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SL Green (SLG) to Post Q3 Earnings: What's in the Offing?

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SL Green Realty Corp. (SLG - Free Report) is slated to report third-quarter 2021 results on Oct 20, after market close. The company’s results will likely reflect year-over-year declines in the funds from operations (FFO) per share and revenues.

The New York office landlord reported a negative surprise of 1.23% in the last reported quarter. Decline in the occupancy level and same-store cash net operating income affected the company’s performance during the quarter.

Over the preceding four quarters, SL Green has surpassed the FFO per share estimates on three occasions and missed in the other, the average beat being 5.8%. This is depicted in the graph below:

Let’s see how things have shaped up prior to this announcement.

Factors at Play

The pandemic’s impact on the labor markets continued to overwhelm the U.S. office real estate market in the quarter to be reported, resulting in a negative net absorption and an increase in vacancy levels. The remote-working wave is still continuing and though the office-using employment is recovering, it is still below the pre-pandemic level.

Specifically, going by a Cushman & Wakefield (CWK - Free Report) report, the U.S. office sector witnessed a negative net absorption of 18.3 million square feet, for the sixth consecutive quarter. Also, the vacancy rate increased to 17.4% during the September-end quarter from the prior year’s 14.3%.

With no significant turnaround on the horizon for the leisure, hospitality and tourism sectors, the demand for the New York City retail space is also likely to have been dismal during the to-be-reported quarter.

Amid this, the Zacks Consensus Estimate for the third-quarter 2021 total revenues is pegged at $161 million, reflecting a 7.3% year-over-year decline.

Moreover, the company’s activities in the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the quarterly FFO per share has been revised marginally downward to $1.57 over the past month, suggesting a 12.8% year-over-year decline.

Nevertheless, SL Green has substantial high-quality office properties in key markets, a diverse tenant base, and is expected to have benefited from its opportunistic investments and strong balance sheet. Despite the tepid environment, its leasing pipeline has been robust. In September, together with the residential real estate brokerage Douglas Elliman, the company announced the leasing of a residential tower at 7 Dey Street in Downtown.

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 FFO 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 +1.18%.

Zacks Rank: It currently carries a Zacks Rank of 4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

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

Apple Hospitality REIT (APLE - Free Report) , slated to release third-quarter earnings on Nov 4, has an Earnings ESP of +26.67% and sports a Zacks Rank of 1, at present.

Life Storage, Inc. (LSI - Free Report) , scheduled to report quarterly figures on Nov 2, has an Earnings ESP of +0.10% and currently flaunts a Zacks Rank of 1.

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.