Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 27, 2017
_______________________________________________________________________________
Safety, Income and Growth, Inc.
(Exact name of registrant as specified in its charter)
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| | | | |
Maryland | | 001-38122 | | 81-4253271
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(State or other jurisdiction of incorporation) | | (Commission File Number) | | (IRS Employer Identification Number) |
|
| | |
1114 Avenue of the Americas, 39th Floor New York, New York | | 10036 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (212) 930-9400
_______________________________________________________________________________
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ý
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. ý
ITEM 2.02 Results of Operations and Financial Condition.
On July 27, 2017, Safety, Income and Growth, Inc. issued an earnings release and made available on its website an earnings presentation for the second quarter ended June 30, 2017. A copy of the earnings release and earnings presentation are attached as Exhibit 99.1 and Exhibit 99.2, respectively, hereto and incorporated herein by reference.
The information in this Current Report, including the exhibits hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, unless it is specifically incorporated by reference therein.
ITEM 7.01 Regulation FD Disclosure.
On July 27, 2017, Safety, Income and Growth, Inc. made available on its website an earnings presentation for the second quarter ended June 30, 2017. A copy of the earnings presentation is attached as Exhibit 99.2 hereto and incorporated by reference.
The earnings presentation, including Exhibit 99.2 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, unless it is specifically incorporated by reference therein.
ITEM 9.01 Financial Statements and Exhibits.
Exhibit 99.1 Earnings Release.
Exhibit 99.2 Earnings Presentation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | Safety, Income and Growth, Inc. |
| | | |
Date: | July 27, 2017 | By: | /s/ GEOFFREY G. JERVIS |
| | | Geoffrey G. Jervis Chief Operating Officer and Chief Financial Officer (principal financial and accounting officer) |
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EXHIBIT INDEX
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| | | |
Exhibit Number | | Description |
| | |
99.1 |
| | Earnings Release. |
99.2 |
| | Earnings Presentation. |
Document
Exhibit 99.1
Press Release
SAFE Reports Second Quarter 2017 Results
NEW YORK, July 27, 2017
Safety, Income & Growth Inc. (NYSE: SAFE) today reported results for the second quarter ended June 30, 2017.
“Our mission at SAFE is not just about investing in assets we believe are a unique and highly attractive part of the real estate world,” said Jay Sugarman, Chairman and Chief Executive Officer. “But as the first publicly traded company focused on the sector, we plan to be the driving force in expanding the use of ground leases as a more efficient capital structure for owners and developers of real estate.”
SAFE published a presentation detailing its second quarter 2017 results, which can be found on SAFE’s website, www.safetyincomgrowth.com, in the “Investor Relations” section.
The Company will host an earnings conference call reviewing this presentation and its results beginning at 10:00 a.m. ET today. This conference call can be accessed by all interested parties through the website (listen only) or by dialing toll-free (844) 579-6824 (U.S. domestic) or (763) 488-9145 (international).
For those who are not able to listen to the live broadcast, a replay will be available shortly after the call on the website or by dialing (855) 859-2056 (U.S. domestic) or (404) 537-3406 (international).
Safety, Income & Growth Inc. (NYSE: SAFE) is the first publicly traded company that focuses on acquiring, owning, managing and capitalizing ground leases. The Company seeks to provide safe, growing income and capital appreciation to shareholders by building a diversified portfolio of high quality ground leases. The Company is managed by its largest shareholder, iStar Inc. Additional information on SAFE is available on its website at www.safetyincomegrowth.com.
Company Contact:
Jason Fooks, Vice President of Investor Relations & Marketing
safeq217earningsdeckfina
Safety, Income & Growth Inc.
