Q3 2021 Safehold Inc Earnings Call
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Yeah.
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Good morning, and welcome to Safe Holdings third quarter 2021 earnings Conference call if you need.
Need assistance during todays call. Please press star zero, if you'd like to ask a question. Please press one zero, that's one zero to ask a question.
As a reminder, today's conference is being recorded at this time for opening remarks and introductions I would.
I'd like to turn the conference.
It's over to Jason Fooks, Senior Vice President of Investor Relations and marketing. Please go ahead Sir.
Good morning, everyone and thank you for joining us today for safe hold earnings call on the call today, we have Jay Sugarman, Chairman and Chief Executive Officer, and Mark Silverado, President and Chief Investment Officer.
This morning, we plan to walk through.
Compensation that details our third quarter results presentation can be found on our website at Staples, Inc. Dot com and by clicking on the investors like.
There'll be a replay of this conference call beginning at 230 P. M. Eastern time today and the dial in for the replay is 86620710 or one with a confirmation code of 859.
0415.
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 staples.
<unk> disclaims any intent or obligation update these forward looking statements except.
As expressly required by law now with that I'd like to turn the call over to chairman and CEO Jay Sugarman Jay.
Thanks, Jason and appreciate everyone joining us today.
Strong portfolio growth on a large increase in our estimated unrealized capital appreciation account combined to create a very strong quarter for St. Pauls.
Powered by the growing portfolio and a small accounting gain GAAP earnings were up significantly year over year.
Third quarter investments together with recent closing since the end of the quarter, that's taken us to over $4 billion in ground leases.
And our customers tell us our ability to deliver both low cost capital and a high level of execution.
Certainty is a potent competitive advantage.
Our mission is to help building owners generate higher returns with less risk.
And we will continue to look for ways to lower their cost of capital and provide them with the full benefits of staples modern ground lease innovation.
Our estimated unrealized.
<unk> depreciation jumped over $600 million in the quarter, continuing to add value for shareholders and highlighting the unique growth rate of our ownership asset.
Our goal in the coming quarters is to unlock this value for shareholders and the tangible quality measurable underlying value and demonstrated growth rate of this asset.
It should make a compelling to investors.
We recognize that may take a few steps to get the value of UCA fully recognized in our share price.
But having grown estimated UCA from $400 million in IPO to almost $7 billion today, each passing quarter adds to our confidence that others will want to own a piece.
Capital unique asset as they begin to understand its value both in the near term and long term.
And with that let's have markets walk you through the details of the quarter Argos.
Thank you Jay and good morning, everyone, let's jump right into it on slide three it.
It was a strong quarter for the company and we're pleased with the continued progress in scaling.
Our business the third quarter was highlighted by solid earnings results robust investment activity and UCA growth along with a successful equity offering which left us with a significant amount of dry powder at quarter end to pursue our growing pipeline.
Moving to slide four let me walk you through this quarter's earnings results.
Revenues were $47 3 million for the third quarter, a 24% increase from $38 million in the same period last year net income was $20 2 million, a 43% increase from the $14 $2 million million. We earned in the prior year period and earnings per share was <unk> 38, 36% above.
<unk>, we earned last year.
Included in the quarter was an accounting reclassification of a lease on our balance sheet from an operating lease to a sales type lease which resulted in a onetime noncash accounting gain of $1 8 million.
Slide five provides an overview of our investment activity.
The <unk> during the quarter, we originated six new ground leases comprised of five multifamily and one office asset totaling $321 million of which $300 million was funded during the quarter with the remaining $21 million to be funded in the near term.
Total fundings for the third quarter were $332 million.
Five of the aforementioned $300 million of new investments and $32 million of funding for transactions originated in prior quarters.
The six new originations during the quarter spend five different markets and for new customers. The investment metrics associated with these deals are in line with our targets with a weighted average.
On an effective yield of four 9% a weighted average effective yield of four 8% ground lease to value of 41% and rent coverage of three two times.
