What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-05-07 · 136 added, 74 removed, 227 unchanged (48% of the section changed)

16 unchanged sentences

(formerly known as iStar Inc.) and its consolidated subsidiaries following the consummation of the Merger.

Periods presented prior to the Merger date of March 31, 2023 reflect the operations of Old SAFE and periods presented as of March 31, 2024 represent the financial statements of the Company.

Periods presented prior to the Merger date of March 31, 2023 reflect the operations of Old SAFE and periods presented as of June 30, 2024 represent the financial statements of the Company.

Additionally, in connection with the Merger, Safehold Operating Partnership LP converted from a Delaware limited partnership into a Delaware limited liability company and changed its name to “Safehold GL Holdings LLC” (“Portfolio Holdings”), with the Company as its managing member.

8 unchanged sentences

Capital appreciation is realized though appreciation in the value of the land over time and through our typical rights as landlord to acquire the commercial buildings on our land at the end of a Ground Lease, which may yield substantial value to us.

As of March 31, 2024, the percentage breakdown of the gross book value of our portfolio was 42% office, 39% multi-family, 11% hotels, 6% life science and 2% mixed use

As of June 30, 2024, the percentage breakdown of the gross book value of our portfolio was 41% office, 39% multi-family, 11% hotels, 6% life science and 3% mixed use and

The diversification by geographic location, property type and sponsor in our portfolio further reduces risk and enhances potential upside.

2 unchanged sentences

In 2022, the Consumer Price Index (“CPI”) rose to its highest rate in over 40 years.

Since then, the Federal Reserve has raised interest rates multiple times.

Any increase in interest rates may result in a reduction in the availability or an increase in costs of leasehold financing, which is critical to the growth of a robust Ground Lease market.

Since then, the Federal Reserve has raised interest rates multiple times and has kept rates high.

Any further increase in interest rates may result in a reduction in the availability or an increase in costs of leasehold financing, which is critical to the growth of a robust Ground Lease market.

An increase in interest rates could also increase the leasehold financing costs of our Ground Lease tenants and their ability to obtain leasehold financing.

41 unchanged sentences

We calculate this estimated value by subtracting our original aggregate cost basis in the Ground Leases from our estimated aggregate Combined Property Value, based on estimates by the valuation firm and by management.

The table below shows the current estimated UCA in our owned residual portfolio as of March 31, 2024 and December 31, 2023 ($ in millions):

March 31, 2024

The table below shows the current estimated UCA in our owned residual portfolio as of June 30, 2024 and December 31, 2023 ($ in millions):

June 30, 2024

December 31, 2023

2 unchanged sentences

Unrealized Capital Appreciation in Our Owned Residual Portfolio

(1) Please review our Current Report on Form 8-K filed on May 7, 2024 for a discussion of the valuation methodology used and important limitations and qualifications of the calculation of UCA.

(1) Please review our Current Report on Form 8-K filed on July 29, 2024 for a discussion of the valuation methodology used and important limitations and qualifications of the calculation of UCA.

See “Risk Factors- Certain tenant rights under our Ground Leases may limit the value and the UCA we are able to realize upon lease expiration, sale of our land and Ground Leases or other events ” included in “Risk Factors” of our 2023 Annual Report for a discussion of certain tenant rights and other terms of the leases that may limit our ability to realize value from the UCA.

(2) Combined Property Value as of December 31, 2023 includes one investment in our Ground Lease Plus Fund (which we acquired from the Ground Lease Plus Fund in January 2024 - refer to Note 7 to the consolidated financial statements), and for both periods includes our applicable percentage interests in our unconsolidated Ground Lease ventures and $1,222.5 million and $1,357.4 million related to transactions with remaining unfunded commitments as of March 31, 2024 and December 31, 2023, respectively.

(2) Combined Property Value as of December 31, 2023 includes one investment in our Ground Lease Plus Fund (which we acquired from the Ground Lease Plus Fund in January 2024 - refer to Note 7 to the consolidated financial statements), and for both periods includes our applicable percentage interests in our unconsolidated Ground Lease ventures and $1,142.9 million and $1,357.4 million related to transactions with remaining unfunded commitments as of June 30, 2024 and December 31, 2023, respectively.

Combined Property Value excludes the term loan to Star Holdings, the assets in the Leasehold Loan Fund (refer to Note 7 to the consolidated financial statements), the assets in the Ground Lease Plus Fund and amounts attributable to noncontrolling interests.

Ground Lease Cost as of December 31, 2023 includes one investment in our Ground Lease Plus Fund (which we acquired from the Ground Lease Plus Fund in January 2024), and for both periods includes our applicable percentage interests in our unconsolidated Ground Lease ventures and $70.2 million and $135.6 million (including amounts paid to the Ground Lease Plus Fund in January 2024 to acquire the investment) of unfunded commitments as of March 31, 2024 and December 31, 2023, respectively.

Ground Lease Cost as of December 31, 2023 includes one investment in our Ground Lease Plus Fund (which we acquired from the Ground Lease Plus Fund in January 2024), and for both periods includes our applicable percentage interests in our unconsolidated Ground Lease ventures and $50.6 million and $135.6 million (including amounts paid to the Ground Lease Plus Fund in January 2024 to acquire the investment) of unfunded commitments as of June 30, 2024 and December 31, 2023, respectively.

Ground Lease Cost excludes the term loan to Star Holdings, the assets in the Leasehold Loan Fund, the assets in the Ground Lease Plus Fund and amounts attributable to noncontrolling interests.

As of March 31, 2024, our gross book value as a percentage of combined property value was 47%.

As of June 30, 2024, our gross book value as a percentage of combined property value was 48%.

In 2018, Old SAFE established the Caret program (as defined below).

18 unchanged sentences

Following the merger, 76,801 Caret units were awarded to executive officers and other employees under such plan that are subject to cliff vesting on the fourth anniversary of their grant date if our common stock has traded at an average price of $60.00 or more for at least 30 consecutive trading days during that four-year period.

As a result, as of March 31, 2024, vested and unvested Caret units beneficially owned by our officers and other employees represent approximately 14.5% of the outstanding Caret units and 11.6% of the authorized Caret units, including 6.1% held directly and indirectly by Jay Sugarman, our Chairman and Chief Executive Officer.

In addition to the Caret units awarded or reserved for issuance under our Caret Performance Incentive Plan, as of March 31, 2024, Old SAFE sold or contracted to sell an aggregate of 259,642 Caret units to third-party investors, including affiliates of MSD Partners and an entity affiliated with one of our independent directors.

As of March 31, 2024, the Company owns 83.1% of the outstanding Caret units.

In connection with the sale of 137,142 Caret units in February 2022 (28,571 of which were committed to be purchased at the time, but have not yet closed), Old SAFE agreed to use commercially reasonable efforts to provide public market liquidity for such Caret units by seeking to provide a listing of the Caret units (or securities into which they may be exchanged) on a public exchange within two years of the sale.

Because public market liquidity was not achieved by February 2024, the investors in the February 2022 transaction have the right to cause their Caret units purchased in February 2022 to be redeemed by Portfolio Holdings at such purchase price less the amount of distributions previously made on such units.

As a result, as of June 30, 2024, vested and unvested Caret units beneficially owned by our officers and other employees represent approximately 14.4% of the outstanding Caret units and 11.4% of the authorized Caret units, including 6.1% held directly and indirectly by Jay Sugarman, our Chairman and Chief Executive Officer.

In addition to the Caret units awarded or reserved for issuance under our Caret Performance Incentive Plan, as of June 30, 2024, Old SAFE sold or contracted to sell an aggregate of 259,642 Caret units to third-party investors, including affiliates of MSD Partners and an entity affiliated with one of our independent directors.

As of June 30, 2024, the Company owns 84.3% of the outstanding Caret units.

In connection with the sale of 137,142 Caret units in February 2022 (28,571 of which were committed to be purchased at the time, but did not close), Old SAFE agreed to use commercially reasonable efforts to provide public market liquidity for such Caret units by seeking to provide a listing of the Caret units (or securities into which they may be exchanged) on a public exchange within two years of the sale.

Because public market liquidity was not achieved by February 2024, the investors in the February 2022 transaction had the right to cause their Caret units purchased in February 2022 to be redeemed by Portfolio Holdings at such purchase price less the amount of distributions previously made on such units.

In April 2024, all of the investors in the February 2022 transaction exercised this right and elected to have their Caret units redeemed at the original purchase price less the amount of distributions previously made on such units.

14 unchanged sentences

Additionally, we have created additional channels and products that allows us to build a larger, captive pipeline.

