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.
425 Park Avenue Ground Lease-For the Nine Months Ended September 30, 2019
(unaudited) and the Year Ended December 31, 2018
Independent Auditors' Report
Statements of Revenues from Real Estate Operations
Notes to Statements of Revenues 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 from real estate
operations of 425 Park Avenue 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 from real estate operations described in
Note 2 of 425 Park Avenue 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
February 3, 2020
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425 Park Avenue Ground Lease
Statements of Revenues from Real Estate Operations
Nine Months Ended
2018
(In thousands)
Year
Nine Months Ended Ended
September 30, December 31,
2019 2018
(unaudited)
Revenues from Real Estate Operations
Operating lease income $ 18,097 $ 24,130
Total Revenues from Real Estate Operations $ 18,097 $ 24,130 The accompanying notes are an integral part of the statements of revenues from
real estate operations.
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Note 1 - Organization and Description of Business The accompanying statements of revenues from real estate operations include ground lease operations of425 Park Avenue , a land asset triple net leased to an independent office developer, located inNew York, NY (the "425 Park Avenue Ground Lease"). The property was previously owned by Nuveen (the "Sponsor"), a subsidiary of TIAA, who purchased the property in 2011. A venture betweenSafehold Inc. ("SAFE") and a sovereign wealth fund acquired the425 Park Avenue Ground Lease onNovember 25, 2019 . Note 2 - Summary of Significant Accounting Policies Basis of Presentation The accompanying statements of revenues 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, which may not be directly attributable to the revenue and expenses to be incurred in the future operations of the 425 Park Avenue Ground Lease, have been excluded. Such excluded items include amortization, related party fees, management fees, non-recurring professional fees and insurance costs. Interim Unaudited Information The statements of revenues from real estate operations for the nine months endedSeptember 30, 2019 are unaudited. In the opinion of the Sponsor, such statements reflect all adjustments necessary for a fair presentation of the revenue 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 each 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 Sponsor commenced operating lease income recognition upon its acquisition of the property. 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 materially differ from these estimates. Note 3 - Minimum Future Lease Rentals The 425 Park Avenue Ground Lease is leased to a sole tenant (the "Tenant") pursuant to a lease that commenced in 2006 and which is set to expire inJuly 2090 . The lease is a triple net ground lease in which all operating expenses, including the real estate taxes, are paid by the Tenant. The lease provides for periodic fixed base annual increases and escalations linked to the fair market value of the property. Future minimum operating lease payments to be collected under the 425 Park Avenue Ground Lease, excluding other lease payments that are not fixed and determinable, in effect as ofSeptember 30, 2019 , are as follows by year ($ in thousands): 2019 (remaining three months)$ 2,905 2020 12,337 2021 13,343 2022 13,343 2023 13,343 Thereafter 1,760,275 Total$ 1,815,546
Note 4 - Concentration of Credit Risk
The Tenant of the 425 Park Avenue Ground Lease contributed 100% of the operating
lease income for both the nine months ended
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Note 5 - Subsequent Events
SAFE has evaluated events and transactions for potential recognition or
disclosure through
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Safehold Inc.