At the end of the quarter, our aggregate portfolio stood at approximately $4 billion, representing 12 X growth since our IPO.
Underwritten during the quarter two separate leasehold properties on top of our safe hold ground leases were sold to new third party owners, marking the first two individual leasehold properties in our portfolio to do so in.
In both cases, our customers received bids from multiple bidders for the leasehold. The first property was a multifamily asset where the lease.
Leasehold traded at approximately a three 5% cap rate comparable to the fee simple cap rates for similar assets currently selling in the same market.
The other property was an office building, which despite being in lease up and facing the COVID-19 headwinds in the asset class still traded for north of a 10% premium to our customers.
<unk> basis in the leasehold.
Both of these transactions serve as examples of how our safe hold ground lease can allow our customers to access the most efficient capital and that are properly sized properly structured modern ground lease does not impair the liquidity or the value of the building.
Slide six provides a snapshot of our equity offer.
During this quarter.
During the quarter, we raised $242 million of fresh equity capital to fund our growing pipeline.
We were pleased with the overall execution of this offering with I start taking a smaller stake in previous offerings.
Was the largest offering we are completed with third party investors since our IPO with strong demand at <unk>.
Loud us to upsize the transaction by 10%.
The offering was priced at $76 a share less than a 1% discount to where the stock closed that day and a 25% premium to our prior offering in November of 2020.
More portfolio metrics can be seen on slide seven.
As of September.
I'd say full generated an annualized yield of five 2%.
With annualized in place GAAP rent of $204 million, the portfolio's annualized cash yield was three 4% with annualized in place cash rent of $127 million.
Our portfolio's weighted average ground.
Lease to value was 40% and weighted average rent coverage improved to three four times as our hotel properties are seeing a rebound in occupancy.
By property type our portfolio consists of 53% office, 31% multifamily and 15% hotel our weighted average lease term is 90 years.
<unk>.
On slide eight you can see the geographic breakdown of our portfolio as we continue to expand at the top msas with the inclusion of Houston This quarter.
Slide nine provides an overview of our capital structure.
At the end of the third quarter, we had $2 3 billion of debt comprised of approximately $1 5 billion.
Dollars of nonrecourse secured debt $400 million of unsecured notes and $272 million of our pro rata share share of debt on ground leases, which we own in partnership.
Our weighted average debt maturity is 25 years.
In addition, we had $165 million drawn on our $1 billion unsecured.
Our revolver combined with the $44 million of cash on hand, we had approximately $900 million of liquidity at quarter end.
We are Levered, one four times on a book basis, and six times Levered on a debt to equity market cap basis, the effective interest rate on our non revolver debt is three 7%.
Which is 151 basis points spread to the five 2% yield on our portfolio.
Weighted average cash interest rate on our non revolver debt is three 1% a positive spread to the three 4% current cash yield on our portfolio.
Moving on to slide 10, we provide an update on UCA.
With the addition of the high quality properties. We closed this period, which are highlighted on the right side of the slide estimated unrealized capital appreciation in our portfolio grew 624 million to $6 7 billion, representing a compound annual growth rate of 89% since our IPO.
We believe UCA.
Is reaching scale and diversity and we have proven our ability to grow it meaningfully and on a sustained basis.
As we have been spending more time discussing UCA and a framework for its valuation we have been encouraged both by the level of engagement from investors as well as seeing several of our research analysts work to analyze the asset class and beginning.
Begin incorporating it into their valuation models that being said, we still have a lot of work to do to get this asset understood and valued by the market.
In conclusion, we continue to make good progress scaling our business. We are encouraged as new investment activity continues to grow our pipeline and remain optimistic about reaching our growths.
UCA of a $6 $4 billion portfolio by the end of 2023.
With the first two individual properties, having gone round trip for our customers and more expected in the coming quarters. We now have an even more compelling data to show our customers about how stapled ground leases create value with that let me turn it back to Jay.
