SL Green (SLG) to Sell 625 Madison Avenue, Cuts Dividend by 7.7%
SL Green Realty Corp. SLG recently announced that it has entered into a contract, along with its partners, to sell the fee ownership interest in 625 Madison Avenue to a global real estate investor for $632.5 million or $1,123 per square foot.
This marks a strategic move on the part of SL Green as such disposition efforts generate incremental liquidity, which can be deployed for the repayment of its corporate debt.
SLG and its partners will originate a preferred equity investment in the property worth $234.5 million. The company had acquired its interest in the property through a prior mezzanine investment.
The 17-story, 563,000 square feet office building comes with ground floor retail space and is located between 58th and 59th Street. It is conveniently positioned in proximity to Central Park, with easy access to nine subway lines.
Per Brett Herschenfeld, executive vice president, retail and opportunistic investments of SL Green, “Whether properties are upgraded to state-of-the-art office or are converted into a multitude of other uses that are in high demand, the appetite for Class-A office properties in prime Manhattan locations remains strong and growing.”
Concurrently, SLG’s board of directors declared a monthly ordinary dividend of 25 cents per share on its common stock, marking a 7.7% reduction from its prior dividend payout of 27.08 cents. The new monthly ordinary dividend will be paid out on Jan 16, 2024, to stockholders on record as of Dec 29, 2023.
The annualized dividend amount now totals $3.00 per share. The company’s annual dividend yield now comes to 7.10% based on the company’s share price of $42.22 on Dec 4, 2023. Check SL Green’s dividend history here.
The dividend cut is likely a result of SL Green’s focus on maintaining its retained cash flow at desirable levels and its ability to provide a sustainable, recurring dividend to its shareholders amid the current challenging market situation.
The United States office real estate market has been choppy for almost the entirety of 2023, with negative absorption and increasing vacancy levels. The lackluster environment can be attributed to the continuation of work-from-home, flexible or hybrid work setups, which have diminished office space utilization. Also, persistent macroeconomic uncertainty has led to a slowdown in leasing activity.
Further, SL Green lowered its guidance for 2023 FFO per share to the range of $5.05-$5.35 from $5.30-$5.60 guided earlier, anticipating increased severance and stock-based compensation costs to be realized under general and administrative expenses during the fourth quarter of 2023.
Analysts seem bearish on the company. The Zacks Consensus Estimate for its 2023 FFO does not indicate a favorable outlook, as it has been revised 1.1% downward over the past week.
Shares of SL Green have gained 13.2% in the quarter-to-date period compared with the industry’s growth of 12.6%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK. While PK sports a Zacks Rank #1 (Strong Buy), EGP and STAG carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.70.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% over the past two months to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 1.5% northward over the past month to $1.98.
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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