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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

June 30, 2023

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. 001-15371

Safehold Inc.

(Exact name of registrant as specified in its charter)

Maryland

95-6881527

(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: (212930-9400

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 July 28, 2023, there were 63,965,605 shares, $0.01 par value per share, of Safehold Inc. common stock outstanding.

TABLE OF CONTENTS

 

 

Page

PART I

Consolidated Financial Information

Item 1.

Financial Statements:

Consolidated Balance Sheets (unaudited) as of June 30, 2023 and December 31, 2022

1

Consolidated Statements of Operations (unaudited)—For the three and six months ended June 30, 2023 and 2022

2

Consolidated Statements of Comprehensive Income (Loss) (unaudited)—For the three and six months ended June 30, 2023 and 2022

3

Consolidated Statements of Changes in Equity (unaudited)—For the three and six months ended June 30, 2023 and 2022

4

Consolidated Statements of Cash Flows (unaudited)—For the six months ended June 30, 2023 and 2022

5

Notes to Consolidated Financial Statements (unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

55

Item 4.

Controls and Procedures

55

PART II

Other Information

57

Item 1.

Legal Proceedings

57

Item 1A.

Risk Factors

57

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 3.

Defaults Upon Senior Securities

57

Item 4.

Mine Safety Disclosures

57

Item 5.

Other Information

57

Item 6.

Exhibits

58

SIGNATURES

59

PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1.   Financial Statements

Safehold Inc.

Consolidated Balance Sheets(1)

(In thousands)

(unaudited)

As of

June 30, 

December 31,

    

2023

    

2022

ASSETS

 

  

 

  

Net investment in sales-type leases ($336 and $0 of allowances as of June 30, 2023 and December 31, 2022, respectively)

$

3,167,964

$

3,106,599

Ground Lease receivables, net ($221 and $0 of allowances as of June 30, 2023 and December 31, 2022, respectively)

 

1,484,948

 

1,374,716

Real estate

 

  

 

  

Real estate, at cost

740,971

740,971

Less: accumulated depreciation

 

(37,385)

 

(34,371)

Real estate, net

 

703,586

 

706,600

Real estate-related intangible assets, net

 

214,446

 

217,795

Total real estate, net and real estate-related intangible assets, net

 

918,032

 

924,395

Loans receivable, net - related party ($2,311 of allowances as of June 30, 2023)

112,168

Equity investments

 

267,206

 

180,388

Goodwill

149,505

Cash and cash equivalents

 

14,281

 

20,066

Restricted cash

 

28,144

 

28,324

Deferred tax asset, net

6,228

Deferred operating lease income receivable

 

164,499

 

148,870

Deferred expenses and other assets, net(2)

 

106,086

 

67,564

Total assets

$

6,419,061

$

5,850,922

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Accounts payable, accrued expenses and other liabilities(3)

$

119,797

$

100,357

Real estate-related intangible liabilities, net

 

64,172

 

64,591

Debt obligations, net

 

3,982,339

 

3,521,359

Total liabilities

 

4,166,308

 

3,686,307

Commitments and contingencies (refer to Note 9)

 

  

 

  

Redeemable noncontrolling interests (refer to Note 3)

19,011

19,011

Equity:

 

  

 

  

Safehold Inc. shareholders' equity:

 

  

 

  

Common stock, $0.01 par value, 400,000 shares authorized, 63,966 and 62,397 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

639

 

624

Additional paid-in capital

 

2,034,678

 

1,986,417

Retained earnings

 

154,826

 

151,226

Accumulated other comprehensive income (loss)

 

9,119

 

3,281

Total Safehold Inc. shareholders' equity

 

2,199,262

 

2,141,548

Noncontrolling interests

 

34,480

 

4,056

Total equity

 

2,233,742

 

2,145,604

Total liabilities, redeemable noncontrolling interests and equity

$

6,419,061

$

5,850,922

(1)Refer to Note 2 for details on the Company’s consolidated variable interest entities (“VIEs”).
(2)As of June 30, 2023, includes $8.1 million due from related parties.
(3)As of December 31, 2022, includes $8.5 million due to related parties.

