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What's in Store for SL Green (SLG) This Earnings Season?

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SL Green Realty Corp. (SLG - Free Report) is slated to report second-quarter 2022 results on Jul 20 after the closing bell. While SL Green’s quarterly results are likely to reflect a decline from the year-ago quarter’s reported revenues, funds from operations (FFO) per share are expected to exhibit a modest increase.

In the last reported quarter, this New York office landlord witnessed a surprise of 0.61% in terms of FFO per share. Results reflected a better-than-expected top line.

Over the preceding four quarters, SLG’s FFO per share surpassed estimates on two occasions and missed the same in the other two, the average surprise being 2.22%. This is depicted in the graph below:

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

Factors at Play

Per a report from Cushman & Wakefield, the recovery of the U.S. office sector is uneven. Even with office-using employment increasing in the first half of the year, office absorption has continued to be negative. In the second quarter, the U.S. office sector witnessed a negative net absorption of 7.8 million square feet (msf).

However, there has been a rebound in gross leasing activity, and the four-quarter rolling total leasing is more than 360 msf for the second straight quarter. While gross leasing is exhibiting an improvement, it remains lower than the three-year lead up to the pandemic, the report noted.

The national vacancy came in at 17.6% in the second quarter, reflecting a year-over-year increase of 110 basis points. The vacancy trend is also uneven, with some markets experiencing an improvement while others lagging. In the second quarter, effective rents were down 2.4% year over year. The national asking rent came in at $37.03 for the second quarter.

SL Green has high-quality office properties at key locations and is also expected to have benefited from its opportunistic investments, diversified tenant base and strong balance sheet.

However, the choppiness in the macroeconomic environment in the second quarter, with supply-chain issues and inflationary pressure, might have limited the growth tempo of the office sector. Also, the remote-working dynamic and the rising supply of office properties remain a major concern for SLG.

The company faces intense competition from the developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $139.28 billion, suggesting a decline of 15.03% from the prior-year quarter’s reported number.

Analysts seem slightly pessimistic about SL Green’s prospects before the second-quarter earnings release as the Zacks Consensus Estimate for the quarterly FFO per share has been revised a cent downward to $1.69 over the past week. However, the same calls for a 2.42% increase from the prior-year period’s reported figure.

Here Is What Our Quantitative Model Predicts

SL Green does not have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat.

Earnings ESP: SL Green has an Earnings ESP of +1.41%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: SLG 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 two stocks from the REIT sector — SBA Communications Corporation (SBAC - Free Report) and Host Hotels & Resorts, Inc. (HST - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

SBA Communications Corporation, slated to release first-quarter earnings on Aug 1, has an Earnings ESP of +1.40% and carries a Zacks Rank of 3 at present.

Host Hotels & Resorts, scheduled to report quarterly numbers on Aug 3, has an Earnings ESP of +9.35% and carries a Zacks Rank of 2 (Buy).

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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