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SL Green Sells 521 Fifth Avenue Office Property for $381M

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SL Green Realty Corp. (SLG - Free Report) recently announced that the company, along with its institutional investment partner, has entered into an agreement to sell the 521 Fifth Avenue office property to Savanna — a New York City-based real estate investment manager and developer.

In fact, the 460,000-square-foot property is located in Midtown Manhattan and will be sold for a gross sales price of $381 million. SL Green owns a 50.5% stake in the joint venture (JV).

It is expected to cash out nearly $100 million in net proceeds through the sale of the 39-story property. The acquisition, subject to customary closing conditions, is expected to close in second-quarter 2019.

Notably, SL Green acquired leasehold interest in the property in March 2006 and owned fee interest ownership in April 2011. Subsequently, in fourth-quarter 2012, it entered into a JV with an institutional investment partner for joint ownership of the asset.

Per management, the transaction highlights strong demand for high-quality assets in east Midtown — Manhattan’s leading business district.

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, the company has executed dispositions and recapitalizations of more than $8 billion, since 2016, which helped boost its cash inflows by more than $2 billion.

However, significant dispositions will likely result in near-term earnings dilution, thereby impeding the company’s bottom-line growth. Further, intense competition from other market players and rising supply of office properties in its markets will impact the company’s pricing power in the upcoming quarters.  

Also, shares of this Zacks Rank #3 (Hold) company have underperformed its industry over the past year. While its shares have declined 7.3%, the industry gained 14.7% during the same time frame. 


 

Stocks to Consider

Some better-ranked stocks in the same space are Terreno Realty Corporation (TRNO - Free Report) , Cousins Properties Incorporated (CUZ - Free Report) and Boston Properties, Inc. (BXP - Free Report) . Each of these stocks carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Terreno Realty’s funds from operations (FFO) per share estimates for 2019 remained unchanged at $1.42, in the past month. Furthermore, it has a long-term growth rate of 8.40%.

Cousins Properties’ Zacks Consensus Estimate for 2019 FFO per share has been revised upward 15.9% to 73 cents over the past month. Also, it has a long-term growth rate of 3.2%.

Boston Properties’ FFO per share estimate for the ongoing year has been revised marginally north to $6.92 in 30 days’ time. Additionally, it has a long-term growth rate of 6.20%.

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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