Q4 2021 Safehold Inc Earnings Call
Ladies and gentlemen, thank you for standing by your conference will be underway. Shortly please continue to hold.
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Ladies and.
Gentlemen, good morning, and welcome to safe holds fourth quarter and fiscal year 2021 earnings conference call. If you 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 like to turn the conference over to Jason Fooks Senior Vice President of Investor Relations and marketing. Please go ahead Sir.
Good morning, everyone and thank you for joining us for our Staples earnings call.
On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer, Microsoft Dorado, President and Chief Investment Officer, and Britt <unk>, our Chief Financial Officer.
This morning, we plan to walk through a presentation that details our fourth quarter and fiscal year 2021 results.
The presentation can be found on our website at <unk> Dot com and.
And by clicking on the investors link there'll be a replay of the conference call beginning at 12 30 PM Eastern time today the dial in for the replay is 86620710 or one with a confirmation code of 1185612.
Before I turn the call over to Jay I'd like to remind everyone that statements in this earnings call, which are not historical facts may be forward looking our actual results may differ materially from these forward looking statements and the risk factors that could cause. These differences are detailed in our SEC reports <unk> disclaims any intent or obligation to update these forward looking statements, except as expressly required by law.
With that I'd like to turn the call over to chairman and CEO , Jay Sugarman, Jay Thanks, Jason and I appreciate everyone joining us today.
The fourth quarter of 2021 was a very strong one per stapled and capped off a successful year for our company. We reached a number of important milestones during the fourth quarter and have continued that momentum into 2022.
So we have quite a bit of information to share on this call let.
Let me start by recapping some of the key highlights for you.
In the fourth quarter, we closed a record number of ground leases, adding another 17 to our growing portfolio and reaching our key goal with over 100 ground leases now in our portfolio.
777 million transaction volume in the quarter was our second highest ever and increased our portfolio with a $4 8 billion.
For the full year, we closed over $1 5 billion of ground leases and broke into several new markets, while continuing to focus on top locations and well positioned properties.
We remain very pleased with the strong growth of our modern ground lease solution and a demonstrated ability to help building owners generate higher returns with less risk and more efficiency.
Along with the growing portfolio came strong growth in earnings with fourth quarter earnings per share up some 29% year over year for the full year earnings reached $1 35 up 15% year over year held back somewhat by reduced percentage rent on the park hotels portfolio.
While earnings primarily reflect the positive impact of the long term rent streams added to the portfolio.
Mark to market value of the asset sitting on our land also showed impressive growth.
UCA, reflecting this value grew by an estimated $1 4 billion in the fourth quarter. What this means is that the measurable capital appreciation embedded in the portfolio stands at an estimated $8 1 billion at the end of 2021 compared to $5 5 billion at the end of last year.
Watching this account increased by an estimated $2 6 billion as another indicator of the value delivered to shareholders in 2021.
There was also a meaningful progress on the right side of the balance sheet.
During the fourth quarter, we upsized, our revolver by an incremental $350 million for 135 billion, giving us excellent flexibility to serve our customers and expanded our access to the 10 year secured market in a separate transaction.
That momentum has continued into 2022.
As we reported earlier this year, we recently completed our first 30 year unsecured debt placement with a very strong group of investors there.
They are offering was for $475 million in bonds due 2050 to a price of $3 98%.
And lastly, a news I know many of you have been waiting for we began taking steps to monetize UCA by completing a private placement with several well known investors.
As a reminder, we think about our portfolio of ground leases generate two distinct pools of value.
Our ground lease rents and the return of the initial investment basis at the end of the lease represent a high quality inflation protected cash flow stream.
We believe we will generate above market returns relative to comparable term comparable credit cash flow streams and the bond world.
This is one valuable part of our business.
We've also been building a second valuable asset that combined with the long term reversionary interest and our ground leases with the ongoing growth engine at staple.
Tracking the quarterly mark to market value of everything sitting on top of our land we've been highlighting this value and the growth of the second asset.
We've called this mark to market value UCA or unrealized capital appreciation.
It is an indicator of the value building up for shareholders and of the growing credit enhancement for our creditors.
It has grown from an estimated $400 million at IPO, four and a half years ago to an estimated $8 1 billion today and we view it as one of the most valuable components of a modern ground lease business.
You'll also remember we had previously set up a vehicle called caret to help us capture the value of UCA.
The initial offering of carrier units to private investors should accelerate investor focus on this unique asset.
Help us advance two of our long term customer goals, one lowering our cost of capital with customers over time and to enabling customers to participate in our success.
On the first goal once our share price more fully reflects the value of both assets in our portfolio.
Our cost of capital should be lower and we wouldn't be able to share with customers the benefit of that lower cost of capital.
On the second goal. We also believe we may be able to use character create additional customer benefits and rewards in the future.
We created the modern ground lease to deliver customers the benefits of more efficient capital lower friction cost and less maturity risk.
With Kara, we intend to explore ways to deliver customers a unique way to participate in <unk> long term success and directly benefit as our modern ground lease portfolio expands.
Now in terms of the actual care transaction.
Our strategy for this initial step was to engage with a small group of sophisticated investors who.
So we felt we are well positioned to understand the unique investment potential and upside care. It represents.
While the offering was small in the offering terms are intentionally attractive we were pleased by the reaction we received <unk>.
Investors in this round include family offices.
Our sovereign wealth fund and leading venture capital firms focused on Fintech and prop tech opportunities.
The offering was priced at $1 75 billion, a sizeable discount to the estimated mark to market value of the portfolio and has the liquidity requirements that we pursue listing carrier on a public exchange in the next two years.
If we do not successfully lift units publicly in the next years and vessels will have the ability to redeem their units at par.
With the expected growth in the underlying portfolio valuation overtime and the positive reaction from investors today, we take two years with sufficient time to get the units listed in the market to recognize the sizable value of carrier.
All in all you can tell we're quite excited to begin making carrot and asset that investors can separately have a chance to purchase and trade that can tighten our relationship with customers and whose value stapled shareholders will see reflected in today's share price.
Alright, there is a lot there so whatsapp Marcos walk through some more of the details Marcos.
Thank you Jay and good morning, everyone.
Before we jump into the details let me first say that we are excited to announce <unk> promotion to Chief Financial Officer. Many of you already know Brett since he has been with <unk> since day one.
