5,791,874	$	4,515,726

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

(2)	As of September 30, 2022 and December 31, 2021, includes $8.9 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				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues:
Interest income from sales-type leases⁽¹⁾	$	54,736	$	30,145	$	146,014	$	83,244
Operating lease income		16,507		16,992		49,925		51,367
Other income		453		144		1,004		390
Total revenues		71,696		47,281		196,943		135,001
Costs and expenses:
Interest expense		35,463		20,932		91,050		57,259
Real estate expense		866		719		2,272		2,038
Depreciation and amortization		2,407		2,390		7,215		7,160
General and administrative⁽²⁾		9,551		6,658		29,203		21,388
Other expense		6,073		350		6,777		740
Total costs and expenses		54,360		31,049		136,517		88,585
Gain on sale of net investment in lease		55,811		—		55,811		—
Income from operations before other items		73,147		16,232		116,237		46,416
Loss on early extinguishment of debt		—		—		—		(216)
Earnings from equity method investments		2,244		2,244		6,772		4,012
Selling profit from sales-type leases		—		1,833		—		1,833
Net income		75,391		20,309		123,009		52,045
Net income attributable to noncontrolling interests		(9,314)		(105)		(9,381)		(201)
Net income attributable to Safehold Inc. common shareholders	$	66,077	$	20,204	$	113,628	$	51,844

Per common share data:
Net income
Basic	$	1.06	$	0.38	$	1.87	$	0.97
Diluted	$	1.06	$	0.38	$	1.87	$	0.97
Weighted average number of common shares:
Basic		62,150		53,498		60,776		53,347
Diluted		62,150		53,511		60,776		53,359

(1)

For the three months ended September 30, 2021, the Company recorded $2.1 million of “Interest income from sales-type leases” in its consolidated statements of operations from its Ground Leases with iStar Inc. (“iStar”). For the nine months ended September 30, 2022 and 2021, the Company recorded $2.1 million and $6.2 million, respectively, of “Interest income from sales-type leases” in its consolidated statements of operations from its Ground Leases with iStar.

(2)

For the three months ended September 30, 2022 and 2021, includes $8.5 million and $5.6 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. For the nine months ended September 30, 2022 and 2021, includes $25.8 million and $17.8 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				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	75,391	$	20,309	$	123,009	$	52,045
Other comprehensive income (loss):
Reclassification of losses on derivatives into earnings		943		1,034		2,945		2,156
Unrealized gain on derivatives		18,587		—		29,615		13,290
Other comprehensive income (loss)		19,530		1,034		32,560		15,446
Comprehensive income		94,921		21,343		155,569		67,491
Comprehensive income attributable to noncontrolling interests		(9,314)		(105)		(9,381)		(201)
Comprehensive income attributable to Safehold Inc.	$	85,607	$	21,238	$	146,188	$	67,290

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 June 30, 2022	$	19,000	$	621	$	1,975,933	$	85,405	$	(27,950)	$	3,320	$	2,037,329
Net income		658		—		—		66,077		—		8,656		74,733
Issuance of common stock, net / amortization		—		1		5,222		—		—		52		5,275
Dividends declared ($0.177 per share)		—		—		—		(11,007)		—		—		(11,007)
Change in accumulated other comprehensive income (loss)		—		—		—		—		19,530		—		19,530
Distributions to noncontrolling interests		—		—		—		—		—		(11)		(11)
Balance at September 30, 2022	$	19,658	$	622	$	1,981,155	$	140,475	$	(8,420)	$	12,017	$	2,125,849

Balance at June 30, 2021	$	—	$	533	$	1,421,185	$	37,870	$	(43,049)	$	2,454	$	1,418,993
Net income		—		—		—		20,204		—		105		20,309
Issuance of common stock, net / amortization		—		33		237,787		—		—		132		237,952
Dividends declared ($0.17 per share)		—		—		—		(9,619)		—		—		(9,619)
Change in accumulated other comprehensive income (loss)		—		—		—		—		1,034		—		1,034
Distributions to noncontrolling interests		—		—		—		—		—		(12)		(12)
Balance at September 30, 2021	$	—	$	566	$	1,658,972	$	48,455	$	(42,015)	$	2,679	$	1,668,657

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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		658		—		—		113,628		—		8,723		122,351
Issuance of common stock, net / amortization		—		56		318,002		—		—		385		318,443
Dividends declared ($0.524 per share)		—		—		—		(32,521)		—		—		(32,521)
Change in accumulated other comprehensive income (loss)		—		—		—		—		32,560		—		32,560
Contributions from noncontrolling interests, net		18,829		—		—		—		—		18		18
Distributions to noncontrolling interests		—		—		—		—		—		(33)		(33)
Additional paid in capital attributable to redeemable noncontrolling interests		171		—		(171)		—		—		—		(171)
Balance at September 30, 2022	$	19,658	$	622	$	1,981,155	$	140,475	$	(8,420)	$	12,017	$	2,125,849

