Safehold (US:SAFE)2025-08-06 20:03PART I Consolidated Financial Information This section presents the company's unaudited consolidated financial statements and related notes, along with management's discussion and analysis of financial condition and results of operations Financial Statements The unaudited consolidated financial statements for the period ended June 30, 2025, show a slight increase in total assets to $7.1 billion, driven by growth in lease and loan receivables, while total liabilities also increased primarily due to higher debt obligations Consolidated Balance Sheets The balance sheet reflects the company's financial position, showing asset growth primarily from lease and ground lease receivables, alongside an increase in debt obligations | Account | June 30, 2025 ($ in thousands) | December 31, 2024 ($ in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $7,063,158 | $6,899,379 | +2.4% | | Net investment in sales-type leases | $3,511,257 | $3,454,953 | +1.6% | | Ground Lease receivables, net | $1,903,883 | $1,833,398 | +3.8% | | Total Liabilities | $4,659,091 | $4,525,352 | +2.9% | | Debt obligations, net | $4,444,412 | $4,317,439 | +2.9% | | Total Equity | $2,404,067 | $2,374,027 | +1.3% | - Total assets increased by $163.8 million from December 31, 2024, to June 30, 2025, primarily driven by growth in net investment in sales-type leases and ground lease receivables9 Consolidated Statements of Operations The statements of operations indicate revenue growth for Q2 2025, but net income attributable to shareholders decreased due to higher interest expense and credit loss provisions | Metric | Q2 2025 ($ in thousands) | Q2 2024 ($ in thousands) | YTD 2025 ($ in thousands) | YTD 2024 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $93,842 | $89,895 | $191,519 | $183,108 | | Interest Expense | $51,265 | $49,107 | $101,691 | $97,738 | | Provision for credit losses | $2,350 | $626 | $4,646 | $1,335 | | Net Income (to Safehold Inc.) | $27,947 | $29,665 | $57,311 | $60,393 | | Diluted EPS | $0.39 | $0.42 | $0.80 | $0.85 | - Net income for Q2 2025 decreased by 5.8% YoY to $27.9 million, and diluted EPS fell to $0.39 from $0.42, primarily due to a significant increase in the provision for credit losses and higher interest expense, which offset revenue growth13 Consolidated Statements of Cash Flows Cash flow statements show increased cash from operations for the first six months of 2025, with financing activities providing significant proceeds from net debt | Cash Flow Activity | Six Months Ended June 30, 2025 ($ in thousands) | Six Months Ended June 30, 2024 ($ in thousands) | | :--- | :--- | :--- | | Net cash from Operating Activities | $36,902 | $21,695 | | Net cash used in Investing Activities | ($123,961) | ($136,823) | | Net cash from Financing Activities | $92,878 | $90,410 | | Change in Cash | $5,819 | ($24,718) | - For the first six months of 2025, cash from operations increased to $36.9 million from $21.7 million in the prior year, with cash used in investing activities decreasing slightly due to lower originations of sales-type leases and ground lease receivables, and financing activities providing $92.9 million primarily from net debt proceeds22 Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial statement line items, including the company's business model focused on long-term Ground Leases, its growing lease and loan portfolios, debt obligations, and significant related-party transactions - The company's business is focused on acquiring, managing, and capitalizing long-term Ground Leases, which represent ownership of the land underlying commercial real estate projects, operating as a single reportable segment and electing to be treated as a REIT2426 - The combined portfolio of Net Investment in Sales-Type Leases and Ground Lease Receivables grew to $5.42 billion as of June 30, 2025, up from $5.29 billion at year-end 202455 - In Q2 2025, the company began originating leasehold loans in conjunction with its Ground Leases, with an outstanding principal balance of $42.8 million as of June 30, 202577 - Total debt obligations stood at $4.44 billion as of June 30, 2025, with the company entering into a new $2.0 billion unsecured revolving credit facility in April 2024, replacing previous facilities105116 - The company manages Star Holdings and earned management fees of $2.7 million and $6.3 million for the three and six months ended June 30, 2025, respectively, also holding a $115.0 million secured term loan facility outstanding to Star Holdings82181 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's single-segment business model centered on Ground Leases, highlighting portfolio diversification, the impact of high interest rates, operational results showing revenue growth offset by increased expenses, and strong liquidity maintained through recent financing activities Business Overview and Portfolio The company's strategy focuses on acquiring, managing, and capitalizing on Ground Leases, which provide safe, growing income and potential for capital appreciation, with a diversified portfolio across property types and geographies - The company's strategy is