Safehold 2026 Q2 Earnings Call

Thank you for joining us today for Safehold's earnings call. On the call, we have Jay Sugarman, Chairman and Chief Executive Officer, Michael Trachtenberg, President, Brett Asnas, Chief Financial Officer, and Steve Wylder, Executive Vice President, Head of Investments. This afternoon, we plan to walk through a presentation that details our second quarter results. The presentation can be found on our website at safeholdinc.com by clicking on the investors link. There will be a replay of this conference call beginning at 8:00 P.M. Eastern Time today. The dial-in for the replay is 877-481-4010 with a confirmation code of 54312. In order to accommodate all those who want to ask questions, we ask that participants limit themselves to two questions during Q&A. If you'd like to ask additional questions, you may re-enter the queue.

Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. With that, I'd like to turn it over to Chairman and CEO, Jay Sugarman.

Jay? Thanks, Pearse, thanks to everyone joining us today.

This quarter, Safehold further built on its market leading position in the ground lease sector. We added new customers, new capital relationships, and new geographic markets, and continue to believe we are building a very valuable and irreplaceable portfolio of ground leases in the top 30 to 40 markets in the country. These MSAs typically benefit from two large forces that have historically increased the value of land. First, the densification of economic activity in the top urban and infill markets. Second, the ongoing pursuit of the highest and best use of land by the entrepreneurial real estate communities in these same markets. The U.S. has added approximately 50 million people over the past 25 years, and approximately 250 million people over the past 100 years.

Our goal is to own well-located land in every major market in the U.S., let the power of compounding and a growing economy drive value for us. In the meantime, we need to work hard to expand our business and overcome near-term market challenges, we're fortunate to have a talented team doing that every day. With that, let me have Michael and Brett recap the quarter and take you through the details.

Michael? Thank you, Jay, good afternoon, everyone.

Let's begin on slide two. We had a strong second quarter for both new investments and capital markets activity. We originated seven multifamily ground leases for an aggregate commitment of $150 million, our most productive quarter since 2022. These closings were all within Safehold's growing affordable housing sub-sector and included six California deals and one Texas deal with one new sponsor and three repeat sponsors. Credit metrics were in line with our portfolio targets with a GLTV of 35%, underwritten rent coverage of 3.0 times, and an economic yield of 7.4%. Moving to capital markets, we closed two bespoke private capital transactions during the quarter, including a $348 million joint venture with Brookfield on a portfolio of seven ground leases and $225 million of 30-year step-rate unsecured notes.

We were pleased to partner with Brookfield on this venture, which accomplished several goals, including adding a sophisticated partner to our platform, demonstrating demand and liquidity in our portfolio at an attractive valuation, de-leveraging the balance sheet, creating incremental investment capacity at an attractive cost of equity, retaining control of the assets and future flexibility to repurchase Brookfield's 49% interest. During the quarter, we also raised $225 million of 30-year private unsecured notes priced at an all-in coupon of 6.615%, or a spread of T plus 162.5 basis points. Net approximately $30 million in recently unwound hedge gains, the effective cost is approximately 5.83%, or T plus 84 basis points. The starting catch interest rate on the notes is 4%, which will step up gradually over the next 30 years.

We are pleased with this execution, which lengthens our debt maturity profile, further increases corporate liquidity as new high-quality debt investors to our business and the structure, demonstrates positive trends from our previous 30-year structured unsecured offerings, including adding more dollars and at a tighter spread. At quarter end, the total portfolio was $7.3 billion, and UCA was estimated at $9.8 billion, up $260 million from last quarter, nearly $500 million year to date, and nearly $1 billion since appraisal values bottomed in the first quarter of 2025. GLTV was 52% and rent coverage was 3.4 times. We ended the quarter with approximately $1.4 billion of liquidity, which is further supported by the potential available capacity in our existing joint venture, the Sovereign Wealth Fund. Slide three provides a snapshot of our portfolio growth.

In the second quarter, we funded a total of $123 million, including $69 million of ground lease fundings on new originations, $49 million of ground lease fundings on pre-existing commitments, and $5 million of leasehold loan fundings. Our ground lease portfolio has 172 assets and has grown approximately 22 times by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio comprises approximately 39.4 million square feet of institutional quality commercial real estate. We have increasingly focused on opportunities within the broader multifamily sector, including market rate, student housing and affordable housing. Our multifamily segment now includes 111 assets with nearly 25,000 units that sit above our ground leases and represents approximately 65% of the portfolio by count and 61% of the value of our estimated unrealized capital appreciation.

With that, let me turn it over to Brett to go through the financials.

Thank you, Michael. Continuing on slide four, let me detail our quarterly earnings results. For the second quarter, GAAP revenue was $114.6 million, net income was $30.2 million, and earnings per share was $0.42. Net income and earnings per share increased year-over-year, primarily driven by net accretion from asset fundings and new originations. On slide five, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield and a 5.5% annualized yield. Annualized yield includes non-cash adjustments within rent, as well as depreciation and amortization, driven primarily by accounting methodology on IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent, or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 6.0% economic yield, which is an IRR-based calculation consistent with our underwriting methodology.

This economic yield has additional upside, including periodic CPI lookbacks, which we have in 84% of our ground leases. Using the Federal Reserve's current long-term break-even inflation rate of 2.23%, the 6.0% economic yield increases to a 6.2% inflation-adjusted yield. That 6.2% inflation-adjusted yield increases to 7.4% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in Caret at management's most recent estimated valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today. Turning to slide six, we highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio.