Safehold Inc. (NYSE:SAFE), a real estate investment trust, announced today that its estimated Unrealized Capital Appreciation (UCA) in its owned residual portfolio reached $9.085 billion as of June 30, 2024. This figure represents the potential increase in value of the properties under the company's ground leases, which could be realized upon lease expiration or earlier termination.
The UCA is calculated by subtracting the aggregate cost basis of Safehold's ground lease portfolio from the aggregate "Combined Property Value" of the properties. The Combined Property Value is the hypothetical market value of the land and buildings, assuming no ground lease was in place. Safehold engages CBRE, Inc., an independent valuation firm, to estimate the Combined Property Value using industry-standard methodologies, including the sales comparison and income capitalization approaches.
The UCA reflects the company's potential value accretion upon reversion of the property at lease expiration or earlier termination due to an uncured tenant default. Safehold targets initial ground lease investments representing 30% to 45% of the Combined Property Value, with the remaining value representing potential appreciation.
The valuation process includes initial and periodic updates of property values, typically every 12 to 24 months, or more frequently if significant events warrant. For new acquisitions or properties under construction or major renovation, CBRE prepares initial reports following acquisition or completion of the construction or renovation.
The calculation of UCA is subject to limitations and qualifications. For instance, Safehold does not independently verify tenant-supplied information, and the estimates are not subject to U.S. GAAP or independent audit. Furthermore, tenant rights under certain ground leases may limit the value Safehold can realize.
The company's Caret Performance Incentive Plan, amended and restated following a merger with iStar Inc., includes Caret units awarded to executive officers and employees, subject to vesting conditions based on the company's stock price performance.
In February 2022, Safehold sold Caret units with a commitment to seek public market liquidity within two years. Failure to achieve this resulted in investors' right to redeem their units in April 2024, which they exercised.
In other recent news, Safehold Inc. has been the subject of several key developments. The company's first-quarter 2024 results were better than expected, despite the absence of new originations during the quarter. The real estate firm, specializing in ground leases, reported solid earnings and has a promising pipeline of deals expected to close in the next quarter. Safehold's portfolio is valued at $6.5 billion, with liquidity standing at $1.1 billion.
Mizuho Securities has adjusted its stance on Safehold, downgrading its rating from Buy to Neutral and revising the price target down to $20. This adjustment comes amid a challenging economic environment characterized by high interest rates and subdued growth prospects. In contrast, RBC Capital Markets maintained an Outperform rating on Safehold's stock, adjusting its price target to $29, expressing optimism about the long-term growth prospects for the company.
These are the recent developments for Safehold Inc. The company has demonstrated progress on its balance sheet and is focusing on reducing general and administrative expenses. It has issued $300 million in ten-year unsecured notes and established a $2 billion unsecured revolving credit facility. With a strong capital structure and no debt maturities until 2027, Safehold is well-positioned for future growth.
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