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 toSafehold 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 endedSeptember 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 throughSeptember 30, 2020 . This includes the payment of the annual percentage rent under thePark 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 ofSeptember 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 endedSeptember 30, 2020 and the year endedDecember 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. InMarch 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 26 -------------------------------------------------------------------------------- Table of Contents 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 27 -------------------------------------------------------------------------------- Table of Contents 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 ofSeptember 30, 2020 andDecember 31, 2019 ($ in millions). The estimated UCA as ofSeptember 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 onOctober 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 ofSeptember 30, 2020 andDecember 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 ofSeptember 30, 2020 andDecember 31, 2019 , respectively. As ofSeptember 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 theU.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 ofSeptember 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). 28
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Below is an overview of the top 10 assets in our portfolio as of
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
% of Gross Region Book Value Northeast 45 % West 23 MidAtlantic 13 Southwest 8 Southeast 8 Central 3 % of Gross Property Type Book Value Office 61 % Hotel 19 Multifamily 19 Other 1 29
-------------------------------------------------------------------------------- Table of Contents Unfunded Commitments InJanuary 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 inWashington, 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 ofSeptember 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. InFebruary 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 inNew Haven, Connecticut . As ofSeptember 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
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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 .
Interest income from sales-type leases increased to
Other income for both the three months endedSeptember 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 endedSeptember 30, 2019 , we recognized$1.0 million of interest income earned on our cash balances.
During the three months ended
Real estate expense was$0.5 million and$0.6 million during the three months endedSeptember 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 endedSeptember 30, 2020 and 2019, we also recorded$0.1 million of real 30 -------------------------------------------------------------------------------- Table of Contents 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$2.3 million during the three months endedSeptember 30, 2020 and 2019, respectively, and primarily relates to our ownership of the Park Hotels Portfolio and our ownership of the Buckler multi-family property. The increase in 2020 was due primarily to an increase in the amortization of in-place intangible assets resulting from new acquisitions with in-place intangible assets. General and administrative expenses include management fees, stock-based compensation, costs of operating as a public company and an allocation of expenses to us from our Manager. The following table presents our general and administrative expenses for the three months endedSeptember 30, 2020 and 2019 ($ 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
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(1)Increase due to an increase in our equity.
During the three months endedSeptember 30, 2020 , other expense consists primarily of property appraisal fees, fees related to our derivative transactions and state taxes. During the three months endedSeptember 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
During the three months endedSeptember 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 at425 Park Avenue inNew York City inNovember 2019 (refer to Note 6). During the three months endedSeptember 30, 2019 , losses from equity method investments resulted from costs attributable to transaction structuring activities for the venture. 31
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Results of Operations for the Nine Months Ended
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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . Interest income from sales-type leases increased to$59.3 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 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
Real estate expense was$1.8 million and$2.1 million during the nine months endedSeptember 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 endedSeptember 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$7.0 million during the nine months endedSeptember 30, 2020 and 2019, respectively, and primarily relates to our ownership of the Park Hotels Portfolio and our ownership of the Buckler multi-family property. The increase in 2020 was due primarily to an increase in the amortization of in-place intangible assets resulting from new acquisitions with in-place intangible assets. 32
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General and administrative expenses include management fees, stock-based compensation, costs of operating as a public company and an allocation of expenses to us from our Manager. The following table presents our general and administrative expenses for the nine months endedSeptember 30, 2020 and 2019 ($ 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
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(1)Increase due to an increase in our equity.
During the nine months endedSeptember 30, 2020 , other expense consists primarily of property appraisal fees, fees related to our derivative transactions and state taxes. During the nine months endedSeptember 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
During the nine months endedSeptember 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 at425 Park Avenue inNew York City inNovember 2019 (refer to Note 6). During the nine months endedSeptember 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. InOctober 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$239 million of unrestricted cash and additional borrowing capacity as our "equity" liquidity which can be used for general corporate purposes or leveraged (a maximum of 2:1 in the case of our Revolver) to acquire new Ground Lease assets. Our primary sources of cash to date have been proceeds from equity offerings and private placements (refer to Note 11), proceeds from our initial capitalization by iStar and two institutional investors (refer to Note 11) and borrowings from our debt facilities. Our primary uses of cash to date have been the acquisition/origination of Ground Leases, repayments on our debt facilities and distributions to our shareholders. We expect our future liquidity requirements to include debt service, distributions to our shareholders, working capital, acquisitions and originations of Ground Lease investments, including in respect of the unfunded commitments described above, debt maturities and payments of fees under our management agreement to the extent we do not elect to pay the fees in common stock. Our primary sources of liquidity going forward will generally consist of cash on hand and cash flows from operations, new financings, unused borrowing capacity under our Revolver (subject to the conditions set forth in the applicable loan agreement) and common and/or preferred equity issuances. 33 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations-The following table outlines the contractual obligations related to our long-term debt obligations and certain other commitments as ofSeptember 30, 2020 (refer to Note 8 and Note 9 to the consolidated financial statements). Amounts Due By Period Less Than 1 1 - 3 3 - 5 5 - 10 After 10 Total Year Years Years Years Years (in thousands)
Long-Term Debt Obligations:(1)
Mortgages$ 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
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(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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