Thanks Margo.
Let me just finish up by touching on inflation.
While we can't control or inflation and interest rates go over the life of a ground lease.
Have built significant protections into our modern ground lease structure and our long term liability strategy.
These not only help mitigate the impact on our cash flow returns.
Target also enable us to benefit from inflation and positive impacts on the value of our future ownership assets.
If inflation is a concern we encourage you to let us take you through the CPI protection in our leases.
And the impact on our unrealized capital appreciation asset and we think you'll walk away quite pleased with how we're positioned.
Now, let's go ahead and open up for questions operator.
Thank you today's question and answer session will be conducted electronically.
To ask a question please plus.
One zero at this time.
We will take as many questions as time permits once again, please press one zero to ask.
I ask a question, we will pause a moment to assemble the roster.
And our first question will come from Nate.
Aaron Berg. Please go ahead.
And good quarter.
Curious the two sale transactions that happened in the quarter.
Are those buyers new customer new and does that kind of opened the door.
Potential new engagements windows.
Buyer.
Fantastic.
And you should come on our origination team.
They are new customers. We immediately obviously reached out to them and we are engaged with both of those new clients on potential new transactions.
Okay.
It sounded like the pricing for both of those skills.
The ground leases.
It really affected by anything.
Maybe you could just comment on the amount of areas.
Thanks Pete.
What.
What they wanted versus what they got.
It's a good case study for <unk>.
Okay.
Yes.
Given the confidential nature of the transactions, we can't get into too much detail.
It was a liquid bidding.
Bidding marketplace, and I think the pricing expectation exceeded our customers'.
Expectations. So it was a very fruitful transaction for both clients.
Okay.
And keep people.
Most of the deal flow.
Yes.
And I'm curious if you could comment what you're seeing in terms of office and hotel.
And if you're expecting that kind of pegged it at any time.
So it's it's a good mix.
As.
Mike talked about in prior quarters that the multi family business the repeat customer business within that asset classes has been going really well and we continue to add to that with new clients.
Collectively we are looking at hospitality and office assets within our pipeline so fit.
Our metrics and our profile and as we see those markets start to open up an assets actually trade. We will start to continue to see some additional hospitality and office assets to supplement the multifamily business.
Okay, and then just one lastly on pricing trends.
It looks like.
Yes.
Similar to last quarter.
It's down slightly from last year.
I just wanted to know is there.
Yeah.
No. It does it's more apologize.
Okay.
Give us an update on any you can.
Yeah.
Jim.
So we.
Totally focused on harnessing the power overall overall enterprise and so as our cost of capital is in dropped over the last 12 months or so we're passing on that benefit.
Two our customers are really focused on continuing to maintain that kind of 100 to 125 basis point spread over our cost of.
<unk> liabilities.
And we're still doing that so we are still making our margins, but excited about the potential scaling opportunities as we passed on that cost of capital to our customers.
Okay, and then just competition wise I'm, assuming that your cost to capital is helping us continue to win everything.
That you do I mean have you seen an uptick at all.
Competition in the market.
No not particularly.
Our main competition is still the fee financing market, which Nate as you know is really liquid and aggressive, especially for high quality assets, which we're focused.
Stan that's still our primary competition.
Working very hard to convert.
Potential customers over from the old way of capitalizing their real estate.
We still run into the <unk>.
Startup nascent ground lease providers, but to the extent, we want to execute on a transaction.
We do have a cost of capital advantage and as Jay alluded to the certainty of execution and the amount of transactions. We've done the partnerships, we have with the leasehold lending community those things really matter to our clients.
Thanks, Ed.
Thank you and our next question will come from Caitlin Burrows from Goldman Sachs.
Please go ahead.
Hi, good morning, guys.
Guys made $300 million of new investments in the quarter across six ground leases, which is another significant quarter of activity. I was wondering if you could give some detail just on the depth and mix of your current pipeline and if you think that run rate is sustainable.