The Ground Lease Company
(NYSE: SAFE)
Q2’17 Earnings Results
July 27, 2017
1
Forward-Looking Statements and Other Matters
This release may contain forward-looking statements. All statements other than statements of historical fact are forward-looking
statements. These forward-looking statements can be identified by the use of words such as “illustrative,” “representative,”
“expect,” “plan,” "will," “estimate,” “project,” “intend,” “believe,” and other similar expressions that do not relate to historical
matters. These forward-looking statements reflect the Company’s current views about future events, and are subject to numerous
known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause Company’s actual results to
differ significantly from those expressed in any forward-looking statement. The Company does not guarantee that the
transactions and events described will happen as described (or that they will happen at all). The following factors, among others,
could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking
statements: market demand for ground lease capital; the Company’s ability to source new ground lease investments; risks that
the rent adjustment clauses in the Company's leases will not adequately keep up with changes in market value and inflation; risks
associated with certain tenant and industry concentrations in our initial portfolio; conflicts of interest and other risks associated
with the Company's external management structure and its relationships with iStar and other significant investors; risks
associated with using debt to fund the Company’s business activities (including changes in interest rates and/or credit spreads,
and refinancing and interest rate risks); general risks affecting the real estate industry and local real estate markets (including,
without limitation, the potential inability to enter into or renew ground leases at favorable rates, including with respect to
contractual rate increases or participating rent); dependence on the creditworthiness of our tenants and their financial condition
and operating performance; competition from other developers, owners and operators of real estate (including life insurance
companies, pension funds, high net worth investors, sovereign wealth funds, mortgage REITs, private equity funds and separate
accounts); unknown liabilities acquired in connection with real estate; and risks associated with our failure to qualify for
taxation as a REIT under the Internal Revenue Code of 1986, as amended. Please refer to the section entitled “Risk Factors” in
our Prospectus, dated June 27, 2017, filed with the Securities and Exchange Commission (SEC) for further discussion of these and
other investment considerations. The Company expressly disclaims any responsibility to update or revise forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law.
Investor Relations Contact
Jason Fooks
Investor Relations and Marketing
(212) 930-9400
investors@safetyincomegrowth.com
2
Q2’17 Highlights
Completed initial public offering and concurrent private placement of 12.5MM shares
of common stock at a price of $20.00 per share, resulting in gross proceeds of $250MM
Acquired two ground leases totaling $142MM in prime Los Angeles location with
stabilized Ground Rent Coverage(1) exceeding 5.0x
Closed $300MM revolving credit facility (undrawn at June 30)
Total potential investment capacity of over $600MM (based on target leverage of 2:1)
Appointed iStar Executive Vice President, Timothy Doherty, as Head of Ground
Lease Investments
For the stub period April 14, 2017 – June 30, 2017, the Company reported:
(1) See the Glossary appendix for definitions of capitalized terms used in this presentation.
(2) See the Non-GAAP financial metrics in Section 1 for reconciliations of these measures to GAAP net income.
$ in Millions Per Share
Net Income (loss) ($1.6) ($0.25)
FFO (2) $0.3 $0.04
AFFO (2) $0.9 $0.14
3
Quarterly Spotlight
Successful launch of first publicly traded company focused on ground leases with goal
of becoming dominant player in the sector
Fundamental belief that ground leases can provide more efficient capital structure for
owners and developers and the use of ground leases can be significantly expanded
Growth potential highlighted by goal of doubling initial portfolio by year end
SAFE focused on generating two components of value:
1. Strong investment grade quality cash flow stream with inflation protection
2. Ultimate ownership of diversified portfolio of valuable real estate that can be
valued today and should grow in value over time
iStar and management committing capital and resources to accelerate SAFE growth
path
4
Section 1 – Earnings
Q2’17 Earnings Overview
SAFE, initially capitalized on April 14, 2017 with investments by iStar and two institutional investors, completed
its initial public offering on June 27, 2017. The quarterly results presented throughout this presentation represent
the stub period April 14 – June 30, 2017. Results prior to April 14 represent the financials of SAFE’s predecessor,
which was wholly owned by iStar, and for which per share data is not applicable.
Note: $ in thousands, except per share information.
