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MarketScreener Homepage  >  Equities  >  Nyse  >  Safehold Inc.    SAFE

SAFEHOLD INC.

(SAFE)
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SAFEHOLD : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/22/2020 | 03:01pm EST
Certain statements in this report, other than purely historical information,
including estimates, projections, statements relating to our business plans,
objectives and expected operating results, and the assumptions upon which those
statements are based, are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements are included with respect to, among other things,
Safehold Inc.'s (the "Company's") current business plan, business strategy,
portfolio management, prospects and liquidity. These forward-looking statements
generally are identified by the words "believe," "project," "expect,"
"anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will,"
"would," "will be," "will continue," "will likely result," and similar
expressions. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause actual
results or outcomes to differ materially from those contained in the
forward-looking statements. We undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. In assessing all forward-looking statements, readers
are urged to read carefully all cautionary statements contained in this
Form 10-Q and the uncertainties and risks described in the Risk Factors section
in our Annual Report on Form 10-K and in this Form 10-Q, all of which could
affect our future results of operations, financial condition and liquidity. For
purposes of Management's Discussion and Analysis of Financial Condition and
Results of Operations, the terms "we," "our" and "us" refer to Safehold Inc. and
its consolidated subsidiaries, unless the context indicates otherwise.
  The discussion below should be read in conjunction with our consolidated
financial statements and related notes in this quarterly report on Form 10-Q and
our Annual Report on Form 10-K. These historical financial statements may not be
indicative of our future performance. We have reclassified certain items in our
consolidated financial statements of prior periods to conform to our current
financial statements presentation.
Executive Overview

The coronavirus (COVID-19) outbreak has continued to impact the US and global
economies. The US financial markets have experienced disruption, with heightened
stock market volatility and constrained credit conditions within certain
sectors, including real estate. We and our Manager are focused on ensuring the
health and safety of our personnel and the continuity of business activities,
monitoring the effects of the crisis on our tenants, marshalling available
liquidity to take advantage of investment opportunities, implementing
appropriate cost containment measures and preparing for the eventual resumption
of more normalized activities. At this time, we cannot predict the extent of the
impacts of the COVID-19 crisis on our business. We will continue to monitor its
effects on a daily basis and will adjust our operations as necessary
Our financial results for the nine months ended September 30, 2020 were not
adversely impacted by the COVID-19 crisis to a material degree. We received 100%
of the Ground Lease rent due under our Ground Leases through September 30, 2020.
This includes the payment of the annual percentage rent under the Park Hotels
Portfolio in respect of 2019 hotel operating performance, which we received in
full in April in the amount of $3.6 million. We cannot predict that we will
continue to receive all rent owed to us when due in future periods. As of
September 30, 2020, the percentage breakdown of the gross book value of our
portfolio was 61% office, 19% hotels, 19% multi-family and 1% other. The crisis
has hit the hotel sector, including the hotel properties in our portfolio,
particularly hard. Excluding percentage rent, for both the nine months ended
September 30, 2020 and the year ended December 31, 2019, approximately 15.0% of
our total revenues came from our hotel leases. Operations at all of the hotel
properties in our portfolio have been substantially reduced for the time being.
In addition to base rent, we are entitled to receive percentage rents under
certain of our hotel Ground Leases, based on hotel revenues. For the year ended
2019, percentage rents constituted approximately 4.6% of our total revenues. In
2021, we expect to experience a decline in percentage rent revenues in respect
of 2020 hotel operating performance. Such decline in percentage rents, as well
as any disruptions in the payment of future rents by our hotel or other tenants,
would adversely impact our cash flows from operations, and any such impact could
be material.
In March 2020, we raised gross proceeds of $150 million through a public
offering and concurrent private placement of shares of our common stock (refer
to Note 11). Our liquidity position as of the date of this report included
approximately $24 million of unrestricted cash, $518 million of undrawn capacity
on our Revolver (refer to Note 8) and the ability to draw an additional $215
million without pledging any additional assets to the facility.
The COVID-19 crisis has adversely affected our new investment activity,
primarily because of the reduced levels of real estate transactions and
constrained conditions for equity and debt financing for real estate
transactions, including leasehold loans. In addition, the crisis has made it
more difficult to execute transactions as people work from home and are
reluctant to
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visit properties, local governmental offices have reduced operations and third
parties such as survey, insurance, environmental and similar services have more
limited capacities. These conditions will adversely affect our growth prospects
while they persist. See the Risk Factors section of this 10-Q for additional
discussion of certain potential risks to our business arising from the COVID 19
crisis.

