What changed in this filing

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Item 1. Business

2025-02-06 compared with 2024-02-13 · 33 added, 32 removed, 209 unchanged (24% of the section changed)

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In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-K.

Merger Transaction

Merger Transaction and Spin-Off

On August 10, 2022, Safehold Inc.

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(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 December 31, 2023 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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Following the Merger, the Company serves as external manager to Star Holdings.

Other Merger related transactions

Other Merger and Spin-Off related transactions

On August 10, 2022, iStar entered into an agreement (the “MSD Stock Purchase Agreement”) with MSD Partners pursuant to which MSD Partners agreed to purchase 5,405,406 shares of Old SAFE’s common stock then owned by iStar (the “MSD Stock Purchase”) for an aggregate purchase price of approximately $200 million, or $37.00 per share, payable in cash.

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Star Holdings was capitalized in part with an 8.0%, four-year term loan from the Company having an initial principal amount of $115.0 million, as well as SOFR plus 3.00% bank debt with an initial principal balance of $140.0 million from Morgan Stanley Bank, N.A.

which is secured by approximately 13.5 million shares of the Company.

which is secured by approximately 12.9 million shares of the Company as of December 31, 2024.

In connection with the Spin-Off, Safehold Management Services Inc.

(“SpinCo Manager”), a Delaware corporation and a subsidiary of the Company, entered into a management agreement with Star Holdings effective as of March 31, 2023, pursuant to which SpinCo Manager will continue to operate and pursue the orderly monetization of Star Holding’s assets.

Star Holdings will pay SpinCo Manager an annual management fee of $25.0 million in year one, $15.0 million in year two, $10.0 million in year three and $5.0 million in year four and 2.0% of the gross book value of Star Holdings’ assets, excluding shares of the Company’s common stock, for each annual term thereafter.

Star Holdings paid SpinCo Manager an annual management fee of $25.0 million for the term ended March 31, 2024.

The annual fee declines to $15.0 million, $10.0 million and $5.0 million, respectively, in each of following annual terms, and adjusts to 2.0% of the gross book value of Star Holdings’ assets, excluding shares of the Company’s common stock held by Star Holdings, thereafter.

The Company and Star Holdings also entered into a governance agreement that places certain restrictions on the transfer and voting of the shares of the Company owned by Star Holdings, and a registration rights agreement under which the Company agreed to register such shares for resale in accordance with applicable securities laws.

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The property is generally leased on a triple net basis with the tenant generally responsible for taxes, maintenance and insurance as well as all operating costs and capital expenditures.

Ground Leases typically provide that at the end of the lease term or upon tenant default and the termination of the Ground Lease upon such default, the land, building and all improvements revert to the landlord.

We have become the industry leader in Ground Leases by

demonstrating the value of the product to real estate investors, owners, operators and developers and expanding their use throughout major metropolitan areas.

Ground Leases typically provide that at the end of the lease term or upon tenant default and the termination of the Ground Lease upon such default, the land,

building and all improvements revert to the landlord.

We have become the industry leader in Ground Leases by demonstrating the value of the product to real estate investors, owners, operators and developers and expanding their use throughout major metropolitan areas.

We have a portfolio of properties diversified by property type and region.

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(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 $319.8 million and $1,357.4 million related to transactions with remaining unfunded commitments as of December 31, 2024 and 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 remainder of the Ground Lease Plus Fund assets 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 $135.6 million (including amounts paid to the Ground Lease Plus Fund in January 2024 to acquire the investment) and $308.2 million of unfunded commitments as of December 31, 2023 and 2022, respectively.

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

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 rest of 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 $46.2 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 December 31, 2024 and 2023, respectively.

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

As of December 31, 2024, our gross book value as a percentage of combined property value was 49%.

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Under the Original Caret Performance Incentive Plan, 1,500,000 Caret units were reserved for grants of performance-based awards to Original Caret Performance Incentive Plan participants, including certain executives of the Company, or its affiliates, directors of Old SAFE and service providers of Old SAFE.