In connection with the Merger, Old SAFE acquired iStar’s 53% interest in iStar’s two Ground Lease ecosystem funds, Ground Lease Plus Fund and Leasehold Loan Fund (refer to Note 7 to the consolidated financial statements).

In connection with the Merger, Old SAFE acquired iStar’s interests in iStar’s two Ground Lease ecosystem funds, Ground Lease Plus Fund and Leasehold Loan Fund (refer to Note 7 to the consolidated financial statements).

The Ground Lease Plus Fund includes two assets and targets high quality projects in pre-construction development phase with institutional developers.

6 unchanged sentences

Our portfolio is comprised of Ground Leases and a master lease (relating to five hotel assets that we refer to as our “Park Hotels Portfolio”) that has many of the characteristics of a Ground Lease.

As of March 31, 2024, our estimated portfolio Ground Rent Coverage was 3.6x (see “Risk Factors - Our estimated UCA, Combined Property Value and Ground Rent Coverage, may not reflect the full potential impact of the COVID-19 pandemic and may decline materially in future periods , - We rely on Property NOI as reported to us by our tenants , - Our estimates of Ground Rent Coverage for properties in development or transition, or for which we do not receive current tenant financial information, may prove to be incorrect ” in our 2023 Annual Report for a discussion of our estimated Ground Rent Coverage).

Below is an overview of the top 10 assets in our portfolio as of March 31, 2024 (based on gross book value and excluding unfunded commitments):

As of June 30, 2024, our estimated portfolio Ground Rent Coverage was 3.6x (see “Risk Factors - Our estimated UCA, Combined Property Value and Ground Rent Coverage, may not reflect the full potential impact of the COVID-19 pandemic and may decline materially in future periods , - We rely on Property NOI as reported to us by our tenants , - Our estimates of Ground Rent Coverage for properties in development or transition, or for which we do not receive current tenant financial information, may prove to be incorrect ” in our 2023 Annual Report for a discussion of our estimated Ground Rent Coverage).

Below is an overview of the top 10 assets in our portfolio as of June 30, 2024 (based on gross book value and excluding unfunded commitments):

Rent Escalation

27 unchanged sentences

however, our tenant at the property pays this cost directly to the third party.

The following tables show our portfolio by top 10 markets and property type as of March 31, 2024, excluding unfunded commitments:

The following tables show our portfolio by top 10 markets and property type as of June 30, 2024, excluding unfunded commitments:

Manhattan (1)

6 unchanged sentences

We have unfunded commitments to certain of our Ground Lease tenants related to leasehold improvement allowances that we expect to fund upon the completion of certain conditions.

As of March 31, 2024, we had $70.2 million of such commitments, excluding commitments to be funded by noncontrolling interests.

As of June 30, 2024, we had $50.6 million of such commitments, excluding commitments to be funded by noncontrolling interests.

We also have unfunded forward commitments related to agreements that we entered into for the acquisition of new Ground Leases or additions to existing Ground Leases if certain conditions are met (refer to Note 14 to the consolidated financial statements).

These commitments may also include leasehold improvement allowances that will be funded to the Ground Lease tenants upon the completion of certain conditions.

As of March 31, 2024, we had an aggregate

As of June 30, 2024, we had an aggregate

$150.4 million of such commitments.

2 unchanged sentences

We refer to these arrangements as performance-based commitments.

As of March 31, 2024, we had $105.9 million of such commitments.

Results of Operations for the Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023

As of June 30, 2024, we had $103.3 million of such commitments.

Results of Operations for the Three Months Ended June 30, 2024 compared to the Three Months Ended June 30, 2023

For the Three Months Ended

8 unchanged sentences

General and administrative

Provision for credit losses

Provision for (recovery of) credit losses

Other expense

Total costs and expenses

Earnings from equity method investments

Earnings (losses) from equity method investments

Net income (loss) before income taxes

1 unchanged sentence

Net income (loss)

Interest income from sales-type leases increased to $63.2 million for the three months ended March 31, 2024 from $57.1 million for the same period in 2023.

Interest income from sales-type leases increased to $65.2 million for the three months ended June 30, 2024 from $58.2 million for the same period in 2023.

The increase was due primarily to acquisitions of Ground Leases and additional fundings on existing Ground Leases classified as sales-type leases and Ground Lease receivables.

Operating lease income increased to $21.0 million during the three months ended March 31, 2024 from $20.9 million for the same period in 2023.

The slight increase was due primarily to an increase in percentage rent, which was partially offset by a decrease in recovery income at certain properties.

