Safehold, Inc. Q4 FY2024 earnings call

• Jay Sugarman outlined 2025 initiatives: continuing momentum in multifamily, particularly affordable housing, aiming to double 2024's affordable volume and expand to at least two new states; a $50 million share buyback authorization to be leverage neutral, with plans to recycle capital via asset sales or JVs; and focusing on making Carrot more accessible to third-party investors.
• Brett Asnas discussed the balance sheet: increased corporate liquidity through bank and bond markets, lowered debt cost via tightened bond spreads, cash hedge gains, and a commercial paper program; improved credit ratings with S&P and Fitch; 2024 new origination details; portfolio growth; and earnings breakdown for the quarter and full year.

In 2024, new origination activity was $225 million, including ten new ground leases for $193 million and one leasehold loan for $32 million. All ten new ground leases are in the multifamily category. The total portfolio was $6.8 billion, UCA was estimated at $9.1 billion, GLTV was 49%, and rent coverage was 3.5 times. For the fourth quarter, GAAP revenue was $91.9 million, net income was $26.0 million, and earnings per share was $0.36. For the full year, GAAP revenue was $365.7 million, net income was $105.8 million, and earnings per share was $1.48. The portfolio currently earns a 3.7% cash and a 5.3% annualized deal on a GAAP earnings basis.

• Aim to double 2024's affordable volume and expand to at least two new states in multifamily. - $50 million share buyback authorization to be leverage neutral, with opportunities to recycle capital from the portfolio. - Work to make Carrot more accessible to third-party investors, aiming to unlock value for shareholders.

• Persistent rate volatility negatively impacting originations and share price. - Higher rates posing headwinds for customers, upending deals and putting upward pressure on discount rates and cap rates. - Potential differences in asset performance across various markets and property types.

Q: Talk about the pipeline, especially beyond affordable housing.

A: Tim Doherty said there's good activity in market rate multifamily, including conventional and development in tight supply-constrained markets like New York City, Boston, and parts of California; also seeing good fundamentals in office in some spots like New York.

Q: Elaborate on the share buyback and unlocking Carrot value.

A: Jay Sugarman said the stock is materially undervalued, and the $50 million buyback is a start, with plans to use capital from asset sales/JVs to be leverage neutral, and work to make Carrot accessible to more investors this year.

Q: Differences in affordable housing deal structure vs. conventional.

A: Tim Doherty said affordable housing has stable cash flows, high occupancy, and stable growth tied to local AMI, and while similar in some aspects to conventional ground leases, it involves navigating different players and sources of capital related to federal, state, and local funds.

Q: Characteristics of assets considered for sale or JV.

A: Jay Sugarman said they'd look for opportunities where capital can be redeployed more profitably, preferring larger and more diversified opportunities rather than one-off sales, and would be thoughtful across all opportunities.