Most recently as our head of capital markets. When we started this business. There was a lot we didnt know, especially how we were going to capitalize a 99 year enterprise Brett and his team's highly innovative capital solutions have enabled us to scale and we're excited to see and build upon that success.
In addition, we promoted to reset <unk> to Chief people officer, reflecting the significant contributions she and her team have made in helping shape and drive a winning culture.
<unk> is a highly entrepreneurial business and our people are our most important asset Teresa has been pushing on key initiatives to maximize our firm's engagement. So that we can deliver not just for our customers and shareholders, but also for our employees.
I would also like to underscore the very exciting news that Jay discussed regarding the initial sale of carrier units, we announced this morning.
Staples has always been and will continue to be a customer first business. It's how we began our business and it's how we will continue to scale. Our business. This initial sale of care units is core to our principal mission of providing our customers with the most efficient capital in the marketplace.
And while today is just the first step towards that path, we have already begun thinking about and have received authorization to utilize care units and innovative ways to enable our customers to join us on this journey.
Spend a little bit more time on the carrier transaction shortly but now let me turn to our earnings deck and begin with slide three.
As Jay mentioned, we had a very productive fourth quarter, which concluded a strong year for staple as.
As the quarter progressed, we saw accelerating momentum in our investment activity and closed a record number of ground leases for any quarter to date since the company's inception.
For the full year, we originated $1 5 billion of transaction volume and this progress combined with our current momentum has positioned positioned us to raise our target for year end 2023 to a $7 $5 billion portfolio versus our prior guidance of $6 4 billion.
Additionally, <unk> increased by an estimated $2 6 billion in 2021 and is reaching meaningful scale quality and diversity.
Moving on to slide four let me detail this quarter's earnings results.
For the quarter revenues were up 30% to $52 million versus the fourth quarter last year net.
Net income was up 39% to $21 3 million and earnings per share were up 29% to 38.
For the year. This brought revenue to $187 million up 20% net income to $73 1 million up 23% and earnings per share to $1 35 up 15%.
As a reminder, these earnings do not include any percentage rent from our park hotels portfolio.
While it is still too early in the year to predict how that portfolio may perform we.
We have seen some rebound in occupancy and revenues over the past six months.
Slide five provides an overview of our investment activity.
We were particularly pleased with the level of customer engagement during the fourth quarter as we originated a record 17 ground lease transactions for 777 billion, representing our second best quarter by dollar amount ever and our best quarter since the beginning of the pandemic.
Of that amount $686 million was funded during the quarter with an additional $20 million of fundings from prior investments.
Separate and apart from these origination stats. We also closed our fourth ground lease plus transaction on a multifamily property in Brooklyn, New York, which could be up to an incremental $91 million and our future pipeline.
In total through ground lease plus an option contracts from that program, we have created forward opportunities totaling approximately $580 million.
The investment metrics associated with the originations this quarter are in line with our targets with a weighted average underwritten effective yield of four 9% a weighted average effective yield of four 7%.
Ground lease to value of 41% and rent coverage of three seven times important to note. We added nine new customers as we continue to broaden the adoption of our ground lease product.
Slide six provides an overview of our portfolio growth for the quarter.
At the end of the quarter, our aggregate portfolio stood at approximately $4 8 billion continuing the growth trajectory since our IPO four five years ago.
You can see the quality of the assets, we closed over the quarter on the right side of the slide.
We're constantly thinking about how to drive value for our customers when innovative structure, we launched this quarter, which we call safe cell was on a transaction we closed in San Francisco.
Oftentimes, we're helping our customers acquire a property more efficiently. However in this case working with the selling broker we helped our customer sell their property and drive value.
Our repeat customers was looking to sell one of its assets data broker estimate of value and where it could trade and they were interested in knowing if a staple ground lease could help unlock value for them.
We proposed a $65 million ground lease and suggested they market and newly created 99 year leasehold.
The combined proceeds they received from selling the land and the building separately ended up being more than 7% higher than their market estimate selling the property fee simple.
Meaning an incremental $12 million of additional proceeds in our customers' pockets.
We've also continued to monitor our customer success and we were pleased to see another customer selling their leasehold position at a similar cap rate is fee simple properties of the market, which generated a strong return over their investment period.
We've also had eight customers refinance their leasehold to date all at very attractive terms with a diverse set of lenders demonstrating the growing traction of our products.
More portfolio metrics can be seen on slide seven.
As of December 31, stapled generate generated an annualized yield of five 1%.
With annualized in place GAAP rent of $236 million.
The portfolio's annualized cash yield was three 3% with annualized in place cash rent of $148 million.
Our portfolio's weighted average ground lease to value was 40% and weighted average rent coverage was three five times.
By property type our portfolio consists of 50% office, 34% multifamily and 16% hotel and other our weighted average lease term is 91 years.
Turning to slide eight we spent a lot of discussion about inflation and how it impacts our portfolio.
You certainly heard us talk about the bottom line cash flow stream that are ground lease produces the truth is that our stapled modern ground leases have some strong inflation protection provisions built in which is far better than any of the high grade bonds, we benchmark ourselves.
For the safer ground leases, we originate that inflation protection generally comes in the form of the CPI look back let.
Let me take a moment to explain how the mechanics of our look backs work and why they create a meaningful amount of inflation protection.
Our saiful ground leases typically have 2% fixed annual rent escalators with a 10 year CPI look back cap between three to three 5% per annum inflation growth.
That 2% escalator is the minimal contractual rent we will receive.
So if inflation averages less than 2% over a 10 year period, we will still get our 2% contractual bumps in our rent growth outpaces inflation in that scenario.
However, if inflation averages more than 2% over a 10 year period, our CPI look backs provide for our rent to step up to what rent would have been if it had track inflation on a compounded basis, the entire period subject to a cap.
For example, if the cap is set at 3% that means that our CPI look back will capture cumulative CPI growth for that look back period, typically 10 years up to a 3% compounded annual inflation growth.
However, if CPI growth during that look back look back period exceeded 3%, we would not capture that excess growth above the 3%.
That being said when we analyze historical periods of inflation is very rare to see inflation run above 3% for extended periods of time.
Following a rent increase for the CPI look back the subsequent rent will continue to grow 2% off the higher base until the next CPI look back. So what it means is that if inflation were to trend at 3% for the next 99 years or 100 basis points above our rent bumps in this illustrative example.
Our CPI look backs will allow us to capture approximately 80 basis points or 80% of that inflation in our OE.
