The Long and Short
Safehold looks like value in high quality REITs
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Safehold (SAFE: A3/BBB+/A-) holds a unique position among REITs by operating primarily in long-term ground leases. Despite higher ratings, the name trades at a significant discount to similarly rated REITs that focus on more traditional assets. This additional risk premium largely reflects the company’s concentrated exposure to commercial real estate and broad concerns about office property values. These risks appear mitigated by the long-term nature of ground leases, as well as very low loan-to-value contracts underlying higher asset quality. Furthermore, SAFE maintains leverage at about half that of typical REITs and has solid liquidity, adding up to good value for its rating.
SAFE bonds appear to offer some of the best relative value in the intermediate part of the REIT curve, trading at as much as a 30 bp to 35 bp wide to comparably rated securities in the 5- to-10-year part of the credit curve (Exhibit 1). SAFE’s credit rating was recently upgraded to ‘A-‘ from ‘BBB+’ by Fitch last month, reflecting the lower risk of its long-term ground leases as well as the company’s increased reliance on unsecured debt sources. Similarly, S&P assigned a positive outlook to its rating in November last year in conjunction with the issuer’s latest debt launch. SAFE visited the public debt markets twice last year, further terming out its debt structure and improving overall credit quality.
Exhibit 1: High quality REITs (BBB+ and higher) intermediate credit curve

Source: Santander US Capital Markets LLC, Bloomberg/TRACE G-spread indications
SAFE’s liquidity profile has improved as the company has pursued a more traditional debt structure over recent years with greater reliance on public, senior unsecured debt issuance. The debt structure is now $1.8 billion unsecured notes versus $1.5 billion non-recourse secured debt (roughly 65% unsecured overall). SAFE also has $1.06 billion outstanding under its unsecured revolver, versus $939 million remaining capacity through 2028, plus an additional $500 million revolver available through the current year. In June of last year, SAFE entered into a new commercial paper program that enables the company to issue up to $750 million if necessary, backstopped by the revolving credit facilities.
SAFE’s roughly $6.6 billion portfolio of property ground leases is divided as follows: 41% office, 39% multifamily, 11% hotels, 6% life science and 3% mixed use, percentage of gross book value. There is quite a bit of urban concentration risk, particularly among the company’s top four geographic markets with Manhattan, Washington, DC, Boston and Los Angeles accounting or about 47% of gross book value combined. Management appears to be actively targeting growth opportunities through SAFE’s growing multifamily focus versus office, increasing the asset count of multifamily to 84 in the most recent quarter (the highest of any category) from just one back when the company IPO’d in 2017, growing from 8% to 58% over the that time period.
While office CRE has experienced stress in the US over recent quarters, SAFE has reported limited impact to operating results and cash flows over that same time period. This is due in part to the conservative loan-to-value characteristics (35-40% of property value) of its properties at inception of the long-term leases that provides substantial cushion against declines in real estate values over time.
SAFE’s underlying operating subsidiary is Safehold GL Holdings LLC, which is the debt issuing entity for the senior unsecured notes outstanding. In 2023, the assets of its sister company, iStar Inc, were spun off into Star Holdings, while Safehold was merged into iStar and renamed Safehold, which is now an internally managed company.
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