Safehold Inc. Q3 FY2025 earnings call

• Ground lease business had steady activity in Q3, with deals affected by rate decline and longer close times, expected to close in Q4 or Q1 next year. - Modern ground lease helps meet affordable housing needs, with repeat customer dynamics and investment in resources. - Originated 4 multifamily ground leases for $42 million in Q3, 4 more for $34 million in Q4 to date, all in affordable housing in LA and SD with 7.3% weighted average economic yield. - Portfolio had $7B at quarter end, $9.1B UCA, 52% GLTV, 3.4x rent coverage. - GAAP earnings up due to nonrecurring item, excluding that EPS up 12% driven by new investment. - Portfolio yields: 3.8% cash, 5.4% annualized, 5.9% economic, with upside from CPI look backs. - Strong balance sheet with $1.1B liquidity, rated A3, A-, BBB+ by ratings agencies. - Update on Park Hotel master lease: tenant received termination notice for 5 hotels, active litigation, limited to say more.

During the third quarter, Safehold originated 4 multifamily ground leases for $42 million. In the fourth quarter to date, an additional 4 multifamily ground leases were originated for $34 million. These 8 assets are in the affordable housing subsegment, located in Los Angeles and San Diego markets, with a weighted average economic yield of 7.3%. The total portfolio was $7 billion at quarter end, with UCA estimated at $9.1 billion, GLTV at 52%, and rent coverage at 3.4x. The ground lease portfolio had 155 assets, including 92 multifamily properties, and has grown 21x by book value and estimated unrealized capital appreciation since IPO. GAAP revenue for Q3 was $96.2 million, net income was $29.3 million, and EPS was $0.41. The portfolio earns a 3.8% cash yield, 5.4% annualized yield, and 5.9% economic yield.

• Expect more deals to close in Q4 or Q1 next year as some deals needed longer time frames. - Pipeline includes over 15 deals and over $300M of transactions in coming quarters, mix of affordable and conventional multifamily. - Believes affordable housing sector will help buoy origination volume, and strong balance sheet allows being more offensive with customers.

• Litigation risk related to the Park Hotel master lease; tenant breached covenants, active litigation, limited to say if will prevail or financial impact.

Q: Ronald Kamdem asked about originations being all multifamily on West Coast, rent coverage ticking down, and appetite for affordable housing deals.

A: Tim Doherty said assets are in CA affordable space, team expanding nationally, coverage is conservative due to development deals, sponsors' cash flows are in line.

Q: Ronald Kamdem asked about timing of Park Hotel litigation resolution.

A: Jay Sugarman said litigation doesn't happen overnight, trying to find solutions, but can't say when resolved.

Q: Anthony Paolone asked about Park Hotel specifics and deal pipeline.

A: Jay Sugarman said not a rent issue, Tim Doherty said deal pipeline is diversified into hospitality, retail, office, with larger transactions in pipeline.

Q: Kenneth Lee asked about economic yields and extended deal time frames.

A: Timothy Doherty said yields are based on 30-year treasury, extended time frames due to development deals taking more time.

Q: Harsh Hemnani asked about Park Hotel litigation details and near-term impact.

A: Jay Sugarman said litigation is on all 5 hotels, goal is to continue operations smoothly.

Q: Harsh Hemnani asked about transaction size and pipeline.

A: Timothy Doherty said affordable deals are smaller, pipeline has larger transactions, over 15 deals and over $300M in coming quarters.

Q: Rich Anderson asked about forward pipeline and lease termination outcome.

A: Timothy Doherty said over 15 deals and over $300M in coming quarters, Jay Sugarman said lease termination means reversion rights.

Q: Ravi Vaidya asked about Park Hotel litigation impact on hotel originations and costs.

A: Jay Sugarman said not impacting view on ground lease ecosystem, Brett Asnas said too early to tell financial impact.

Q: Ravi Vaidya asked about NYC Mayor win impact on affordable housing underwriting.

A: Jay Sugarman said ground leases help with supply, government regulations create friction.

Q: Jonathan Petersen asked about multifamily portfolio affordable housing percentage and targets.

A: Timothy Doherty said percentage is low now, team has momentum, hard to set long-term target.

Q: Jonathan Petersen asked about states for future affordable originations.

A: Timothy Doherty said larger states like Sun Belt and coastal, team working on those.

Q: Christopher Muller asked about NYC multifamily exposure to rent stabilized units and CPI escalators.

A: Jay Sugarman said haven't cracked NYC nut, but additional supply needed.

Q: Christopher Muller asked about 30-year treasury rate impact on pipeline.

A: Timothy Doherty said rates dipping caused more deal chatter, Jay Sugarman said sweet spot for 30-year is 4%, stability and lower rates are positive.

Q: Rich Anderson asked about criticism of ground leases near lease end.

A: Jay Sugarman said fallacy in criticism, market rewards extensions, good operators can create win-win solutions.