Safehold NYSE: SAFE reported first-quarter results and provided updates on its ground lease originations, portfolio valuation, and capital allocation priorities, while also addressing two developing situations involving an office asset in New York and legacy hotel ground leases that have shifted to fee-simple ownership.
Management highlights multifamily focus and affordable housing expansion
Chairman and CEO Jay Sugarman said the company remains in the “early innings” of building its standalone platform and its “modern ground lease business,” with multifamily as the core driver. “We continue to learn and refine the business model to gain scale and unlock the full value of the business,” Sugarman said.
As part of that multifamily push, Sugarman said Safehold is working to expand its presence in affordable housing beyond California. President Michael Trachtenberg said the company closed its first non-California affordable housing transaction during the quarter—an Austin, Texas, deal—calling it the firm’s 20th LIHTC closing in just over two years and its first outside California.
In response to an analyst question, Executive Vice President and Head of Investments Steve Wylder said the main hurdles to doing more affordable transactions outside California were market awareness and navigating differing regulatory regimes. Wylder said establishing a precedent in Texas is important, and described the state’s population growth and limited subsidy dollars as supportive of Safehold’s “gap funding” role.
Originations and pipeline: $68 million closed, $255 million in LOIs
Trachtenberg said Safehold closed four transactions in the first quarter—three ground leases and one leasehold loan—representing an aggregate commitment of $68 million. He said credit metrics for the originations were in line with portfolio targets, including 40% GLTV, 2.9x underwritten rent coverage, and a 7.2% economic yield.
Two of the ground leases were market-rate multifamily assets, and one was the Austin affordable housing asset.
Trachtenberg also said the company’s pipeline “remains active,” with roughly $255 million of non-binding letters of intent signed. He said Safehold anticipates “most of these transactions will close in the next one to two quarters,” while cautioning there can be no assurance that they close.
Addressing why some deals do not reach completion, Trachtenberg said the primary reasons are sponsors being unable to assemble a full capital stack or failing to win a competitive process. Sugarman added that Safehold still competes with fee-financing markets and said liquidity appears to be improving, “certainly in the multifamily space.”
Portfolio value and balance sheet positioning
At quarter-end, Trachtenberg said Safehold’s total portfolio was $7.1 billion and that unrealized capital appreciation (UCA) was estimated at $9.5 billion, “more than a $200 million increase from last quarter,” driven by both new investments and improving appraisal values on existing assets. He said portfolio GLTV was 51% and rent coverage was 3.4x.
Trachtenberg said Safehold ended the quarter with approximately $1.1 billion of liquidity, supplemented by potential capacity in its joint venture.
Chief Financial Officer Brett Asnas said the company had about $5.0 billion of debt at quarter-end, including $2.6 billion of unsecured debt, $1.3 billion of non-recourse secured debt, $890 million drawn on the unsecured revolver, and $270 million of its pro rata share of joint venture debt. Asnas said weighted average debt maturity is about 18 years, with no significant maturities until 2029, and reiterated the company’s credit ratings: A3 from Moody’s and A- from both S&P and Fitch, each with a stable outlook.
Asnas said Safehold is “well hedged,” citing a $500 million SOFR swap locked at 3% through April 2028 and $250 million of long-term Treasury locks at a weighted average rate of 4.0%, with a current gain position of about $33 million. He added that the value of Treasury locks is recognized on the balance sheet but “not yet on the P&L.”
Quarterly financial results and yield discussion
Asnas reported first-quarter GAAP revenue of $110.9 million, net income of $28.9 million, and earnings per share of $0.40. He said the year-over-year decrease in net income was “primarily driven by two Park Hotels assets transitioning from a ground lease to fee simple ownership.” Asnas said replacing ground rent with hotel operations reduced net income by about $3.5 million, or $0.05, in line with internal forecasts.
Asnas noted seasonality in hotel performance, saying the company expects results to improve in coming months because the second and third quarters have historically been more profitable than the first and fourth quarters. Later, in response to a question, Asnas said the company expects the hotel contribution from April through December to be “relatively break even,” consistent with its prior forecast.
