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Good afternoon, and welcome to Safehold's Second Quarter 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 Pearse Hoffmann, Senior Vice President of Capital Markets and Investor Relations. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us today for Safehold's earnings call. On the call, we have Jay Sugarman, Chairman and Chief Executive Officer; Michael Trachtenberg, President; Brett Asnas, Chief Financial Officer; and Steve Wylder, Executive Vice President, Head of Investments. This afternoon, we plan to walk through a presentation that details our second quarter results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 54312. In order to accommodate all those who want to ask question, we ask the participants limit themselves to 2 questions during Q&A. If you'd like to ask additional questions, you may reenter the queue.

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 it over to Chairman and CEO, Jay Sugarman. Jay?

Thanks, Pearse, and thanks to everyone joining us today. This quarter, Safehold further built on its market-leading position in the ground lease sector. We added new customers, new capital relationships, and new geographic markets and continue to believe we are building a very valuable and irreplaceable portfolio of ground leases in the top 30 to 40 markets in the country. These MSAs typically benefit from 2 large forces that have historically increased the value of land. First, the densification of economic activity in the top urban and infill markets; and second, the ongoing pursuit of the highest and best use of land by the entrepreneurial real estate communities in these same markets.

The U.S. has added approximately 50 million people over the past 25 years and approximately 250 million people over the past 100 years. Our goal is to own well-located land in every major market in the United States and let the power of compounding and a growing economy drive value for us. In the meantime, we need to work hard to expand our business and overcome near-term market challenges, and we're fortunate to have a talented team doing that every day. With that, let me have Michael and Brett recap the quarter and take you through the details. Michael?

Thank you, Jay, and good afternoon, everyone.

Let's begin on Slide 2. We had a strong second quarter for both new investments and capital markets activity. We originated 7 multifamily ground leases for an aggregate commitment of $150 million, our most productive quarter since 2022. These closings were all within Safehold's growing affordable housing subsector and included 6 California deals and 1 Texas deal with 1 new sponsor and 3 repeat sponsors. Credit metrics were in line with our portfolio targets with a GLTV of 35%, underwritten rent coverage of 3.0x and an economic yield of 7.4%.

Moving to capital markets. We closed 2 bespoke private capital transactions during the quarter, including a $348 million joint venture with Brookfield on a portfolio of 7 ground leases and $225 million of 30-year step-rate unsecured notes. We were pleased to partner with Brookfield on this venture, which accomplished several goals, including adding a sophisticated partner to our platform, demonstrating demand and liquidity in our portfolio at an attractive valuation, deleveraging the balance sheet and creating incremental investment capacity at an attractive cost of equity, and retaining control of the assets and future flexibility to repurchase Brookfield's 49% interest.

During the quarter, we also raised $225 million of 30-year private unsecured notes priced at an all-in coupon of 6.615% or a spread of T plus 162.5 basis points. Net of approximately $30 million in recently unwound hedge gains, the effective cost is approximately 5.83% or T plus 84 basis points. The starting cash interest rate on the notes is 4%, which will step up gradually over the next 30 years. We are pleased with this execution, which lengthens our debt maturity profile, further increases corporate liquidity, adds new high-quality debt investors to our business and the structure and demonstrates positive trends from our previous 30-year structured unsecured offerings, including adding more dollars and at a tighter spread.

At quarter end, the total portfolio was $7.3 billion and UCA was estimated at $9.8 billion, up $260 million from last quarter, nearly $500 million year-to-date and nearly $1 billion since appraisal values bottomed in the first quarter of 2025. GLTV was 52% and rent coverage was 3.4x. We ended the quarter with approximately $1.4 billion of liquidity, which is further supported by the potential available capacity in our existing joint venture, the sovereign wealth fund.

Slide 3 provides a snapshot of our portfolio growth. In the second quarter, we funded a total of $123 million, including $69 million of ground lease fundings on new originations, $49 million of ground lease fundings on preexisting commitments and $5 million of leasehold loan fundings. Our ground lease portfolio has 172 assets and has grown approximately 22x by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio comprises approximately 39.4 million square feet of institutional quality commercial real estate. We have increasingly focused on opportunities within the broader multifamily sector, including market rate, student housing and affordable housing. Our multifamily segment now includes 111 assets with nearly 25,000 units that sit above our ground leases and represents approximately 65% of the portfolio by count and 61% of the value of our estimated unrealized capital appreciation.

And with that, let me turn it over to Brett to go through the financials.

Thank you, Michael. Continuing on Slide 4, let me detail our quarterly earnings results. For the second quarter, GAAP revenue was $114.6 million, net income was $30.2 million and earnings per share was $0.42. Net income and earnings per share increased year-over-year, primarily driven by net accretion from asset fundings and new originations.

On Slide 5, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield and a 5.5% annualized yield. Annualized yield includes noncash adjustments within rent as well as depreciation and amortization, driven primarily by accounting methodology on IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 6.0% economic yield, which is an IRR-based calculation, consistent with our underwriting methodology. This economic yield has additional upside, including periodic CPI lookbacks, which we have in 84% of our ground leases.

Using the Federal Reserve's current long-term breakeven inflation rate of 2.23%, the 6.0% economic yield increases to a 6.2% inflation adjusted yield. That 6.2% inflation adjusted yield then increases to 7.4% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in Caret at management's most recent estimated valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.

Turning to Slide 6. We highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV, which is based on annual asset appraisals from CBRE, rounded up slightly at 52% in Q2, and rent coverage on the portfolio was unchanged at 3.4x.

Lastly, on Slide 7, we provide an overview of our capital structure. At quarter end, we had approximately $5.0 billion of debt comprised of $2.8 billion of unsecured debt, $1.3 billion of nonrecourse secured debt, $621 million drawn on our unsecured revolver and $270 million of our pro rata share of debt on ground leases, which we own in joint ventures. Our weighted average debt maturity is approximately 18 years with no significant maturities due until 2029. At quarter end, we had approximately $1.4 billion of cash and credit facility availability.

We are rated A3 by Moody's, A- by S&P and A- by Fitch, all with stable outlook. We continued utilizing our share repurchase authorization in the second quarter, buying back approximately 850,000 shares of common stock at an average price of $15.17. Our limited floating rate borrowings are protected by a $500 million SOFR swap locked at 3% through April 2028, creating interest savings of approximately $820,000 for the second quarter. We recently terminated $225 million of long-term treasury locks for a cash gain of approximately $30 million, which will now be recognized as an offset to interest expense on the P&L. We currently have $25 million of long-term treasury locks outstanding at a mark-to-market gain of $3 million. We are levered 2.01x on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.4%, and the portfolio's cash interest rate on permanent debt is 3.9%.

So to conclude, it was a very productive quarter with investment growth, UCA growth, strong capital activity and solid earnings. The pipeline is active, the balance sheet is well positioned, and we look forward to continuing the momentum through the rest of the year. With that, let me turn it back to Jay.

Thanks, Brett. Let's go ahead and open it up for questions. Operator?

[Operator Instructions] Your first question for today is from Anthony Paolone with JPMorgan.

I was wondering if you could talk a bit more about the Brookfield joint venture and also whether are there any fees that you all are getting for the venture and also any implications with Caret with selling a stake in those?

Tony, it's Brett. The Brookfield transaction, we're quite excited by. Again, we set out some goals earlier in the year, talking about how to recycle capital within the portfolio, doing buybacks, continuing to scale our ground lease platform. And I think this transaction helps us in a multitude of ways. First, I would say, adding an institutional partner like Brookfield is a plus for us, certainly at an attractive valuation. Secondly, I would say, deleveraging the balance sheet, taking those proceeds, paying down debt and our revolving credit facility was a positive and certainly a better cost of capital than issuing common stock. Thirdly, I'd say that adding liquidity at a time where we find attractive opportunities in the ground lease space at the yields that we're talking about, we want to make sure we have capital to do that.

And then the fourth, which you hit on in your question as well, is retaining flexibility at our option, which is we have the ability to buy back in their 49% share that we sold them. So it was a portfolio of 7 ground leases, diversified all across the United States, different sponsors, different markets. And we felt like this transaction showed folks that we have alternative capital sources, again, at an attractive valuation. In terms of fees, there are customary fees associated with the deal in terms of getting a joint venture like this done. Obviously, you've seen us do joint ventures in the past. We have one with our sovereign wealth partner. But I think the feature in this deal of being able to have that call option after 7 years is an important one for us as we continue to build and scale the platform and continue to grow our UCA account.

And then just can you talk to the investment pipeline and also how that ties in with just your runway for capital that you have now that you got some money back from the Brookfield joint venture?

Tony, it's Michael. So look, we were pleased to convert $150 million of our pipeline in the quarter, and we've continued to replenish it. We expect to continue to execute on our pipeline in the coming quarters. And additionally, we feel really good about the activity that we're seeing at the top of the funnel. I'll let Brett talk about capital.

Yes. From a capital perspective, at the moment, we have about $620 million drawn on our revolver at quarter end. So when we're looking at our funding profile of the existing ground lease commitments as well as new deals, obviously, a pretty active second quarter between stock buybacks and new investments in existing ground leases and leasehold loans, we put out nearly $135 million, $140 million worth. So I think that really was offset by the joint venture and $160 million, $170 million of proceeds coming in for that. But going forward here, clearly, our capital needs are going to be dependent mostly on creating new deals and looking at that pipeline and taking leverage down this past quarter has helped us get some runway here over the coming quarters, which we obviously don't see any equity need in the near future here.

Your next question is from Mitchell Germain with Citizens Bank.

Sorry about that. I guess I was on mute. Rent coverage across the multifamily sector down definitely from year-end. Is that something to do with just ramp of developments? Is there anything that's really contributing to that specifically?

Yes, there's a natural migration in the portfolio as you bring new deals on and particularly in some of the development deals, we underwrite pretty conservatively. So nothing material to look at.

I'm curious about just the ground lease sector in general. I guess published reports suggest there's a pretty big ground lease being marketed in Times Square. I'm not asking about your participation. I'm more curious, do you think that this could maybe raise the profile of the sector a bit given it's been a bit out of favor because of the backdrop?

Yes. Look, I think there's 2 things going on. One is we're trying to modernize the ground lease business, and there are a lot of ground leases out there that are on the opposite side of the table, I call them value destroying, not value enhancing. So we try to separate what you see in the market for modern versus old style. We think the more deals we do, the more modern ground lease transactions, people will see that it's just a natural part of making a more efficient capital market for owners of real estate. Some of these old deals, unfortunately, have a lot of weird provisions in them, and they actually -- it's a step back for us when we have to talk about those.

