Safety, Income and Growth, Inc. (NYSE: SAFE) is the first publicly traded company that focuses on acquiring, owning, managing and capitalizing ground net leases, or GNLs. We seek to provide safe, growing income and capital appreciation to our shareholders by building a diversified portfolio of high quality GNLs. We are managed by a subsidiary of our largest shareholder, iStar Inc. (NYSE: STAR).

Safety

We believe GNLs represent a safe position in a commercial real estate capital structure. This safety stems from a GNLs seniority in the capital structure as well as the seniority of GNL rental payments in the cash flow hierarchy of the operator. Performance under the terms of a typical GNL is supported by the right of a GNL owner (landlord) to regain control of its land and take ownership of the building and improvements on the land, upon the expiration or earlier termination of a GNL. This featureof a typical GNL provides a strong incentive for a GNL leaseholder (tenant) to make the required rent payments and creates a low likelihood of a tenant default.

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Additionally, we typically seek GNL investments in which the Combined Property Value of a property subject to a GNL materially exceeds the amount of the GNL owner’s investment at the time it was made; therefore, even if the GNL owner takes over the property following a tenant default or upon expiration of the GNL, the owner is reasonably likely to recover substantially all of its GNL investment, and possibly amounts in excess of its investment.

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Income Growth

Description ImageWe target GNLs because we believe that rental income from GNLs can provide us with a safe, secure and growing cash flow stream. In addition to the safety afforded by GNLs, we intend to target GNLs that include rent escalators which can be a fixed increase, a CPI-based increase and/or a participation in the rent of the underlying property. Periodic increases typically compound over the duration of our leases resulting in meaningful income growth and the opportunity for the value of our GNL to increase. Given these factors, we believe that GNLs offer us the opportunity to realize superior risk adjusted total returns when compared to many other fixed income and equity investments.

Capital Appreciation (Value Bank)

Description ImageGNLs provide the opportunity for capital appreciation. At the expiration or earlier termination of a typical GNL, we have the right to regain control of the land and take title to the buildings and improvements on the land for no additional consideration. When we first acquire a GNL or create a new GNL, our exposure to the Combined Property Value is typically between 30% - 45% with the leaseholder investing the additional 55% - 70% subordinate to our position. Over the term of the lease, the leaseholder is incentivized (and is typically required by the terms of a GNL) maintain the property. We refer to the difference between the Combined Poperty Value and our GNL investment at any point in time as the "Value Bank". Long-term studies suggest there is a strong correlation between inflation and commercial real estate values over time, which supports our belief that the Value Bank should increase over time as inflation increases.

Disciplined Investment Criteria

As is the case in almost every commercial real estate asset class, from office to multifamily, there is a wide range of investment strategies. The same is true in GNLs. Our strategy is generally on the more conservative end of the spectrum with high quality assets in major markets and in amounts typically between 30% and 45% of Combined Property Value. We have a disciplined investment strategy and intend to target GNLs that meet some or all of the investment criteria detailed below. We believe that these target attributes will mitigate the effects of inflation, compensate for anticipated increases in land values over time and establish a conservative position in the case of defaults. We will target GNLs that we believe provide us with a significant Value Bank on day one with the potential for future growth over our long lease terms. We intend to construct a portfolio of GNLs diversified by property type, tenant, lease term across the top 15 major markets in the U.S.

Investment Size $20MM - $250MM
Locations High barriers to entry major metropolitan areas
Cap Rate First-year rent yields of 3.0% - 5.0%
Exposure to Property Initially 30% - 45% of Combined Property Value
Ground Rent Coverage 2.0x to 5.0x for the first year of the lease
Initial Lease Terms 30 to 99 years
Rent Escalators Periodic fixed or CPI-escalators or percent rent participations