Morgan Stanley has revised its outlook on Safehold Inc. (NYSE: SAFE), downgrading the stock from Equalweight to Underweight and adjusting the price target downward from $16.00 to $14.00. This revised target closely matches InvestingPro’s fair value estimate, particularly against Safehold’s current share price of approximately $14.98. The trading price is supported by a notably low price-to-book ratio of 0.45.
The downgrade stems primarily from a pronounced decline in Safehold’s ground lease origination activity. Historically, from 2019 to 2023, Safehold engaged in net investments in ground leases averaging around $1.0 billion annually. Projections for 2024 and 2025 suggest a stark reduction, with net investments expected to fall between $0.20 billion and $0.25 billion. Morgan Stanley’s analysis anticipates this constrained investment momentum to persist through 2025, notwithstanding expectations of a rebound in commercial real estate transactions in 2026.
Despite this subdued growth in origination, Safehold has maintained profitability, evidenced by a price-to-earnings ratio of 9.59 over the past twelve months. However, the firm’s dividend policy raises concerns, with the dividend payout ratio currently exceeding 100% of adjusted funds from operations (AFFO). Projections indicate that operating cash flow will reach roughly $42 million in 2026, a figure that falls short of the anticipated $51 million required for dividend payments. Consequently, Morgan Stanley warns of a potential 35% reduction in dividends by 2027, a scenario that investors should consider given Safehold’s current dividend yield of 4.73%, as per InvestingPro’s comprehensive dividend analytics.
The analyst report further highlights legal challenges recently initiated by Safehold. On October 22, 2025, the company issued termination notices for five hotels managed under its ground leases and proceeded with litigation against Park Hotels, targeting alleged breaches in maintenance and operational obligations by the tenant and guarantor. As of the report, the financial consequences of this legal action remain uncertain since management has not publicly addressed the potential costs involved.
Additional financial hurdles include declining fee income generated from Star Holdings and limited transparency regarding the value realization potential from Safehold’s Caret units. These units represent ownership stakes in the appreciated value of real estate developed over Safehold’s leased land, recently appraised at $9.1 billion. Yet, clear paths to unlocking this value have not been disclosed.
Amid these challenges, Safehold has undertaken several strategic moves to support its financial position. The company declared a $0.177 quarterly dividend per share for Q4 2025, corresponding to an annualized payment of $0.708 per share, with distribution scheduled for January 15, 2026. In addition, Safehold secured a $400 million unsecured term loan designed to bolster liquidity and fuel its investment pipeline. The loan, carrying an interest rate of SOFR plus 90 basis points, matures on November 15, 2030, and includes options for two twelve-month extensions.
Complementing this, Safehold amended its revolving credit facility agreement with JPMorgan Chase Bank to align financial covenants with the new unsecured term loan terms. Leadership changes also mark this period, with the appointment of Michael Trachtenberg as president, bringing over two decades of real estate expertise. Additionally, Citizens Financial has maintained a Market Outperform rating for Safehold, citing the company’s enhanced liquidity profile following the term loan procurement.
These developments illustrate Safehold’s efforts to navigate present financial and operational obstacles through strategic borrowing and executive appointments, even as underlying challenges in origination activity, dividend sustainability, and litigation remain in focus.