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

1

Safehold Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

    

Revenues:

 

  

 

  

 

  

 

  

 

Interest income from sales-type leases(1)

$

58,158

$

48,247

$

115,220

$

91,278

Operating lease income

16,750

16,452

37,651

33,418

Interest income - related party(2)

2,381

2,381

Other income(3)

 

8,372

 

185

 

8,738

 

551

Total revenues

 

85,661

 

64,884

 

163,990

 

125,247

Costs and expenses:

 

  

 

  

 

  

 

  

Interest expense

 

46,055

 

30,266

 

86,929

 

55,586

Real estate expense

 

1,013

 

699

 

2,218

 

1,407

Depreciation and amortization

 

2,527

 

2,406

 

4,925

 

4,808

General and administrative(4)

 

18,916

 

10,458

 

33,983

 

19,651

Provision for credit losses

47

2,289

Other expense

 

1,274

 

596

 

15,363

 

705

Total costs and expenses

 

69,832

 

44,425

 

145,707

 

82,157

Income from operations before other items

 

15,829

 

20,459

 

18,283

 

43,090

Earnings from equity method investments

 

6,807

 

2,252

 

9,069

 

4,528

Net income before income taxes

 

22,636

 

22,711

 

27,352

 

47,618

Income tax expense

(525)

(525)

Net income

22,111

22,711

26,827

47,618

Net (income) loss attributable to noncontrolling interests

 

19

 

(33)

 

(15)

 

(67)

Net income attributable to Safehold Inc. common shareholders

$

22,130

$

22,678

$

26,812

$

47,551

Per common share data:

 

  

 

  

 

  

 

  

Net income

 

  

 

  

 

  

 

  

Basic

$

0.35

$

0.36

$

0.42

$

0.78

Diluted

$

0.35

$

0.36

$

0.42

$

0.78

Weighted average number of common shares:

 

  

 

  

  

Basic

 

63,944

 

63,252

 

63,809

 

61,279

Diluted

 

63,944

 

63,252

 

63,809

 

61,279

(1)For the six months ended June 30, 2022, the Company recorded $2.1 million of “Interest income from sales-type leases” in its consolidated statements of operations from Ground Leases with iStar Inc. (“iStar”).
(2)Refer to Note 3.
(3)For the three and six months ended June 30, 2023, includes $7.2 million of management fees from related parties.
(4)For the three months ended June 30, 2023 and 2022, includes $8.0 million and $9.5 million, respectively, of general and administrative expenses incurred to related parties that includes management fees, expense reimbursements to the Former Manager (refer to Note 1) and equity-based compensation (including equity-based compensation to employees). For the six months ended June 30, 2023 and 2022, includes $21.0 million and $17.4 million, respectively, of general and administrative expenses incurred to related parties that includes management fees, expense reimbursements to the Former Manager (refer to Note 1) and equity-based compensation (including equity-based compensation to employees).

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

2

Safehold Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Net income

$

22,111

$

22,711

$

26,827

$

47,618

Other comprehensive income:

 

  

 

  

 

  

 

  

Reclassification of (gains) losses on derivatives into earnings

 

(902)

 

969

 

41

 

2,002

Unrealized gain on derivatives

 

34,221

 

6,772

 

5,797

 

11,028

Other comprehensive income (loss):

 

33,319

 

7,741

 

5,838

 

13,030

Comprehensive income (loss)

 

55,430

 

30,452

 

32,665

 

60,648

Comprehensive (income) loss attributable to noncontrolling interests

 

19

 

(33)

 

(15)

 

(67)

Comprehensive income (loss) attributable to Safehold Inc.

$

55,449

$

30,419

$

32,650

$

60,581

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

3

Table of Contents

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 March 31, 2023

$

19,011

$

639

$

2,031,026

$

144,164

$

(24,200)

$

27,498

$

2,179,127

Net income

 

 

 

 

22,130

 

 

(19)

 

22,111

Issuance of common stock, net / amortization

 

 

 

3,652

 

 

 

488

 

4,140

Dividends declared ($0.177 per share)

 

 

 

 

(11,468)

 

 

 

(11,468)

Change in accumulated other comprehensive income

 

 

 

 

 

33,319

 

 

33,319

Contributions from noncontrolling interests

6,525

6,525

Distributions to noncontrolling interests

 

 

 

 

 

 

(12)

 

(12)

Balance at June 30, 2023

$

19,011

$

639

$

2,034,678

$

154,826

$

9,119

$

34,480

$

2,233,742

Balance at March 31, 2022

$

19,000

$

619

$

1,970,443

$

73,711

$

(35,691)

$

3,245

$

2,012,327

Net income

 

 

 

 

22,678

 

 

33

 

22,711

Issuance of common stock, net / amortization

 

 

2

 

5,490

 

 

 

53

 

5,545

Dividends declared ($0.177 per share)

 

 

 

 

(10,984)

 

 

 

(10,984)

Change in accumulated other comprehensive income

 

 

 

 

 

7,741

 

 

7,741

Distributions to noncontrolling interests

 

 

 

 

 

 

(11)

 

(11)

Balance at June 30, 2022

$

19,000

$

621

$

1,975,933

$

85,405

$

(27,950)

$

3,320

$

2,037,329

Balance at December 31, 2022

$

19,011

$

624

$

1,986,417

$

151,226

$

3,281

$

4,056

$

2,145,604

Impact from adoption of new accounting standard (refer to Note 3)