Further if you consider that we borrow with long term fixed rate debt that doesn't have any inflation protection you can see that we are advantaged as the benefits of our typical CPI look backs, our allocable to the equity.
And finally with respect to the value of the buildings on top of our leases generally generally real estate is positively correlated with inflation and so inflation is positive when it comes to UCA, but we'll talk about that more shortly.
First on slide nine you can see the geographic breakdown of the portfolio as we continue to expand as a top markets with the inclusion of Chicago This quarter.
Slide 10 provides an overview on our capital structure.
It was a busy quarter regarding capital markets activity working with our bank group, we upsized our revolver by 350 million to 135 billion. Additionally, we issued $350 million of 10 year, 285% unsecured notes our second unsecured notes issuance after getting our debut credit ratings, just one year ago.
At the end of the fourth quarter, we had $3 billion of debt comprised of approximately $1 5 billion of nonrecourse secured debt $750 million of unsecured notes and $272 million of debt on ground leases, which we own in partnership which represents our share.
Our weighted average debt maturity is 23 years.
In addition, we had $490 million drawn on our unsecured revolver and so some combined with cash on hand, we had approximately $900 million of liquidity at the end of the year.
Subsequent to the end of the year, we were very pleased to have been able to do a private placement of our first 30 year unsecured notes issuance $475 million of 398% unsecured notes due in 2052, which priced at 180 basis point spread to the then 30 year treasury rate.
Proceeds from this transaction were used to pay down our unsecured revolving credit facility as well as general corporate purposes, which may include the funding of additional investments in ground leases.
Moving on to Slide 11, we provided an update on estimated UCA.
The estimated value of all the unrealized capital appreciation above our cost basis grew to an estimated $8 1 billion a $1 4 billion increase since our update last quarter.
This estimated pool of value has grown by a 90% CAGR since we IPO to.
To give you a better sense of what encompasses that pool of assets. We have a total of approximately $26 4 million square feet of institutional quality commercial real estate located in the top markets throughout the country.
Comprised of $11 6 million square feet of multifamily.
11 million square feet of office, $3 5 million square feet of hotels, and 300000 square feet of other property types.
And while we have been tracking this value every quarter since we IPO, we have now taken the first but significant step.
Towards unlocking a portion of that value for shareholders and customers through a transaction, we announced this morning, which we highlight on slide 13.
<unk> is an extension of our meticulous focus on the customer value proposition by working to unlock the full value of our platform. We can serve our customers in more ways and deliver increasingly lower cost more efficient capital solutions.
As disclosed in the press release, we sold a 137% interest in carat to a group of leading private equity institutional and high net worth investors for $24 million at evaluation of 175 billion.
You can see some of the firms that we partner with on the slide venture capital firms like Ribbit capital and fifth wall, leading sovereign wealth funds high net worth investors, including Michael Rubens family Office and Kevin Durant.
While we've always believed that there were significant amount of value building up in our UCA pool, but for many investors liquidity was equally as important.
Our focus over the next two years will be to provide liquidity for carrier and we formed an advisory board with some of the new carrier to investors to help towards that path forward.
If we don't provide or liquidity for carrier at a value in excess of these investors basis within two years. They have the option to cause us to redeem their investment at the original purchase price.
So on slide 13, you can see the ownership structure illustrated safe old we will continue to receive all the rents from its portfolio and its original cost basis as well as certain other cash flows.
The current units are generally entitled to the capital appreciation above our cost basis in both the existing portfolio and all future ground leases, we originate under specified circumstances.
You can see safe hold owns 80, 363% of the caret units the new investors on 137% and management owns approximately 15%, which was earned after achieving all of the performance hurdles and a shareholder approved long term incentive plan.
Yes.
In conclusion, it was a strong year for saiful ending with a strong quarter marked by a record number of ground leases closed as we expand our leadership position in this growing industry, we felt confident to raise our guidance target scaling our portfolio to at least $7 $5 billion by the end of 2023.
In addition, we've taken our first step to unlocking a portion of value and UCA through the sale of care experience.
Our focus is to continue to grow our portfolio, which will in turn continue to grow the value and UCA as we seek to unlock the full value potential within the platform for both shareholders and customers.
When we began this journey four five years ago, we set out on a mission to revolutionize revolutionize real estate ownership.
By providing a new and better way for owners to capitalized real estate as we continue to innovate and unlock the full value of our platform, we hope to be able to deliver our customers the lowest cost longest term most flexible capital in the market.
With that let me turn it back to Jay.
Thanks Margo.
Obviously, the market got off to a tough start to the year and our shares were hit pretty hard on the other hand, I think you can see we've been very busy executing on our business strategy and delivering the roadmap to the future.
We remain firmly convinced that this industry will become a very large one and then we are creating valuable efficiencies for customers and unique investments that many investors will want them their portfolios.
Delivering that opportunity to as many customers and as many investors as possible and figuring out how best to do that will be a big part of the stapled story in 2022.
So let's go ahead and open it up for questions operator.
Thank you today's question and answer session will be conducted electronically to ask a question. Please press one zero at this time, we will take as many questions as time permits once again. Please press one zero to ask a question, we will pause a moment to assemble the roster.
And our first question is from Nate Crossett with Baron Berg one moment. Please.
And your line is open.
Hey, good morning, guys.
And congrats on a strong quarter.
Yes, a few questions I was wondering maybe you can just give us a sense of how things have carried over a year to date.
What's the deal flow like so far how much have you closed.
Maybe give us a little color on the pipeline in terms of mix.
Is it still weighted mostly towards R&D or is that more often kind of embedded in the portfolio now.
And I think even last time, you mentioned you were looking at our life science.
Opportunity I'm curious if there's an update there.
And then just a question on pricing and yield.
I think deals in the quarter were essentially unchanged quarter over quarter, and maybe you can just give us some color on kind of your outlook.
For pricing this year, just given what rates have done.
Yes, So let me.
Let Marcus talk about how the pipeline feels and some of the pricing dynamics, but just in terms of.
The market feels like we continue to bring that momentum from the fourth quarter into 2022, where we're not going to talk.
Talk about specific dollars yet.
Early in the quarter, but.
A lot of progress along the lines, we've laid out previously so.
Look forward to.
Property more fully about that on our next earnings call.
Nick just to add to what Jay said I think.
A fair amount of confidence.
And our ability to continue to scale the portfolio, obviously that was reflected in our raised.
Raising guidance.
