Safehold Inc

Ladies and gentlemen, good morning and welcome to Safehold's fourth quarter and fiscal year 2021 earnings conference call. If you need assistance during today's call, please press star zero. If you'd like to ask a question, please press one zero. That's one zero to ask a question. As a reminder, today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Jason Fuchs, Senior Vice President of Investor Relations and Marketing. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for a Safeholds earnings call. On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer, Marcus Alvarado, President and Chief Investment Officer, and Brett Asness, our Chief Financial Officer. This morning, we plan to walk through a presentation that details our fourth quarter and fiscal year 2021 results. The presentation can be found on our website at safeholdinc.com. and by clicking on the Investors link. There will be a replay of the conference call beginning at 12.30 p.m. Eastern time today. So dial in for the replay is 866-207-1041 with the confirmation code of 1185612. Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. Now, with that, I'd like to turn the call over to Chairman and CEO Jay Sugarman. Jay?

Jay Sugarman Thanks, Jason, and appreciate everyone joining us today. The fourth quarter of 2021 was a very strong one for Safehold and capped off a successful year for our company. We reached a number of important milestones during the fourth quarter, and have continued that momentum into 2022. So, we have quite a bit of information to share on this call. Let me start by recapping some of the key highlights for you. In the fourth quarter, we closed a record number of ground leases, adding another 17 to our growing portfolio and reaching a key goal with over 100 ground leases now in our portfolio. The $777 million transaction volume in the quarter was our second highest ever and increased our portfolio to $4.8 billion. For the full year, we closed over $1.5 billion in ground leases and broke into several new markets while continuing to focus on top locations and well-positioned properties. We remain very pleased with the strong growth of our modern ground lease solution and its demonstrated ability to help building owners generate higher returns with less risk and more efficiency. Along with the growing portfolio came strong growth in earnings, with fourth quarter earnings per share up some 29 percent year-over-year. For the full year, earnings reached $1.35, up 15 percent year-over-year, held back somewhat by reduced percentage rent on the Park Hotels portfolio. While earnings primarily reflect the positive impact of the long-term rent streams added to the portfolio, the mark-to-mark value of the assets sitting on our land also showed impressive growth. UCA, reflecting this value, grew by an estimated $1.4 billion in the fourth quarter. What this means is that the measurable capital appreciation embedded in the portfolio stands at an estimated $8.1 billion at the end of 2021 compared to $5.5 billion at the end of last year. Watching this account increase by an estimated $2.6 billion is another indicator of the value delivered to shareholders in 2021. There was also meaningful progress on the right side of the balance sheet. During the fourth quarter, we upsized our revolver by an incremental $350 million to $1.35 billion, giving us excellent flexibility to serve our customers and expanded our access to the 10-year secured market in a separate transaction. That momentum has continued into 2022. As we reported earlier this year, we recently completed our first 30-year unsecured debt placement with a very strong group of investors. Their offering was for $475 million in bonds, due 2052 and priced at 3.98 percent. And lastly, a news I know many of you have been waiting for, we began taking steps to monetize UCA by completing a private placement with several well-known investors. As a reminder, we think about our portfolio of ground leases generating two distinct pools of value. The ground lease rents and the return of the initial investment basis at the end of the lease represent a high-quality inflation-protected cash flow stream that we believe will generate above-market returns relative to comparable term, comparable credit cash flow streams in the bond world. This is one valuable part of our business. We've also been building a second valuable asset that combines the long-term reversionary interest in our ground leases with the ongoing growth engine at Safehold by tracking the quarterly mark-to-market value of everything sitting on top of our land, we have been highlighting this value and the growth of this second asset. We've called this mark-to-market value UCA or unrealized capital appreciation since it is an indicator of the value building up for shareholders and of the growing credit enhancement for our creditors. It has grown from an estimated $400 million at IPO four and a half years ago to an estimated $8.1 billion today And we view it as one of the most valuable components of a modern ground lease business. You'll also remember we had previously set up a vehicle called Carrot to help us capture the value of UCA. This initial offering of Carrot units to private investors should accelerate investor focus on this unique asset and help us advance two of our long-term customer goals. One, lowering our cost of capital to customers over time. and two, enabling customers to participate in our success. On the first goal, once our share price more fully reflects the value of both assets in our portfolio, our cost of capital should be lower, and we would be able to share with customers the benefit of that lower cost of capital. On the second goal, we also believe we may be able to use CARAT to create additional customer benefits and rewards in the future. We created the Modern Ground Lease to deliver customers the benefits of more efficient capital, lower friction costs, and less maturity risk. With Carrot, we intend to explore a way to deliver customers a unique way to participate in Safehold's long-term success and directly benefit as our Modern Ground Lease portfolio expands. Now, in terms of the actual Carrot transaction, our strategy for this initial step was to engage with a small group of sophisticated investors who we felt were well-positioned to understand the unique investment potential and upside care it represents. While the offering was small and the offering terms were intentionally attractive, we were pleased by the reaction we received. Investors in this round include family offices, a sovereign wealth fund, and leading venture capital firms focused on FinTech and PropTech opportunities. The offering was priced at $1.75 billion, a sizable discount to the estimated mark-to-market value of the portfolio, and has a liquidity requirement that we pursue listing CARAT on a public exchange in the next two years. If we do not successfully list CARAT units publicly in the next two years, investors will have the ability to redeem their units at par. With the expected growth in the underlying portfolio valuation over time and the positive reaction from investors today, we think two years is sufficient time to get the units listed and the market to recognize the sizable value of CARAT. All in all, you can tell we're quite excited to begin making CARAT an asset that investors can separately have a chance to purchase and trade, that can tighten our relationship with customers, and whose values safehold shareholders will see reflected in safe share price. All right, there's a lot there, so let's have Marcos walk through some more of the details. Marcos?

