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SL Green Realty Corp.’s SLG portfolio of well-located properties and its ability to offer top-notch amenities at recently-developed office buildings are likelyto attract decent demand amid recovery in the job market. Yet, its strategic dispositions will be dilutive for near-term earnings.
SL Green has a mono-market strategy focus with an enviable footprint in the large and high-barrier to entry New York real estate market. This, along with ownership of premier Manhattan office assets, has enabled the company to enjoy high occupancy at its portfolio over the years.
Moreover, with long-term leases to tenants with strong credit profile, it is well-poised to generate stable rental revenues over the long term. In fact, as of Jan 27, SL Green’s gross tenant billing collection for 2020 was 94.8%. This includes 97.9% from office and 80.8% from retail tenants.
Further, office-space demand is being driven by de-densification to allow higher square footage per office worker and the need for better-amenitized office properties to focus on health & wellness amid social-distancing requirements.Hence, SL Green is well-positioned to benefit from the emerging trend as it continues to make solid strides on its leasing front.
SL Green continues to follow an opportunistic investment policy to enhance its overall portfolio. This includes sale of its mature and non-core assets in a tax-efficient manner and using the proceeds to fund development projects and share buybacks. Such match-funding initiativeshighlight the company’s prudent capital-management practices and relieve pressure from its balance sheet.
However, the coronavirus pandemic has led to an uncertain economic environment. This along with the remote working dynamics has been affecting the demand, thereby, leading to a notable surge in vacancy rates and a decline net absorption.
Moreover, rental collections have become uncertain and SL Green is offering higher tenant improvement allowances, concessions and extended free rent periods.
The company has been resorting to non-core asset dispositions in a bid to enhance its liquidity to fund development projects and share buybacks. This will be dilutive for near-term earnings. In fact for 2021, the core portfolio GAAP net operating income (NOI) is likely to be adversely impacted to the tune of $9.4 million due to property dispositions and planned sales.
Lastly, softness in the retail real estate sector is also a concern for SL Green as it has a street-retail portfolio in important Manhattan shopping corridors. In fact, the retail real estate environment is currently choppy and mall traffic has been declining significantly amid rapid increase in online sales, which is forcing retailers to opt for store closures.
Shares of this Zacks Rank #3 (Hold) company have outperformed its industry in three months’ time. The company’s shares have rallied 11.6%, while the industry has gained 9.7%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Duke Realty Corporation’s DRE Zacks Consensus Estimate for 2021 FFO per share has remained unchanged at $1.66 over the past month. The company currently carries a Zacks Rank of 2 (Buy).
Extra Space Storage’s EXR Zacks Consensus Estimate for first-quarter 2021 FFO per share moved 8.8% north to $1.48 in two months’ time. The stock currently carries a Zacks Rank of 2.
Global Net Lease, Inc. GNL has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised upwardby4% to $2.10 in the past two months.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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