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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 2018 results on Oct 17, after the market closes. The company’s results will likely reflect year-over-year decline in its revenues, while funds from operations (FFO) per share is anticipated to have recorded growth.

In the last reported quarter, this New York office landlord surpassed its FFO estimate by a whisker. The company experienced an increase in same-store cash net operating income (NOI), including the share of same-store cash NOI from unconsolidated joint ventures. However, rental revenues witnessed a year-over-year decline.

Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate in two occasions, missed in another and met in the other. It delivered an average negative surprise of 0.97% during this period. The graph below depicts this surprise history:

Factors That Might Influence Q3 Results

During the quarter under review, SL Green made continued efforts to refine its portfolio on the back of strategic acquisitions and disposal of non-core assets. In fact, in August, the company announced that it plans to sell its 48.9% stake in 3 Columbus Circle to The Moinian Group, for nearly $223 million. (Read more: SL Green Ends Venture by Selling Stake in 3 Columbus Circle)

Notably, such disposition are anticipated to have provided this REIT with significant dry power to fund share buybacks, long-term core asset acquisitions, and investment in debt and preferred equities.

Also, the Zacks Consensus Estimate for third-quarter property operating revenues is currently pinned at $237 million, reflecting an increase of 8% from the previous-quarter figure. Further, the Zacks Consensus Estimate for escalation and reimbursement income is pegged at $29.12 million, indicating 7.7% growth sequentially.

Also, investment income for the Jul-Sep quarter is pegged at $49.8 million — a marginal sequential improvement.

Notably, SL Green generates a significant amount of revenues from its office portfolio. Although the job market is improving, prevalent office space efficiency trends, as well as elevated supply in its markets remain concerns. This restricts its ability to attract and retain tenants at relatively higher rents than the company’s competitors. Further, the choppy retail real estate market has been affecting demand for retail space, limiting landlords’ pricing power and resulting in lesser absorption.

Amid these, for third-quarter 2018, net rental revenues from the company’s properties is expected to be around $212 million, reflecting a decline of nearly 11%.

Furthermore, over the past month, the Zacks Consensus Estimate for FFO per share for the quarter to be reported remained unchanged at $1.69, reflecting lack of any positive catalyst for an upward revision.

Earnings Whispers

Here is what our quantitative model predicts:

SL Green has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings 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 +0.06%.

Zacks Rank: It currently carries a Zacks Rank #3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Stocks That Warrant a Look

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

Ventas Inc. (VTR - Free Report) , slated to release third-quarter results on Oct 26, has an Earnings ESP of +0.1% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Realty Corporation (DRE - Free Report) scheduled to report earnings on Oct 24, has an Earnings ESP of +2.56% and a Zacks Rank #2.

HCP, Inc. , set to release quarterly numbers on Oct 31, has an Earnings ESP of +1.67% and a Zacks Rank of 3.

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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