Balance at December 31, 2020	$	—	$	532	$	1,412,107	$	23,945	$	(57,461)	$	2,180	$	1,381,303
Net income		—		—		—		51,844		—		201		52,045
Issuance of common stock, net / amortization		—		34		246,865		—		—		331		247,230
Dividends declared ($0.50224 per share)		—		—		—		(27,334)		—		—		(27,334)
Change in accumulated other comprehensive income (loss)		—		—		—		—		15,446		—		15,446
Distributions to noncontrolling interests		—		—		—		—		—		(33)		(33)
Balance at September 30, 2021	$	—	$	566	$	1,658,972	$	48,455	$	(42,015)	$	2,679	$	1,668,657

(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 Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	123,009	$	52,045
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		7,215		7,160
Stock-based compensation expense		1,518		1,574
Deferred operating lease income		(23,694)		(25,789)
Non-cash interest income from sales-type leases		(53,555)		(30,662)
Non-cash interest expense		8,806		8,895
Amortization of real estate-related intangibles, net		1,729		1,849
Gain on sale of net investment in lease		(55,811)		—
Loss on early extinguishment of debt		—		216
Earnings from equity method investments		(6,772)		(4,012)
Distributions from operations of equity method investments		1,510		1,397
Selling profit from sales-type leases		—		(1,833)
Amortization of premium, discount and deferred financing costs on debt obligations, net		4,039		2,617
Non-cash management fees		14,950		10,594
Other operating activities		3,486		3,187
Changes in assets and liabilities:
Changes in deferred expenses and other assets, net		10,646		99
Changes in accounts payable, accrued expenses and other liabilities		15,071		(14,390)
Cash flows provided by operating activities		52,147		12,947
Cash flows from investing activities:
Origination/acquisition of net investment in sales-type leases and Ground Lease receivables		(1,210,274)		(542,269)
Contributions to equity method investments		(7)		(39,304)
Funding reserves received from Ground Lease tenant net of disbursements		30,071		—
Net proceeds from sale of net investment in lease		135,529		—
Deposits on Ground Lease investments		(2,250)		(27,617)
Other investing activities		(679)		1,892
Cash flows used in investing activities		(1,047,610)		(607,298)
Cash flows from financing activities:
Proceeds from issuance of common stock		309,160		243,345
Proceeds from debt obligations		1,770,000		896,508
Repayments of debt obligations		(1,005,000)		(550,000)
Payments for deferred financing costs		(5,110)		(9,511)
Dividends paid to common shareholders		(31,182)		(26,334)
Payment of offering costs		(5,190)		(8,390)
Payments for withholding taxes upon vesting of stock-based compensation		(970)		—
Distributions to noncontrolling interests		(33)		(33)
Contributions from redeemable noncontrolling interests		19,000		—
Other financing activities		(153)		—
Cash flows provided by financing activities		1,050,522		545,585
Changes in cash, cash equivalents and restricted cash		55,059		(48,766)
Cash, cash equivalents and restricted cash at beginning of period		38,516		96,467
Cash, cash equivalents and restricted cash at end of period	$	93,575	$	47,701


Reconciliation of cash and cash equivalents and restricted cash presented on the consolidated statements of cash flows
Cash and cash equivalents	$	35,574	$	43,870
Restricted cash		58,001		3,831
Total cash and cash equivalents and restricted cash	$	93,575	$	47,701
Supplemental disclosure of non-cash investing and financing activity:
Dividends declared to common shareholders	$	11,011	$	9,631
Accrued finance costs		—		248
Accrued offering costs		—		409

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 (“NYSE”) 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 September 30, 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

Merger with iStar—On August 10, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with iStar. The Merger Agreement provides that, subject to the terms and conditions thereof, the Company will merge with and into iStar (the “Merger”). The surviving company of the Merger will be named Safehold

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

Inc. (“New SAFE”) and its shares of common stock will trade on the New York Stock Exchange under the symbol “SAFE.” The Company expects that the Merger will close in the first quarter or second quarter of 2023.

As discussed further below, shortly before the closing of the Merger, iStar intends to separate its remaining legacy non-ground lease assets and businesses into a separate public company (“SpinCo”) by distributing to iStar’s stockholders, on a pro rata basis, the issued and outstanding equity interests of SpinCo (the “Spin-Off”).

Conditions to the Merger

The consummation of the Merger is subject to the satisfaction or waiver of certain closing conditions, including: (i) the approval of the Company’s stockholders, (ii) the approval of iStar’s stockholders, (iii) completion of the Spin-Off, (iv) the approval of the shares of STAR Common Stock to be issued in the Merger for listing on the NYSE, (v) the effectiveness of a registration statement on Form S-4 registering the STAR Common Stock to be issued in the Merger, (vi) the absence of any temporary restraining order, injunction or other order of any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the reverse stock split or the Merger, (vii) generation of certain cash proceeds, (viii) the receipt of certain tax opinions by iStar and the Company that the Merger will qualify as a reorganization under the Internal Revenue Code and that iStar and the Company each qualifies as a REIT for federal income tax purposes, (ix) the accuracy of certain representations and warranties of iStar and the Company contained in the Merger Agreement and the compliance by the parties with the covenants contained in the Merger Agreement (subject to customary materiality qualifiers), and (x) other conditions specified in the Merger Agreement.

