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Why Is SL Green (SLG) Down 18.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for SL Green (SLG - Free Report) . Shares have lost about 18.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SL Green due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

SL Green Tops Q1 FFO, Misses on Revenues, Trims View

SL Green reported first-quarter 2020 FFO per share of $2.08, surpassing the Zacks Consensus Estimate of $1.70. The figure also compares favorably with the year-ago quarter’s $1.68.

The FFO per share of $2.08 includes an incremental income from Credit Suisse at 1 Madison Avenue representing rent through Dec 31, 2020, offset by $11.2 million.

The company also revised its full-year outlook in the wake of the coronavirus pandemic.

Net rental revenues of $195.5 million in the first quarter missed the Zacks Consensus Estimate of $213.5 million. The revenue figure also declined 8.1% from the prior-year tally of $212.6 million.

Quarter in Detail

During the March-end quarter, same-store cash NOI, including SL Green’s share of same-store cash NOI from unconsolidated joint ventures, inched up 0.7% year over year. This excludes lease termination and free rent income given to Viacom for space at 1515 Broadway.

In the Manhattan portfolio, SL Green signed 30 office leases for 316,154 square feet of space in total during the reported period. The average lease term on these leases was 10.1 years, while average tenant concessions were 2 months of free rent, along with a tenant improvement allowance of $28.54 per rentable square foot.

The mark-to-market on signed Manhattan office replacement leases was 12.6% higher than the previous fully-escalated rents in the same spaces during the first quarter. As of Mar 31, 2020, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 95.5%, down 50 basis points compared with the prior quarter.

The carrying value of its debt and preferred equity investment portfolio increased to $1.85 billion.

The company adopted the Current Expected Credit Loss model in the first quarter. The company’s reserves after the adoption of this model totaled $43.5 million at the end of the quarter.

Liquidity

SL Green exited first-quarter 2020 with cash and cash equivalents of $554.2 million, up from the $166.1 million recorded at the end of 2019.

Investment Activity

Under the $3-billion share-repurchase program, the company has repurchased 2.6 million shares, year to date, at an average price of $83.25 per share.

Additionally, the company completed the sale of 315 West 33rd Street, known as The Olivia and an undeveloped parcel of land for $446.5 million. The disposals generated net cash proceeds and gains of $95.7 million and $72.3 million, respectively.

The company also entered into a 99-year ground lease agreement of 126-132 Nassau Street, located at the corner of Nassau and Beekman Streets.

Guidance

The company believes the coronavirus pandemic will result in headwinds like slowdown in leasing activities, reduced market rents and lower collections in its owned properties. The company also revised its previously-issued 2020 FFO per share guidance to $6.60-$7.10 from $7.25-$7.35.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.22% due to these changes.

VGM Scores

At this time, SL Green has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SL Green has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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