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SL Green (SLG) Cuts Annual Dividend Rate to Meet 2023 Targets

SL Green Realty Corp. SLG recently announced a cut in its annual ordinary dividend payment on its common stock and units of its operating partnership from $3.73 per share to $3.25. This marks a reduction of 12.9%.

Reflecting negative sentiments, shares of SLG lost nearly 6.6% on Dec 6 normal trading session on the NYSE.

Consequently, the monthly ordinary dividend now stands at 27.08 cents per share, which will be paid out on Jan 17, 2023, to shareholders on record as of Dec 30, 2022. SL Green will continue to pay this reduced dividend in cash on a monthly basis.

This move comes as part of the company’s efforts to match its present estimation of funds available for distribution (FAD) for 2023, which is $221.3 million. This permits SLG to balance out between the yield on its common stock, and its liquidity forecast of nearly $1.6 billion and its target to lower its combined debt by almost $2.4 billion in 2023.

Simultaneously, in its latest institutional investor conference, SL Green outlined its guidance for 2023 funds from operations (FFO) per share. It expects the same to lie in the range of $5.30-$5.60 per share. The Zacks Consensus Estimate for the same is currently pegged at $6.16 per share.

Moreover, for 2022, the company estimates FFO per share to lie between $6.70 and $7.00 per share. The Zacks Consensus Estimate for the same presently stands at $6.70 per share.

SLG anticipates its pro-rata share of same-store net operating income to be within 2.5-3.5% for 2023.

Given the rising interest rate environment, the company expects interest expense (including amortization of deferred financing costs) and preferred dividends to be $343.8 million for 2022, up from its initial forecast of $295.8 million. For 2023, the same is anticipated to be $413.2 million.

The United States office real estate market has been choppy for quite some time now, with negative absorption and increasing vacancy levels. The continuation of the flexible working environment and pandemic-led job cuts have led to diminishing office space utilization.

Even with many companies implementing a return-to-office policy, any significant turnaround is less likely in the near term. SLG expects office occupancy to be lower in the first half of 2023, with same-store office occupancy to hover around 90%.

Furthermore, amid the choppy office environment, the average tenant concessions were nine months of free rent with a tenant improvement allowance of $81.94 per rentable square foot for the nine months ended on Sep 30, 2022. This excluded the leases signed at One Vanderbilt Avenue, One Madison Avenue and the MSK lease at 885 Third Avenue.

Analysts, too, seem bearish about this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for company’s 2022 FFO does not indicate a favorable outlook, as it has been revised marginally downward over the past month.

Shares of SL Green have lost 11.5% in the quarter-to-date period against its industry’s growth of 4.5%.

Zacks Investment Research
Zacks Investment Research


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Stocks to Consider

Some better-ranked stocks from the REIT sector are VICI Properties VICI, Lamar Advertising LAMR and Chatham Lodging Trust REIT CLDT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.

The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share is pegged at $7.34.

The Zacks Consensus Estimate for Chatham Lodging Trust’s ongoing year’s FFO per share is pegged at $1.17.

Note: Anything related to earnings presented in this write-up represent FFO — a widely used metric to gauge the performance of REITs.

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