SAFEHOLD INC. 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 this Form 10-Q and our Annual Report on Form 10-K, 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.
Executive Overview
The coronavirus (COVID-19) pandemic has continued to impact theU.S. and global economies. TheU.S. financial markets have experienced disruption and constrained credit conditions within certain sectors, including real estate. We and our Manager continue to be 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 and implementing appropriate cost containment measures. Although more normalized activities have resumed, at this time we cannot predict the full extent of the impacts of the COVID-19 pandemic on our business and the COVID-19 pandemic could have a delayed adverse impact on our financial results. We will continue to monitor its effects on a daily basis and will adjust our operations as necessary. As ofJune 30, 2021 , the percentage breakdown of the gross book value of our portfolio was 54% office, 28% multi-family, 17% hotels and 1% other. The COVID-19 pandemic hit the hotel sector, including the hotel properties in our portfolio, particularly hard. In addition to base rent, we are entitled to receive percentage rents under certain of our hotel Ground Leases, based on hotel revenues, and for the year endedDecember 31, 2020 , percentage rents constituted approximately 2.5% of our total revenue. During 2020, operations at all of the hotel properties in our portfolio were substantially reduced. Our financial results for the six months endedJune 30, 2021 were adversely impacted by the COVID-19 pandemic due to a decline in percentage rent revenues under our Park Hotels Portfolio in respect of 2020 hotel operating performance. Despite the decrease in percentage rent revenues, which may continue in subsequent quarters, we have received 100% of the Ground Lease rent due under our Ground Leases throughJune 30, 2021 . However, there is no guarantee that we will not experience disruptions in the payment of future rents by our hotel or other tenants, which would adversely impact our cash flows from operations, and any such impact could be material. We saw an increase in new investment activity in the second quarter 2021 versus the first quarter 2021, but continue to experience some effect from the COVID-19 pandemic on 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, although more normalized activities have resumed, the pandemic has made it more difficult to execute transactions as people work from home and are reluctant to visit properties, local governmental offices have reduced operations and third parties such as survey, insurance, environmental and similar 24
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services have more limited capacities. These conditions will adversely affect our growth prospects while they persist. See the Risk Factors section of our 2020 Annual Report on Form 10-K for additional discussion of certain potential risks to our business arising from the COVID 19 pandemic.
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
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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 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 our estimated aggregate Combined Property Value, based on estimates by the valuation firm and by management.
The table below shows the current estimated UCA in our owned residual portfolio
as of
June 30, 2021 December 31, 2020
Combined Property Value(2) $ 9,480 $ 8,637
Ground Lease Cost(2) 3,483 3,177
Unrealized Capital Appreciation in Our Owned Residual
Portfolio 5,997
5,460
Please review our Current Report on Form 8-K filed on July 22, 2021 for adiscussion of the valuation methodology used and important limitations and
qualifications of the calculation of UCA. See "Risk Factors-Certain tenant (1) rights under our Ground Leases may limit the value and the UCA we are able to
realize upon lease expiration, sale of our land and Ground Leases or other
events" in our Annual Report on Form 10-K for a discussion of certain tenant
rights and other terms of the leases that may limit our ability to realize
value from the UCA.
Combined Property Value includes our applicable percentage interests in our
unconsolidated ventures and
transactions with remaining unfunded commitments as of
percentage interests in our unconsolidated ventures and
2020, respectively. As of
of combined property value was 40%.
We formed a wholly-owned subsidiary called "CARET" that is structured to track and capture UCA to the extent UCA is realized upon expiration of our Ground Leases, sales of our land and Ground Leases or certain other specified events. Under a shareholder-approved plan, management was granted up to 15% of CARET units, which remain subject to time-based vesting. 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. 26 Table of Contents 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 ofJune 30, 2021 , our estimated portfolio Ground Rent Coverage was 3.3x (see the "Risk Factors -Our estimated UCA, Combined Property Value and Ground Rent Coverage, may not reflect the full potential impact of the COVID-19 pandemic and may decline materially in future periods, -We rely on Property NOI as reported to us by our tenants, -Our estimates of Ground Rent Coverage for properties in development or transition, or for which we do not receive current tenant financial information, may prove to be incorrect" in our Annual Report on Form 10-K for a discussion of our estimated Ground Rent Coverage).
Below is an overview of the top 10 assets in our portfolio as of
Lease
Property Expiration / Rent Escalation % of Gross
Property Name Type Location As Extended Structure Book Value
425 Park Avenue(2) Office New York, NY 2090 / 2090 Fixed with Inflation Adjustments 9.9 %
135 West 50th Street Office New York, NY 2123 / 2123 Fixed with Inflation Adjustments 8.4 %
195 Broadway Office New York, NY 2118 / 2118 Fixed with Inflation Adjustments 8.1 %
Park Hotels Portfolio(3) Hotel Various 2025 / 2035 % Rent 6.3 %
Alohilani Hotel Honolulu, HI 2118 / 2118 Fixed with Inflation Adjustments 5.8 %
685 Third Avenue Office New York, NY 2123 / 2123 Fixed with Inflation Adjustments 5.3 %
1111 Pennsylvania Avenue Office Washington, DC 2117 / 2117 Fixed with Inflation Adjustments 4.3 % 32 Old Slip(2) Office New York, NY 2114 / 2164 Fixed Bumps 2.6 % Domain Tower Office Austin, TX 2118 / 2118 Fixed with Inflation Adjustments 2.3 % Anderson Drive Multi-family Fairfax, VA 2082 / 2082 Fixed with Inflation Adjustments 2.2 %
(1) Gross book value represents the historical purchase price plus accrued
interest on sales-type leases.
(2) Gross book value for these properties represents our pro rata share of the
gross book value of our unconsolidated ventures (refer to Note 6).
The Park Hotels Portfolio consists of five properties and is subject to asingle master lease. A majority of the land underlying one of these (3) 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 41 %
West 22
Mid Atlantic 17
Southeast 10
Southwest 7
Central 3
% of Gross
Property Type Book Value
Office 54 %
Multifamily 28
Hotel 17
Other 1
Unfunded Commitments
In June 2021 , we acquired from iStar a purchase option agreement for $1.2
million , which amount was equal to the deposit previously made by iStar under
such option agreement, plus assumption of iStar's out of pocket costs and
expenses in connection with entering into such option agreement. Under the
option agreement, we have the right to acquire for $215.0 million a property
that is under a separate option for the benefit of a third party, whereby such
third party has
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the right to enter into a Ground Lease and develop approximately 1.1 million
square feet of office space. There can be no assurance that we will exercise our
option to acquire the property.
In June 2021 , we entered into an aggregate $17.0 million commitment to acquire
land for $5.2 million and provide a $11.8 million leasehold improvement
allowance for the Ground Lease tenant's development of a multi-family property.
As of June 30, 2021 , we had acquired the land and expect to fund the remaining
commitment upon the completion of certain conditions.
In June 2021 , we entered into two agreements pursuant to each of which we would
acquire land and a related Ground Lease originated by iStar when certain
construction related conditions are met by a specified time period. The purchase
price to be paid for each is $42.0 million , plus an amount necessary for iStar
to achieve the greater of a 1.25x multiple and a 9% return on its investment. In
addition, each Ground Lease provides for a leasehold improvement allowance up to
a maximum of $83.0 million , which obligation would be assumed by us upon
acquisition. If certain construction conditions are not met within a specified
time period, we will have no obligation to acquire the Ground Leases or fund the
leasehold improvement allowances. There can be no assurance that the conditions
to closing will be satisfied and that we will acquire the properties and Ground
Leases from iStar.
In March 2021 , we entered into an agreement pursuant to which, subject to
certain conditions being met, we would acquire 100% of the limited liability
company interests in the owner of a fee estate subject to a Ground Lease on
which a multi-family project is currently being constructed. As consideration
for the transfer, we will acquire the ground lessor from iStar for approximately
$16.1 million plus any additional amounts funded by iStar pursuant to the Ground
Lease documents prior to the transfer. The Ground Lease documents provide for
future funding obligations of approximately $11.9 million of deferred purchase
price and $52.0 million of leasehold improvement allowance upon achievement of
certain milestones.
