Safehold Inc.

SAFE Details

Safehold Inc. (NYSE: SAFE) is focused on acquiring, managing, and capitalizing ground leases, which are long-term contracts between the landlord (the company) and a tenant or leaseholder, and generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon. SAFE’s portfolio of properties is diversified by property type and region, and is comprised of ground leases and a master lease (relating to five hotel assets). As of June 03, 2021, the company’s market capitalization stood at USD 3.81 billion.

Portfolio Footprint by Region (Source: Investor Presentation, May 2021)

USD 400.0 Million Senior Notes Offering: On May 07, 2021, the company’s operating partnership, Safehold Operating Partnership LP, closed a public offering of USD 400.0 million aggregate principal amount of 2.8% senior unsecured notes due 2031. The notes are fully and unconditionally guaranteed by SAFE and have a maturity date of June 15, 2031. The proceeds from the offering will be used for repayment of borrowings under the company's revolving credit facility and general corporate purposes.

Q1FY21 Results: The company reported an 8.32% rise in total revenue to USD 43.51 million in Q1FY21 (ended on March 31, 2021) from USD 40.17 million in Q1FY20. Interest income from sales-type leases comprises 59.7% of the total revenue in Q1FY21. However, net income for Q1FY21 was USD 16.96 million, lesser than USD 17.40 million in Q1FY20.

Key Risks: The company’s tenants for ground leases are typically special purpose entities formed to enter into leases and own the improvements built on the land. If the company needs to take action to enforce its leases, it may not have access to assets of the tenants other than the lease and the tenant's improvements, resulting in limited or no recourse against a separate creditworthy guarantor. In addition, the company generated 15.2% of its total revenue in FY20 from the hotel industry, which was significantly impacted by the COVID-19 pandemic. If the pandemic continues to spread, it could provide a serious blow to the company’s revenue stream.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

 (Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SAFE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SAFE has increased by 6.0% and 24.08% in the past 6 and 9 months, respectively, and is currently tending towards the higher band of the 52-week range of USD 47.51 to USD 84.99. The stock is currently trading slightly above its 200 DMA levels. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 76.57. Considering the uptick in stock price, increase in long-term debt, and reasonable topline growth, we recommend a “Hold” rating on the stock at the closing price of USD 71.21, down by 0.53% as of June 03, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

Cohen & Steers, Inc.

CNS Details

Cohen & Steers, Inc. (NYSE: CNS) is an investment management firm dealing in real estate securities, listed infrastructure, natural resource equities, and preferred securities. The company operates in three types of investment vehicles i.e., institutional accounts, open-end funds, and close end-funds. CNS’ revenue comes from the fees for managing or sub-advising client accounts, investment advisory, distribution, and service fees received from its open-end and closed-end funds. As of June 03, 2021, the company’s market capitalization stood at USD 3.58 billion.

Launch of New Private Real Estate Group: On April 19, 2021, the company announced the formation of Cohen & Steers Private Real Estate Group. The group is built especially for real estate investing activities and will include the private US commercial real estate market worth USD 15.0 trillion, representing over 90% of the US market not owned by listed REITs. The group will make direct investments in properties, specialized fund managers, and private investments in public equities (PIPEs) and pre-IPO securities.

Q1FY21 Results: The company reported an 18.82% increase in revenue to USD 125.75 million in Q1FY21 as compared to USD 105.83 million in Q1FY20, driven by an increase in investment advisory and administration fees. Net income for Q1FY21 was USD 52.43 million, 6.5x more than USD 8.07 million in Q1FY20. As of March 31, 2021, total Assets Under Management (AUM) amounted to USD 87.04 billion, of which 44.37% was in open-end funds.

AUM Composition as of March 31, 2021 (Source: Q1FY21 Earnings Presentation)

Key Risks: The company’s largest institutional client, Daiwa Asset Management, holds most of its assets in US REIT strategies and represents ~27.9% of the total institutional account assets and ~11.6% of the total AUM of CNS. Any change in the investor demand for Daiwa’s products could result in an outflow of assets sub-advised by CNS and negatively impact the company’s revenue and adversely affect its financial condition. Moreover, the company operates in a highly regulated industry and is subject to new regulations as well as evolving interpretations of existing regulations in the US and internationally, which may increase the company’s cost of conducting its business and maintaining its global compliance standards.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CNS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CNS’s stock price has increased by 14.57% and 22.81% in the past 3 and 9 months, respectively, and is currently close to the higher end of the 52-week range of USD 54.03 to USD 78.82. The stock is currently trading above its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 79.57. Considering the consistent rise in stock price, increase in AUM, and strong fundamental growth, we recommend a “Hold” rating on the stock at the closing price of USD 74.47, up by 0.39% as of June 03, 2021.

* The reference data in this report has been partly sourced from REFINITIV.