Conditions to the Spin-Off

Completion of the Spin-Off is subject to: (i) completion of the financing documents; (ii) the satisfaction or waiver of relevant conditions to the consummation of the Merger; (iii) effectiveness of a registration statement on Securities and Exchange Commission (“SEC”) Form 10; (iv) the absence of an injunction or law preventing the consummation of the Spin-Off, the distribution and the transactions related thereto; and (v) other customary closing conditions.

Other Merger related transactions

iStar has entered into an agreement (the “MSD Stock Purchase Agreement”) with MSD Partners, L.P. (“MSD Partners”) and the Company under which iStar has agreed to sell and MSD Partners has agreed to buy 5,405,406 shares of the Company’s common stock owned by iStar (the “MSD Stock Purchase”) shortly before the closing of the Merger. If the Merger Agreement is terminated for any reason, the parties’ obligations to consummate the purchase and sale will also terminate. In addition to customary closing conditions, MSD Partners’ obligations to purchase the Company’s common stock are subject to the condition that the closing of the MSD Caret Purchase (as defined below) will take place substantially concurrently with the closing of the MSD Stock Purchase. Upon closing of the transaction, MSD Partners will have a right to designate an observer to the board of directors of New SAFE, a preemptive right on future equity issuances (subject to certain exceptions) and registration rights. MSD Partners will be subject to a customary standstill and certain restrictions on sales of its New SAFE Common Stock.

MSD Partners has also subscribed to purchase 100,000 Caret Units (refer to Note 11) from the Company for an aggregate purchase price of $20.0 million (the “MSD Caret Purchase”), conditioned on the closing of the Spin-Off and the Merger. MSD Partners’ obligations to purchase the Caret units are also subject to the closing of the MSD Stock Purchase and the implementation by the Company of certain changes to its Caret program.

SpinCo will be capitalized in part with an 8.0%, four-year term loan from New SAFE having an initial principal amount of $100.0 million or such other amount as the parties may agree prior to the closing of the Merger, as well as up

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

to $140.0 million of bank debt from Morgan Stanley Bank, N.A. which will be secured by $400.0 million in shares of the Company.

New SAFE will enter into a management agreement with SpinCo, under which it will continue to operate and pursue the orderly monetization of SpinCo’s assets. SpinCo will pay to New SAFE an annual management fee of $25.0 million in year one, $15.0 million in year two, $10.0 million in year three and $5.0 million in year four and 2.0% of the gross book value of SpinCo's assets, excluding shares of the Company’s common stock, for each annual term thereafter. New SAFE and SpinCo will also enter into a governance agreement that will place certain restrictions on the transfer and voting of the shares of New SAFE owned by SpinCo, and a registration rights agreement under which New SAFE will agree to register such shares for resale in accordance with applicable securities laws.

The Company and iStar have entered into a voting agreement pursuant to which iStar has agreed vote its shares representing 41.9% of the outstanding SAFE Common Stock to approve the Merger and take certain other actions, including voting against any alternative acquisition proposal or other proposal which could reasonably be expected to materially delay, postpone or materially adversely affect the consummation of the transactions contemplated by the Merger Agreement. In accordance with the terms of the existing stockholders’ agreement between SAFE and STAR, the remainder of the SAFE Common Stock owned by iStar will be voted in the same manner and proportion as the votes cast by the remaining shareholders of SAFE. The voting agreement and the obligations thereunder terminate upon the termination of the Merger Agreement in accordance with its terms.

As noted above, the Merger and related transactions are subject to a number of conditions, several of which are outside the Company's control; therefore, there can be no assurance that the Merger and related transactions will occur within the time frame currently expected by the parties, or at all. The foregoing descriptions of the Merger and the Merger Agreement and the related transactions and agreements do not purport to be complete and are subject to, and qualified in their entirety by, the full text of such agreements. Please see the Company's filings with the SEC for additional information, including copies of such agreements.

iStar has covenanted to redeem all of its outstanding preferred stock at the liquidation preference per share plus accrued and unpaid dividends and to retire all of its senior unsecured notes in connection with the Merger. iStar’s trust preferred securities will remain outstanding at New SAFE.

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 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.

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Safehold Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 September 30, 2022, the total assets of these consolidated VIEs were $70.8 million and total liabilities were $30.0 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 September 30, 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 September 30, 2022

As of December 31, 2021

Carrying

Fair

Carrying

Fair

Value