Safehold Merging With iStar in $1.6B Deal

Safehold is merging with its largest shareholder, iStar, in a $1.6B deal that will make the combined entity the only publicly traded, self-managed pure-play ground lease company. 

The merger, which is expected to close by Q1 2023 latest, will see Safehold assume iStar’s $100M in trust preferred securities—considered debt, due in 2035—and Safehold will issue 1.2M new SAFE shares to iStar.

“This transaction is an important step forward in our strategy to significantly expand the use of modern ground leases in commercial real estate and further extend Safehold’s position as the pre-eminent ground lease company,” said Jay Sugarman, Safehold CEO, in a statement.

The merged company will continue to operate under the Safehold name. Safehold said in a release it would internalize iStar’s management team and intellectual property, replacing Safehold’s external management structure.

“[The merger agreement] enables Safehold to internalize with the same management team who built the modern ground lease industry over the past five years,” Safehold said, in the release.

Safehold said the merger will reduce its operating costs by an estimated $25M annually by 2026. The deal also enables Safehold to acquire iStar’s interest in the Ground Lease Plus and Leasehold Loan funds.

Under the arrangement, Safehold shareholders will own 34% of the merged company; iStar shareholders will own 37% directly and 14% indirectly through a spinoff that will own all remaining non-ground lease assets and $400M of Safehold shares.

The transaction also will result in the $200M sale of 9% of SAFE shares—about 5.4M—to investment firm MSD Partners, which is owned by Dell Technologies CEO Michael Dell.

MSD will make a strategic investment in Caret Ventures, a Safehold subsidiary, purchasing 100,000 units in Caret for $20M.

Caret Ventures allows investors to tap into the capital appreciation of current and future Safehold ground leases. An investment group including NBA star Kevin Durant recently invested $24M in Caret, which is valued at an estimated $1.75B.

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