Interest income – related party was $2.4 million for the three months ended March 31, 2024 and relates to the Star Holdings Term Loan Facility.

Other income for the three months ended March 31, 2024 includes $5.5 million of management fees from Star Holdings.

In addition, other income for both the three months ended March 31, 2024 and 2023 includes $0.1 million of other income relating to a Ground Lease in which we are the lessee but our tenant at the property pays this expense directly under the terms of a master lease.

Other income for the three months ended March 31, 2024 and 2023 also includes $1.0 million and $0.3 million, respectively, of other ancillary income from our investments.

The increase in other ancillary income in 2024 as compared to 2023 was primarily due to sublease income, interest income on our cash balances, fees earned on amendments to our Ground Leases and management and other fees earned from the funds that we manage.

During the three months ended March 31, 2024 and 2023, we incurred interest expense from our debt obligations of $48.6 million and $40.9 million, respectively.

The increase in 2024 was primarily the result of additional borrowings on our 2021 Unsecured Revolver, which also accrued interest at higher rates in 2024 due to an increase in base interest rates, and interest expense on our trust preferred securities and our 6.10% Notes.

Real estate expense was $1.1 million and $1.2 million during the three months ended March 31, 2024 and 2023, respectively, which consisted primarily of the amortization of an operating lease right-of-use asset, legal fees, property taxes and insurance expense.

In addition, during both the three months ended March 31, 2024 and 2023, we also recorded $0.1 million of real estate expense relating to a Ground Lease in which we are the lessee but our tenant at the property pays this expense directly under the terms of a master lease.

The decrease in 2024 was primarily the result of a decrease in legal costs at certain of our properties and a decrease in recoverable property taxes.

Depreciation and amortization was $2.5 million during the three months ended March 31, 2024 as compared to $2.4 million for the same period in 2023.

Operating lease income was $16.7 million during the three months ended June 30, 2024 compared to $16.8 million for the same period in 2023.

Operating lease income consists of rent from our operating leases and percentage rent from certain properties, including our Park Hotels Portfolio.

Interest income – related party was $2.4 million for both the three months ended June 30, 2024 and 2023 and relates to the Star Holdings Term Loan Facility.

Other income for the three months ended June 30, 2024 and 2023 includes $4.4 million and $7.2 million, respectively, of management fees from Star Holdings.

In addition, other income for both the three months ended June 30, 2024 and 2023 includes $0.1 million of other income relating to a Ground Lease in which we are the lessee but our tenant at the property pays this expense directly under the terms of a master lease.

Other income for both the three months ended June 30, 2024 and 2023 also includes $1.1 million of other ancillary income from our investments.

Other ancillary income primarily includes sublease income earned in periods subsequent to the Merger, recoverable expenses and interest income earned on our cash balances.

During the three months ended June 30, 2024 and 2023, we incurred interest expense from our debt obligations of $49.1 million and $46.1 million, respectively.

The increase in 2024 was primarily the result of increased indebtedness to fund acquisition activity and higher interest rates.

Real estate expense was $1.0 million during both the three months ended June 30, 2024 and 2023, which consisted primarily of the amortization of an operating lease right-of-use asset, legal fees, property taxes and insurance expense.

In addition, during both the three months ended June 30, 2024 and 2023, we also recorded $0.1 million of real estate expense relating to a Ground Lease in which we are the lessee but our tenant at the property pays this expense directly under the terms of a master lease.

Depreciation and amortization was $2.5 million during both the three months ended June 30, 2024 and 2023.

Depreciation and amortization primarily relates to our ownership of the Park Hotels Portfolio and a multi-family property, the amortization of in-place lease assets, and beginning in the second quarter of 2023, depreciation on corporate fixed assets acquired in the Merger.

Subsequent to the Merger closing on March 31, 2023, general and administrative expenses primarily includes public company costs such as compensation (including equity-based compensation), occupancy and other costs.

Prior to the Merger closing, general and administrative expenses included management fees, an allocation of expenses to us from our Former Manager, costs of operating as a public company and stock-based compensation (primarily to our non-management directors) .

The following table presents our general and administrative expenses for the three months ended March 31, 2024 and 2023 ($ in thousands):

The following table presents our general and administrative expenses for the three months ended June 30, 2024 and 2023 ($ in thousands):

For the Three Months Ended

1 unchanged sentence

Stock-based compensation

Total general and administrative expenses (2)

(1) For the three months ended June 30, 2024 and 2023, public company and other costs primarily includes compensation, legal, insurance and occupancy costs.