One from the end of 2023 as you think about the mix. There are a few life science assets in the pipeline a good amount of multi and high quality office, so consistent with what we've done in the past.
And as it relates to pricing if I look at the pipeline, it's that consistent with last quarter from an effective yield standpoint.
Okay.
Helpful.
Maybe you can just give us an updated thinking on the potential kind of combination of lifestyle RMC.
Now that the net lease portfolio has been sold.
How should the market be thinking about the timing and the mix.
How a potential combination might look.
Sure.
One point of clarification, we've announced.
The signing of an agreement on that lead so it hasn't actually closed yet there's still a lot of work going on to get that.
Sure.
Done so.
Just wanted to make sure you understood that.
You've heard us say before that once safe reaches scale, we think the independent directors of Staples Board can look at the external management structure of the current architecture of staple.
Determine how best to create shareholder value.
And while I wouldn't want to speculate at this time, because it's still too early to companies have not had any conversations with each other yet.
As possibly discussions could take place at some point this year and we will update the market as appropriate.
Okay. That's it for me thank you.
Thanks next week next we have a question from rich Anderson with SM BC. Please go ahead.
Thanks, Good morning.
Mark I don't know if you said this explicitly but you talked about utilizing carried units.
Native ways with customers. So could you envision I don't know purchasing ground leases or getting involved in grad lease investments by using the units as your source of.
Money.
Is that like sort of like a down REIT structure type of thing is that what youre talking about.
No I think we.
As management see a tremendous amount of value in carrier today and in the long term.
And as we think about.
We want to ultimately be as a business from a scale standpoint, we want to partner with our customers.
As part of that.
Solution.
I think figuring out innovative ways for them to share in some of the value that we've created the way we're thinking about it.
Okay.
What is the role of the advisory Board, what will be actually due to forward the carrot.
Business.
If you think about the Investor makeup rich.
Highly curated process from a Dr. A bunch of different avenues of the world.
We're not entirely sure what form it will take and.
And we think this group of investors will be able to offer us insight and expertise that we don't have to ultimately get us on a path.
Okay and now one of the investors Zig capital is founded by one of your board members Steve Eisenberg.
Can you talk about some of the safeguards that you put in place if any.
To address any even perception of a conflict and if you could just kind of touch on that for me. Please. Thanks.
Yes.
I think it rolls into kind of what Marcos was saying, we've always thought keratin.
And uniquely valuable and will be attractive to a wide range of investors.
We also thought it had some pretty unique attributes that could open up some really interesting possibilities in the future.
One of the reasons I think they've joined the <unk> Board and certainly the opportunity set that we think we're creating.
And has.
Very future minded way of thinking about possibilities, but we think.
Definitely going to help us in the care process. So we're really pleased to have someone like him.
He has also had the benefit of watching us up close build safe holding Kara.
Has seen its potential.
I think there is.
A nice group of investors.
In the advisory Board that will help us on a lot of the ideas, we've been sort of cooking up in the lab.
Over the past year or so.
In terms of conflicts, we are pretty strict protocols on both boards in terms of independent directors.
And counsel as all over any perceived conflict issues don't.
We don't see any challenges there rich in terms of counsel has been sharing with us, but both independent directors.
At Star and safe hold are very much on their toes on this topic right now.
Last one from me can you talk about the Refis that happened can you talk.
Where were they in the lifecycle of <unk>.
The exploration and what happened to the rents could you give some color about.
How they were adjusted presumably upwards.
Yes.
These were ground leases that were put on over the last four five years. So they are all new ground leases the point being that our customers executed on.
On their business plan and were able to recapitalize the leasehold positions behind us.
Successfully.
Okay. Thanks very much.
And our next question is from Keybanc Kim with Truest. Please go ahead.
Thanks, Good morning, and congratulations on the carrier transaction.
Just a couple more questions around that.
What was the value of the UCA at the time to deal with on the $8 1 billion.
It was when we started the conversations with the investors. It was the after last quarter. So it was $6 7 billion.
Okay and.
The transaction is it tied to a subset of assets within that UCA bucket or is it both totality.
The totality.
Okay, Great and as you March towards.
A public listing or some type of liquidity event for the carrot.
Is it realistic to assume that there's another interim transaction to monetize the carrot further to show and demonstrate value as we lead up to it that monetization event or is it.
Pretty much.
In the event, we should think about.
Yes, I think there are several different paths, we're working with some third party advisors to help us think through the key brands.
I think there is.
A lot of interest.
We've got a group of investors, who really span some of the groups, we knew or certainly believed would have a lot of interest whether youre a sovereign wealth fund.
Whether you are a family office.
Whether you are seeing the potential to build an exponentially growing pool of value.
I think we've got a lot of interesting choices ahead of us.
Certainly one could be additional private offerings.
We're going to we're going to do this very thoughtfully.
We work our way through 2022 and continue to execute on the business.
Got it and just a couple more questions.
Is there any anti dilution cost.
And this first transaction, meaning if you're doing that or in private transactions is there a certain minimum devaluation has to meet.
No as you know.
Karen.
Fixed number of units.
So we will have a.
A lot of thought going into how to make Karen absolutely unlock the most value.
Part of our advisory boards.
Role with US is to really help us figure that out think that through.
But there's no specific provision.
Okay. Thank you.
And our next question is from Spenser <unk> with Green Street. Please go ahead.
Thank you.
Look I realize in your in your press release. This morning, you mentioned the goal is ultimately to maximize the value of care.
That makes a lot of sense given the tape out is 85%, but can you just talk about how much of the current valuation should ultimately accrue to safe if the Angola is ultimately just to have a liquidity event and spin it off.
Good morning expenses, So I think two things one we.
See this is definitely one of the two major assets are safe.
Safe hold.
I would anticipate stapled being a very major owner of Gareth long term.
Certainly our thinking at this point.
But creating that liquidity is seeing its full value reflected in the share price is important for a number of reasons, we've talked about the customer.
Opportunities that will open up for US. We also think from a shareholder standpoint, the share price simply doesn't reflect the value we've created and are creating every day.
So we're going to work on multiple fronts, but the ultimate beneficiary of the majority of beneficiaries should be safe hold shareholder.
Okay, and then just going back again to the <unk>.
Maybe a follow up on that last question.
Mentioned.
And everything.
Investors and that is there isn't a return beyond the cost basis for these investors are able to redeem their units. So when you have a liquidity event have you guys negotiated.
