SAFEHOLD INC.
Fitch Ratings has assigned a Short-Term Issuer Default Rating (IDR) of 'F2' to
Fitch has concurrently assigned a Short-Term rating of 'F2' to
Key Rating Drivers
The Short-Term IDR of 'F2' reflects the rating linkage between the Short-Term IDR and SAFE's Long-Term IDR of 'BBB+' and Fitch's view of its funding and liquidity profile. According to Fitch's 'Non-Bank Financial Institutions Rating Criteria', a Long-Term IDR of 'BBB+' maps to a Short-Term IDR of 'F1' or 'F2'. In order to achieve the higher IDR, the Funding, Liquidity and Coverage (FLC) factor score would need to be 'a' or higher. SAFE's FLC factor score is 'bbb', therefore, the 'F2' rating has been assigned.
The CP rating is equalized with SAFE's Short-Term IDR. The CP program is expected to be used as an alternative short-term funding solution to the revolving credit facility for working capital needs. The company can issue up to
SAFE's rating reflects its focus on the relatively low-risk ground lease asset class, which is characterized by growing, long-dated revenue streams and significant overcollateralization, strong asset quality performance, low leverage, long duration funding, and solid dividend coverage.
Rating constraints include the company's relatively short standalone operating history, limited history of capital markets access, modest profitability and distribution requirements as a real estate investment trust, which limits the ability to retain capital.
The Positive Rating Outlook on the Long-Term IDR reflects the progress made with regard to portfolio diversification and funding profile, as evidenced by an up-tick in unsecured debt to 64.2% of total debt as of
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A sustained decrease in unsecured debt as a proportion of total debt below 60%;
An inability to execute on strategic objectives and falling materially short on management projections;
Alteration in the risk profile of the portfolio, including expansion into products outside of ground leases;
Meaningful deterioration in asset quality metrics, including ground lease defaults or rent deferrals or a material, sustained reduction in the rent coverage ratio to below 2.5x;
A sustained increase in leverage above the targeted range of 2.0x;
Outsized and sustained use of the CP program to fund long-term assets;
Impairment of the liquidity profile.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Continued diversification of the portfolio by property type, geography, tenant, and leasehold lenders while remaining within core competencies;
Maintenance in the proportion of unsecured debt funding above 60%;
Maintenance of leverage within the firm's targeted range;
A return to full coverage of the dividend on a cash earnings basis;
Effective navigation of current market headwinds, related to both overall economic conditions and potential structural shifts in demand for office properties; and
Stability of management and further execution of both growth and financial strategies.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The Short-Term IDR is primarily sensitive to the Long-Term IDR and would be expected to move in tandem. However, a material improvement in SAFE's FLC profile, resulting in an upgrade of the subfactor score to 'a' could result in an upgrade of the Short-Term IDR to 'F1'. An upgrade of SAFE's Long-Term IDR to 'A-' would not results in an upgrade to the Short-Term IDR.
The CP rating is equalized with the Short-Term IDR and would be expected to move in tandem.
SUBSIDIARY AND AFFILIATE RATINGS: RATING SENSITIVITIES
The ratings of
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
RATING ACTIONS
Entity / Debt
Rating
ST IDR
F2
New Rating
senior unsecured
ST
F2
New Rating
ST IDR
F2
New Rating
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2024 Electronic News Publishing, source