Business Overview

We acquire, manage and capitalize Ground Leases and report our business as a
single reportable segment. We believe owning a portfolio of Ground Leases
affords our investors the opportunity for safe, growing income. Safety is
derived from a Ground Lease's senior position in the commercial real estate
capital structure. Growth is realized through long-term leases with contractual
periodic increases in rent. Capital appreciation is realized though appreciation
in the value of the land over time and through our typical rights as landlord to
acquire the commercial buildings on our land at the end of a Ground Lease, which
may yield substantial value to us. The diversification by geographic location,
property type and sponsor in our portfolio further reduces risk and enhances
potential upside.
We have chosen to focus on Ground Leases because we believe they meet an
important need in the real estate capital markets for our customers. We also
believe Ground Leases offer a unique combination of safety, income growth and
the potential for capital appreciation for investors for the following reasons:
High Quality Long-Term Cash Flow: We believe that a Ground Lease represents a
safe position in a property's capital structure. The combined property value
subject to a Ground Lease typically significantly exceeds the Ground Lease
landlord's investment in the Ground Lease; therefore, even if the landlord takes
over the property following a tenant default or upon expiration of the Ground
Lease, the landlord is reasonably likely to recover substantially all of its
Ground Lease investment, and possibly amounts in excess of its investment,
depending upon prevailing market conditions. Additionally, the typical structure
of a Ground Lease provides the landlord with a residual right to regain
possession of its land and take ownership of the buildings and improvements
thereon upon a tenant default. The landlord's residual right provides a strong
incentive for a Ground Lease tenant or its leasehold lender to make the required
Ground Lease rent payments.
Income Growth: Ground Leases typically provide growing income streams through
contractual base rent escalators that may compound over the duration of the
lease. These rent escalators may be based on fixed increases, a Consumer Price
Index ("CPI") or a combination thereof, and may also include a participation in
the gross revenues of the property. We believe that this growth in the lease
rate over time can mitigate the effects of inflation and capture anticipated
increases in land values over time, as well as serving as a basis for growing
our dividend.
Opportunity for Capital Appreciation: The opportunity for capital appreciation
comes in two forms. First, as the ground rent grows over time, the value of the
Ground Lease should grow under market conditions in which capitalization rates
remain flat. Second, our residual right to regain possession of the land
underlying the Ground Lease and take title to the buildings and other
improvements thereon for no additional consideration creates additional
potential value to our shareholders.
We generally target Ground Lease investments in which the initial cost of the
Ground Lease represents 30% to 45% of the combined value of the land and
buildings and improvements thereon (the "Combined Property Value") as if the
Ground Lease did not exist. If the initial cost of a Ground Lease is equal to
35% of the Combined Property Value, the remaining 65% of the Combined Property
Value represents potential excess value over the amount of our investment that
would be turned over to us upon the reversion of the property, assuming no
intervening change in the Combined Property Value. In our view, there is a
strong correlation between inflation and commercial real estate values over
time, which supports our belief that the value of our owned residual portfolio
should increase over time as inflation increases, although our ability to
recognize value in certain cases may be limited by the rights of our tenants
under some of our Ground Leases, including tenant rights to purchase our land in
certain circumstances and the right of one tenant to demolish improvements prior
to the expiration of the lease. See "Risk Factors" in our Annual Report on Form
10-K for a discussion of these tenant rights.
Owned Residual Portfolio: We believe that the residual right is a unique feature
distinguishing Ground Leases from other fixed income investments and property
types. We track the unrealized capital appreciation in the value of our owned
residual portfolio over our basis ("UCA") because we believe it provides
relevant information with regard to the three key investment characteristics of
our Ground Leases: (1) the safety of our position in a tenant's capital
structure; (2) the quality of the long-term cash flows generated by our
portfolio rent that increases over time; and (3) increases and decreases in the
Combined Property Value of the portfolio that reverts to us pursuant to such
residual rights.
We believe that, similar to a loan to value metric, tracking changes in the
value of our owned residual portfolio is useful as an indicator of the quality
of our cash flows and the safety of our position in a tenant's capital
structure, which, in turn, supports our objective to pay and grow dividends over
time. Observing changes in our owned residual portfolio value also helps us
monitor changes in the value of the real estate portfolio that reverts to us
under the terms of the leases, either at the expiration
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or earlier termination of the lease. The value may be realized by us at the
relevant time by entering into a new lease reflecting then current market terms
and values, selling the building, selling the building with the land, or
operating the building directly and leasing the spaces to tenants at prevailing
market rates.
We have engaged an independent valuation firm to prepare: (a) initial reports of
the Combined Property Value associated with our Ground Lease portfolio; and (b)
periodic updates of such reports, which we use, in part, to determine the
current estimated value of our owned residual portfolio. We calculate this
estimated value by subtracting our original aggregate cost basis in the Ground
Leases from the aggregate Combined Property Value determined by the valuation
firm.
The table below shows the current estimated UCA in our owned residual portfolio
as of September 30, 2020 and December 31, 2019 ($ in millions). The estimated
UCA as of September 30, 2020 does not reflect the full potential impact of the
COVID-19 pandemic on our portfolio. See the "Risk Factors" section of this 10-Q
for more information:(1)
                                                       September 30, 2020             December 31, 2019
Combined Property Value(2)                           $              7,944          $              7,538
Ground Lease Cost(2)                                                2,847                         2,708
Unrealized Capital Appreciation in Our Owned
Residual Portfolio                                                  5,097                         4,830