So our focus is working with the most efficient capital in the market, the longest-term capital market and showing our customers how that can help them. And every once in a while, we'll stumble across an old one that we can help fix. That's a good opportunity as well. But a lot of times, these older ground leases have provisions we just -- we won't play in. And I think some of the old ones in New York, in particular, are very much the vintage ground leases that we are trying to modernize.

I guess last one for me is, are you guys somewhat open for business across multiple sectors at this point? I know that there was an emphasis on possibly just not allocating to the office sector. There's been pretty much an overallocation to multifamily. Is there anything that is off the table right now? Or depending upon the attractiveness of the transaction, are you back in business when it comes to office or other sectors?

Mitch, it's Michael. I would say that we've certainly talked about our focus on multifamily. We're going to continue to lean into multi as our core asset class going forward. We are not closed for business in other asset classes. We'll continue to evaluate those opportunities as they come across. And we'll say as you look across the spectrum of other asset classes, office will be the one that has the highest bar to clear to get us back to the table, but we are not closing the door on any particular asset class.

Your next question for today is from Jonathan Petersen with Jefferies.

I wanted to ask about your -- about affordable housing ground leases. So you got 1 done in Texas this quarter, which is exciting or a second one, excuse me. Can you talk about other progress you're making in other states to originate more affordable housing loans or affordable housing ground leases?

Sure. Jonathan, Steve Wylder. Yes, the team is working hard to expand outside of California. So California, I think, is going to continue to be a focus for us just given the size and importance of that market and the supply-demand imbalance that we see and established a strong presence there. So we're going to continue to be active, but we were really excited this quarter to close our second transaction in Texas. It's also an important market just in terms of the outsized population growth, long-term demand for housing. So that's going to be a continued area of focus now that we've established a precedent. And then we're working hard to open up other markets throughout the Southeast, the Sunbelt up in the Mid-Atlantic. It takes some time to study the regulatory regime and build a profile of customers. But I think in time, you'll see us continue to expand.

Okay. And then I'm curious if you have any thoughts about the new bill that went through Congress, the 21st Century ROAD to Housing Act. I think there were some provisions in there that were supposed to help with affordable housing and just residential development in general. Do you see any positive read-throughs to your business from that?

Yes. I would say we continue to see bipartisan support for the tax credit program, which is a big part of what fuels the investment activity that we're making inside of the affordable sector, so that's encouraging. And that's the support that we're looking for across these markets as our customers develop affordable product, ultimately work hard to meet the demand for affordable housing in these communities. So if anything, I would say it's a net positive to how we're investing into the sector and support of the programs that help get these projects built.

Okay. Maybe one last one for me. On the Brookfield JV, the call option, are there any like penalties around that or premiums you have to pay or time restrictions? Just any more details you can give us on how that works?

Yes. I think from -- it's Brett. I think from our perspective, we look at the price paid from a valuation perspective and the 49% that they bought it at, and as we disclosed, a low-4% cap rate or close to 4% as attractive capital here going forward. A lot of the total pricing if those call options are hit after year 7, if we so choose -- again there's no requirement, there's no put here -- we want to make sure that from a pricing perspective, based on those moments in time where the real estate markets are at, where the capital markets are at, that we have the option to buy that back in. So again, from our perspective, we think it's, again, pretty back-ended there and a good cost of capital, but exact details and terms are obviously confidential with our JV partner per our agreement.

Your next question is from Kenneth Lee with RBC Capital.

Just in regards to the current rate environment with longer-term rates increasing, just wondering if the rate movement has been impacting any sorts of ongoing discussions or activity that you are seeing in the pipeline there?

So despite the elevated interest rates, we continue to see meaningful interest from sponsors in our product, and we've been quoting a large number of deals. I think it's important to note that we are one part of the capital stack and in many instances, buyers might need to win a process or go out and find debt or other equity to complete a transaction. And obviously, the rate environment with the volatility in the higher rates we've seen throws in a little bit of a volatility in that process. So while we're still being able to show sponsors that we're adding value, and we are an attractive solution, we do need all those other pieces to continue to come together to execute.

And then one follow-up, if I may. In terms of the Park Hotels portfolio there, any updated outlook in terms of earnings contribution for this year?

Yes. No material changes at this point. Obviously, those hotels are in somewhat seasonal markets. So you get a little bit of a positive uptick in second and third quarters and then first and fourth quarters are not so good. So we've got our eyes on it, but no change to the full year forecast at this point.

Your next question for today is from Rich Anderson with Cantor Fitzgerald.

Just want to clarify a question that Tony had in the beginning there. Because of the option to buy out the interest, there is no Caret event in the JV transaction. Is that correct?

That is correct.

And while I have you there. Debt now at 2x from that transaction and others. That's your target. Wondering if you have any -- you alluded to not needing anything equity-wise at the moment. But would it not have been better to have a 1 handle on that number, at least as a starting point to work off of from here. Just curious your thoughts on the current state of the leverage profile.

Yes, it's a good question. And I think I've made reference in past quarters of the uptick or the downtick of what it would take to move. So just for everyone's benefit, it's $250 million of debt fundings would need to be made for leverage to tick up by 0.1 or 1/10 of a turn. So I think my comments earlier about the need or no need for equity in the near term here is really predicated on looking at the pipeline and looking at our funding profile over the coming quarters and understanding how much will need to be funded over the coming quarters. Again, we have some leeway here. We're within our target criteria. We're within the rating agency metrics. And for us, I think, again, a pretty significant quarter in terms of capital deployed across new investments and buybacks and trying to act upon some of the goals we set out at the beginning of the year. So again, pretty good visibility here heading into August for those comments that I made earlier.

Okay. And Jay, you said about buying existing ground leases and not wanting to get into a complicated process of fixing something that's been in place. And first question on that topic is, are the existing ground leases that you bought, are they in need of some fixing that is perhaps a little bit easier to accomplish? Or are they in the realm of reasonable in terms of what type of ground lease that you're offering? And then the second question on that same topic is why wouldn't a leasehold sponsor want you to improve a ground lease? Like why is it hard -- and this is probably a really ignorant question, so apologies -- but why would it be difficult to take a substandard ground lease and make it better and win goodwill in the process?

Yes. I think maybe you misunderstood. We've had a product out there called SafeSwap, where we will help customers buy out an existing ground lease under their property, and we will modernize it for them. And that's actually been a successful product line for us. What's difficult is when you get a ground lease that's either too sized incorrectly or it's got features that prevent us from doing what we need to do to make it fit in the modern capital markets. There may be restrictions. There may be things they've agreed to with other parties that we just can't fix. So we try to very quickly size up whether we can be helpful or not helpful. And we see lots of ground leases. And I can tell you there's lots of them that are just -- they're not a good fit for us or for our customers.

So it's not that we won't do it or even look to do it, Rich. We actually -- we welcome the opportunity when somebody comes to us and says, "I've got a bad ground lease, but I might be able to buy it. Can you make it better for me and provide the capital to do that?" We love doing that. We've done a number of fairly significant transactions on exactly that structure. But in New York, in particular, there's just a lot of old legacy ground leases that are either too big or so badly written that it's almost impossible to fix and those end up being time sync. So we're getting pretty picky about which ones we spend time on.

Last question for me. Is there any governor on how big multifamily can become as a percentage of the total that you have your eyes on? Or are you ambivalent on what the leasehold product is on the top of the ground as long as it's making money?

Yes. We don't have a limit on how much multifamily we're willing to do. We think it's a really good fit for our product, and we'll do as much of it as we can find that we think is an attractive piece of ground to own.

Your next question is from Harsh Hemnani with Green Street.

So maybe going back to the Brookfield joint venture. You mentioned there's a series of calls across several different years. Does the pricing or perhaps the yield you get to buy back the ground leases that change at all over -- depending on which year you exercise the call in?

Harsh, it's Brett. As I said earlier, we're bound by confidentiality with our partner not to give exact pricing and terms. But I think what we've said publicly is that this is a market deal and what you've seen in the market executed across other transactions in the REIT space or in other sectors, there's somewhat of a playbook. Obviously, every deal is a little bit nuanced. But there's no -- if you're thinking that there's any material step-up to pricing over time, that is not the case.

Okay. And then maybe, I guess, what prompted the joint venture with Brookfield versus perhaps considering an outright sale of maybe half the size of the portfolio you contributed to the joint venture with Brookfield. Was it mostly wanting to maintain the portfolio of assets and keep the operating -- operational scale that you guys have? I'm just trying to understand whether you think the execution you were able to get with the Brookfield joint venture a 4% cap on the assets, do you think that is broadly applicable on an all-out sale of the ground leases instead of a joint venture?

Yes, it's a great question. And I think when we went out with the process, we had spoken to a good handful of folks and really tried to understand how people thought about these assets and got a pretty good read-through here. I think on the structure piece, you hit the nail on the head, which is like other JVs that we've done in the past, we sold a 49% interest to our partner, and they share in the benefits and risks. And I think the key feature for us that we found really attractive was that -- and again, we didn't have this in our existing joint ventures is that we have the option to buy that 49% back in, in the future, if we so choose.

So again, way down the road. We'll see where the markets are. We'll see how these assets are performing. And then if we decide from a capital allocation standpoint that we want to own the entire asset or all the economics again, we can decide to do that. But again, no requirement to do it, just options, and we like that feature.

Your next question is from Ronald Kamdem with Morgan Stanley.

This is Matt on for Ron. So last quarter, you guys had $255 million-ish of nonbinding LOIs. In this quarter, you guys put $150 million over the finish line. Just was wondering if you guys could give any detail on the remaining $100 million, if any rate volatility got involved or just what's going on with the rest of the pipeline?

Sure. So that pipeline that we talked about last quarter, we're going to continue to convert on those deals and replenish over the next coming few quarters. But we did a big chunk of it this quarter. And in the next 2, 3 quarters, we'll execute on most of that pipeline.

And then just the second and last one for me. Just on the JV call option, specifically, was the thought process there that you guys wanted to lock in some of the gains upfront, use that to grow the flywheel and then come back to it and reevaluate some point down the road? I'm just trying to figure out why now, I guess, the call option is coming to play, whereas with prior JVs, that hasn't been as big of a piece of the picture.

Yes. I think in comparison to those existing joint ventures that we've created, those were on newly created deals moving forward, and there was a box or requirements of a partner of doing new deals going forward. Here on this joint venture, it was based on existing assets that have already been originated. And we wanted to take a diverse set of assets and a portfolio and contribute and get an institutional partner like a Brookfield to come in and really validate from a pricing perspective and the asset class.

