SAFE - Lowering Earnings Estimates, Maintaining $17 Price Target and Hold Rating

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SAFE - Lowering Earnings Estimates, Maintaining $17 Price Target and Hold Rating

Truist Securities

Company Description

Safehold Inc. (SAFE) is an externally managed REIT that is incorporated in Maryland. Safehold’s predecessor was formed as a wholly-

owned subsidiary of iStar (STAR, not rated) in October 2016 when the parent company contributed a pre-existing portfolio of ground

leases to the new entity. Subsequently, in April 2017, the predecessor merged with another private entity and the newly formed company

Safety, Income & Growth Inc. went public in June 2017. It was subsequently renamed to Safehold Inc.

Investment Thesis

We have a Hold rating on SAFE as we believe the shares are fairly valued and already reflect the market perceived "safety" benefits of

SAFE’s stable ground lease portfolio. We think there are several positive aspects to SAFE, but we believe at this time the challenges

outweigh the positives.

Positives: 1) Unique business model focused on modernized ground leases, aiming to become the industry’s leading ground lease

originator. Company also avoids fair market value resets in its ground leases, which is more attractive than traditional ground leases. 2)

Ground leases offer highest credit claim seniority, provides significant downside protection 3) Benefits of new vintage and smaller size:

every new deal noticeably can impact EPS growth. 4) Valuation and implied cap rate when viewed through the perspective of AAA long

duration bond pricing has merits. 5) While SAFE is externally managed, management interests seem aligned. 6) At lease expiration, the

building ownership transfers to SAFE.

Challenges: 1) Debt funding availability. Safe’s business model relies on the availability of efficiently priced long-term debt. SAFE has been