Ladies and gentlemen, good morning and welcome to Safehold's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] 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 Fooks, Senior Vice President of Investor Relations and Marketing. Please go ahead, sir.

Good morning, everyone and thank you for joining us for Safehold's earnings call. On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer; Marcos Alvarado, President and Chief Investment Officer; and Brett Asnas, 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'll be a replay of the conference call beginning at 12:30 PM Eastern Time today. The 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?

Thanks, Jason, and I 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. $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 of 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 it's 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% year-over-year. For the full year, earnings reached $1.35, up 15% 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-market value of the assets sitting on our lands 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…

Thank you, Jay, and good morning everyone. Before we jump into the details, let me first say that we are excited to announce Brett Asnas' promotion to Chief Financial Officer. Many of you already know Brett since he has 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 buildup upon that success. In addition, we promoted Theresa Ulyatt 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. Theresa 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 Caret 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 that's how we will continue to scale our business. This initial sale of Caret 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 Caret Units in innovative ways to enable our customers to join us on this journey. I'll spend a little bit more time on the Caret transaction shortly, but now let me turn to…

Thanks, Marcos. 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 for 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.

[Operator Instructions] And our first question is from Nate Crossett with Berenberg. One moment please. And your line is open.

Good morning guys, and congrats on a strong quarter. A few questions. I was wondering maybe you can just give us a sense of how things have carried over year-to-date, what was the deal flow like so far, how much have you closed. Maybe give us a little color on the pipeline in terms of mix. Is it still weighted mostly towards 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 is an update there. And then I had just a question on pricing and yield. 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 REITs have done.

Yes, Nate. So let me let Marcos talk about how the pipeline feels and some of the pricing dynamics. But just in terms of, the market feels like 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 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.

Yes. Nate, just to add to what Jay said, I think a fair amount of confidence in our ability to continue to scale the portfolio. Obviously, that was reflected in our raising guidance $1.1 billion from - 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 iStar and SAFE. Now that the net lease portfolio has been sold, how should the market be thinking about the timing and the mix of how a potential combination might look?

Sure. Just one point of clarification. We've announced the signing of an agreement on net lease, it hasn't actually closed yet, but still a lot of work going on to get that done. So just want to make sure you understood that. Nate, you've heard us say before that once SAFE reaches scale, we think the independent Directors of Safehold'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.

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

So, Marcos, I don't know if you said this explicitly, but you talked about utilizing Caret Units in innovative ways with customers. So could you envision, I don't know, purchasing ground leases or getting inbound ground lease investments by using the Units as your source of money to - is that like sort of like a down REIT structure type thing, is that what you're talking about?

No, I think we as Management see a tremendous amount of value in Caret 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 is 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 Caret business?

If you think about the investor make up Rich, it was a highly curated process from a bunch of different avenues of the world. We're not entirely sure what form Caret 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 Zigg 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.

Yes. I think it rolls into kind of what Marcos was saying. We've always thought Caret 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 iStar 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 Caret process. So we're really pleased to have someone like him. He has also had the benefit of watching us up close build Safehold and Caret, has seen its potential and I think there is 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 forwards in terms of independent Directors and Council is all over 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 from me, you talked about the eight refi's that happened. Can you talk, where were they in the life cycle of the exploration and what happened to the rents, could you give some color about how they were adjusted presumably upwards?

Yes. So these were ground leases that were put on over the last 4.5 years. So they're all pretty new ground leases. The point being that our customers executed on our - on their business plan and were able to recapitalize the leasehold positions behind us successfully.

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

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

It was when we started the conversations with the investors, it was that 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 toward a public listing or some type of liquidity event for the Caret, is it realistic to assume that there is another interim transaction to monetize the Caret further, to show - demonstrate value as it would lead up to the monetization event or is it pretty much the only event we should think about?

Yes. I think there are several different paths we're working with some third-party advisors to help us think through that give insight. 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 and 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 - we're going to do this very thoughtfully as we work our way through 2022 and continue to execute on the business.

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

No. As you know, Caret has a fixed number of Units. So we will have a lot of thought going into how to make Caret 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 is no specific provision.

And our next question is from Spenser Allaway with Green Street. Please go ahead.

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

So I think two things, one, we see this as definitely one of the two major assets of Safehold. So I'd anticipate Safehold being a very major owner of Caret long term and 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 Caret investors, that if there isn't a return beyond the cost basis for these investors that are able to redeem their Units. So when you have a liquidity event, have you guys negotiated a specific hurdle - a specific hurdle rate for that investor pool?