There's a lot of read-through in terms of not only that pricing, but part of our goals here is to make sure that we are growing our ground lease platform and the contractual compounding cash flows that are coming in moving forward, but also the other value components too. And one of the big ones here is UCA. And we certainly believe that the unrealized capital appreciation account that now sits at $9.8 billion, while it's not on the balance sheet, we think is a very valuable asset that investors right now are still getting their heads around. And it feels like for us, each quarter, we're making really nice progress. And if we can continue to grow the portfolio, we should continue to see that account go up. And we, again, think that's a really valuable component when you do a sum of the parts that we continue to need to educate folks on.

Mr. Hoffmann, we have no further questions.

Thanks, everybody, for joining us today. If there are additional questions on today's release, please feel free to contact me directly. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good afternoon, and welcome to Safehold's First Quarter 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 Pearse Hoffmann, Senior Vice President of Capital Markets and Investor Relations.

Good afternoon, everyone. Thank you for joining us today for Safehold's earnings call. On the call, we have Jay Sugarman, Chairman and Chief Executive Officer; Michael Trachtenberg, President; Brett Asnas, Chief Financial Officer; and Steve Wylder, Executive Vice President, Head of Investments.

This afternoon, we plan to walk through a presentation that details our first quarter results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 53936. [Operator Instructions]

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 it over to Chairman and CEO, Jay Sugarman. Jay?

Thanks, Pearse, and appreciate everyone joining us today. We're three years into building a stand-alone Safehold and nine years into building the new modern ground lease business. In ground lease time frames, we're still in the early innings, and we continue to learn and refine the business model to gain scale and unlock the full value of the business.

Multifamily and its variations have proven to be the core of the business, and we are leaning hard into meeting our customers' needs with new products and increased outreach. We like the long-term dynamics in the sector, and we'll continue to innovate to penetrate a larger slice of this market.

One of our key goals in our multifamily push is to expand our success in the affordable multifamily sector beyond the California market, and we've begun to see some progress on that front with our first non-California deal closing this quarter and others in the pipeline.

We also have a developing situation at our 50th Street asset. As many of you know, new property tax incentives in New York City have made older office buildings candidates for conversion to multifamily. Our tenant approached us seeking permission for a potential conversion as required by our lease with pro formas indicating multifamily conversion could generate significantly higher ground rent coverage versus office.

We provided a framework for preliminary approval subject to certain conditions, including the tenant complying with their obligations under our lease. While to date, fixed ground rent has been paid, the tenant has repeatedly failed to pay property taxes as required under the ground lease.

If we're unable to reach a resolution, which starts with the tenant unconditionally paying the required taxes, we will be forced to exercise our rights under the lease. We'll share more details depending on the tenant's course of action but feel comfortable with our position and recent valuation work from our third-party valuation consultants.

The new 467-m tax incentive program has the potential to add important value to the conversion, but the value of these incentives is negatively impacted the longer it takes to get the conversion underway, so time is of the essence.

Lastly, another key goal for this year is to address the value gap we see in our share price. With Michael and Steve finding good risk reward on the new deal front and UCA value starting to move up again, we began a buyback program at the tail end of last quarter to take advantage of the underpricing in our stock. We look forward to highlighting the value in our portfolio and to demonstrating why new ground lease originations at today's levels can add significant value to shareholders' long-term returns.

With that, I'd like to turn it over to Michael and Brett to recap the quarter and take you through the details. Michael?

Thank you, Jay, and good afternoon, everyone. Let's begin on Slide 2. In the first quarter, we closed four transactions, including 3 ground leases and leasehold loan for an aggregate commitment of $68 million. Credit metrics for these originations are in line with our portfolio targets with a GLTV of 40%, underwritten rent coverage of 2.9x and an economic yield of 7.2%.

Two of the ground leases were market rate multifamily assets and one was an affordable housing asset in Austin, Texas, which represents our 20th LIHTC closing in just over two years and our first outside of California. We're excited to enter Texas, which is the second largest LIHTC market in the country and to be transacting with a high-quality sponsor.

Our pipeline remains active with approximately $255 million of non-binding LOIs signed at what we believe are very attractive risk-adjusted returns. We anticipate most of these transactions will close in the next one to two quarters, but there can be no assurances that they close at all.

At quarter end, the total portfolio was $7.1 billion and UCA was estimated at $9.5 billion, which is more than a $200 million increase from last quarter. That increase was driven by both external growth from new investments and improving appraisal values on the existing portfolio. GLTV was 51% and rent coverage was 3.4x.

We ended the quarter with approximately $1.1 billion of liquidity, which is further supported by the potential available capacity in our joint venture. Slide 3 provides a snapshot of our portfolio growth. In the first quarter, we funded a total of $85 million, including $50 million of ground lease fundings on new originations that have a 7.2% economic yield, $18 million of ground lease fundings on pre-existing commitments that have a 6.6% economic yield and $7 million of leasehold loans that yield SOFR plus 238 basis points.

Our ground lease portfolio has 165 assets and has grown 21x by book value since our IPO, while estimated unrealized capital appreciation has grown 22x. We have 104 multifamily ground leases in the portfolio and have increased our exposure from 8% by count at IPO to 63% today.

In total, the unrealized capital appreciation portfolio is comprised of approximately 37.6 million square feet of institutional quality commercial real estate, consisting of approximately 23,000 multifamily units, 12.6 million square feet of office, over 4,000 hotel keys and 2 million square feet of life science and other property types.

And with that, let me turn it over to Brett to go through the financials.

Thank you, Michael. Continuing on Slide 4, let me detail our quarterly earnings results. For the first quarter, GAAP revenue was $110.9 million, net income was $28.9 million and earnings per share was $0.40. The year-over-year decrease in net income was primarily driven by two Park Hotels assets transitioning from a ground lease to fee simple ownership.

Replacing ground rent with hotel operations decreased net income approximately $3.5 million or $0.05, which was in line with our internal forecast. There is seasonality in these figures, and we expect hotel performance to improve in the coming months as Q2 and Q3 have historically been more profitable than Q1 and Q4. Additional financial detail and reconciliation on these assets can be found on Page 13 of the deck.

On Slide 5, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield and a 5.5% annualized yield. Annualized yield includes non-cash adjustments within rent, depreciation and amortization, which is primarily from accounting methodology on IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent or CPI-based escalators, which are all significant economic drivers.

On an economic basis, the portfolio generates a 6.0% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI lookbacks, which we have in 81% of our ground leases.

Using the Federal Reserve's current long-term breakeven inflation rate of 2.22%, the 6.0% economic yield increases to a 6.2% inflation-adjusted yield. That 6.2% inflation adjusted yield then increases to 7.4% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in CARET at management's most recent estimated valuation.

We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.

Turning to Slide 6. We highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets, by gross book value, are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type.

Portfolio GLTV, which is based on annual asset appraisals from CBRE, decreased quarter-over-quarter to 51% and rent coverage on the portfolio was unchanged at 3.4x.

Lastly, on Slide 7, we provide an overview of our capital structure. At quarter end, we had approximately $5.0 billion of debt comprised of $2.6 billion of unsecured debt, $1.3 billion of non-recourse secured debt, $890 million drawn on our unsecured revolver and $270 million of our pro-rata share of debt on ground leases, which we own in joint ventures.

Our weighted average debt maturity is approximately 18 years with no significant maturities due until 2029. At quarter end, we had approximately $1.1 billion of cash and credit facility availability. We are rated A3 by Moody's, A- by S&P and A- by Fitch, all with stable outlook.

We are well hedged for both the short and long term. Our limited floating rate borrowings are protected by a $500 million SOFR swap locked at 3% through April 2028, which is paid current on a monthly basis. We have an additional $250 million of long-term treasury locks at a weighted average rate of 4.0% and current gain position of approximately $33 million. We recognize the value of our treasury locks on the balance sheet, but not yet on the P&L.

We continue to believe our stock is undervalued and have been repurchasing shares since the end of March. In Q1, we utilized approximately $3.4 million for share repurchases at an average share price of $14.39. We are levered 2.04x on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.2%, and the portfolio's cash interest rate on permanent debt is 3.9%. So, to conclude, originations are trending up, UCA is trending up and our balance sheet is well positioned to support new business.

And with that, let me turn it back to Jay.

Thanks, Brett. Let's go ahead and open it up for questions.

[Operator Instructions] And the first question today will be coming from Mitch Germain from Citizens Bank.

What's the difference -- or maybe what was the challenge in getting an affordable transaction done outside of California?

Mitch, so Steve Wylder, a couple of things. Part is general awareness, right, spending time to build profile in that market with the subset of developers, equity sources, debt sources historically are less familiar with our structure and our kind of GAAP funding abilities.

The piece we've been spending time on and are really excited to kind of get past is the regulatory regime and just the nature of affordable transactions and how they work in the Texas market. So, we're happy to establish a precedent there. California is going to continue to be a focus just given the size and importance of that market and the supply-demand imbalance that we see.

But Texas, now that we've figured out the regulatory regime and we're starting to build some profile is going to be an important market for us. We like the outsized population growth, the long-term demand for housing plays in really nicely with the way we think about the investments that we're making and with a large base of active developers in that market and frankly, a limited amount of subsidy dollars to help bridge gaps, we think our solution is going to be well received. So, we're excited to get one on the board. It's going to be -- continue to be an area of focus for us, and we're already seeing new customer engagement, which is exciting.

And then last one for me, 50th Street, just remind me of the history there, that was an asset that was acquired out of auction, I believe, right? So, the current owner was a new relationship relative to when you made the initial investment. Can you just maybe provide some history and context there?

Sure. You're right. The original sponsor there was a large institutional offshore bank. They put it up for auction, received a bid from a tenant that we did not know. And they have approached us on a conversion, but they don't have any background in that particular -- in this particular market or in that particular expertise. So that's where we are today.

And the next question will be from Anthony Paolone from JPMorgan.

My first question relates to just capital allocation with some of these LOIs here you have that you've teed up, but you've also intimated that maybe you'd look to keep buying back some stock. And I know you've got some JV capital available to you. But just how are you thinking about where capital sources may be if your stock is down at these levels for an extended period of time?

Tony, it's Brett. It's a great question. We're constantly thinking about how to allocate capital in the best manner. There's a few areas in which we're looking at. So, number one, as you point out, the pipeline is -- continues to be there. We keep replenishing it with new deals as we close deals each quarter. Right now, the number is $255 million, as outlined in our deck. We feel good about those deals over the coming quarters.

The funding profile on them will take some time, right? Not all of them are stabilized deals. Some of them fund overtime, call it, over the next 12 to 18 months. And thus, we have some runway.