(1) Results for Q2’17 include an initial $0.8MM stock grant to directors in consideration for joining SAFE’s board.
Q2’17
4/1/17 – 4/13/17
Q2’17
4/14/17 – 6/30/17
Q2’17
Total
Net Income $54 ($1,604)(1) ($1,550)
per share n/a ($0.25) n/a
FFO $168 $269(1) $437
per share n/a $0.04 n/a
AFFO $75 $894 $969
per share n/a $0.14 n/a
5
Note: $ in thousands.
Section 1 – Earnings
Income Statement
Predecessor: April 1, 2017 - April 14, 2017 - Three Months Ended
April 13, 2017 June 30, 2017 June 30, 2017
Revenues:
Operating lease income $672 $4,201 $4,873
Other income 19 3 22
Total revenues $691 $4,204 $4,895
Costs and expenses:
Interest expense $332 $1,868 $2,200
Real estate expense 59 425 484
Depreciation and amortization 114 1,873 1,987
General and administrative 101 383 484
Stock based compensation 31 766 797
Other expense 493 493
Total costs and expenses $637 $5,808 $6,445
Net income (loss) $54 ($1,604) ($1,550)
Predecessor: April 1, 2017 - April 14, 2017 - Three Months Ended
April 13, 2017 June 30, 2017 June 30, 2017
Net income $54 ($1,604) ($1,550)
Add: Interest expense 332 1,868 2,200
Add: Depreciation and amortization 114 1,873 1,987
EBITDA $500 $2,137 $2,637
6
Note: $ in thousands.
We present FFO and AFFO because we consider them to be important supplemental measures of our operating performance and believe that they are frequently used by securities analysts, investors and other interested parties in
the evaluation of REITs. FFO is a widely recognized non-GAAP financial measure for REITs that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding
financial performance and providing a relevant basis for comparison among REITs.
We compute Funds From Operations (FFO) in accordance with the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding
gains or losses from sales of depreciable operating property, plus real estate-related depreciation and amortization. We compute Adjusted Funds From Operations (AFFO) by adding (or subtracting) to FFO the following items: straight-
line rental income, the amortization of real estate-related intangibles, non-cash management fees and expense reimbursements, stock-based compensation, acquisition costs and the amortization of deferred financing costs and other
expenses related to debt obligations.
We consider AFFO to be a useful metric when evaluating the key drivers of our long term operating performance, which are relatively straightforward. Our Ground Lease investments generate rental income and our tenants are
typically responsible for all property level expenses. As a result, we incur minimal property level cash expenses that are not reimbursed. Furthermore, we subtract straight-line rent because it represents non-cash GAAP income, which
creates a material difference between our GAAP rental income recorded and the cash rent we receive, particularly due to the very long duration of our leases. AFFO is presented prior to the impact of the amortization of lease
intangibles, non-cash management fees and expense reimbursements, stock-based compensation, and other expenses which represent non-cash expenses. We also add back acquisition expenses incurred for the acquisition of Ground
Leases due to the long-term nature of our Ground Lease business. Our Ground Lease assets typically have long-term leases (typically 30-99 years) and acquisition expenses will only affect our operations in periods in which Ground Leases
are acquired.
In addition, we believe FFO and AFFO are useful to investors as they capture features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much
greater extent than do other depreciable assets.
Investors should review FFO and AFFO, along with GAAP net income (loss), when trying to understand the operating performance of an equity REIT like us. However, because FFO and AFFO exclude depreciation and
amortization and do not capture the changes in the value of our properties that result from use or market conditions, which have real economic effect and could materially impact our results from operations, the utility of FFO and AFFO
as measures of our performance is limited. There can be no assurance that FFO and AFFO as presented by us is comparable to similarly titled measures of other REITs. FFO and AFFO do not represent cash generated from operating
activities and should not be considered as alternatives to net income (loss) (determined in accordance with GAAP) or to cash flow from operating activities (determined in accordance with GAAP). FFO and AFFO are not indicative of
cash available to fund ongoing cash needs, including the ability to make cash distributions to our stockholders. Although FFO and AFFO are measures used for comparability in assessing the performance of REITs, as the NAREIT White
Paper only provides guidelines for computing FFO, the computation of FFO and AFFO may vary from one company to another.
