Safehold (SAFE) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the quarter was $85.7 million, with net income at$ 22.1 million and earnings per share at $0.35, both figures reflecting similar performance to pre-merger levels [71][72] - The company ended the quarter with over$ 800 million in liquidity and a total debt of approximately $4.3 billion, which includes$ 1.5 billion in unsecured notes and $1 billion drawn on the unsecured revolver [44][55] - The effective interest rate on permanent debt is 3.8%, with a cash interest rate of 3.3%, indicating a spread to the portfolio's GAAP annualized yield of 5.2% [78] Business Line Data and Key Metrics Changes - The company originated three new ground leases totaling$ 129 million, with $73 million funded during the quarter [68][45] - The weighted average GLTV (Ground Lease to Value) for the new originations was 31%, with a ground rate coverage of 2.5 times [46] - The portfolio consists of approximately 34 million square feet of institutional quality commercial real estate, including 17,300 multifamily units and 12.6 million square feet of office space [47] Market Data and Key Metrics Changes - The company reported a stable GLTV at 42% and noted no significant changes in appraisals for properties in its portfolio [10][67] - The market remains dislocated, with volumes significantly lower than previous highs, but there are signs of improvement in the ground lease capital solution [42][40] - Approximately 70% of gross book value is diversified across the top 10 markets, emphasizing the focus on institutional quality ground leases [17] Company Strategy and Development Direction - The company aims to expand its leadership position in the ground lease industry and is focused on building a deal pipeline in a higher rate environment [40][56] - The management is optimistic about the potential for growth as the market stabilizes and believes that the company could benefit from the end of the current tightening cycle [43] - The company is exploring various asset classes, including multifamily and hospitality, while remaining selective in its investments [30][45] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of a functioning financing market and noted that a complete pullback from commercial real estate would be detrimental [11] - The company is encouraged by recent momentum in its pipeline, particularly in the housing sector, and is optimistic about future transactions [99][100] - Management acknowledged the challenges posed by elevated short-term borrowing rates but remains focused on capital allocation and maintaining liquidity [74][96] Other Important Information - The company has executed$ 500 million in floating to fixed swaps to mitigate adverse earnings effects from Fed rate hikes [52] - Stock-based compensation for the quarter was approximately $8 million, reflecting the company's new long-term incentive plans [51] - The company has a weighted average debt maturity of approximately 23 years, with no corporate maturities due until 2026 [96] Q&A Session Summary Question: What does the pipeline look like right now? - Management indicated that the pipeline is showing signs of improvement, with several transactions in the closing process, primarily in the housing space [99] Question: Can you discuss the allocation of new investments? - The company clarified that most of the recent activity was on balance sheet rather than through the joint venture, with future transactions likely to be funneled through the venture [84] Question: How are you thinking about equity needs over the next year? - Management acknowledged the current stock price challenges but emphasized the importance of maintaining sufficient liquidity and capital allocation strategies [116]