So, we're looking at the outlay that we have over the coming quarters and thinking about that in the context of what's drawn on the revolver and how our leverage is. So right now, we're at 2x debt to equity. I think I mentioned on the last earnings call, it takes every $240 million of fundings on deals to tick leverage up by 0.1x. So, it gives us some good runway.

Similarly, to your question on repurchases, if we utilize the entire authorization of the moment, the $50 million, that would take leverage up by less than 0.1x. So again, when we think about how much outlay there is for those capital outlays in those different forms, we feel like we have some room. And we want the story to be about the good deals that Steve was mentioning across affordable, across entering new markets, achieving some great pricing and accretion to the book here. And once we do more of that, I think the story will resonate with more folks and hopefully, all those pieces of the puzzle come together.

Okay. Got it. And then second question, just on the hotels. What kind of update can you give us there in terms of where I think the legal matter might sit and also just looking at now you recognizing hotel revenue and expenses, like should we expect that to continue for a while? Or is there anything to be done with those at some point here?

Yes. We've got a trial date coming up early next year. So, unless there's a resolution beforehand, that's kind of the timeline it's tracking on.

So it just stays kind of where it is in terms of watching the hotel revenue and expense just kind of flow in as they operate at this point?

Yes, there's some seasonality, but we'll see. Unfortunately, the new line items will have to continue with those for a little bit here.

Yes, Tony, I think you've seen it show up now the two assets that we own fee simple. As I mentioned in my remarks, the first quarter is -- the change year-over-year was $3.5 million. But if you were looking out over the course of the remainder of the year, call it, April through December, we expect that to be relatively breakeven for the remainder of the year, which is pretty consistent with the guidance or the forecast that we gave last quarter. So it's tracking, but wanted to be clear about Q1's results versus what the expectation would be over the course of the remainder of the year.

The next question will be from Harsh Hemnani from Green Street.

So if I understood correctly, I think the presentation laid out the rationale for the share buybacks, and it was that you were able to repurchase stock at a roughly 60% discount to book value. Could you maybe help me understand why you think that discount to book value is the right benchmark given your book value has ground leases that were acquired at yields in the mid-3s on a going-in cash basis. So maybe help me understand the thought process there.

Yes, Harsh, we really look at the go-forward opportunity and returns to an investor, whether it's us or whether it's any shareholder buying stock. We think it's quite attractive right now. We can walk you through some of the dynamics from a levered ROE basis and the growth profile of the underlying assets, both contractually and with the CPI, CPI continues to be running much hotter than the assumptions we use in some of our public filings and in the earnings.

So there's quite a bit of upside optionality. There's some very specific ROE dynamics that we think are really attractive right now with the stock trading at that discount to book. So it is a good use of funds, but we have dual mandates here. One is to create value in the form of capital structure, but the other is to create value in the form of new customers and lifetime value of those customers. So we're going to try to do both as prudently and judiciously as we can. Happy to walk you through it offline.

Okay. And then in comparing those two, the creating long-term value with new customer relationships and adding to new ground leases versus repurchasing shares. How are you thinking about what's more attractive today? Would it be fair to assume that you're thinking buying back shares is more attractive given the buyback move and especially given it came with, I guess, leverage now slightly above your target? Or how are you weighing those two?

Yes. Look, I think these are relatively small dollars at this point compared to the balance sheet size. So it really is both at this time. Obviously, if we want to go deeper and harder into something, we may have to make a harder trade-off, but we don't feel that right now, that kind of pressure.

Again, I think the economics on new transactions look really favorable to us. But with the stock trading where it is, we also think you can create some very attractive dynamics off the existing book by just investing in the stock.

So they're different. They're slightly different. We don't line them up exactly the A versus B the way I think you might be thinking we are. We're looking at some of the growth dynamics, some of the customer dynamics, trying to assign values to those. And right now, I got to say both of them look really attractive. So it's our job to figure out a way to do as much as we can.

The next question will be from Rich Anderson from Cantor Fitzgerald.

Can I get back to the Park Hotel situation because I don't think I'm entirely clear. So, you own two assets. The -- can you just describe the sort of the day-to-day management of the two assets and just where both parties sit in terms of this period of time between now and the beginning of next year of how things might evolve?

I know you said, well, it will just be this way for a little bit of time. But I mean, is there any chance that something gets resolved between -- before then and we sort of have a more clean breaking point between the two situations between Park and yourself? I'm just -- I'm not clear about the exact setup as it stands today.

Yes, Rich, it's Jay. It's unfortunate we're in a lawsuit. Certainly, that's kind of a last resort thing for us. But we are exercising the rights under our lease, and that will be adjudicated sometime early next year.

We're commercial. We would prefer to have things resolved. But in this case, there was no meeting of the minds on that, and we feel pretty strongly about the nature of our lease and the contractual terms. So unfortunately, we are where we are, and we can't really accelerate these legal processes. I know it's frustrating. It's frustrating for us. It's not core to our business. So we just assume put it behind us. But in this case, we're going to have to play it out.

But in terms of the three that are still paying the ground lease, is there any risk that, that stops at some point along the way?

Unlikely. I mean, they're trying to hold on to those. So they're obviously better performers. And our view is that we had a master lease, and they were all tied together. So you can't default on just one or two. You default, you default.

Okay. Second question is a complete change of direction. How would you describe the liquidation process at iStar timing that with the change, the step down in the management fees of that business? Is it kind of moving kind of in lockstep with one another? Is it lagging? Is it leading? I'm just curious if you could talk about that process.

Yes. We had originally targeted, Rich, at the time of the merger that it would take us about five years to wind that vehicle down. We're still kind of on that time frame. So that was early mid-'23. And so early mid-'28 is still the target.

Things are tracking reasonably well. There are a couple of pieces of that puzzle. We're still going to have to figure out at the finish line. But for the most part, I think our teams have done really good jobs of managing those assets for liquidity and for monetization.

The two big ones, obviously, are tied up with municipalities that have a lot of say over how fast we can go. So that's really the variable that we can't control. But everything feels like it's generally still on the same track as what we originally communicated.

What happens if you're not done with the process and you're -- I mean, is there an extension time frame in terms of the fees that you'll still collect at Safehold? Or does that shut off by definition?

There's a provision that depending on the dollar amount of assets still there, we get a small fee. So, it's a percentage of assets if we don't get to the finish line exactly when we expect to.

[Operator Instructions] And the next question will be from Caitlin Burrows from Goldman Sachs.

Maybe -- sorry to go back to it, but going back to the 50th Street property, you went through before how they're not currently paying real estate taxes, and it sounds like you're going to give them some time to hopefully fix that. I guess how long would you think that you would give them to fix that situation? Is it like a month, a quarter, a year? How should we think about that?

Yes. I don't want to go into too many details, Caitlin, but look, we...

Maybe not that location specifically, like in general, if that came up.

It depends on the underlying customer and their capital commitment and what we think the contracts are pretty clear. You pay your taxes, you pay our rent. There's not a lot of wiggle room there. So that is our standard. And I can tell you, we expect our customers to do at a minimum, pay your taxes and pay your rent. So, there's not a lot of wiggle room there. If we're willing to negotiate, it's because there are other factors that are positive for us.

Got it. And I guess just -- I don't think we've talked about this yet, just when you consider the different property sets that you could be investing in, it seems like your stance is kind of you look at it all if the numbers make sense. But could you talk about in the quarter in the pipeline now, if you have anything beyond residential?

Caitlin, so we really are focused on multifamily as our core asset type and really finding the ability to generate attractive yields out of those assets, especially in the LIHTC space. So for now, finding good opportunity in that space is leaning in hard to open to all other asset classes as well, but the multifamily has always been the core of our focus.

And the next question is coming from Ronald Kamdem from Morgan Stanley.

Just two quick ones. Just going back to the pipeline a little bit and just thinking about -- I think when we spoke three, six months ago, I think rate volatility, I believe, was sort of the number one sort of mitigant that you thought were sort of slowing down deals. I guess I'm curious to get an update on when deals are not getting to the finish line, what are the top two or three reasons and how you guys sort of think about addressing that?

Look, I think that in a lot of cases, deals that don't get to the finish line because the sponsor couldn't otherwise put together their capital stack where they didn't necessarily win a deal that we were in line with them to try and consummate because they just didn't win a process. So those are two really the primary reasons why deals haven't come together if they don't.

I think it's also fair to say we still compete with the fee financing markets. And I think the liquidity actually appears to be picking up pretty nicely, certainly in the multifamily space.

Got it. And then not to sort of beat the Park Hotel situation up, but I guess just my question is just the ripple effect, right? I mean I think you said your leases are pretty clear. But in terms of like CapEx provisions or anything else, like does this whole experience make you want to be even more clear on some of those provisions?

I'm just -- like is there a ripple effect from this sort of lawsuit that you guys sort of think about going forward? And is there sort of any other ripple effect in any parts of the business in terms of your relationship with your clients? That would be helpful.

Yes. I mean, look, the Park deal was done 40 years ago. It's not our standard lease form. It's not the modern ground lease. It's one of those old-fashioned ground leases that we said, "We need to fix these. They don't work." They don't work for either party. There's ambiguities and uncertainties. And we certainly believe in our reading of our ground lease, but this is one of the things we fixed nine years ago when we started this business.

That said, we're still learning. We still find better ways to serve our customers with clear documents. That is an everyday mission here. And we have, I think, created the gold standard. It's been described to us by others that we have the gold standard ground lease now because it is thoughtful, it is comprehensive. It has been worked through on hundreds of transactions now.

So I don't think Park is representative at all of the modern ground lease business. But I'd also tell you, as in my intro remarks, -- we're still learning the business and how to make it as good as it can be. We love this business. We think it's going to be a major business as part of the commercial real estate world, but we're creating it. So anything we can do better, we continue to look at.

And Mr. Hoffmann, we have no further questions at this time.

Thanks, everyone, for joining us today. If there are additional questions on today's release, please feel free to contact me directly.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Good morning and welcome to Safehold's Fourth Quarter and Fiscal 2025 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 Pearse Hoffmann, Senior Vice President of Capital Markets and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us today for Safehold's earnings call. On the call, we have Jay Sugarman, Chairman and Chief Executive Officer; Michael Trachtenberg, President; Brett Asnas, Chief Financial Officer; and Steve Wylder, Executive Vice President, Head of Investments.

This morning, we plan to walk through a presentation that details our fourth quarter and fiscal year 2025 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 2:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 53587. [Operator Instructions]

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 it over to Chairman and CEO, Jay Sugarman. Jay?

