Q3 2024 Safehold Inc Earnings Call
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Pearse Hoffmann: 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 report.
Speaker Change: Before I turn the call over to Jay I would like to remind everyone that statements in this earnings call, which are not historical facts may be forward looking are.
Speaker Change: 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 safe hold disclaims any intent or obligation to update these forward looking statements, except as expressly required by law.
Pearse Hoffmann: Safehold disclaims any intent or obligation to update these forward-looking statements except as expressly required by law.
Jay Sugarman: Now with that, I'd like to turn it over to Chairman and CEO, Jay Sugarman.
Speaker Change: Now with that I'd like to turn it over to chairman and CEO Jay Sugarman Jay.
Jay Sugarman: Jay? Thanks, Pearse, and good morning to everyone joining us today. The third quarter saw steady investment activity, including the purchase of minority ownership interests held by our sovereign wealth JV partner and many smaller multifamily ground leases previously originated by Safehold. While it makes more sense for Safehold to own 100% of these smaller ground lease deals, we continue to work with our JV partner on larger transactions where the investment size is more appropriate for the JV. That purchase, along with several other transactions closed in the quarter, were executed at attractive yields generally done at the higher end of our targeted ROAs and at solid GLTV levels.
Jay Sugarman: Thanks, Pierce and good morning to everyone joining us today.
Jay Sugarman: The third quarter saw steady investment activity, including the purchase of minority ownership interest held by our sovereign wealth JV partner and many smaller multifamily ground leases previously originated by say fold.
Jay Sugarman: While it makes more sense for say full don't 100% of the smaller ground lease deals. We continue to work with our JV partner on larger transactions, where the investment size is more appropriate for the JV.
Jay Sugarman: That purchase along with several other transactions closed in the quarter were executed at attractive yields generally done at the higher end of our targeted ROE as it had solid G LTV levels.
Jay Sugarman: Overall, the rate environment remains the most important near-term driver of investment activity. Lower rates generated increased engagement across a wide range of customers during the quarter, but the recent jump in yields and increased volatility will likely have an impact on capital stacks and customer decision making. We remain cautiously optimistic that macro industry conditions are pointing to a better transaction environment in 2025.
Jay Sugarman: Overall the rate environment remains the most important near term driver of investment activity.
Jay Sugarman: Lower rates generated increased engagement across a wide range of customers during the quarter, but the recent jump in yields and increased volatility will likely have an impact on capital stacks and customer decision, making.
Jay Sugarman: We remain cautiously optimistic that macro industry conditions are pointing to a better transaction environment in 2025.
Jay Sugarman: Turning to earnings, year-over-year EPS was higher, excluding enhancements to our general provision for credit loss methodology implemented during the quarter. We continue to look for ways to run and capitalize the business more efficiently until transaction activity picks up more fully. Lastly, UCA estimates move slightly higher, with existing portfolio UCA pressured by generally higher cap rate assumptions and tougher office fundamentals, offset by new UCA additions from attractive originations during the quarter.
Jay Sugarman: Turning to earnings year over year, EPS was higher excluding enhancements to our general provision for credit loss methodology implemented during the quarter.
Jay Sugarman: We continue to look for ways to run and capitalize the business more efficiently until transaction activity picks up more fully.
Jay Sugarman: Lastly, UCA estimates moved slightly higher with existing portfolio, you see a pressured by generally higher cap rate assumptions and tougher office fundamentals offset by new UCA additions from attractive originations during the quarter.
Brett Asnas: And with that quick summary, let me turn it over to Brett to review the quarter in more detail. Thank you, Jay. Good morning, everyone. Let's start with a summary of the quarter on slide two. During the quarter, new origination activity was $104 million, including three multifamily ground leases for $72 million and one leasehold loan for $32 million. Of the three new ground leases, two were student housing assets, one was conventional multifamily, and they were located across three markets with three different sponsors. Ground lease credit metrics were in line with our portfolio targets, with a GLTV of 29 percent, rent coverage of 3.2 times, and an economic yield of 7.2 percent.
Speaker Change: And with that quick summary, let me turn it over to Brent to review the quarter in more detail.
Brent: Thank you Jay and good morning, everyone, let's start with a summary of the quarter on slide two.
Brent: During the quarter, new origination activity was 104 million, including three multifamily ground leases for $72 million and one leasehold loan for $32 million.
Brent: Of the three new ground leases to where student housing assets, one was conventional multifamily and they were located across three markets with three different sponsors.
Ground lease credit metrics were in line with our portfolio targets, but the G. L. T V up 29% rent coverage of 3.2 times and an economic yield of seven 2%.
Brett Asnas: Also, in the third quarter, we reached an agreement with our JV partner to purchase their ownership interest in the nine ground leases acquired by the venture to date. The total purchase price of the nine deals, including forward commitments, was $80 million. Excluding one asset originated early in the third quarter, which is already included in the new origination figures, the net purchase price was $69 million. This closed transaction created an opportunity to put additional capital to work and deals that we are already in at an attractive 7.2% yield funded by a cheaper cost of capital than when the deals were originally closed.
Also in the third quarter, we reached an agreement with our JV partner to purchase their ownership interest in the nine ground leases acquired by the venture to date.
Brent: The total purchase price of the nine deals including forward commitments was $80 million.
Brent: Excluding one asset originated early in the third quarter, which is already included in the new origination figures the net purchase price of $69 million.
Brent: This closed transaction create an opportunity to put additional capital to work in deals that we are already in at an attractive 7.2% yield funded by a cheaper cost of capital than when the deals were originally closed.
Brett Asnas: It also frees up additional capacity in the venture, which will remain in place, but without our partners' participation right in certain ground lease opportunities, which expired at the end of September. We expect the JV to focus on larger investment opportunities moving forward, and that Safehold will own 100% of the economics in smaller-sized deals. At quarter-end, the total portfolio was $6.7 billion, UCA was estimated at $9.1 billion, GLTV was 48%, and rent coverage was 3.5 times. We ended the quarter with approximately $955 million of liquidity, which is further supported by the potential available capacity in our joint venture.
Brent: It also frees up additional capacity in the venture which will remain in place, but without our partners participation rate in certain ground lease opportunities, which expired at the end of September.
Brett Asnas: Slide three provides a snapshot of our portfolio growth. In the third quarter, we funded a total of $122 million, including $53 million of new Q3 originations that have a 7.2% economic yield, $46 million to purchase our partner's JV interest, and nine ground leases that have a 7.2% economic yield, and $23 million of ground lease fundings on preexisting commitments that have a 5.6% economic yield. Our ground lease portfolio has 146 assets and has grown 20 times since our IPO, while the estimated unrealized capital appreciation sitting above our ground leases has grown 21 times. Multifamily remains our primary focus for New Originations.
Brett Asnas: We have 84 multifamily ground leases in the portfolio and have increased our exposure from 8% by count at IPO to 58% today.