Thank you, Jay, and good morning, everyone. Before we jump into the details, let me first say that we're excited to announce Brett Asness' promotion to Chief Financial Officer. Many of you already know Brett since he's been with Safehold since day one, most recently as our head of capital markets. When we started this business, there was a lot we didn't know, especially how we were going to capitalize a 99-year enterprise. Brett and his team's highly innovative capital solutions have enabled us to scale, and we're excited to see him build upon that success. In addition, we promoted Teresa Oliot to Chief People Officer, reflecting the significant contributions she and her team have made in helping shape and drive a winning culture. Safehold is a highly entrepreneurial business, and our people are our most important asset. Teresa has been pushing on key initiatives to maximize our firm's engagement so that we can deliver not just for our customers and shareholders, but also for our employees. I'd also like to underscore the very exciting news that Jay discussed regarding the initial sale of Carrot Units we announced this morning. Safehold has always been and will continue to be a customer-first business. It's how we began our business and it's how we will continue to scale our business. This initial sale of Carrot Units is core to our principal mission of providing our customers with the most efficient capital in the marketplace. And while today is just the first step towards that path, we have already begun thinking about and have received authorization to utilize carrot units in innovative ways to enable our customers to join us on this journey. I'll spend a little bit more time on the carrot transaction shortly, but now let me turn to our earnings deck and begin with slide three. As Jay mentioned, we had a very productive fourth quarter, which concluded a strong year for SAPL. As the quarter progressed, we saw accelerating momentum in our investment activity and closed a record number of ground leases for any quarter to date since the company's inception. For the full year, we originated $1.5 billion of transaction volume, and this progress, combined with our current momentum, has positioned us to raise our target for year-end 2023 to a $7.5 billion portfolio versus our prior guidance of $6.4 billion. Additionally, UCA increased by an estimated $2.6 billion in 2021, and is reaching meaningful scale, quality, and diversity. Moving on to slide four, let me detail this quarter's earnings results. For the quarter, revenues were up 30% to $52 million versus the fourth quarter last year. Net income was up 39% to $21.3 million, and earnings per share were up 29% to $0.38. For the year, this brought revenue to $187 million, up 20%. net income to $73.1 million, up 23%, and earnings per share to $1.35, up 15%. As a reminder, these earnings do not include any percentage rent from our Park Hotels portfolio. While it is still too early in the year to predict how that portfolio may perform, we have seen some rebound in occupancy and revenues over the past six months. Slide five provides an overview of our investment activity. We were particularly pleased with the level of customer engagement during the fourth quarter as we originated a record 17 ground lease transactions for $777 million, representing our second best quarter by dollar amount ever and our best quarter since the beginning of the pandemic. Of that amount, $686 million was funded during the quarter with an additional $20 million of fundings from prior investments. Separate and apart from these origination stats, we also closed our fourth ground lease plus transaction on a multifamily property in Brooklyn, New York, which could be up to an incremental $91 million in our future pipeline. In total, through Ground Lease Plus and option contracts from that program, we have created forward opportunities totaling approximately $580 million. The investment metrics associated with Originations this quarter are in line with our targets, with a weighted average underwritten effective yield of 4.9%, a weighted average effective yield of 4.7%, ground lease to value of 41%, and rent coverage of 3.7 times. Important to note, we added nine new customers as we continue to broaden the adoption of our ground lease product. Slide 6 provides an overview of our portfolio growth for the quarter. At the end of the quarter, our aggregate portfolio stood at approximately $4.8 billion. continuing the growth trajectory since our IPO four and a half years ago. You can see the quality of the assets we closed over the quarter on the right side of the slide. We're constantly thinking about how to drive value for our customers. One innovative structure we launched this quarter, which we call Safe Sell, was on a transaction we closed in San Francisco. Oftentimes, we're helping our customers acquire a property more efficiently. However, in this case, working with the selling broker, We helped our customer sell their property and drive value. A repeat customer was looking to sell one of its assets. They had a broker estimate of value on where it could trade, and they were interested in knowing if a safehold ground lease could help unlock value for them. We proposed a $65 million ground lease and suggested they market a newly created 99-year leasehold. The combined proceeds they received from selling the land and the building separately ended up being more than 7% higher their market estimate selling the property fee simple meaning an incremental 12 million of additional proceeds in our customers pocket we've also continued to monitor our customer success and we were pleased to see another customer selling their leasehold position at a similar cap rate as fee simple properties of the market which generated a strong return over their investment period we've also had eight customers refinance their leaseholds to date all at very attractive terms with a diverse set of lenders demonstrating the growing traction of our product. More portfolio metrics can be seen on slide seven. As of December 31st, Safehold generated an annualized yield of 5.1%, with annualized in-place gap rent of $236 million. The portfolio's annualized cash yield was 3.3%, with annualized in-place cash rent of $148 million. Our portfolio's weighted average ground lease to value was 40% and weighted average rent coverage was three and a half times. By property type, our portfolio consists of 50% office, 34% multifamily, and 16% hotel and other. Our weighted average lease term is 91 years. Turning to slide eight, there's been a lot of discussion about inflation and how it impacts our portfolio. While you certainly heard us talk about the bond-like cash flow stream that our ground lease produces, the truth is that our safehold modern ground leases have some strong inflation protection provisions built in, which is far better than any of the high-grade bonds we benchmark ourselves to. For the safehold ground leases we originate, that inflation protection generally comes in the form of a CPI lookback. Let me take a moment to explain how the mechanics of our lookbacks work and why they create a meaningful amount of inflation protection. Our safehold ground leases typically have 2% fixed annual rent escalators with a 10-year CPI look back capped between 3 to 3.5% per annum inflation growth. That 2% escalator is the minimal contractual rent we will receive. So if inflation averages less than 2% over a 10-year period, we will still get our 2% contractual bumps and our rent growth outpaces inflation in that scenario. However, If inflation averages more than 2% over a 10-year period, our CPI lookbacks provide for our rent to step up to what rent would have been if it had tracked inflation on a compounded basis the entire period subject to a cap. For example, if the cap is set at 3%, that means that our CPI lookback will capture cumulative CPI growth for that lookback period, typically 10 years, up to a 3% compounded annual inflation growth. However, if CPI growth during that lookback period exceeded 3%, we would not capture that excess growth above the 3%. That being said, when we analyze historical periods of inflation, it is very rare to see inflation run above 3% for extended periods of time. Following a rent increase for the CPI lookback, the subsequent rent will continue to grow 2% off the higher base until the next CPI lookback. So what it means is that if inflation were to trend at 3% for the next 99 years or 100 basis points above our rent bumps in this illustrative example, our CPI lookbacks would allow us to capture approximately 80 basis points or 80% of that inflation in our ROA. Further, if you consider that we borrow with long-term fixed rate debt that doesn't have any inflation protection, you can see that we are advantaged as the benefits of our typical CPI lookbacks are allocable to the equity. And finally, with respect to the value of the buildings on top of our leases, generally real estate is positively correlated with inflation. And so inflation is positive when it comes to UCA. But we'll talk about that more shortly. First on slide nine, you can see the geographic breakdown of the portfolio as we continue to expand into top markets with the inclusion of Chicago this quarter. Slide 10 provides an overview on our capital structure. It was a busy quarter regarding capital markets activity. Working with our bank group, we upsized our revolver by 350 million to 1.35 billion. Additionally, we issued 350 million of 10-year 2.85% unsecured notes, our second unsecured notes issuance after getting our debut credit ratings just one year ago. At the end of the fourth quarter, we had 3 billion of debt comprised of approximately $1.5 billion of non-recourse secured debt, $750 million of unsecured notes, and $272 million of debt on ground leases, which we own in partnership, which represents our share. Our weighted average debt maturity is 23 years. In addition, we had $490 million drawn on our unsecured revolver, and so combined with cash on hand, we had approximately $900 million of liquidity at the end of the year. Subsequent to the end of the year, we were very pleased to have been able to do a private placement of our first 30-year unsecured notes issuance, $475 million of 3.98% unsecured notes due in 2052, which priced at 180 basis points spread to the then 30-year Treasury rate. Proceeds from this transaction will be used to pay down our unsecured revolving credit facility, as well as general corporate purposes, which may include the funding of additional investments and ground leases. Moving on to slide 11, we provided an update on estimated UCA. The estimated value of all the unrealized capital appreciation above our cost basis grew to an estimated 8.1 billion, a 1.4 billion increase since our update last quarter. This estimated pool of value has grown by a 90% CAGR since we IPO'd. To give you a better sense of what encompasses that pool of assets, we have a total of approximately 26.4 million square feet of institutional quality commercial real estate located in the top markets throughout the country, comprised of 11.6 million square feet of multifamily, 11 million square feet of office, 3.5 million square feet of hotels, and 300,000 square feet of other property types. And while we have been tracking this value every quarter since we IPO'd, we have now taken the first but significant step towards unlocking a portion of that value for shareholders and customers through a transaction we announced this morning, which we highlight on slide 13. Carrot is an extension of our meticulous focus on the customer value proposition. By working to unlock the full value of our platform, we can serve our customers in more ways and deliver increasingly lower cost, more efficient capital solutions. As disclosed in the press release, we sold a 1.37% interest in Carrot to a group of leading private equity, institutional, and high net worth investors for $24 million at a valuation of $1.75 billion. You can see some of the firms that we partnered with on the slide. Venture capital firms like Rivet Capital and Fifth Wall, a leading sovereign wealth fund, high net worth investors, including Michael Rubin's family office and Kevin Durant. While we've always believed that there were significant amount of value building up in our UCA pool, but for many investors, liquidity was equally as important. Our focus over the next two years will be to provide liquidity for Carrot, and we formed an advisory board with some of the new Carrot investors to help forge that path forward. If we don't provide liquidity for Carrot at a value in excess of these investors' basis within two years, they have the option to cause us to redeem their investment at their original purchase price. So on slide 13, you can see the ownership structure illustrated. Safehold will continue to receive all the rents from its portfolio and its original cost basis, as well as certain other cash flows. The carrot units are generally entitled to the capital appreciation above our cost basis on both the existing portfolio and all future ground leases we originate under specified circumstances. You can see Safehold owns 83.63% of the carrot units. The new investors own 1.37% and management owns approximately 15%, which was earned after achieving all of the performance hurdles in a shareholder approved long-term incentive plan. In conclusion, it was a strong year for Safehold, ending with a strong quarter marked by a record number of ground leases closed. As we expand our leadership position in this growing industry, we felt confident to raise our guidance and target scaling our portfolio to at least $7.5 billion by the end of 2023. In addition, we've taken a first step to unlocking a portion of value in UCA through the sale of character units. Our focus is to continue to grow our portfolio, which will in turn continue to grow the value in UCA as we seek to unlock the full value potential within the platform for both shareholders and customers. When we began this journey four and a half years ago, we set out on a mission to revolutionize revolutionize real estate ownership by providing a new and better way for owners to capitalize their real estate. As we continue to innovate and unlock the full value of our platform, we hope to be able to deliver our customers the lowest cost, longest term, most flexible capital in the market. And with that, let me turn it back to Jay.