A specific hurdle rate.
And for that Investor pool.
We kind of think of it in terms of.
We have.
Strong belief and believe they have the same strongly from a value, but the liquidity for <unk>.
Fund.
Invest in something like <unk> with a long life underlying liquidity is really important so we want to get.
This investment into as many hands as possible.
That requires us to create a liquid instrument.
We're very much aligned we want we want that they want that it was important to how they thought about it.
In terms of value youre going to see in <unk>.
<unk> continued to talk about the increase in value carat, not only historically, but prospectively in terms of the opportunity set.
Don't think thats going to be a big challenge, but.
We need to make this.
Security and <unk>.
Give us the liquidity to really open up open up this market as soon as possible. So don't think two years is a problem, but we've got a lot of work to do.
Right. So I guess I was just getting at the point like spins can be yes.
<unk> can often traded poorly and they can trade in a great.
Great.
Then spun out but I mean, it kind of remains to be seen and I'm. Just curious have you guys thought through kind of a bear case and what to spend on this thing and it doesn't.
Trade as well as you had hoped and what does that mean.
<unk> current investor base tier new Investor base as it relates to these current yet.
Sure.
It's too early to worry about that today, but I would tell you. We fundamentally believe we will get this lifted it will trade above.
What.
Frankly, it was a very attractive price for these investors.
So I think our first our first goal is to.
Take this step.
And get the right kind of investors because it was a small offering we spent more time frankly of markets are getting the right investors.
Because we think the opportunity is so large here in terms of getting full value that will happen over time, but.
But we certainly think we've set the initial marker at a low enough value that.
It's really a liquidity question hopefully.
We're not talking about.
Value in two years.
Okay. Thank you.
Next we have a question from Rich Hill with Morgan Stanley . Please go ahead.
Hey, guys long time listener first time caller here.
I wanted to.
That's how you guys might enjoy that.
I wanted to talk about the rising interest rate environment, but maybe not the question you think I'm going to ask.
As I think about interest rate environments, it's really easy for commercial real estate owners to make money and falling interest rate environment.
Hopefully this isn't a loaded question because it's really about what youre hearing from your tenants, but isn't there a scenario in a rising interest rate environment, where owners of real estate have to be more even more efficient in their capital structure and while your cost of capital might go up depending upon.
How efficient you can be is there a scenario where there is actually even more demand for ground leases in a rising rate environment.
Yes, rich I think we think about that environment, a fair amount as we've said on prior calls our competition is really the regular way financing real estate and obviously in a higher raising environment.
That cost of capital will move up dramatically and so as we continue to try to drive down our cost of capital. We think there is a potential opportunity even in the even in a rising rate environment to capture more share.
Okay got it and maybe as a follow up question to that.
You've obviously been super successful originating a lot of ground leases, particularly in <unk> 'twenty one.
But as I look at your portfolio, it's not it's not often.
The largest owners of commercial real estate.
Would be household names.
What are you hearing from those those large institutional investors and I'm, not suggesting you're not working with institutional investors, but the big rights of the world.
Do you think there is an opportunity to eventually expand to them and maybe even over the near term.
Yes, rich, sometimes I wish it would happen overnight.
And I joke with our guys that these conversations sometimes can take two three years.
I can tell you is the team overall feels a tremendous amount of confidence in our ability to scale going forward.
And as I think about the quality of who we are engaging with it looks very different than it did even six months ago.
So.
Examples yesterday, one of the largest owners of real estate in the World. We spent a good time with them going through their portfolio and talking about the stake sell concept.
Okay great.
Am I allowed one annoying sell side question about internalization and Jay you can say you can tell me no comment, but here's my questions.
Will shareholders be notified when this starts I think Jay you mentioned when there's something when this time to say something Youll say something but.
That's part one and then part number two.
Can you maybe just walk through how you would consider evaluation framework.
The value of the manager just if theres any comments there that would be really helpful.
Yes, I wish we could talk more about our rich, but I think it is too early to try to lay out all the different paths this could take.
Candidly.
Executing our business as hard and as fast as we can and that will obviously make those conversations more fruitful for both sides. So.
Let us do our work and when it's appropriate time.
Sure.
<unk> will come when they are necessary, but right now we're focused on continuing to build the business.
I'll file that under our annoying sell side Congress question.
Thanks, guys congrats on a good quarter and look forward to continuing our discussions.
Thanks, Alright, thanks Ruth.
Next we have a question from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, good morning, good morning, everybody.
Maybe just again on the carrier transaction, which I know has probably taken a lot of the team's effort recently so congrats on it.
Jay I think you referenced the floor, but the UCA portfolio is now with like 8 billion or $6 7 billion as of starting the conversations with the investors, but the transaction value today is lower so can you just go through your line of thinking too I guess, except that value in.
Now it's at all today.
Sure. So we began the process in earnest as Marco said.
Third quarter numbers in hand, which was six.
$6 7 billion.
Candidly, we did not go out to many people we've got a pretty.
Clear line of sight on who we wanted to approach.
We had a limited number of units authorized by our board to sell.
We're oversubscribed relatively quickly.
We were really pleased with the reaction I think.
When you really dig in and you start to see where we've been what we've done and you put the pieces together.
A very powerful story not just in terms of the value created today, but the potential opportunities in the future.
And so I think we got a nice mix of investors.
<unk> not only see from just the wealth creation value creation.
<unk> four from this modern ground lease portfolio, we're building, but others, who see can see even beyond that.
That to US was much more important obviously than price in this first transaction getting the REIT investors the right mix and doing it quickly enough again, we didn't want to spend all of management's time trying to do a relatively small transaction.
There are bigger fish to Fry and we're firing on many fronts right now so.
We were delighted we got it was almost exactly the mix we were looking for the caliber.
In our minds is just absolutely top tier from the Fintech prop tech from a family office World.
Couldnt ask for a better mix.
Delighted that they are all willing to serve as advisory Board members. This is going to be a really powerful opportunity to share some of our work from the past three or four years and really hone. It. So that we can not only list. This.
To get value recognized for say fold, but more importantly, we think theres a lot of people out in the world, who will find this compelling and attractive.
In a listed security will let us get to them a lot more easily so a lot of benefits.
Again, much more important to us to get people and get the right people and get them quickly and efficiently and so pricing for us was simply.
A number to say look we've had some analysts who've been ahead of the curve, who put a value on it.
