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Letter To Shareholders

2021 was a good year for Safehold. We continued to rapidly expand our business by building on the core thesis behind our modern ground lease innovation — providing better capital for our customers, and generating better returns for our shareholders. Despite macro headwinds, our team delivered on many of the goals we set out at the beginning of the year and laid the groundwork for continued success in 2022. Let’s walk through those accomplishments and talk about why we are in an excellent position to unlock further value for both building owners and our investors in the coming year.

A Customer Business

Safehold is a customer business. We seek to provide lower-cost, more efficient, longer-term capital to our customers so they can generate higher returns with lower risk. To serve our customers, we must continue to innovate and provide the best cost of capital in the market, while using our deep experience and market-leading scale to give building owners the comfort and confidence that they are working with the top experts in the field. During 2021, we closed over 30 deals, totaling some $1.5 billion, pushing our portfolio to over 100 ground lease transactions and almost $5 billion in total. This makes us not only the largest player in the market by far, but also gives us tremendous insight on how best to work to meet our customers’ needs. As a result, we continue to create custom products that our customers have asked us for.

Ground Lease Plus

This past year we launched our Ground Lease Plus program, enabling developers still in the process of obtaining approvals for new projects to access the low-cost, lower-risk capital that a modern ground lease provides much earlier in the life cycle of a project. Under Ground Lease Plus, Safehold structures an appropriately-sized ground lease and sets milestones under which the size of the ground lease can grow. Given the higher risk in the early stages of these projects, Safehold works with third party capital providers (currently iStar and a sovereign wealth fund) to hold the ground lease until it is de-risked enough for Safehold to acquire. This program has the potential to open up the modern ground lease market further and faster, and we have seen more than $500m in potential future Safehold ground leases accessed this way already.

Attractive Returns for Shareholders

By serving our customers better, we can also deliver strong returns for shareholders. We knew from the beginning that our large, growing, diversified portfolio of ground leases was a unique investment that many investors would want in their portfolio. But we also knew that it would take time and increased scale for many investors to learn about Safehold and see its potential.

Delivering growing earnings and strong returns should help expand our shareholder base over time. In 2021, EPS reached $1.35 per share, a 15% increase over 2020, and total shareholder returns were 11%. From IPO to the end of 2021, shareholders have enjoyed annual returns of 40%.

Other Accomplishments

Expanding our own access to capital is also important and represents a key long-term competitive advantage. During the last year we became the first and only modern ground lease platform with investment grade credit ratings. These ratings enabled us to raise highly efficient unsecured 10-year bonds, and we recently completed the first 30-year unsecured bond offering in the industry. With the weighted average maturity of our debt now just under 25 years, we have protected ourselves from changes in interest rates for an extended period of time.

On the ESG front, we added new diversity to our board and began the process to offer a new product we call SAFEplanet, a cross-functional effort in support of green building initiatives. While we are still in the early stages of rolling SAFEplanet out, we have high hopes it will help our customers begin to tackle the important work of upgrading their buildings and minimizing their climate impact.


One of the most significant benefits of owning a ground lease portfolio is the inflation protection built into its cash flows and the positive impacts of inflation on the value of what sits on top of the land. While almost all of our rents grow steadily over their term, many also have CPI adjustments that kick in every 10 years to increase rents if inflation has exceeded 2% during the previous decade. This gives us rent upside in higher inflation periods of time, though we often cap this inflation adjustment in the 3% range for the overall 10-year period. Higher inflation also helps boost the replacement cost of the buildings sitting on our land, and over time tends to drive their value up as well. This double dose of inflation protection makes our ground leases highly resilient in any market environment.


Even with the many positives above, in some ways, we have saved the best for last. From the very beginning, our conception of Safehold’s modern ground lease business included the idea that the cash flows from a ground lease portfolio and the long-term capital appreciation that builds up in a ground lease portfolio were two distinct and valuable assets. While we started by emphasizing the bond-like, very safe, inflation-protected cash flows from the portfolio, we have now reached a scale where we can also begin focusing on the equally powerful second asset in the portfolio, what we call Unrealized Capital Appreciation (UCA).

The idea behind this second asset is simple – at the end of any ground lease, Safehold also has the right to the economic value of whatever is sitting on top of the land, a value that is likely to increase materially over the life of the lease. While we don’t know what that value will be in the future, we can mark it to market today, and it gives a clear view of estimated UCA. We also add to UCA every time we close a new ground lease and the combination of its estimated value and how much we added to it in any year is an indication to us of how much our portfolio value has increased in any year. Last year, UCA increased from $5.5 billion to $8.1 billion, meaning the mark-to-market estimate, what we will have the right to in the future upon the occurrence of certain specified events, increased by some $2.6 billion over the past 12 months.

This growth, and the implied growth per share, is obviously well above many other large diversified real estate portfolios and is one reason we are confident we can capture this value for shareholders. We know what we will own, we know it’s value today, and we know how fast it has been growing. Knowing all that, we have created Caret, a security in a subsidiary of Safehold structured to capture the value of UCA to the extent it is realized upon certain events. Third party investors now have the opportunity to take a direct stake in this exciting asset.

In order to kick off the process of launching Caret as a new security, in February 2022 we offered a small private round at a discount to a group of investors from several of the key investment worlds that we think will find it compelling. High net worth families, sovereign wealth funds and leading venture firms in the fintech and proptech worlds took down the $24 million offering at a $1.75 billion valuation, and we are now focused on creating a liquid market for Caret over the next two years at a valuation closer to the mark-to-market value of UCA. If we can’t create a liquid security in two years at a minimum of the initial value, investors can ask to have their initial investment amount redeemed.

Unlocking the value of UCA via Caret will have a large impact on our company. Higher Caret values should lead to a higher Safehold share price and lower cost of capital. A lower cost of capital can be passed on to customers, which should in turn increase the rate of customer adoption and growth of our ground lease portfolio, adding sizable amounts to UCA in the process. This powerful dynamic can propel us forward and help Safehold reach its full and rich potential. We look forward to continuing on the path we have started and delivering successfully for all our stakeholders.

We thank you for your interest and support,

... Jay Sugarman Chairman & Chief Executive Officer