Thanks, Marcus. Obviously the market got off to a tough start to the year and our shares were hit pretty hard. On the other hand, I think you can see we've been very busy executing on our business strategy and delivering the roadmap to the future. We remain firmly convinced that this industry will become a very large one and that we are creating valuable efficiencies for customers and unique investments that many investors will want in their portfolios. Delivering that opportunity to as many customers and as many investors as possible and figuring out how best to do that will be a big part of the Safehold story in 2022. So let's go ahead and open it up for questions, operator.

Thank you. Today's question and answer session will be conducted electronically. To ask a question, please press 1-0 at this time. We will take as many questions as time permits. Once again, please press 1-0 to ask a question. We will pause a moment to assemble the roster. And our first question is from Nate Crossett with Barenburg. One moment, please. And your line is open.

Hey, good morning, guys. And congrats on a strong quarter. Yeah, a few questions. I was wondering, maybe you can just give us a sense of how things have carried over year to date. You know, what's the deal flow like so far? How much have you closed? You know, maybe give us a little color on the pipeline in terms of mix. Is it still weighted mostly toward resi or is there more office kind of embedded in the portfolio now? And I think even last time you mentioned you were looking at a life science opportunity. I'm curious if there's an update there. And then I had just a question on pricing and yields. I think the yields in the quarter were essentially unchanged quarter over quarter. And maybe you can just give us some color on kind of your outlook for pricing this year, just given what rates have done.

Yeah, Nate. So let me let Marcus talk about how the pipeline feels and some of the pricing dynamics. But just in terms of the market feels like, you know, we continue to bring that momentum in from the fourth quarter into 2022. We're not going to talk about specific dollars yet this early in the quarter, but a lot of progress along the lines we've laid out previously. So look forward to talking more fully about that on our next earnings call.

Yeah, Nate, just to add to what Jay said, I think, you know, fair amount of confidence in our ability to continue to scale the portfolio. Obviously, that was reflected in our raising guidance, a billion one for the end of 2023. As you think about the mix, there's a few life science assets in the pipeline, a good amount of multi and high quality office. So consistent with what we've done in the past. And as it relates to pricing, if I look at the pipeline, it's consistent with last quarter from an effective yield standpoint.