Section 1 – Earnings
FFO / AFFO
Predecessor: April 1, 2017 - April 14, 2017 - Three Months Ended
April 13, 2017 June 30, 2017 June 30, 2017
Net income $54 ($1,604) ($1,550)
Add: Real estate related depreciation and amortization 114 1,873 1,987
Less: Income from sales of real estate
FFO $168 $269 $437
FFO $168 $269 $437
Less: Straight-line rental income (159) (1,044) (1,203)
Add: Amortization of real estate-related intangibles, net 15 346 361
Add: Stock-based compensation 31 766 797
Add: Acquisition costs 381 381
Add: Non-cash management fee expense and reimbursements 174 174
Add: Non-cash interest expense 20 2 22
AFFO $75 $894 $969
7
# of Assets Gross Book Value
Total Assets 3/31/2017 12 $340
Acquisitions:
6200 Hollywood Blvd 1 $74
6201 Hollywood Blvd 1 $68
Total Assets 6/30/2017 14 $482
Note: $ in millions.
Section 2 – Portfolio
Portfolio Roll Forward
8
Section 2 – Portfolio
New Investments
6201 Hollywood Blvd., Los Angeles 6200 Hollywood Blvd., Los Angeles
Asset Description
Newly constructed multi-family building with 535 units,
71K SF ground floor retail space, and 1,300 below grade
parking spaces
Expected 1H’18 delivery of multi-family building with
~507 units, 56K SF ground floor retail space, and 1,237
below grade parking spaces
Origination Method Acquisition Acquisition
Purchase Price $68.4MM $73.6MM
Current Rent $2.4MM $2.6MM
Estimated Leasehold Development Cost (1) ~$200.0MM ~$250.0MM
Basis as % of CPV < 25% < 25%
Projected Stabilized Ground Rent
Coverage
> 5.0x > 5.0x
Rent Escalations
Rent adjusts every 4 years based on a % of CPI with rent
resets in 2059 and 2079 based on % of FMV of improved
land
Rent adjusts every 4 years based on a % of CPI with rent
resets in 2058 and 2078 based on % of FMV of improved
land
Next Escalation 2/1/2019 5/1/2018
Lease Term Remaining 87 Years (Expires 2104) 87 Years (Expires 2104)
(1) Represents management’s estimate of the leasehold development cost.
9
Section 2 – Portfolio
Geographic Diversification
Note: Percentages based on total Ground Lease Basis of $482 million.
Seattle-Tacoma-Bellevue
15%
12%
19%
Detroit-Warren-Dearborn
Salt Lake City
7%
San Diego-Carlsbad
5%
San Francisco-San
Jose-Oakland
4%
Durango
3%
Dallas-Fort Worth-Arlington 2%
Atlanta-Sandy Springs-Marietta
2%
Washington-Arlington-Alexandria
2%
Milwaukee-Waukesha-West Allis
29%
Los Angeles-Riverside-Orange County
10
4.0-5.0x
17%
3.0-4.0x
37%
5.0x+
46%
Hotel
49%
Multi-family
31%
Office
17%
Medical
3%
>50%
35%
40-50%
9%30-40%
22%
<30%
34%
>80 yrs
41%
<20 yrs
57%
40-60 yrs
1%
20-40 yrs
1%
Percentage Rent
47%
Inflation Adjusted
30%
Fixed
23%
Section 2 - Portfolio
Portfolio Stratification
(1) Weighted based on in-place base rent; assumes leases are fully extended based on in-place rent.
(2) CPV is Combined Property Value.
(3) Excluding 6200 & 6201 Hollywood Blvd which were acquired in Q2’17.
