SAFEHOLD INC. Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Real Estate Property Acquired. The following
financial statements are filed herewith and incorporated herein by
reference.
Alohilani Ground Lease-For the Six Months Ended June 30, 2019 (unaudited) and
the Year Ended December 31, 2018
Independent Auditors' Report
Statements of Revenues and Certain Expenses from Real Estate Operations
Notes to Statements of Revenues and Certain Expenses from Real Estate Operations
(b) Unaudited Pro Forma Financial Information. The following financial
information is filed herewith and incorporated herein by reference.
Exhibit 23.1 Consent of
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Safehold Inc.
We have audited the accompanying statement of revenues and certain expenses from
real estate operations of Alohilani Ground Lease (the "Company") for the year
ended December 31, 2018 , and the related notes (the "Financial Statement").
Management's Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of Financial
Statement in accordance with accounting principles generally accepted in the
United States of America ; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair
presentation of the Financial Statement that is free from material misstatement,
whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on the Financial Statement based on
our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America . Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
Financial Statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the Financial Statement. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the Financial Statement, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control
relevant to the Company's preparation and fair presentation of the Financial
Statement in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control. Accordingly, we express no such
opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the Financial
Statement.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Financial Statement referred to above presents fairly, in
all material respects, the revenues and certain expenses from real estate
operations described in Note 2 of Alohilani Ground Lease for the year ended
December 31, 2018 , in accordance with accounting principles generally accepted
in the United States of America .
Emphasis of Matter
We draw attention to Note 2 to the Financial Statement, which describes that the
accompanying Financial Statement was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Current Report on Form 8-K/A of Safehold Inc. in order to
comply with Regulation S-X Rule 3-14) and is not intended to be a complete
presentation of the Company's revenues and expenses. Our opinion is not modified
with respect to this matter.
/s/ Deloitte & Touche LLP
New York, New York
December 6, 2019
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Alohilani Ground Lease
Statements of Revenues and Certain Expenses from Real Estate Operations
Six Months Ended
(In thousands)
Year
Six Months Ended Ended
June 30, December 31,
2019 2018
(unaudited)
Revenues from Real Estate Operations
Operating lease income $ 2,832 $ 5,664
Other income 133 267
Total Revenues from Real Estate Operations 2,965 5,931
Expenses from Real Estate Operations
Operating costs 133 267
Total Expenses from Real Estate Operations 133 267
Revenues in excess of Expenses from Real Estate
Operations $ 2,832 $ 5,664
The accompanying notes are an integral part of the statements of revenues and
certain expenses from real estate operations.
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Note 1 - Organization and Description of Business The accompanying statements of revenues and certain expenses from real estate operations include ground lease operations of Alohilani Resort Waikiki Beach, a land asset triple net leased to an independent hotel property operator, located inHonolulu, HI (the "Alohilani Ground Lease"). The Alohilani Ground Lease was previously owned byQueen Lili 'uokalani Trust (the "Trust").Safehold Inc. ("SAFE") acquired the Alohilani Ground Lease onSeptember 24, 2019 . Note 2 - Summary of Significant Accounting Policies Basis of Presentation The accompanying statements of revenues and certain expenses from real estate operations have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. Accordingly, the statements are not representative of the actual results of operations for the periods presented as revenues and certain expenses, which may not be directly attributable to the revenue and expenses to be incurred in the future operations of the Alohilani Ground Lease, have been excluded. Such excluded items include amortization, related party fees, management fees, and non-recurring professional fees. The expenses presented are the expenses associated with operating and maintaining the real estate asset and are recognized as incurred. Interim Unaudited Information The statements of revenues and certain expenses from real estate operations for the six months endedJune 30, 2019 are unaudited. In the opinion of the Trust, such statements reflect all adjustments necessary for a fair presentation of the revenue and certain expenses from real estate operations in accordance with Rule 3-14 of Regulation S-X as described above. All such adjustments are of a normal recurring nature. Revenue Recognition Operating lease income includes base rent that the tenant pays in accordance with the terms of its lease and is reported on a straight-line basis over the non-cancellable term of the lease which includes the effects of rent steps or