Hi, Carolyn.
As a few weeks ago, when we did our equity offering we disclosed the pipeline of $1 billion for <unk>.
Transactions under letter of intent.
As Jay alluded to we've closed a few transactions since quarter end to take our portfolio over $4 billion. So we've done a nice job of closing some transactions through the quarter as well as back filling.
<unk>.
Our pipeline so we feel good.
About hitting our kind of long term growth targets of $6 4 billion by the end of 2023.
And of course, it goes without saying.
When we talk about future pipeline some of these transactions will potentially not close.
Got it and then just following up.
On the inflation point that Jay referenced earlier, I guess could you guys just remind us the inflation protection that is embedded in your portfolio and whether you're making any changes to what might be fixed versus CPI linked.
Okay.
Or sort of standardize ground lease.
Long term inflation built in through.
Rent resets every 10 years that look back and if inflation has been above 2% over that period. There was a modest adjustment at the end usually capped.
Texas from about the first 100 basis points of.
Inflation pickup over the long term 2% level.
Through.
Study of inflation over the past 50 years, we think.
No.
Temporary changes or not really the focus is really what happens over longer periods of time, we've built a nice protection that gives us what we need and protects our customers.
So the.
Everything is.
Under writable and within a boundary.
Quite comfortable for the market. So we're.
We're not changing that we think thats the right way to approach that we think that optimizes for both the finance markets, our customers and our investors.
We found the right solution.
Do think the future ownership.
As the positively correlated piece of the equation.
So we will be talking about that some more and when do you think about our long term liability strategy.
The nature of about 25 or 30 year.
Fixed liability at a fixed price.
Certainly mitigate quite a bit of the inflationary risk.
So that combination of those three things, we think puts us in a pretty good position.
Got it Okay, and then maybe a last one I know you guys have talked a lot about how maintaining your current portfolio is relatively straightforward, but growing it is what takes the most amount of effort I was wondering if for the four new clients in the quarter you could give some background on <unk>.
Just how those relationships kind of came to be and maybe how long they took if that's relevant.
Okay, Great question I'm looking at the list right now.
So one of them is a large institutional multifamily owner.
And then pursuing for about.
Two years.
And we're actually pursuing two transactions with them right now so with a long work in progress.
Another was a new client on a high quality asset.
In the Denver market.
<unk> will fund.
Manager and operator and the <unk>.
Balance I'm looking at it was repeat business.
Got it okay. Thank you.
Thank you and our next question is from the line of Rich Anderson from S. NBC. Please go ahead.
Good morning, everyone.
Jay.
The inflation protection.
I think you said and I think I understand has to be like.
That's kind of a 10 year cycle, where you can look back and correct for any inflation first of all do I have that right and second is there any circumstance where that could be fast tracked if there is a sort of a sudden this.
Patients. So that you don't have to wait around for four Ah Ah Ah Ah.
Now to address that.
No I think you've got it right rich.
Our standard form we do have some assets that are a little bit different some actually have CPE.
CPI protection on a on a shorter term basis, but that's.
Two.
The baseline in our in our business. So I think the way you described it as the first piece.
<unk> is the right way to think about it.
Again, we're trying to capture long term changes in the value of real estate.
Create above market returns for the credit risk.
We take that.
Those are dynamics that we want to protect over the long term. So we want our customers to have the benefit of.
<unk> low cost capital and be able to know what it is so we're probably not going to change the format to try to chase short term movements, but anything.
That jumps up above 2% it was basically in the accounts.
I'll get picked up on these sort of 10 year cycles.
So I think you got to.
Two things happening one is going into the calculation.
And then the actual impact.
<unk> is out in the future but.
In effect. It's in your account then you can kind of track that and we know where inflation has been running and where it may run next.
So we will be able to give some visibility on that if inflation does pick up and stay there for a while okay great.
