Safehold (SAFE) - 2021 Q4 - Annual Report

PART I This part details iStar Inc.'s business as a REIT, its strategic shift towards Ground Lease investments, and initial disclosures on risks, properties, legal matters, and corporate governance Item 1. Business iStar Inc. operates as a REIT, financing, investing in, and developing real estate and related projects, transitioning its portfolio to focus primarily on Ground Lease and Ground Lease adjacent investments - iStar Inc. finances, invests in, and develops real estate and real estate-related projects, also managing entities focused on ground lease and net lease investments[12] - The company's primary reportable business segments are net lease, real estate finance, operating properties, and land and development[12] - The company's strategy is to transition its portfolio to be primarily focused on Ground Lease and Ground Lease adjacent investments, held directly and through its investment in SAFE, and to simplify its portfolio through sales of other assets[17][25] Total Investment Portfolio Characteristics (as of December 31, 2021) | Property/Collateral Types | Net Lease ($) | Real Estate Finance ($) | Operating Properties ($) | Land & Development ($) | Corporate ($) | Total ($) | % of Total | | :------------------------ | :------------ | :---------------------- | :----------------------- | :--------------------- | :------------ | :---------- | :--------- | | Ground Leases | 1,305,384 | — | — | — | — | 1,305,384 | 28.9 % | | Entertainment / Leisure | 1,024,538 | — | 16,302 | — | — | 1,040,840 | 23.1 % | | Office | 852,471 | 52,163 | — | — | — | 904,634 | 20.0 % | | Industrial / Lab | 450,440 | — | — | — | — | 450,440 | 10.0 % | | Land and Development | — | 11,909 | — | 233,959 | — | 245,868 | 5.4 % | | Hotel | — | 109,295 | 82,881 | — | — | 192,176 | 4.3 % | | Multifamily | — | 107,383 | 48,095 | — | — | 155,478 | 3.4 % | | Retail | — | 62,120 | 31,594 | 8,340 | — | 102,054 | 2.3 % | | Condominium | — | 14,939 | 301 | 56,418 | — | 71,658 | 1.6 % | | Other Property Types | — | 28,090 | — | — | 17,908 | 45,998 | 1.0 % | | Total | 3,632,833 | 385,899 | 179,173 | 298,717 | 17,908 | 4,514,530 | 100.0 % | | Percentage of Total | 80% | 9% | 4% | 7% | <1% | 100% | | Overview iStar Inc. operates as a REIT, financing and investing in real estate, with primary revenue from rent, interest, land development, asset sales, and management fees - iStar Inc. finances, invests in, and develops real estate and real estate-related projects, also managing entities focused on ground lease and net lease investments[12] - Primary revenue sources in 2021 included rent and reimbursements, interest on loans, land development revenue, asset sales, and management fees/equity investments[13] Net Lease The net lease portfolio includes traditional net lease investments and Ground Lease investments through Safehold Inc. (SAFE), where iStar holds a significant stake - As of December 31, 2021, the net lease portfolio includes traditional net lease investments and Ground Lease investments made through Safehold Inc. (SAFE), a publicly traded REIT focused exclusively on Ground Leases, in which iStar owns approximately 64.6% of outstanding common stock[16] Pending Net Lease Sale iStar is selling a portfolio of net lease properties for approximately $3.07 billion, aligning with its strategy to focus on Ground Lease investments - In February 2022, iStar entered into a definitive agreement to sell a portfolio of net lease properties for approximately $3.07 billion, with an expected net cash proceeds of approximately $1.1 billion after repayments and expenses[17][18] - The sale is consistent with the company's strategy to grow its Ground Lease and Ground Lease adjacent businesses and simplify its portfolio[17] - The portfolio being sold consists of office, entertainment, and industrial properties (18.3 million square feet) and includes wholly-owned assets and interests in two joint ventures[18] Real Estate Finance The real estate finance portfolio offers various loan types, including leasehold, preferred equity, and senior/subordinated loans to business entities - The real estate finance portfolio comprises leasehold loans (including to SAFE's tenants), preferred equity investments, and senior/subordinated loans to business entities, which can be secured or unsecured, fixed-rate or variable-rate[20] Operating Properties The operating properties portfolio comprises diverse commercial and residential assets, with a strategy to reposition or redevelop transitional properties for value maximization - The operating properties portfolio includes commercial and residential properties across various geographies and types, with a strategy to reposition or redevelop transitional properties to maximize value[21] Land & Development The land and development portfolio consists of entitled land for master-planned communities and urban infill parcels, which the company develops or sells - The land and development portfolio primarily consists of land entitled for master-planned communities and waterfront/urban infill parcels, which the company may develop itself, in partnership, or sell[22][23] Investment Strategy iStar's investment strategy emphasizes custom-tailored commercial real estate solutions, currently prioritizing Ground Lease investments for attractive risk-adjusted returns - iStar's investment strategy focuses on custom-tailored solutions in commercial real estate, with a current emphasis on Ground Lease and Ground Lease adjacent investments due to attractive risk-adjusted returns[24][25] - Proceeds from asset sales, including the Net Lease Sale, are expected to be used for Ground Lease investments, debt repayment, and general corporate purposes[25] Financing Strategy The company utilizes leverage through unsecured bonds, credit facilities, and mortgage loans, with future capital raising plans including debt, asset sales, and equity issuances - The company uses leverage, primarily through unsecured bonds, a revolving credit facility, a term loan, and mortgage loans, with no corporate debt maturities through September 2022[26] - Future capital raising may include debt financing, refinancings, asset sales (like the Net Lease Sale), equity issuances, and joint ventures[27] Underwriting Process iStar employs a proprietary 'Six Point Methodology' to screen potential investments, evaluating opportunity source, collateral quality, and investment liquidity - iStar employs a proprietary 'Six Point Methodology' for screening potential investments, evaluating opportunity source, collateral quality, borrower equity, transaction structure, alternative investment tests, and investment liquidity[28] Hedging Strategy The company uses derivative instruments like interest rate swaps and foreign exchange contracts to manage interest rate and currency exposure, aiming to match variable-rate assets and liabilities - The company uses derivative instruments (interest rate swaps, caps, foreign exchange contracts) to manage interest rate and currency exposure, aiming to match variable-rate assets and liabilities[29][30] Investment Restrictions or Limitations There are no prescribed investment allocations, with a focus on credit underwriting and risk/reward analysis, while maintaining REIT qualification - There are no prescribed allocations among investments; the focus is on credit underwriting and risk/reward analysis[31] - The company intends to operate as a REIT and avoid regulation as an investment company[32] Competition The company operates in a highly competitive market, facing various financing and leasing sources - The company operates in a competitive market, facing various financing and leasing sources[33] Regulation iStar's operations are subject to state and federal regulations, and it intends to maintain its REIT qualification, requiring specific income distribution - iStar's operations are subject to state and federal regulations concerning credit granting, interest rates, disclosures, secured transactions, collection practices, privacy, and anti-money laundering[34] - The company has elected and expects to maintain its REIT qualification, requiring distribution of at least 90% of net taxable income (excluding capital gains) to shareholders annually[36] [Code of Conduct](index=6&type=section&id=Code%20of