Safehold (US:SAFE)2023-04-28 21:15PART I: Consolidated Financial Information Item 1. Financial Statements This section presents Safehold Inc.'s unaudited consolidated financial statements for Q1 2023 and 2022, detailing the impact of the iStar merger and significant accounting policies Consolidated Balance Sheets Total assets increased to $6.29 billion as of March 31, 2023, primarily due to higher debt obligations and the iStar merger, which also slightly increased total equity Consolidated Balance Sheet Highlights (In thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $6,290,562 | $5,850,922 | | Net investment in sales-type leases | $3,139,831 | $3,106,599 | | Ground Lease receivables, net | $1,431,478 | $1,374,716 | | Goodwill | $155,797 | $0 | | Total Liabilities | $4,092,424 | $3,686,307 | | Debt obligations, net | $3,901,838 | $3,521,359 | | Total Equity | $2,179,127 | $2,145,604 | - The merger with iStar resulted in the recognition of $155.8 million in goodwill and a new $112.2 million net loan receivable to a related party (Star Holdings)8 Consolidated Statements of Operations Total revenues grew 29.8% year-over-year to $78.3 million in Q1 2023, but net income significantly declined due to increased costs and merger-related expenses Quarterly Operating Results (In thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenues | $78,329 | $60,363 | | Total Costs and Expenses | $75,875 | $37,732 | | Net Income | $4,716 | $24,907 | | Net Income Attributable to Common Shareholders | $4,682 | $24,873 | | Diluted EPS | $0.07 | $0.42 | - General and administrative expenses increased to $15.1 million from $9.2 million, and other expenses rose to $14.1 million from $0.1 million, mainly due to costs associated with the iStar merger1314 Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss of $22.8 million for Q1 2023, primarily driven by a significant unrealized loss on derivatives Comprehensive Income (Loss) (In thousands) | Description | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income | $4,716 | $24,907 | | Other Comprehensive Income (Loss) | $(27,481) | $5,289 | | - Unrealized gain (loss) on derivatives | $(28,424) | $4,256 | | Comprehensive Income (Loss) Attributable to Safehold Inc. | $(22,799) | $30,162 | Consolidated Statements of Changes in Equity Total equity increased to $2.179 billion in Q1 2023, influenced by net income, dividends, AOCI changes, and merger-related considerations - Key changes in equity for Q1 2023 include net income of $4.7 million, dividends of $11.1 million ($0.177 per share), a $27.5 million loss in AOCI, and $35.6 million in merger consideration20 Consolidated Statements of Cash Flows Cash used in operating activities was $6.8 million in Q1 2023, while financing activities provided $276.6 million, primarily from debt proceeds Summary of Cash Flows (In thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Cash flows (used in) provided by operating activities | $(6,813) | $24,599 | | Cash flows used in investing activities | $(269,933) | $(435,185) | | Cash flows provided by financing activities | $276,645 | $528,339 | | Change in Cash | $(101) | $117,753 | Notes to Consolidated Financial Statements These notes detail the reverse merger with iStar, adoption of new accounting standards, portfolio specifics, debt structure, equity plans, and related-party transactions - On March 31, 2023, Old SAFE merged with iStar in a reverse acquisition, with Old SAFE as the accounting acquirer273035 - The combined company is now internally managed and named Safehold Inc273035 - The company adopted the new credit loss standard (ASU 2016-13) on January 1, 2023, recording a cumulative effect adjustment to retained earnings and establishing an initial allowance for credit losses91 - In connection with the merger, the company originated a $115.0 million, 8.00% four-year term loan to Star Holdings, the entity spun off with iStar's legacy assets41106 - Subsequent to the quarter end, in April 2023, the company established a $300 million at-the-market (ATM) equity offering program and entered a new $500 million joint venture with a sovereign wealth fund228232 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the iStar merger's impact, portfolio composition, and Q1 2023 financial results, highlighting revenue growth, net income decline, and strong liquidity - The merger with iStar was completed on March 31, 2023, creating an internally-managed, pure-play Ground Lease company236 - The historical financial statements of Old SAFE are now the historical statements of the combined company236 - As of March 31, 2023, the portfolio's gross book value was diversified by property type: 44% office, 37% multi-family, 12% hotels, 4% life science, and 3% other241 Unrealized Capital Appreciation (UCA) (In millions) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Combined Property Value | $16,034 | $16,529 | | Ground Lease Cost | $6,008 | $6,008 | | Unrealized Capital Appreciation | $10,026 | $10,521 | - The company has total unfunded commitments of $697.7 million, comprising $238.3 million for leasehold improvements, $319.6 million for forward acquisitions, and $139.8 million through the Leasehold Loan Fund270272273 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility on its floating-rate debt, with a 100 basis point increase potentially decreasing annual net income by $10.7 million - The company's main market risk is interest rate volatility on its $1.1 billion of floating-rate debt as of March 31, 2023306309 Estimated Annual Change in Net Income from Interest Rate Shifts (In thousands) | Change in Interest Rates | Net Income (Loss) | | :--- | :--- | | +100 Basis Points | $(10,700) | | +50 Basis Points | $(5,350) | | -50 Basis Points | $5,350 | | -100 Basis Points | $10,700 | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023312 - No material changes were made to the company's internal control over financial reporting during the first quarter of 2023313 PART II: Other Information Item 1. Legal Proceedings Stockholder complaints related to the merger were voluntarily dismissed without consideration, and no other material legal proceedings are currently pending - Lawsuits filed by two purported stockholders in connection with the merger were voluntarily dismissed by the plaintiffs without any consideration from the company317 Item 1A. Risk Factors No material changes to risk factors were reported for the period, consistent with prior SEC filings - No material changes to risk factors were reported for the period320 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered common stock to its Former Manager for management fees in Q1 2023, with no common stock repurchases during the quarter - In Q1 2023, the company issued a total of 330,772 shares of common stock to its Former Manager as payment for management fees, relying on a registration exemption under the Securities Act322 Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements, corporate governance documents, and various material contracts