to acquire, manage, and capitalize on Ground Leases, which it believes provide safe, growing income and potential for capital appreciation through residual rights189 Combined Property Value and Unrealized Capital Appreciation | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Combined Property Value | $15,577 million | $15,523 million | | Ground Lease Cost | $6,521 million | $6,395 million | | Unrealized Capital Appreciation (UCA) | $9,056 million | $9,128 million | Portfolio Diversification by Property Type | Property Type | % of Gross Book Value | | :--- | :--- | | Multifamily | 41% | | Office | 40% | | Hotel | 11% | | Life Science | 6% | | Mixed Use and Other | 2% | - The portfolio is geographically concentrated, with the top three markets being Manhattan (21%), Washington, DC (10%), and Boston (8%)216 Results of Operations Operational results for Q2 and YTD 2025 show revenue growth driven by portfolio expansion, but net income declined due to increased interest expense and a significant rise in the provision for credit losses - Q2 2025 vs Q2 2024: Total revenues increased by $3.9 million, primarily due to a $5.4 million rise in interest income from sales-type leases from portfolio growth, however, total costs and expenses grew by $4.0 million, driven by a $2.2 million increase in interest expense and a $1.7 million increase in the provision for credit losses, leading to a slight decrease in net income222223227 - YTD 2025 vs YTD 2024: Total revenues for the six-month period grew by $8.4 million, while total costs increased by $7.8 million, with the provision for credit losses rising significantly to $4.6 million from $1.3 million, and other expenses increasing by $2.1 million mainly due to a $1.9 million write-off of a preferred equity investment237247248 - Other income decreased in both the three and six-month periods of 2025 compared to 2024, primarily due to lower management fees earned from Star Holdings ($2.7 million vs $4.4 million in Q2; $6.3 million vs $9.9 million YTD)226241 Liquidity and Capital Resources The company maintains a strong liquidity position with substantial cash and undrawn credit capacity, supported by recent senior note issuances and a new revolving credit facility, while also having unfunded commitments for various investments - The company maintains a strong liquidity position with $13.9 million in unrestricted cash and $1.2 billion of undrawn capacity on its $2.0 billion unsecured revolving credit facility as of June 30, 2025260262 - Recent financing activities include the issuance of an aggregate $700.0 million in senior notes in November 2024 and February 2024, and the establishment of a new $2.0 billion unsecured revolver in April 2024, which extended maturities and increased flexibility256258 - The company has a $50.0 million share repurchase program authorized in February 2025, but no shares had been repurchased as of June 30, 2025255 - Total unfunded commitments as of June 30, 2025, were $90.5 million for leasehold improvements, $35.0 million for a forward commitment, and $195.9 million for performance-based construction and development loans218219220 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its floating-rate debt, with a sensitivity analysis indicating that a 100 basis point increase in interest rates would decrease annual net income by approximately $3.4 million - The principal market risk is interest rate risk on floating-rate indebtedness, with the company aiming to limit the impact of interest rate changes on operations and cash flows272274 Estimated Change in Net Income Due to Interest Rate Changes | Change in Interest Rates | Estimated Change in Net Income ($ in thousands) | | :--- | :--- | | +100 Basis Points | ($3,378) | | +50 Basis Points | ($1,689) | | -50 Basis Points | $1,700 | | -100 Basis Points | $3,478 | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective278 - No changes in the company's internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls279 PART II Other Information This section covers other required disclosures, including legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits Legal Proceedings The company reports no pending legal proceedings that are expected to have a material adverse effect on its business or financial condition - The company reports no pending legal proceedings that would have a material adverse effect on its business or financial condition283 Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors disclosed in the 2024 Annual Report were reported284 Unregistered Sales of Equity Securities and Use of Proceeds The company did not have any sales of unregistered equity securities during the three months ended June 30, 2025, and no shares were repurchased under its authorized share repurchase program during the quarter - There were no sales of unregistered common stock during the three months ended June 30, 2025285 - The company has a board-authorized share repurchase program for up to $50.0 million, under which no shares were purchased during the quarter290 Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including charter documents, certifications, and XBRL data files