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

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SL Green Realty Corp. SLG is slated to report fourth-quarter and full-year 2019 results on Jan 22, after the market closes. The company’s quarterly results will likely reflect year-over-year growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this New York-office landlord reported FFO of $1.75 per share, surpassing the Zacks Consensus Estimate of $1.73. Results reflected decent leasing activity in the company’s Manhattan portfolio. Further, total revenues for the quarter improved year over year.

Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate in two occasions for as many misses. It reported an average negative surprise of 0.59% during this period. The graph below depicts this surprise history:

SL Green Realty Corporation Price and EPS Surprise

Factors to Consider

The U.S. office market remained healthy in fourth-quarter 2019, supported by occupancy growth across a number of markets. In fact, per a report by REIS, office vacancy rate was 16.8% during the October-December period, unchanged sequentially.

Strong leasing activity as demonstrated by a surge in net absorption drove 0.5% sequential growth in national average asking rent and effective rent during the period under consideration.

In fact, quarterly net absorption was 12.2 million square feet improving 35% year over year. Of this, three markets — Chicago, New York, and Dallas — captured 6.6 million square feet of positive net absorption. 

As for Manhattan, a report by Cushman & Wakefield CWK indicated that the office market witnessed strong leasing activity with fourth-quarter new leasing aggregating around 9.1 million square feet, up 24.7% sequentially. This was driven by an expansion in the New York City economy that witnessed an all-time high of 1.47 million jobs in office-using employment.

This healthy end to the year is expected to have supported SL Green’s quarterly leasing activity, given its predominant presence in Manhattan and New York Metropolitan area. Leasing velocity accelerated with the company signing 1,157,104 square feet of office and retail leases in the fourth quarter through Dec 9, bringing the year-to-date tally to 2,341,999 square feet for office leases.

Specifically, technology, advertising, media and information (TAMI), finance, insurance and real estate (FIRE) and legal sectors spurred demand.

Moreover, the company remained committed pursuing its business plan to shed mature and non-core assets, reinvesting the proceeds in new development and share buybacks. This too is likely to have aided the company’s results.

Leveraging on a healthy investment sales market in October 2019, SL Green entered into a sale contract for its 220 East 42nd Street property for $815 million. 

The company also made substantial progress on its trophy office-tower development, One Vanderbilt Avenue, securing a new lease and an expansion lease. With these transactions, the property is 64% leased.

Further, despite a challenging retail market, the company executed 15 retail lease transactions in 2019 across its high-street portfolio. With around $42.3 million of revenues associated with these leases, it is anticipated to have fueled SL Green’s quarterly top-line growth.

Also, the Zacks Consensus Estimate for fourth-quarter 2019 revenues is pinned at $217.03 million, reflecting a year-over-year improvement of around 0.3%.

In addition, prior to the fourth-quarter earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised marginally upward to $1.74 over the past month, reflecting analysts’ bullish sentiments. Also, it represents year-over-year growth of 8.1%.

Also, the estimates for 2019 FFO per share witnessed marginal upward revision over the past month to $6.99. This indicates 5.4% year-over-year improvement. Management outlook for the same is $7.

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 a 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 +0.35%.

Zacks Rank: It currently carries a Zacks Rank #2 (Buy).

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

Other 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:

Healthpeak Properties, Inc. (PEAK - Free Report) , scheduled to release earnings on Feb 11, has an Earnings ESP of +1.8% and carries a Zacks Rank of 3, at present.

Host Hotels & Resorts, Inc. HST, slated to report quarterly figures on Feb 19, has an Earnings ESP of +1.52% and carries a Zacks Rank of 3, currently.

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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