Safehold Inc. New · NYSE:SAFE
Safehold Inc. New — Safety, Income & Growth — Investor Presentation (March 2018)
52 slides from Safehold Inc. New's investor presentation, March 2018
Slide 1: Safety, Income & Growth Inc. Corporate Presentation
Safety, Income & Growth Inc. The Ground Lease Company Corporate Presentation March 2018 (NYSE: SAFE)
Slide 2: Forward-Looking Statements and Other Matters
Forward-Looking Statements and Other Matters This release may contain forward-looking statements. All statements other than statements of historical fact are forward-looking statements. These forward-looking statements can be identified by the use of words such as “illustrative”, “representative”, “
Slide 3: Corporate Snapshot
Corporate Snapshot NYSE Ticker SAFE PV of Portfolio Rent(1) $667MM Share Price (3/2/2018) $16.96 Value Bank(2) $989MM Book Value / Share $20.00 Market Cap $309MM Dividend Yield (3/2/2018) 3.5% Total Assets $675MM Total Liabilities $315MM Total Equity $330MM Note: As of 12/31/17 unless otherwise note
Slide 4: Overview of Opportunity
Overview of Opportunity First and only publicly-traded company to focus on ground lease (“GL”) investments GLs generate attractive risk-adjusted returns, combining safety, growing inflation protected income and the potential for significant capital appreciation Opportunity to reinvent industry
Slide 5: Company Overview
Company Overview Safety, Income & Growth Inc. The Ground Lease Company 4
Slide 6: What is a Ground Lease?
What is a Ground Lease? A ground lease, or GL, is the safest part of the commercial real estate capital structure. It generally represents ownership of the land underlying a commercial real estate property. The land is net leased on a long-term basis by the Landlord (SAFE) to a Tenant that owns and
Slide 7: Typical GL Lease Terms
Typical GL Lease Terms Lease Term Base term up to 99 years plus renewal options Contractual Rent Escalators Fixed bumps, CPI-based increases, or revenue participations Property Expenses No Landlord obligations Capital Expenditures No Landlord obligations Tenant Repair Tenant obligated to maintain th
Slide 8: Reinventing GLs for Today’s Market
Reinventing GLs for Today’s Market While debt products have become increasingly sophisticated and tranched to price more efficiently, GLs have been overlooked and GL structures have remained substantially unchanged SAFE’s custom-tailored ground leases provide an attractive way for real estate in
Slide 9: Evolution of Real Estate Finance
Evolution of Real Estate Finance Management team has been a leader in bringing innovations to commercial real estate finance over the past 25 years, including securitizations and mezzanine debt Equity Equity Debt Products Equity Equity Equity Pref Equity Mezzanine Mezzanine Mezzanine B-Note B-Note
Slide 10: iStar’s History of Inventive Investment Ideas
iStar’s History of Inventive Investment Ideas Starwood Mezzanine, LP (1998) Mezzanine Capital (1993) Auto Dealerships (2004) Ground Leases Data centers post dot- (2017) com crash (2002) 1990 1995 2000 2005 2010 2015 Current Hotels post 9/11 Net Lease (2001) (1999) Movie Theaters Timber (2004) (2006)
Slide 11: GLs Represent a Senior Position in the Capital Structure
Safety: GLs Represent a Senior Position in the Capital Structure Asset Comparison Fee Simple Ownership Highest Risk Tenant 37.5% - 100% of CPV (1) 100% of CPV (1) (Last Dollar Exposure) Ground Lease When compared to fee simple 37.5% of CPV(1)(2) ownership of real estate, GLs (Last Dollar Exposure) o
Slide 12: GL Cash Flow Represents a Senior Priority Position
Safety: GL Cash Flow Represents a Senior Priority Position Highest Illustrative P&L Statement for Hypothetical Priority Commercial Real Estate Asset Under a Ground Lease Property Level Revenue $100 Property Level Expenses: Real Estate Taxes ($5) Utilities (10) Ground rent paid to SAFE occupies a Gro
Slide 13: GLs Generate Growing Income