We can benchmark against that we May think that's conservative but it was a good starting point for most of the new investors to ask who else is looking at who else is valuing it.
We came up with a number of very quickly that work for us and work for them. So I wouldn't put.
Ton of.
Yeah.
Our viewpoint wasn't the spend a ton of time on trying to negotiate on that it was much more get the right people get this.
Grouped together so we can start working hand in hand.
So again the team continues to add.
Last quarter $1 billion for to the asset base.
We are going to continue to push on this idea that we are delivering significant value. That's not recognized in say fall in share price and the sooner we can get that unlock the sooner we can work with our customers to really deliver them and increasingly powerful solution for their needs.
Got it thanks for that detail and yes, I do agree it seems.
It seems like it happened rather quickly so congrats on that.
Maybe just a follow up to an earlier question or maybe it's just rephrasing, but so do you expect to be actively trying to sell additional carrier, it's near term or how soon or how much of a priority is that for you.
Yes sale no.
Discussions with our new investors about some of the potential opportunities we have.
As I keep saying cooking up in the lab.
Yes, we do want to continue the progression here.
But I don't I don't think that will be a focus in terms of selling additional units in the very near term.
Okay got it and then maybe just looking at the.
The fact that <unk> those investments I think we're in 14 different markets, including two new ones. When you think about your varied property types or expanding market. How do you get comfortable that in 91 year as those properties are going to be worth something similar or more than they are today.
That is the fundamental.
Basis for why we're so excited about this business Caitlin we look at our window here in New York and we can do historical tracking on almost all of these markets what things are worth on top of the land.
Today, and where they will likely be at the end of lease terms.
And almost universal.
The increase in value dramatic increase in value over time.
So we do spend a lot of time, making sure. We're in the right location, the right cultural financial technology technological centers.
With strong infrastructure around a strong educational drivers.
But really if you are asking today, we are really good at underwriting the real estate and the land and the location and its drivers.
And that will win out over long periods of time as it always has over history and because we're diversified across all 30 cities. There's no question, we're going to have some big winners, but we're going to rely on the mean, we're going to rely on the average that we've seen across not just for.
With 30 cities, we're in but across cities historically around the world. These major centers of Commerce major centers of culture major centers of financial technological educational activity.
With strong infrastructure are going to be places.
Owning land has created great fortunes and we think over time.
The real estate community are very good at finding the highest and best use.
Even though keep improving what standing there today or they will take them down and build something more valuable that is.
The.
It'll thesis of this business based on not only our 30 years in the business for one hundreds of years of research.
Research on one hundreds of years of activity in major cities.
Think that's one we can we can talk with you offline and show you kind of have some examples of what that means and how it.
No. It really is infused throughout the way, we think about say folding some of the other things in the portfolio.
Got it and maybe one quick modeling one just in terms of the <unk> transaction, specifically the $706 million that were funded can you give some idea of what the timing was on those trying to get a sense for what's already in your run rate revenue versus what's to come.
A little bit back ended.
December funding will get will get you the specifics Kayla.
And just staying on page seven you can see the annualized in place rent that was.
<unk> hundred 31.
Got it okay. Thank you.
And our next question is from Anthony pay alone from Jpmorgan. Please go ahead.
Yes. Thank you.
So first question is when you talk about the four 9% effective yields on where youre deploying capital.
A piece of that do you think relates to the.
<unk> at the end of the lease term.
Versus the.
I guess, just the lease cash flows.
It's just lease cash flows at zero in that 449%.
For the residual of the zero.
There's no CPI in there yes, there is no CPI either the residual <unk> initial cost basis.
Okay. So what do you estimate if you what are you internally underwrite as sort of that residual like what would that add to the $4 nine.
We don't really look at it that way Anthony I think.
The value of a single asset.
<unk>.
You can pick your discount rates you can pick your growth rates.
Stork, we over time, we don't think that is.
Got enough growth embedded in organically.
To ever outrun the disc.
Discount rates. So we don't really look at that as part of the bond equation. When you look at that as a separate pool of value that combined with the engine of growth in say full.
It is easy to track.
We know it has defined.
Evaluation today, we know what it's been growing at and we know what the discount rate for like assets are so that's one of the things that we think is innovative about how we built a machine.
We can take that second asset and make it its own asset with its own growth rate and its own diversification separate and apart from the bond component. So we.
We haven't run the number youre thinking about because I don't think it really.
Fifth with the.
We think about the two pools of value.
Alright, so the pool of value in the carriage, though it's not a function of both how much you grow the pool as well as what the.
Individual pieces, you are putting into it or.
Exactly.
It is the growth rate of all of the expanding assets and the incremental assets that are added every quarter. That's the growth rate we've been tracking since IPO.
Right.
Right.
Yes.
No I understand the growth of the pool and how dynamic that is I'm just trying to understand how each of the pieces that get added to that pool are valued.
I think for US Karen is the asset.
How much.
Value is growing and building up in the portfolio and we can give you. The historical we can show you why we're confident about growth in the future. We think the discount rate for diversified pools of high quality institutional real estate are pretty well prescribed by the market.
And we know.
We are the owners so in effect, we know the three components there.
We own it we know what it's worth today, we know how fast it's growing we know that discount rate is.
So but for us that define the outline of care as an asset and then the bonds. We know what our cash flows are we know what the comparable bonds of similar credit and similar turned trade at.
We don't know what inflation is I think Markus gave you some guideposts on how inflation can increase the yield to maturity on those cash flow streams, but if you just use the base cash flow stream and you just have the basis back at the end.
We know all the pieces of the bond puzzled too.
So this is this is really important the bond.
System is.
Got it all the components.
And there are market based and Karen have market based components and when you put them in those two baskets and you look at growth and the diversity increase in both asset pools that.
That to US is why the market has never seen an asset like.
Carat and it's never really fully valued saiful.
The combination of the two is sort of just much together and as we always say.
Things are more valuable when they're separated when theyre easily understandable then when you try to push them together and say, let's just one thing when in fact, we have two very different investments.
<unk> modern ground lease portfolio, so well.
We will keep trying to isolate those variables for you because we think it makes the task a lot simpler.
And we'll compare each of those two the most like being out there in the investment market, which really gives us the benchmarks, we shoot up growth rates discount rates.
Appropriate risk adjusted returns.
But I think Anthony that's a more.
And sink way to see how we're building the business of.
And then to put them back together and try to figure it all out is one thing.
And then it sounds like a lot of the value ascribed to the carrots comes from just the dynamic nature to the pool.