(2) For the three months ended June 30, 2024 and 2023, general and administrative expenses were partially offset by $4.4 million and $7.2 million, respectively, of management fees earned from Star Holdings, which are included in “Other income” in our consolidated statements of operations.

During the three months ended June 30, 2024, we recorded a provision for credit losses of $0.6 million.

The provision was primarily the result of current market conditions, including an increase in our Ground Lease cost to value ratios on our Ground Lease portfolio.

During the three months ended June 30, 2023, we recorded a provision for credit losses of $0.1 million.

The provision was primarily the result of a declining macroeconomic forecast on commercial real estate markets since March 31, 2023.

D uring the three months ended June 30, 2024, other expense consists primarily of costs related to our debt obligations .

During the three months ended June 30, 2023, other expense consists primarily of legal and consulting costs and costs incurred from the formation of a venture.

During the three months ended June 30, 2024, earnings from equity method investments (refer to Note 7 to the consolidated financial statements) resulted from our $0.9 million share of income from our 425 Park Avenue venture, our $1.4 million share of income from our 32 Old Slip venture, our $0.5 million share of income from the Ground Lease Plus Fund and our $3.7 million share of income from the Leasehold Loan Fund.

During the three months ended June 30, 2023, earnings from equity method investments resulted from our $0.9 million pro rata share of income from our 425 Park Avenue venture, our $1.4 million pro rata share of income from our 32 Old Slip venture, our $1.7 million pro rata share of income from the Ground Lease Plus Fund and our $2.8 million pro rata share of income from the Leasehold Loan Fund.

During the three months ended June 30, 2024, we recorded consolidated income tax expense of $0.9 million, which was attributable to our taxable REIT subsidiary (“TRS”).

Included in our consolidated income tax expense, our TRS recorded current and deferred tax expense in the amounts of $0.7 million and $0.2 million, respectively.

The deferred tax expense relates primarily to equity-based compensation expense and utilization of net operating loss carryovers to which our TRS is a successor.

During the three months ended June 30, 2023, we recorded income tax expense of $0.5 million.

The income tax expense was primarily the result of our taxable REIT subsidiary recording a current and deferred income tax expense of $0.4 million and $0.1 million respectively.

Results of Operations for the Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 2023

For the Six Months Ended

(in thousands)

Interest income from sales-type leases

Operating lease income

Interest income - related party

Total revenues

Interest expense

Real estate expense

Depreciation and amortization

General and administrative

Provision for (recovery of) credit losses

Other expense

Total costs and expenses

Earnings (losses) from equity method investments

Net income (loss) before income taxes

Income tax expense

Net income (loss)

Interest income from sales-type leases increased to $128.5 million for the six months ended June 30, 2024 from $115.2 million for the same period in 2023.

The increase was due primarily to the origination of new Ground Leases in 2023 and additional fundings on existing Ground Leases classified as sales-type leases and Ground Lease receivables.

Operating lease income was $37.7 million during both the six months ended June 30, 2024 and 2023.

Operating lease income consists of rent from our operating leases and percentage rent from certain properties, including our Park Hotels Portfolio.

Interest income – related party was $4.7 million and $2.4 million, respectively, for the six months ended June 30, 2024 and 2023 and relates to the Star Holdings Term Loan Facility.

Other income for the six months ended June 30, 2024 and 2023 primarily includes $9.9 million and $7.2 million, respectively, of management fees from Star Holdings.

In addition, other income for the six months ended June 30, 2024 and 2023 includes $0.3 million and $0.3 million, respectively, of other income relating to a Ground Lease in which we are the lessee but our tenant at the property pays this expense directly under the terms of a master lease.

Other income for the six months ended June 30, 2024 and 2023 also includes $2.0 million and $1.2 million, respectively, of other ancillary income from our investments.

The increase in other ancillary income in 2024 as compared to 2023 was primarily due to sublease income earned in periods subsequent to the Merger, interest income on our cash balances and management and other fees earned from the ventures that we manage.

During the six months ended June 30, 2024 and 2023, we incurred interest expense from our debt obligations of $97.7 million and $86.9 million, respectively.

The increase in 2024 was primarily the result of additional borrowings on our revolvers, which also accrued interest at higher rates in 2024 due to an increase in base interest rates, and interest expense on our trust preferred securities and our 6.10% Notes.

