Safehold's Deep Discount to NAV: A Strategic Opportunity in Long-Dated Ground Leases

The real estate investment trust (REIT) sector has long been a barometer for market sentiment toward long-duration assets. Yet, Safehold Inc. (NYSE: SAFE) stands out as a case study in market inefficiency. As of August 2025, the company trades at a 20% discount to its estimated net asset value (NAV), a gap that reflects both structural mispricing and a failure to fully appreciate the asymmetric risk-reward profile of its business model. For investors with a long-term horizon, this discount represents a compelling opportunity to capitalize on undervalued assets while leveraging ultra-low leverage risk.

The Case for a Deep NAV Discount

Safehold's core business—structured ground leases on commercial properties—creates a unique value proposition. By leasing land to tenants in multifamily, industrial, and hospitality sectors, the company generates stable, inflation-protected cash flows. Its Q2 2025 earnings report revealed $9.1 billion in unrealized capital appreciation, a metric that underscores the growing gap between its intrinsic asset value and market price.

The discount to NAV is not a new phenomenon but has been exacerbated by macroeconomic headwinds. Rising interest rates and trade war uncertainties have made long-duration assets less attractive to risk-averse investors. Safehold, with its average lease term of 50 years, is particularly sensitive to these conditions. Yet, its financials tell a different story: a debt-to-equity ratio of 1.98x, rent coverage ratios of 3.5x overall and 3.6x for multifamily assets, and $1.2 billion in liquidity provide a buffer against refinancing risks. These metrics suggest the company is well-positioned to outperform as interest rates stabilize.

Market Inefficiencies in Long-Dated Ground Leases

The discount to NAV is rooted in a mispricing of long-dated ground leases. Unlike traditional REITs, Safehold's assets are structured to capture the value of land while minimizing capital expenditure. This model generates high-margin returns with minimal operational risk. However, the market's focus on short-term interest rate volatility has led to an underappreciation of the long-term cash flow potential of these leases.

For example, Safehold's multifamily ground leases—accounting for 41% of its gross book value—have a ground lease-to-value (GLTV) ratio of 38%, leaving ample room for appreciation. Yet, the market values these assets at a discount, assuming that rising rates will erode their present value. This overlooks the fact that Safehold's leases often include inflation-linked escalations and percentage rent clauses, which enhance cash flow resilience.

Ultra-Low Leverage and Asymmetric Downside Protection

Safehold's balance sheet is a fortress of conservative leverage. Its $4.77 billion in debt carries an effective interest rate of 4.2% and a weighted average maturity of 19 years, with no corporate maturities until 2027. This structure insulates the company from near-term refinancing pressures, a critical advantage in a rising rate environment.

Moreover, Safehold's rent coverage ratios—3.5x overall and 3.6x for multifamily assets—ensure that even in a downturn, the company can service its debt without cutting dividends. Its 5.05% dividend yield, supported by 95.8% earnings coverage, further reinforces its appeal to income-focused investors.

The asymmetric downside protection is amplified by Safehold's investment-grade credit ratings (A3/Moody's, BBB+/S&P, A-/Fitch). These ratings reflect confidence in its ability to manage debt obligations, even as the market undervalues its assets. For investors, this means the risk of permanent capital loss is minimal, while the upside potential—should the market correct the NAV discount—remains substantial.

Strategic Implications for Investors

The current discount to NAV creates a compelling entry point for long-term investors. Safehold's business model is inherently defensive: its ground leases are in high-demand sectors like multifamily and life sciences, and its capital structure is designed to withstand macroeconomic shocks. The company's recent $220 million in Q2 originations, including $123 million in ground leases, also signals continued confidence in its platform.

However, investors must remain mindful of interest rate sensitivity. While Safehold's long-term debt mitigates refinancing risks, a prolonged rate hike could temporarily widen the NAV discount. This is a market inefficiency, not a fundamental flaw. As the Federal Reserve signals a pause in rate hikes, the case for Safehold strengthens.

Conclusion: A Buy for Long-Term, Income-Focused Portfolios

Safehold's deep discount to NAV is a mispricing born of short-term market fears. For investors who understand the structural advantages of its ground lease model and conservative leverage, the stock offers a rare combination of asymmetric downside protection and high-margin, long-term capital gains. With a 5.05% yield, strong liquidity, and a path to NAV convergence, Safehold is a strategic addition to portfolios seeking income and resilience in an uncertain market.

In a world where long-duration assets are out of favor, Safehold's discount is not a warning sign—it's an opportunity.