_______________________________________________________________________________
(1)Please review our Current Report on Form 8-K filed on October 22, 2020 for a
discussion of the valuation methodology used and important limitations and
qualifications of the calculation of UCA. See "Risk Factors" in our Annual
Report on Form 10-K and in this Form 10-Q for a discussion of certain tenant
rights and other terms of the leases that may limit our ability to realize value
from the UCA.
(2)Combined Property Value includes our 54.8% percentage interest in our
unconsolidated venture and $185.7 million and $416.0 million related to
transactions with remaining unfunded commitments as of September 30, 2020 and
December 31, 2019, respectively. Ground Lease Cost includes our 54.8% percentage
interest in our unconsolidated venture and $33.5 million and $81.3 million of
unfunded commitments as of September 30, 2020 and December 31, 2019,
respectively. As of September 30, 2020, our gross book value as a percentage of
combined property value was 39%.
Market Opportunity: We believe that there is a significant market opportunity
for a dedicated provider of Ground Lease capital like us. We believe that the
market for existing Ground Leases is fragmented with ownership comprised
primarily of high net worth individuals, pension funds, life insurance
companies, estates and endowments. However, while we intend to pursue
acquisitions of existing Ground Leases, our investment thesis is predicated, in
part, on what we believe is an untapped market opportunity to expand the use of
Ground Leases to a broader component of the approximately $7.0 trillion
institutional commercial property market in the U.S. We intend to capture this
market opportunity by utilizing multiple sourcing and origination channels,
including manufacturing new Ground Leases with third-party owners and developers
of commercial real estate and originating Ground Leases to provide capital for
development and redevelopment. We further believe that Ground Leases generally
represent an attractive source of capital for our tenants and may allow them to
generate superior returns on their invested equity as compared to utilizing
alternative sources of capital. We draw on the extensive investment origination
and sourcing platform of iStar, the parent company of our Manager, to actively
promote the benefits of the Ground Lease structure to prospective Ground Lease
tenants.
Our Portfolio

Our portfolio of properties is diversified by property type and region. Our
portfolio is comprised of Ground Leases and a master lease (relating to five
hotel assets that we refer to as our "Park Hotels Portfolio") that has many of
the characteristics of a Ground Lease. As of September 30, 2020, our estimated
portfolio Ground Rent Coverage was 3.7x (see the "Risk Factors" section in this
Form 10-Q for a discussion of our estimated Ground Rent Coverage).
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Below is an overview of the top 10 assets in our portfolio as of September 30, 2020 (based on gross book value and excluding unfunded commitments):(1)

