Safehold's Q3 2025: Contradictions Emerge on Affordable Housing Expansion, Pipeline Growth, Economic Yields, Hotel Litigation, and Loan Structures

Date of Call: November 5, 2025

Financials Results

• Revenue: $96.2M GAAP revenue
• EPS: $0.41 per diluted share; excluding a prior nonrecurring item, Q3 EPS increased $0.04 YOY (~12%)

Business Commentary:

• Affordable Housing Focus and Origination Volume:
• During Q3, Safehold originated 4 multifamily ground leases for $42 million, with an additional 4 multifamily ground leases for $34 million in Q4.

• The company has experienced strong traction in the affordable housing subsegment, allocating resources accordingly due to the demand for affordable housing solutions in populated markets.

• Portfolio Growth and Yield Stability:

• The total portfolio reached $7 billion, with an unrealized capital appreciation (UCA) estimated at $9.1 billion.

• The portfolio's cash yield is at 3.8%, with an annualized yield of 5.4%, supported by organic growth, higher yields on new investments, and market conditions.

• Litigation Impact and Strategic Positioning:

• Safehold initiated litigation against the Park Hotel master lease, impacting 5 hotels.

• The decision was taken due to the tenant's alleged breaches of lease covenants, prioritizing shareholder value protection despite unpredictable litigation outcomes.

• Pipeline and Transaction Activity:

• Safehold has over 15 deals and $300 million in transactions under LOI expected to close in the coming quarters.

• The current pipeline reflects increased activity, with deals being delayed due to longer closing timelines for development projects.

• Regulatory Environment and Market Dynamics:

• Safehold is monitoring regulatory changes affecting affordable housing, such as New York City's mayoral election.
• The company emphasizes the importance of supply meeting demand to control rents, viewing ground leases as a key solution to address housing shortages.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "steady activity" and that the drop in rates has "helped boost the NAV," noted they are "encouraged by good traction in the affordable sector," and emphasized a "strong balance sheet and liquidity position," while acknowledging the Park Hotel litigation introduces uncertainty.

Q&A:

• Question from Ronald Kamdem (Morgan Stanley): Originations looked all West Coast multifamily; rent coverage ticked down — can you comment and the appetite for more affordable housing deals?
  Response: Affordable housing originations have strong momentum (primarily California now); underwriting is conservative with haircuts and there are LOIs indicating more closings ahead.

• Question from Ronald Kamdem (Morgan Stanley): Any color on timing for resolving Park Hotel litigation?
  Response: Litigation will take time; no specific timeline given—management is enforcing contractual rights to protect shareholder value.

• Question from Anthony Paolone (JPMorgan Chase & Co): On Park Hotel, is the alleged breach rent-related or something else?
  Response: It's not rent-related; the alleged breach concerns standards of care and maintenance under the lease.

• Question from Anthony Paolone (JPMorgan Chase & Co): As office/industrial/hospitality transactions return, are you seeing more of those and would you do them?
  Response: Yes—the pipeline is diversifying into hospitality, retail and office alongside affordable and conventional multifamily, and the company will pursue attractive opportunities.

• Question from Kenneth Lee (RBC Capital Markets): Expectations for economic yields going forward and sensitivity to short-term rate moves?
  Response: Yields are tied to the 30‑year Treasury with a spread; pricing depends on closing timing but pipeline deals are consistent with current long-term rates and targeted spreads.

• Question from Kenneth Lee (RBC Capital Markets): What is driving extended close time frames into Q4 or Q1?
  Response: Many deals are development transactions which inherently take longer to close; recaps close faster (4–8 weeks).

• Question from Harsh Hemnani (Green Street Advisors): Is the Park litigation against all five hotels and will Park continue to operate/pay rent during proceedings?
  Response: The litigation covers all five hotels; the company aims to keep operations smooth but provided no further operational or payment details.

• Question from Harsh Hemnani (Green Street Advisors): Is the master lease being treated as an all‑or‑nothing package?
  Response: Yes—the master lease is treated as a single package backed by a corporate entity.

• Question from Harsh Hemnani (Green Street Advisors): Are larger check‑size transactions returning or is activity still smaller affordable deals?
  Response: Affordable deals are smaller today, but larger transactions are beginning to reemerge and the pipeline includes both sizes.

• Question from Rich Anderson (Cantor Fitzgerald): Can you quantify the forward pipeline in dollar terms?
  Response: While not providing an exact firmwide number, management said LOIs represent over ~15 deals and over $300M expected to close in coming quarters.

• Question from Rich Anderson (Cantor Fitzgerald): If a lease termination is successful, could that lead to reversion and obtaining the keys?
  Response: Yes—a successful termination can lead to reversion and taking the keys.

• Question from Ravi Vaidya (Mizuho Securities): Does the Park litigation affect appetite for hotel originations and will there be incremental legal/G&A costs to model?
  Response: Management views Park as an anomalous case that doesn't change their view of the ground lease ecosystem; financial/P&L impacts from litigation are unclear now and will be reported when they have better visibility.

• Question from Ravi Vaidya (Mizuho Securities): How might the NYC mayoral result and rent‑stabilization rhetoric affect underwriting for affordable housing?
  Response: Policy uncertainty noted, but management believes increasing supply is the key solution and sees ground leases as a tool to expand affordable housing; underwriting will consider supply/demand dynamics.

• Question from Jonathan Petersen (Jefferies): How much of your multifamily portfolio is affordable today and is there a long‑term target?
  Response: Affordable share is currently small (management will provide a definitive number later) but growing rapidly; no explicit long‑term percentage target provided.

• Question from Jonathan Petersen (Jefferies): Outside California, which states will likely see affordable originations next?
  Response: Expansion will target larger states—primarily Sun Belt and other coastal markets.

• Question from Christopher Muller (Citizens JMP Securities): Any New York City multifamily exposure to rent‑stabilized units and how would a rent freeze interact with your CPI escalators—who bears the burden?
  Response: They have not meaningfully entered the NYC rent‑stabilized market and would need to evaluate specifics; objective is to structure conservative, land‑focused positions to limit downside.

• Question from Christopher Muller (Citizens JMP Securities): How sensitive is the pipeline to 30‑year Treasury moves and what 30‑year level would spur activity?
  Response: Pipeline is sensitive—dips in long‑term yields (e.g., 30‑year near/below ~4.5% and 10‑year near ~4%) increase transaction activity; management cites ~4% on the 30‑year as an attractive "sweet spot."