Safehold closed $150 million in ground-lease originations, its best quarter since 2022, but JPMorgan downgraded it to Underweight and cut its target to $14 from $16, citing low yields and leverage as rates rise. Management cites contractual rent growth.
Safehold's ground leases carry a 3.8% GAAP cash yield. Management says contractual rent escalators and CPI lookbacks in 84% of its leases support longer-term value, and estimates $9.8 billion in unrealized appreciation against a $7.3 billion portfolio. It calculates a 6.0% economic yield, or 7.4% after including UCA; these are management calculations, not independently recognized market yields. JPMorgan cited 2.01x debt-to-equity and a 52% ground-lease-to-value ratio as high for a higher-for-longer rate environment.
To address leverage concerns, Safehold closed a $348 million Brookfield joint venture that reduced debt while retaining a call option to buy back the 49% stake after year seven, and issued $225 million of 30-year unsecured notes at an effective 5.83% cost. It reported $1.4 billion of liquidity, an 18-year weighted-average debt maturity and no significant maturities until 2029. Mizuho kept a Neutral rating while cutting its target to $14 from $16. Futures markets assigned roughly 70% odds to another rate hike ahead of the Oct. 27–28 FOMC meeting.
