Safehold Inc (NYSE:SAFE) Q1 2020 Earnings Conference Call - Final Transcript
Apr 23, 2020 • 10:00 am ET
Our first question comes from Rich Anderson with SMBC. Please go ahead.
Hey. Thanks. Good morning, everybody. So on the topic of rent coverage and the 4.1 times and 37% ground lease to total value.
What is your sensitivity telling you how those can change in this environment, particularly on the rent coverage side given the changes that are happening on top of your land?
Sure. I mean, look, the obvious category that has seen almost complete diminution of revenue is the hotel side. So as Jeremy said, we caveat. Those are first-quarter numbers.
We will see how long it takes for the economy to reopen and/or some of those hotels to come back to pre-COVID kind of numbers, and we don't expect that to be in a snapback fashion. So again, I think our message is starting at 35% of value, four times coverage. We're sitting well below the surface of the waves. And while things are certainly very choppy and take a while to recover and get back to where they were, it doesn't really change our viewpoint on where we sit in terms of safety.
So a difficult period. Certainly for hotels, it will take quite a bit of time to see how this is all going to shake out. But realistically, Rich, if a hotel is closed, rent coverage doesn't mean a whole lot.
Yes. Okay. All right. And I guess the follow-on to that question is, are you anywhere near a scenario where you start to see you getting buildings back because of your rights to take over leasehold if they're not paying the rent? Or is that even not in the conversation at this point? And perhaps you as owners of the land would prefer not to go that route anyway.
Yes. Out of a pretty remote possibility, certainly I've not heard anybody even remotely, 30 to 40 days into a scenario where we've got 65% of the capital subordinated to us. When you think about this, they give you some metrics on that. If it's a $100 million building, our rent represents 1/1,000 of the value of that building and land per month.
So the idea that they would give up 65% between the lender and the equity and handles the keys to avoid a one -- a tiny fraction of that value. I just don't even think that's going to be a conversation unless this is an apocalyptic kind of scenario playing out. We did get 1% or 2%. Asked the question of, could we get at least get a deferral? And again, our messaging is important to kind of say this is we are very different than typical single-tenant net lease portfolio.
We're 35% of the capital stack at 3.5%, not 100% of the capital stack at 7.5%. So just the size of our rent checks are so much smaller, our place, our seniority in the capital structure is so much more significant. And then, of course, we generally remind