2018 Annual Review
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Letter to Shareholders

Throughout our 25-year history, we have dedicated ourselves to building innovative businesses that have provided better structured, better priced capital to the real estate sector. Identifying these untapped market opportunities and successfully scaling them is the foundation of our firm.

Now we are building a new business focused on reinventing the ground lease sector, enabling real estate owners and developers to unlock significant value by safely and efficiently monetizing the land beneath their buildings. This has the potential to be the best business we have ever built.

We have structured this new business as a separate, “pure-play” public company called Safehold Inc. with iStar as its largest economic owner and its investment manager. We IPO’d Safehold (NYSE:SAFE) in June 2017 to give us the most flexibility to grow and scale the ground lease business, while providing iStar with a very significant stake in its success and the opportunity to capture long-term benefits from the intellectual property iStar has created. We lay out our vision for Safehold in its annual report at safeholdinc.com.

What this new business means for iStar shareholders in 2019 is the beginning of a new era. An era designed for growth, an era of strategic focus, and an era of long-term success. We have named this new beginning “Project Go,” and we have officially pushed the GO button internally. To launch this new era we have taken a number of important steps and will begin executing on them immediately. Here are some of those steps:
  • 1. Focus
    We are focusing our investment team on expanding the ground lease sector by educating the marketplace about how and why the new Safehold ground lease is better capital for real estate owners of all property types. It will be particularly important to differentiate what we are creating at Safehold from the archaic ground leases that often end up destroying value rather than enhancing it.
  • 2. Expand Footprint
    We will seek to close a new Safehold ground lease in each of the top 25 markets in the United States. We have seen over the last year that once we close a new Safehold ground lease in a market we tend to gain significant traction in that market. In addition, our high repeat customer rate means the more relationships we build the more proprietary follow on business we will build in our pipeline.
  • 3. Eliminate Constraints
    We are accelerating more legacy asset monetizations versus fully developing them. This led us to take write-downs in 2018 on several legacy assets that were planned for long-term development, but where the management time and capital required to develop the assets over a long period no longer made sense when weighed against the significant potential upside we believe we can capture from our modern ground lease strategy.
  • 4. Maximize Competitive Advantages
    We will use our historical strength in the finance sector to create a seamless leasehold financing program in conjunction with Safehold ground leases to deliver superior one-stop shop capabilities and look for leasehold equity opportunities where a new Safehold ground lease unlocks an above-market return on the leasehold. We call this ability to combine iStar’s strengths in finance and net lease with Safehold’s ground lease specialty our SAFE/STAR program and we expect it to create real competitive advantages for both companies in the coming year.

Earnings, Growth and Multiples
Over the past few years, we have extracted significant value from our portfolio assets and our legacy asset strategy. Including our recent Preferred Freezer sale, we have generated over $1 billion of gains since 2016, and after taking into account the write-downs at the end of 2018 and all other losses since 2016, we have generated approximately $750 million in net gains over this time frame. But our long-term goal has always been to create a growing company that can trade at a material premium to book and we believe the way to achieve this is by building a leadership position in a large and untapped market space with superior risk-adjusted returns. Reinventing the ground lease sector gives us this opportunity and we are committed to seizing it on behalf of our shareholders.

We appreciate your support, welcome your questions, and look forward to executing on another revolutionary business idea that can create sizable rewards for shareholders.

Sincerely,

Jay Sugarman
Chairman & Chief Executive Officer