Okay, that's helpful. Maybe you can just give us an updated thinking on the potential kind of combination of ISAR and SAFE. Now that the net lease portfolio has been sold, how should the market be thinking about the timing and the mechanics of how a potential combination might look.

Sure. Just one point of clarification. We've announced the signing of an agreement on net leads that hasn't actually closed yet. There's still a lot of work going on to get that done. So just wanted to make sure you understood that. Nate, you've heard us say before that once SAFE reaches scale, we think the independent directors of SAFE's board can look at the external management structure, the current architecture of Safehold, and determine how best to create shareholder value. And while I wouldn't want to speculate at this time because it's still too early and the two companies have not had any conversations with each other yet, it is possible these discussions could take place at some point this year, and we'll update the market as appropriate.

Okay, that's it for me. Thank you.

Next week. Next, we have a question from Rich Anderson with SMBC. Please go ahead.

Hey, thanks. Good morning. So, Marcus, I don't know if you said this explicitly, but you talked about utilizing carrot units in innovative ways with customers. So could you envision, I don't know, purchasing ground leases or getting involved in ground lease investments by using the units as your source of, you know, money? Is that sort of like a down-reach structure type thing? Is that what you're talking about?

No, I think we, as management, see a tremendous amount of value in Carrot today and in the long term. And as we think about where we want to ultimately be as a business from a scale standpoint, we want to partner with our customers as part of that solution. So I think figuring out innovative ways for them to share in some of the value that we've created, the way we're thinking about it.

Okay. And what is the role of the advisory board? What will they actually do to forward the carrot business?

If you think about the investor makeup, Rich, it was a highly curated process from a bunch of different avenues of the world. We're not entirely sure what form Carrot will take, and we think this group of investors will be able to offer us insight and expertise that we don't have to ultimately get us on our path.

Okay, and now one of the investors, Zig Capital, is founded by one of your board members, Dave Eisenberg. Can you talk about some of the safeguards that you put in place, if any, to address any even perception of a conflict. And if you could just kind of touch on that for me, please. Thanks.

Yeah, I think it rolls into kind of what Marcos was saying. We've always thought carrot is uniquely valuable and will be attractive to a wide range of investors. And we also thought it had some pretty unique attributes that could open up some really interesting possibilities in the future. And One of the reasons I think Dave joined the I-STAR Board is certainly the opportunity set that we think we're creating and has a very future-minded way of thinking about possibilities that we think is definitely going to help us in the carrot process. So we're really pleased to have someone like him. He's also had the benefit of watching us up close build Safehold and Carrot, has seen its potential, and I think there's You know, a nice group of investors in the advisory board that will help us on a lot of the ideas we've been sort of cooking up in the lab over the past year or so. In terms of conflicts, we have pretty strict protocols on both boards in terms of independent directors. And counsel is all over, you know, any perceived conflict issues. Don't see any challenges there, Rich, in terms of what council has been sharing with us. But both independent directors at STAR and Safehold are very much on their toes on this topic right now.

Okay. Last one for me. You talked about the eight refis that happened. Can you talk, you know, where were they in the life cycle of, you know, expiration and And what happened to the rents? Could you give some color about how they were adjusted, presumably upwards?

Yeah, so these were ground leases that were put on over the last four and a half years. So they're all pretty new ground leases. The point being that our customers executed on their business plan and were able to recapitalize the leasehold positions behind us successfully. Okay.

Thanks very much.

And our next question is from Keebin Kim with Truist. Please go ahead.

Thanks. Good morning, and congratulations on the carrot transaction. Just a couple more questions around that. What was the value of the UCA at the time to deal with them? Is it the $8.1 billion still?

When we started the conversations with the investors, it was after last quarter, so it was $6.7 billion.

Okay. And the transaction, is it tied to a subset of assets within that UCA bucket, or is it the totality? The totality. Okay, great. And as you march towards a public listing or some type of liquidity event for the carrot, is it realistic to to assume that there's another interim transaction to monetize the character further to show demonstrate value as it would lead up to that monetization event? Or is it pretty much the only event we should think about?

Yeah, I think there is several different paths. We're working with some third party advisors to help us think through that. Even so, I think there's a lot of interest and we've got a group of investors who really span Some of the groups we knew or certainly believed would have a lot of interest, whether you're a sovereign wealth fund, whether you are a family office, or whether you are seeing the potential to build an exponentially growing pool of value. I think we've got a lot of interesting choices ahead of us, and certainly one could be additional private offerings. But we're going to do this very thoughtfully as we work our way through 2022 and continue to execute on the business.

Got it. Just a couple more questions. Is there an anti-dilution clause in this first transaction, meaning if you did another private transaction, is there a certain minimum that valuation has to meet?

No. As you know, CARE has a fixed number of units, so we will have a – A lot of thought going into how to make care absolutely unlock the most value, and part of our advisory board's role with us is to really help us figure that out, think that through, but there's no specific provision. Okay, thank you.

And our next question is from Spencer Alloway with Green Street. Please go ahead.

Yeah, thank you. So, look, I realize in your press release this morning, you mentioned that the goal is ultimately to maximize the value of CARAT, and that makes a lot of sense given SAFE owns 85%, but can you just talk about how much of the CARAT valuation should ultimately accrue to SAFE if the end goal is ultimately just to have a liquidity event and spin it off?

Yeah, good morning, Spencer. So, I think two things. One, We see this as, you know, definitely one of the two major assets of Safehold. So, I'd anticipate Safehold being a very major owner of carrots long term. That's certainly our thinking at this point. But creating that liquidity, seeing its full value reflected in the share price is important for a number of reasons. We talked about the customer opportunities that will open up for us. We also think from a shareholder standpoint, The share price simply doesn't reflect the value we've created and are creating every day. So we're going to work on multiple fronts, but the ultimate beneficiary or the majority beneficiary should be the safehold shareholder.

Okay. And then just going back again to the maybe a follow-up on the last question. So you mentioned in regards to the recent current, you know, investors, um that if there isn't a return beyond the cost basis for these investors they're able to redeem their units so when you have a liquidity event have you guys negotiated a specific hurdle a specific hurdle rate um you know for that investor pool yeah we kind of think of it in in terms of you know we have a strong belief and believe they have the same strong belief in the value but the liquidity you know for a fund

to invest in something like carrot with a long life underlying it. Liquidity is really important. So we want to get this investment into as many hands as possible. That requires us to create a liquid instrument. We're very much aligned. We want that. They want that. It was important to how they thought about it. You know, in terms of value, you're going to see and hear us continue to talk about the increase in value of carrot not only historically but prospectively in terms of the opportunity set. We don't think that's going to be a big challenge, but, you know, we need to make this the security and give it the liquidity to really open up this market as soon as possible. So, don't think two years is a problem, but, you know, we've got a lot of work to do.

Right. So I guess I was just getting at the point like spins can be, you know, spins can often trade poorly. They can trade, you know, great after they, you know, been spent out. But I mean, it kind of remains to be seen. And I'm just curious, have you guys thought through kind of a bear case in which you spend this thing and it doesn't trade as well as you had hoped? And what does that mean, you know, to your current investor base or to your new investor base as it relates to these carrot units?

Michael Nouri- Sure. I mean, it's too early to worry about that today, but I would tell you, you know, we fundamentally believe we will get this listed, and it will trade above, you know, what, you know, frankly, was a very attractive price for these investors. So, I think our first goal is to take this step and get the right kind of investors. Because it was a small offering, we spent more time, frankly, as Marcus said, getting the right investors. because we think the opportunity is so large here in terms of getting full value. You know, that will happen over time. But we certainly think we've set the initial marker at a low enough value that it's really a liquidity question. Hopefully, we're not talking about, you know, value in two years.

Okay.

Thank you. Next, we have a question from Rich Hill with Morgan Stanley. Please go ahead.

Hey guys, a long time listener, first time caller here. I wanted to talk about a rising interest rate environment, but maybe not the question you think I'm going to ask. As I think about interest rate environments, it's really easy for commercial real estate owners to make money in falling interest rate environments. And hopefully this isn't a loaded question because it's really about what you're hearing from your tenants. But isn't there a scenario in a rising interest rate environment where owners of real estate have to be even more efficient in their capital structure? And while your cost of capital might go up depending upon how efficient you can be, is there a scenario where there's actually even more demand for ground leases in a rising rate environment?

Yeah, Rich, I think we think about that environment a fair amount. As we've said on prior calls, our competition is really the regular way of financing real estate. And obviously in a higher raising environment, that cost of capital will move up dramatically. And so as we continue to try to drive down our cost of capital, we think there's a potential opportunity even in a rising rate environment to capture more share.

Okay, got it. And maybe as a follow-up question to that, you've always been super successful originating a lot of ground leases, particularly in 4Q21. But as I look at your portfolio, it's not often the largest owners of commercial real estate that I think would be household names. What are you hearing from those large, you know, call it institutional investors? And I'm not suggesting you're not working with institutional investors, but, you know, the big REITs of the world. Do you think there's an opportunity to eventually expand to them and maybe even over the near term?

Yeah, Rich, sometimes I wish it would happen overnight. And I joke with our guys that these conversations sometimes can take two, three years. I can tell you the team overall feels a tremendous amount of confidence in our ability to scale going forward. And as I think about the quality of who we're engaging with, it looks very different than it did even six months ago. So, you know, the example is yesterday. one of the largest owners of real estate in the world. We spent a good time with them going through their portfolio and talking about this safe sale concept.

Okay, great. Am I allowed one annoying sell side question about internalization? And Jay, you can tell me no comment, but here's my questions. Will shareholders be notified when this starts? I think, Jay, you mentioned when there's time to say something, you'll say something. But that's part one. And then part number two, can you maybe just walk through how you'd consider a valuation framework to value the manager? Just if there's any comments there, that would be really helpful.

Yeah, I wish we could talk more about it, Rich, but I think it is too early to try to lay out all the different paths this could take. You know, candidly, you know, we are executing our business as hard and as fast as we can, and that will obviously make those conversations more fruitful for both sides. So let us do our work, and when it's appropriate time, you know, I'm sure the announcements will come when they're necessary, but right now we're just focused on continuing to build the business.

Noted. I'll file that under an annoying sell-side question. Thanks, guys. Congrats on a good quarter. Look forward to continuing our discussions. Thanks, Rich. Thanks, Rich.

Next, we have a question from Caitlin Burrows with Goldman Sachs. Please go ahead.

Hi. Good morning, everybody. So maybe just again on the carrot transaction, which I know has probably taken a lot of the team's effort recently, so congrats on it. Jay, I think you referenced before, but the UCA portfolio is now worth like $8 billion or $6.7 billion as of starting the conversations with the investors, but the transaction's value today is lower. So can you just go through your line of thinking to, I guess, accept that value and announce it all to us?

Sure. So we began the process in earnest, as Marco said, when we had third quarter numbers in hand, which was UCA $6.7 billion. You know, candidly, we did not go out to many people. We had a pretty clear line of sight on who we wanted to approach. We had a limited number of units authorized by our board to sell. We were oversubscribed relatively quickly. So we were really pleased with the reaction. I think, you know, when you really dig in and you start to see where we've been, what we've done, and you put the pieces together, it's a very powerful story, not just in terms of the value it creates today, but the potential opportunities in the future. And so I think we got a nice mix of investors who not only see from just a wealth creation, value creation from this modern ground lease portfolio we're building, but others who can see even beyond that. And that to us was much more important, obviously, than price in this first transaction, getting the right investors, the right mix, and doing it quickly enough. Again, we didn't want to spend all of management's time trying to do a relatively small transaction. There are bigger fish to fry, and we're frying on many fronts right now. So We were delighted. We got almost exactly the mix we were looking for. The caliber, in our minds, is just absolutely top tier from the fintech, prop tech, from the family office world. Couldn't ask for a better mix. Delighted that they're all willing to serve as advisory board members. This is going to be a really powerful opportunity to share some of our work from the past three or four years and really hone it so that we can not only list this to get its value recognized for safehold. But more importantly, we think there's a lot of people out in the world who will find this compelling and attractive, and a listed security will let us get to them a lot more easily. So a lot of benefits, and again, much more important to us to get people in, get the right people in, get them in quickly and efficiently. And so pricing for us was simply a number to say, look, we've had some analysts who've been ahead of the curve who have put a value on it. You know, we can benchmark against that. We may think that, you know, that's conservative, but it was a good starting point for most of the new investors to ask who else is looking at it, who else is valuing it. And we came up with a number very quickly that worked for us and worked for them. So, I wouldn't put, you know, a ton of, you know, our viewpoint wasn't to spend a ton of time on trying to negotiate on that. It was much more get the right people get this group together so we can start working hand-in-hand as, again, the team continues to add, you know, last quarter, billion four to the asset base. You know, we are going to continue to push on this idea that we are delivering significant value that's not recognized in, say, full share price. And the sooner we can get that unlocked, the sooner we can work with our customers to really deliver them you know, an increasingly powerful solution for their needs.