Yes. We kind of think of it in terms of, we have strong belief and believe they have the same strong belief in the value, but the liquidity for a fund to invest in something like Caret 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 are very much aligned. We want that, they want that, was important to how they thought about it. In terms of value, you're going to see and hear us continue to talk about the increase in value of Caret not only historically, but prospectively in terms of the opportunity set. We don't think that's going to be a big challenge, but we need to make this the security and give us the liquidity to really open up this market as soon as possible. So I don't think two years is a problem, but we've got a lot of work to do.

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

Sure. It's too early to worry about that today, but I would tell you, we fundamentally believe we will get this listed and it will trade above what 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 Marco said, getting the right investors, because we think the opportunity is so large here. In terms of getting the full value, that will happen over time. But we certainly think we have set the initial marker at a low enough value, that it's really a liquidity question hopefully, we are not talking about value in two years.

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

A long-time listener, first-time caller here. I wanted to - thought so you guys might enjoy that. I wanted to talk about the 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 more, 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 is actually even more demand for ground leases in a rising rate environment?

Yes. 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, 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 is a potential opportunity even in a rising rate environment to capture more share.

And maybe as a follow-up question to that, you've always been super successful originating a lot of ground leases, particularly in 4Q, '21. 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, call it institutional investors, and I'm not suggesting you're not working with institutional investors, but the big REITs of the world. Do you think there is an opportunity to eventually expand to them and maybe even over the near term?

Yes. Richard, 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 that 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 are engaging with, it looks very different than it did even six months ago. So, for example, 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 the SAFE sell concept.

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

Yes. 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 candidly, we are executing our business as far and 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 an appropriate time, I'm sure the announcements will come when they're necessary. But right now we're just focused on continuing to build the business.

I'll follow that under annoying sell-side conversation - 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.

Good morning, everybody. So maybe just again on the Caret 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 a 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 out to us?

Sure. So, we began the process in earnest as Marcos said, when we had third quarter numbers in hand, which was UCA $6.7 billion. 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 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 a, just the wealth creation value creation for - from this modern ground lease portfolio we're building, but others who see, 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 - it is 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 are 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…

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

Yes, the 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 were in 14 different markets, including two new ones. When you think about your varied property types are 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.

While 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 of these markets, 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 a - 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 a strong educational drivers. But really, if you're asking today, we are really good at underwriting the real estate and the land and the location and it's 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 are 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 even though keep improving what's standing there today or they will take that down and build something more valuable. That is just the fundamental thesis of this business based on, not only our 30 years in the business, but hundreds of years of research - hundred years - 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 Caret and some of the other things in the portfolio.

And maybe one quick modeling one, just in terms of the 4Q transaction, 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 seeing on Page 7, you can see the annualized in-place rents that was at 12-31.

And our next question is from Anthony Paolone from JPMorgan. Please go ahead.

Yes. 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, I guess just the lease cash flows?

It's just lease cash flows. There is zero in that 4.9%.

For the residual, the zero?

Yes. There is no CPI either. The residual at the initial cost basis.

Okay. So what do you estimate if you - what do you internally underwrite as sort of that residual, like what would that add to the 4.9%?

We don't really look at that way, Anthony. I think the value of a single asset, you can pick your discount rates, you can pick your growth rates. Historically, over time, we don't think that is got enough growth embedded in it organically to ever outrun its discount rate. 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'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 Caret 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. That - 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. That's the number that I think. Yes.

Yes, no, 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.

Yes. I think for us, Caret is the asset. How much value it's growing and building up in the portfolio and 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 there, we own it. We know what it's worth today. We know how fast it's growing. We know what the discount rate is. And so, but for us, that to find the outline of Caret 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 Marcos gave you some guide posts 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 bases back at the end, we know all the pieces of the bond puzzle too. So this is really important. The bond system is got all the components and they are market based and Caret has market based components and when you put them in those two baskets and you look the growth in the diversity increase in both asset pools, that to us is why the market has never seen an asset like Caret and it's never really 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 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 two, the most like being 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 are building the business, than to put them back together and try to figure it all out as one thing.

So it sounds like a lot of the value ascribed to the Caret comes from just the dynamic nature to the pool and that 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, I mean how do you have a throttle on just right SAFE doing deals that make sense for SAFE versus simply growing, doing it to grow the pool of assets in the Caret.

Yes. I think, important piece of this is, Safehold's Board's mission is to maximize the value for Safehold shareholders. So in any conversation, it kind of begins there is 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, Safehold shareholders should be the majority beneficiaries of whatever path Caret takes. I don't see a scenario where the Safehold shareholders have no stake in Caret, because then you would have some of the issues you're talking about.