Real estate expense was $2.1 million and $2.2 million during the six months ended June 30, 2024 and 2023, respectively, which consisted primarily of the amortization of an operating lease right-of-use asset, legal fees, property taxes and insurance expense.

In addition, during both the six months ended June 30, 2024 and 2023, we also recorded $0.3 million of real estate expense relating to a Ground Lease in which we are the lessee but our tenant at the property pays this

expense directly under the terms of a master lease.

The decrease in 2024 was primarily the result of a decrease in legal costs at certain of our properties.

Depreciation and amortization was $5.0 million and $4.9 million during the six months ended June 30, 2024 and 2023, respectively, and primarily relates to our ownership of the Park Hotels Portfolio and a multi-family property, the amortization of in-place lease assets, and beginning in the second quarter of 2023, depreciation on our corporate fixed assets.

The following table presents our general and administrative expenses for the six months ended June 30, 2024 and 2023 ($ in thousands):

For the Six Months Ended

Public company and other costs (1)

Stock-based compensation (2)

Management fees (3)

Expense reimbursements to the Former Manager (3)

Expense reimbursements to the Manager (3)

Total general and administrative expenses (4)

(1) For the three months ended March 31, 2024, public company and other costs primarily includes compensation, legal, insurance and occupancy costs.

(2) For the three months ended March 31, 2023, $4.7 million relates to the accelerated vesting of iStar’s equity-based compensation plans in connection with the Merger.

(1) For the six months ended June 30, 2024 and 2023, public company and other costs primarily includes compensation, legal, insurance and occupancy costs.

(2) For the six months ended June 30, 2023, $4.7 million relates to the accelerated vesting of iStar’s equity-based compensation plans in connection with the Merger.

(3) Refer to Note 14 to the consolidated financial statements.

(4) For the three months ended March 31, 2024, general and administrative expenses were partially offset by $5.5 million of management fees earned from Star Holdings, which are included in “Other income” in our consolidated statements of operations.

During the three months ended March 31, 2024, we recorded a provision for credit losses of $0.7 million.

The provision was primarily the result of current market conditions, including an increase in our Ground Lease to cost value ratios on our Ground Lease portfolio.

During the three months ended March 31, 2023, we recorded a provision for credit losses of $2.2 million.

The provision was primarily the result of the adoption of a new accounting standard in 2023 which resulted in a $2.3 million provision on our loan receivable.

D uring the three months ended March 31, 2024, other expense consists primarily of costs related to our derivative transactions .

During the three months ended March 31, 2023, other expense consists primarily of legal and consulting costs and transfer taxes associated with the Merger (refer to Note 1 to the consolidated financial statements).

During the three months ended March 31, 2024, earnings from equity method investments resulted from our $0.9 million share of income from our 425 Park Avenue venture, our $1.4 million share of income from our 32 Old Slip venture, our $0.9 million share of income from the Ground Lease Plus Fund and our $3.7 million share of income from the Leasehold Loan Fund.

During the three months ended March 31, 2023, earnings from equity method investments resulted from our $0.8 million pro rata share of income from our 425 Park Avenue venture and our $1.4 million pro rata share of income from our 32 Old Slip venture.

During the three months ended March 31, 2024, we recorded consolidated income tax expense of $0.5 million, of which $0.4 million was attributable to our taxable REIT subsidiary (“TRS”).

Included in our consolidated income tax expense, our TRS recorded a deferred tax expense in the amount of $0.9 million.

The net deferred tax expense relates

primarily to equity-based compensation expense and utilization of net operating loss carryovers to which our TRS is a successor.

(4) For the six months ended June 30, 2024 and 2023, general and administrative expenses were partially offset by $9.9 million and $7.2 million, respectively, of management fees earned from Star Holdings, which are included in “Other income” in our consolidated statements of operations.

During the six months ended June 30, 2024 and 2023, we recorded a provision for credit losses of $1.3 million and $2.3 million, respectively.

The provision in 2024 was primarily the result of current market conditions, including an increase in our Ground Lease to cost value ratios on our Ground Lease portfolio.

The provision in 2023 was primarily the result of a $2.3 million provision on our loan receivable, net – related party.

During the six months ended June 30, 2024, other expense consists primarily of costs related to our debt obligations.