Brett Asnas: In total, the Unrealized Capital Appreciation Portfolio. is comprised of approximately 36 million square feet of institutional quality commercial real estate consisting of approximately 20,000 multifamily units, 12 and a half million square feet of office, over 5,000 hotel keys, and 2 million square feet of life science and other property types.
Brett Asnas: Continuing on slide four, let me detail our quarterly earnings results. For the third quarter, revenue was $90.7 million, net income was $19.3 million, and earnings per share was $0.27. The significant increase in GAAP earnings year-over-year was primarily driven by the $145.4 million non-cash impairment of goodwill taken one year ago, offset by a $7.5 million non-cash general provision for credit losses expense taken this quarter. This quarter, we refined our general provision for credit losses methodology in a way that we believe better reflects the credit attributes of our investments and how we and many constituents view related risks.
Speaker Change: <unk> a significant increase in GAAP earnings year over year was primarily driven by the $145 4 million noncash impairment of goodwill taken one year ago.
All set by a 7.5 million noncash general provision for credit losses expense taken this quarter.
Speaker Change: This quarter, we refined our general provision for credit losses methodology in a way that we believe better reflects the credit attributes of our investments and how we and many constituents view related risk.
Brett Asnas: As we have previously discussed, we believe our ground leases have a similar risk profile to high credit-rated long-term bonds, so we have now added an additional layer of data that focuses on the long-term performance of those instruments on top of our already robust methodology that tracks large macroeconomic data sets in addition to GLTV changes. GAP requires us to apply any change to methodology for prior period balances. So based on using this enhanced methodology, in addition to our Q3 non-cash general provision of approximately $672,000, this quarter we took an approximately $6.8 million cumulative non-cash general provision for prior period balances.
Speaker Change: As we have previously discussed we believe our ground leases have a similar risk profile to high credit rated long term bonds. So we have now added an additional layer of data that focuses on the long term performance of those instruments on top of our already robust methodology attracts large macroeconomic datasets. In addition to G. L television changes.
Speaker Change: Yeah.
Speaker Change: GAAP requires us to apply any change to methodology for prior period balances. So based on using this enhanced methodology. In addition to our Q3 noncash general provision of approximately 672000. This quarter. We took an approximately $6 8 million cumulative noncash general provision for prior period balances.
Speaker Change: Yeah.
Brett Asnas: of this $7.5 million total general provision for credit loss. $7.1 million was attributed to consolidated assets and $0.4 million was attributed to unconsolidated assets. which is represented within Earnings from Equity Method Investments. As the portfolio continues to grow, we expect our provision and allowance to increase, and we believe that this methodology is an appropriate way to capture general reserves for the portfolio. When viewing year-over-year performance, we deem both last year's non-cash goodwill impairment, as well as the third quarter 2024 non-cash general provision for credit losses on prior period balances, as reconciling items. Excluding the aforementioned items, EPS is $0.37 for the quarter, up $0.04, or 11% year-over-year.
Speaker Change: Of this $7 5 million total general provision for credit losses, $7 1 million was attributed to consolidated assets.
Speaker Change: 0.4 million was attributed to unconsolidated assets, which is represented within earnings from equity method investments.
As the portfolio continues to grow we expect our provision and allowance to increase and we believe that this methodology is an appropriate way to capture general reserves for the portfolio.
Speaker Change: When viewing year over year performance, we deem both last year's noncash goodwill impairment as well as the third quarter 2024, noncash general provision for credit losses on prior period balances as reconciling items.
Speaker Change: Excluding the aforementioned items.
Speaker Change: EPS was <unk> 37 for the quarter up four cents or 11% year over year.
Brett Asnas: This was driven by an approximately $4.5 million net increase in asset-related revenue from investment fundings and rent growth, less additional interest expense on funding these groundless loans. and approximately $2.4 million savings in G&A net of the Star Holdings management fee. offset by approximately $2.7 million less earnings from equity method investment. primarily due to leasehold loans that have been repaid over the last year.
Speaker Change: This was driven by an approximately $4 5 million net increase in asset related revenue from investment fundings in rent growth less additional interest expense on funding these ground leases.
Speaker Change: And approximately $2 4 million savings in G&A net of the Star Holdings management fee.
Speaker Change: Offset by approximately $2 7 million less earnings from equity method investments, primarily due to leasehold loans that had been repaid over the last year.
Brett Asnas: On slide five, we detail our portfolio's yield. For GAAP earnings, the portfolio currently earns a 3.7% cash yield and a 5.3% annualized yield. Annualized yield includes non-cash adjustments within rent, depreciation, and amortization, which is primarily from accounting methodology and IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent, or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 5.8% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI lookbacks, which we have in 83% of our groundless.
On slide five we detail our portfolio yields.
Speaker Change: For GAAP earnings the portfolio currently earns a three 7% cash yield and a five 3% annualized deal.
Speaker Change: Annualized yield includes noncash adjustments within rent depreciation and amortization, which is primarily from accounting methodology and IPO assets, but excludes all future contractual variable rent such as fair market value resets percentage rent or CPI based escalators, which are all significant economic drivers.
Speaker Change: On an economic basis, the portfolio generates a five 8% economic yield which is an IRR based calculation that conforms with how we've underwritten these investments.
This economic yield has additional upside, including periodic CPI look backs, which we have an 83% of our ground leases.
Brett Asnas: Using the Federal Reserve's current long-term break-even inflation rate of 2.11%, the 5.8% economic yield increases to a 5.9% inflation-adjusted yield. That 5.9% inflation adjusted yield then increases to 7.4%. after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in Carrot at its most recent $2 billion valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.
Speaker Change: Using the federal Reserve's current long term breakeven inflation rate of 2.11% the five 8% economic yield increases to a five 9% inflation adjusted deal.
Speaker Change: That five 9% inflation adjusted yield then increases to seven 4%.
Speaker Change: After layering in an estimate of four unrealized capital appreciation using safe holds 84% ownership interest in carrot at its most recent 2 billion valuation.
Speaker Change: We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today.
Brett Asnas: Turning to slide 6, we highlight the diversification of our portfolio by location and underlying property types. Our top 10 markets by gross book value are called out on the right, representing approximately 67% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV, which is based on annual asset appraisals from CBRE, was unchanged at 48% in the third quarter, as modest declines from appraisals to existing assets were offset by lower GLTVs on new origination.
Speaker Change: Turning to slide six we highlight the diversification of our portfolio by location and underlying property type.
Our top 10 markets by gross book value are called out on the right representing approximately 67% of the portfolio.
Speaker Change: We include key metrics, such as rent coverage and G. L. T V for each of these markets and we have additional detailed the bottom of the page by region and property type.
Speaker Change: Portfolio G. L. T V, which is based on annual asset appraisals from CBRE was unchanged at 48% in the third quarter as modest declines from appraisals to existing assets were offset by lower G. Ltvs on new originations.
Brett Asnas: Rent coverage on the portfolio declined very slightly quarter over quarter from rounding up to 3.6 times previously to now rounding down to 3.5 times. We continue to believe that investing in well-located, institutional quality ground leases in the top 30 markets that have attractive risk-adjusted returns will benefit the company and its stakeholders over long periods of time.