Thanks, Pearse, and thank you to all of you joining us today. While headwinds remain, Safehold made good progress on a number of fronts in the fourth quarter that we believe should have a positive impact on 2026. We were pleased to welcome Michael Trachtenberg as President, giving us new reach and firepower to see Steve, Josef and the rest of our affordable housing team begin expanding our platform to new states and new sponsors and have Brett and our capital markets team continue to solidify the balance sheet and drive down our cost of capital. These are all important parts of our goal to get our share price back to where it belongs. .

More consistent origination growth, more care of visibility and implementing share buybacks are some of the important themes this coming year that we believe have the potential to unlock value for shareholders. And we want to continue the work begun in 2025 to deliver tangible results in 2026. Our goals will be to add more ground lease volume in '26 versus 25 to find ways to get Caret value more readily recognized and to begin utilizing our previously authorized share repurchase program when trading windows are open and market condition makes sense. Obviously, there are a lot of factors in the mix, but these are the 3 areas of focus that we've been working towards. We believe will support success in the coming year if we can deliver on them.

With that, I'd like to turn things over to Michael and Brett to recap the quarter and the year in more detail. Michael?

Thank you, Jay, and good morning, everyone. In the short time that I've been with the company, I've seen firsthand a benefits gain for real estate owners utilizing modern ground lease capital and the competitive advantages of Safehold's platform that have been carefully built out over the past 9 years. It has been a privilege to meet with employees, customers and investors to better understand the perspectives of our key stakeholders, and I look forward to engaging further with the investment community in the coming weeks and months. I am confident in our business model and the long-term value creation embedded in a diversified portfolio of institutional quality ground leases, and I'm excited to work closely with Jay, Brett and the entire team to help guide Safehold's next stage of growth.

With that, let me pass it on to Brett to detail our fourth quarter and full year results.

Thank you, Michael, and good morning, everyone. Let's begin on Slide 2. The fourth quarter was productive for both new investments and capital markets activity. We closed on 10 transactions, including 9 ground leases and 1 leasehold loan for an aggregate commitment of $167 million. 8 of the ground leases were within the affordable housing sector in Southern California, and on ground lease was a market rate multifamily development in Cambridge, Massachusetts. That market rate transaction also included a leasehold loan, which was valuable and efficient one-stop capital for our customer.

Moving to ratings and capital. During the quarter, the company received a credit rating upgrade from S&P to A- with a stable outlook. Safehold now has A ratings from all 3 major rating agencies underscoring the high credit quality of our portfolio and balance sheet. This recognition was a strong result of the company, and we are already seeing positive flow through into our cost of capital. Also during the quarter, the company closed on a $400 million unsecured term loan. This transaction effectively refinanced our nearest term maturity due in 2027, increasing liquidity and replacing secured debt with new unsecured debt that is both low cost and freely prepayable over its term.

The right side of the page details the quarter and full year investment metrics. For the year, we closed 17 ground leases for $277 million and 4 leasehold loans for $152 million for an aggregate capital commitment of $429 million. The 17 ground leases included 12 affordable housing, 4 market rate multifamily and 1 hotel, all in major markets with underwritten coverage of 3.2x, GLTV of 34% and an economic yield of 7.3%. At year-end, the total portfolio was $7.1 billion, and UCA was estimated at $9.3 billion, an approximately $200 million increase from last quarter, which was primarily driven by external growth from new investments. GLTV was 52% and rent coverage was 3.4x. We ended the year with approximately $1.2 billion of liquidity, which is further supported by the potential available capacity in our joint venture.

Slide 3 provides a snapshot of our portfolio growth. In the fourth quarter, we funded a total of $60 million, including $44 million of ground lease fundings on new originations that have a 7.3% economic yield, $11 million of ground lease fundings on preexisting commitments that have a 7.4% economic yield and $6 million of leasehold loan fundings, which earned interest at a rate of SOFR+501. For the full year, we funded a total of $252 million, including $141 million of ground lease fundings on new originations that have a 7.2% economic yield, $43 million of ground lease fundings on preexisting commitments that have a 7.0% economic yield and $68 million of leasehold loan fundings, which earned interest at a rate of SOFR+347. At year-end, our ground lease portfolio had 164 assets, including 101 multifamily properties and has grown 21x by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio is comprised of approximately 38 million square feet of institutional quality commercial real estate, consisting of nearly 23,000 multifamily units, 12.6 million square feet of office, over 5,000 hotel keys and 2 million square feet of life science and other property types.

Continuing on Slide 4, let me detail our quarterly and annual earnings results. For the fourth quarter, GAAP revenue was $97.9 million. Net income was $27.9 million and earnings per share was $0.39. The increase in quarterly GAAP earnings year-over-year was primarily driven by $3.5 million net accretion on investment fundings, offset by a nonrecurring $2.2 million loss on the early extinguishment of debt. Excluding the nonrecurring loss, earnings per share for the quarter was $0.42, up 15% year-over-year. For the full year, GAAP revenue was $385.6 million. Net income was $114.5 million, and earnings per share was $1.59. The increase in annual GAAP earnings year-over-year was primarily driven by $17.2 million net accretion from investment fundings offset by a $5.1 million decrease in management fee revenue from stock holdings and the same $2.2 million loss on early extinguishment of debt. Excluding nonrecurring items, earnings per share for the year was $1.65, up 5% year-over-year.

On Slide 5, we detail our portfolio yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield and a 5.4% annualized yield. Annualized yield includes noncash adjustments within rent, depreciation and amortization which is primarily from accounting methodology on our IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 5.9% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI look backs, which we have in 81% of our ground leases. Using the Federal Reserve's current long-term breakeven inflation rate of 2.25%, the 5.9% economic yield increases to a 6.1% inflation adjusted yield. That 6.1% inflation adjusted yield then increases to 7.3% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in Caret and management's most recent estimated valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.

Turning to Slide 6. We highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV which is based on annual asset appraisal from CBRE remained flat quarter-over-quarter at 52% and net coverage on the portfolio was unchanged at 3.4x. We continue to believe that investing in well-located institutional quality ground leases in the top 30 markets that have attractive risk-adjusted returns will benefit the company and its stakeholders over long periods of time.

Lastly, on Slide 7, we provide an overview of our capital structure. At year-end, we had approximately $4.9 billion of debt comprised of $2.6 billion of unsecured debt, $1.3 billion of nonrecourse secured debt, $780 million drawn on our unsecured revolver and $270 million of our pro rata share of debt on ground leases in joint ventures. Our weighted average debt maturity is approximately 18 years with no significant maturities due until 2029. At year-end, we had approximately $1.2 billion of cash and credit facility availability. We are rated A3 by Moody's, A- by S&P and A- by Fitch, all with stable outlook. We have benefited from an active hedging strategy and remain well hedged for the short and long term.

Our limited floating rate borrowings are protected by a $500 million SOFR swap locked at 3% through April 2028. We received SOFR swap payments on a current cash basis each month. We have an additional $250 million of long-term treasury locks at a weighted average rate of 4.0% and current gain position of approximately $30 million. We recognize the value of our treasury loss on the balance sheet but not yet on the P&L. We are levered 2.0x on a total debt to equity basis. The effective interest rate on permanent debt is 4.3%, and the portfolio's cash interest rate on permanent debt is 3.9%. So to conclude, we saw strong production in the fourth quarter and are pleased with how the pipeline is developing for 2026. And we're well positioned to capitalize on opportunities with ample liquidity and improved debt cost of capital.

And with that, let me turn it back to Jay.

Thanks, Brett. Let's go ahead and open it up for questions.

[Operator Instructions] Your first question is coming from Mitch Germain with Citizens Bank.

Congrats on the quarter and the year. Jay, it sounds like you're a bit more constructive about putting capital to work here. Obviously, a lot of your origination volume has been in the multifamily sector. Any potential willingness to invest back into office at this point?

I'm going to throw that to Michael because we've been talking a lot about the opportunity set in '26. Michael, do you want to jump in here?

Look, I think that we are certainly going to look to expand the asset classes that we are investing in, but I would say more broadly that we will be very particular if we look at office deals, and we're more inclined to look at other food groups.

Got you. Q1 is a big quarter for office valuations. Any sense do you think that the worst is behind you with regards to some of the office downside with regards to the appraisals?

Yes, you're right. The first quarter is a big one. We've certainly seen a strengthening in some core markets like New York, that feels pretty good. Other places are a little bit behind, but we've seen the CBRE take a pretty good WACC at those. So I don't know whether we're absolutely at the bottom, but they've taken a pretty good WACC at the markets that are slower to recover.

Great. Last one for me. Jay, you talked about getting the Carets. I think you used the word recognized. Is it just outright sale of units? Is there anything else that you potentially have up your sleeve there?

Yes, it's a great question. Obviously, one we've talked a lot about. I still believe, fundamentally, this is a massive asset that shareholders own that isn't being recognized I think one of the biggest issues is people still perceive it as a 100-year asset. We think we can recognize that value much, much earlier. It's tangible, it's measurable. In some respects, it's Safehold's trust fund. And so we're going to continue to point a spotlight on it.

We're going to continue to look for things that can enable people to understand that value, whether that's liquidity or sales or monetizations of some sort, but we think as we start to grow the underlying portfolio again, this has to be part of the equation that shareholders factor in. We think the value is so significant that it deserves an enormous amount of our attention and we'll get it.

Next question is coming from Kenneth Lee with RBC Capital Markets.

Just one follow-up on the remarks around Caret. Just want to clarify, in the past, you've mentioned that to see any progress around liquidity or any other monetizations you'd be dependent upon either a pickup in market activity or investor sentiment, but I just wanted to check that would you still be dependent upon any kind of pickup in activity before you could do anything with the Carets?

Yes. I don't think it's a specific thing, but obviously, common sense is if Carets growing, the underlying portfolio is growing. That's -- it's easier for people to understand the potential and the marks have been candidly with particularly on the office side, a pain point for a couple of years now. We feel like that's starting to stabilize. You saw ECA actually pop up this quarter. That, to us, is a little bit of a precondition to get a wider group of investors interested or at least to take the time to understand Caret. So I feel like that is a a tailwind if we can put that into the mix, it just makes everything easier.

Got you. Very helpful there. And just one follow-up, if I may. Around buybacks, you mentioned for the coming year. It sounds like there could be a little bit more emphasis around buybacks. Any way you could frame out either potential levels or a payout ratio? And perhaps just talk about how leverage considerations would come into play here.

Ken, it's Brett. Yes. When we think about buybacks, we obviously feel like the stock is at a discounted level. And as you pointed out just now, we're cognizant of our leverage and our targets. In terms of our policy, it hasn't really changed in terms of leverage. We're at around 2x, and we want to be around that level or lower. So we're looking at our funding profile again, to the pipeline that Jay and Michael have brought up, we're looking at what those obligations are going forward. And just, again, for context for folks about leverage, every $240 million that we fund takes leverage up 1/10 of a turn. So we feel like there's runway there.