On portfolio yields, Asnas said the portfolio currently earns a 3.8% cash yield and a 5.5% annualized yield for GAAP purposes, with annualized yield including non-cash adjustments and excluding future contractual variable rent items such as fair market value resets, percentage rent, and CPI-based escalators. He said the portfolio generates a 6.0% economic yield on an IRR-based underwriting calculation. Asnas added that 81% of ground leases include periodic CPI look-backs, and using the Federal Reserve’s long-term breakeven inflation rate of 2.22%, the 6.0% economic yield would increase to 6.2% on an inflation-adjusted basis.
Asnas said that inflation-adjusted yield would then increase to 7.4% after layering in an estimate for unrealized capital appreciation using Safehold’s 84% ownership interest in Caret at management’s most recent estimated valuation. He said management believes UCA remains a significant source of value “largely unrecognized by the market today.”
Share repurchases, capital allocation, and asset-specific developments
Management repeatedly pointed to what it views as undervaluation in Safehold’s stock. Sugarman said addressing the “value gap” in the share price is a key goal this year, and Asnas said the company has been repurchasing shares since the end of March. In the first quarter, Asnas said Safehold used approximately $3.4 million to repurchase shares at an average price of $14.39.
Asked how the company balances originations and buybacks, Asnas said management is evaluating expected capital outlays and leverage, noting the pipeline includes deals that fund over time rather than all at once. He said leverage was about 2.0x debt-to-equity and that using the full $50 million repurchase authorization would increase leverage by less than 0.1x.
In response to a separate question about the rationale for buybacks, Sugarman said management looks at “go forward opportunity and returns to an investor,” citing levered return dynamics, contractual growth, and CPI-linked upside. “We think it’s quite attractive right now,” he said, while emphasizing the company is pursuing both capital structure value and customer-driven growth.
On a New York City asset on 50th Street, Sugarman said new property tax incentives have made older office buildings candidates for conversion to multifamily. He said the tenant approached Safehold seeking permission for a potential conversion as required by the lease, with pro formas indicating a multifamily conversion could generate “significantly higher ground rent coverage versus office.” Sugarman said Safehold provided a framework for preliminary approval subject to conditions, including compliance with lease obligations.
However, Sugarman said the tenant has repeatedly failed to pay property taxes required under the ground lease, even though fixed ground rent has been paid. He said if the parties cannot reach a resolution “which starts with the tenant unconditionally paying the required taxes,” Safehold will be forced to exercise its rights under the lease. Sugarman said the company is comfortable with its position and cited recent valuation work from third-party valuation consultants, while also noting that the value of the 467-m tax incentive program is negatively impacted the longer it takes to begin a conversion. He declined to provide a specific timeframe for how long the company would allow a delinquent taxpayer to cure, but said contracts are clear: “You pay your taxes, you pay our rent.”
Sugarman also provided limited background on the 50th Street tenant, saying the prior sponsor was “a large institutional offshore bank” that sold the asset at auction to a tenant Safehold did not know. He said the tenant lacks background in the market and in the conversion expertise.
Regarding the Park Hotels-related litigation, Sugarman said a trial date is set for early next year unless there is a resolution beforehand. He said the company is exercising its rights under the lease and believes strongly in the contractual terms, but acknowledged the legal process cannot be accelerated. In response to a question about whether other hotels in a related master lease could stop paying, Sugarman said it was “unlikely,” adding that under Safehold’s view of the structure, “You can’t default on just one or two. You default, you default.”
Asked whether the Park situation affects Safehold’s underwriting and documentation approach, Sugarman said the Park deal was done roughly 40 years ago and is not representative of the company’s current “modern ground lease” structure. He said the modern form has been refined over hundreds of transactions, while adding the company continues to look for ways to improve clarity and better serve customers.
Finally, Sugarman addressed the ongoing iStar liquidation process, reiterating a target timeline of roughly five years from the merger—early/mid 2028. He said progress is tracking reasonably well, though two large assets are dependent on municipalities, which can affect timing. Sugarman said there is a provision to receive a small fee based on remaining assets if the process does not conclude exactly on schedule.
About Safehold NYSE: SAFE
Safehold Inc is a real estate investment trust that seeks to redefine land ownership for commercial property owners. The company acquires perpetual ground leases from landowners and structures long-term leaseback arrangements, enabling building owners to unlock the value of underlying land without relinquishing operational control of their properties. By separating land ownership from building ownership, Safehold offers an alternative to traditional mortgage financing and land sale–leaseback transactions.
Safehold’s portfolio spans multiple commercial real estate sectors, including office, multifamily, industrial and retail, with a focus on high-quality properties in major U.S.
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