Initial grants under the Original Caret Performance Incentive Plan were subject to graduated vesting based on time-based service conditions and hurdles of our common stock price, all of which were satisfied as of December 31, 2023.

In connection with the Merger, certain of Old SAFE’s executive officers entered into re-vesting agreements pursuant to which the executives agreed to subject 25% of their previously vested Caret units to additional vesting conditions which will be satisfied on the second anniversary of the Merger, subject to the applicable executive’s continued employment through such date.

In connection with the Merger, certain of Old SAFE’s executive officers entered into re-vesting agreements pursuant to which the executives agreed to subject 25% of their previously vested Caret units to additional vesting conditions which will be satisfied on March 31, 2025 (the second anniversary of the Merger), subject to the applicable executive’s continued employment through such date.

In connection with the Merger, each Award Agreement (as defined in the Original Caret Performance Incentive Plan) related to outstanding Caret unit awards was assigned to Portfolio Holdings, and Old SAFE amended and restated the Original Caret Performance Incentive Plan (the “Caret Performance Incentive Plan”).

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As a result, as of December 31, 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 December 31, 2023, 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.

In addition to the Caret units awarded or reserved for issuance under our Caret Performance Incentive Plan, we have sold 122,500 Caret units to third-party investors, including affiliates of MSD Partners, that remain outstanding as of December 31, 2024.

As of December 31, 2024, the Company owned 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 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.

In the event market liquidity of the Caret units is not achieved within such two year period at a valuation not less than the purchase price for the Caret units purchased in February 2022, reduced by an amount equal to the amount of subsequent cash distributions made to investors on account of such Caret units, then 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 as so reduced.

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.

On March 31, 2023, Old SAFE sold 100,000 Caret units to affiliates of MSD Partners for an aggregate purchase price of $20.0 million (refer to Note 1 to the consolidated financial statements) pursuant to a subscription agreement entered into on August 10, 2022 and sold an aggregate of 22,500 Caret units to third-party investors for an aggregate $4.5 million pursuant to a subscription agreement entered into in November 2022.

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The transaction generated a net book gain for us of approximately $46.4 million.

After paying closing costs, establishing reserves for Caret-related expenses and deducting the original $76.7 million cost basis to us, the remaining proceeds have been distributed approximately 84% to Old SAFE and approximately 16% to the minority holders of Caret units.

After paying closing costs, establishing reserves for Caret-related expenses and deducting the original $76.7 million cost basis to us, the remaining proceeds were distributed approximately 84% to Old SAFE and approximately 16% to the minority holders of Caret units.

In addition, the affiliates of MSD Partners received a credit against their purchase price for Caret units equal to the amount they would have received had they held Caret units at the time of the distribution.

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However, while we intend to pursue acquisitions of existing Ground Leases, our investment thesis is predicated, in part, on what we believe is an untapped market opportunity to expand the use of Ground Leases to a broader component of the approximately $7.0 trillion institutional commercial property market in the U.S.

We intend to capture this market opportunity by utilizing multiple sourcing and origination channels, including manufacturing new Ground Leases with third-party owners and

developers of commercial real estate and originating Ground Leases to provide capital for development and redevelopment.

We intend to capture this market opportunity by utilizing multiple sourcing and origination channels, including manufacturing new Ground Leases with third-party owners and developers of commercial real estate and originating Ground Leases to provide capital for development and

redevelopment.

We further believe that Ground Leases generally represent an attractive source of capital for our tenants and may allow them to generate superior returns on their invested equity as compared to utilizing alternative sources of capital.

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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 three assets and targets high quality projects in pre-construction development phase with institutional developers.

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● Ground Rent Coverage, defined as the ratio of the Property’s NOI to the annualized rental payment due us, of approximately 2.0x to 4.5x.