But again, to effectuate buybacks, we want to be able to do that in somewhat of a leverage-neutral way. So a lot of the capital recycling exercises that we've talked about in the past, we're constantly evaluating and exploring those and want to make sure that any transactions that we -- not only endeavor on but actually move forward with. We want to make sure that it's got multiple valves that help us from a strategic standpoint as well. So again, more to update going forward, but that's certainly as Jay pointed out in his opening remarks, one of our core objectives for the coming quarters.

Your next question is coming from Harsh Hemnani with Green Street.

So maybe you highlighted that the origination volume is getting better. 2025 was already an acceleration over '24. And what's interesting is, at least over the last year, your unfunded commitments have burned off at least the ones that were written in a lower rate environment? And what's unfunded today is in that 5% initial yield type range given that sort of backdrop and that there's no longer a significant mismatch between what you're going upon the yields on those and the cost of capital. As you think through funding your 2026 origination pipeline and also the unfunded commitments that are in place today, how do you think through funding those?

Yes. When we look at our unfunded commitments, you hit the nail on the head, which is a lot of the lower-yielding existing commitments have rolled off. So today, we have about $140 million of ground lease unfunded commitments. On the loan side, it's about $125 million. And as you noted, the economic yield of those ground lease commitments are in the low 7s. So making 5% plus cash yields on the loan side, they're around SOFR 300. So certainly accretive to what we're achieving on the debt side, especially with credit spreads coming in.

So we're constantly evaluating both the existing hedges that we have in place as well as thinking about any rate moves moving forward. But again, the T locks that we have in place, there's that $30 million of gain that's hung up when we entered into new debt, those could be unwound and then amortized over the life. So that will help our earnings profile and obviously some of the cash metrics that you've mentioned. But any new funding activity on the new deal front, you've seen the yields that we've been able to achieve.

So there is more spread or more margin than we've had in our existing book over the past couple of years. So certainly feel like we're well positioned from a funding profile of those $265 million of unfunded, Again, that will be over the course of, say, the next 6, 7 quarters. So that will certainly take some time to deploy. But in looking at those yields versus our cost of debt capital, it feels like that margin math is in the best place it's been for a while, net of the hedges that we have in place. Our credit spreads are at all-time types. So we're feeling pretty good about continuing the ability to drive down our debt cost of capital.

Got it. That's helpful. And then maybe does that change your math at all in between. It feels like, at least last year, the majority of what was funded came from incremental leverage in that. Does it change your calculus at all between raising more equity capital versus continuing to tap the unsecured bond market?

Not here in the near term, Harsh. I mean, again, the question that came from Ken and Mitch earlier, we were talking about how our leverage level at the moment and what it really means in terms of funding and deployment for an uptick. We have some room here. We have runway. So yes, we do have equity capital solutions that are not issuing shares, right? There's hybrid solutions, there's recycling capital. There's areas in which to keep leverage neutral.

But in terms of tapping the unsecured bond markets, you've seen us issue both in the public and private market, that's something we're certainly going to look to here over the coming quarters to make sure we have ample liquidity to continue to do what we're doing. We feel good about our liquidity position right now, but while credit spreads are at tights and our bond complex has more liquidity than it ever has. We want to make sure that we're being thoughtful about what that pipeline and deployment looks like versus our funding needs.

Your next question is coming from Rich Anderson with Cantor Fitzgerald.

Just to put a finer point on the whole buyback theme. Is it fair to say that you could be kind of killing 2 birds with 1 stone in the sense that you sell assets, get a price discovery event for the carrot use those proceeds to buy back stock and do it in a leverage-neutral way. Is that one sort of collection of events that we could potentially expect for 2026?

Yes, I certainly think that components of what you mentioned there are in the cards. We certainly would like to make a lot of that happen. Those are our goals. So again, we think stock is quite discounted, and we want to bridge that gap and create shareholder and stakeholder value and some of those ways of recycling capital, eating our own cooking and making sure that we're also growing the book accretively. We think we could accomplish all those goals.

Eating our own cooking. I like that. I want to write that down. So could you maybe other forms of equity capital, perhaps more JV capital in the mix. Is that something that you're entertaining? You certainly have one in place, but I'm wondering if there's -- if that's something you're entertaining to, again, create another equity option for the company.

Yes. Certainly, again, having the right partners and the right cost of capital is really important. There's a lot of insurance capital out there that wants duration, the life's predictable compounding cash flow that's inflation protected. I think we're one of the few places in the universe that can offer that. And if there's something that we can do with any partner that's helpful to the overall franchise and is helpful to our cost of capital. That's always in the cards. And that could be in the form of things that we've done historically, like our venture with our sovereign wealth fund partner or it could come in the form of other sorts of partners. But we're, again, to your point, looking for the best cost of capital that helps us kind of lead to the next place we want to be. And right now, with where cost of equity capital is solutions like that or front and center in our mind.

Yes. Okay. I just want to sort of get that on record. I think it's important to the longer-term story. Maybe just a couple of quick ones. Can you provide like a net G&A guidance number for 2026 with the step down in the fee income and sort of where our model should ultimately land when you kind of have that event in April?

Yes. It's a good question, Rich. Obviously, since we did the internalization back in early 2023, that management fee from Star Holdings has continued to decline. When we look at year-over-year from this past year, to 2026. It feels like about a $5 million net increase. So we're going from low $40 million net G&A. That's net of the management fees in 2025. And to high 40s for 2026. And then obviously, just regular way regular way costs and expenses that we have within that line item, typical inflation, et cetera. So we're targeting high $40 million.

Okay. And does that fee income -- is that the last year -- is 2026 to last year? Or is there another year still remain a stub year of fee in, I don't remember?

There's still more fee income to go. So there's a contractual schedule of a fixed demand and then it will eventually turn to a percentage of assets.

Okay. And then finally for me on leasehold loans. Is there -- are you sensing more demand? It seems like at least there's more demand for kind of a one-stop shop solution that you described in Cambridge. And what is -- how would you describe your leasehold loan in terms of its competitiveness to the market? What's the typical term on those loans? We got the pricing, but I'm just curious how you fold that in with, obviously, long duration of the ground leases.

So they are typically 3 years in term occasionally have a little extension option period afterwards. We really look at it as a blended ground lease plus we sold loan can be an attractive cost of capital as the entire envelope to the customer and providing that one-stop shop has been a benefit to some, and we will selectively continue to deploy it where it makes sense, where we like the asset enough to want to go to that place on as an attachment point.

Do you think your pricing is market? Or do you think your pricing is below market, again, as you consider like the one-stop shop solution to sort of encourage people?

As a one-stop solution, we think that our pricing is below market because a blend new cost of capital. We think we beat the overall market from kind of 0 to over the last [indiscernible].

Your next question is coming from Ronald Kamdem with Morgan Stanley.

I just wanted to double click back on the origination activity and sort of the opportunities to expand outside of sort of California, right? Maybe just a little bit more color on like what are the sticking points? Is it finding the right sort of partner? Is it sort of regulatory? Is it the different jurisdictions? Just what are the frictions you think as you sort of try to replicate the success in some of the other states on the origination side?

Ronald, it's Steve Wylder. So you're right. On the affordable side, specifically, the volume has been concentrated in California to date, that is the largest and most active of the affordable markets in the U.S. So we're making good progress there and penetrating that market. It's going to continue to be a big part of what we do, but we're also making really good progress on other states. So we're spending some time to study the state-specific mechanics, the regulatory regimes. It does take some time to build up pipeline and to get those deals across finish line. But at this point, we have several other transactions in other states under LOI. And we think that will start to translate into closings over the coming quarters.

Helpful. And then I'm sure you're limited on what you could sell on Park Hotels, but any sort of update on like timing and for resolution when this could all be behind us?

Yes, Ron, it's -- you're right. I can't speak to it directly, but we do have a port date, first quarter of '27. Unfortunately, it can't go quicker. But that's the time frame we've been given, and it's going to cost us $7 million to get there, which is unfortunate, but at least we have something to shoot for here to get our contractual rights recognized.

[Operator Instructions] Your next question is coming from Kyle Bansi with Truist Securities.

Just following up on the Park Hotels portfolio. For the 2 assets that did not renew, do you expect to continue to operate, re-lease or sell these? And what might that time line look like?

We've got Hilton staying in place. So that was important. Again, the litigation is really going to dictate a little bit of what we can and can't do. So time line still feels like final decisions are going to be dependent on this court process. It's not our long-term goal to run these assets, but I think we need to let the litigation play out before we can make the right decision on timing.

Mr. Hoffmann, there are no additional questions in queue at this time.

Thanks, everyone, for joining us today. If there are additional questions, please feel free to reach out to me directly. Thank you.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Good afternoon, and welcome to Safehold's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, Senior Vice President, Head of Corporate Finance. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us today for Safehold's earnings call. On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer; Brett Asnas, Chief Financial Officer; and Tim Doherty, Chief Investment Officer.

This afternoon, we plan to walk through a presentation that details our third quarter 2025 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 53142. [Operator Instructions]

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 it over to Chairman and CEO, Jay Sugarman. Jay?

Thanks, Pearse, and thanks to all of you for joining us today. We saw steady activity in our ground lease business in the third quarter with the recent decline in rates and a somewhat less steep yield curve, helping to provide a more constructive backdrop. This was offset by deals needing longer time frames to close. And as a result, we expect more will likely close in the fourth quarter or first quarter of next year.

The drop in rates has also helped boost the NAV of the existing portfolio and drive more activity in real estate markets more generally. In terms of sectors, our modern ground lease continues to help customers trying to meet affordable housing needs in heavily populated markets throughout the country. And while deal sizes are smaller, we like the repeat customer dynamics we are seeing in this area, and we are investing resources accordingly.

Giving customers products that enable them to move quickly and adjust to market conditions remains a focus, and we will continue to innovate with ways to provide speed, certainty and flexibility around our core ground lease solution. One-Stop Capital solutions, custom pricing solutions and other enhancements will continue to expand the ground lease market for new and existing relationships. And it's important that we find ways to generate attractive asset level returns for us while also meeting our customers' evolving needs.

All right. Let's turn it over to Brett to review the quarter. Brett?

Thank you, Jay, and good afternoon, everyone. Let's begin on Slide 2. During the third quarter, we originated 4 multifamily ground leases for $42 million. In the fourth quarter to date, we have originated an additional 4 multifamily ground leases for $34 million. These combined 8 assets are all within our affordable housing subsegment and located in the Los Angeles and San Diego markets with credit metrics in line with portfolio targets and a weighted average economic yield of 7.3%.

