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BHR - Low ROIC And Poor Corporate Governance Put Safehold At Risk
Braemar Hotels & Resorts Inc.
The short thesis
Safehold (SAFE) has a cost structure problem. Its overhead is not being sufficiently overcome by revenues due to a low ROIC combined with fairly egregious management compensation. This problem will not get better with size due to scaling management fees that ramp as the company reaches certain size thresholds. This problem has gone largely un-noticed by the market due to straight line accounting in GAAP which masks their cashflow issues. SAFE shares are substantially overvalued and should trade closer to the other REITs with poor corporate governance.