Income Growth: GLs Generate Growing Income Contractual rent increases create organic, long-term compounding cash flows Ground Rent Growth Assuming 2.0% Annual Rent Escalations $696 50% $700 $583 $600 Ground Rent 40% Rent Yield $478 $500 30% $392 27.9% $400 $322 23.3% $264 19.1% $300 20% $216 15.7% $
Slide 14: GLs Offer Inflation Protection
Income Growth: GLs Offer Inflation Protection Ground leases produce a cash-on-cash growing Adding fixed rate leverage amplifies the bumps income stream versus similar risk fixed debt 11% 11% 10% 10% 9.2% 8.8% 9% 9% 8.5% AAA CMBS Levered AAA 8.2% CMBS 7.9% 420 bps 8% 8% 7.6% (+83%) Ground Rent Levere
Slide 15: Value Bank of $989MM or $54 per Share
Capital Appreciation: Value Bank of $989MM or $54 per Share At the end of the lease, the building returns to SAFE, creating additional potential value to stockholders Value Bank is calculated as today’s estimated Combined Property Value $989MM (CPV) less SAFE’s Ground Lease Basis(1) Estimated Va
Slide 16: GLs Offer Inflation Protection
Capital Appreciation: GLs Offer Inflation Protection In conjunction with income streams, inflation has a magnifying effect on Value Bank which can create significant additional upside With 2% Inflation With 3% Inflation $426MM CPV Ground Lease Basis Value Bank Potential $317MM CPV $264MM CPV $236MM
Slide 17: The Relative Value
The Relative Value Safety, Income & Growth Inc. The Ground Lease Company 16
Slide 18: GLs Offer Attractive Risk-Adjusted Returns: Relative to First Mortgage Debt
GLs Offer Attractive Risk-Adjusted Returns Relative to First Mortgage Debt Fee Simple First GL Structure Mortgage Financing Equity Equity Leasehold Mortgage First Mortgage Ground Lease (SAFE) Investment Scorecard: Attractive Current Rate Inflation Mitigation High Grade Debt Risk Profile
Slide 19: GLs Offer Attractive Risk-Adjusted Returns: Relative to AAA CMBS
GLs Offer Attractive Risk-Adjusted Returns Relative to AAA CMBS Single Asset GL Structure CMBS Equity Equity N/R B Leasehold Mortgage BB BBB A AA Ground Lease (SAFE) AAA Investment Scorecard: Attractive Current Rate Inflation Mitigation High Grade Debt Risk Profile Residual Upside Sa
Slide 20: The Market
The Market Safety, Income & Growth Inc. The Ground Lease Company 19
Slide 21: Business and Growth Strategies
Business and Growth Strategies The GL market is fragmented and comprised of limited participants Potential for further growth by expanding the use of the GL structure across the $7.0T U.S. CRE market ~$7.0 Trillion Value of U.S. Institutional Quality Commercial Real Estate Market ~$2.6 Trillion
Slide 22: Origination Methods
Origination Methods 1. Acquisition Purchase existing ground lease in whole or in part. 2. Manufacture Create ground lease upon clients’ acquisition, recapitalization, or partner buyout. 3. Development Create ground lease at commencement of construction based on improved land value. 4. Bifurcate SAFE
Slide 23: Disciplined Investment Criteria
Disciplined Investment Criteria We generally intend to target GLs that meet some or all of the following investment criteria: Investment Size $20MM - $250MM (with the ability to execute larger deals) Locations High-barriers-to-entry major metropolitan areas Cap Rate First-year rent yields of 3.0% -
Slide 24: Onyx on First
Onyx on First 1100 First St. SE – Washington, D.C. Date Closed 1/25/18 A luxury 14-story multi-family property containing 266 units in Washington, D.C. The property, constructed in 2008, is well- Asset Description located in the Navy Yard neighborhood, one block from the Navy Yard metro station and
Slide 25: How a SAFE Ground Lease Maximizes Returns
How a SAFE Ground Lease™ Maximizes Returns The Power of a SAFE Ground Lease™ Before With a SAFE Ground Lease ™ Property Fee Simple Cap Stack $100.0M Leasehold Cap Stack $65.0M $25.0M Equity $5.25M NOI $16.9M Equity 5.25% Cap Rate $100.0M Value $75.0M Agency Loan (75% LTV) $48.1M Agency Loan (74% LTV
Slide 26: The Portfolio
The Portfolio Safety, Income & Growth Inc. The Ground Lease Company 25