On the ECA you're talking about.
He said this many times over the past several quarters about getting investors interested in owning a piece of that asset.
I cant figure out if that if you're thinking more in lines about just valuing it inside safe or if theres been a renewed thought about some sort of securitization or something beyond.
That or is it still a TBD or are you going are you leaning any any specific way at this point.
Yes, I think I think we definitely believe that.
We need to go down all paths risks, we think our shareholders should get the benefit of it inside of Staples stock and we have been talking about it.
More of this year.
But we also are a company that believes different assets should be owned by different owners.
This is fundamentally a new asset class that has some very compelling attributes that lots of investors would like.
So we will continue to look at the best way to reach those investors.
With something we think they want.
They will understand they will compare to other alternatives and realize what we believe.
Which is this is one of the most compelling ways to create.
Create wealth and have it compounds so.
<unk>.
No no specific guidance I can give.
Give you other than we feel stronger every quarter that we can monetize this for shareholders and.
And have it reflected in the share price and.
And we'll do it in the most efficient and compelling way possible.
It is correct to say right now, though that its owned 15% by management and 85% by shareholder.
Shareholders is that correct.
That's correct, there's a few more time bests.
Before the full 15%.
Actually is.
Fully vested but for.
For working purposes, Thats a good assumption.
What is can you provide any update on the park hotel Master lease which.
Which is nearing closing in on it.
On its due date.
Any any any conversation going on there.
I think COVID-19 kind of put that on the shelf a little bit we've seen some nice recovery in a number of the assets in our portfolio, but certainly the business.
Travel has not come back yet so I think it's probably.
Not the best time to try to rework that but we'll remain open to that conversation when things stabilize okay last question.
Any status of.
The net lease portfolio and ice star I know, it's not this.
It's obviously relate it to what's going on here in terms of the growth of the ground lease business can you comment on that now or do I have to wait for the ISR conference call.
[laughter], let's put that one else COVID-19 start call but.
We feel like we've built a valuable portfolio and so we're.
But looking forward to sharing those.
Results with the market when it's appropriate okay. It sounds good thanks very much.
Thank you. Our next question is from Handelsbank tests from Mizuho. Please go ahead.
Hey, there.
Audio a couple here I guess first question just on the accounting item.
Item in the quarter I think you mentioned reclassification of at least from a sales lease and operating list I guess I guess I'm curious, maybe you could give a bit more color what drove the change why now.
How much more of this type of risk within the portfolio.
[noise] P&L. So there was that this is an old lease pre the accounting change.
And there was a provision when the asset was sold that triggered us to effectively reclassify. It from an operating lease to a sales type lease and that's what triggered the change.
So I would say most the lion's share of our portfolio.
<unk> did not have these positions this as are we.
Truly view this as a one time occurrence.
Gotcha got you. Thanks.
And.
Going back to inflation to a degree here, but maybe from a.
Cost of capital.
Capital perspective.
I think it's clearly been one of the items that caused you to perform here.
Which obviously has implications on your cost of equity and your ability to grow Accretively, you mentioned, having 900 million of liquidity I think after the equity offering so I guess I'm curious on the your appetite for.
Acquisitions, how much more robust a that could be into next year.
You stockpile continues to lag I guess, you know broadly what level of acquisitions could you do without the need for more equity.
Okay.
Well I think two things one we believe we are adding value extremely accretively every time, we do a deal. So our growth is still very much a focus here. We're building what we believe can be a enormous market.
So I think Theres there are places.
Yes, when we have to make a decision where capital needs to come into the company either on the debt side or the equity side, but one thing doesn't change which is every deal. We do is highly accretive for shareholders.
So that's really the driving focus here.
We have.
Begun too.
Yeah.
<unk> raised capital in the unsecured debt markets.
That's certainly a place we want to continue to expand the spectrum of capital available to us.
And then on the equity side again, I think you'll hear us talk more about.