(4) CPI for period was 1.6%.
(5) Includes projected stabilized ground rent coverage.
Property Type
$482MM
Property NOI to
Ground Rent
W.A. 4.7x
Rent Escalator /
% Rent
2.75% TTM (3) (4)
Basis as %
of CPV (2)
W.A. 35.1%
Lease Term
Remaining (1)
W.A. 63 yrs
(5)
1.5% W.A. Bump
3.4% YoY Increase
11
Washington-
Baltimore-
Arlington
34%
New York-Newark-
Jersey City
29%
Philadelphia-
Camden-
Wilmington
19%
Boston-
Cambridge-
Newton
5%
Los Angeles-
Long Beach-
Anaheim
4%
Seattle-
Tacoma-
Bellevue
3%
San Jose-
Sunnyvale-
Santa Clara
3%
Other
3%
Office
59%Multi-Family
28%
Hotel
13%
Acquire
38%
Originate
62%
SAFE is currently evaluating a well diversified pipeline of opportunities totaling $1.1B
Section 2 – Portfolio
Pipeline
Note: The above represents assets the Company is evaluating and does not represent definitive purchase agreements. There can be no assurance that we will
acquire or originate any of the investments on favorable terms, or at all.
Property
Type
$1.1B
Location
(MSA)
$1.1B
Sourcing
Strategy
$1.1B
12
Note: The total Combined Property Value (CPV) represents the total of our estimated CPV for each property in our portfolio. We calculated the individual property amounts by applying capitalization rates
ranging from 7.0% to 10.0% to the Underlying Property NOI of each property for the 12 months ended December 31, 2016 or, in the case of construction projects, the estimated cost of development. Our
estimates of CPV represent our opinion and may not accurately reflect the current market value of the properties relating to our ground leases. The capitalization rates that we applied to determine our
estimates of the CPV of portfolio varied by property and were selected by us for use in our internal underwriting based on a number of factors, including lease terms, information supplied by our tenants,
market data and other factors. Our estimates are not based on contractual sale terms or third party appraisals and are based on numerous estimates and assumptions. No assurance can be given regarding the
accuracy or appropriateness of such capitalization rates, estimates or assumptions. The application of alternative capitalization rates, estimates or assumptions could result in valuations that are materially
lower than those used in our underwriting and portfolio monitoring processes. Similarly, we may not agree with valuations determined by third parties. Our ability to recognize value through reversion rights
may be limited by the rights of our tenants under some of our ground leases, including tenant rights to purchase the properties or level properties under certain circumstances. See “Risk Factors” in our
Prospectus, dated June 27, 2017, filed with the SEC, for a further discussion of such tenants rights.
Value Bank represents management’s estimate of today’s value of the (i) properties that
support payment of the ground leases and (ii) residual real estate that SAFE will inherit at
the end of the lease term above and beyond the ground lease
$437MM
Estimated
Value Bank
$887MM
Estimated
Value Bank
$482MM
Ground Lease
Basis
$1.37B Total CPV
Section 2 – Portfolio
Value Bank of $887MM
$340MM
Ground Lease
Basis
$777MM Total CPV
At IPO At 6/30/17
13
Section 3 –Capital Structure
Investment Capacity
~$600MM of investment capacity
~$100MM of cash
~$500MM of debt capacity (1)
(1) Debt capacity represents the amount of indebtness we could incur under our current leverage policy which is generally to target overall leverage at
approximately 25% of the aggregate Combined Property Value of our portfolio; but not to exceed a ratio of 2:1 relative to our total equity. We do not
currently have in place financing arrangements that would permit us to incur $500MM of debt. As of the date of this presentation, we have a $300MM
revolving credit facility in place.
(2) Excludes $108MM cash and cash equivalents.
$359MM
Equity
$718MM
Debt
Current Investment Capacity
$255MM
Invested Equity (2)
$227MM
Debt
Portfolio Today
$482MM Portfolio
$1,077MM Portfolio
2.0x D/E Target
(<25% of CPV)
14
Note: $ in millions.
