IStar Inc. is increasing its investment in Safety Income & Growth Inc. with a new $250 million equity injection in the ground-lease real estate investment trust.
Safety Income intends to use the fresh capital to boost its portfolio by about $750 million, based on its targeted two-to-one debt-to-equity ratio.
Under the deal, diversified REIT iStar purchased 12.5 million limited partnership units in Safety Income's operating partnership at $20.00 per unit. The limited partnership units, which are economically equivalent to 1 common share of Safety, may be exchanged for Safety Income's common shares, subject to approval at the company's upcoming stockholders meeting.
iStar is expected to own about $400 million, or 65%, of Safety Income's total equity after factoring in the issuance of the new partnership units. Under a stockholder's agreement, iStar's discretionary voting power in Safety Income will be limited to 41.9%. In excess of the limit, iStar is expected to cast its voting power in the same proportion as Safety Income's non-iStar stockholders.
Certain restrictions will also be applied as to the transfer of iStar-owned securities in Safety Income, and iStar will be subject to a two-year standstill provision. In future issuances of Safety Income shares, iStar will be granted certain rights to maintain its ownership interest in the company.
As part of the investment, iStar and Safety also agreed to amend their management agreement, including the related management fees. The agreement term, which was originally set at one year, will now be non-terminable and will initially be implemented from Jan. 1 to June 30, 2022, with automatic renewal thereafter. The new contract also provides for a termination fee of three times the prior year's fee, subject to Safety Income having raised a total of $820 million of equity since inception.
Lazard and Clifford Chance US LLP advised a committee of iStar's independent directors, while Houlihan Lokey, Fried Frank Harris Shriver and Jacobson LLP and Hogan Lovells US LLP advised Safety Income.