RBC Capital Markets analyst Kenneth Lee initiated coverage of Safehold (NYSE:SAFE) with an Outperform rating as the ground-lease REIT stands to benefit once interest rates peak and it’s helped by advantages from its recent merger with iStar. Safehold stock gained 2.0% in early Friday afternoon trading.
Safehold (SAFE) is a REIT that specializes in ground leases, long-term agreements (typically 50-99 years) where tenants construct on the property then turn over the property with the buildings when the lease expires. The company says its model provides a way for property owners to unlock the value of land beneath their buildings.
“We believe sharply rising rates may have negatively impacted GL [ground lease] portfolio value, but if rates have peaked, this could be an attractive entry point for shares,” Lee wrote in a note to clients.
In addition, Safehold’s (SAFE) recent merger with iStar provides benefits in that it improves corporate governance through internalizing the REIT’s management and diversifies its shareholder base; increases share free float; and sets the company on a path to broaden access to capital markets, the analyst said.
Any potential impact from declining commercial real estate values should be limited, “as they are effectively at the top of the capital structure and have clauses that protect the GL owner (building, improvements revert to owner upon default).”