Safehold Q3 Earnings Call Highlights

Safehold NYSE: SAFE reported third-quarter revenue of $118.7 million, net income of $28.8 million and earnings per share of $0.41, with EPS unchanged from a year earlier as accretion from asset fundings and contributions from owned hotels were offset by lower management fees from Star Holdings, lower unconsolidated joint-venture earnings and higher non-cash general reserves.

Management said the quarter unfolded amid substantial interest-rate volatility, which has disrupted real estate transaction activity and created greater uncertainty around deal closings. Chairman and Chief Executive Officer Jay Sugarman said higher long-term interest rates are challenging for the company because of the long duration of its assets, though he pointed to inflation-linked rent increases, long-term fixed-rate debt and potential upside from its Caret interests as differentiating features of the ground-lease model.

Third-Quarter Originations Focused on Affordable Housing

Safehold originated two ground leases during the third quarter, representing an aggregate commitment of $38 million and bringing year-to-date volume to about $242 million. Both transactions involved repeat customers in the affordable-housing sector, with one project in the San Francisco Bay Area and the other in San Antonio.

The two deals carried a combined 7.3% economic yield, a ground lease-to-value ratio of 39% and rent coverage of 2.7 times, according to President Michael Trachtenberg. The company funded $112 million during the quarter, including $107 million of ground-lease fundings at a 7.4% economic yield and $5 million of leasehold loans at SOFR plus 425 basis points.

Trachtenberg said Safehold continues to see customer interest in three main categories: affordable housing, market-rate multifamily recapitalizations and multifamily development. However, rapid rate movements have increased the likelihood of deal repricing and retrading, delaying or disrupting transactions requiring the alignment of debt, equity and ground-lease financing.

From late August through early October, the 10-year Treasury yield rose by nearly 70 basis points, Trachtenberg said. He added that the company’s pipeline has remained relatively steady, but elevated volatility has raised closing uncertainty.

Safehold has emphasized affordable housing, which management said is relatively insulated from daily rate volatility because of the national need for additional supply. The company said year-to-date production in affordable housing has nearly doubled its annual production in both 2024 and 2025.

Pricing and Market Conditions

Management said the company is targeting returns that exceed its unlevered long-term credit benchmarks, which Trachtenberg described as being in the low-6% range. Recent transactions have been completed in the low- to mid-7% range, and management said it expects that, including CPI-based increases, those transactions could translate into returns in the mid-7% to 8% range before Caret.

Trachtenberg said the company believes the 7%-plus range is a “sweet spot” for customers. Moving materially above that level could reduce demand, he said. Sugarman noted that there are more potential transactions at yields in the mid-to-high 4% range than at yields in the 5% to low-5% range, describing the issue as a trade-off between transaction volume and pricing.

Safehold is evaluating opportunities across property types but generally favors multifamily because of its liquidity, long-term fundamentals and risk-adjusted returns for a ground-lease owner. The company also sees potential opportunities to help owners facing maturities on low-cost debt. Management said ground leases can offer an alternative to costly rescue capital by allowing owners to retain control of their properties while restructuring their capital stack.

Portfolio, Liquidity and Debt Structure

At quarter-end, Safehold’s portfolio had an aggregate gross book value of $7.4 billion and estimated unrealized capital appreciation of $9.9 billion, an increase of about $100 million from the prior quarter. Portfolio ground lease-to-value remained 52%, while rent coverage was unchanged at 3.4 times.

The company ended the quarter with $1.3 billion of available liquidity and approximately $5 billion of unencumbered assets. It reported $5.1 billion of debt, including $2.8 billion of unsecured debt, $1.3 billion of non-recourse secured debt, $765 million drawn on its unsecured revolver and $270 million representing its pro rata share of debt on ground leases held through unconsolidated joint ventures.

Safehold maintained credit ratings of A3 from Moody’s and A- from S&P and Fitch, each with stable outlooks. Its permanent debt had a weighted-average maturity of about 18 years and an effective cost of 4.4%, with no significant maturities until 2029. Chief Financial Officer Brett Asnas said the company estimates its below-market debt has about $800 million of embedded value on a mark-to-market basis.

Leverage increased modestly to 2.04 times from 2.01 times, primarily because of investment fundings and share repurchases. Asnas said the company continued buying back shares in the fourth quarter, citing management’s view that the stock trades below its estimate of net asset value.

Capital Allocation and Other Updates

Management said it is considering joint ventures and similar structures as tools to recycle capital, manage leverage and avoid issuing equity at current valuation levels. Asnas said future portfolio transactions would likely resemble the joint-venture structure completed in the second quarter rather than outright asset sales.

Safehold also amended an arrangement with Star Holdings near the end of the quarter. Sugarman said the amendment gave Star Holdings more flexibility in its asset-sale process and improved its margin-of-safety position through a paydown of its margin loan. He said the amendment improved the credit profile for Safehold and added economics that will be recognized over time.

On Caret, Sugarman said the company is seeking ways to establish more liquid market valuations for the interests, although private transactions can take time and may not occur in large volumes. He said management’s near-term focus is on growing Caret and UCA before pursuing additional valuation marks.

Safehold provided no material update on litigation involving a Midtown Manhattan office-to-residential conversion or on the Park Hotel matter, with Sugarman describing both processes as continuing slowly.

About Safehold (NYSE:SAFE)

Safehold Inc NYSE: SAFE is a real estate investment trust that owns and manages ground leases for commercial, multifamily, and other income-producing properties. Under a ground lease, Safehold owns the land beneath a building while the property owner leases the land for a long term and retains ownership of the improvements on it.

The company's business model is designed to provide property owners with access to capital while allowing them to maintain control of their buildings. Safehold's ground lease investments are generally structured as long-duration leases that can support the development, acquisition, refinancing, or recapitalization of real estate assets.

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