During the six months ended June 30, 2023, other expense consists primarily of legal and consulting costs and transfer taxes associated with the Merger (refer to Note 1 to the consolidated financial statements).

During the six months ended June 30, 2024, earnings from equity method investments resulted from our $1.7 million pro rata share of income from our 425 Park Avenue venture, our $2.8 million pro rata share of income from our 32 Old Slip venture, our $1.4 million pro rata share of income from the Ground Lease Plus Fund and our $7.5 million pro rata share of income from the Leasehold Loan Fund.

During the six months ended June 30, 2023, earnings from equity method investments resulted from our $1.7 million pro rata share of income from our 425 Park Avenue venture, our $2.8 million pro rata share of income from our 32 Old Slip venture, our $1.7 million pro rata share of income from the Ground Lease Plus Fund and our $2.8 million pro rata share of income from the Leasehold Loan Fund.

During the six months ended June 30, 2024, we recorded consolidated income tax expense of $1.4 million, of which $1.3 million was attributable to our TRS.

Included in our consolidated income tax expense for the six months ended June 30, 2024, our TRS recorded a deferred tax expense in the amount of $1.0 million.

The net deferred tax expense relates primarily to equity-based compensation expense and utilization of net operating loss carryovers to which our TRS is a successor.

During the six months ended June 30, 2023, we recorded income tax expense of $0.5 million.

The income tax expense was primarily the result of our taxable REIT subsidiary recording a current and deferred income tax expense of $0.4 million and $0.1 million respectively.

Liquidity and Capital Resources

2 unchanged sentences

We expect to make quarterly cash distributions to our shareholders sufficient to meet REIT qualification requirements.

In October 2023, Moody’s Investors Services upgraded our credit ratings to A3 which reduced the interest rate on our unsecured revolvers (see below).

We believe the strong credit profile we have established utilizing our modern Ground Leases and our current investment-grade credit ratings from Moody's Investors Services of A3 and Fitch Ratings of BBB+ will accelerate our ability to bring commercial real estate owners, developers and sponsors more efficiently priced capital and allows us significant operational and financial flexibility and supports our ability to scale our Ground Lease platform.

In April 2024, we closed on a new $2.0 billion unsecured revolving credit facility (the “2024 Unsecured Revolver”), which replaces our 2021 Unsecured Revolver and 2023 Unsecured Revolver (refer to Note 9 to the consolidated financial statements).

In June 2024, we entered into a U.S.

commercial paper program (the “Commercial Paper Program”) on a private placement basis, pursuant to which we may issue up to $750.0 million of short-term, unsecured commercial paper notes (the “Notes”) outstanding at any time, which are guaranteed by us.

Under the Commercial Paper Program, we may issue the Notes from time to time and intend to use the proceeds for general corporate purposes.

The Commercial Paper Program is backed by our 2024 Unsecured Revolver (see below).

As of June 30, 2024, we had no outstanding balance under the Commercial Paper Program.

Borrowings under the Commercial Paper Program reduce amounts otherwise available under the 2024 Unsecured Revolver.

At the time of termination, $916 million was drawn on the 2021 Unsecured Revolver, all of which rolled over into the 2024 Unsecured Revolver.

The 2024 Unsecured Revolver has a borrowing rate of Adjusted SOFR, as defined in the applicable agreement, plus 0.85%, subject to our credit ratings, with an extended maturity date of May 1, 2029, which includes two six-month extension options.

The 2024 Unsecured Revolver replaces our nearest term maturities, reduces the overall facility cost and increases our liquidity by $150 million.

Additionally, we will gain greater financial flexibility through changes to certain financial covenants.

The 2024 Unsecured Revolver replaced our nearest term maturities, reduces the overall facility cost and increased our liquidity by $150 million.

Additionally, we gained greater financial flexibility through changes to certain financial covenants.

As of June 30, 2024, there was $1.0 billion of undrawn capacity on the 2024 Unsecured Revolver.

In August 2023, we sold 6,500,000 shares of our common stock in a public offering for gross proceeds of $139.1 million.

5 unchanged sentences

Actual sales, if any, will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our common stock, capital needs, and our determinations of the appropriate sources of funding.

As of March 31, 2024, we had not sold any shares under the ATM.

As of March 31, 2024, we had $11 million of unrestricted cash.

As of June 30, 2024, we had not sold any shares under the ATM.

As of June 30, 2024, we had $13 million of unrestricted cash.