           Property                                                                             Lease Expiration /                Rent Escalation                   % of Gross
             Name                       Property Type               Location                       As Extended                       Structure                      Book Value
                                                                                                                               Fixed with Inflation
425 Park Avenue(2)                         Office                 New York, NY                     2090 / 2090                      Adjustments                       12.1%
                                                                                                                               Fixed with Inflation
135 West 50th Street                       Office                 New York, NY                     2123 / 2123                      Adjustments                       10.3%
                                                                                                                               Fixed with Inflation
195 Broadway                               Office                 New York, NY                     2118 / 2118                      Adjustments                        9.8%
Park Hotels Portfolio(3)                    Hotel                   Various                        2025 / 2035                        % Rent                           7.8%
                                                                                                                               Fixed with Inflation
Alohilani                                   Hotel                 Honolulu, HI                     2118 / 2118                      Adjustments                        7.0%
                                                                                                                               Fixed with Inflation
685 Third Avenue                           Office                 New York, NY                     2123 / 2123                      Adjustments                        6.4%
                                                                                                                               Fixed with Inflation
1111 Pennsylvania Avenue                   Office                Washington, DC                    2117 / 2117                      Adjustments                        5.3%
                                                                                                                               Fixed with Inflation
Domain Tower                               Office                  Austin, TX                      2118 / 2118                      Adjustments                        2.8%
Hollywood Blvd - South                  Multi-family            Los Angeles, CA                    2104 / 2104                   Inflation-Linked                      2.6%
                                                                                                                               Fixed with Inflation
One Ally Center                            Office                 Detroit, MI                      2114 / 2174                      Adjustments                        2.5%

_______________________________________________________________________________
(1)Gross book value represents the historical purchase price plus accrued
interest on sales-type leases.
(2)Gross book value for this property represents our pro rata share of the gross
book value of our unconsolidated venture (refer to Note 6).
(3)The Park Hotels Portfolio consists of five properties and is subject to a
single master lease. A majority of the land underlying one of these properties
is owned by a third party and is ground leased to us through 2044 subject to
changes in the CPI; however, our tenant at the property pays this cost directly
to the third party.

The following tables show our portfolio by region and property type as of September 30, 2020, excluding unfunded commitments:

                    % of Gross
Region              Book Value
Northeast                 45  %
West                      23
Mid Atlantic              13
Southwest                  8
Southeast                  8
Central                    3

                    % of Gross
Property Type       Book Value
Office                    61  %
Hotel                     19
Multifamily               19
Other                      1




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Unfunded Commitments

  In January 2019, we acquired land for $13.0 million and simultaneously
structured and entered into a Ground Lease as part of the Ground Lease tenant's
acquisition of an existing office building located in Washington, DC that is to
be converted into a multi-family building. We also committed to provide the
Ground Lease tenant a $10.5 million leasehold improvement allowance. As of
September 30, 2020, $4.0 million of this commitment had been funded and we
expect to fund the remaining commitment upon the completion of certain
conditions.
  In February 2020, we entered into an aggregate $37.0 million commitment to
acquire land for $10.0 million and provide a $27.0 million leasehold improvement
allowance for the Ground Lease tenant's construction of a multi-family property
in New Haven, Connecticut. As of September 30, 2020, $10.0 million of this
commitment was funded and we expect to fund the remaining commitment upon the
completion of certain conditions.