The unrealized capital appreciation asset.
Because we think right now we're trading.
Candidly.
Half of our fair value so.
So our focus right now is to continue the growth to get the shares valued more fairly to help people see why every transaction. We do is highly accretive for them and we feel quite confident there'll be plenty of capital available that is a rare and unique story.
In the investment World.
And we will continue to execute on it and share it with more and more people.
I appreciate that one last one claim they are thinking about it in five different markets in the quarter for new customers like I'm curious if you.
Any new asset types, you're underwriting are looking at here obviously.
It's always tilted office multifamily hotel is it too early to discuss retail that's still.
Maybe red lined.
And maybe thoughts on casinos or other asset classes as you expand your.
Your investment portfolio here.
So.
What asset classes in Q3, and we alluded to this in our equity offering we are pursuing some transactions in the life science space, which we think would be a great addition to our.
Portfolio.
We're looking at some health care assets as well in which we currently don't have in our portfolio.
And then I would say for a bit more esoteric.
Eric.
Assets that youre, describing kind of in the casino space I think for the right asset.
In the right location, we would of course take a look.
Okay fair enough. Thank you.
Thank you. Our next question is from Stephen laws.
Raymond James Please go ahead.
Hi, good morning.
This show up on the.
Origination questions it looks like the average size 50.
<unk> 55 billion.
From less than 40 last quarter can.
Can you talk about the pipeline are you seeing a bigger build starting to materialize in your pipeline or is that just coincidental for from on a sequential basis.
I think it's a little coincidental.
SKU Theres, one larger transaction within that that skews the averages a tad.
Our sweet spot has always been kind of the $20 million and up ground leases.
As usually when youre talking about the markets that we're investing in that means youre.
Investing in high quality locations.
Institutional assets.
On the large transactions.
They're ruminating in our pipeline as we discussed in prior quarters, it's often difficult to predict when those are going to come across the line, but there are some large transactions along with our flow business in the pipeline.
Great and.
Somewhat on the startup.
And insight, but I.
Now on the ground lease plus opportunities, there, where youre looking at ground leases on construction assets that feed.
Through the quarter.
What is the timing of when you expect some contribution to safe portfolio growth from those.
Leases moving over.
So.
<unk> closed two of those ground lease plus transactions in the prior quarter.
Too early to tell exactly when those will.
Pit at safe when those conditions are met my expectation is beyond 2022.
And we have some transactions in our pipeline that we're working on to continue that.
So we collect offering.
Great and finally Jay.
Jay I know, you've kind of deferred to the Stark hall for the comments on the.
Any any actions there, but I didn't see that paid us about the solicitation in your notes in thinking about that so clearly.
You guys continue to move.
Move pieces around to try and position of some type of combination.
Talked about $5 billion of assets.
Number will hit.
Sometime middle or second half next year can you give us an update.
How youre thinking about combinations what are the key things that need to happen in <unk>.
How likely is that to be.
Two of them.
Yes.
Yes, I think the good news is both companies are razor focused on how to maximize the value of this ground lease ecosystem.
But they are both deeply invested in.
So we.
We have set out some markers.
<unk> 5 billion, which feels like a.
Good milestone in terms of scale and say fold.
The things going on at <unk>, obviously, we will make a conversation simpler.
Fewer distractions that are part of that conversation with better. So all of those things are in process Youre right were clearing.
The pathway to.
What we think could be a good conversation about how to unlock even more value makes thankful.
Our mainstream for more investors, we've talked in the past about internalization as a possibility architecturally that may make sense, but not until we were at a certain scale.
We also think there are things that the companies do together that are very powerful for our customers. So we will continue to make the potential for that conversation.
A good one there's still a lot of work to do between here and there but.
Youre seeing the bread crumbs, as we sort of clear the path.
And I started kind of big.
State and sampled success and so.
It's fair to say a lot of the steps. We're taking are meant to prepare for the moment, where we really can get the market to understand how valuable. This company is safe hold us and to understand what we're building and.
