That’s something for each investor to decide in the context of their own portfolio. If it works, then you get $23 of value within 2-4 years. But the risks are 1) volatility of SAFE (worst case is the price drops significantly and STHO gets a margin call on its holding) 2) uncertain governance and incentives, and 3) macro risks of interest rates and housing demand. My personal allocation was about 2% at the time of my original writeup. After seeing improved visibility into the monetization process I did my second writeup and raised my allocation to 3%. A friend says every position is either too big or too small. Hopefully this ends up being too small. One way to think about the macro risk is that they have debt costing 8% that finances non-yielding development land.
Appreciate this insight… if I’m reading the most recent 10q correctly the Safe Shares, Municipal Securities/mortgages, and cash cover all the debt and the market cap. All the land and building sales are upside if you can capture the Safe share price sale (maybe through puts). Would derisk the bet and allow for greater position sizing.
On the incentives, is there a point at which the cost of managing the entity outweighs the 2% benefit they are receiving?
Also, seems like most people think the most effective way to monetize safe shares is to spin them out, but maybe the 115m in inter company debt can be canceled out by returning the equivalent shares to Safe… they’ve stated in their investor deck that they believe they are severely undervalued..
Correct. The risks are that SAFE could go down (can be hedged), and it could also go up. Mortgage receivables could default. Cash flow could be negative, especially if monetizations slow. The timeline could extend.
SAFE will be getting a 2% fee, but SAFE has engaged Starfield to manage the STHO properties on unknown terms. What are Starfield’s incentives? There’s zero disclosure.
What happens with the SAFE shares must be one of the issues that Sugarman said would need to be decided in about 2 years. Simplest is to pay off the debt and spin them out. But Sugarman might resist that if it would mean adding more supply at time when SAFE is weak. As you say, he might see that as an opportunity for SAFE to buy back the shares at a bargain price.
It looks like STHO owned a balance of 1,311 lots at Magnolia Green at the end of 2025. Seems like the sale of these lots alone would be enough to pay off most of their $205mm in debt, no?
I think that’s sort of correct. But if you look at the Master Plan most of the
subdivisions have been completed. There might be fewer than 100 lots left. I think the balance of the approved development falls in the “Senior Living Community” on the map. STAR was unable to find an industry partner for its original plan, so last year it submitted a revised zoning plan for a 55+ Active Adult community. I believe they will try to sell that in bulk, rather than lot by lot. It will also require public construction of the road (shown at left with a dotted line on the map) for access. Overall, I think STAR will realize substantially more than the $29mm carrying value of Magnolia Green, but given the company’s minimal disclosures, and the margin of safety in the current share price, I have not been aggressive about trying to define the upside.
Thank you. I didn’t realize the remaining lots are that heavily weighted to the senior living. That being said, this seems like a very desirable project especially since HCA will be close by. It still seems to me that even with a heavy discount (they sell for $100k/lot?) and $65mm cash on the balance sheet that STHO is in very good shape as to derisking. We may be getting all of the Asbury Park assets and the SAFE stock unencumbered at some point. Also, I would hope that the board is having a discussion about spinning the SAFE shares to STHO holders when they are comfortable that the debt is overcollateralized or partially gets paid down after a few more sales. I’m also thinking that they will likely authorize another share buyback with the release of the loan guarantee last week, since they were aggressively repurchasing at $7.75 in Q4 prior to the release.
Yes, the adult community seems highly viable. Site is 99 acres. Part of that will be used in roads. Developer will have to build out the greenspace and amenities. Maybe 50 acres net for development worth $1mm/acre? The aggressive execution of the buyback was a positive signal of the monetizations that have now been realized (AP parcel sale, Surfhouse payoff, and more seem to be in the works).
Thanks again. With a bulk sale of senior living and few residential lots left at MG, it seems like MG could be wound down in advance of AP. That could take care of the margin loan and leave the focus on maximizing the value of the desirable beach proximate assets (an hour outside of NYC, which does not suck) at AP, which likely grow in value over time. Barring a financial crisis like the one that got us here in the first place.
