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Safehold Inc. (NYSE:SAFE), a real estate investment trust specializing in ground leases, today announced a significant unrealized capital appreciation (UCA) in its portfolio. As of December 31, 2024, the estimated UCA in Safehold’s owned residual portfolio stands at approximately $9.128 billion. The company, currently trading at a market capitalization of $1.19 billion, appears undervalued according to InvestingPro analysis, while offering an attractive dividend yield of 4.28%.
The UCA represents the excess of the "Combined Property Value" over the cost basis of the company’s ground lease investments. The Combined Property Value is defined as the aggregate value of the land and improvements of commercial properties, assuming the absence of Safehold’s ground leases. This valuation approach has contributed to Safehold’s impressive gross profit margin of 98.22%, as revealed in InvestingPro’s detailed financial analysis, which includes over 30 key financial metrics and multiple ProTips available to subscribers.
Safehold’s valuation policy involves periodic determination of the UCA by engaging independent valuation firm CBRE (NYSE:CBRE), Inc. to estimate the hypothetical values of the properties as if fully owned, without factoring in the existing ground leases. These valuations are based on industry standard methodologies, including sales comparison and income capitalization approaches, and are updated approximately every 12 to 24 months.
The company’s ground lease portfolio is valued at the aggregate cost basis, and the UCA is calculated as the difference between this cost and the Combined Property Value. As of the end of 2024, the Combined Property Value of Safehold’s portfolio was estimated at $15.523 billion, against a ground lease cost of $6.395 billion.
The UCA is a reflection of Safehold’s investment strategy, which targets ground lease investments where the initial cost represents 30% to 45% of the Combined Property Value. This strategy is aimed at ensuring the safety of Safehold’s position in a tenant’s capital structure and the quality of long-term cash flows, which are expected to contribute to the company’s ability to pay and grow dividends.
It is important to note that the UCA is not a realized gain and may not be immediately accessible, as the properties are under long-term leases. The actual value realized upon lease expiration or termination could vary based on several factors, including market conditions and specific property attributes. Despite recent market challenges, with the stock experiencing a 25.37% decline over the past six months, Safehold maintains strong fundamentals with a current ratio of 43.35, indicating robust liquidity. For comprehensive analysis and additional insights, investors can access the full Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with detailed metrics and expert analysis.
Safehold’s recent SEC filing, which includes details on the UCA and the valuation process, also mentions the Caret Performance Incentive Plan. Under this plan, certain executive officers agreed to additional vesting conditions post-merger, with Caret units subject to vesting on the second anniversary of the merger, contingent on continued employment.
The company’s SEC filings, including the upcoming Annual Report on Form 10-K for the year ended December 31, 2024, will provide further details on the UCA and associated risks. The information about the UCA and the valuation process is based on the latest press release statement from Safehold Inc.
In other recent news, Safehold Inc. has been upgraded to an A- credit rating from its previous BBB+ status by Fitch Ratings, indicating a stable future for the real estate investment trust. This upgrade also extends to Safehold’s operating subsidiary, Safehold GL Holdings LLC, which received an identical rating and outlook. The upgrade acknowledges Safehold’s dedication to the ground lease asset class, known for its low-risk profile and potential for long-term, growing revenue. Fitch highlighted the company’s strategic shift towards unsecured debt, portfolio diversification, robust asset quality, conservative leverage, and strong dividend coverage. The ratings agency also recognized the expertise of Safehold’s management team. Safehold’s Chief Financial Officer, Brett Asnas, responded to the upgrade by emphasizing the company’s commitment to maintaining a high-quality credit profile and stable funding sources. Asnas anticipates that the improved ratings will lead to more favorable capital costs and accessibility, ultimately benefiting shareholders and customers. These are among the recent developments for Safehold Inc.
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