And why it's so unique.
We still we keep saying, we keep saying were in the first or second inning.
I think theres just a lot of people who are not yet really fully paying attention to what we're building.
You need to give us a little more time, but every quarter feels like we'll get closer and closer to being able to to tell a really compelling.
Story.
And so I think youll see other steps, we're going to take.
To get us in that position and then.
Once we once we've checked off all the boxes, we think are appropriate that check off of that conversation can take place.
Ernest.
Great appreciate the comments.
Jay.
We can start call appreciate it.
Thank you.
Thank you. Our next question is from the line of Anthony Pallone from J P. Morgan. Please go ahead.
Yes. Thanks. My first question is as it relates to the ground lease plus pipeline can you put some dollars around just what.
Got.
What amount of deals are over at star that could ultimately make their way over to say at this point.
Sure.
Sure.
Tony Let me just get that for you give me a second.
When you go to the next question.
Sure and then.
Yes.
You talked a lot about an inflation effect on our business and stuff like that but just.
For more practical point of view near term, what's the most attractive source of debt capital that you see right now and then how do you trade off I guess the options between going something perhaps fixed in the unsecured market with.
It's the more.
Ratcheted debt that you've been able to get from life insurance companies.
Yes, good question.
I think we have told the market, we want to be a unsecured borrower and the same sort of tenders that we have historically done.
Today I think it's around.
Perhaps five years, so that 25 to 30 year context is important to us that we'd like to see.
Some depth in that market and get them comfortable with this asset class they understand it.
Safety and the quality the way, we do and the agencies.
Evaluated us on that basis.
So that's a key piece going forward and probably piece, we'd like to establish.
Obviously, you have those relationships in other places in the secured world.
And I think we will be thoughtful about that but right now I think our next.
<unk> step is to establish.
30.
30 year unsecured.
Type of transaction to really give us a full suite of everything we need to run this business long term you've got the revolver. We've got the 10 year. We've got the secured we've got to step right.
The last piece of that puzzle is about 30 year unsecured contacts.
And so it's something that.
I think rounds out a liability strategy that we think is pretty darn unique both in terms of its.
Long term nature and some of the features that our capital markets team has created is kind of perfect for our business plan.
Okay Tony.
Tony just circle back on your other question.
About GL plus so the total opportunity for safe within the <unk> plus product today is at about $275 million.
Okay got it. Thank you and then just last question I think there was a footnote in the DAC about some of the deals having that you did have some.
Percentage rent.
Pieces to it just wondering if thats material or if we should think about.
Adding a chunk of income in a given quarter going forward like you had with the park hotels percentage piece.
Yes, no I wouldn't I wouldn't.
Worried about that trend.
Both of them.
Focus on.
Okay got it thank you.
Thank you and our next question is from Matthew Hallett from Riley. Please go ahead.
Great. Thanks for taking my question just on the UCA.
Change in the quarter the.
Seven new properties was that was there any other sort of changes at the existing property as to to get that 700 million change.
Yes.
As we know we have a third party that does rolling evaluation throughout the year.
Sure.
Reset appraisers.
Trading numbers, it's a small delta obviously, the hotels, probably made up the bulk of the downward adjustments in some of the multifamily made up the bulk of the upward adjustments, but overall.
Sub 5% Delta.
On all of the appraisals they did.
So the bulk was from the new additions from the seven.
Transactions.
Yeah.
Gotcha and then when you.
Hey, just switching to <unk>.
I think the next steps could it be that but but clearly over time, you're going to either to get to the 6 billion is the way I think about a 60 40 debt to equity.
Structure, you're going to need somewhere in the order of five to 7 million of equity per year. When I look at star. They they participated less significantly less in the transaction in September.
But they've been buying these form fours filed every almost every day buying stock in the open market.