Got it. Thanks for that detail. And yeah, I do agree. It seems like it happened rather quickly. So congrats on that. Maybe just to follow up to an earlier question, or maybe it's just rephrasing, but so do you expect to be actively trying to sell additional carrots near term or how soon or how much of a priority is that for you?

Yeah, it's sale no, discussions with our new investors about some of the potential opportunities we have. As I keep saying, cooking up in the lab. Yes, we do want to continue the progression here, but I don't think that will be a focus in terms of selling additional units in the very near term.

Okay, got it. And then maybe just looking at the fact that for 4Q, those investments, I think we're in 14 different markets, including two new ones. When you think about your varied property types or expanding markets, how do you get comfortable that in 91 years, those properties are going to be worth something similar or more than they are today?

Well, that is the fundamental basis for why we're so excited about this business, Caitlin, is We look out our window here in New York and we can do historical tracking on almost all these markets of what things are worth on top of the land today and where they will likely be at the end of lease terms. And that's an almost universal increase in value, dramatic increase in value over time. So, we do spend a lot of time making sure we're in the right locations, the right cultural, financial, technological centers with strong infrastructure around us, strong educational drivers. But really, if you're asking today, we're really good at underwriting the real estate and the land and the location and its drivers. And that will win out over long periods of time, as it always has over history. And because we're diversified across all 30 cities, There's no question we're going to have some big winners, but we're going to rely on the mean. We're going to rely on the average that we've seen across not just the 30 cities we're in, but across cities historically around the world. These major centers of commerce, major centers of culture, major centers of financial, technological, educational activity with strong infrastructure are going to be places that owning land has created great fortunes, and we think over time The real estate community is very good at finding the highest and best use. And either they'll keep improving what's standing there today, or they will take that down and build something more valuable. That is just a fundamental thesis of this business based on not only our 30 years in the business, but hundreds of years of research. Research on hundreds of years of activity in major cities. So I think that's one we can talk with you offline and show you kind of some examples of what that means and how it really is infused throughout the way we think about Safehold and Carrot and some of the other things in the portfolio.

Got it. And maybe one quick modeling one, just in terms of the 4Q transactions, specifically the $706 million that were funded. Can you give some idea of what the timing was on those, trying to get a sense for what's already in your run rate revenue versus what's to come?

A little bit back-ended December funding. We'll get you the specifics, Caitlin.

And just so you know, on page seven, you can see the annualized in-place rent that was at $1,231.

Got it. Okay. Thank you.

And our next question is from Anthony Pailone from JP Morgan. Please go ahead.

Yeah, thank you. So first question is, when you talk about the 4.9% effective yields on where you're deploying capital, what piece of that do you think relates to the UCA at the end of the lease term versus the, you know, I guess just the lease cash flows?

It's just at least cash flows. There's zero in that 4.9%.

For the residual, there's zero.

There's no CPI in there either.

Yeah, there's no CPI either.

The residual is the initial cost basis.

Okay, so what do you estimate if you, you know, what do you internally underwrite as sort of that residual? Like what would that add to the 4.9%?

You know, we don't really look at it that way, Anthony. I think, you know, the value of a single asset, you know, if you can pick your discount rates, you can pick your growth rates, you know, historically over time, we don't think that has got enough growth embedded in it organically to ever outrun its discount rates. So, we don't really look at that as part of the bond equation. We look at that as a separate pool of value that combined with the engine of growth at Safehold is easy to track. We know it has a defined evaluation today. We know what it's been growing at, and we know what the discount rate for like assets are. So that's one of the things that we think is innovative about how we built a machine is we can take that second asset and make it its own asset with its own growth rate and its own diversification separate and apart from the bond component. So we haven't run the number you're thinking about because I don't think it really fits with the way we think about the two pools of value.

Right. So the pool of value in the carrots, though, it's not a function of both how much you grow the pool as well as what the individual pieces you're putting into it are?

Exactly. It is the growth rate of All the expanding assets and the incremental assets that are added every quarter, that's the growth rate we've been tracking since IPO. Right. That's something that I think, yeah.

Yeah, no, and I understand the growth of the pool and how dynamic that is. I'm just trying to understand how each of the pieces that get added to that pool are valued.

I think for us, carrot is the asset. How much value is growing and building up in the portfolio? We can give you the historical. We can show you why we're confident about growth in the future. We think the discount rate for diversified pools of high-quality institutional real estate are pretty well prescribed by the market. And we know at the end, we are the owners. So in effect, we know the three components here. We own it. We know what it's worth today. We know how fast it's growing. We know what its discount rate is. And so for us, that defines the outline of CARE as an asset. And then the bonds, we know what our cash flows are. We know what the comparable bonds of similar credit and similar turn trade at. We don't know what inflation is. I think, you know, Marcos gave you some guideposts on how inflation can increase the yield to maturity on those cash flow streams. But If you just use the base cash flow stream and you just have the basis back at the end, you know, we know all the pieces of the bond puzzle, too. So, this is really important. The bond, you know, system has got all the components and they're market-based. And Carrot has market-based components. And when you put them in those two baskets and you let the growth and the diversity increase in both asset pools, That, to us, is why the market has never seen an asset like Carat, and it's never really a fully valued safehold, because the combination of the two is sort of just mushed together. And as we always say, things are more valuable when they're separated, when they're easily understandable, than when you try to mush them together and say, oh, it's just one thing, when, in fact, we have two very different investments. inside our Modern Ground Lease portfolio. So, we'll keep trying to isolate those variables for you because we think it makes the task a lot simpler. And we'll compare each of those to the most like thing out there in the investment market, which really gives us the benchmarks we shoot at, growth rates, discount rates, appropriate risk-adjusted returns. But I think, Anthony, that's a more in-sync way to see how we're building the business than to put them back together and try to figure it all out as one thing.

It sounds like a lot of the value ascribed to the carrots comes from just the dynamic nature to the pool. I know Safe owns the bulk of this thing still, so I guess it's not terribly relevant, but if the thing were completely spun out, how do you how do you have a throttle on just like safe doing deals that make sense for safe versus simply growing, doing it to grow the pool of assets in the carrots?