And that I.
I know.
So the bulk of those things still sorry, I guess, it's not terribly relevant but.
If this thing were completely spun out I mean, how do you how do you have a throttle on just like safe doing deals that makes sense for safe versus simply growing doing it to grow the pool.
Assets in the carats.
Yes, I think important piece of this is faithful boards mission is to maximize the value for stakeholders shareholders.
And any conversation that begins there of this unlock value for safeguard shareholders.
It's very unlikely that they would do a transaction thats either today or in the future. They didn't feel would increase.
Increase that value and protect that value so.
Again, a little bit too early to think about all the variations on the theme, but as we think about it sitting here today.
Faithful shareholders should be the majority beneficiaries of whatever path carat takes.
I don't see a scenario where safety.
Faithful shareholder have no stake in carrot.
Because then you would have some of the issues you're talking about.
Okay and then just last question just more cord shave.
I mean, given kind of where 30 year treasuries are and your spreads.
Like what do you think the right.
IRR should be or what do you think the right amount of spread should be on your deals currently or I guess in the near term I suppose.
Yes, again, historically, you've heard US talk about this 100 over our cost of debt.
Has been the marker.
Typically it was between 100 and 125 basis points over the cost of debt.
Shooting range as we get bigger as we get more comfortable that our cost of capital might decline as we can unlock value and some of the other parts of the portfolio.
Our job is to drive down the cost of funds create.
Create the best alternative for our customers.
But at least coming into 2022.
Typically sat with about 100 to 125 basis points over our cost of debt.
As the target for <unk>.
The portfolio.
And your cost of debt being 10 years your line 30 year.
I think we're I think we're averaging $25 24 ish years right now so it's a blend of <unk> tens.
Right now Glenn I think Brett what 'twenty four 'twenty four years correct.
Blended cost is what we're looking at.
Okay, great. Thank you.
And our next question is from Matthew Howlett with B Riley. Please go ahead.
Hey, guys. Thanks for taking my question.
On ratings and leverage.
What can you tell us where we.
Where you want leverage to be where can we model.
2022, and then on ratings, where do you stand on an upgrade to the <unk> look at this carried as possibly giving you possibly credit for it.
How close are you to getting.
Single a minus.
Yes, Brent has a fingertip feel for the conversations with the agencies. We're a young company, we are impatient, but we're patient.
Putting all of the foundational pieces in place and I think Brent and his team have.
Been sharing with the agencies, where we can go.
From a ratings perspective, and how we might get there.
Obviously, not in our control, but many of the things that we need to do we are doing and I think Karen being.
A little bit of a wildcard we think there is tremendous value there.
It's on us to prove it out we think this is a first small step but in some respects, it's a giant leap.
It will impact it should impact our ratings it should give us a tool to work with our customers and are in a unique way and tighten that relationship.
Cross the board.
But we don't control exactly how they are going to look at us, but I feel really confident if we demonstrate value. If we if we continue to execute the way we have.
We do believe the company's credit profile as high.
Higher grade profile than where we are today, but.
We got a rating a year ago, so we're going to share with them all of the progress. We've made on all the progress we still think is to come.
And let that process play out.
Got you and then so should we expect you to stay in this sort of range and so one 5% to four.
<unk>.
So we look at for the next kind of six to 12 months.
Yes, that's correct, we've been operating in that range and that is our targets since they want to starting this business and we're certainly cognizant of those rating agency thresholds and criteria as well.
Okay. So we'll wait for an update there and then on.
On the dividend I mean, what's the outlook I noticed Ashley income requirements, but.
What's your appetite to raising the dividend to investors care about the dividend how much would you like would you rather prefer to retain as much as you can.
That's an interesting question.
Our policy has been to try to increase the dividend.
Above the rate of inflation.
We've been doing that.
Certainly we will continue to believe if that's an appropriate policy.
One of the things I think in terms of this idea of reinvesting is effectively our business reinvest at above market returns automatically we have a 5% ROA and a three 3% cash that incremental $1 seven is going back into a 5% effective asset. So we've got this automat.
Reinvestment feature which I think is really powerful when you are generating above market returns.
But other than that we typically payout 100%.
We feel like that's an appropriate policy with respect to our shareholders. Whether this is the driver of the business. Matt you know my feeling is.
This is a long term business, we're trying to drive long term value creation every time, we close the deal. We think we are adding value for shareholders. So I would think it would be a mistake to just look at our dividend and think thats.
What's driving shareholder behavior.
Delivering very safe long term cash flows as part of our story.
Giving some of that back to shareholders and investing the rest and more above market assets.
<unk> is a great part of the dynamic of the business it happens organically.
So I think our policy to date has been.
Return all the cash flow, that's free and let the accruals take place and effectively reinvest on our behalf.
It feels like the right mix right now its kind of a 60 40 mix.
If we were getting all 5% and cash we would probably do the same thing.
So in some respects.
Happening without us having to do much work.
Great got you I appreciate that and then just last question Jay just big picture I don't want to.
Asking about the potential merger, but what's the investment case from.
Safe side to internalizing the management contract, possibly merging we start can you just give me give us a big picture from.
To save standpoint, just part of the natural evolution of the company.
Just does it take you to the next level of being a new investors just sort of big picture what does this do for safe.
Yes.
Again, like I've talked about anything specifically, but I can tell you over the past couple of years, we have had a number of investors.
The shareholders that we think are really intrigued with what we're doing and what we're building tell us they simply can't invest in safe because of the external management structure right.
We've always said that that architecture has been really powerful to get us to where we are.
But over.
Over time, it may not be the right architecture. So.
I think.
It will definitely help open up the window too.
Part of the shareholder World that we think is a natural buyer of say pulled that right now just can't play.
I think theyre, probably extends to the debt market as well.
Right.
We are constrained by.
Some policy that places that.
Even if they love us, but really can't participate.
I think from that standpoint, that's an obvious one.
Theres, probably a lot more.
More subtle things, we could talk about but let me just leave it there and say we've always felt like unlocking the full value.
Is in everybody's interest.
And so.
Getting this.
As a company from zero to five.
We thought the structure was was really helpful.
Is that the right one to take us from five to 15 or 50.
Certainly something we think is possible in 2022.
Interesting conversation about.
Great. Thanks, again, we look forward to what's ahead.
Thank you.
Next we go to Jade Rahmani with <unk>. Please go ahead.
