What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-30 · 112 added, 94 removed, 269 unchanged (43% 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 June 30, 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 subsequent to March 31, 2023 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.

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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 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

As of September 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

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

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

To combat the increase in inflation, the Federal Reserve raised interest rates and has kept interest rates generally high.

This increase in interest rates has produced progress on inflation and in September 2024, the Federal Reserve reduced the federal funds rate by 50 basis points, which marked the first interest rate cut in four years.

The Federal Reserve has indicated that it expects further interest rate cuts in the future;

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

Many of our Ground Leases have CPI lookbacks, generally starting between years 11 and 21 of the lease term, to mitigate the effects of inflation that are typically capped between 3.0% - 3.5%;

however, in the event cumulative inflation growth for the lookback period exceeds the cap, these rent adjustments may not keep up fully with changes in inflation.

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 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.

The COVID-19 pandemic is not currently materially impacting our new investment activity, but we continue to monitor its potential impact, which could slow new investment activity because of reduced levels of real estate transactions and constrained conditions for equity and debt financing for real estate transactions, including leasehold loans.

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If our Ground Lease tenants at such assets fail to re-tenant the building such Ground Leases may default and we may suffer losses.

The rise in interest rates and increased investment spreads to treasury bonds in the Ground Lease market may attract new competitors, which may result in higher costs for properties, lower returns and impact our ability to grow.

High interest rates and increased investment spreads to treasury bonds in the Ground Lease market may attract new competitors, which may result in higher costs for properties, lower returns and impact our ability to grow.

See the "Risk Factors" section of our 2023 Annual Report for additional discussion of certain potential risks to our business arising from the COVID-19 pandemic and certain potential risks to our business related to competition and industry concentrations.

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We generally target Ground Lease investments in which the initial cost of the Ground Lease represents 30% to 45% of the Combined Property Value as if the Ground Lease did not exist.

If the initial cost of a Ground Lease is equal to 35% of the Combined Property Value, the remaining 65% of the Combined Property Value represents potential excess

value over the amount of our investment that would be turned over to us upon the reversion of the property, assuming no intervening change in the Combined Property Value.

If the initial cost of a Ground Lease is equal to

35% of the Combined Property Value, the remaining 65% of the Combined Property Value represents potential excess value over the amount of our investment that would be turned over to us upon the reversion of the property, assuming no intervening change in the Combined Property Value.

In our view, there is a strong correlation between inflation and commercial real estate values over time, which supports our belief that the value of our owned residual portfolio should increase over time as inflation increases, although our ability to recognize value in certain cases may be limited by the rights of our tenants under some of our Ground Leases, including tenant rights to purchase our land in certain circumstances and the right of one tenant to demolish improvements prior to the expiration of the lease.

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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 June 30, 2024 and December 31, 2023 ($ in millions):

June 30, 2024

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

September 30, 2024

December 31, 2023

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Unrealized Capital Appreciation in Our Owned Residual Portfolio

(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.

(1) Please review our Current Report on Form 8-K filed on October 28, 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 $1,142.9 million and $1,357.4 million related to transactions with remaining unfunded commitments as of June 30, 2024 and December 31, 2023, respectively.

(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 $996.0 million and $1,357.4 million related to transactions with remaining unfunded commitments as of September 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 $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 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 $70.6 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 September 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 June 30, 2024, our gross book value as a percentage of combined property value was 48%.

As of September 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).

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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 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.

As a result, as of September 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 September 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 September 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.

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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 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):

As of September 30, 2024, our estimated portfolio Ground Rent Coverage was 3.5x (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 or resulting shifts in the office sector 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 September 30, 2024 (based on gross book value and excluding unfunded commitments):

Rent Escalation

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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 June 30, 2024, excluding unfunded commitments:

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

Manhattan (1)

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

As of September 30, 2024, we had $70.6 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 June 30, 2024, we had an aggregate

$150.4 million of such commitments.

As of September 30, 2024, we had an

aggregate $150.3 million of such commitments.

There can be no assurance that the conditions to closing for these transactions will be satisfied and that we will acquire the Ground Leases or fund the leasehold improvement allowances.

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We refer to these arrangements as performance-based commitments.

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

As of September 30, 2024, we had $120.1 million of such commitments.

We also entered into a discretionary commitment to fund up to $9.0 million of preferred equity in an entity that owns the leasehold interest under one of our office Ground Leases located in Washington, DC.