Results of Operations for the Three Months Ended September 30, 2020 compared to the Three Months Ended September 30, 2019

                                                               For the Three Months Ended
                                                                      September 30,

                                                                2020                  2019               $ Change

                                                                                (in thousands)

Operating lease income                                    $       17,195$   17,132$        63
Interest income from sales-type leases                            20,583               4,032               16,551
Other income                                                         222               1,146                 (924)
Total revenue                                                     38,000              22,310               15,690
Interest expense                                                  16,430               7,708                8,722
Real estate expense                                                  493                 625                 (132)
Depreciation and amortization                                      2,361               2,345                   16
General and administrative                                         5,302               3,096                2,206
Other expense                                                         34                 285                 (251)
Total costs and expenses                                          24,620              14,059               10,561
Loss on early extinguishment of debt                                   -              (2,011)               2,011
Earnings (losses) from equity method investments                     832                (759)               1,591
Net income                                                $       14,212$    5,481$     8,731


  Operating lease income increased slightly to $17.2 million during the three
months ended September 30, 2020 from $17.1 million for the same period in 2019.
The increase was primarily due to a full period of income for the three months
ended September 30, 2020 for Ground Leases acquired and classified as operating
leases during 2019 and 2020, partially offset by a decrease in percentage rent
for the three months ended September 30, 2020 compared to the three months ended
September 30, 2019.

Interest income from sales-type leases increased to $20.6 million for the three months ended September 30, 2020 from $4.0 million for the same period in 2019. The increase was primarily due to the origination of Ground Leases classified as sales-type leases.

  Other income for both the three months ended September 30, 2020 and 2019
includes $0.1 million of other income relating to a Ground Lease in which we are
the lessee but our tenant at the property pays this expense directly under the
terms of a master lease. In addition, during the three months ended September
30, 2019, we recognized $1.0 million of interest income earned on our cash
balances.

During the three months ended September 30, 2020 and 2019, we incurred interest expense from our secured financings of $16.4 million and $7.7 million, respectively. The increase in 2020 was primarily the result of additional borrowings to fund our growing investment portfolio.

  Real estate expense was $0.5 million and $0.6 million during the three months
ended September 30, 2020 and 2019, respectively, which consisted primarily of
the amortization of an operating lease right-of-use asset, property taxes and
insurance expense. In addition, during both the three months ended September 30,
2020 and 2019, we also recorded $0.1 million of real
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estate expense relating to a Ground Lease in which we are the lessee but our
tenant at the property pays this expense directly under the terms of a master
lease.
  Depreciation and amortization was $2.4 million and $2.3 million during the
three months ended September 30, 2020 and 2019, respectively, and primarily
relates to our ownership of the Park Hotels Portfolio and our ownership of the
Buckler multi-family property. The increase in 2020 was due primarily to an
increase in the amortization of in-place intangible assets resulting from new
acquisitions with in-place intangible assets.

  General and administrative expenses include management fees, stock-based
compensation, costs of operating as a public company and an allocation of
expenses to us from our Manager. The following table presents our general and
administrative expenses for the three months ended September 30, 2020 and 2019
($ in thousands):
                                                         For the Three Months Ended
                                                                September 30,
                                                              2020                  2019
   Management fees(1)                             $        3,234$ 1,920
   Public company and other costs                            629                      528
   Expense reimbursements to the Manager                   1,250                      515
   Stock-based compensation                                  189                      133
   Total general and administrative expenses      $        5,302$ 3,096

_______________________________________________________________________________

(1)Increase due to an increase in our equity.

  During the three months ended September 30, 2020, other expense consists
primarily of property appraisal fees, fees related to our derivative
transactions and state taxes. During the three months ended September 30, 2019,
other expense consists primarily of costs associated with new investments, fees
related to our derivative transactions and state taxes.

During the three months ended September 30, 2019, loss on early extinguishment of debt resulted from the refinancing of two mortgages on existing Ground Leases.


  During the three months ended September 30, 2020, earnings from equity method
investments resulted from our pro rata share of income from a venture that we
entered into with an existing shareholder that acquired the existing Ground
Lease at 425 Park Avenue in New York City in November 2019 (refer to Note 6).
During the three months ended September 30, 2019, losses from equity method
investments resulted from costs attributable to transaction structuring
activities for the venture.
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Results of Operations for the Nine Months Ended September 30, 2020 compared to the Nine Months Ended September 30, 2019

                                                               For the Nine Months Ended
                                                                     September 30,

                                                                2020                 2019              $ Change

                                                                               (in thousands)

