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SL Green Recapitalizes 2 Herald Square, Attains 93% Occupancy

SL Green Realty Corp. SLG recently announced recapitalization of 2 Herald Square. The company also disclosed signing of four transactions that involved 177,081 square feet of space in aggregate at the property. With these deals, the company is able to achieve more than 93% occupancy for this building.

The recapitalization of the property comes as part of the company’s value-add capital program aimed at restoring the property, and boosting tenant roster and occupancy. Specifically, the company obtained $150 million of first mortgage financing for 2 Herald Square and disposed a 49% partnership stake to an Israeli institutional investor.

On the other hand, the transactions included the execution of an agreement to transfer a 30-year leasehold condominium, comprising 95,370 square feet, to Mercy College and signing of a new 29,388-square-foot lease to expand WeWork. Also, the transactions involved securing of new retail leases with Victoria Secret and Happy Socks. This helped in filing a recaptured Sixth Avenue lobby space that was transformed into a retail opportunity.

Positioned amid Manhattan’s busiest locations, and vibrant retail and office submarket, this 369,000-square-foot office and retail asset is expected to be in demand following the capital investment. The company had acquired the leasehold at 2 Herald Square earlier and its concerted strategic efforts have helped expansion of existing tenants and boost the tenant roster with addition of new tenants.

Off late, SL Green has been in news. The company recently announced that with TD Securities’ recent 20-year lease deal for 118,872 square feet of space on the full 10th and 12th floors plus part of the 11th floor, the office portion of One Vanderbilt (its 1,401-foot trophy office tower in East Midtown in New York City) is now 52% leased. (Read more: SL Green Sees Solid Demand at One Vanderbilt, Gets 52% Leased)

Also, the company recently outlined plans for the redevelopment of its One Madison Avenue office tower and disclosed that it intends to transform 460 West 34th Street after acquiring majority stake in the property. (Read more: SL Green to Fortify Office Portfolio Through Redevelopment)

Notably, SL Green enjoys premium office properties along with diverse tenant base and solid balance-sheet strength. Also, it is divesting its non-core assets, and using the proceeds to fund share buybacks and development projects. Admittedly, revamping of properties is a strategic move, making them competitive alternatives amid the new developments in the market.

While these transformative measures will incrementally add value to the company’s properties, such efforts involve huge capital outlay and may hurt short-term margins. Further, any hike in interest rate can also dent the company’s ability to pursue development and redevelopment measures.

Over the past month, shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to. During the period, the stock has inched up 0.1% compared with the industry’s rally of 3.7%.

Stocks to Consider

Better- ranked stocks from the real-estate space are Alexandria Real Estate Equities, Inc. ARE, Cousins Properties Inc. CUZ and PS Business Parks, Inc. PSB. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria’s FFO per share estimates for 2018 has been revised slightly north to $6.62 in seven days’ time.

Cousins Properties’ FFO per share estimates for 2018 has been revised marginally upward to 61 cents in two months’ time.

PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share moved up 0.5% to $6.45 in the past month.

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