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SL Green Upgraded to Buy

Zacks Equity Research

On Dec 3, Zacks Investment Research upgraded SL Green Realty Corp. (SLG) to a Zacks Rank #2 (Buy). The upgrade is based on the company’s efforts to expand its retail investment portfolio and strong third-quarter 2013 results.

Why the Upgrade?

Of late, this real estate investment trust (:REIT) has been keen on tapping opportunities in New York City’s premium retail locations with investments that complement its core office and structured finance businesses. Consequently, last month, SL Green formed a venture along with its partner Jeff Sutton and purchased a 49-year leasehold interest encompassing the whole retail section of 650 Fifth Avenue.

Going forward, in the same month, the SL Green – Sutton venture penned a deal to buy out the lease of retailer Juicy Couture at the same property. Also, the SL Green – Sutton venture renewed the lease agreement with Prada, a globally recognized brand in the fashion industry, for its flagship store at 724 Fifth Avenue in New York City.

We view SL Green’s abovementioned deals as a strategic fit, given the current holiday shopping season fueling retail sales. This will not only ensure steady rental income, but also boost its long-term value.

Also, SL Green came up with impressive third-quarter results, with funds from operations (:FFO) of $1.34 per share, beating the Zacks Consensus Estimate by 4.7% and the prior-year quarter figure by 19.6%. Better-than-expected revenue growth and strong leasing activity drove the results. Encouraged with its quarterly performance, SL Green raised its quarterly dividend by 52% as well as the 2013 FFO per share outlook.

These bullish factors triggered an uptrend in the Zacks Consensus Estimates, as analysts became more constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate, which rose 0.6% to $5.12 for 2013 and 0.4% to $5.57 per share for 2014, over the past 30 days.

Additionally, the long-term earnings growth forecast for SL Green is 4.41%. Hence, these factors made way for the upgrade in the rank.

Other Stocks to Consider

Apart from SL Green, the other stocks worth considering in REIT – Equity Trust – Other industry include Ventas, Inc. (VTR), Public Storage (PSA) and EastGroup Properties Inc. (EGP). All these stocks carry a Zacks Rank #2.

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.

Read the Full Research Report on VTR
Read the Full Research Report on PSA
Read the Full Research Report on SLG
Read the Full Research Report on EGP

Zacks Investment Research