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SL Green (SLG) Sells 609 Fifth Avenue Property for $100.5M

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In line with its business plan for the ongoing year, SL Green Realty Corp. SLG has announced the sale of the vacant office condominium at 609 Fifth Avenue, Manhattan for a gross sale price of $100.5 million.

The buyer is a domestic investor. The transaction is expected to close in June 2022 and is subject to customary closing norms. It marks a strategic move on the part of SL Green as such disposition efforts generate incremental liquidity, which can be channelized for reinvestment and repayment of debt.

Located in the heart of Manhattan’s retail district on the corner of Fifth Avenue and 49th Street, 609 Fifth Avenue — the office condominium — benefits from SLG’s repositioning efforts that included a new core and elevators along with the relocation of the office lobby from Fifth Avenue to 49th Street.

SL Green had sold the retail condominium for $168.0 million to an affiliate of Reuben Brothers in May 2020. Further, the present sale of 609 Fifth Avenue marks the robust demand for well-located properties in Midtown East and the premium valuation that these assets offer.

SL Green has been following an opportunistic investment policy to enhance its overall portfolio quality. This includes divesting its mature and non-core assets, including residential properties, in a tax-efficient manner and using proceeds to fund development projects, repay debt and buy back shares.

Such initiatives indicate the company’s prudent capital-management practices and will relieve pressure from its balance sheet. Particularly, the large-scale suburban asset sale has helped it to narrow its focus on the Manhattan market and retain premium and highest-growth assets in the portfolio.

In the first quarter, SL Green closed the prior-announced sale of 707 Eleventh Avenue for a gross sale price of $95.0 million, generating net cash proceeds for SLG of $91.3 million. In April, together with its joint venture partner, the company closed the previously announced sale of the leasehold interest in 1080 Amsterdam Avenue for a gross sale price of $42.5 million. This led to the generation of net cash proceeds for SLG of $6.9 million.

However, though dispositions are strategic fits for the long term, these will be dilutive to near-term earnings. Moreover, the rising supply of office properties in SL Green’s markets remains a concern for the company. Also, the U.S office real estate market continues to struggle, with negative absorption and increasing vacancy levels. The lackluster environment can be attributed to pandemic-led remote-working models, which have diminished office space utilization.

Shares of this Zacks Rank #3 (Hold) company have declined 25.4% over the past three months compared with the industry's fall of 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Key Picks

Some key picks from the REIT sector include Rexford Industrial Realty, Inc. REXR and Terreno Realty Corporation TRNO.

Rexford Industrial Realty holds a Zacks Rank of 2 (Buy) at present. Rexford’s 2022 revenues are expected to increase 34% year over year. The Zacks Consensus Estimate for REXR’s 2022 funds from operations (FFO) per share has been revised 1.6% upward in the past two months to $1.93.

The Zacks Consensus Estimate for Terreno Realty’s 2022 FFO per share has moved a cent north to $1.96 over the past two months. Currently, Terreno Realty carries a Zacks Rank of 2.

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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