They're obviously going to come upon a capital event soon here I mean do I, how do I think about further participation you said that you know this.
Stocks, 50% of where it should be at do I think about start stepping up.
But placement participating more in transactions going forward, how do I think what their role.
Well look I think you touched on two big themes. There. One is we believe the stock is materially undervalued, we think one <unk>.
A large component of value isn't even being focused on other than by a few leaders thought leaders. So.
So we think there is plenty of opportunity there we've also.
So we need to create a larger shareholder base, we want we want to broaden the shareholder base to all types of investors, who should have the opportunity and desire to invest.
So while it's a compelling investment ISR hustle make room for other people to participate and make money that dynamic played out in our last offering.
<unk>.
Now that thats over its sort of free free market opportunity.
Stock is going to trade at substantially less than I star believes its worth.
Certainly a chance to deploy some of that growing liquidity it I start.
And ask that it knows better than anybody else in.
In the marketplace.
But it was a good opportunity.
Longer term again, our goal is to expand the shareholder base well beyond.
Just the.
Group that I think today understand that has a compelling way to play.
One sector.
Sure.
<unk> State World. We think this is a growth opportunity. We think it's a value opportunity. We think it's compelling for everything from 401, K as all the way up to <unk> and sovereign wealth funds and we're making good progress in meeting with investors, who probably never heard of but a ground leases ever finding the right pocket in those places.
Realizing a chance to meet with them walking them through the above market returns the growth prospects. The dramatic changes we've made to the ground lease product. It doesn't happen in one meeting typically its a process, but I can tell you our investor relations team is.
Continuing to stack up meetings are interested.
And investors well beyond the real estate World and those are that's really if you think about our long term capital strategy.
Our historic and can pick off the stock when it's cheap, but long term, we want shareholders, who understand why this is going to be a core asset and a lot of.
Does get portfolios.
And that's really the job right now make it mainstream for customers to make it mainstream for investors.
And we're still early in our process, but in.
In the interim yes, I start as a ton of capital. This is one of the most compelling investments we see out there and they can deploy capital.
People's home, but long term I think we want the message to be really.
Expanded far beyond the shareholder base, we have today.
And last question just on more on the UCA I know youre working to educate.
Destiny community on it and I think everyone has their sort of one way to think about it but we kept plus.
Steps being portal.
Is there something that needs to be done on the sell side registering.
The tracking stock.
What are the steps that.
That are going to need to be taken to unlock the value.
Yeah.
Yes, I think youre on the right track you can imagine there's a number of things we need to do to get ready to.
<unk>.
Make sure from a corporate governance standpoint from a.
Evaluation standpoint, Theres, a lot of legal steps theres a lot of business steps.
We've told the market since day, one of our IPO that this is going to be one of the most compelling parts of the story and we've been tracking it for 17 quarters.
Now you're seeing the growth and we think we've put up.
The key markers that we needed to see the growth over the last four years.
Long term stability.
<unk> grade ratings give us the diversity in the portfolio of the management team of customer base.
All of those things were sort of a prerequisite to having.
Larger investor base understand what we've built and why this is a new asset class.
Candidly should and will want to own.
And now we can go through some of the more tactical steps of okay rebuilt it it's been proven in terms of.
17 quarters in a row, what it is and how it grows.
It's tangible it's.
Values are out there for all to see.
We've done a lot of the hard work and now we need to get really tactical and technical about how to unlock this value for shareholders and there are a bunch of little steps.
Along the way that we will have to happen youll see.
We continue to take those baby steps really preparing for the larger unlocking that we are.
We're confident will happen and we just we're giving ourselves the time to get it lined up and then go.
Great. Thanks, Jay.
And if there are any further questions in queue. Please press one then zero.
Yeah.
Yeah.
Mr. Fuchs, we have no further questions in queue.
Great if anyone else should have any additional.
Question on today's earnings release, please feel free to contact me directly.
Lois would you please give the conference call replay instructions once again.
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