Speaker Change: Rent coverage on the portfolio declined very slightly quarter over quarter from rounding up to three six times previously to now rounding down to three five times.
Speaker Change: We continue to believe that investing in well located institutional quality ground leases in the top 30 markets that have attractive risk adjusted returns will benefit the company and its stakeholders over long periods of time.
Brett Asnas: Lastly, on slide seven, we provide an overview of our capital structure. At the end of the third quarter, we had approximately $4.6 billion of debt, comprised of $1.8 billion of unsecured notes, $1.5 billion of non-recourse secured debt, $1.06 billion drawn on our unsecured revolver, and $272 million of our pro-rata share of debt on ground leases which we own in joint ventures. Our weighted average debt maturity is approximately 21 years, and we have no corporate maturities due until 2027. At quarter end, we had approximately $955 million of cash and credit facility availability. Our credit ratings are A3 with stable outlook at Moody's and BBB plus with positive outlook at Fitch.
Speaker Change: Lastly on slide seven we provide an overview of our capital structure.
Speaker Change: At the end of the third quarter, we had approximately $4 6 billion of debt comprised of $1 8 billion of unsecured notes $1 5 billion of nonrecourse secured debt 1.06 billion drawn on our unsecured revolver and $272 million of our pro rata share of debt on ground leases, which we own in joint ventures.
Speaker Change: Our weighted average debt maturity is approximately 21 years and we have no corporate maturities due until 2027.
Speaker Change: At quarter end, we had approximately $955 million of cash and credit facility availability.
Speaker Change: Our credit ratings are a three with stable outlook at Moody's and Triple B plus with positive outlook at Fitch.
Brett Asnas: We remain well hedged on our limited floating rate barrings of the $1.06 billion revolver balance outstanding. $500 million is swapped to fix SOFR at 3% through April 2028. We receive swap payments on a current cash basis each month, and for the third quarter that produced cash interest savings of nearly $3 million that flowed through the P&L. We also have $350 million of long-term treasury locks at a weighted average rate of approximately 3.67%, which at current treasury rates is in a gain position of approximately $38 million. These treasury locks are mark-to-market instruments, so no cash changes hands each month.
Speaker Change: We remain well hedged on our limited floating rate borrowings of the 1.06 billion revolver balance outstanding five.
Speaker Change: 500 million is swapped to fixed sofer at 3% through April 2028.
Speaker Change: We received swap payments on our current cash basis, each month and for the third quarter that produce cash interest savings of nearly $3 million that flowed through the P&L.
Speaker Change: We also have $350 million of long term treasury locks at a weighted average rate of approximately $3 six 7%, which our current treasury rates as in a gain position of approximately $38 million.
Speaker Change: These treasury locks are mark to market instruments, so no cash changes hands, each month and while we do recognize these gains on our balance sheet in other comprehensive income they are not yet recognized in the P&L.
Brett Asnas: And while we do recognize these gains on our balance sheet and other comprehensive income, they are not yet recognized in the P&L. As previously mentioned, while these hedges can be utilized through the end of their designated term, they can also be unwound for cash at any point prior. So as we look to term out revolver borrowings with long-term debt, we have the ability to unwind the hedges, which would then flow through the P&L thereafter.
Speaker Change: As previously mentioned, while these hedges can be utilized through the end of their designated term. They can also be unwound for cash at any point prior.
Speaker Change: So as we look to term out revolver borrowings with long term debt, we have the ability to unwind the hedges, which would then flow through the P&L thereafter.
Brett Asnas: Separately, we began using our commercial paper program during the third quarter once we completed our Q2 earnings filing. Issuance over the quarter had a nearly 70 basis point savings versus our revolving credit facility cost, and we will continue to look to use this part of the market to help our bottom line. We are levered 1.99 times on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.0%, and the portfolio's cash interest rate on permanent debt is 3.6%.
Speaker Change: Separately, we began using our commercial paper program during the third quarter. Once we completed our Q2 earnings filings.
Speaker Change: Issuance over the quarter had a nearly 70 basis points savings versus our revolving credit facility cost and we will continue to look to use this part of the market to help our bottom line.
Speaker Change: We are Levered 1.99 times on a total debt to equity basis.
Speaker Change: The effective interest rate on permanent debt is 4.0% in the portfolio's cash interest rate on permanent debt is three 6%.
Brett Asnas: So to conclude, we believe there are signs that the commercial real estate transaction market is reopening and Safehold is well positioned with a strong balance sheet and ample liquidity to capture new investment opportunities. We've seen our cost of capital respond favorably in recent months. And while there's still more work to be done in getting all components of the business fairly valued, an improving stock price and tighter bond spreads puts us in a more competitive position to serve our customers and creatively grow the business.
Speaker Change: So to conclude we believe there are signs that the commercial real estate transaction market is reopening and safe hold is well positioned with a strong balance sheet and ample liquidity to capture new investment opportunities.
Speaker Change: We've seen our cost of capital respond favorably in recent months and while there is still more work to be done and getting all components of the business fairly valued and improving stock price and tighter bond spreads puts us in a more competitive position to serve our customers and accretively grow the business.
Jay Sugarman: And with that, let me turn it back to Jay. Thanks, Brett.
Speaker Change: And with that let me turn it back to Jack.
Jack: Thanks, Brett.
Operator: Okay, let's go ahead and open it up for questions. Thank you. To ask a question, please press star 1 at this We will take as many questions as time Once again, please press star 1 to ask a question. We will pause a moment to assemble the.
Jack: Okay. Let's go ahead and open it up for questions.
Jack: Okay.
Speaker Change: Thank you to ask a question. Please press star one at this time, we will take as many questions as time permits once again. Please press star one to ask a question, we will pause a moment to assemble the roster.
Speaker Change: Your first question for today is from Stephen laws with Raymond James.
Stephen Laws: first question for today is from Stephen Laws with Raymond Hi, good morning. I appreciate the comments this morning. Jay, I wanted to touch base on the pipeline, you know, it looks like some of the three volatilities back. You know, can you talk about how discussions are going with borrowers in your pipeline? And then as you, you know, you mentioned larger deals will still look to go into the JV. You know, can you talk about the pipeline of those larger deals and kind of what it is that drives the finish line?
Stephen Laws: Hi, Good morning, I appreciate the comments this morning.
Stephen Laws: Jay I wanted to touch base on the pipeline is it looks like some of the three volt.
Stephen Laws: Can you talk about how the discussions rolling with borrowers in your pipeline.
Stephen Laws: And then issue even though you mentioned larger deals will still look to go into the JV.
Stephen Laws: Can you talk about the pipeline of those larger deals and kind of what it is that the drive to the finish line.
Stephen Laws: Yes.