Slide 27: Asset Summary
Asset Summary Location Lease Expiration / Rent Escalation Ground Rent Property (MSA) Property Type As Extended Structure Coverage 6201 Hollywood (North) Los Angeles, CA Multi-Family 2104 / 2104 % of CPI >6.0x(2) 6200 Hollywood (South) Los Angeles, CA Multi-Family 2104 / 2104 % of CPI >5.4x(2) Double
Slide 28: Geographic Diversification by MSA
Geographic Diversification by MSA Seattle 18.3% Detroit Minneapolis 0.4% 14.6% Salt Lake City 1.6% San Francisco Milwaukee 4.4% 11.3% Washington 1.9% 4.1% Atlanta San Diego Durango 28.6% 6.5% 5.6% 2.8% Los Angeles Dallas Note: Percentages based on total Ground Lease Basis of $497 million. Safety, In
Slide 29: Portfolio Stratification
Portfolio Stratification 20-60 yrs Industrial 1% 1% Office 22% Hospitality <20 yrs >60 yrs 47% 50% Lease Term 49% Property Type Remaining(2) Fixed 26% Multi-Family 30% Percentage Rent Escalator / Rent 2.0-3.0x 46% 2% % Rent(1) 4.0-5.0x 50-60% 2% <30% 29% CPI 33% 28% Property NOI to Basis as % 5.0x+
Slide 30: Portfolio Breakdown
Portfolio Breakdown Rent Statistics Annualized Base Rent $20.2MM Prior Year % rent $3.2MM Total cash rent $23.4MM Total GAAP rent (including TTM % rent) $29.5MM Total cash rent as % of total ground leases 4.7% Total GAAP rent as % of total ground leases 5.9% W.A. Fixed Rent Escalations 1.6% Ground L
Slide 31: Pipeline (as of Feb 13)
Pipeline (as of Feb 13) San Francisco Orlando $962MM Pipeline (24 Deals) Phoenix 6% 4% 2% Miami 2% Various 14% Chicago 9% Under Review Atlanta Location 13% (MSA) $792MM New York 16 Deals 34% Washington D.C. 16% On-going Negotiation Hotel Industrial 4% Acquire 7% $98MM 7% Mixed Use 4 Deals 8% Sourcin
Slide 32: Company Details
Company Details Safety, Income & Growth Inc. The Ground Lease Company 31
Slide 33: Balance Sheet Strategy
Balance Sheet Strategy Illustrative Financing Scenario 100% CPV Maintain a strong equity profile and CRE Property an appropriately leveraged balance sheet An initial target leverage of approximately 25% of the Combined Property Value(1) and maintain an overall corporate debt to equity ratio of a
Slide 34: Interest Rate Protection
Interest Rate Protection As of December 31, 2017 In addition to $227M of existing fixed rate debt that matures in 2027, SAFE enters into 12-13 year hedging contracts to mitigate the impact of interest rate fluctuations on its floating rate debt Blended Blended Short-Term Start Notional Long-Term S
Slide 35: Overview of Manager: iStar (NYSE: STAR)
Overview of Manager: iStar (NYSE: STAR) iStar (NYSE: STAR) brings experience built on $35B of real estate finance and investment deals over the past two decades National platform with 8 regional offices and 190 employees Largest shareholder of SAFE (39.9% of shares outstanding) Current iStar I
Slide 36: Stockholder-Friendly Management Contract
Stockholder-Friendly Management Contract Best-in-class management contract and fee arrangement to support growth Manager Wholly owned subsidiary of iStar Inc. 1.0% of total shareholder’s equity (1) (up to $2.5B) Management Fee 0.75% of total shareholder’s equity (1) (> $2.5B) Payment will be in SAFE
Slide 37: Stockholder Friendly Corporate Governance
Stockholder Friendly Corporate Governance Strong corporate governance model facilitates corporate accountability and stockholder alignment Board of Directors Corporate Governance Majority Independent Board Opted out of the MGCL Business Combination Act Non-staggered Board Opted out of the MGCL Contr
Slide 38: Conclusion
Conclusion 1 First and Only Public Company Unique Market Large and Untapped Market Opportunity Best Origination Capabilities 2 Investment Grade Cash Flows Strong Growing, Inflation Protected Income Relative Value Imbedded Capital Gains from Rent Bumps and Value Bank 3 Contractual cash flow growth, o
Slide 39: Portfolio Valuation
Portfolio Valuation Safety, Income & Growth Inc. The Ground Lease Company 38
Slide 40: How to Value SAFE’s Portfolio