Thank you very much just curious about the underlying building owners in the portfolio how.
How would you characterize their duration and could you give any color as to perhaps what percentage are the <unk>.
Managers of bonds versus what percentage are traditional real estate owners and families.
Hey, Jay.
Mark.
I think it's a pretty broad mix of owners and operators families and fund managers.
I can say for the most part.
The investment time horizon of our clients probably sits in the kind of five to 10 year bucket.
Okay. Thank you for that.
Any changes in behavior or underwriting.
That the underlying investors are targeting are making as a result of the evolving.
Interest rate outlook.
Certainly in multifamily.
There continues to be a very strong bid regardless of rates I think the the rental growth, particularly in some of the.
Core markets. We're in has been.
Historic and I think people still feel very good about those markets.
But I think higher interest rates overall in the near term are going to require an adjustment. We think efficiency is only going to get more important when rates rise.
As we continue to say we think we are.
Providing a more efficient source of capital for lots of different.
Opportunity sets, whether it's multifamily office hospitality or life science.
We think we've got a solution that will become even more important.
Rates rise maybe.
Returns get squeezed a little bit.
But right now.
At least in the most active part of the market, we play in which is multifamily.
Bidders are still quite aggressive.
We haven't seen a pullback based on rates yet.
Obviously the rate move is relatively recent.
And finally, the investors that you're speaking with.
That are contemplating a transaction, let's say.
Is there alternative another ground lease provider or is it whether to do the whole financing and a first mortgage and perhaps some other part of the capital stack mezzanine capital et cetera or.
Is there something else at play are you competing primarily with mortgage lenders.
Yes, our primary competition is still <unk>.
Regular way financing mortgage mezz market that is extremely efficient.
Our job is to convince customers that this is a more efficient way to capitalize your real estate.
I alluded to sometimes those conversations take a very long.
Period of time, but once we get customers over the line, we see a tremendous amount of repeat business.
Still the regular way financing markets.
Regular way would you say that banks and life insurance companies comprise the majority or are you competing more with debt funded and nonbanks.
It depends on.
The leverage level that the investors are looking at so at the lower leverage it to the banks and the insurance companies at the higher leverage points for the entire stack it as the fund business.
Sure.
Thank you for taking them.
And we have a follow up from Keybanc Kim with <unk>. Please go ahead.
Thank you again.
Going back to the monetization strategy I'm just curious.
Add to list the.
Securities What's the biggest hurdle that you guys face is it illegal.
Thing is that a financial engineering issue.
Just because we haven't seen something like this before I'm, just curious internally how what the.
What's the biggest hurdle bar.
I think the biggest hurdle for us is to make sure we get it right.
We have lots of ideas about how this can play out.
Most of that 90% of that when we started this process years and years ago.
But the market has evolved our business has evolved we want to make sure we get this right.
So we just want to give ourselves the time to work with our.
New investors and really think about the potential.
Where we should take this in terms of who are the most likely.
Investors to maximize its value for.
Near term and long term so.
We'll give ourselves the chance to make sure we've got it right and then Theres really no legal obstacles.
It's just getting it in the right hands.
So the trades the way, we think it showed which you've heard us talk about what we think the value components are here growth the discount rate.
We think we're putting in place all of the pieces of the puzzle financially.
Sure. Our teams are able to put in all the pieces from a listing requirement. So really this is more of a strategic period, where we just want to make sure. We've got it absolutely synced and then we will we will hopefully have the market respond the way we'd like.
Okay, great and on the balance sheet I'm, just curious on your how you're thinking about your equity need going forward and I'm curious if you actually raise any equity in <unk>.
It feels like the pipeline is strong, but we had a lot of capital at year end, I think Markus mentioned $900 million so well.
We will look at the pipeline we've got.
Dynamic you guys have heard us talk about before we have some wells and then we have the flow business. The flow business, we can kind of predict the whales are harder.
And so I think the timing of any equity deal will be.
It really dependent on when the whales hit.
Certainly a lot of good activity, but nothing nothing we can talk about just yet.
And has there been any equity issued in <unk>.
Quarter to date.
No no.
Okay. Thank you guys.
Yes.
And next we have a question from harsh <unk> with Green Street. Please go ahead.
Thank you.
Going back to the.
Got it and then that was the investment advisory Board that was formed.
Sure.
Probably the first.
So to speak forget it.
So I just wanted to ask what was the role of this board be how much control they have.
Eventually deciding what's happens with Gannett.
And then also can you touch on that.
It might be any conflict of interest given some of these invest those only invested in got it and northern states.
Yes he is.
In Advisory Board it has no.
A formal voting role in terms of stakeholder carrier, but it is an advisory board we respect.
And what their thoughts on.
So there is no conflict per se. They don't have control they don't have veto rights. So.
It's really as an advisory board it does exactly what the name says it's going to help us think through.
How to unlock the full potential of this the most quickly.
From a number of different investor perspectives.
And again, we're excited and delighted to have the caliber of people available to us who saw what we see.
See that potential and can actually take US places we've taken us a long time to get to on our own and we now have people who interface with exactly the parts of the market that we think will find care.
Unique and increasingly valuable.
Okay.
Was it from me thank you.
And we have a follow up from rich Anderson with SM BC. Please go ahead.
Popular folks.
Sorry to keep it going but just another question or two the first Jay is there any economic possibility that a combined company would not be a REIT.
It's just way too early to talk <unk>.
Okay.
I think again, we're just going to try to maximize value.
I can.
Okay Ken.
Can't talk about specific tax or anything like that okay.
Mike.
The question I got back on one is again on this customer opportunity.
When you say customers I assume youre talking about your ground lease customers.
Perhaps selling them a unit of carrot.
To address the anxiety that real estate owner would feel about losing.
Controls are assets when theyre ground lease expire so if you own a carrier that's almost like or some units of carrots.
You can hedge against that event and hence your customers could actually be among the ultimate owners of the carrot entity is that something youre thinking about.
Yes, I think what we're trying to accomplish is just deliver our customers the lowest and most efficient form of capital.
That's a combination of ground lease in care units.
And then as it makes them feel like partners could be an interesting idea. Okay. Just wanted to clarify that thank you very much.
And Mr folks we have no further questions.
Great to.
To hear all the interest in the story and if anyone should have additional questions on today's earnings release, Please feel free to contact me directly.
Lee would you please give the conference call replay instructions once again and thanks to everyone for joining us.
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