Safehold Inc. ((SAFE)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Safehold Inc.’s recent earnings call presented a mixed sentiment, highlighting significant growth in multifamily ground leases and a robust liquidity position. However, these positives were tempered by challenges related to the Park Hotel master lease and ongoing litigation. While economic yields showed promise for profitability, concerns arose from a slight decline in rent coverage and extended timelines for deal closures.
Strong Growth in Multifamily Ground Leases
Safehold reported originating eight multifamily ground leases totaling $76 million in the third and fourth quarters to date. These leases, primarily in the affordable housing sector, boast a weighted average economic yield of 7.3%, underscoring the company’s strategic focus and growth in this area.
Uptick in Economic Yields
The company has been achieving economic yields up to 7.5% with new originations, indicating a strong potential for profitability. This uptick reflects Safehold’s ability to capitalize on favorable market conditions and enhance its financial performance.
Robust Liquidity Position
Ending the quarter with approximately $1.1 billion in liquidity, Safehold’s financial stability is further supported by potential available capacity in joint ventures. This robust liquidity position empowers the company to pursue strategic opportunities and navigate market challenges effectively.
High Credit Ratings
Safehold maintains strong credit ratings, with an A3 stable outlook from Moody’s, an A- stable outlook from Fitch, and a BBB+ positive outlook from S&P. These ratings reflect the company’s solid financial health and its ability to meet obligations.
Challenges with Park Hotel Master Lease
The company faces challenges with the Park Hotel master lease, having sent a lease termination notice due to alleged breaches in maintenance and operating standards. This situation has led to active litigation, posing potential risks to Safehold’s operations.
Slight Decline in Portfolio Rent Coverage
There was a slight decline in portfolio rent coverage from 3.5x to 3.4x quarter-over-quarter. This decrease indicates some pressure on rent revenues, which could impact the company’s financial performance if the trend continues.
Extended Timeframes for Deal Closures
Safehold is experiencing extended timeframes for deal closures, with expectations for more closures in the fourth quarter or the first quarter of next year. This delay could affect the company’s ability to realize anticipated revenues promptly.
Forward-Looking Guidance
Looking ahead, Safehold remains focused on expanding its ground lease market, especially in the affordable housing sector. The company is encouraged by its strong balance sheet and liquidity position, which it plans to leverage to be more aggressive with customers. With a total portfolio reaching $7 billion and a potential economic yield upside to 7.5%, Safehold is well-positioned for future growth.
In summary, Safehold Inc.’s earnings call reflected a balanced sentiment, with strong growth and liquidity offset by challenges in lease management and deal closures. The company’s strategic focus on multifamily ground leases and its robust financial position provide a solid foundation for future endeavors, despite the hurdles it faces.