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Here's Why You Should Hold On to SL Green (SLG) For Now

SL Green (SLG) is poised to gain from the recovery in demand from office spaces and its opportunistic investment policy. Dilution of earnings from dis...

This story originally appeared on Zacks

Amid the recovery in the job market and a gradual return of the workforce to offices, SL Green Realty Corp. SLG is likely to attract decent demand given its well-located properties and the ability to offer top-notch amenities at recently-developed office buildings. However, strategic dispositions and a choppy retail environment might act as deterrents.

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The company has a mono-market strategy focus with an enviable footprint in the large and high-barrier to entry New York real estate market. This, along with the ownership of premier Manhattan office assets, has enabled the company to enjoy high occupancy at its portfolio over the years. Also, SL Green’s near-term leasing pipeline is robust and remains on track to meet or exceed its leasing goal of 1.3 million square feet for 2021.

SL Green also enjoys a robust balance-sheet position and has ample financial flexibility. Over the past several quarters, the company has made efforts to bolster its liquidity on the back of financing, refinancing, the sale of real estate assets and joint-venture stake, as well as the repayment of existing positions in the debt and preferred equity portfolio. This June, the company closed a $3-billion 10-year, fixed-rate financing of One Vanderbilt Avenue. Such prudent steps boost SL Green’s ability to withstand the current crisis and any future unexpected negative externalities.

SL Green continues to follow an opportunistic investment policy to enhance its overall portfolio. This includes the sale of its mature and non-core assets in a tax-efficient manner, in a bid to improve the company’s liquidity for funding development projects and sharing buybacks. In July, SL Green sold 49% interest in 220 East 42nd Street, generating net cash proceeds of $136.1 million. Such match-funding initiatives highlight the company’s prudent capital-management practices and relieve the pressure from its balance sheet.

However, though dispositions are a strategic fit for the long term, dilution in earnings is a concern for the near term. Also, SL Green feels the brunt as the U.S. office real estate market is still struggling amid the pandemic with negative absorption and increasing vacancy levels.

Moreover, high supply of office properties is a challenge for the company. The company faces intense competition from developers, owners and operators of office properties and other commercial real estate, including sublease spaces available from its tenants.

Softness in the retail real estate sector is also a concern for SL Green as it has a street-retail portfolio in the Manhattan shopping corridors. The retail real estate environment is currently choppy and mall traffic has been declining significantly amid the rapid increase in online sales, which is forcing retailers to opt for store closures.

Shares of this Zacks Rank #3 (Hold) company have appreciated 13.8%, year to date, underperforming the industry’s growth of 21%. However, the recent trends in estimate revisions for 2021 funds from operations (FFO) per share indicate a favorable outlook for the company, with estimates moving marginally upward in the past week.

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Key Industry Picks

The Zacks Consensus Estimate for Whitestone REIT’s WSR ongoing-year FFO per share has been revised 8.6% upward over the past month. The company sports a Zacks Rank of 1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CubeSmart’s CUBE 2021 FFO per share has moved up marginally upward in the past week. The company currently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Extra Space Storage Inc’s EXR current-year FFO per share has moved marginally north in the past week. The company carries a Zacks Rank of 2, at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs

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SL Green Realty Corporation (SLG): Free Stock Analysis Report


Whitestone REIT (WSR): Free Stock Analysis Report


Extra Space Storage Inc (EXR): Free Stock Analysis Report


CubeSmart (CUBE): Free Stock Analysis Report


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