(640)

(640)

Net income

 

 

 

26,812

 

 

15

 

26,827

Issuance of common stock, net / amortization

 

3

 

14,128

 

 

 

497

 

14,628

Dividends declared ($0.354 per share)

 

 

 

(22,572)

 

 

 

(22,572)

Change in accumulated other comprehensive income

 

 

 

 

5,838

 

 

5,838

Contributions from noncontrolling interests, net

(1,443)

30,439

28,996

Distributions to noncontrolling interests

 

 

 

 

 

(527)

 

(527)

Merger consideration (refer to Note 1)

12

35,576

35,588

Balance at June 30, 2023

$

19,011

$

639

$

2,034,678

$

154,826

$

9,119

$

34,480

$

2,233,742

Balance at December 31, 2021

$

$

566

$

1,663,324

$

59,368

$

(40,980)

$

2,924

$

1,685,202

Net income

 

 

 

47,551

 

 

67

 

47,618

Issuance of common stock, net / amortization

 

55

 

312,780

 

 

 

333

 

313,168

Dividends declared ($0.347 per share)

 

 

 

(21,514)

 

 

 

(21,514)

Change in accumulated other comprehensive income

 

 

 

 

13,030

 

 

13,030

Contributions from noncontrolling interests, net

18,829

18

18

Distributions to noncontrolling interests

 

 

 

 

 

(22)

 

(22)

Additional paid in capital attributable to redeemable noncontrolling interests

171

(171)

(171)

Balance at June 30, 2022

$

19,000

$

621

$

1,975,933

$

85,405

$

(27,950)

$

3,320

$

2,037,329

(1)Refer to Note 3.

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

4

Safehold Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

For the Six Months Ended

June 30, 

    

2023

    

2022

    

Cash flows from operating activities:

 

  

 

  

 

Net income

$

26,827

$

47,618

Adjustments to reconcile net income to cash flows from operating activities:

 

  

 

Depreciation and amortization

 

4,925

 

4,808

Stock-based compensation expense

 

12,670

 

1,465

Deferred operating lease income

 

(15,630)

 

(15,812)

Non-cash interest income from sales-type leases

 

(41,084)

 

(33,659)

Non-cash interest expense

 

7,421

 

5,977

Amortization of real estate-related intangibles, net

 

1,152

 

1,152

Provision for credit losses

2,289

Earnings from equity method investments

 

(9,069)

 

(4,528)

Distributions from operations of equity method investments

 

1,860

 

1,051

Amortization of premium, discount and deferred financing costs on debt obligations, net

 

3,623

 

2,676

Non-cash management fees

 

5,199

 

9,666

Other operating activities

 

242

 

2,496

Changes in assets and liabilities:

 

  

 

Changes in deferred expenses and other assets, net

 

(10,234)

 

263

Changes in accounts payable, accrued expenses and other liabilities

 

339

 

23,492

Cash flows (used in) provided by operating activities

 

(9,470)

 

46,665

Cash flows from investing activities:

 

  

 

  

Origination/acquisition of net investment in sales-type leases and Ground Lease receivables

 

(130,744)

 

(907,281)

Origination of loans receivable, net

(114,450)

Payment for merger consideration

(88,685)

Cash and cash equivalents acquired upon merger

3,213

Contributions to equity method investments

(18,362)

(2)

Funding reserves received from Ground Lease tenant net of disbursements

(218)

58,768

Net proceeds received from sale of real estate available and held for sale

1,631

Deposits on Ground Lease investments

 

 

(2,250)

Other investing activities

 

(8,211)

 

72

Cash flows used in investing activities

 

(355,826)

 

(850,693)

Cash flows from financing activities:

 

  

 

  

Proceeds from issuance of common stock

 

 

309,160

Proceeds from debt obligations

 

358,000

 

1,460,000

Repayments of debt obligations

 

 

(880,000)

Payments for deferred financing costs

 

(4,615)

 

(5,034)

Dividends paid to common shareholders

 

(22,144)

 

(20,200)

Payment of offering costs

 

(1,822)

 

(4,815)

Payments for withholding taxes upon vesting for stock-based compensation

(970)

Distributions to noncontrolling interests

 

(527)

 

(22)

Contributions from noncontrolling interests

 

30,439

 

18

Contributions from redeemable noncontrolling interests

19,000

Cash flows provided by financing activities

 

359,331

 

877,137

Changes in cash, cash equivalents and restricted cash

 

(5,965)

 

73,109

Cash, cash equivalents and restricted cash at beginning of period

 

48,390

 

38,516

Cash, cash equivalents and restricted cash at end of period

$

42,425

$

111,625