Timothy Doherty: Yeah, let me have Tim walk you through sort of what's happening on the ground and then I'll talk a little bit about some of the larger transactions we're shooting for that might be appropriate for the JV. Hey, Stephen, it's Tim. The pipeline, I would say, as Brett alluded to, the market is definitely opening up more and more every quarter. So we saw an increase in volume over the last couple months. I'd say the rate drop in September really showed where the market needs to be for transactions to really start going. The latest tick up with, I think, probably a little uncertainty in the election and whatnot in the markets has dampened that a little bit.
Speaker Change: Yeah, Let me have Jim walk you through sort of what's happening on the ground and then I'll talk a little bit about some of the larger transactions were shooting for that might be appropriate for the JV.
Tim: Hey, Steve It's Tim.
Tim: The pipeline I would say is as Brent alluded to.
Tim: The market is definitely opening up more and more every quarter. So.
Tim: So we saw an increased in and volume.
Speaker Change: Over the last couple of months I'd say the rate drop in September really showed where the market needs to be for transactions to really start going the latest tick up with I think probably little uncertainty in the election and what not in the markets as you know dampen that a little bit but were positive signs in the fundamentals of the market.
Timothy Doherty: But we're, you know, positive signs in the fundamentals of the market. You know, like we said last quarter, sort of clarity, visibility and stability. I think the one piece that's missing right now is sort of the stability of rates. But the market fundamentals are solid and increasing pipeline.
Speaker Change: Like we said last quarter's or clarity visibility and stability I think the one piece thats missing right now is sort of the stability of rates, but the market fundamentals are solid and increasing pipeline.
Speaker Change: Right.
Jay Sugarman: Yeah, just as we've talked about in prior quarters, you know, we haven't seen a lot of large transactions coming through. As Tim said, those tend to happen when the market has visibility going forward. We're certainly hoping 2025 feels more like that. But we are working on a couple deals with with our JV partner. You know, it's, I won't call it elephant hunting, but the larger transactions sometimes have, you know, the more difficult time getting to the finish line, there's lots of moving parts. So it's hard to predict them, but it's nice to at least be working on some.
Speaker Change: Yeah just.
Speaker Change: As we've talked about in prior quarters, you know, we haven't seen a lot of large transactions coming through our as Tim said those tend to happen when the market has visibility going forward.
Speaker Change: We're certainly hoping 2025 feels more like that we we are working on a couple of deals with with our JV partner.
So it's I won't call it elephant hunting, but at the larger transactions sometimes of.
Speaker Change: The.
Speaker Change: More difficult time getting to the finish line with lots of moving parts, though.
Speaker Change: It's hard to predict them, but it's nice to at least be working on some.
Jay Sugarman: And so I think that's a dynamic we hope plays out more fully in 2025.
Speaker Change: And so I think that's the dynamic we hope plays out more fully in 2025.
Stephen Laws: Thanks, Shane. And as follow up, you know, can you touch on leverage, you know, just a hair shy of two terms leverage? You know, can you talk about where you're comfortable running that or what your may be for this.
Speaker Change: Thanks, Jane and Jenny as follow up you know can you touch on leverage noticed a hair shy of two turns of leverage.
Speaker Change: Can you talk about where you're comfortable running that or whats your needs may be for additional equity capital.
Brett Asnas: Hey, Stephen, it's Brett. From a leverage standpoint, we've set out from the beginning of this business that we wanted to run at approximately two times. That isn't a hard cap. I mean, we will continue to judiciously think about how to capitalize the business, both from a debt and equity standpoint, as well as our current asset base. When you think about where we've been over the last year or throughout 2024, we've stayed right between 1.9 to 2 times while we've been able to grow.
Speaker Change: Hey, Stephen it's Brett from a leverage standpoint, we have set out from the beginning of this business that we wanted to run at approximately two times.
Speaker Change: That isn't a hard cap I mean, we will continue to judiciously think about how to.
Speaker Change: Capitalize the business, both from a debt and equity standpoint, as well as our current asset base. When you think about where we've been over the last year or throughout 2024, we've stayed right between 1.92 times, while we've been able to grow.
Brett Asnas: When you think about where leverage would need to go from 2.0 times to 2.1, that's about $250 million of additional debt funding without any equity capital. So I think we have some runway here. Obviously, we want to make sure that we're thinking about both our debt and equity cost of capital and when to enter the markets as appropriate.
Speaker Change: When you think about where leverage would need to go from 2.0 times to 2.1, that's about $250 million of additional debt funding without any equity capital. So I think we have some runway here, obviously, we want to make sure that we're thinking about both our debt and equity cost of capital and when to enter the markets as appropriate.
Brett Asnas: But in terms of where we actually sit right now, with the JV that we mentioned that's in place, as well as the tools that we have available to us, we're going to have to be really thoughtful about when to tap each of those markets and to continue to grow aggrievably.
Speaker Change: But in terms of where we actually sit right now with the JV that we mentioned that's in place as well as the tools that we have available to us we're going to have to be really thoughtful about went to tap each of those markets and to continue to grow accretively.
Stephen Laws: Thanks, appreciate the comments this morning.
Speaker Change: Thanks appreciate the Thomas this morning.
Your next question is from Mitch Germain with citizens JMP.
Mitch Germain: Your next question is from Mitch Germain with Citizens JNC. Thanks. I'm just curious about the GSC discussions on the joint venture and who initiated the discussion around changing up the Joint Hey, Mitch.
Speaker Change: Thanks.
Mitch Germain: I was curious about the GSE discussions on the joint venture and.
Mitch Germain: Who initiated.
Mitch Germain: On the discussion around changing up the joint venture.
Hey, Mitch good morning, Yeah. So the venture has been in place for a while it was really intended to give us firepower to chase some of these larger deals.
Jay Sugarman: Good morning. Yeah, so the venture's been in place for a while. It was really intended to give us firepower to chase some of these larger deals that we expect will come back into the market as rates start to come down. So that was its intention. It had a fixed period where they got to look at every deal that we did, and obviously, some of these smaller deals were pretty attractive. That period is now over, so now we're just JV partners, but we can show them deals that we think are the most appropriate for the JV.
Mitch Germain: Here, we expect will come back into the market as.
Mitch Germain: Rates start to come down so that wasn't the intention it had a fixed period, where they got to look at every deal.
Mitch Germain: That we did.
Mitch Germain: And obviously some of these smaller deals are pretty attractive.
Mitch Germain: That period is now over so now we're just a JV partners, but we can show them deals that we think are the most appropriate for the JV.
Jay Sugarman: The interesting thing on the buyout was some of those small deals had some of the highest ROAs in the book. As rates started to come down a little bit, as we saw what we were doing on new transactions, we thought there was a win-win there. So we approached them and thought we had a solution both in terms of the intent of the JV but also the economics that would work for both sides. As you saw, the ROAs are pretty attractive at the price we paid. So I think we did create a win-win, and we also freed up some capital in that JV for the types of transactions that I think it was originally put in place for.
Mitch Germain: The interesting thing on the buyout was those some of those small deals had some of the highest ROE waves in the book as rates started to come down a little bit as we saw what we were doing on new transactions. We felt there was a win win there. So we approached them and thought we had a solution. Both in terms of the intent of the JV, but also the.