10-K gives a 2-year timeline for MG “We anticipate selling our remaining residential lots to homebuilders either upon completion of horizontal lot development or in bulk as unimproved lots. We currently expect such sales to occur over the next two years; however, it could take substantially longer. We anticipate selling the golf course operations to a third party upon completion of residential lot sellout.” The golf course has now been offered for sale (my guess is $2mm) so that implies that lot sales are nearly done. The Gateway commercial parcels are offered for about $10mm. A marketplace parcel of 14 acres is purportedly being sold for an apartment development. Since last year’s zoning amendment (to 55+), I haven’t found any hint of a deal for the 99 acre senior site so I don’t know the timeline for that. Key risks are macro (interest rates, housing demand, and overall uncertainty) and the volatility of SAFE shares (would be a great to pay down the margin loan as you have said).
According to Gemini STHO is selling some of the Senior Living land to Pinnacle Living and they are already taking reservations. Not sure if that’s accurate but it sounds good if it is.
Interesting assets that Ive been following for some time. Two questions on valuation... what confidence to you have in SAFE's valuation? The fundamentals and chart are not comforting. Any risk of a margin call on STHO as SAFE is in free fall?
Second, should you be capitalizing the development and operating costs to ready these assets for sale? Last I looked at these assets they were burning significant capital each quarter in excess of the management fee. Do you expect this to change?
I don’t have any unique insight on SAFE’s valuation so I default to the market price. The ground leases have a low current yield for a super-senior capital position, plus inflation protection, plus long-term land appreciation. Minor changes in assumptions about discount rates can have a big impact on valuation.
STHO’s “Capital Expenditures on land and development assets” were $48mm in 9M25 and $35mm for FY24, BUT this reflects consolidation of the Surfhouse venture which probably cost $80mm so far. Aside from the $10mm mezz loan, Surfhouse has not drawn any cash from STHO. I don’t see any way to estimate how much capital was devoted to preparing other STHO assets for sale, but it’s only permitting and marketing. STHO is not building anything else, and if that does not change then I think cash flows will turn positive from confirmed and likely sales (The Views, Delta, MG luxury apartment site, Mezz loan payoff).
I guess I would push back a bit here... net of management fees in G&A, it looks like $1-2mn per quarter of cost. So let's say its total $20mn of just overhead from audit, reimbursement to 3rd parties, etc.
Then we need to back out interest which is a real cost and PIK accrual right now e.g. its compounding the liability... this is $80mn+ of cash cost into 2030.
Quarterly capex ranged from $2-$22mn since inception... assume this mostly levels off now its still >0. Maybe $10mn per year to maintain properties and some prep work.
All in that would be $140-150mn in expense to liquidate. I dont feel like Im being overly conservative here (in fact I might be being generous...). Capitalizing these expenses gives us a slim margin of safety particularly given mgmt, workout portfolio uncertainty, and uncertainty around SAFE intrinsic value.
Would absolutely love to know where Im wrong here though?
The margin loan facility has a PIK option that was used in 2024, but not used in 2025.
The debt proceeds are invested in assets that generate lease income ($5.5mm in 9M25), interest income ($3.4mm), and "other Income" ($17mm including SAFE dividends, but deducting hotel revenues and legal settlement). I don't see the interest expense as a liquidation cost.
I hope we are at an inflection point in the liquidation process where STHO has begun realizing positive cash flow without funding any new development. I think that's why they began the share buybacks. The company should be in a position to begin paying down its debt and reducing its interest expense.
Overhead, yes.
Capex, your $10mm/year is completely made up. You can see photos of the AP properties in my first article. They are shovel-ready.
Minimal disclosures make it difficult to forecast, but I believe there is upside to liquidation proceeds above current carrying values. The hotels should be worth more than depreciated cost. Magnolia Green is over 200 acres of zoned land carried at only $28mm.
Right agree with a lot of this. I should have included the dividend and revenue from the hotels as offsets to cost of liquidation. I dont see where youre coming from on interest not being a cost. Its cash out the door and it's payment is coming out of shareholders pockets. That said, if we net the interest cost against dividends that offsets more or less. Seems like the operating assets are negative cashflow when accounting for overhead fwiw. Maybe positive excluding general costs...
I hear you on the capex number being made up, but would argue its a fine guess based on depreciation schedules, historic reporting, and the likely need to do something between now and liquidation. We can agree to disagree though, I might be totally wrong.
To your point, it looks like very recently, CFO burn has come down although FCF remains negative and one quarter may not make a trend... All in all, appreciate the answer! Maybe worth revisiting now. Can always short SAFE any way to remove that risk.
Seems like a really great opportunity, how do you think about risk and position sizing for this?