Pro Forma Consolidated Balance Sheet and Consolidated Statements of Operations
The unaudited pro forma consolidated balance sheet assumes that the Company's acquisition of its interest in the Venture and the Venture's acquisition of the 425 Park Avenue Ground Lease occurred onSeptember 30, 2019 and the unaudited pro forma consolidated statements of operations assumes that the Company's acquisition of its interest in the Venture and the Venture's acquisition of the 425 Park Avenue Ground Lease occurred onJanuary 1, 2018 . The unaudited pro forma adjustments are based on available information and certain estimates and assumptions that the Company believes are factually supportable, directly attributable to the transaction and are expected to have a continuing impact with respect to the Company's consolidated statements of operations. The unaudited pro forma consolidated statements of operations are not necessarily indicative of what actual results of operations would have been had the transaction occurred on the first day of the period presented, nor does it purport to represent the results of operations for future periods. The Company owns approximately 55% of the Venture and, due to its shared control with its partner, will account for its interest in the Venture as an equity method investment in the Company's consolidated financial statements. The Company adopted Accounting Standards Update ("ASU") 2016-02, Leases ("ASU 2016-02"), as amended, onJanuary 1, 2019 . The Venture adopted ASU 2016-02 upon inception. The adoption of ASU 2016-02 resulted in the Company and the Venture recognizing certain of their ground leases, including the 425 Park Avenue Ground Lease in the Venture's financial statements, as sales-type leases and recording the ground lease as "Net investment in leases" on their consolidated balance sheets. For the Company's and the Venture's ground leases which qualify as sales-type leases, the Company and the Venture record interest income in "Interest income from sales-type leases" in the consolidated statements of operations. The unaudited pro forma consolidated balance sheet is presented as if the Venture's acquisition of the 425 Park Avenue Ground Lease and related mortgage financing occurred onSeptember 30, 2019 . The unaudited pro forma consolidated statements of operations are presented as if the Company's acquisition of its interest in the Venture and the Venture's acquisition of the425 Park Avenue Ground Lease occurred onJanuary 1, 2018 , prior to the adoption of ASU 2016-02. In addition, inNovember 2019 , the Company issued common equity in a public offering and a concurrent private placement with iStar Inc, collectively the November Offering. Net proceeds from the public offering and concurrent private placement with iStar Inc. were used to make additional Ground Lease investments, including the acquisition of the 425 Park Avenue Ground Lease. Pro forma adjustments include: (i) the issuance of 3,132,853 shares of the Company's common stock at$34.00 per share in the November Offering that was necessary to fund the Company's$106.5 million equity contribution to the Venture for the acquisition of the 425 Park Avenue Ground Lease; and (ii) the Company's approximate 55% pro rata share of earnings from equity method investments from the Venture that is the net effect of (a) 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"); and (b) the amortization of above-market and in-place lease intangible assets over the 71 year remaining term of the lease had the ground lease been classified as an operating lease under ASC 840 in accordance with GAAP. 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 endedSeptember 30, 2019 and the financial statements of the acquired property filed herein. 7
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Safehold Inc.
Pro Forma Consolidated Balance Sheet
As of September 30, 2019
(In thousands)
(unaudited)
(1) (2) (3)
Company Pro Forma Company
As Filed Adjustments Pro Forma
ASSETS
Real estate
Real estate, at cost $ 687,902 $ - $ 687,902
Less: accumulated depreciation (14,779 ) - (14,779 )
Real estate, net 673,123 - 673,123
Real estate-related intangible assets, net 244,503 - 244,503
Total real estate, net and real estate-related
intangible assets, net 917,626 - 917,626
Net investment in sales-type leases 465,289 - 465,289
Ground Lease receivables 73,338 - 73,338
Equity investments in Ground Leases 21,410 106,517 127,927
Cash and cash equivalents 13,539 - 13,539
Restricted cash 23,249 - 23,249
Deferred operating lease income receivable 49,498 - 49,498
Deferred expenses and other assets, net 73,213 - 73,213
Total assets $ 1,637,162 $ 106,517 $ 1,743,679
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities$ 42,975 $ -$ 42,975 Real estate-related intangible liabilities, net 57,494 - 57,494 Debt obligations, net 691,567 - 691,567 Total liabilities 792,036 - 792,036 Commitments and contingencies Equity:Safehold Inc. shareholders' equity: Common stock,$0.01 par value, 400,000 shares authorized, 40,444 and 43,577 shares issued and outstanding as ofSeptember 30, 2019 on an actual and pro forma basis, respectively 404 31 435 Additional paid-in capital 888,457 106,486 994,943 Accumulated deficit (5,809 ) - (5,809 ) Accumulated other comprehensive loss (39,284 ) - (39,284 )Total Safehold Inc. shareholders' equity 843,768 106,517 950,285 Noncontrolling interests 1,358 - 1,358 Total equity 845,126 106,517 951,643 Total liabilities and equity$ 1,637,162 $ 106,517 $ 1,743,679
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(1) Represents the Company's historical consolidated balance sheet as of
(2) Represents the issuance of 3,132,853 shares of the Company's common stock at
$34.00 per share in the November Offering that was necessary to fund the Company's equity contribution to the Venture for the acquisition of the 425 Park Avenue Ground Lease.