In January 2021 , we entered into an aggregate $36.0 million commitment to
acquire land for $18.0 million and provide a $18.0 million leasehold improvement
allowance for the Ground Lease tenant's conversion of an office property into a
multi-family property. As of June 30, 2021 , we had acquired the land and funded
$7.5 million of the leasehold improvement allowance. 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
June 30,
2021 2020 $ Change
(in thousands)
Operating lease income $ 16,964 $ 17,113 $ (149) Interest income from sales-type leases 27,126
19,831 7,295
Other income 123 409 (286)
Total revenues 44,213 37,353 6,860
Interest expense 19,160 16,233 2,927
Real estate expense 722 536 186
Depreciation and amortization 2,385 2,355 30
General and administrative 8,074 6,369 1,705
Other expense 21 120 (99)
Total costs and expenses 30,362 25,613 4,749Loss on early extinguishment of debt - - - Earnings from equity method investments 929
822 107
Net income $ 14,780 $ 12,562 $ 2,218
Operating lease income decreased to $17.0 million during the three months ended
June 30, 2021 from $17.1 million for the same period in 2020. The decrease was
due primarily to the reversal of accrued operating lease income
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from a non-Ground Leased retail tenant that we do not expect to collect,
partially offset by new Ground Leases acquired and classified as operating
leases since
Interest income from sales-type leases increased to$27.1 million for the three months endedJune 30, 2021 from$19.8 million for the same period in 2020. The increase was due primarily to the origination of Ground Leases classified as sales-type leases sinceJuly 1, 2020 . Other income for both the three months endedJune 30, 2021 and 2020 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 endedJune 30, 2020 , we recognized$0.1 million of interest income earned on our cash balances.
During the three months ended
Real estate expense was$0.7 million and$0.5 million during the three months endedJune 30, 2021 and 2020, respectively, which consisted primarily of the amortization of an operating lease right-of-use asset, legal fees, property taxes and insurance expense. In addition, during both the three months endedJune 30, 2021 and 2020, we also recorded$0.1 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. The increase in 2021 was primarily the result of an increase in legal fees at certain of our properties.
Depreciation and amortization was
General and administrative expenses include management fees, stock-based
compensation (primarily to our independent directors), 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
For the Three Months Ended
June 30,
2021 2020
Management fees(1) $ 3,524 $ 3,190
Public company and other costs 1,460 709
Expense reimbursements to the Manager(1) 1,875
1,250
Stock-based compensation(2) 1,215
1,220
Total general and administrative expenses
(1) Refer to Note 13.
During the three months ended
to our independent directors.
During the three months endedJune 30, 2021 , other expense consists primarily of fees related to unsuccessful pursuit costs and fees related to our derivative transactions. During the three months endedJune 30, 2020 , other expense consists primarily of property appraisal fees. During the three months endedJune 30, 2021 , earnings from equity method investments resulted from our$0.8 million 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) and our$0.1 million pro rata share of income from an equity interest in a Ground Lease we acquired inJune 2021 (refer to Note 6). During the three months endedJune 30, 2020 , earnings from equity method investments resulted from our pro rata share of income from the venture that we entered
into inNovember 2019 . 29 Table of Contents
Results of Operations for the Six Months Ended
For the Six Months Ended
June 30,
2021 2020 $ Change
(in thousands)
Operating lease income $ 34,374 $ 37,893 $ (3,519) Interest income from sales-type leases 53,100 38,732
14,368
Other income 246 893 (647)
Total revenues 87,720 77,518 10,202
Interest expense 36,327 31,381 4,946
Real estate expense 1,319 1,335 (16)
Depreciation and amortization 4,770 4,702 68
General and administrative 14,729 11,622 3,107
Other expense 391 160 231
Total costs and expenses 57,536 49,200 8,336Loss on early extinguishment of debt (216) -
(216)
Earnings from equity method investments 1,768 1,640
128
Net income $ 31,736 $ 29,958 $ 1,778
Operating lease income decreased to $34.4 million during the six months ended
June 30, 2021 from $37.9 million for the same period in 2020. The decrease was
due primarily to a decrease in percentage rent from our Park Hotels Portfolio
resulting from a decline in 2020 hotel operating performance due to the COVID-19
pandemic.
Interest income from sales-type leases increased to $53.1 million for the
six months ended June 30, 2021 from $38.7 million for the same period in 2020.
The increase was due primarily to the origination of Ground Leases classified as
sales-type leases.
Other income for both the six months ended June 30, 2021 and 2020 includes
$0.2 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 six months ended June 30, 2020 , we
recognized $0.2 million of interest income earned on our cash balances.
During the six months ended June 30, 2021 and 2020, we incurred interest expense
from our secured financings of $36.3 million and $31.4 million , respectively.