This preferred equity position is intended to fund any operating cash flow deficits and leasing capital necessary at the property as our tenant explores potential re-leasing or a leasehold sale.

In-place cash flows at the property covered ground rent through September 30, 2024, though a semi-annual property tax payment made in September 2024 produced a shortfall, which resulted in a $1.5 million funding.

During the three and nine months ended September 30, 2024, we funded $1.5 million of the commitment which is included in “Deferred expenses and other assets” on our consolidated balance sheet as of September 30, 2024.

In addition, we recognized $1.7 million and $2.7 million, respectively, of interest income from sales-type leases from the Ground Lease in our consolidated statements of operations for the three and nine months ended September 30, 2024.

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

For the Three Months Ended

September 30,

(in thousands)

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General and administrative

Impairment of goodwill

Provision for (recovery of) credit losses

5 unchanged sentences

Net income (loss)

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.

Interest income from sales-type leases increased to $67.1 million for the three months ended September 30, 2024 from $59.1 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 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 was $16.7 million during both the three months ended September 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 $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.

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

Other income for the three months ended September 30, 2024 and 2023 includes $3.7 million and $6.0 million, respectively, of management fees from Star Holdings.

In addition, other income for both the three months ended September 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 the three months ended September 30, 2024 and 2023 also includes $0.8 million and 1.2 million, respectively, of other ancillary income from our investments.

Other ancillary income primarily includes sublease income, recoverable expenses and interest income earned on our cash balances.

During the three months ended September 30, 2024 and 2023, we incurred interest expense from our debt obligations of $50.0 million and $46.6 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.

During both the three months ended September 30, 2024 and 2023 we incurred real estate expense of $1.1 million, 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 September 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 September 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.

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

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

For the Three Months Ended

September 30,

Public company and other costs (1)

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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.

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

(2) For the three months ended September 30, 2024 and 2023, general and administrative expenses were partially offset by $3.7 million and $6.0 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 September, 30, 2023, we recorded a full impairment of the goodwill that was recognized as a result of the Merger (refer to Note 3 to the consolidated financial statements).

During the three months ended September 30, 2024, we recorded a provision for credit losses of $7.1 million.

The provision for credit losses for the three months ended September 30, 2024 was due primarily to elective enhancements to our general provision for credit loss methodology (refer to Note 3 to the consolidated financial statements), current market conditions and growth in the portfolio during the period.

During the three months ended September 30, 2023, we recorded a provision for credit losses of $0.3 million.

The provision was primarily the result of a declining macroeconomic forecast on commercial real estate markets since June 30, 2023.

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

During the three months ended September 30, 2023, other expense consists primarily of $1.9 million from the derecognition of previously-capitalized deal structuring costs and also includes legal and consulting costs .

During the three months ended September 30, 2024, earnings from equity method investments (refer to Note 7 to the consolidated financial statements) resulted from our $0.7 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 $2.2 million share of income from the Leasehold Loan Fund.

During the three months ended September 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 $1.8 million pro rata share of income from the Ground Lease Plus Fund and our $3.3 million pro rata share of income from the Leasehold Loan Fund.

During the three months ended September 30, 2024, we recorded consolidated income tax expense of $0.7 million, which was attributable to our taxable REIT subsidiary (“TRS”).

Included in our consolidated income tax expense, our TRS recorded current tax expense of $0.8 million and a deferred benefit of $0.1 million.

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

During the three months ended September 30, 2023, we recorded income tax expense of $0.1 million.

Our TRS recorded aggregate current federal and state income tax expense of $1.0 million for the three months ended September 30, 2023.

In addition, during the three months ended September 30, 2023, our TRS recorded a deferred tax benefit in the amount of $0.9 million.

The net deferred tax benefit relates primarily to equity-based compensation expense and net operating loss carryovers to which our TRS is a successor and which were finalized upon filing tax returns for periods prior to the Merger.

Results of Operations for the Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

For the Nine Months Ended

September 30,

(in thousands)

7 unchanged sentences

General and administrative

Impairment of goodwill

Provision for (recovery of) credit losses

5 unchanged sentences

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.

Interest income from sales-type leases increased to $195.6 million for the nine months ended September 30, 2024 from $174.4 million for the same period in 2023.

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

Operating lease income was $54.3 million during the nine months ended September 30, 2024 and $54.4 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 $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.

