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SL Green (SLG) to Post Q1 Earnings: What's in the Offing?

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SL Green Realty Corp. SLG is slated to report first-quarter 2021 results on Apr 21, 2021, after market close. The company’s results will likely reflect a year-over-year decline in funds from operations (FFO) per share and revenues for the quarter to be reported.

In the last reported quarter, this New York office landlord reported pro forma FFO per share of $1.56, surpassing the Zacks Consensus Estimate of $1.54. The figure, however, was lower than the year-ago quarter’s $1.75. Results reflected growth in same-store cash net operating income.

The company surpassed the Zacks Consensus Estimate in the preceding four quarters. It reported an earnings surprise of 11.7%, on average, for this period. The graph below depicts the surprise history.

SL Green Realty Corporation Price and EPS Surprise

SL Green Realty Corporation Price and EPS Surprise
SL Green Realty Corporation Price and EPS Surprise

SL Green Realty Corporation price-eps-surprise | SL Green Realty Corporation Quote

Key Factors to Note

SL Green’s New York City office portfolio performance is likely to have improved in the first quarter, driven by the increasing vaccination coverage, the easing of COVID-related restrictions on capacity limit and social distancing, and a gradual revival of mobility of residents in the area. These indicate a probable return of the workforce to offices and other places of business, and are reasons to be optimistic about the company’s first-quarter results.

In fact, despite the negative effects of the pandemic-borne job losses and the remote-working dynamics, which hindered the U.S. office real estate sector in the first quarter of 2021, SL Green has continued to make encouraging strides on its leasing and operational front in first-quarter 2021. In fact, in January, it inked two leases at One Vanderbilt Avenue and another at 11 Madison Avenue, thereby, boosting occupancy at the properties.

Moreover, the company’s diversified tenant base, long-term leases and tenants with strong credit are expected to have poised it well to generate stable and recurring rental revenues in the March-end quarter.

Additionally, SL Green has been divesting its mature and non-core assets in a tax-efficient manner. Particularly, large-scale sub-urban asset sale has helped it narrow its focus on the Manhattan market as well as retain premium and highest-growth assets in the portfolio. Such prudent capital-management practices are likely to have supported its growth in first-quarter 2021.

However, the pandemic’s impact on the labor markets continued to overwhelm the U.S. office real estate market in the first quarter of 2021, resulting in negative net absorption and an increase in vacancy rates. In fact, since the U.S. economy slashed around three million office-using jobs last March and April, the United States has added back only 1.9 million office-using jobs through March 2021. Moreover, the work-from-home scenario continues to put downward pressure on leasing.

Specifically, going by a Cushman & Wakefield CWK report, the U.S. office sector witnessed negative net absorption of 41.1 million square feet, marking the third consecutive quarter of such decline. In fact, since last March, a total of 138.4 million square feet of office space was shed in the United States. Further, vacancy increased to 16.4% in the March-end quarter from 13% a year ago.

SL Green continued to face risks in New York, which was one of the hardest-hit areas by the pandemic. The company witnessed a decline in mark-to-market on leases signed in the fourth quarter. Given no significant positive development in the office real estate market in New York, the decline is likely to have continued in first-quarter 2021 as well.

Also, in first-quarter 2021, weakness in the company’s retail property segment is likely to have dragged its profitability. While rent collections from office tenants have remained strong (97.9% rent collected for 2020), the same cannot be said for retail tenants (80.8%).

Amid this, the Zacks Consensus Estimate for first-quarter 2021 property operating revenues is pinned at $185 million and indicates a decline from the prior quarter’s reported figure of $190 million.

Moreover, the consensus mark for first-quarter 2021 total revenues is pegged at $162.4 million, suggesting a 16.9% year-over-year decline.

Lastly, the company’s activities in the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for first-quarter FFO has been revised marginally downward to $1.57 over the past month. Further, it indicates a 26.6% year-over-year decline.

Here is what our quantitative model predicts:

SL Green does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for SL Green is -2.16%.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks in the REIT sector you may want to consider, as our model shows that these have the right combination of elements to report a surprise for the first quarter:

Public Storage PSA, set to report quarterly numbers on Apr 28, currently has an Earnings ESP of +0.58% and a Zacks Rank of 3.

Welltower, Inc. WELL, slated to release quarterly earnings on Apr 29, has an Earnings ESP of +0.93% and a Zacks Rank of 3 at present.

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

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