Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Safehold Inc (SAFE, Financial) reported strong capital markets executions and positive pipeline momentum in the first quarter.
- The company issued $300 million of 10-year unsecured notes at a 6.1% coupon, using the net proceeds to repay outstanding revolver borrowings, enhancing financial flexibility.
- Safehold Inc (SAFE) has entered into a new $2 billion unsecured revolving credit facility, replacing and upsizing previous facilities, which improves financial terms and adds a new banking relationship.
- The company's ground lease portfolio grew significantly, with $71 million funded in the first quarter, including investments with a 6.7% economic yield.
- Safehold Inc (SAFE) has a strong liquidity position with $1.1 billion available, providing substantial buying power for future investments.
Negative Points
- Deal activity in the first quarter was limited due to higher interest rate headwinds, which slowed overall market activity.
- The company experienced higher GLTV ratios due to lower building values, reflecting tougher market conditions and higher cap rate assumptions.
- There were requests from VC investors to exercise the redemption option for CARET, leading to the decision to redeem the entire first round, indicating potential challenges in investor confidence.
- The company's office assets have experienced valuation headwinds, with approximately 80% reappraised over the last two quarters showing increased GLTVs.
- Despite having a good number of deals in the pipeline, the volatility in the market and the dependency on rate stability make future deal closures uncertain.
Q & A Highlights
Q: Could you speak to the funnel outside of the $145 million disclosed this morning? What are your current expectations for the next 90 days based on the conversations you are having?
A: (Brett Asnas, CFO) We're encouraged by the pipeline this year compared to last year. With market volatility, it's hard to predict the next 3 to 6 months. It all depends on the stability and visibility of rates.
Q: How are you planning to fund the deal flow?
A: (Jay S. Sugarman, CEO) We have set up nicely on the balance sheet side. The JV is not the best way for us to take advantage of opportunities, but it minimizes capital needs. We'd like to move beyond that and start taking advantage of opportunities on our own.
Q: Can you discuss where cash-on-cash going-in yields need to be to see more folks take the ground lease option?
A: (Jay S. Sugarman, CEO) Last year, we saw a pronounced move down in rates and a busy period. There is elasticity here. A 50 basis point decrease could significantly change the market dynamics. A stable rate around 4.25% could be a good launching pad for new customers.
Q: Regarding G&A expenses, can you provide more details on expectations for the rest of the year?
A: (Brett Asnas, CFO) Net G&A was about $10 million in Q1. We aim for a 10% reduction from last year to this year, targeting around $40 million annually. There will be some volatility quarter-to-quarter based on the management fee.
Q: How do you view acquisitions going forward on a run rate basis?
A: (Jay S. Sugarman, CEO) $100 million a quarter is a good base for a market as choppy as this one. We're a bit disappointed as we came into the year feeling good, but recent rate increases knocked a few deals off track.
Q: Can you provide some details around the redemption of the first round of CARET?
A: (Jay S. Sugarman, CEO) The first round was mostly redeemed to clean up the structure. The redemption price was the original purchase price minus any distributions already received. We're focusing on ultra-high net worth families for future rounds.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
