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?