Uncertainty Will Constrain Multifamily Leasing But Inflation Hedges Offer Relief

Key Takeaways

• Exposure to macro uncertainty, sector headwinds, and evolving regulations threatens consistent revenue, origination pace, and long-term earnings stability.
  
• Ground lease model and inflation-linked cash flows attract investors but face risks from rising funding costs and slow expansion into secondary markets.
  
• Elevated exposure to at-risk sectors, regional concentration, macro volatility, and riskier new products threaten Safehold's revenue growth, earnings visibility, and long-term profitability.

Catalysts

Safehold Inc. (NYSE: SAFE) is revolutionizing real estate ownership by providing a new and better way for owners to unlock the value of the land beneath their buildings.

• While ongoing urbanization and growing demand for affordable multifamily housing in major metropolitan areas support long-term portfolio growth and the potential for recurring revenue increases, Safehold remains exposed to significant uncertainty from persistently high interest rates and volatile macro conditions, which could continue to weigh on property valuations and the company's ability to originate new leases, pressuring revenue growth and net margins.
  
• Although Safehold's ground leases offer inflation-linked cash flows-positioning them as an inflation hedge that could attract institutional investors and stabilize earnings over time-the continuing normalization of monetary policy poses a risk of elevated funding costs, which may compress spreads and limit the expected positive impact on Safehold's earnings per share.
  
• While the adoption of ground lease structures, particularly within the affordable multifamily segment, is accelerating and expanding Safehold's customer pipeline, the long lead times required for originations, unresolved regulatory issues, and evolving land use policies could hamper the consistent conversion of letters of intent into closed deals, potentially resulting in lumpy revenue and NOI performance.
  
• Despite Safehold's proprietary technology and data-driven underwriting contributing to credit discipline and risk-adjusted return optimization, overconcentration in property types facing structural headwinds (such as office and hospitality assets) raises the risk of increased credit losses, portfolio impairments, and weaker long-term earnings, especially if commercial real estate demand remains subdued due to remote work trends or sector-specific disruptions.
  
• While Safehold's ample liquidity, active hedging program, and long-dated debt maturities currently provide a buffer against near-term refinancing risk and mitigate immediate interest expense increases, the company may still face long-run challenges in expanding ground lease originations in secondary or slower-growth markets, limiting the company's overall asset growth ambitions and constraining the ability to deliver sustained top-line revenue expansion.

Safehold Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Safehold compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Safehold's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 25.9% today to 30.3% in 3 years time.
• The bearish analysts expect earnings to reach $122.6 million (and earnings per share of $1.51) by about August 2028, up from $102.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.3x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the US Specialized REITs industry at 28.0x.
• Analysts expect the number of shares outstanding to grow by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Safehold Future Earnings Per Share Growth

Risks

• Safehold continues to have significant exposure to office and hospitality assets, which are sectors structurally at risk due to long-term shifts toward remote work and changing travel patterns; persistent weakness in these segments could lead to elevated credit losses or impairments, thereby pressuring both revenue growth and net margins.
  
• The company highlights macro volatility, delayed deal closings, and choppy capital markets as ongoing headwinds, suggesting that rising or volatile interest rates and economic uncertainty may hamper Safehold's ability to reliably originate new ground leases, ultimately reducing top-line revenue and earnings visibility.
  
• Despite portfolio diversification efforts, Safehold's growth is heavily concentrated in a relatively small number of major markets, with the top ten regions making up 65 percent of its portfolio; adverse regional economic or regulatory developments could disproportionately impact the company's earnings and asset values, introducing both concentration and geographic risk into future financial results.
  
• The company's increasing use of leasehold loans, described as a test program, comes with higher general provision rates for credit losses compared to typical ground leases, as reflected in the year-over-year decline in GAAP earnings, which highlights potential risks to net income and may add volatility to long-term profitability as this product evolves.
  
• Uncertainty and delays in new real estate development, including those exacerbated by policy changes such as the One Big Beautiful Bill Act and tariffs, have slowed down pipelines for new projects; this creates long lead times for new originations and could result in lumpy or stagnant growth in Safehold's portfolio, impacting its ability to consistently generate revenue and scale earnings over time.

Valuation

• The assumed bearish price target for Safehold is $16.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Safehold's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $404.5 million, earnings will come to $122.6 million, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $14.0, the bearish analyst price target of $16.0 is 12.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.