That’s something for each investor to decide in the context of their own portfolio. If it works, then you get $23 of value within 2-4 years. But the risks are 1) volatility of SAFE (worst case is the price drops significantly and STHO gets a margin call on its holding) 2) uncertain governance and incentives, and 3) macro risks of interest rates and housing demand. My personal allocation was about 2% at the time of my original writeup. After seeing improved visibility into the monetization process I did my second writeup and raised my allocation to 3%. A friend says every position is either too big or too small. Hopefully this ends up being too small. One way to think about the macro risk is that they have debt costing 8% that finances non-yielding development land.
Appreciate this insight… if I’m reading the most recent 10q correctly the Safe Shares, Municipal Securities/mortgages, and cash cover all the debt and the market cap. All the land and building sales are upside if you can capture the Safe share price sale (maybe through puts). Would derisk the bet and allow for greater position sizing.
On the incentives, is there a point at which the cost of managing the entity outweighs the 2% benefit they are receiving?
Also, seems like most people think the most effective way to monetize safe shares is to spin them out, but maybe the 115m in inter company debt can be canceled out by returning the equivalent shares to Safe… they’ve stated in their investor deck that they believe they are severely undervalued..
Curious your thoughts
Correct. The risks are that SAFE could go down (can be hedged), and it could also go up. Mortgage receivables could default. Cash flow could be negative, especially if monetizations slow. The timeline could extend.
SAFE will be getting a 2% fee, but SAFE has engaged Starfield to manage the STHO properties on unknown terms. What are Starfield’s incentives? There’s zero disclosure.
What happens with the SAFE shares must be one of the issues that Sugarman said would need to be decided in about 2 years. Simplest is to pay off the debt and spin them out. But Sugarman might resist that if it would mean adding more supply at time when SAFE is weak. As you say, he might see that as an opportunity for SAFE to buy back the shares at a bargain price.
It looks like STHO owned a balance of 1,311 lots at Magnolia Green at the end of 2025. Seems like the sale of these lots alone would be enough to pay off most of their $205mm in debt, no?
I think that’s sort of correct. But if you look at the Master Plan most of the
subdivisions have been completed. There might be fewer than 100 lots left. I think the balance of the approved development falls in the “Senior Living Community” on the map. STAR was unable to find an industry partner for its original plan, so last year it submitted a revised zoning plan for a 55+ Active Adult community. I believe they will try to sell that in bulk, rather than lot by lot. It will also require public construction of the road (shown at left with a dotted line on the map) for access. Overall, I think STAR will realize substantially more than the $29mm carrying value of Magnolia Green, but given the company’s minimal disclosures, and the margin of safety in the current share price, I have not been aggressive about trying to define the upside.
Thank you. I didn’t realize the remaining lots are that heavily weighted to the senior living. That being said, this seems like a very desirable project especially since HCA will be close by. It still seems to me that even with a heavy discount (they sell for $100k/lot?) and $65mm cash on the balance sheet that STHO is in very good shape as to derisking. We may be getting all of the Asbury Park assets and the SAFE stock unencumbered at some point. Also, I would hope that the board is having a discussion about spinning the SAFE shares to STHO holders when they are comfortable that the debt is overcollateralized or partially gets paid down after a few more sales. I’m also thinking that they will likely authorize another share buyback with the release of the loan guarantee last week, since they were aggressively repurchasing at $7.75 in Q4 prior to the release.
Yes, the adult community seems highly viable. Site is 99 acres. Part of that will be used in roads. Developer will have to build out the greenspace and amenities. Maybe 50 acres net for development worth $1mm/acre? The aggressive execution of the buyback was a positive signal of the monetizations that have now been realized (AP parcel sale, Surfhouse payoff, and more seem to be in the works).
Thanks again. With a bulk sale of senior living and few residential lots left at MG, it seems like MG could be wound down in advance of AP. That could take care of the margin loan and leave the focus on maximizing the value of the desirable beach proximate assets (an hour outside of NYC, which does not suck) at AP, which likely grow in value over time. Barring a financial crisis like the one that got us here in the first place.
