Safehold At An Attractive Entry Point Amid Rising Interest Rates, Says Analyst

RBC Capital Markets analyst Kenneth S. Lee initiated coverage on Safehold Inc. SAFE with an Outperform rating and price target of $41.

Lee believes SAFE's current share price levels could be an attractive entry point, especially for investors who believe the economy is close to the peak for long-term interest rates. 

The analyst estimates SAFE's rate sensitivity to be a 15% change in share valuation for every 100bps change in rate movement.

The analyst believes SAFE equity exposes investors to potentially expansive ground lease (GL) market growth.

The analyst notes that the ground leases can represent an attractive, alternative source of capital for owners/operators to help them generate superior returns compared to other sources of capital.

The analyst expects SAFE to leverage untapped potential in the ground lease market with a 5-year transaction activity representing only <1% of the overall U.S. institutional, commercial property market that is valued at $7 trillion.

Lee applauds the company's recent iStar merger as it removes many structural hurdles for owning the stock. 

The merger changes SAFE's expense structure making it more scalable, and overall sets SAFE on a path to broaden access to the capital markets. 

The analyst introduced the 2023 EPS estimate at $1.20 and the 2024 EPS estimate at $1.65.

The analyst anticipates gross book value to increase to $6.4 billion at year-end 2023 and to increase to $6.9 billion at year-end 2024. 

The analyst sees the debt/equity leverage ratio to remain at or below 2.0x through 2024.

Price Action: SAFE shares are trading higher by 1.95% to $23.48 on the last check Friday.