Yeah, I think an important piece of this is, you know, Safehold's board's mission is to maximize the value for Safehold shareholders. So in any conversation, it kind of begins there. Does this unlock value for Safehold shareholders? I think it's very unlikely that they would do a transaction that either today or in the future they didn't feel would increase that value and protect that value. So, again, a little bit too early to think about all the variations on the theme. But as we think about it sitting here today, you know, safehold shareholders should be the majority beneficiaries of whatever path Carrot takes. I don't see a scenario where, Safehold shareholders have no stake in carrot because then you would have some of the issues you're talking about.

Okay. And then this last question, just more core to safe. I mean, given kind of where 30 or treasuries are and your spreads, like what do you think the right, you know, IRR should be, or what do you think the right amount of spread should be on your deals like currently or, you know, I guess in the near term, I suppose.

Yeah, again, historically, you've heard us talk about this 100 over our cost of debt has been the marker. Typically, it was between 100 and 125 basis points over the cost of debt is sort of the shooting range. As we get bigger, as we get more comfortable that our cost of capital might decline, as we can unlock value in some of the other parts of the portfolio, You know, our job is to drive down the cost of funds, create the best alternative for our customers. But at least coming into 2022, you know, we've typically sat with that 100 to 125 basis points over our cost of debt as a target for the portfolio.

And your cost of debt being your tenure, your line, 30-year, what's the?

I think we're averaging like 25-ish, 24-ish years right now. So it's a blend of 50s, 30s, 10s. Right now it blends, I think, Brett, what, 24? That's right. 24 years. Correct. So that blended cost is what we're looking at.

Okay. Great. Thank you.

And our next question is from Matthew Howlett with B. Riley. Please go ahead.

Hey, guys. Thanks for taking my question. Just on ratings and leverage, what can you tell us where you want leverage to be? Where can we model sort of for 2022? And then on ratings, where do you stand on an upgrade? Do the ratings look at this carrot as possibly giving you possibly credit for it? And how close are you to getting a single A-minus?

Yeah, look, Brett has a fingertip feel for the conversations with the agencies. You know, we're a young company. We're impatient, but we're patient. We're putting all the foundational pieces in place, and I think, you know, Brett and his team have been sharing with the agencies where we can go from a ratings perspective and how we might get there. Obviously not in our control, but many of the things that we need to do, we are doing. And I think Carrot being A little bit of a wild card. We think there's tremendous value there. It's on us to prove it out. We think this is a first small step. But in some respects, it's a giant leap. It should impact our ratings. It should give us a tool to work with our customers in a unique way and tighten that relationship across the board. But You know, we don't control exactly how they are going to look at us, but I feel really confident if we demonstrate value, if we continue to execute the way we have. You know, we do believe the company's credit profile is, you know, a higher grade profile than where we are today. But I don't know, Brett, we got our rating a year ago. So, you know, we're going to share with them all the progress we've made and all the progress we still think is to come. and let that process play out.

Gotcha. And then should we expect you to stay in this sort of range, you know, sort of one and a half to two for the, you know, sort of that we look at for the next kind of six to 12 months?

Yeah, that's correct. We've been operating in that range, and that is our target since day one of starting this business. And we're certainly cognizant of those rating agency thresholds and criteria as well.

Got it. Okay, so we'll wait for an update there. And then on the dividend, Jay, I mean, what's the outlook? I mean, I know there's taxable income requirements, but what's your appetite to raising the dividend? Do investors care about the dividend? How much would you like to, you know, would you rather prefer to retain as much as you can?

That's an interesting question. I mean, our policy has been to try to increase the dividend, you know, above the rate of inflation. We've been doing that. We certainly will continue to believe that that's an appropriate policy. One of the things I think in terms of this idea of reinvesting is effectively our business reinvested above market returns automatically. We have a 5% ROA and a 3.3% cash. That incremental 1.7 is going back into a 5% effective asset. So, we've got this automatic reinvestment feature, which I think is really powerful when you're generating above-market returns. But other than that, we typically pay out 100 percent. We feel like that's an appropriate policy with respect to our shareholders. Whether this is the driver of the business, Matt, you know, my feeling is, you know, this is a long-term business. We're trying to drive long-term value creation. Every time we close a deal, we think we're adding value for shareholders. So, I would think it would be a mistake to just look at our dividend and think that's, you know, what's driving shareholder behavior. But delivering very safe, long-term cash flows is part of our story. Giving some of that back to shareholders and investing the rest in more above-market assets just is a great part of the dynamic of the business. It happens organically. So, I think our policy today has been, return all the cash flow that's free and let the accruals take place and effectively reinvest on our behalf. That feels like the right mix right now. It's kind of a 60-40 mix. If we were getting all 5% in cash, we'd probably do the same thing. So in some respects, it's happening without us having to do much work. Great.

Gotcha. I appreciate that. And then just last question, Jay, just big picture. I don't want to ask you about the potential merger, but what's the investment case from Safe's side to internalizing the management contract, possibly merging with Stark? Could you just give us a big picture from the Safe standpoint? Is this just part of the natural evolution of the company? Does this take you to the next level of being a new investor? It's just sort of big picture. What does this do for Safe?

Yeah, again, I'm not going to talk about anything specifically, but I can tell you over the past couple of years, we have had a number of investors, shareholders that we think are really intrigued with what we're doing and what we're building, tell us they simply can't invest in SAFE because of the external management structure. We've always said that that architecture has been really powerful to get us to where we are. but that over time it may not be the right architecture. So I think it'll definitely help open up the window to part of the shareholder world that we think is a natural buyer of Safehold that right now just can't play. I think that probably extends to the debt market as well. We are constrained by... some policies at places that just, even if they love us, they really can't participate. So I think from that standpoint, that's an obvious one. There's probably a lot more subtle things we could talk about, but let me just leave it there and say we've always felt like unlocking the full value is in everybody's interest. And so getting this company from zero to five we thought the structure was really helpful. Is it the right one to take us from 5 to 15 or 50? That's certainly something we think is possible in 2022 to have an interesting conversation about.

Great. Thanks, Jay. We look forward to what's ahead.

Thank you.

Next, we go to Jade Romani with KBW. Please go ahead.

Thank you very much. Just curious about the underlying building owners in the FACE portfolio. How would you characterize their duration and could you give any color as to perhaps what percentage are the managers of funds versus what percentage are traditional real estate owners and families?

hey jade uh marcus um i think it's a pretty broad mix of uh owners and operators families and fund managers um i can i can say for the most part um the investment time horizon of our clients probably sits in the kind of five to ten year bucket okay thank you for that uh any changes in behavior or uh underwriting

that the underlying investors you're targeting are making as a result of the evolving interest rate outlook?

Certainly in multifamily, you know, there continues to be a very strong bid, regardless of rates. I think the rental growth, particularly in some of the core markets we're in, has been – historic, and I think people still feel very good about those markets. But, you know, I think higher interest rates overall in the near term are going to require an adjustment. We think efficiency is only going to get more important when rates rise. And as we continue to say, we think we are providing a more efficient source of capital for lots of different opportunity sets, whether it's multifamily office, hospitality, or life science. We think we've got a solution that will become even more important as rates rise, maybe returns get squeezed a little bit. But right now, at least in the most active part of the market we play in, which is multifamily, the bidders are still quite aggressive. We haven't seen a pullback based on rates yet, but obviously the rate move is relatively recent.

And, um, finally the investors that you're speaking with, um, that are contemplating a transaction with safe, is there alternative, another ground lease provider, or is it whether to do the whole financing in a first mortgage and perhaps some other part of the capital stack mezzanine capital, et cetera, or, uh, is there something else at play? Are you competing primarily with mortgage lenders?

Yeah, our primary competition is still the regular way fee financing mortgage meds market that is extremely efficient. Our job is to convince customers that this is a more efficient way to capitalize your real estate. And as I alluded to, sometimes those conversations take a very long period of time. But once we get customers over the line, we see a tremendous amount of repeat business. So it's still the regular way financing markets.

Regularly, would you say that banks and life insurance companies comprise the majority, or are you competing more with debt funds and non-banks?

It depends on the leverage level that the investors are looking at. So at the lower leverage, it's the banks and the insurance companies. At the higher leverage points for the entire stack, it is the fund business.

Thank you for taking that.

And we have a follow-up from Keevin Kim with Truist. Please go ahead.

Thank you again. Just going back to the carrot monetization strategy, I'm just curious, to list the securities, what's the biggest hurdle that you guys face? Is it a legal thing? Is it a financial engineering issue? Just because we haven't seen something like this before, I'm just curious internally what the biggest hurdles are.

Yeah, I think the biggest hurdle for us is to make sure we get it right. We have lots of ideas about how this can play out. We figured out most of that, 90% of that, when we started this process years and years ago. But the market's evolved. Our business has evolved. We want to make sure we get this right. So, we just want to give ourselves the time to work with our new investors and really think about the potential and where we should take this in terms of who are the most likely investors to maximize its value for, you know, near-term and long-term. So, we'll give ourselves that chance to make sure we've got it right, and then there's really no legal obstacles. It's just getting it in the right hands so that it trades the way we think it should, which you've heard us talk about what we think the value components are here, growth, the discount rate. We think we're putting in place all the pieces of the puzzle financially. I'm sure our teams are able to put in all the pieces from a listing requirement. So really, this is more of a strategic period where we just want to make sure we've got it absolutely synced. and then we will hopefully have the market respond the way we'd like.

Okay, great. And on the balance sheet, I'm just curious on how you're thinking about your equity needs going forward, and I'm curious if you actually raised any equity in 4Q.

Yeah, it feels like the pipeline is strong, but we had a lot of capital at your end. I think Marcus mentioned $900 million, so... We'll look at the pipeline. We've got, you know, this dynamic you guys have heard us talk about before. We have some whales, and then we have the flow business. The flow business, we can kind of predict the whales are harder. And so I think the timing of any equity deal will be, you know, really dependent on when do the whales hit. And certainly a lot of good activity, but nothing we can talk about just yet.

And has there been any equity issues in 4Q or court of debate? No. Okay. Thank you, guys.

And next we have a question from Harsh Hemnani with Green Street. Please go ahead.

Thank you. Just going back to the sale of the Carrot Unit, there was an investment advisory board that was formed for Carrot, and I think this is probably the first board, so to speak, for Carrot. So I just want to ask, what will the role of this board be? How much control will they have in eventually deciding what happens with Carrot? And then also, can you touch on if there might be any conflict of interest, given some of these investors are only invested in Carrot and not in SAIT?

Yeah. Hey, Harsh. It's only an advisory board, so it has no formal voting role in terms of safehold or carrot, but it is an advisory board we respect and want their thoughts on. So there's no conflict per se. They don't have control. They don't have veto rights. So it really is an advisory board. It does exactly what the name says. It's going to help us think through how to unlock the full potential of this the most quickly possible. from a number of different investor perspectives. And again, we're excited and delighted to have the caliber of people available to us who saw what we see, see that potential, and can actually take us places we've taken us a long time to get to on our own. We now have people who interface with exactly the parts of the market that we think will find Carrot unique and increasingly valuable.

Okay. That will be for me. Thank you.

And we have a follow-up from Rich Anderson with SMBC. Please go ahead.

Popular folks. Sorry to keep it going, but just another question or two. The first, Jay, is there any economic possibility that a combined company would not be a REIT?

Just way too early to talk, Rich. That's I think, again, we're just going to try to maximize value. I can't talk about specific tax or anything like that.

Okay. The question I got back on was, again, on this customer opportunity, when you say customers, I assume you're talking about your ground-lease customers. And is perhaps selling them a unit of carrot a way to address the anxiety that a real estate owner would feel about losing control of their assets when their ground lease expires? So if you own a carrot, it's almost like, or some units of carrots, you can hedge against that event and hence your customers could actually be among the ultimate owners of the carrot entity. Is that something you're thinking about?

Yeah, I think what we're trying to accomplish is just deliver our customers the lowest and most efficient form of capital. If that's a combination of ground lease and carrot units, and that only makes them feel like partners, you know, it could be an interesting idea.

Okay, just wanted to clarify that. Thank you very much.

And Mr. Fuchs, we have no further questions.

Great. It's great to hear all the interest in the story. And if anyone should have additional questions on today's earnings release, please feel free to contact me directly. Leah, would you please give the conference call replay instructions once again? And thanks to everyone for joining us.

Certainly. Ladies and gentlemen, you may access the replay after 2.30 p.m. Eastern time today until March 1st at midnight. You may access the replay by calling 1-866-207-1041 today. and enter the access code of 1185612. And that does conclude your conference for today. Thank you for your participation. You may now disconnect.