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Is it Wise to Retain SL Green (SLG) Stock in Your Portfolio?
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Amid the growing demand for premier office spaces, SL Green Realty Corp.’s (SLG - Free Report) portfolio of high-quality and well-amenitized office properties in the high barrier-to-entry real estate market of New York poises it well to ride the growth curve. Its opportunistic investment policy and a robust balance sheet augur well. However, a choppy office real estate market amid persistent macroeconomic uncertainty and high interest rates makes us apprehensive.
SLG is witnessing healthy leasing demand for its properties as tenants’ demand for premium office spaces continues to grow. Notably, in the six months ended Jun 30, 2023, it signed 84 office leases for its Manhattan office portfolio spanning around 915,431 square feet.
Given that office-space demand in the upcoming period is likely to be driven by de-densification to allow higher square footage per office worker, SLG’s encouraging leasing pipeline positions it well to navigate the present challenging environment.
Moreover, this office real estate investment trust (REIT) enjoys a diversified tenant base with a strong credit profile. This lowers the risk associated with dependency on single-industry tenants and assures stable rental revenues for the company. For 2023, we estimate a year-over-year increase of 5.8% in net rental revenues.
To enhance its overall portfolio quality, the company follows an opportunistic investment policy. It divests the mature and non-core assets and utilizes the proceeds to fund development projects and share buybacks. Such efforts highlight its prudent capital-management practices and preserve financial flexibility.
In June 2023, SLG divested a 49.9% interest in 245 Park Avenue to a U.S. affiliate of Mori Trust Co., Ltd. The transaction valued the asset at $2.0 billion and forms a pivotal component of SL Green's 2023 financial strategy.
The company maintains a robust balance sheet position and had $1 billion of liquidity as of Jun 30, 2023. Its healthy financial footing positions it well to capitalize on long-term growth opportunities.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past month to $5.56.
Shares of the company have gained 43.6% in the past three months against the industry’s 2.7% fall.
Image Source: Zacks Investment Research
Nonetheless, a choppy office market environment amid persistent macroeconomic uncertainty is likely to soften the demand for office properties in the near term, raising concerns for this office REIT.
Competition from industry peers may limit the company’s ability to retain tenants at relatively higher rents, denting its pricing power. Also, the elevated supply of office properties may adversely impact SL Green’s ability to backfill near-term tenant move-outs and vacancies, hurting occupancy.
Further, given the prevailing high interest rate environment, SL Green may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Our estimate suggests a significant year-over-year increase in net interest expenses in 2023.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past month to $3.53.
The consensus estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% over the past month to $1.26.
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.
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Is it Wise to Retain SL Green (SLG) Stock in Your Portfolio?
Amid the growing demand for premier office spaces, SL Green Realty Corp.’s (SLG - Free Report) portfolio of high-quality and well-amenitized office properties in the high barrier-to-entry real estate market of New York poises it well to ride the growth curve. Its opportunistic investment policy and a robust balance sheet augur well. However, a choppy office real estate market amid persistent macroeconomic uncertainty and high interest rates makes us apprehensive.
SLG is witnessing healthy leasing demand for its properties as tenants’ demand for premium office spaces continues to grow. Notably, in the six months ended Jun 30, 2023, it signed 84 office leases for its Manhattan office portfolio spanning around 915,431 square feet.
Given that office-space demand in the upcoming period is likely to be driven by de-densification to allow higher square footage per office worker, SLG’s encouraging leasing pipeline positions it well to navigate the present challenging environment.
Moreover, this office real estate investment trust (REIT) enjoys a diversified tenant base with a strong credit profile. This lowers the risk associated with dependency on single-industry tenants and assures stable rental revenues for the company. For 2023, we estimate a year-over-year increase of 5.8% in net rental revenues.
To enhance its overall portfolio quality, the company follows an opportunistic investment policy. It divests the mature and non-core assets and utilizes the proceeds to fund development projects and share buybacks. Such efforts highlight its prudent capital-management practices and preserve financial flexibility.
In June 2023, SLG divested a 49.9% interest in 245 Park Avenue to a U.S. affiliate of Mori Trust Co., Ltd. The transaction valued the asset at $2.0 billion and forms a pivotal component of SL Green's 2023 financial strategy.
The company maintains a robust balance sheet position and had $1 billion of liquidity as of Jun 30, 2023. Its healthy financial footing positions it well to capitalize on long-term growth opportunities.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past month to $5.56.
Shares of the company have gained 43.6% in the past three months against the industry’s 2.7% fall.
Image Source: Zacks Investment Research
Nonetheless, a choppy office market environment amid persistent macroeconomic uncertainty is likely to soften the demand for office properties in the near term, raising concerns for this office REIT.
Competition from industry peers may limit the company’s ability to retain tenants at relatively higher rents, denting its pricing power. Also, the elevated supply of office properties may adversely impact SL Green’s ability to backfill near-term tenant move-outs and vacancies, hurting occupancy.
Further, given the prevailing high interest rate environment, SL Green may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Our estimate suggests a significant year-over-year increase in net interest expenses in 2023.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , SBA Communications (SBAC - Free Report) and Americold Realty Trust (COLD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past month to $3.53.
The consensus estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% over the past month to $1.26.
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.