On Friday, Mizuho Securities adjusted its stance on Safehold Inc. (NYSE: NYSE:SAFE), moving its rating from Buy to Neutral and revising the price target down to $20 from the previous $22. The adjustment comes as the firm recalibrates its expectations for the real estate investment trust (REIT) amid a challenging economic environment characterized by high interest rates and subdued growth prospects.
Safehold, which specializes in ground leases with a notably long weighted-average lease term of 92 years, has seen its shares decline by 85% since the onset of 2022. This drop coincides with a significant rise in the 10-Year Treasury yield, which has climbed from 1.6% to 4.4% within the same period. The company's weighted average cost of capital (WACC) has surged as a result, adversely impacting its transaction activity and growth.
Mizuho notes that the REIT sector often favors investments with shorter cycles and higher growth potential during periods of elevated interest rates and lower economic expansion. Given this context and Safehold's unique position with the longest lease term in the industry, the firm anticipates that Safehold's growth will likely not see a recovery until the 2025-2026 timeframe.
In light of these factors, Mizuho believes that there are more attractive investment opportunities within the REIT subsector. This outlook reflects the assessment that Safehold's stock is currently trading at a fair value, suggesting limited upside potential in the near term.
The firm's revised stock price target of $20 reflects a more conservative valuation in response to the increased cost of capital and the dampened growth trajectory for Safehold.
InvestingPro Insights
Recent data from InvestingPro provides a nuanced perspective on Safehold Inc. (NYSE: SAFE), offering a glimpse into the company's financial health and market perception. Despite the challenges highlighted by Mizuho Securities, InvestingPro Tips suggest a silver lining.
Analysts predict that Safehold's net income is expected to grow this year, and the company's liquid assets exceed its short-term obligations. This could indicate resilience in its financial structure, even as profitability over the last twelve months has not been achieved.
Key metrics from InvestingPro Data also shed light on the company's standing. Safehold's market capitalization is currently at 1.42 billion USD, with a forward-looking P/E Ratio for the next twelve months estimated at 13.64, suggesting that investors may expect earnings to improve.
Moreover, the company's revenue growth over the last twelve months has been robust at 33.3%, which could bode well for its future, despite the current economic headwinds.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available that can provide more comprehensive guidance on Safehold's performance and outlook. To access these insights and make more informed investment decisions, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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