(1) Adjusted EBITDA represents annualized in-place cash rent at June 30, 2017 plus percent rent payments made over the trailing twelve months, less
annualized cash expenses (other than cash acquisitions expenses) for the quarter ended June 30, 2017. There can be no assurance that percent rent payments
received over the trailing twelve months represents percent rent the Company will receive in future periods. Interest expense represents the annualized in-
place cash interest expense at June 30, 2017. This credit metric represents the Company’s ability to meet its debt service obligations from on-going
operations.
Section 3 –Capital Structure
Credit Metrics
Leverage
Book Debt $227
Book Equity $359
Leverage (Debt to Equity) 0.6x
Target 2.0x
Combined Property Value $1,369
Debt as % of CPV 16.6%
Target 25%
FCCR (1)
Adjusted EBITDA (B) $21
Interest Expense (cash) (C) $9.5
Corporate FCCR (B) / (C) 2.2x
Underlying Property NOI (A) $91
Look-Through FCCR (A) / (C) 9.6x
Target leverage of (i) 25% of CPV and (ii) 2x debt to equity, with a term of or hedge for at
least 10 years
As of June 30, 2017
15
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Section 3 –Capital Structure
Debt Overview
Note: $ in millions.
(1) Initial maturity is June 2020 with two 1-year extensions.
(2) April 2027 represents Anticipated Repayment Date. Final maturity is April 2028.
(3) 3.795% coupon effectively reduced to 3.77% with swap rate lock.
(4) Based on LIBOR of 1.30% at June 30, 2017.
$300(1)
$227(2)
Debt Maturity Profile
Revolver
Capacity
(Undrawn)
W.A. Maturity is 10 years
Debt Profile
2022
Jun.(1) $300 L+135
2027
Apr. (2) $227 3.77% (3)
Total $527 3.09% (4)
Hedge Profile
Amount Effective Date Maturity Date Base Rate
$95 floating to fixed swap 8/1/2017 & 10/1/2017 10/1/2020 1.709%
$95 floating to fixed swap 10/1/2020 10/1/2030 2.628%
16
Assets Liabilities and Equity
Liabilities:
Real estate Debt obligations, net $227,406
Real estate, gross $406,844 Accounts payable and other liabilities 5,945
Accumulated depreciation (1,251) Total liabilities $233,351
Real estate, net 405,593
Real estate-related intangibles 73,428 Equity:
Ground lease assets, net 479,021 Common stock $182
Cash and cash equivalents 107,579 Additional paid-in capital 360,070
Other assets 5,273 Retained earnings (deficit) (1,604)
Total assets $591,873 AOCI (126)
Total equity $358,522
Total liabilities and equity $591,873
Section 3 –Capital Structure
Balance Sheet
Note: $ and share count in thousands. Real estate-related intangibles, net represents real estate-related intangible assets of $132MM less real estate-related intangible
liabilities of $58MM.
5,650
18,190
2,775
2,250
5,025
2,875
10,290
13,165
Pre-IPO Issued at IPO and to
Directors
At June 30, 2017
SAFE Shares Outstanding
Shares Owned by Other Investors
Shares Owned by iStar
As of June 30, 2017
17
Appendix
18
Appendix
Glossary
Ground Lease Basis Ground Lease Basis is the purchase price paid by SAFE to acquire or originate a ground lease.
Combined Property Value (CPV)
The current combined value of the land, buildings and improvements relating to a commercial property, as if there
was no GL on the land at the property.
Basis as % of CPV
Calculated as our Ground Lease Basis divided by CPV. The metric is a measure of our safety in a real estate
property’s capital structure and represents our last-dollar economic exposure to the underlying property.
Value Bank
Calculated as the difference between CPV and Ground Lease Basis. The metric represents today’s value of the
residual that will revert back to us at the end of the lease term.