Interest income – related party was $7.1 million and $4.8 million, respectively, for the nine months ended September 30, 2024 and 2023 and relates to the Star Holdings Term Loan Facility.

Other income for the nine months ended September 30, 2024 and 2023 primarily includes $13.6 million and $13.2 million, respectively, of management fees from Star Holdings.

In addition, other income for both the nine months ended September 30, 2024 and 2023 includes $0.4 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 nine months ended September 30, 2024 and 2023 also includes $2.8 million and $2.5 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.

During the nine months ended September 30, 2024 and 2023, we incurred interest expense from our debt obligations of $147.7 million and $133.5 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.

Real estate expense was $3.2 million during both the nine months ended September 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 nine months ended September 30, 2024 and 2023, we also recorded $0.4 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 $7.5 million and $7.4 million, respectively, during the nine months ended September 30, 2024 and 2023, and primarily relates to our ownership of the Park Hotels Portfolio and a multi-family property, the amortization of in-place lease assets and depreciation on our corporate fixed assets.

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 six months ended June 30, 2024 and 2023 ($ in thousands):

For the Six Months Ended

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

For the Nine Months Ended

September 30,

Public company and other costs (1)

3 unchanged sentences

Total general and administrative expenses (4)

(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.

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

(2) For the nine months ended September 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 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.

(4) For the nine months ended September 30, 2024 and 2023, general and administrative expenses were partially offset by $13.6 million and $13.2 million, respectively, of management fees earned from Star Holdings, which are included in “Other income” in our consolidated statements of operations.

During the nine months ended September, 30, 2023, we recorded a full impairment of the goodwill that was recognized as a result of the Merger (refer to Note 3 to the consolidated financial statements).

During the nine months ended September 30, 2024 and 2023, we recorded a provision for credit losses of $8.4 million and $2.6 million, respectively.

The provision for credit losses for the nine months ended September 30, 2024 was

due primarily to elective enhancements to our general provision for credit loss methodology (refer to Note 3 to the consolidated financial statements), current market conditions and growth in the portfolio during the period.

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.

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

During the nine months ended September 30, 2023, other expense consists primarily o f legal and consulting costs, transfer taxes associated with the Merger (refer to Note 1 to the consolidated financial statements) and $1.9 million from the derecognition of previously-capitalized deal structuring costs.

During the nine months ended September 30, 2024, earnings from equity method investments resulted from our $2.4 million pro rata share of income from our 425 Park Avenue venture, our $4.2 million pro rata share of income from our 32 Old Slip venture, our $1.8 million pro rata share of income from the Ground Lease Plus Fund and our $9.6 million pro rata share of income from the Leasehold Loan Fund.

During the nine months ended September 30, 2023, earnings from equity method investments resulted from our $2.6 million pro rata share of income from our 425 Park Avenue venture, our $4.3 million pro rata share of income from our 32 Old Slip venture, our $3.5 million pro rata share of income from the Ground Lease Plus Fund and our $6.1 million pro rata share of income from the Leasehold Loan Fund.

During the nine months ended September 30, 2024, we recorded consolidated income tax expense of $2.0 million, which was attributable to our TRS.

Included in our consolidated income tax expense for the nine months ended September 30, 2024, our TRS recorded deferred tax expense in the amount of $0.9 million.

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

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.

During the nine months ended September 30, 2023, we recorded income tax expense of $0.6 million.

The income tax expense was primarily the result of current federal and state income tax expense in the amount of $1.4 million, which was partially offset by a deferred tax benefit in the amount of $0.9 million with respect to our TRS.

In addition, the Company recorded other state and local income taxes in the amount of $0.1 million during the nine months ended September 30, 2023.

Liquidity and Capital Resources

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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.

As of September 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.

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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

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 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.

As of September 30, 2024, there was $939 million 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.

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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 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).

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

As of September 30, 2024, we had $16 million of unrestricted cash.

We also have an aggregate $939 million 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, Commercial Paper Program 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.

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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 six months ended June 30, 2024 and 2023 ($ in thousands):

For the Six Months Ended

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 nine months ended September 30, 2024 and 2023 ($ in thousands):

For the Nine Months Ended

September 30,

Cash flows provided by (used in) operating activities

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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 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 nine months ended September 30, 2023, which was partially offset by the payment of annual performance awards during the nine months ended September 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.

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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 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).

As of September 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