Mitch Germain: And Omics that would work for both sides as you saw the you know the rois are pretty attractive at the price we paid.
Mitch Germain: So I think we did create a win win and we also freed up some capital in that JV for the types of transactions, but I think it was originally put in place for.
Speaker Change: That's really good color and then I wanted to.
Jay Sugarman: And then I want to discuss the West 50th Street, 135 West 50th, obviously the asset went to auction and in reading some of the press it seemed to have some negative perception towards the ground lease arrangement and Jay, I'm curious about, you know, kind of your takeaways from from kind of reading that and where do you think the you know the press was wrong with regards to their perception of the impact on value Yeah, I do think they kind of missed the most important thing, which is our capital is some of the lowest-cost, longest-term available to an owner.
Speaker Change: Discuss the West 50, <unk> Street was 135 whats your theaters.
Speaker Change: Obviously the asset.
Speaker Change: Asset went to auction and in reading some of the press it seemed to have some negative perception toward.
Speaker Change: The ground lease arrangement and J.
Speaker Change: Jay I'm curious about you know kind of.
Speaker Change: Your takeaways from from kind of reading that and where do you think the you know the.
Speaker Change: Press was wrong with regards to their perception of the impact on value.
Speaker Change: Yeah.
Jay Sugarman: Yeah, I do think they kind of missed the most important thing which is our capital is is some of the lowest cost longest term available to an owner.
Jay Sugarman: That transaction wouldn't have taken place if there wasn't long-term, stable capital in the capital stack. So we've seen lots of short sales from banks and things where values have been significantly impacted because they don't have attractive capital in place, and they have to go build a brand-new capital stack at the worst possible moment in the markets. So I do think there's the positive side of this, and we've had dozens of deals trade hands. Lots of times, we think our capital actually is accretive to the owner, and we continue to see situations where that is absolutely true.
Jay Sugarman: That that transaction would have taken place if there wasn't long term stable.
Jay Sugarman: Capital.
In the capital stack. So we've seen lots of short sales from banks and things where values have been significantly impacted.
Jay Sugarman: They don't have attractive capital in place and they have to go build a brand new capital stack at the worst possible moment in the markets. So I do think there is the positive side of this and we've had dozens of deals trade hands.
Jay Sugarman: Lots of times, we think our capital actually is accretive to the owner.
Jay Sugarman: And we continue to see situations, where that is absolutely true I think there is this a J.
Jay Sugarman: I think there's this general feeling that ground leases, certainly in the old form, under Chrysler Building or Lever House, have fair market value resets. They really have destroyed value for their owners. There's just no two ways around it. So I think we want to differentiate our ground leases from others. We try to do that with the media as often as we can. And I think as our book gets bigger and we have more transactions flow through, we'll be able to give some very specific examples of where we think not only did we preserve value, but we actually created value.
Jay Sugarman: General feeling the ground leases certainly.
Jay Sugarman: In the old form under Chrysler building or lever house.
Jay Sugarman: Don't have fair market value resets, they really have destroyed value for their owners.
Jay Sugarman: There's just no two ways around it so I think we want to differentiate our ground leases from others. We tried to do that with the media as often as we can and I think as our book gets bigger and we have more transactions flow through will be able to give some very specific examples of where we think.
Jay Sugarman: Not only did we preserve value, but we actually created value and I think on 50 <unk> Street, we absolutely believe our.
Jay Sugarman: And I think on 50th Street, we absolutely believe, had that deal not had our capital in place, it would have been a much tougher situation for the seller.
Jay Sugarman: Had that deal not had our capital in place and we've been a much tougher situation for the seller.
Mitch Germain: That's helpful.
Speaker Change: That's helpful. Thank you so much.
Jay Sugarman: Okay.
Caitlin Burrows: Your next question for today is from Caitlin Burrows with Goldberg. Hi there. Maybe kind of a follow-up to that last one just on GLTV. So if a property on safe land declines in value, then GLTV increases.
Speaker Change: Your next question for today is from Caitlin Burrows with Goldman Sachs.
Caitlin Burrows: Hi, there and maybe kind of a follow up to that last one just on G. L. T V. So if a property safe land declines in value than G. L. T V increases so how would you assess whether to keep the ground lease unchanged versus modify it to make the G. L. T V closer to your target and are there any other scenarios that would prompt you to modify exists.
Caitlin Burrows: So how would you assess whether to keep the ground lease unchanged versus modify it to make the GLTV closer to your target? And are there any other scenarios that would prompt you to modify existing ground leases?
Speaker Change: Ground leases.
Jay Sugarman: Hey, Caitlin. Yeah, look, over 100 years, values are going to go up and down. There's just, you know, real estate's not a straight line. So we certainly expect some volatility around that number. You know, hopefully, we've found ourselves in the safest part of the capital stack. And ultimately, our capital is, as we always say, the lowest cost, longest-term capital in the market. So it should be an asset for any owner to have low-cost, long-term capital in place as they think about their business plans with the building itself. As GLTVs go up, there's no ability for us to resize them, if that was your question.
Speaker Change: Hey, Caitlin Yeah look.
Jay Sugarman: Over 100 years values were going to go up and down there is just.
Speaker Change: Real estate is not a straight line. So we certainly expect.
Speaker Change: Some volatility around that number hopefully we've found ourselves in the safest part of the capital stack and ultimately our our capital is as we always say the lowest cost longer term capital in the market. So it should be an asset for any owner.
Speaker Change: To have low cost long term capital in places they think about their business plans with the building itself.
Speaker Change:
As Jay Ltvs go up Theres no.
Speaker Change: Ability for us to resize them if that was your question.
Jay Sugarman: But we have seen in many cases, assets need to be well run, and when they're fully leased, we know what the values are, and when they have to be released, somebody's got to take that on and do it. So our ground lease is actually, again, the longest-term capital, so you have time to execute a business plan. There's no gun to our owners' heads. If they can't do it, there's other owners out there who will, and that's the dynamic we continue to see in the marketplace. Good assets in good locations will find their highest and best use eventually, but we have no ability on our own to unilaterally change our lease terms. If there's a smart thing to do with a customer, again, I think we said in the past, we're very thoughtful.
Speaker Change: But we have seen in many cases.
Speaker Change: Assets need to.
Speaker Change: Be well run and when they're when they're fully leased we know what the values are and when they have to be released somebody's got to take that on and do it. So.
Speaker Change: Our ground leases actually again.
Speaker Change: The longest term capital. So you have time to execute a business plan, there's no gun to our owners heads.
Speaker Change: If they can't do it theres other owners out there who will.
Speaker Change: And that's the dynamic we continue to see in the marketplace are good.
Good assets in good locations will find their highest and best use eventually.
Speaker Change: But we have no ability on our own to unilaterally change our lease terms.
Speaker Change: If theres a smart thing to do if a customer were you know again I think we said in the past we're very thoughtful.
