Safehold Inc. Updated Model with Lower Estimates; PT from $17 to $16

Research evidence excerpt

Safehold Inc. Updated Model with Lower Estimates; PT from $17 to $16

annual growth from acquisitions. Our

payout ratio is consistent with assumptions we use for most REITs. We assume a discount

rate of 7.0% (previously 7.25%) on the equity. Our discount rate is among the lowest in our

coverage universe owing to the company’s low-risk strategy that is akin to an ultra-long

duration leveraged bond.

Risks to Rating and Price Target

We rate shares of SAFE Neutral; thus, items that could cause the stock to outperform or

underperform represent risks. On the upside, the company could complete outsized

acquisition volume and/or do so at outsized yields. We also think the stock could become

very attractive if investor sentiment shifts positively toward long-duration “risk-off” assets.

To the extent the company can finance itself with cheaper-than-expected capital, its

investment spreads could be wider and drive higher earnings and dividends. In addition, if

SAFE demonstrates that it can further monetize the residual value of its assets (it ends up

owning the assets on its land at the end of the lease) through sales of the residual interests

and/or upward rent resets, the stock could react favorably. On the negative side, if SAFE is

unable to complete expected levels of deal volume and/or does so with weaker yields or

more risk, it could be a drag on earnings and the stock. Higher financing costs could also

negatively impact investment spreads. Also importantly, given the long-duration nature of

the portfolio, the stock could be quite sensitive to interest rates. Higher rates and/or a “risk-

on” market could cause the stock to lag. The complexity of the business is high despite the

underlying assets being simple. Finally, any tenant credit issues could be viewed as adding