Here's Why SL Green (SLG) is an Apt Portfolio Pick for Now
SL Green Realty Corp. SLG has a portfolio of high-quality and well-amenitized office properties in New York City, which positions it well for growth.
This New York-based office real estate investment trust (REIT) primarily acquires, manages, develops and leases commercial (mainly office) and residential real estate properties. It has been witnessing healthy demand for its properties amid the growing need for premier office spaces.
Shares of this currently Zacks Rank #2 (Buy) company have rallied 18.7% over the past three months, outperforming its industry's growth of 4.7%. Given the strength in its fundamentals, there seems additional room for growth of this stock.
Image Source: Zacks Investment Research
Factors That Make SL Green a Solid Pick
Healthy Leasing: Despite the choppy office real estate market over recent years, SLG is now witnessing healthy leasing demand for its properties as tenants’ demand for premium office spaces continues to grow. In 2023, it signed 160 office leases for its Manhattan office portfolio, spanning around 1,776,414 square feet.
Demand for office-space in the upcoming period is likely to be driven by de-densification efforts, allowing higher square footage per office worker. Moreover with well-located properties offering top-notch amenities, SLG’s leasing pipeline is expected to be healthy despite the present challenging environment.
Strong Tenant Base: This office REIT enjoys a diversified tenant base with a strong credit profile. This lowers the risk associated with dependency on single-industry tenants and assures stable rental revenues for the company for the long term. Although, we expect a year-over-year decrease in the company’s net rental revenues in 2024, the metric is likely to rise 0.9% and 1.9% in 2025 and 2026, respectively.
Investment Policy: To improve the overall quality of its portfolio, SL Green has been following an opportunistic investment policy. This entails divesting its mature and non-core assets, including residential properties, in a tax-efficient manner and using the proceeds to fund development projects and share buybacks. These match-funding initiatives will ease strain on the company's balance sheet and demonstrate its prudent capital-management practices.
In 2023, SLG disposed of all or a portion of its interests in 245 Park Avenue, 121 Greene Street and 21 East 66th Street for gross valuation of $2.0 billion. The transactions resulted in net proceeds of $176.9 million for the company.
Over the years, the large-scale sub-urban asset sale has helped it to narrow focus on the Manhattan market as well as retain premium and highest-growth assets in the portfolio.
FFO Growth: Analysts seem bullish regarding SLG’s funds from operations (FFO) per share growth prospects. The Zacks Consensus Estimate for the company's 2024 FFO has been revised 2.8% upward over the past month to $5.88.
This suggests year-over-year increase of 19% for 2024 compared with the industry’s average of 1.31%.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Iron Mountain IRM and Lamar Advertising LAMR, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for IRM’s 2024 FFO per share is pegged at $4.38, implying year-over-year growth of 6.3%.
The Zacks Consensus Estimate for LAMR’s 2024 FFO per share is pinned at $7.55, indicating an increase of 1.1% from the year-ago quarter's level.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
Lamar Advertising Company (LAMR) : Free Stock Analysis Report
SL Green Realty Corporation (SLG) : Free Stock Analysis Report