rent abatements, if any, under the lease. The Trust commences operating lease income recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The Trust is also entitled to percentage rent and records percentage rent as operating lease income when earned. The Trust did not recognize any percentage rent for the periods presented. Accounting Estimates The preparation of a financial statement in conformity withU.S. generally accepted accounting principles requires management to make estimates and assumption that in certain circumstances may affect the reported revenues. Actual results could differ from these estimates. Note 3 - Minimum Future Lease Rentals The Alohilani Ground Lease is leased to a sole tenant (the "Tenant") pursuant to a lease that commenced in 2014 and which is set to expire inDecember 2068 . The lease is a triple net ground lease where all operating expenses, including the real estate taxes, are paid by the Tenant. The lease provides for periodic base annual rent escalations linked to the Consumer Price Index. Future minimum operating lease payments to be collected under non-cancelable leases, excluding other lease payments that are not fixed and determinable, in effect as ofJune 30, 2019 , are as follows by year ($ in thousands): 2019 (remaining six months)$ 2,832 2020 5,664 2021 5,664 2022 5,664 2023 5,664 Thereafter 254,880 Total$ 280,368 5
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Note 4 - Concentration of Credit Risk The Tenant of the Alohilani Ground Lease contributed 100% of operating lease income for both the six months endedJune 30, 2019 and the year endedDecember 31, 2018 . Note 5 - Subsequent Events The Trust has evaluated events and transactions for potential recognition or disclosure throughDecember 5, 2019 , the date the financial statements were available to be issued. OnSeptember 24, 2019 , in connection with the acquisition of the ground lease by SAFE, SAFE and the Tenant amended several aspects of the ground lease (the "Amendment"), including the lease term and the structure of the rent payments. In connection with the Amendment, the term of the ground lease was extended toAugust 31, 2118 . In connection with the Amendment, as ofSeptember 24, 2019 , SAFE is entitled to the following future contractual minimum lease payments from the non-cancellable operating lease (excluding lease payments that are not fixed and determinable) (in thousands): 2019 (September 24 through December 31)$ 1,526 2020 5,664 2021 5,664 2022 5,664 2023 5,664 Thereafter 2,120,710 Total$ 2,144,892 6
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Safehold Inc. Pro Forma Consolidated Statements of Operations The unaudited pro forma consolidated statements of operations assumes that the acquisition of the Alohilani Ground Lease occurred onJanuary 1, 2018 . The unaudited pro forma adjustments are based on available information and certain estimates and assumptions thatSafehold Inc. (the "Company") believes are factually supportable, directly attributable to the transaction and are expected to have a continuing impact. The unaudited pro forma consolidated statements of operations are not necessarily indicative of what actual results of operations would have been had the Company acquired the Alohilani Ground Lease on the first day of the period presented, nor does it purport to represent the results of operations for future periods. The Company adopted Accounting Standards Update ("ASU") 2016-02, Leases ("ASU 2016-02"), as amended, onJanuary 1, 2019 . The adoption of this ASU resulted in the Company recognizing certain of its ground leases, including the Alohilani Ground Lease, as sales-type leases and recording the ground lease as "Net investment in leases" on the Company's consolidated balance sheets. For the Company's ground leases which qualify as sales-type leases, the Company records interest income in "Interest income from sales-type leases" in the Company's consolidated statements of operations. In addition, the Company and its tenant amended the Alohilani Ground Lease onSeptember 24, 2019 , including the structure of the rent payments and extending the term of the ground lease toAugust 31, 2118 . The unaudited pro forma consolidated statements of operations assumes that the acquisition of the Alohilani Ground Lease occurred onJanuary 1, 2018 and, therefore, the pro forma adjustments do not include the effect of the adoption of ASU 2016-02 or the amendments to the ground lease described above. Pro forma adjustments include: (i) the effect of straight-line operating lease income recognized from the in place ground lease, classified as an operating lease under ASC 840, in accordance with accounting principles generally accepted inthe United States of America ("GAAP"); (ii) the amortization of above-market, in-place and other lease intangible assets over the 81 year remaining term of the lease had the ground lease been classified as an operating lease under ASC 840 in accordance with GAAP; and (iii) other income and real estate expense recognized in connection with the payment and reimbursement by the tenant of general excise taxes. The pro forma information has been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with the historical consolidated financial statements and notes thereto as filed in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2018 , the Company's quarterly report on Form 10-Q for the period endedJune 30, 2019 and the financial statements of the acquired property filed herein. 7
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Safehold Inc.
Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2019 (unaudited)
(In thousands)
(1) (2) (3)
Company Pro Forma Company
As Filed Adjustments Pro Forma
Revenues:
Operating lease income $ 37,712 $ 2,438 $ 40,150
Interest income from sales-type leases 2,802 - 2,802
Other income 986 133 1,119
Total revenues 41,500 2,571 44,071
Costs and expenses:
Interest expense 10,507 - 10,507
Real estate expense 1,457 133 1,590
Depreciation and amortization 4,686 42 4,728
General and administrative 7,456 - 7,456
Other expense 315 - 315
Total costs and expenses 24,421 175 24,596
Income from operations before other items 17,079 2,396 19,475
Net income 17,079 2,396 19,475
Net income allocable to noncontrolling
interests (5,937 ) - (5,937 )
Net income allocable to Safehold Inc. common
shareholders $ 11,142 $ 2,396 $ 13,538
Per common share data:
Net income
Basic and diluted $ 0.51 $ 0.11 $ 0.62
Weighted average number of common shares:
Basic and diluted 22,001 22,001 22,001
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(1) Represents the Company's historical consolidated statement of operations for
the six months ended
(2) Represents (i) the effect of straight-line operating lease income recognized
from the in place ground lease, classified as an operating lease under ASC
840, in accordance with GAAP; (ii) the amortization of above-market, in-place
and other lease intangible assets over the 81 year remaining term of the
lease had the ground lease been classified as an operating lease under ASC
840 in accordance with GAAP; and (iii) other income and real estate expense
recognized in connection with the payment and reimbursement by the tenant of
general excise taxes.
(3) Represents the Company's pro forma consolidated statement of operations
assuming that the acquisition of the Alohilani Ground Lease occurred on
January 1, 2018 .
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Safehold Inc.
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2018 (unaudited)
(In thousands)
(1) (2) (3)
Company Pro Forma Company
As Filed Adjustments Pro Forma
Revenues:
Operating lease income $ 47,400 $ 4,875 $ 52,275
Interest income from sales-type leases - - -
Other income 2,324 267 2,591
Total revenues 49,724 5,142 54,866
Costs and expenses:
Interest expense 15,389 - 15,389
Real estate expense 1,600 267 1,867
Depreciation and amortization 9,142 85 9,227
General and administrative 10,662 - 10,662
Other expense 995 - 995
Total costs and expenses 37,788 352 38,140
Income from operations before other items 11,936 4,790 16,726
Net income 11,936 4,790 16,726
Net income attributable to noncontrolling
interests (196 ) - (196 )
Net income attributable to Safehold Inc.
common shareholders $ 11,740 $ 4,790 $ 16,530
Per common share data:
Net income attributable to Safehold Inc.
Basic and diluted $ 0.64 $ 0.26 $ 0.90
Weighted average number of common shares:
Basic and diluted 18,218 18,218 18,218
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(1) Reflects the Company's historical consolidated statement of operations for
the year ended
(2) Represents (i) the effect of straight-line operating lease income recognized
from the in place ground lease, classified as an operating lease under ASC
840, in accordance with GAAP; (ii) the amortization of above-market, in-place
and other lease intangible assets over the 81 year remaining term of the
lease had the ground lease been classified as an operating lease under ASC
840 in accordance with GAAP; and (iii) other income and real estate expense
recognized in connection with the payment and reimbursement by the tenant of
general excise taxes.
(3) Reflects the Company's pro forma consolidated statement of operations
assuming that the acquisition of the Alohilani Ground Lease occurred on
January 1, 2018 .
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