Six of these transactions were with a new customer added to our program, while the other 2 were with an existing customer who has now originated a total of 7 transactions with us since inception. We have additional LOIs signed with both customers for deals expected to close through year-end and into 2026. We're pleased to see growing product adoption and repeat business in this sector as we expect it to be a meaningful growth channel for Safehold.

At quarter end, the total portfolio was $7 billion and UCA was estimated at $9.1 billion. GLTV was 52% and rent coverage was 3.4x. We ended the quarter with approximately $1.1 billion of liquidity, which is further supported by the potential available capacity in our joint venture.

Slide 3 provides a snapshot of our portfolio growth. In the third quarter, we funded a total of $58 million, including $33 million of ground lease fundings on new originations that have a 7.4% economic yield, $15 million of ground lease fundings on pre-existing commitments that have a 7.5% economic yield and $10 million of existing leasehold loans that earn interest at an approximate rate of SOFR plus 499 basis points.

At quarter end, our ground lease portfolio had 155 assets, including 92 multifamily properties and has grown 21x by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio is comprised of approximately 37 million square feet of institutional quality commercial real estate, consisting of approximately 21,500 multifamily units, 12.6 million square feet of office, over 5,000 hotel keys and 2 million square feet of life science and other property types.

Continuing on Slide 4, let me detail our quarterly earnings results. For the third quarter, GAAP revenue was $96.2 million, net income was $29.3 million and earnings per share was $0.41. The increase in GAAP earnings year-over-year was primarily due to a nonrecurring $6.8 million noncash general provision taken 1 year ago. Excluding nonrecurring items, Q3 earnings per share increased $0.04 year-over-year or approximately 12%, primarily driven by new investment activity.

On Slide 5, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield, up slightly from last quarter due to organic growth, higher yields on new investments and a fair market value reset on one of our ground leases.

Our annualized yield earns 5.4% and includes noncash adjustments within rent, depreciation and amortization, which is primarily from accounting methodology on IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent or CPI-based escalators, which are all significant economic drivers.

On an economic basis, the portfolio generates a 5.9% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI look backs, which we have in 81% of our ground leases.

Using the Federal Reserve's current long-term breakeven inflation rate of 2.25%, the 5.9% economic yield increases to a 6.0% inflation-adjusted yield. That 6.0% inflation adjusted yield then increases to 7.5% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in CARET at its most recent $2 billion valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.

Turning to Slide 6. We highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type.

Portfolio GLTV, which is based on annual asset appraisals from CBRE, remained flat quarter-over-quarter at 52%. Portfolio rent coverage declined very slightly quarter-over-quarter from rounding up to 3.5x previously to now rounding down to 3.4x.

Lastly, on Slide 7, we provide an overview of our capital structure. At quarter end, we had approximately $4.8 billion of debt comprised of $2.2 billion of unsecured notes, $1.5 billion of nonrecourse secured debt, $881 million drawn on our unsecured revolver and $270 million of our pro rata share of debt on ground leases, which we own in joint ventures.

Our weighted average debt maturity is approximately 19 years, and we have no maturities due until 2027. At quarter end, we had approximately $1.1 billion of cash and credit facility availability. We are rated A3 stable outlook by Moody's, A- stable outlook by Fitch and BBB+ positive outlook by S&P.

We have benefited from an active hedging strategy and remain well hedged on our limited floating rate borrowings. Of the $881 million revolver balance outstanding, $500 million is swapped to fixed SOFR at 3% through April 2028. We received swap payments on a current cash basis each month. And for the third quarter, that produced cash interest savings of approximately $1.7 million that flowed through the P&L.

We also have $250 million of long-term treasury locks at a weighted average rate of approximately 4.0% and current gain position of approximately $29 million, which is currently recognized on the balance sheet, but not the P&L. We are levered 2.0x on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.2%, and the portfolio's cash interest rate on permanent debt is 3.8%.

So to conclude, we're encouraged by good traction in the affordable sector, which we believe will help buoy origination volume while other sectors work their way back into the pipeline, and we have a strong balance sheet and liquidity position that we'll look to take advantage of to be more offensive with our customers.

And with that, let me turn it back to Jay.

Thanks, Brett. I mentioned earlier our focus on finding ways to meet our customers' needs. Of course, it's also important for our customers to live up to their obligations. So let me provide a brief update on the Park Hotel master lease. We recently sent this tenant a lease termination notice for all 5 hotels governed by the master lease, and we'll be pursuing all our contractual rights under the lease.

We believe the tenant has breached the master lease covenants and has not upheld their contractual obligations under the lease, which includes specific maintenance and operating standards. Because this is now active litigation, we are limited in what else we can say publicly. As I'm sure you understand, we can't provide assurance that we will prevail in litigation or that the future financial impacts will be positive.

Okay. With that, let's go ahead and open it up for questions.

[Operator Instructions] The first question comes from Ronald Kamdem with Morgan Stanley.

Great. Just 2 quick ones for me. Just starting with the originations, I think all multifamily looks like all on the West Coast, if I'm looking at this correctly. I did notice the rent coverage ticked down a little bit. I don't know sort of if you could talk through that. And maybe just while you're on that, just talk about sort of the appetite and the potential for more of these sort of affordable housing deals.

Ron, it's Tim Doherty. Yes, you see that the assets were out in California on the affordable side, as Brett and Jay both mentioned, we're seeing great traction there in that space. On the affordable side, the team is doing a great job of expanding that throughout the country, which I think we'll see results in the quarters ahead.

Right now, we've seen the great results on some of these sponsors we have, repeat sponsors in California. As for coverage, as you probably have seen in our transactions on development in particular, not only this is our underwriting, and we take a haircut to actually our underwriting to show what that coverage is.

So if you actually took the sponsors' cash flows, those coverages are in line with our metrics, if not even a little bit above. If you take our underwriting without the haircut, it's probably more in line. So we're pretty conservative on the development deals since those are a little bit more time to get to stabilization. We just want to be able to show those as conservatively as possible.

But in terms of the -- your question on transactions and deal flow, look, we're seeing great momentum. I think you're seeing that with the closings here even post quarter end. We're seeing great momentum even going forward with more transactions under LOI currently.

Great. That's really helpful. And then my second one was just -- I appreciate you can't comment on anything on the Park Hotel. Any color on just timing on how long these usually take to be resolved high level?

Ron, it's Jay. Yes. I think it's unfortunate when things end up in litigation, we try pretty hard to find the solutions where both sides can win. But when we can't, obviously, we need to enforce our contractual rights to protect shareholder value. And these things don't happen overnight. That's why we typically would try to avoid it. But in this case, we think it's the right thing to do for shareholder value protection, and it will play it out. It's going to take a little bit of time.

The next question comes from Anthony Paolone with JPMorgan.

Just trying to understand more just on Park Hotel, understanding the sensitivity. But what exactly did you claim was brief? I assume they're still paying rent? Or was there some change there?

It's not a rent issue, Anthony. It's a standard of care and maintenance. I can't really go into it, but we think the contract is clear and just couldn't find an agreement on that.

Okay. And then just more broadly on your deal pipeline and so forth. As we see like office, industrial and other types of transactions start to come back to the market, are you seeing more of that? And would you do more of those types of transactions if those opportunities come around?

Anthony, it's Tim. Yes, definitely. We're actually -- we track front of the funnel all the way through, of course, to closing. And when we look quarter-over-quarter, the opportunities we're seeing, it's pretty well diversified now and spreading out into the hospitality, retail, office side in addition to the traction you're seeing on the affordable space, conventional multifamily construction and recapitalization that's been there.

So we're seeing opportunities there. And when the right ones come up, we're right on top of them. We think that as you're seeing from some of the other announcements in this quarter, the transaction flow has definitely increased. I think what Jay mentioned with the yield curve not as steep is starting to release some transactions, which is great for the market. And it just takes time to work those deals through the system and for us to start to close on some of those.

The next question comes from Kenneth Lee with RBC Capital Markets.

I think you mentioned that some of the economic yields ranged up to 7.5% on some of the more recent deals there. Wondering if you have any expectations for economic yields going forward? I know that in the past, you talked about long-term bonds plus anywhere from 75 to 85 basis points. Any change there? And more importantly, as potentially short-term rates move around, do you expect any kind of indirect impact to economic yields going forward?

Sure, Kenneth. Those yields, look, it depends on the timing of these closings, right? We're based off the 30-year treasury. So over the quarter, it was a variable rate there higher in the beginning towards the end. So those closing on those closings happened earlier, some of them happened towards the end and then the ones that closed earlier this month -- or sorry, last month now.

What we expect is, yes, there's that spread to the long-term bond, but also we expect now where treasuries are high 6s, low 7s is pretty consistent right now with where the treasury seems to be at. So -- and the deals that were in our pipeline are in that range.

Got you. And one follow-up, if I may. You touched upon within the prepared remarks, seeing some extended time frames, it sounds like to close some of the deals going to fourth quarter or even the first quarter. Any particular factors driving the extended out time frames?

The extended time frame, a lot of these deals are development deals. So those do take a little bit more time to close. I think in the portable space, a lot of those are development deals.

Most of those are development deals on the conventional side, we closed a few in that space versus a recap that could take 4 weeks to 8 weeks to close. So nothing abnormal in the market for those to take a little bit more time, but we're seeing good momentum on that front and pretty consistent deal flow and LOIs being signed.

The next question comes from Harsh Hemnani with Green Street.

Maybe just a clarification. Did I hear correctly that for the Park litigation, it's against all 5 of the hotels in the master lease? Or is it just against the 2 that they plan on not renewing? And then second part is, what's the sort of near-term financial impact of this? Is Park going to continue to pay rent during the period of time the legal battle goes on in the background? Or is there going to be some near-term impact from that?

Harsh, yes, the litigation is around all 5 hotels, not just the -- and we're obviously working to find a way to continue the hotel's operations as smoothly as possible. So I don't have any more detail I can share on that, but that's certainly our goal.

Okay. So I guess, is the goal here to try to treat the master lease as a package, all or nothing?

Yes, it is a master lease and the provisions are backed by a corporate entity. So we certainly treat it as a master lease.

Got it. Okay. Last one for me. I guess, maybe higher level on the transaction side. As you mentioned, sort of broader real estate transaction activities are broadly in line with, call it, pre-'21 levels.

And at the same time, rates haven't necessarily gone back to what it was in '21 and '22, but we've stabilized. Volatility has come down. We're in the low 4s almost consistently. Did those bigger check size transactions start to come back? Are you seeing more of those? Or is it still smaller check size multifamily?

