Safehold Stock Price, News & Analysis

Safehold Inc. (NYSE: SAFE) is a real estate investment trust (REIT) focused on modern ground lease structures that separate land ownership from building ownership. According to the company’s public disclosures, Safehold is “revolutionizing real estate ownership by providing a new and better way for owners to unlock the value of the land beneath their buildings.” It describes itself as the creator of the modern ground lease industry, having established this platform in 2017.

Safehold’s business centers on acquiring, managing and capitalizing ground leases. A ground lease is a long-term contract under which Safehold, as the landowner, leases the land to a tenant or leaseholder that owns and operates the building and improvements on that land. The company’s portfolio of institutional ground leases is tied to commercial real estate projects where the fee ownership of the land is net leased to the owners and operators of the buildings constructed on top of it.

Business model and ground lease focus

Safehold states that it targets ground lease investments where its initial cost of the ground lease represents a minority share of the overall value of the combined property (land plus buildings and improvements). The company tracks what it calls unrealized capital appreciation ("UCA") in its owned residual portfolio. UCA is defined in its filings as the aggregate “Combined Property Value” associated with its portfolio of ground leases in excess of the aggregate cost basis of that portfolio.

“Combined Property Value” is described as the combined value of the land, buildings and improvements relating to the commercial properties subject to Safehold’s ground leases, as if those ground leases did not exist. Safehold explains that it generally targets ground lease investments in which the initial cost of the ground lease represents a specified percentage range of the Combined Property Value, with the remaining portion representing potential value accretion to Safehold upon lease expiration or an earlier uncured tenant default, assuming no intervening decline in Combined Property Value.

The company notes that its ground leases typically contain residual rights. Following the expiration or earlier termination of a lease, Safehold has the right to own the combined property because it regains possession of the land and receives title to the buildings and other improvements for no additional consideration. It views tracking changes in the value of this residual portfolio as relevant to understanding the safety of its position in a tenant’s capital structure, the quality of long-term cash flows from ground rent, and changes in the value of the real estate that could revert to it.

Property types and sectors served

Based on its public descriptions, Safehold’s ground lease capital is used in connection with a range of high-quality commercial property types. The company states that it works with owners of:

• Multifamily properties
• Affordable housing
• Office properties
• Industrial properties
• Hospitality assets
• Student housing
• Life science properties
• Mixed-use properties

Safehold describes its ground lease capital as a way for property owners to “generate higher returns with less risk” by unlocking land value while retaining operational control of their buildings. In its affordable housing activities, the company has publicly highlighted the use of long-term ground lease capital in Low-Income Tax Credit (LIHTC) developments, including affordable housing communities in Los Angeles, California and the Woodland Hills area of Los Angeles.

Corporate structure and history

Safehold Inc. is incorporated in Maryland and its common stock trades on the New York Stock Exchange under the symbol SAFE, as disclosed in its SEC filings. The company is taxed as a REIT. In its 8-K filings, Safehold explains that on March 31, 2023, a predecessor entity referred to as “Old SAFE” merged with and into iStar Inc., with iStar continuing as the surviving corporation and changing its name to “Safehold.” Following this merger, Safehold Inc. reports that it conducts all of its business and owns all of its properties through Safehold GL Holdings LLC, which it refers to as “Portfolio Holdings.”

The company has engaged an independent valuation firm, CBRE, Inc., to prepare initial and periodic valuation reports for the Combined Property Value associated with each ground lease in its portfolio. These valuations are prepared under recognized appraisal standards and are used, along with internal estimates where necessary, to support Safehold’s periodic estimates of UCA in its owned residual portfolio. The company emphasizes that these UCA calculations are not U.S. GAAP measures, are subject to assumptions and limitations, and may not reflect current market conditions.

Capital structure, credit profile and financing

Safehold’s disclosures highlight a focus on a long-term, laddered balance sheet and unsecured financing. The company has reported entering into an unsecured term loan credit agreement providing for term loans used for working capital and general corporate purposes, with a stated maturity date that includes extension options. It has also reported amending its revolving credit facility to align financial covenants with those in its unsecured term loan facility.

In public communications, Safehold has noted that its credit ratings from major rating agencies have reached the single-A category. It has also described using proceeds from unsecured term loans to repay secured debt and unencumber certain ground lease assets, while increasing overall liquidity. Management commentary in press releases links these financing activities and ratings to the company’s ability to offer capital solutions to customers and to support its objectives for shareholders.

Affordable housing platform

Safehold has publicly stated that it established a dedicated Affordable Housing team with the goal of expanding its investment into that sector. It has announced multiple ground lease transactions for LIHTC-based affordable housing communities in Los Angeles and the San Fernando Valley, and has referenced relationships with affordable housing developers. The company has described its ground lease capital in this context as low-cost capital that can function as a “gap filler” in developments facing elevated costs and interest rate challenges.

Safehold also notes that it has created an Affordable Housing platform and has made information about this platform available through dedicated channels. In its press releases, the company has emphasized growing demand for its ground lease capital in affordable housing and growth in its forward investment pipeline in this area.

Income, dividends and shareholder focus

Safehold states that, as a REIT, it seeks to deliver safe, growing income and long-term capital appreciation to its shareholders. The company has announced regular common stock dividends, describing them in terms of per-share amounts and annualized rates in its press releases. Management commentary frequently references objectives such as delivering attractive risk-adjusted returns, supporting dividend growth over time, and using its ground lease structure and balance sheet to create value for shareholders.

The company’s disclosures also explain that it tracks UCA and Combined Property Value as indicators of the safety of its position in tenants’ capital structures and the quality of its long-term cash flows, which it links to its dividend and total return objectives. At the same time, Safehold cautions that there can be no assurance it will realize incremental value from UCA or that its common stock price will reflect any value attributable to that measure.

Risk, methodology and limitations

In its SEC filings, Safehold provides detailed discussion of the methodology and limitations associated with its UCA estimates. It notes that:

• It does not typically receive full U.S. GAAP financial statements for the commercial properties operated on its land.
• In some cases, confidentiality provisions limit the information it can share with its valuation firm.
• It does not independently verify tenant-supplied information and assumes its accuracy and completeness.
• UCA calculations are not audited, not required by rule or regulation, and may change if the board of directors adopts different methodologies.
• Rolling property valuations mean that estimated UCA and Combined Property Value may not reflect current market conditions and may decline materially in the future.

Safehold also explains that CBRE’s valuation work is based on hypothetical fee simple values that assume the ground and improvements are owned by the same entity and that the property is leased at market rent at stabilized occupancy, without considering costs to achieve stabilization. It notes that market values may differ from these hypothetical values and that CBRE’s work does not specifically value Safehold securities.

Summary

Overall, Safehold Inc. presents itself as a specialized REIT focused on modern ground leases that separate land ownership from building operations. Through its ground lease investments, residual rights and tracking of unrealized capital appreciation, the company aims to provide long-duration cash flows and potential residual value tied to commercial real estate across multifamily, affordable housing, office, industrial, hospitality, student housing, life science and mixed-use sectors. Its disclosures emphasize the structural features of its leases, its valuation framework, its REIT tax status, its NYSE listing under the symbol SAFE, and its stated objective of generating income and long-term capital appreciation for shareholders.