Operating lease income                                    $      55,088$   54,844$      244
Interest income from sales-type leases                           59,315               6,834              52,481
Other income                                                      1,115               2,132              (1,017)
Total revenue                                                   115,518              63,810              51,708
Interest expense                                                 47,811              18,215              29,596
Real estate expense                                               1,828               2,082                (254)
Depreciation and amortization                                     7,064               7,031                  33
General and administrative                                       16,924              10,552               6,372
Other expense                                                       194                 600                (406)
Total costs and expenses                                         73,821              38,480              35,341
Loss on early extinguishment of debt                                  -              (2,011)              2,011
Earnings (losses) from equity method investments                  2,472                (759)              3,231
Net income                                                $      44,169$   22,560$   21,609


  Operating lease income increased slightly to $55.1 million during the nine
months ended September 30, 2020 from $54.8 million for the same period in 2019.
The increase was primarily due to a full period of income for the nine months
ended September 30, 2020 for Ground Leases acquired and classified as operating
leases during 2019 and new Ground Leases acquired during 2020, partially offset
by a decrease in percentage rent for the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019.

  Interest income from sales-type leases increased to $59.3 million for the nine
months ended September 30, 2020 from $6.8 million for the same period in 2019.
The increase was primarily due to the origination of Ground Leases classified as
sales-type leases.
  Other income for the nine months ended September 30, 2020 and 2019 includes
$0.2 million and $1.8 million, respectively, of interest income earned on our
cash balances. In addition, during both the nine months ended September 30, 2020
and 2019, we also recorded $0.3 million of other income relating to a Ground
Lease in which we are the lessee but our tenant at the property pays this
expense directly under the terms of a master lease.

During the nine months ended September 30, 2020 and 2019, we incurred interest expense from our secured financings of $47.8 million and $18.2 million, respectively. The increase in 2020 was primarily the result of additional borrowings to fund our growing investment portfolio.

  Real estate expense was $1.8 million and $2.1 million during the nine months
ended September 30, 2020 and 2019, respectively, which consisted primarily of
the amortization of an operating lease right-of-use asset, property appraisal
fees and insurance expense. In addition, during both the nine months ended
September 30, 2020 and 2019, we also recorded $0.3 million of real estate
expense relating to a Ground Lease in which we are the lessee but our tenant at
the property pays this expense directly under the terms of a master lease.
  Depreciation and amortization was $7.1 million and $7.0 million during the
nine months ended September 30, 2020 and 2019, respectively, and primarily
relates to our ownership of the Park Hotels Portfolio and our ownership of the
Buckler multi-family property. The increase in 2020 was due primarily to an
increase in the amortization of in-place intangible assets resulting from new
acquisitions with in-place intangible assets.

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  General and administrative expenses include management fees, stock-based
compensation, costs of operating as a public company and an allocation of
expenses to us from our Manager. The following table presents our general and
administrative expenses for the nine months ended September 30, 2020 and 2019 ($
in thousands):
                                                         For the Nine Months Ended
                                                               September 30,
                                                             2020                 2019
    Management fees(1)                             $       9,283$  4,971
    Public company and other costs                         2,336                  2,544
    Expense reimbursements to the Manager                  3,750                  1,587
    Stock-based compensation                               1,555                  1,450
    Total general and administrative expenses      $      16,924$ 10,552

_______________________________________________________________________________

(1)Increase due to an increase in our equity.

  During the nine months ended September 30, 2020, other expense consists
primarily of property appraisal fees, fees related to our derivative
transactions and state taxes. During the nine months ended September 30, 2019,
other expense consists primarily of costs associated with new investments, fees
related to our derivative transactions and state taxes.

During the nine months ended September 30, 2019, loss on early extinguishment of debt resulted from the refinancing of two mortgages on existing Ground Leases.


  During the nine months ended September 30, 2020, earnings from equity method
investments resulted from our pro rata share of income from a venture that we
entered into with an existing shareholder that acquired the existing ground
lease at 425 Park Avenue in New York City in November 2019 (refer to Note 6).
During the nine months ended September 30, 2019, losses from equity method
investments resulted from costs attributable to transaction structuring
activities for the venture.
Liquidity and Capital Resources

  Liquidity is a measure of our ability to meet potential cash requirements,
including to pay interest and repay borrowings, fund and maintain our assets and
operations, complete acquisitions and originations of investments, make
distributions to our shareholders and meet other general business needs. In
order to qualify as a REIT, we are required under the Internal Revenue Code of
1986 to distribute to our shareholders, on an annual basis, at least 90% of our
REIT taxable income, determined without regard to the deduction for dividends
paid and excluding net capital gains. We expect to make quarterly cash
distributions to our shareholders sufficient to meet REIT qualification
requirements.

