Safehold Inc.

SAFE Details

Safehold Inc. (NYSE: SAFE) is engaged in acquiring, managing, and capitalizing ground leases. Ground leases are long-term contracts (ranging from 30 to 99 years) between the landlord and a tenant or leaseholder. Under the ground lease, the tenant is responsible for all operating expenses such as maintenance, real estate taxes and insurance, development cost, and capital expenditure. The company is taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes. As of April 27^th, 2021, the company’s market capitalization stood at USD 3.80 billion.

USD 1 Billion unsecured revolving credit facility: As of March 31^st, 2021, SAFE announced that it has completed the replacement of its existing USD 600 million secured revolving credit facility with a new USD 1 billion unsecured revolving credit facility. This new facility will bear the interest rate of LIBOR plus 100 bps, which provides 30-point savings as compared to the previous facility. This new facility will help the company to scale its operations and provides financial flexibility on the investing side of the business. The new unsecured revolving credit facility will be maturing in March 2024 with option of two twelve-month extensions.

Q1FY21 Results: The company reported an 8.32% rise in total revenue to USD 43.50 million in Q1FY21 (ended on March 31, 2021) as compared to USD 40.16 million in Q1FY20 (ended on March 31,2020). The operating lease income contributes 40.01% of the total revenue while interest income from sales-type leases contributes 59.70 of the total revenue in Q1FY21. The company reported a decrease in net income to USD 16.95 million in Q1FY21 as compared to USD 17.39 million in Q1FY20.

Portfolio Expansion (Source: Company’s earning presentation, Q1FY21)

Key Risks: The company had generated 15.2% and 15% of the total revenues from the hotel industry in FY20 and FY19, respectively. There is a significant impact on the hotel industry led by the Covid-19 pandemic. If the pandemic continues to spread, then it could provide a serious blow to the company’s revenue stream.

The company competes with numerous commercial developers, real estate companies (Including other REITs), financial institutions, and other investors for investment opportunities and tenants. This higher competition may result in higher costs for properties and lower returns on investments.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s estimated 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, Thomson Reuters)

Stock Recommendation: SAFE has declined by 7.92% in the past three months and is currently leaning towards the higher end of the 52-week range of USD 45.02 to USD 84.99. 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 correction in the stock price in the past three months, increase in the credit facility, and reasonable topline growth, we recommend a “Buy” rating on the stock at the closing price of USD 71.53, up by 2.20% as of 27th April 2021.