Jay Sugarman: We have ways to help them create value, which ultimately accrues to our benefit, so that's definitely in our quiver. But for the most part, we get paid rent, and we let our customers figure out how to find highest and best use.
Speaker Change: We have ways to help them create value, which ultimately accrues to our benefit so that's definitely in our in our quiver, but for the most part we know we get paid rent them and we let our customers figure out how to find highest and best use.
Caitlin Burrows: Got it. Okay. And then maybe back to the JV, I get why it makes sense for the larger deals to be in the partnership going forward, I guess.
Speaker Change: Got it Okay, and then maybe back to the JV I get why it makes sense for the larger deals tend to be in the partnership going forward I guess could you just go through for the properties that stifled originally did in the JV why it makes sense to own those 100% now versus originally they went into the JV.
Jay Sugarman: Could you just go through for the properties that Safehold originally did in the JV, why it makes sense to own those 100% now versus originally they went into the JV? Well, we would have loved to moan them 100% at origination. As I said, our partner did have an exclusive right to 45% of every deal we did. And these were pretty attractive deals. And so they took advantage of that. You know, we were not expecting to split, you know, $15 and $20 million ground leases with a partner. That's a lot of logistics and a lot of work for very little dollars, and the return on effort was not great.
Speaker Change:
Speaker Change: Oh, well, we would've loved among them, 100% at origination as I said, our partner did have an exclusive right to 45% of every deal. We did in these were pretty attractive deals and so they took advantage of that.
Speaker Change: We were not expecting to split 15, and $20 million of ground leases with a partner.
Speaker Change: That's a lot of logistics and a lot of work for very little dollars and the return on effort was not great in a.
Jay Sugarman: And our partner has been a fantastic partner, and they're thoughtful, and they're collaborative. And when we approached them and said, look, these really weren't the intent, and we have a chance to do, you know, win-win here economically, you know, that's the kind of partner we like love to have. And in this case, I think it worked for both parties' benefits.
Speaker Change: Our partner has been a fantastic partner and their thoughtful in their collaborative and when were you approached them and said look these were really werent, the Intel and we have a chance to do a win win here economically.
Speaker Change: That's the kind of partner, we'd love to have and in this case I think it worked for both parties benefit.
Caitlin Burrows: Got it. Okay, thanks.
Speaker Change: Got it okay. Thanks.
Speaker Change: Your next question is from Handelsbank Joost with Mizuho.
Haendel Juste: The next question is from Haendel St.
Haendel Juste: Juste with... Good morning, thanks for taking my question. I wanted to follow up on the GIC questions. I guess just stepping back, I'm curious at a high level if this is any signal at all on their intent to pull back on forward capital deployment with you and looking ahead. Do you still have any obligation to show them deals that meet a certain size requirement and do they have a role for any first look? Thanks. You know, that's exclusive, period, it's over, so it is in our discretion to show deals into the JV at this point.
Okay.
Speaker Change: Good morning, Thanks for taking my question I wanted to follow up on the GIC questions. I guess, just stepping back I'm curious at a high level that this as any signal at all on their intent to pullback on forward capital deployment.
Speaker Change: With you in looking ahead.
Speaker Change: Do you still have any obligations show them deal that meet a certain size requirement and do they have a real for any any first look thanks.
Speaker Change: Yeah.
Speaker Change: Fully superior named over through it.
Speaker Change: It is it is in our discretion to show deals into the JV at this point.
Jay Sugarman: Can't speak for them, you know, they have been a great partner. They are the... We partner on 425 Park, the largest asset in our portfolio, so they continue to engage with us on transactions that have that kind of profile and quality, but we can't speak for their capital allocation, but they continue to engage with us and we're working on some things as we speak.
Speaker Change: Can't speak for them they have been a great partner.
Speaker Change: They are the.
Speaker Change: Partner on four twenty-five park, the largest asset in our portfolio. So they continue to engage with us on transactions that have that kind of profile and quality.
Speaker Change: But we can't speak for for their capital allocation, but they continue to engage with us and we're working on some things as we speak.
Speaker Change: Got it and would you consider a new JV, perhaps for some of the smaller deals that may no longer fit there the size requirement or same issues there would apply that perhaps not the most.
Jay Sugarman: And would you consider a new JV perhaps for some of the smaller deals that may no longer fit their size requirement or the same issues there would apply that perhaps not the most Yeah, look, $20 million deals we should be doing ourselves, and the long-term goal here is to get to a scale where we can do everything on balance sheet, but, you know, we've got a great partner, we continue to collaborate with them on ideas, so I don't think we need to go anywhere else just yet, but, you know, ultimately the goal is to get to scale and to have a balance sheet that accommodates even some of the largest deals we see.
Speaker Change: Efficient structure.
Speaker Change: Yeah look at $20 million deals, we should be doing ourselves and these are long term goal here to get to a scale, where we can do everything on balance sheet.
Speaker Change: But.
Speaker Change: We've got a great partner, we continue to collaborate with them on ideas. So I don't think we need to go anywhere else just yet, but ultimately the goal is to get the scale and to have a balance sheet then accommodate even some of the largest deals we see.
Haendel Juste: Great, great. Thank you for that.
Speaker Change: Great Great. Thank you for that my second question is on the.
Timothy Doherty: My second question is on the leasehold loan made during the quarter. I guess I'm curious on the scope of opportunity there, how you thought about pricing the loan in the current environment and perhaps relative to what you could achieve on conventional origination.
The leasehold loan made during the quarter I guess I'm curious on the scope of opportunity there.
Speaker Change: How you thought about pricing alone in the current environment and perhaps relative to what you could achieve on conventional originations. Thanks.
Timothy Doherty: Of course, Tim. Yeah, we have the leasehold JV, actually, on the leasehold fund. We've been using that quite a bit over the course of our history.
Speaker Change: Sure Tim.
Yeah that we have of the leasehold.
Speaker Change: JV actually on that the leasehold phone, we've been using that quite a bit over the course of our history. So here's an opportunity we saw for our client to one stop shop with that are involved in the pricing was is to market right. The G. L. A the ground lease and the lease hold on aren't aren't tied together the customers able to go to the market priced that debt as well.
Timothy Doherty: So here's an opportunity we saw for our client to one-stop shop with that involved. Pricing is to market, right? The GL of the ground lease and the leasehold loan aren't tied together. The customer's able to go to the market and price that debt as well. So that was priced in accordance with the market there. And we see that as an opportunity on transactions going forward as well, where we think there's attractive returns to make on the loan and helps also, obviously, get the ground lease transaction completed.
Speaker Change: Well, so that was price.
Speaker Change: In accordance with the market there and we see that as an opportunity on transactions going forward as well, where we think there's attractive returns to to make.
Speaker Change: On the loan and helps also obviously get the the ground lease transaction completed.
Haendel Juste: Okay, I'll yield. Thank you.
Speaker Change: Okay.
Speaker Change: I'll yield thank you.
Speaker Change: Your next question is from Ronald Camden with Morgan Stanley.