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

Yes. 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, our job is to drive down the cost of funds, create the best alternative for our customers. But at least coming into 2022, 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 10-year you lined, 30-year, what's the?

I think we're averaging like 25ish, 24ish years right now. So it's a blend of 50s, 30s, 10s. Right now, it blends like think, Brett, what 24 years. 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.

Hi guys, thanks for taking my question. Just on ratings and leverage, what can you tell us where you want leverage to be or can we model sort of for that in '22? And then on ratings, where do you stand on an upgrade? Do the agencies look at this Caret as possibly giving you possibly credit for it and how close are you to getting a single A minus?

Yes. Brett has a fingertip feel for the conversations with the agencies. We are a young Company. We are inpatient but we're patient. We're putting all the foundational pieces in place and I think 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 Caret being a little bit of a wildcard, 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 will impact - 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 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, we do believe the Company's credit profile is a higher grade profile of than where we are today, but I don't know, Brett, we got our rating a year ago. So we're going to share with them all of the progress we've made and all the progress we still think is to come and let that process play out.

Got you. And then, so should we expect to stay in the sort of range of sort of 1.5 to 2 for the sort of - we look at for the next kind of 6 to 12 months?

Yes. 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 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? 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 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 reinvest at 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%. 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, 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 what's driving shareholder behavior, but delivering very safe long-term cash flows is part of our story. Giving it, 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 to date 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% cash, we'd probably do the same thing. So in some respects, it's happening without us having to do much work.

Great. Got you. 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 side to internalizing the management contract, possibly merging with STAR? Can you just give me a - 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 or bring in new investors, just sort of big picture, what does this do for SAFE?

Yes. 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 it over time, it may not be the right architecture. So I think it will definitely help open up the window to a part of the shareholder world that we think is the 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 policy that 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 is 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.

Next we go to Jade Rahmani with KBW. Please go ahead.

Thank you very much. Just curious about the underlying building owners in the SAFE 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?

Jade, it's Marcos. I think it's a pretty broad mix of owners and operators, families and fund managers. I can say, for the most part, the investment time horizon of our clients probably sits in the kind of 5 to 10 year bucket?

Okay. Thank you for that. Any changes in behavior or underwriting that the underlying investor you're targeting are making as a result of the evolving rate - interest rate outlook?

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

Yes. Our primary competition is still the regular way fee financing mortgage mezz 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 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 of financing markets.

Regular way, 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 levels 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.

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

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

Yes. 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 has 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 near-term and long term. So we give ourselves that chance to make sure we've got it right. And then there is 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 your - how you're thinking about your equity needs going forward and I'm curious if you - as you raised any equity in 4Q?

Yes. It feels like the pipeline is strong, but we had a lot of capital at year-end. I think Marcos mentioned $900 million. So we'll look at the pipeline. We've got 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 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 issuance in 4Q or quarter-to-date?

No.

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 Caret Units, there was a investment Advisory Board that was formed for Caret and I think this is probably the first Board, so to speak for Caret. 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 Caret? And then also, can you touch on if there might be any conflict of interest given some of these investors are only invested in Caret and not in SAFE?

Yes. Hey, Harsh. It's only an Advisory Board, so it has no formal voting role in terms of Safehold or Caret. But it is an Advisory Board we respect and what their thoughts on. So there is no conflict per se. They don't have control. They don't have beta right. So it's 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 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 that would have taken us a long time to get to on our own and we now have people who interface with exactly the parts of the market that we think will find Caret unique and increasingly valuable.

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.

Okay.

I think again, we're just going to try to maximize value. I can't talk about specific tax or anything like that.

Okay. My, 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 Caret a way to address the anxiety that a real estate owner would feel about losing control over their assets when their ground lease expires? So if you own a Caret, it's almost like or some Units of Carets, you can hedge against that event and hence your customers could actually be among the ultimate owners of the Caret entity. Is that something you're thinking about?

Yes. 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 Caret Units and that will maybe makes them feel like partners, it could be an interesting idea.

Okay. Just wanted to clarify that. Thank you very much.

And Mr. Fooks, we have no further questions.

Great. It's great to hear all the interest in the story and if anyone have additional questions on today's earnings release, please feel free to contact me directly. Lois, 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 PM Eastern Time today until March 1st at midnight. You may access the replay by calling 1-866-207-1041 and enter the access code of 1185612. And that does conclude your conference for today. Thank you for your participation. You may now disconnect.