Property NOI is defined as the trailing twelve month net operating income of the building and improvements being operated at the property without giving effect to any rent paid or payable under our Ground Lease, and for this purpose we use estimates of the stabilized Property NOI if we don’t receive current tenant information and for properties under construction or in transition, in each case based on leasing activity at the property and available market information, including leasing activity at comparable properties in the relevant market;

Property NOI is defined as the trailing twelve month net operating income of

the building and improvements being operated at the property without giving effect to any rent paid or payable under our Ground Lease, and for this purpose we use estimates of the stabilized Property NOI if we don’t receive current tenant information and for properties under construction or in transition, in each case based on leasing activity at the property and available market information, including leasing activity at comparable properties in the relevant market;

● Value of approximately 30% to 45% of the Combined Property Value at the commencement of the lease or the acquisition date;

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and conflicts between the interests of our stockholders and members of our management who hold Star Holdings common stock.

We have adopted a policy that all transactions between Star Holdings and us must be approved by a majority of our independent directors.

We have adopted a policy that all transactions between Star Holdings and us must be approved by our Audit Committee (the “Committee”).

However, we cannot assure you this policy or other policies and provisions of law will always succeed in eliminating the influence of such conflicts.

If they are not successful, decisions could be made that might fail to reflect the best interest of all shareholders.

See "Risk Factors – Risks Related to the Spin-Off and Our Relationship with Star Holdings – “There are various potential conflicts of interest in our relationship with Star Holdings, which could result in decisions that are not in the best interest of our shareholders.”

We compete with numerous commercial developers, real estate companies (including other REITs), financial institutions (such as banks and insurance companies) and other investors (such as pension funds, investment funds, private

companies and individuals) for investment opportunities and tenants.

This competition may result in higher costs for properties, lower returns and impact our ability to grow.

See "Risk Factors – Risks Related to Our Relationship with Star Holdings – “There are various potential conflicts of interest in our relationship with Star Holdings, which could result in decisions that are not in the best interest of our shareholders.”

This competition may result in higher costs for

properties, lower returns and impact our ability to grow.

Some of these competitors have greater financial and other resources and access to more attractive capital than we do.

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Code of Ethics and Conduct

On March 31, 2023, the Company adopted a new Code of Ethics and Conduct that applies to our directors, officers and employees (the "Code of Conduct").

The Company has adopted a Code of Ethics and Conduct that applies to our directors, officers and employees (the "Code of Conduct").

The Code of Conduct sets forth the principles of conduct and ethics to be followed by our directors, officers and employees.

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The Code of Conduct is available on the Company’s website at www.safeholdinc.com .

The Company will disclose on its website material changes to its Code of Conduct, or any waivers for directors or executive officers, if any, within four business days of any such event.

As of December 31, 2023, there have been no amendments to the Code of Conduct and the Company has not granted any waivers from any provision of the Code of Conduct to any directors or executive officers.

The Company will post on its website all disclosures that are required under the Exchange Act or NYSE listing standards concerning any amendments to, or waivers from, any provision of the Code of Conduct.

Human Capital Resources

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As we have transitioned the focus of our business to growing our Ground Lease platform, we have sought to recruit new talent and provide training to existing employees to support our business strategy.

In our recruiting efforts, we generally strive to have a diverse group of candidates to consider for roles.

In our recruiting efforts, we generally strive to draw from the largest feasible pool of candidates to consider for roles.

We have designed a compensation structure, including an array of benefits, that we believe is attractive to current and prospective personnel.

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These programs include an employee assistance program that offers confidential assessment, counseling and referral services at no cost to the employee.

We seek to provide a safe workplace for our employees.

In addition to the safety protocols that we instituted in response to the COVID pandemic, we have established emergency procedures that address emergency health and safety situations.

We seek to provide a safe workplace for our employees and have established emergency procedures that address emergency health and safety situations.

Additional Information

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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-K

Item 1. Business