Ground Rent Coverage
The ratio of the Underlying Property’s NOI to the annualized base rental payment due to us. The metric is a
measure of our seniority in a property’s cash flow waterfall.
Funds from Operations (FFO)
FFO is computed in accordance with the National Association of Real Estate Investment Trusts (NAREIT) which
defines FFO as net income (determined in accordance with GAAP), excluding gains or losses from sales of
depreciable operating property, plus real estate-related depreciation and amortization.
Adjusted Funds from Operations
(AFFO)
Calculated by adding (or subtracting) to FFO the following items: straight-line rental income, the amortization of
real estate-related intangibles, stock-based compensation and the amortization of deferred financing costs and
other expenses related to debt obligations.
EBITDA Calculated as the sum of net income before interest expense and depreciation and amortization.
Underlying Property NOI
With respect to a property, the net operating income of the commercial real estate being operated at the property
without giving effect to any rent paid or payable under our ground lease. Net operating income is calculated as
property-level revenues less property-level operating expenses as reported to us by the tenant.
Leverage The ratio of book debt to book equity.
19
Appendix
Asset Summary
Note: Ranked by Total GAAP Income. See “End Notes” slide at the back of this presentation for footnotes.
Property Location Property Type
Lease Expiration
/ As Extended
Contractual Rent
Escalations
In Place
Base Rent
(Annualized) (1)
TTM
% Rent (2)
Total Income
Cash / GAAP (3)
Underlying
Property NOI to
Ground Rent
Coverage (4)
Doubletree Seattle Airport (5)(6) Seattle, WA Hotel 2025 /2035 % Rent $4.5 $1.0 $5.5 / $5.5 3.4x
One Ally Center Detroit, MI Office 2114 / 2174 1.5% / p.a.(7) 2.6 N/A 2.6 / 5.3 >5.0x (8)
Hilton Salt Lake (5) Salt Lake City, UT Hotel 2025 / 2035 % Rent 2.7 0.6 3.3 / 3.3 3.7x
6200 Hollywood (South) Los Angeles, CA Multi-Family 2104 / 2104 % of CPI / 4yrs (9) 2.6 N/A 2.6 / 2.6 >5.4x (10)
6201 Hollywood (North) Los Angeles, CA Multi-Family 2104 / 2104 % of CPI / 4yrs (11) 2.4 N/A 2.4 / 2.5 >6.0x (12)
Doubletree Mission Valley (5) San Diego, CA Hotel 2025 / 2035 % Rent 1.1 0.7 1.8 / 1.8 6.3x
Doubletree Durango (5) Durango, CO Hotel 2025 /2035 % Rent 0.9 0.3 1.2 / 1.2 3.5x
Doubletree Sonoma (5) San Francisco, CA Hotel 2025 / 2035 % Rent 0.7 0.4 1.1 / 1.2 5.4x
Dallas Market Center: Sheraton Suites Dallas, TX Hotel 2114 / 2114 2.0% / p.a.(13) 0.4 N/A 0.4 / 1.0 5.5x
Northside Forsyth Hospital Medical Center Atlanta, GA
Medical /
Office
2115 / 2175 1.5% / p.a.(14) 0.5 N/A 0.5 / 1.1 3.1x
NASA/JPSS Headquarters Washington, D.C. Office 2075 / 2105 3.0% / 5yrs 0.4 N/A 0.4 / 0.4 4.1x
The Buckler Apartments Milwaukee, WI Multi-Family 2112 / 2112 15% / 10yrs 0.3 N/A 0.3 / 1.0 9.2x
Dallas Market Center: Marriott Courtyard Dallas, TX Hotel 2026 / 2066 % Rent 0.1 0.2 0.3 / 0.0 20.3x
Lock Up Self Storage Facility Minneapolis, MN Self Storage 2037 / 2037 3.5% / 2yrs 0.1 N/A 0.1 / 0.1 6.3x
Total / Weighted Avg. 47 / 63 yrs $19.3 $3.2 $22.5 / $27.0 4.7x (15)
20
Appendix
End Notes
(1) Annualized cash base rental income in place as of June 30, 2017.