I would agree with you on the consistency part. I think that is driving some of the market now. Everyone has a lot more visibility. So transactions are getting done. On the size, the affordable deals tend to be on the smaller side. You saw all the deals that have closed -- all the deals that closed in the third quarter, deals that closed quarter-to-date were affordable. They're on the smaller side. These are actually, I'd say, on the smaller side of those even.

The larger transactions, you're seeing a lot of the trades now starting to happen on the larger deals. Our pipeline has some larger transactions in it than these affordable deals. But multifamily transactions on the conventional side tend to be somewhere between $40 million of total value to $85-ish million of value.

So 1/3 of those, you can kind of figure out what our ground leases are typically sized. And then office and hospitality tend to be a little bit bigger asset size in those. But again, not much different from what you've seen in the past from quarters past where you were mentioning 2021.

The next question is from Rich Anderson with Cantor Fitzgerald.

Have you stated what this sort of forward pipeline, it looks like in dollar terms? You mentioned activity got pushed out, but I don't believe you sort of put a number on what the pipeline looks like on a go-forward basis, if you were willing to share.

Yes. I guess we wouldn't share the exact number, but I guess to give you an idea of what we have today under LOI that will close in the coming quarters, I would say it's over -- about over 15 deals and over $300 million of transactions that will, again, close in the coming quarters, and it's a mix between the affordable transactions and conventional multifamily.

Okay. Great. And as far as -- I'm not going to ask specifically about Park, I understand you can't talk about that. But just to be clear, a lease termination successfully completed means reversion rights and you get the keys that's one possible outcome, speaking generally about how this works. Is that correct?

That's correct, Chris.

The next question comes from Ravi Vaidya with Mizuho.

Just wanted to ask another follow-up on the Park Hotel litigation here. Does this impact your potential interest in maybe pursuing hotel originations going forward? And is there any additional corporate costs that we should be considering for the model, more G&A, legal fees or any other onetimers as should we think about Q4 and '26?

Yes, I'll take the first part, and maybe Brett can take the second part. Look, this is an anomalous outcome. It's not what we expected. This is a master lease form that we didn't create 30 years ago when it was put in place. And I don't think it impacts our view on any part of the ground lease ecosystem that we're working in. So we'll get through it. And I don't think you should think of this as an indicator of anything or a precedent for anything.

Yes. And on the on the economic side or for the P&L, obviously, as Jay mentioned, it's too early to tell where this will head. Obviously, we wanted to make this decision on behalf of our shareholders and make sure that we protect value. So I think over the coming quarter, we'll have better visibility and can certainly update you in the market as to what that looks like.

But for the time being, we feel like we're in a good spot in terms of the consistency of what we've been making. And then moving forward, as Jay mentioned, with the termination, any costs associated with that, et cetera, we'll be able to give the market better visibility. It just -- it's pretty early and premature at the moment.

Got it. I appreciate the color there. Just one more. How do you guys think about the recent New York City Mayor win yesterday and the impact surrounding rent stabilization and maybe broadly how this could impact affordable housing. You guys have done a lot of deals with affordable housing and just wanted to see how this type of news and this type of language impacts underwriting those deals.

Look, I think we fundamentally follow supply and demand wherever it goes. And obviously, if you reduce the incentives to create supply, you're going to choke off supply, which is in many cases, just leads to even tighter market conditions. We're seeing that more generally across the market. Those areas that didn't have supply are starting to recover, and there's not a lot of supply in the pipeline. And you see what happens, rent start to move.

So I'm not sure how the administration is thinking about that, but it's certainly our belief that the way to keep rents down is to have supply meet demand. So I'm not sure exactly how this is all going to play out, to be honest. We believe we have a solution for the affordable housing problems in this country that's very powerful. We'd like to deploy it in more places.

I will tell you a lot of the friction costs are created by government regulations that we would just assume help solve the problems quicker, faster and better, but we're kind of being held back a little bit by the nature of government regulations in that area. So we're hopeful that people recognize this is a problem that ground leases can be a major part of the solution and creating new supply is long term, in my mind, a better solution for most municipalities than trying to arbitrarily decide where rent should be. That just sounds like a tough long-term economic solution.

The next question comes from John Petersen with Jefferies.

Can you remind us how much of your multifamily portfolio is affordable housing today? I know it's 41% of gross book value. And then do you guys have a long-term target or cap of where you'd want that number to be as a percent of your portfolio?

John, we'll get back to you on some more definitive number, but it's a pretty low number now. We just -- the business really just began 18 months ago or so with the team being dedicated to it and getting deals closed after being I would call the lab to learn more about the space prior to that. So the team is -- as you can see, has great momentum going forward.

In terms of where we like it to be, look, we're growing a massive portfolio here. So the number on how large it could be in dollars, we're striving to make it very large, I guess, I would say without throwing a number out there. On a percentage, you can see over time, different asset classes are active at different times. So to say what percentage of the portfolio would be pretty difficult.

But you're seeing that the housing sector of our portfolio, that's why we label it under all and multifamily is a majority of the assets that we've closed on the books to date, and we see that trend continuing in terms of the ratio of housing as a part of our portfolio.

And outside of California, I guess, which states do you think are most likely to see some of these affordable originations next?

Well, the capital by the government is allocated by the size of the state. So California being the largest is the one that allocates the most. It's actually the most efficient system, at least in our opinion. So we're seeing great traction there as that system works quite well.

And look, I think the expansion there is into the larger states. So a lot of those are in the Sun Belt and coastal. You see a lot there. So our team is working on all of them. As time goes on, I think in the coming quarters and year, you'll see us penetrate those markets as well.

Up next is Chris Muller with Citizens Capital Markets.

So I guess following up on that prior line of questioning. Is any of your New York City multifamily exposure to rent stabilized units? And if so, how would a rent freeze even play out given your contractual CPI escalators? Would that burden just solely fall in the sponsors?

We haven't really cracked the New York nut yet, and that you're asking one of the questions that we would have to grapple with. The goal, as always, is to put ourselves in a very safe position where we don't have to worry too much about the last dollar risk or even the middle of the capital stack.

So that's what we love about the business is the safety and the predictability about it. we have not seen that opportunity present itself across the New York market. But look, there's got to be a solution. We think additional supply is going to be needed. And ultimately, we don't want to play in the equity part of that solution. We want to play in the land part of that solution, which we think goes a long way to helping stretch the subsidy dollars that are available. This is a big opportunity for efficiency to come to the fore, and we think ground leases are -- can be a big part of that.

Got it. And then I guess changing gears a little bit. The 30-year treasury rate increased from a recent low of 4.55% to current 4.75%-ish. There was a similar 20 basis point drop in rates during the third quarter. So my question is how sensitive is your guys' pipeline to these types of moves? Do you see a material change in demand from those 2 examples? And then just a follow-up on that is what level of the 30-year do you think would really get things moving for your business?

Yes, it's a similar event that occurred last year, right, where the treasury dipped down somewhere around September, October time frame, and it came back up in November. So it's sort of deja vu a little bit the last couple of days what happened there. And you saw the increase in -- just in terms of the market chatter of deals when the rates were going down, a lot of deals trying to close at the exact moment.

I think a lot of people knowing that where rates are trending is in this higher level for longer. So when it does dip down, people want to transact quickly. So when it was there, it was -- the flow really in terms of the chatter because deals can't close in days, it can take weeks and months was heavier.

So I think we're testing this last year and now this year where the 10-year dips closer to 4% and the 30-year dips below 4.50%. You start to see a lot more transactions where it really flows. We don't know. We haven't seen it as a whole market, right, where acquisition flow really picks up.

We paid a lot of attention to that side of the market, not just recapitalizations. People have to refinance their debt. It's really the acquisition flow that shows you the market is fully healed. And -- but when those rates were hitting those levels, you started to see a lot more talk about sales and acquisitions.

I mean this is a longer-term perspective, when we started this business in 2017, we said the sweet spot is sort of 3% to 5%. We've been at the lows. We've seen the highs. If you wanted a true middle of the road, I think 4% on the 30-year is a great place for both sides to feel good about. I think this is as much about psychology as anything else. When the market thinks rates are topping and headed back down, it's harder to want to lock in 99-year capital if you have that belief.

We think we've got some flexibility in terms of when customers can lock rates that could be a useful tool for them to maybe open that door a little wider for them to make a good decision, both in the near term and the long term. So it's one of the things we're watching very carefully.

I think Tim said, uncertainty is the worst thing of all. And when markets don't know which direction things are headed, that tends to put a freeze on things. What we're hoping for is a little more stability in '26, a little bit lower rates, a little bit less steep yield curve. Those are all positive factors for us.

We have a follow-up coming from Rich Anderson with Cantor Fitzgerald.

I felt like I short changed myself. So I'm going to ask Jay you a question that I want you to sort of get your take on a common criticism, I guess, of ground leases. For everything that's good about them, as you close in at the -- to the end of the lease term, you can argue that the incentive of a leasehold owner is lessened to maintain a level of capital investment because they see sort of the end of the road in terms of the lease. And one thing or two, well, two will happen there.

The lease will expire, they'll get the keys back or they'll renew the lease and have to pay a bigger rent to you. So what's the -- what do you -- how do you take this as a sign of the criticism of ground leases that the closer you get to the end of it, the less incentivized your customer is to invest because they see the writing on the wall coming. I'm just curious how you would respond to that.

Yes. I think the fallacy in all that for me, Rich, is we're always looking for solutions that can create value. So the market tells you what things are worth. And if somebody wants an extension, it's pretty easy to price the value of that. And that's certainly -- if you like the assets you're running, that's always going to be a good solution.

And I think the markets will reward longer-term ground lease solutions for that leaseholder with a value increase that goes a long way to creating a business deal between the landowner and the building owner that can extend for a new 99 years. So that's what we think in most cases is a very likely solution is extensions. Good operators who are doing a good job and meeting the contractual terms of their leases, there's a lot of places to create win-win solutions.

So we're very careful in terms of our standard agreement has maintenance standards. But this is more about just doing smart business. We want to create long-term customers. And we think we have lots of solutions at the end that will work for them. So again, as I said, I'm not sure the current condition we're in is a precedent in any way. We've seen plenty of other situations not end like this. So I still feel pretty confident that the economics of continuing to run a good property will always trump sort of that dynamic you mentioned.

Or if it -- but if it's not a good property, they'll be willing to walk and go through something like this. That's the point. I hear you. But if they've fallen out of love with whatever they are running, perhaps that's -- but anyway, we could talk about another time.

Mr. Hoffmann, we have no further questions.

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