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SL Green Ends Venture by Selling Stake in 3 Columbus Circle

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SL Green Realty Corp. (SLG - Free Report) recently announced its plans to sell 48.9% stake in 3 Columbus Circle to The Moinian Group, seven years after the company helped Moinian recapitalize the property and prevent it from foreclosing amid the turmoiled New York property market.

Specifically, New York City’s largest office landlord is expected to cash out nearly $223 million through the sale to Moinina, which currently owns the remaining 51.1% interest. This acquisition is subject to customary closing conditions and is expected to close in fourth-quarter 2018.

In 2011, SL Green saved the distressed 753,000-square-foot redevelopment project by acquiring interest in the property. Thereafter, the property was given a facelift to offer high-end retail space, Central Park views, and highly-equipped building systems and technology.

Through a strategic-repositioning effort, the property was overhauled into a Class-A corporate destination occupying an entire block between Broadway and Eighth Avenue. The property was refurbished with an expanded lobby, new elevators and high-end security systems.

These efforts were successful as indicated by the healthy leasing numbers and top tenants on its roster.  In fact, the property is currently 95% leased as compared to the 20% occupancy at the time of its acquisition. It counts Young & Rubicam, eMerge 212 and Jazz at Lincoln Center among the company’s tenants. Further, the retail space was recently anchored by Nordstrom and is the brands first store in the New York City location.

Per David Schonbraun, co-chief investment officer at SL Green, “With these significant improvements, we have transformed the property into a premier Columbus Circle asset, and have created substantial long-term value, as evidenced by our anticipated internal rate of return in excess of 15% on the investment.”

Notably, SL Green has been following an opportunistic investment policy to enhance its overall portfolio. This includes monetizing its non-core assets and using the proceeds to fund share buybacks, long-term core asset acquisitions, and investment in debt and preferred equities. In fact, in the first half of 2018, SL Green disposed three properties for gross price of $470 million.

Nonetheless, interest rate hike poses a challenge for the company.  This is because the company’s ability to refinance existing debt would be restricted, while the interest cost on new debt might escalate.

Also, shares of this Zacks Rank #3 company have outperformed its industry over the past three months. While its shares have jumped 10.9%, the industry gained 8.2% during the same time frame. 

 

Key Picks

Better-ranked stocks from the REIT space include NorthStar Realty Europe Corp. , W.P. Carey, Inc. (WPC - Free Report) and PS Business Parks, Inc. . NorthStar Realty sports a Zacks Rank of 1 (Strong Buy), while W.P. Carey and PS Business Parks carry a Zacks rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NorthStar Realty’s Zacks Consensus Estimate for 2018 FFO per share has been revised 5.5% upward over the past 30 days. Its shares have returned 34.1% in the past six months.

W.P. Carey’s FFO per share estimates for 2018 remined unchanged at $5.12 in 60 days’ time. Its shares have appreciated 10.9% over the past six months.

PS Business Parks’ FFO per share estimates for the current year moved up marginally in the past 30 days to $6.39. Its shares have rallied 18.3% in six months’ time.

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