Ronald Kamden: Your next question is from Ronald Kamden with Morgan. Hey guys, thanks for the time. Just looking at the composition of originations, I know you guys mentioned they've been primarily on the multifamily front and you mentioned that's where your focus is going to remain, but are there any plans to expand? Or what would you guys be looking for to see some originations with some other tenants in the near future, whether it's office or hotel? I know CBRE reported some pretty strong leasing in office this past quarter. Just wanted to know your thoughts there.
Ronald Camden: Hey, guys. Thanks for the time.
Ronald Camden: Looking at the composition of originations I know you guys mentioned they've been primarily on the multifamily front and you mentioned that where your focus is going to remain but are there any plans to expand or you know what would you guys be looking for to see some originations with some other tenants in the near future, whether its office or hotel.
Ronald Camden: CBRE reported some pretty strong leasing in office this past quarter, just wondering what your thoughts there.
Timothy Doherty: Sure. Yeah, our pipeline includes all the property types, I would say, more so than the previous quarters. Multifamily was the first one to, I would say, recover throughout this whole process where the capital flows went first. Now you're starting to see capital flows increase in the other product types, hospitality and offices that you mentioned, I think, being two of the key ones. You see debt funds raising office-specific capital to deploy into that area. You're seeing the short sales that are occurring. You're starting to see some of those sales occur unlevered, and people have to go find leverage in the market from third parties, which is a promising sign outside of the trophy office space.
Ronald Camden: Sure.
Speaker Change: Yeah. Our pipeline includes all the property types I would say more so than the previous quarters multifamily was the first one to I would say recover throughout this whole process, where the capital flows went first now you're starting to see capital flows increase and the other product types hospitality and office as we mentioned I think beame.
Speaker Change: Two of the key ones you see debt funds raising office specific capital to deploy into that area are you seeing the short sales that are occurring you're starting to see some of those sales occur unlevered and people have to go find.
Speaker Change: Leveraging the market from third parties, which is a promising sign outside of the trophy office space, you're seeing in the <unk>.
Timothy Doherty: You're seeing on the office fundamental side, firms make a decision on how they're going to have go-forward work, so that actually is helping the office side. So you're starting to see all these, as we said, we always think clarity, visibility, and stability. The fundamentals of even the hospitality space, you have a long stretch now of post-COVID results, which helps people value off hotel assets. It's really just the rates right now that's fluctuating, that's keeping some of those, the volume of some of those down, but we're seeing an increase in those as the fundamentals of those two asset classes in particular have shown very positive signs.
Speaker Change: Office fundamentals side.
Speaker Change: Firms make a.
Speaker Change: A decision on how they're going to have go forward work work. So that actually is helping the office side. So you're starting to see all of these as we said, we always think clarity visibility and stability the fundamentals of even the hospitality space you have a long stretch now post COVID-19 results, which helps people value off our hotel assets.
Speaker Change: It's really just the rates right now that's fluctuating that's keeping some of those that are the.
The volume of some of those down, but we're seeing an increase in those as the fundamentals of those two asset classes in particular have shown very positive signs.
Anthony Paolone: Thanks guys, appreciate the time. Your next question for today is from Anthony Paolone with JPL.
Speaker Change: Thanks, guys I appreciate the time.
Yeah.
Speaker Change: Your next question for today is from Anthony Pallone with J P. Morgan.
Anthony Paolone: Yeah, thank you.
Anthony Pallone: Yeah. Thank you.
Anthony Paolone: I just want to go back to the leasehold loan fund and the deal you did. I know it wasn't huge, but just trying to understand maybe what the whole picture looks like to a sponsor and what you all are out there offering. We can see the roughly 30% you did on the ground lease, but what's the sort of pitch and total sort of financing package as a percentage of value, what's the duration of the loan that you can offer on the leasehold loan, and maybe just a more broad picture of how this looks from the sponsor's point of view would be helpful.
Anthony Pallone: Wanted to go back to the leasehold loan bond and the deal you did I know I know it wasn't huge but just trying to understand maybe what the whole picture looks like to a sponsor and what you all are out there offering here, we can see that the roughly 30% you did on the ground lease but whats the.
Anthony Pallone: Sorted pitch in total.
Anthony Pallone: Sort of financing package as a percentage of value what's the duration. It alone that you can offer on the on the leasehold loan and maybe just a more broad picture of how this looks from the sponsor's point of view would be helpful.
Timothy Doherty: Sure, Anthony. Look, these are market-driven transactions, so much like you'd see from any of the debt funds, mortgage REITs, or banks out there. On this deal in particular, it was on a construction transaction, so it was a 3 plus 1 plus 1 type of structure. Again, the yields there were in line with market. We think the level that we provided capital there was roughly around 75% of the total stack was provided, and we felt that was a great attachment point for the debt side, too. Obviously, you hear us on the Groundleaf side always talk about attachment points, the same on the debt side for what yields we can achieve.
Speaker Change: Sure Anthony.
Anthony Pallone: Look these are market driven transaction so much like you would see from.
Anthony Pallone: Any of the debt funds mortgage Reits are banks out there on this deal in particular it was.
Anthony Pallone: On a construction transactions there was a three plus one plus one.
Anthony Pallone: Structure again, the yields there where we're in line with market, we think they're in the level that we.
Anthony Pallone: Provided capital there was roughly around 75% of the total stack.
Anthony Pallone: Was provided and we felt that was a great attachment point for the debt side to after you hear on the ground lease side always talk about attachment points the same on <unk>.
Anthony Pallone: The debt side for what yields we can achieve and again this is a spot where.
Timothy Doherty: And again, this is a spot where we have the expertise in-house on that side to underwrite the transactions. And when it matches up with the sponsor's need for capital and the cost of the capital, it's, again, a great execution for both sides. I think the thing to remember is we've got over 50 leasehold lenders who we've worked with in the past. So typically, they've got capital that works in a transaction. So this is an opportunity for us when speed is really important and we have fully underwritten the ground lease that we can sometimes provide a solution.
Anthony Pallone: We have the expertise in house on that side.
Anthony Pallone: To underwrite the transactions and when it matches up with the sponsors need for capital and the cost of the capital.
Anthony Pallone: It's again, a great execution for both sides.
Anthony Pallone: I think I think the thing to remember is we've got over 50 leasehold lenders, who we've worked with in the past with typically they've got capital that works in a transaction. So this is an opportunity for us when speed is really important that we have fully underwritten the ground lease that we can sometimes provide a solution, but more often than not I would say the least.
Timothy Doherty: But more often than not, I would say the leasehold lending community is going to be inside of us. But we do think it's a nice tool to have in our back pocket. We've got the skill set, obviously, from the long standing folks in the firm.
Anthony Pallone: Hold lending community is going to be in.
Anthony Pallone: Inside of us.
Anthony Pallone: But we do think it's a nice tool to have in our back pocket. We've got the skill set obviously from.
Anthony Pallone: Long standing.
The folks in the firm so it's an interesting tool and we continue to look at it but it's a small part of the business right now.
