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SL Green (SLG) to Report Q1 Earnings: What's in the Cards?

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SL Green Realty Corp. (SLG - Free Report) is expected to report first-quarter 2017 results on Wednesday, Apr 19, after the market closes. Last quarter, this real estate investment trust (REIT) delivered a negative surprise of 0.7%.

The Zacks Consensus Estimate for first-quarter funds from operations (FFO) per share is currently pegged at $1.57.

SL Green beat estimates in three of the four trailing quarters, with a positive average earnings surprise of 6.7%. The graph below depicts this surprise history.

Let’s see how things are shaping up for this announcement.

Factors to Consider

SL Green is the leading commercial property owner in New York City. The company has been actively pursuing portfolio enhancement initiatives through investments in opportunistic assets, debt and preferred equities.

In January, the company announced the closing of the joint venture with National Pension Service of South Korea (NPS) and Hines Interest LP, which allowed it to own 29% ownership interest in the One Vanderbilt development project. This prompted the Standard and Poor Global Ratings to revise the outlook of the company from stable to positive. The positive outlook indicates the rating agency’s assumption of SL Green effectively managing the development risk of One Vanderbilt. The rating agency states that the company will also maintain its current financial policy, with improving credit metrics.

Also, the rating agency anticipates that SL Green will remain committed to its stated financial policy and continue to strengthen its financial risk profile.

However, a large part of SL Green’s revenues comes from its office portfolio, demand for which is highly correlated with job growth. Apart from this, intense competition from owners, developers and operators of other office properties and commercial real estate limits its ability to retain tenants. Moreover, rise in interest rate will adversely impact the REIT’s financials.

As such, the Zacks Consensus Estimate of FFO per share for the to-be-reported quarter moved down 0.6% to $1.57 in the last 30 days.

Further, in the last three months, shares of SL Green underperformed the Zacks categorized REIT Equity Trust – Other industry. While SL Green lost 0.1%, the industry gained 4.4% over this period.

Earnings Whispers

Our proven model does not conclusively show that SL Green will beat on earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are currently pegged at $1.55 and $1.57, respectively, which translates into an Earnings ESP of -1.27%.

Zacks Rank: SL Green currently carries a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are three REITs that you may consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

HCP Inc. (HCP - Free Report) , slated to release earnings results on May 2, has an Earnings ESP of +2.04% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

EPR Properties (EPR - Free Report) , expected to release earnings results on May 2, has an Earnings ESP of +0.84% and a Zacks Rank #3.

Physicians Realty Trust (DOC - Free Report) , expected to release earnings results on May 3, has an Earnings ESP of +3.33% and a Zacks Rank #3.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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