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SL Green Raises Stake in 245 Park, Boosts Stock Buyback Plan

SL Green Realty Corp. SLG recently increased its stake in 245 Park Avenue through a second round of preferred equity investment in the Manhattan skyscraper. While an initial investment in the office tower was made during second-quarter 2018, the recent closing brings the company’s total investment to $148.2 million.

Further, as part of the deal, SL Green will oversee leasing and operations at the property as the building’s property manager. The 44-story property spans 1,780,000 square feet between 46th and 47th Streets on Park Avenue.

As such, it is one of the largest buildings on Park Avenue with convenient access to Grand Central Terminal. Further, the building is 91% leased and counts Société Générale S.A., Angelo Gordon, Rabobank and Ares Capital among its tenants.

This transaction will further strengthen SL Green’s foothold in the New York market. Notably, the company is making efforts to enhance its portfolio by timely monetizing assets and recycling the proceeds to fund share buybacks and development projects. This is expected to be accretive to its earnings and net asset value.  

In fact, the company’s board of directors recently authorized the increase of the size of its share buyback program by an additional $500 million of the SL Green’s common stock. With this, the company’s total authorization comes at $2.5 billion.

To date, it has repurchased 18,087,322 shares under the program and redeemed 445,517 operating partnership units in connection with real estate transactions. These efforts reflect the company’s commitment to increase shareholder value. Further, it improves investor’s confidence in the stock. 

While such investment activities are encouraging over the long term, hike in interest rate can also pose a near-term challenge for the company. Specifically, amid a rising interest rate environment, interest cost on debt would escalate while dividend payout itself might become less attractive than the yields on fixed income and money market accounts.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to. During the period, the stock has declined 2.2% against the industry’s rally of 3.6%.

Key Picks

Some top-ranked stocks from the REIT space are OUTFRONT Media Inc. OUT, PS Business Parks, Inc. PSB and Boston Properties, Inc. BXP, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

OUTFRONT Media’s funds from operations (FFO) per share estimates for 2018 have been marginally revised upward to $2.09 in the past 30 days. Its shares have rallied 15.7% over the past 30 days.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share has moved up 0.9% to $6.45 in the past month. Its shares have gained 6.7% over the past month.

Boston Properties’ FFO per share estimates for 2018 have been revised marginally north to $6.39 in 30 days’ time. Its shares have returned 9.3% over the past month.

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