10-K gives a 2-year timeline for MG “We anticipate selling our remaining residential lots to homebuilders either upon completion of horizontal lot development or in bulk as unimproved lots. We currently expect such sales to occur over the next two years; however, it could take substantially longer. We anticipate selling the golf course operations to a third party upon completion of residential lot sellout.” The golf course has now been offered for sale (my guess is $2mm) so that implies that lot sales are nearly done. The Gateway commercial parcels are offered for about $10mm. A marketplace parcel of 14 acres is purportedly being sold for an apartment development. Since last year’s zoning amendment (to 55+), I haven’t found any hint of a deal for the 99 acre senior site so I don’t know the timeline for that. Key risks are macro (interest rates, housing demand, and overall uncertainty) and the volatility of SAFE shares (would be a great to pay down the margin loan as you have said).
https://www.carechanges.com/living-communities/summit-at-magnolia-green-a-life-plan-community_moseley_virginia/
According to Gemini STHO is selling some of the Senior Living land to Pinnacle Living and they are already taking reservations. Not sure if that’s accurate but it sounds good if it is.
Interesting assets that Ive been following for some time. Two questions on valuation... what confidence to you have in SAFE's valuation? The fundamentals and chart are not comforting. Any risk of a margin call on STHO as SAFE is in free fall?
Second, should you be capitalizing the development and operating costs to ready these assets for sale? Last I looked at these assets they were burning significant capital each quarter in excess of the management fee. Do you expect this to change?
I don’t have any unique insight on SAFE’s valuation so I default to the market price. The ground leases have a low current yield for a super-senior capital position, plus inflation protection, plus long-term land appreciation. Minor changes in assumptions about discount rates can have a big impact on valuation.
STHO’s “Capital Expenditures on land and development assets” were $48mm in 9M25 and $35mm for FY24, BUT this reflects consolidation of the Surfhouse venture which probably cost $80mm so far. Aside from the $10mm mezz loan, Surfhouse has not drawn any cash from STHO. I don’t see any way to estimate how much capital was devoted to preparing other STHO assets for sale, but it’s only permitting and marketing. STHO is not building anything else, and if that does not change then I think cash flows will turn positive from confirmed and likely sales (The Views, Delta, MG luxury apartment site, Mezz loan payoff).
I guess I would push back a bit here... net of management fees in G&A, it looks like $1-2mn per quarter of cost. So let's say its total $20mn of just overhead from audit, reimbursement to 3rd parties, etc.
Then we need to back out interest which is a real cost and PIK accrual right now e.g. its compounding the liability... this is $80mn+ of cash cost into 2030.
Quarterly capex ranged from $2-$22mn since inception... assume this mostly levels off now its still >0. Maybe $10mn per year to maintain properties and some prep work.
All in that would be $140-150mn in expense to liquidate. I dont feel like Im being overly conservative here (in fact I might be being generous...). Capitalizing these expenses gives us a slim margin of safety particularly given mgmt, workout portfolio uncertainty, and uncertainty around SAFE intrinsic value.
Would absolutely love to know where Im wrong here though?
The margin loan facility has a PIK option that was used in 2024, but not used in 2025.
The debt proceeds are invested in assets that generate lease income ($5.5mm in 9M25), interest income ($3.4mm), and "other Income" ($17mm including SAFE dividends, but deducting hotel revenues and legal settlement). I don't see the interest expense as a liquidation cost.
I hope we are at an inflection point in the liquidation process where STHO has begun realizing positive cash flow without funding any new development. I think that's why they began the share buybacks. The company should be in a position to begin paying down its debt and reducing its interest expense.
Overhead, yes.
Capex, your $10mm/year is completely made up. You can see photos of the AP properties in my first article. They are shovel-ready.
Minimal disclosures make it difficult to forecast, but I believe there is upside to liquidation proceeds above current carrying values. The hotels should be worth more than depreciated cost. Magnolia Green is over 200 acres of zoned land carried at only $28mm.
Right agree with a lot of this. I should have included the dividend and revenue from the hotels as offsets to cost of liquidation. I dont see where youre coming from on interest not being a cost. Its cash out the door and it's payment is coming out of shareholders pockets. That said, if we net the interest cost against dividends that offsets more or less. Seems like the operating assets are negative cashflow when accounting for overhead fwiw. Maybe positive excluding general costs...
I hear you on the capex number being made up, but would argue its a fine guess based on depreciation schedules, historic reporting, and the likely need to do something between now and liquidation. We can agree to disagree though, I might be totally wrong.
To your point, it looks like very recently, CFO burn has come down although FCF remains negative and one quarter may not make a trend... All in all, appreciate the answer! Maybe worth revisiting now. Can always short SAFE any way to remove that risk.