(2) Total percentage cash rental income during the 12 months ended June 30, 2017.
(3) Total GAAP Income reflects total cash rent adjusted for non-cash income, primarily consisting of straight-line rent, to conform
with GAAP.
(4) Ground Rent Coverage is the ratio of the underlying property cash NOI (excluding ground rent) to the annualized in-place base
ground rent.
(5) Property is part of the Hilton Western Portfolio and is subject to a single master lease. In November 2016, the master lease
governing the Hilton Western Portfolio was amended to change the look back period for which annual percentage rent is
computed from the trailing twelve months ended September 30th to the trailing twelve months ended December 31st. In March
2017, the Company recorded $0.5 million of income representing a one-time stub payment of percentage rent for the 3 months
ended December 31st, 2016, to account for the change in the look back period. The aggregate $3.0 million percentage rent shown
for the hotels comprising the Hilton Western excludes the one time $0.5 million stub period payment.
(6) A majority of the land underlying this property is owned by a third party and is ground leased to us through 2044 for $0.4 million
per year (subject to adjustment for changes in the CPI); however, our tenant pays this cost directly to the third party.
(7) During each 10th lease year, annual fixed rent is adjusted to the greater of (i) 1.5% over the prior year’s rent, or (ii) the product of
the rent applicable in the initial year of the 10 year period multiplied by a CPI factor, subject to a cap on the increase of 20% of
the rent applicable in that initial year.
(8) Represents the Company’s estimate of Ground Rent Coverage based on stabilized net operating income, without giving effect to
any rent abatements. Underlying Property NOI information provided by our GL tenant is confidential. Company estimate is
based on available market information.
(9) Base rent is subject to increase every 4 years based on a percentage of growth in the CPI for the greater Los Angeles area,
California in that time span. Rent increase capped at 12.0% from one rent period to the next. Next potential base increase is May
2018. Notwithstanding the foregoing, in 2058 and 2078, the annual base rent will be reset based on a calculation derived from the
then fair market value of the land, but not less than the annual base rent that was in effect before the reset.
(10) The property is currently under construction. We currently expect construction to be completed in 2018. Represents our
underwritten expected net operating income at the property upon stabilization and our estimated Ground Rent Coverage.
21
Appendix
End Notes – (cont’d)
(11) Base rent is subject to increase every 4 years based on a percentage of growth in the CPI for the greater Los Angeles area,
California in that time span. Rent increase capped at 12.0% from one rent period to the next. The next potential base increase is
February 2019. Notwithstanding the foregoing, in 2059 and 2079, the annual base rent will be reset based on a calculation derived
from the then fair market value of the land, but not less than the annual base rent that was in effect before the reset.
(12) Construction was completed in 2016 and the property is currently in the lease up phase. A full year of property results is not yet
available. Represents our underwritten expected net operating income at the property upon stabilization and our estimated
Ground Rent Coverage. Company estimates are based on leasing activity at the property and available market information,
including leasing activity at comparable properties in the market.
(13) For the 51st through 99th years of the lease, the base rent is the greater of (i) the annual rent calculated based on 2.0% annual rent
escalation throughout the term of the lease, and (ii) the fair market rental value of the property.
(14) During each 10th lease year, annual fixed rent is adjusted to the greater of (i) 1.5% over the prior year’s rent, or (ii) the product of
the rent applicable in the initial year of the 10 year period multiplied by a CPI factor, subject to a cap on the increase of 20% of
the prior year’s rent.
(15) The weighted average of the Ground Rent Coverage is calculated by dividing the Underlying Property NOI by the annualized
in-place base rent of $19.2 million. Includes estimates for One Ally Center, 6201 Hollywood and 6200 Hollywood as detailed
above.