We also have an aggregate $1.0 billion of undrawn capacity on our new 2024 Unsecured Revolver (refer to Note 9 to the consolidated financial statements).

We refer to this unrestricted cash and additional borrowing capacity on our 2024 Unsecured Revolver as our “equity” liquidity which can be used for general corporate purposes or leveraged to acquire or originate new Ground Lease assets.

Our primary sources of cash to date have been proceeds from equity offerings and private placements, proceeds from our initial capitalization by iStar and two institutional investors and borrowings from our debt facilities, unsecured notes and mortgages.

Our primary sources of cash to date have been proceeds from equity offerings and private placements, proceeds from our initial capitalization

by iStar and two institutional investors and borrowings from our debt facilities, unsecured notes and mortgages.

Our primary uses of cash to date have been the acquisition/origination of Ground Leases, repayments on our debt facilities and distributions to our shareholders.

We expect our short-term liquidity requirements to include debt service on our debt obligations (refer to Note 9 and Note 15 to the consolidated financial statements), distributions to our shareholders, redemption of Caret units (refer to Note 3 and Note 15 to the consolidated financial statements) working capital, new acquisitions and originations of Ground Lease investments.

We expect our long-term liquidity requirements to include debt service on our debt obligations (refer to Note 9 and Note 15 to the consolidated financial statements), distributions to our shareholders, working capital, new acquisitions and originations of Ground Lease investments (including in respect of unfunded commitments – refer to Note 10 to the consolidated financial statements) and debt maturities.

Our primary sources of liquidity going forward will generally consist of cash on hand and cash flows from operations, new financings, funds from our joint venture partners, unused borrowing capacity under our 2024 Unsecured Revolver (subject to the conditions set forth in the applicable loan agreement) and common and/or preferred equity issuances.

We expect our short-term liquidity requirements to include debt service on our debt obligations (refer to Note 9 to the consolidated financial statements), distributions to our shareholders, working capital, new acquisitions and originations of Ground Lease investments.

We expect our long-term liquidity requirements to include debt service on our debt obligations (refer to Note 9 to the consolidated financial statements), distributions to our shareholders, working capital, new acquisitions and originations of Ground Lease investments (including in respect of unfunded commitments – refer to Note 10 to the consolidated financial statements) and debt maturities.

We expect that we will be able to meet our liquidity requirements over the next 12 months and beyond.

The following table outlines our cash flows provided by (used in) operating activities, cash flows used in investing activities and cash flows provided by financing activities for the three months ended March 31, 2024 and 2023 ($ in thousands):

For the Three Months Ended

Cash flows used in operating activities

Cash flows used in investing activities

Cash flows provided by financing activities

The decrease in cash flows used in operating activities during 2024 was due primarily to the payment of Merger expenses during the three months ended March 31, 2023, which was partially offset by the payment of annual performance awards during the three months ended March 31, 2024.

The following table outlines our cash flows provided by (used in) operating activities, cash flows used in investing activities and cash flows provided by financing activities for the six months ended June 30, 2024 and 2023 ($ in thousands):

For the Six Months Ended

Cash flows provided by (used in) operating activities

Cash flows provided by (used in) investing activities

Cash flows provided by (used in) financing activities

The increase in cash flows provided by operating activities during 2024 was due primarily to an increase in distributions received from equity method investments in 2024 and the payment of Merger expenses during the six months ended June 30, 2023, which was partially offset by the payment of annual performance awards during the six months ended June 30, 2024.

The decrease in cash flows used in investing activities during 2024 was due primarily to the origination of the Star Holdings Term Loan Facility in 2023, consideration paid in connection with the Merger in 2023 and an increase in net distributions received from equity method investments in 2024, which was partially offset by an increase in the funding of Ground Leases in 2024.

4 unchanged sentences

We and Portfolio Holdings have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of Portfolio Holdings, which will be fully and unconditionally guaranteed by us.

As of March 31, 2024, Portfolio Holdings had issued and outstanding the Notes, which were registered on a Form S-3 filed by Old SAFE and Portfolio Holdings (then known as Safehold Operating Partnership LP).

As of June 30, 2024, Portfolio Holdings had issued and outstanding the Notes, which were registered on a Form S-3 filed by Old SAFE and Portfolio Holdings (then known as Safehold Operating Partnership LP).

The obligations of Portfolio Holdings to pay principal, premiums, if any, and interest on the Notes are guaranteed on a senior basis by us.

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis