Release Date: May 07, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Safehold Inc (SAFE, Financial) has a robust pipeline with non-binding LOIs totaling approximately $386 million for potential commitments across 11 ground leases and four loans.
- The company has strong credit metrics with expected contractual returns in the low 7% range before factoring in CPI and Caret.
- Safehold Inc (SAFE) ended the quarter with approximately $1.3 billion of liquidity, supported by potential available capacity in their joint venture.
- The ground lease portfolio has grown 20 times by both book value and estimated unrealized capital appreciation since the IPO.
- Safehold Inc (SAFE) has a diversified portfolio by location and property type, with a focus on institutional quality ground leases in top markets.
Negative Points
- The first quarter saw no new originations due to interest rate volatility and market uncertainty, impacting investment activity.
- GAAP earnings declined year over year, primarily due to a non-recurring $1.9 million loss on a preferred equity investment.
- Portfolio GLTV increased from 49% to 52% due to office revaluations, indicating potential vulnerability to market fluctuations.
- The company faces challenges in closing deals due to market volatility and the need for customers to align their capital stacks.
- Safehold Inc (SAFE) is trading at a discount to what management believes is fair value, highlighting a public versus private valuation disconnect.
Q & A Highlights
Q: Can you provide more details on the pipeline of non-binding LOIs, including the sponsors, markets, and expected closing timeframe?
A: Tim Doherty, Chief Investment Officer, explained that the pipeline is robust with 11 deals, primarily in multi-family, including market rate and affordable housing. The deals are geographically diverse, covering the West Coast, Southeast, Northeast, and Midwest. The expectation is that most of these deals will close within the year, although timing may vary between construction and recap deals.
Q: What are the benefits of leasehold loans compared to ground leases, and how much capacity do you have for these loans?
A: Jay Sugarman, CEO, noted that leasehold loans are used selectively and currently represent a small portion of the balance sheet. They provide certainty in volatile markets, helping to secure deals that might otherwise be delayed. The company plans to keep leasehold loans as a small percentage of their portfolio.
Q: Can you comment on the public versus private market disconnect and whether you would consider selling a ground lease to prove value?
A: Brett Asnas, CFO, mentioned that capital recycling is a priority for 2025, and they are exploring options like selling assets or finding joint venture partners to close the valuation gap. They believe they are trading at a discount and are actively working on processes to create the best execution for capital deployment.
Q: Are all the non-binding LOIs related to multi-family or affordable housing?
A: Tim Doherty confirmed that the majority of the LOIs are in multi-family, including market rate, construction, and affordable housing. There is also a hotel transaction in the mix, but multi-family remains the primary focus.
Q: How has the pipeline evolved after recent market volatility, and does it indicate a recovery in the ground lease market?
A: Tim Doherty stated that the volatility in interest rates has decreased, allowing sponsors to make long-term decisions. The current pipeline exceeds last year's originations, suggesting a positive sign for the ground lease market's recovery, although some volatility remains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