Timothy Doherty: So it's an interesting tool and we continue to look at it, but it's a small part of the business right now.
Anthony Paolone: Okay, thanks for that color.
Speaker Change: Okay. Thanks for that color and then just my one follow up is just on the unconsolidated.
Brett Asnas: And then just my one follow up is just on the unconsolidated, you know, equity and earnings line, any just rough run rate or level, we should think about that going forward. I think what you saw saw in the third quarter is an appropriate run rate. Obviously, we called out the non-cash general provision adjustments that were made, both for what was taken during the quarter and then for prior period balances that hit the quarter. But from Q2 to Q3, you saw that decline I mentioned in my remarks. The leasehold loans that I've repaid over the last year have caused that to go down.
Speaker Change: Equity in earnings line.
Speaker Change: Any.
Speaker Change: Just rough run rate or level, we should think about that going forward.
Speaker Change: I think what you saw that saw in the third quarter is a inappropriate run rate, obviously, we called out the.
Speaker Change: Noncash general provision adjustments that were made both for what was taken during the quarter and then for prior period balances that hit the quarter.
Speaker Change: But from Q2 to Q3.
Speaker Change: You saw that decline I mentioned in my remarks, the lethal loans that have repaid over the last year.
Speaker Change: Have caused that to go down so really if we're doing any new ground leases that are with a partner that are not consolidated or were making new leasehold loans, that's really where you would see.
Brett Asnas: So really, if we're doing any new ground leases that are with a partner that are not consolidated or we're making new leasehold loans, that's really where you would see any uptick or change in that number on that row.
Speaker Change: Uptick or change in that number on that Rob.
Anthony Paolone: Okay, thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question is from Keybanc, Ken with shortlist.
Keebin Kim: Your next question is from Keebin Kim with. Thank you. Good morning. Where is your fixed charge coverage ratio today as of 3Q?
Speaker Change: Thank you good morning.
Speaker Change: Where's your fixed charge coverage ratio today as of <unk>.
Brett Asnas: Hey Keevin, it's Brett. I think when we think about fixed charge coverage and our covenants, right now we have fixed charge coverage and we have an unencumbered asset test, both are healthy margins. Fixed charge is nearly 1.3 times, unencumbered assets, unsecured debt is about 1.5 times. That should, from a dollar perspective, from an origination standpoint, that's... Well over a billion dollars for Virgin Nations without equitizing or any additional cash flow. So, you know, we're we have ample room on both of those government.
Brett: Hey, Kevin it's Brett.
Speaker Change: I think you know when we think about fixed charge coverage and.
Speaker Change: And our covenants right now Oh, we.
Speaker Change: We have fixed charge coverage and we have an unencumbered asset test.
Speaker Change: Both are.
Speaker Change: The margin fixed charges nearly 1.3 times.
Speaker Change: Unencumbered assets to unsecured debt is about one five times.
Speaker Change: That should.
Speaker Change: That should from a dollar perspective from an origination standpoint.
Speaker Change: Yes.
Speaker Change: Well over $1 billion of originations without appetizing or any additional cash flow.
Speaker Change: So we're we have ample room on both of those covenants.
Keebin Kim: Okay, and going back to the conversation regarding the JV buyout, I guess I'm still a little confused by it. I understand smaller deals take pretty much the same amount of time for a bigger deal versus a smaller deal. The I guess we're already past the sunk cost of time and energy. Why would they? I guess we'll compel them to. I saw the asset to you guys because it feels like the work's already been done and like you said earlier, it's a good ROA on it. And then for them to give up the role for it, I guess I'm just...
Speaker Change: Okay, and going back to the conversation regarding the JV buyout.
Speaker Change: I guess I'm still a little confused by it.
Speaker Change: Okay I understand smaller deals you know take the same pretty much the same amount of time for a bigger deal for your smaller deal but.
Speaker Change: If.
Speaker Change: And I guess, we're already past the sunk cost of time and energy now why would they.
Speaker Change: I guess will compel them to.
Speaker Change: So that that to you guys because it feels like the works already been done and like you said earlier its a good ROI on it.
Speaker Change: And then for them to give up the world for for it.
Speaker Change: Just trying to understand it better.
Jay Sugarman: trying to understand it better.
Jay Sugarman: Yeah, the ROFR wasn't part of it. That was in the JV. That just ended at the end of the quarter. So that was not part of the negotiation. The negotiation was simply, hey, rates have fallen a little bit. You know where we're doing new deals. We would like to buy this. Is this an attractive price for you to redeploy the capital? And again, they're a large shareholder. They're very supportive of the company. It was, I think, a win-win for both sides in that they look smart. I think we look smart. You know, those are the best kind of deals.
Speaker Change: The ROE for wasn't part of it that was that was in the JV that just ended.
Speaker Change: In the end of the quarter. So that that was not part of the negotiation renegotiation was simply hey rates have fallen a little bit you know.
Speaker Change: Where we're doing new deals we would like to buy this business an attractive price for you to redeploy their capital and again there are a large shareholder they're very supportive of the company. It was I think a win win for both sides and they look smart I think we look smart.
Speaker Change: Those are the best kind of deals and when Youre working with somebody you have a long standing relationship with.
Jay Sugarman: And when you're working with somebody you have a longstanding relationship with, you know, I think they were supportive. I'm sure they, like we, think the ROAs on those are still attractive, even at 7.2 versus maybe a little bit higher where they originated. But again, they have an enormous portfolio. They decide where they're going to deploy capital. We've approached them on other transactions where they've said no, but this one they said yes.
Speaker Change: They were supportive.
Speaker Change: I'm sure. They like we think the always on those are still attractive even at seven two versus maybe the little bit higher where they originated.
Speaker Change: But again, they have an enormous portfolio, they decide where they're going to deploy capital we've approached them on other transactions, where they've said no but this one they said yes.
Keebin Kim: And can you remind us if there is an expiration date for the partnership? We're up for the fun. The JV has a dollar limit, it does not have a time limit. Okay, thank you.
Speaker Change: And can you remind us if there is.
Speaker Change: Expiration date for the partnership.
Speaker Change: We're pretty fun.
Speaker Change: The JV has a dollar limit it does not have a time limit.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Mr. Hoffman, we have no further questions.
Operator: Mr. Hoffman, we have no further questions. Thanks very much.
Speaker Change: Thanks, very much if you do have any other questions. Please feel free to reach out to me directly operator would you. Please give the conference call replay instructions once again.
Operator: If you do have any other questions, please feel free to reach out to me directly.
Operator: Operator, would you please give the conference call replay instructions once again? Thanks. There will be a replay of this conference call beginning at 2 p.m. Eastern Time today. The dial-in replay information... 777-481-4010 with a confirmation code of 51479.
Speaker Change: There will be a replay of this conference call beginning at two P. M. Eastern time today the dial in replay information is 8774814010 with a confirmation code of 51479.
Operator: This does conclude today's event. You may disconnect your lines at this time and have a wonderful day. Thank you for your part.
Speaker Change: Does conclude todays event you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.