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What's in the Cards for SL Green Realty (SLG) in Q3 Earnings?

Zacks Equity Research

SL Green Realty Corp. SLG is slated to report third-quarter 2019 results on Oct 16, after the market closes. The company’s quarterly results will likely reflect year-over-year growth funds from operations (FFO) per share, while revenues are anticipated to have declined.

In the last reported quarter, this New York office landlord reported FFO of $1.82 per share, surpassing the Zacks Consensus Estimate of $1.73. The tally included promote income from the sale of 521 Fifth Avenue of $3.4 million or 4 cents per share. The company also witnessed revenue growth.

Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, met in the other and missed in another two. It reported an average negative surprise of 0.88% during this period. The graph below depicts this surprise history:

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

Factors to Consider

Office landlords have been battling with slow leasing velocity as supply growth remains at cycle highs. In fact, per a report by the Newmark Knight Frank, the third-quarter office leasing at Manhattan reached 10.6 million square feet, declining 26.3% from the quarter-ago tally of 14.4 million square feet of space. Further, net absorption was negative 219,434 square feet. These declines can be attributed to the addition of 14 large blocks of space in the market during the September-end quarter.

Further, in Midtown Manhattan, 5.1 million square feet of space was leased during the quarter, indicating the lowest leasing velocity since third-quarter 2015.

Particularly, as of Jun 30, 2019, the company witnessed an 80-basis-point drop in its Manhattan’s same-store occupancy (inclusive of leases signed but not yet commenced). Given the uninspiring leasing fundamentals of the Manhattan market, this trend will likely have continued in the third quarter as well, given SL Green’s predominant presence in Manhattan and New York Metropolitan area.

Amid these, the Zacks Consensus Estimate for third-quarter 2019 revenues is pinned at $215.6 million, reflecting a year-over-year decline of 2.8%.

Also, prior to the to-be-reported quarter’s earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the quarter remained unchanged at $1.73, over the past 30 days. Encouragingly, it indicated year-over-year growth of 2.4%.

Also, in July, the company signed a lease with Ulta Beauty, Inc. ULTA, the largest national beauty retailer, renting out 12,040 square feet of space at 2 Herald Square. With this lease, the property’s retail space is now 100% leased. The strategic location of the property at one of Manhattan’s coveted retail submarkets and high foot traffic in the region has likely enabled the company to execute this deal. This is expected to have supported SL Green’s retail leasing velocity in the September-end quarter.

Key Developments in Q3

In September, SL Green Realtyannounced that its trophy office tower in East Midtown in New York City — One Vanderbilt — has topped out at 1,401 feet. With this, the building’s construction is ahead of its schedule by more than three months and $100 million under budget.

Given the development project’s scale and infrastructural complexity, this is a notable foot. In fact, by reaching the full height, it is now the fourth tallest skyscraper in New York City, and Midtown’s tallest office building.

Furthermore, the tower has witnessed active leasing and is currently 59% leased. The property is anticipated to open in August 2020.

Earnings Whispers

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 earnings 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 -0.81%.

Zacks Rank: It currently carries a Zacks Rank #3 which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

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

Digital Realty Trust, Inc. DLR, scheduled to release earnings on Oct 29, has an Earnings ESP of +0.87% and carries a Zacks Rank of 3, at present.

Ventas Inc. VTR, slated to report quarterly figures on Oct 25, has an Earnings ESP of +0.96% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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