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Is it Wise to Retain SL Green Stock in Your Portfolio Now?
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SL Green Realty Corp.’s (SLG - Free Report) portfolio of high-quality and well-amenitized office properties in New York City poises it well to ride the growth curve. Its opportunistic investment policy augurs well. However, an elevated supply of office properties in its markets and high interest rates make us apprehensive.
What’s Supporting SLG Stock?
SL Green has a mono-market strategy focus with an enviable footprint in the large and high barrier to entry New York real estate market. Moreover, this office real estate investment trust (REIT) enjoys a diversified tenant base with long-term leases and a strong credit profile. This lowers the risk associated with dependency on single-industry tenants and assures stable rental revenues for the company.
Although overall demand for office spaces in some markets is likely to remain subdued in the near term, given tenants’ healthy demand for premier office spaces with class-apart amenities, SL Green is well-poised for growth. Its long-term leases, with a diverse tenant base, assure stable rental revenues.
Despite the negative effects of the remote-working dynamics that have been hindering the U.S. office real estate sector, SL Green signed 38 office leases for its Manhattan office portfolio, encompassing 420,513 square feet during the second quarter of 2024. It signed 160 office leases for its Manhattan office portfolio, spanning around 1,776,414 square feet during 2023. With encouraging leases executed over the past few quarters, several new names have been added to SL Green’s tenant roster.
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 remains well-positioned to navigate the challenging environment. Further, SL Green is focused on the continuation of its operating expense savings initiatives, and these efforts are likely to aid its NOI growth in the years to come.
To enhance its overall portfolio quality, the company follows an opportunistic investment policy. It divests 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 will relieve pressure from its balance sheet.
Shares of the company have gained 25.5% in the past three months, outperforming the industry’s growth of 14.7%. Also, analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share rose marginally over the past month to $7.58.
Image Source: Zacks Investment Research
What’s Affecting SLG Stock?
The U.S. office real estate market continues to struggle from the aftereffects of the health crisis, with negative absorption and increasing vacancy levels. The lackluster environment can be attributed to the pandemic-led job cuts and hybrid working environment, which has diminished office space utilization.
Moreover, SL Green faces competition from developers, owners and operators of office properties and other commercial real estate. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors. Amid higher leasing costs and an elevated supply of office properties, it will be challenging for the company to backfill tenant move-outs and vacancies in the near term.
A high interest rate environment is also a concern for SL Green. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. It has a substantial debt burden and its total consolidated debt (net) as of June 30, 2024, was approximately $3.63 billion. Moreover, with high interest rates still in place, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.03 indicates an 8.3% increase year over year.
The Zacks Consensus Estimate for Healthpeak’s 2024 FFO per share is pegged at $1.80, which suggests 1.1% year-over-year growth.
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 Stock in Your Portfolio Now?
SL Green Realty Corp.’s (SLG - Free Report) portfolio of high-quality and well-amenitized office properties in New York City poises it well to ride the growth curve. Its opportunistic investment policy augurs well. However, an elevated supply of office properties in its markets and high interest rates make us apprehensive.
What’s Supporting SLG Stock?
SL Green has a mono-market strategy focus with an enviable footprint in the large and high barrier to entry New York real estate market. Moreover, this office real estate investment trust (REIT) enjoys a diversified tenant base with long-term leases and a strong credit profile. This lowers the risk associated with dependency on single-industry tenants and assures stable rental revenues for the company.
Although overall demand for office spaces in some markets is likely to remain subdued in the near term, given tenants’ healthy demand for premier office spaces with class-apart amenities, SL Green is well-poised for growth. Its long-term leases, with a diverse tenant base, assure stable rental revenues.
Despite the negative effects of the remote-working dynamics that have been hindering the U.S. office real estate sector, SL Green signed 38 office leases for its Manhattan office portfolio, encompassing 420,513 square feet during the second quarter of 2024. It signed 160 office leases for its Manhattan office portfolio, spanning around 1,776,414 square feet during 2023. With encouraging leases executed over the past few quarters, several new names have been added to SL Green’s tenant roster.
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 remains well-positioned to navigate the challenging environment. Further, SL Green is focused on the continuation of its operating expense savings initiatives, and these efforts are likely to aid its NOI growth in the years to come.
To enhance its overall portfolio quality, the company follows an opportunistic investment policy. It divests 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 will relieve pressure from its balance sheet.
Shares of the company have gained 25.5% in the past three months, outperforming the industry’s growth of 14.7%. Also, analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share rose marginally over the past month to $7.58.
Image Source: Zacks Investment Research
What’s Affecting SLG Stock?
The U.S. office real estate market continues to struggle from the aftereffects of the health crisis, with negative absorption and increasing vacancy levels. The lackluster environment can be attributed to the pandemic-led job cuts and hybrid working environment, which has diminished office space utilization.
Moreover, SL Green faces competition from developers, owners and operators of office properties and other commercial real estate. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors. Amid higher leasing costs and an elevated supply of office properties, it will be challenging for the company to backfill tenant move-outs and vacancies in the near term.
A high interest rate environment is also a concern for SL Green. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. It has a substantial debt burden and its total consolidated debt (net) as of June 30, 2024, was approximately $3.63 billion. Moreover, with high interest rates still in place, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising (LAMR - Free Report) and Healthpeak Properties (DOC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.03 indicates an 8.3% increase year over year.
The Zacks Consensus Estimate for Healthpeak’s 2024 FFO per share is pegged at $1.80, which suggests 1.1% year-over-year growth.
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.