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Is it Wise to Retain SL Green (SLG) Stock in Your Portfolio?

·4 min read

SL Green Realty Corp. SLG, a prominent player in the office real estate market in New York, is set to bank on the return-to-office scenario. Its portfolio comprised 72 buildings totaling 34.7 million square feet at the end of first-quarter 2022.

The company’s dominance in Manhattan has allowed it to enjoy a decent occupancy at its premier office properties over the years. A well-diversified tenant base has also hedged its risk associated with dependency on tenants from a single industry. Long-term leases with tenants with a strong credit profile will support SLG’s ability to generate stable rental revenues in the forthcoming quarters.

On the leasing front, during first-quarter 2022, the company signed 37 office leases encompassing 820,989 square feet of space. Robust leasing activity and a gradual return of the workforce to offices are likely to boost SL Green’s occupancy and rental revenues. Also, the company’s operating expense savings initiatives will aid its net operating income (NOI) growth in the near future.

SL Green has been following an opportunistic investment policy to enhance its overall portfolio quality. It has undertaken divestment of its mature and non-core assets to utilize the proceeds to fund development projects and share buybacks. In February 2022, the company divested its ownership interest in 707 Eleventh Avenue for a gross sale price of $95 million.

SL Green also enjoys a robust balance-sheet position and holds abundant financial flexibility. As of Mar 31, 2022, it had cash and cash equivalents of $223.6 million. A steady fixed charge coverage ratio over the previous quarters reflects a decent cash flow availability for repaying near-term debt and other fixed charges. The company's chances of default are lowered as it holds a number of creditworthy tenants on its roster.

SLG is known for consistently raising its dividend rates. It last announced a dividend rate hike of 2.5% in December 2021. Along with such hikes, it aims to increase shareholder value through share buybacks, thereby boosting investors’ confidence in the stock. From the beginning of 2022 through Apr 20, SL Green repurchased 2 million shares of its common stock.

However, SL Green faces intense competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This curtails it from drawing higher rents from both old and new tenants, thereby challenging it to backfill tenant move-outs and vacancies.

Although dispositions are a strategic fit for the long term, dilution in earnings is a lingering concern for the near term. Property dispositions and planned sales are likely to adversely impact the core portfolio GAAP NOI.

The company carries out the majority of its operations in midtown Manhattan, NY. It also has several retail properties and multifamily residential assets in New York City. As a result, the company’s performance is largely dependent on the economic situation prevailing in the city.

Further, analysts seem to have a bearish stance on the stock. The recent trends in estimate revisions for 2022 funds from operations (FFO) per share are unfavorable for the company, with estimates having moved downward over the past month. Shares of SLG have lost 24.1% compared with the industry’s decline of 6.9% in the past three months.

At present, SLG carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Zacks Investment Research

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Prologis PLD, Extra Storage Space EXR and OUTFRONT Media OUT.

The Zacks Consensus Estimate for Prologis’ 2022 FFO per share has moved 1.4% upward in the past month to $5.15. PLD presently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Extra Storage Space’s ongoing year’s FFO per share has been raised 1.1% over the past month to $8.01. EXR carries a Zacks Rank #2, currently.

The Zacks Consensus Estimate for OUTFRONT Media’s current-year FFO per share has moved 7.7% northward in the past month to $2.09. OUT also carries a Zacks Rank of 2 at present.

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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Prologis, Inc. (PLD) : Free Stock Analysis Report
SL Green Realty Corporation (SLG) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
OUTFRONT Media Inc. (OUT) : Free Stock Analysis Report
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