The increase in 2021 was primarily the result of additional borrowings to fund
our growing portfolio of Ground Leases.
Real estate expense was $1.3 million and $1.3 million during the six months
ended June 30, 2021 and 2020, respectively, which consisted primarily of the
amortization of an operating lease right-of-use asset, legal fees, property
taxes and insurance expense. In addition, during both the six months ended June
30, 2021 and 2020, we also recorded $0.2 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 $4.8 million and $4.7 million during the
six months ended June 30, 2021 and 2020, respectively, and primarily relates to
our ownership of the Park Hotels Portfolio and our ownership of the Buckler
multi-family property. The slight increase in 2021 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 (primarily to our independent directors), 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
six months ended
For the Six Months Ended
June 30,
2021 2020
Management fees(1) $ 6,996 $ 6,049 Public company and other costs 2,584 1,707 Expense reimbursements to the Manager(1) 3,750 2,500 Stock-based compensation(2) 1,399 1,366 Total general and administrative expenses$ 14,729 $ 11,622
(1) Refer to Note 13.
During the six months ended
to our independent directors.
During the six months endedJune 30, 2021 , other expense consists primarily of fees related to public company filings. During the six months endedJune 30, 2020 , other expense consists primarily of property appraisal fees. During the six months endedJune 30, 2021 , loss on early extinguishment of debt resulted from the replacement of our secured revolving credit facility with our new Unsecured Revolver (refer to Note 8). During the six months endedJune 30, 2021 , earnings from equity method investments resulted from our$1.7 million 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) and our$0.1 million pro rata share of income from an equity interest in a Ground Lease we acquired inJune 2021 (refer to Note 6). During the six months endedJune 30, 2020 , earnings from equity method investments resulted from our pro rata share of income from the venture that we entered into inNovember 2019 .
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 the first quarter 2021, we received investment-grade credit ratings from Moody's Investors Services of Baa1 and Fitch Ratings of BBB+ and entered into a new unsecured revolver (refer to Note 8) with a total capacity of$1.0 billion (the "Unsecured Revolver"). In the second quarter 2021, we issued$400 million aggregate principal amount of 2.80% senior notes due 2031 (the "Notes"). The Notes were issued at 99.127% of par. As evidenced by our Unsecured Revolver and the Notes, we believe the strong credit profile we have established utilizing our modern Ground Leases and our investment grade credit ratings will further accelerate our ability to bring commercial real estate owners, developers and sponsors more efficiently priced capital. Our Unsecured Revolver replaced our secured revolving credit facility. With its increased size of total capacity of$1.0 billion (which can be increased to$1.35 billion with the obtainment of additional lender commitments) and reduced cost, our new Unsecured Revolver allows us significant operational and financial flexibility and supports our ability to scale our Ground Lease platform. We also believe our Unsecured Revolver marked a strong first step towards our goal of unlocking opportunities from the unsecured capital markets to deliver lower cost, more efficient capital to our customers. 31
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In the first quarter 2021, we entered into an at-the-market equity offering (the
"ATM") pursuant to which we may sell shares of our common stock up to an
aggregate purchase price of
As ofJune 30, 2021 , our liquidity position included$33.9 million of unrestricted cash and$965 million of undrawn capacity on our Unsecured Revolver. We refer to the combined$999 million of unrestricted cash and additional borrowing capacity on our Unsecured Revolver as our "equity" liquidity which can be used for general corporate purposes or leveraged to acquire new Ground Lease assets. Our primary sources of cash to date have been proceeds from equity offerings and private placements, proceeds from our initial capitalization by iStar and two institutional investors 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. During the six months endedJune 30, 2020 , we recognized$3.6 million of percentage rent revenues from our Park Hotels Portfolio in respect of 2019 hotel operating performance. During the six months endedJune 30, 2021 , we did not recognize any percentage rent revenues from our Park Hotels Portfolio in respect of 2020 hotel operating performance impacted by the COVID-19 pandemic. Any decrease in percentage rent revenues, 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. We expect our future liquidity requirements over the next 12 months and beyond to include debt service, distributions to our shareholders, working capital, acquisitions and originations of Ground Lease investments (including in respect of unfunded commitments), 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 Unsecured Revolver (subject to the conditions set forth in the applicable loan agreement) and common and/or preferred equity issuances. We expect that we will be able to meet our liquidity requirements over the next 12 months and beyond.
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 2020 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.
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