  In October 2020, we added a lender to our Revolver bringing total capacity to
$557.5 million. As of the date of this report, we had approximately $24 million
of unrestricted cash, $518 million of undrawn capacity and the ability to borrow
an additional $215 million on our Revolver, subject to the conditions set forth
in the applicable loan agreement (refer to Note 8 for more information on our
Revolver), without pledging any additional assets to the facility. We refer to
this $239 million of unrestricted cash and additional borrowing capacity as our
"equity" liquidity which can be used for general corporate purposes or leveraged
(a maximum of 2:1 in the case of our Revolver) to acquire new Ground Lease
assets. Our primary sources of cash to date have been proceeds from equity
offerings and private placements (refer to Note 11), proceeds from our initial
capitalization by iStar and two institutional investors (refer to Note 11) and
borrowings from our debt facilities. Our primary uses of cash to date have been
the acquisition/origination of Ground Leases, repayments on our debt facilities
and distributions to our shareholders.

  We expect our future liquidity requirements to include debt service,
distributions to our shareholders, working capital, acquisitions and
originations of Ground Lease investments, including in respect of the unfunded
commitments described above, debt maturities and payments of fees under our
management agreement to the extent we do not elect to pay the fees in common
stock. Our primary sources of liquidity going forward will generally consist of
cash on hand and cash flows from operations, new financings, unused borrowing
capacity under our Revolver (subject to the conditions set forth in the
applicable loan agreement) and common and/or preferred equity issuances.

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Contractual Obligations-The following table outlines the contractual obligations
related to our long-term debt obligations and certain other commitments as of
September 30, 2020 (refer to Note 8 and Note 9 to the consolidated financial
statements).
                                                                                    Amounts Due By Period

                                                            Less Than 1           1 - 3              3 - 5              5 - 10             After 10
                                           Total                Year              Years              Years              Years               Years

                                                                                       (in thousands)

Long-Term Debt Obligations:(1)

Mortgages                              $ 1,498,113          $       -          $       -          $       -          $ 316,193$ 1,181,920

Total principal maturities               1,498,113                  -                  -                  -            316,193            1,181,920
Interest Payable                         2,047,943             48,599             98,907            102,283            228,404            1,569,750
Purchase Commitments(2)                     33,483             27,000              6,483                  -                  -                    -
Total(3)                               $ 3,579,539$  75,599$ 105,390$ 102,283$ 544,597$ 2,751,670

_______________________________________________________________________________

(1)Assumes the extended final maturity date for all debt obligations.
(2)Refer to Note 9 of the consolidated financial statements.
(3)We are also obligated to pay the third-party owner of a property that is
ground leased to us $0.4 million, subject to adjustment for changes in the CPI,
per year through 2044; however, our tenant pays this expense directly under the
terms of a master lease through 2035.

Off-Balance Sheet Arrangements-We are not dependent on the use of any
off-balance sheet financing arrangements for liquidity.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and judgments in certain circumstances that affect
amounts reported as assets, liabilities, revenues and expenses. We have
established detailed policies and control procedures intended to ensure that
valuation methods, including any judgments made as part of such methods, are
well controlled, reviewed and applied consistently from period to period. We
base our estimates on historical corporate and industry experience and various
other assumptions that we believe to be appropriate under the circumstances. For
all of these estimates, we caution that future events rarely develop exactly as
forecasted, and, therefore, routinely require adjustment.
For a discussion of our critical accounting policies, refer to Note 3 to the
consolidated financial statements and our 2019 Annual Report on Form 10-K.

New Accounting Pronouncements-For a discussion of the impact of new accounting
pronouncements on our financial condition or results of operations, refer to
Note 3 to the consolidated financial statements.
                                       34

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