(3) Represents the Company's pro forma consolidated balance sheet assuming that
the Company's acquisition of its interest in the Venture and the Venture's
acquisition of the 425 Park Avenue Ground Lease occurred on September 30,
2019 .
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Safehold Inc.
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2019 (unaudited)
(In thousands)
(1) (2) (3)
Company Pro Forma Company
As Filed Adjustments Pro Forma
Revenues:
Operating lease income $ 54,844 $ - $ 54,844
Interest income from sales-type leases 6,834 - 6,834
Other income 2,132 - 2,132
Total revenues 63,810 - 63,810
Costs and expenses:
Interest expense 18,215 - 18,215
Real estate expense 2,082 - 2,082
Depreciation and amortization 7,031 - 7,031
General and administrative 10,552 - 10,552
Other expense 600 - 600
Total costs and expenses 38,480 - 38,480
Income from operations before other items 25,330 - 25,330
Loss on early extinguishment of debt (2,011 ) - (2,011 )
Earnings (losses) from equity method
investments (759 ) 9,811 9,052
Net income 22,560 9,811 32,371
Net income allocable to noncontrolling
interests (5,986 ) - (5,986 )
Net income allocable to Safehold Inc. common
shareholders $ 16,574 $ 9,811 $ 26,385
Per common share data:
Net income
Basic and diluted $ 0.62 $ 0.88
Weighted average number of common shares:
Basic and diluted 26,748 3,133 29,881
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(1) Represents the Company's historical consolidated statement of operations for
the nine months ended
(2) Represents the Company's approximate 55% pro rata share of earnings from
equity method investments from the Venture that is the net effect of (i)
straight-line operating lease income recognized from the in place ground
lease, classified as an operating lease, in accordance with GAAP; and (ii)
the amortization of above-market and in-place lease intangible assets over
the 71 year remaining term of the lease.
(3) Represents the Company's pro forma consolidated statement of operations
assuming that the Company's acquisition of its interest in the Venture and
the Venture's acquisition of the 425 Park Avenue 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 $ - $ 47,400
Other income 2,324 - 2,324
Total revenues 49,724 - 49,724
Costs and expenses:
Interest expense 15,389 - 15,389
Real estate expense 1,600 - 1,600
Depreciation and amortization 9,142 - 9,142
General and administrative 10,662 - 10,662
Other expense 995 - 995
Total costs and expenses 37,788 - 37,788
Income from operations before other items 11,936 - 11,936
Earnings from equity method investments - 13,082 13,082
Net income 11,936 13,082 25,018
Net income attributable to noncontrolling
interests (196 ) - (196 )
Net income attributable to Safehold Inc.
common shareholders $ 11,740 $ 13,082 $ 24,822
Per common share data:
Net income attributable to Safehold Inc.
Basic and diluted $ 0.64 $ 1.16
Weighted average number of common shares:
Basic and diluted 18,218 3,133 21,351
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(1) Represents the Company's historical consolidated statement of operations for
the year ended
(2) Represents the Company's approximate 55% pro rata share of earnings from
equity method investments from the Venture that is the net effect of (i)
straight-line operating lease income recognized from the in place ground
lease, classified as an operating lease, in accordance with GAAP; and (ii)
the amortization of above-market and in-place lease intangible assets over
the 71 year remaining term of the lease.
(3) Represents the Company's pro forma consolidated statement of operations
assuming that the Company's acquisition of its interest in the Venture and
the Venture's acquisition of the 425 Park Avenue Ground Lease occurred on
January 1, 2018 .
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