How to Value SAFE’s Portfolio Two Separate Components of Portfolio Valuation: Present value of rental payments assuming 30 years of 1. PV of Portfolio Rent (PVPR) rent with a sale of the GL at the going-in cap rate. (Based on discount rates for each future period payment provided by U.S. Treasury ev
Slide 41: Present Value of Portfolio Rent (PVPR)
How to Value SAFE’s Portfolio: Present Value of Portfolio Rent (PVPR) Calculation of PVPR30(1) HQM Curve Sum all rent to be received in each of the next 30 4.50% Step I years on the entire portfolio. 4.11% 4.27% 4.00% 3.50% Discount each rent payment to be received by the 3.00% applicable term disco
Slide 42: Value Bank (VB)
How to Value SAFE’s Portfolio: Value Bank (VB) Calculation of Portfolio VB(1)(2): CBRE appraises fee simple, spot value for all $989MM properties in portfolio assuming they are not Value Bank Step I (CPV – Ground Lease Basis) subject to a ground lease $1.5B (Combined Property Value or CPV) Total CPV
Slide 43: Current Valuation
How to Value SAFE’s Portfolio: Current Valuation SAFE Paid Ground Lease Basis $497MM (Historical Cost) $989MM Reverts to GL at the end of (Value Bank) the lease SAFE Gets 1 PV of Portfolio Rent: $667MM (PVPR30) $170MM PVPR in Excess of GL Basis $497MM 2 Value Bank (VB) $989MM Ground Lease Basis Note
Slide 44: Case Studies
Case Studies Safety, Income & Growth Inc. The Ground Lease Company 43
Slide 45: Case Study: Regency Lakeview & Pershing Point
Case Study: Regency Lakeview & Pershing Point 11000 Regency Pkwy, Cary, NC 1375 Peachtree Street NE, Atlanta, GA Date Closed 2/26/18 2/28/18 A two-building office campus comprising 376K square A 7-story, 410K square foot office building in midtown Asset Description feet on 27 acres located in the vi
Slide 46: Case Study: Forward Commitment on Great Oaks
Case Study: Forward Commitment on Great Oaks Note: Represents rendering of future construction. Raleigh Road & Via del Oro – San Jose, CA Date Closed 10/17/17 A luxury multi-family project containing 301 units currently under construction in San Jose, CA with an Asset Description expected completion
Slide 47: Case Studies: 6200 & 6201 Hollywood Blvd.
Case Studies: 6200 & 6201 Hollywood Blvd. 6201 Hollywood Blvd., Los Angeles 6200 Hollywood Blvd., Los Angeles Newly constructed multi-family building with 535 units, Expected 1H’18 delivery of multi-family building with Asset Description 71K SF ground floor retail space, and 1,300 below grade ~507 u
Slide 48: Case Study: LifeHope Medical Campus
Case Study: LifeHope Medical Campus 3333 Old Milton Parkway – Alpharetta, GA A 117K rsf, 6-story medical office building on 10.2 acres. The property will be renovated Asset Description and converted into a class-A building, which is currently expected to take 12+ months. Source New origination from
Slide 49: Case Study: Park Hotels Portfolio
Case Study: Park Hotels Portfolio DoubleTree Seattle Airport 850 rooms Built: 1969 / Renovated: 2011 DoubleTree Sonoma Seattle, Seattle, WA WA Hilton Salt Lake 245 rooms 499 rooms Built: 1987 / Renovated: 2016 Built: 1983 / Renovated: 2012 Salt Salt Lake Lake City, City, UT UT Rohnert Rohnert Park,
Slide 50: Case Study: Park Hotels Portfolio
Case Study: Park Hotels Portfolio GL Tenant: Park Hotels & Resorts (NYSE: PK) GL Origination Method: Acquisition (1997) Base Rent Coverage: Property generates $39MM of NOI before rent (3.99x coverage) (1) GL Rent: Annual Base Rent: $9.9MM (2) Percentage Rent: $3.0MM (3) Basis: ~$109k per k
Slide 51: Appendix
Appendix Safety, Income & Growth Inc. The Ground Lease Company 50
Slide 52: Glossary
Appendix Glossary Ground Lease Basis Ground Lease Basis is the historical purchase price paid by SAFE to acquire or originate a ground lease. The current combined value of the land, buildings and improvements relating to a commercial property, as if there was no Ground Combined Property Value Lease
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