Yahoo Finance Is it Wise to Retain SL Green (SLG) Stock in Your Portfolio?
SL Green Realty Corp.’s SLG portfolio of high-quality office properties located in the high barrier-to-entry real estate market of New York is well-poised to benefit from the recovering United States office real-estate market.
With a gradual return of the workforce to offices, SLG has been witnessing an increase in demand for its properties, as evident by solid leasing activity. It signed 108 office leases for its Manhattan office portfolio spanning 1,940,043 square feet during the nine months that ended Sep 30, 2022. This is likely to boost SLG’s occupancy levels and rental revenues in the upcoming period.
More so, office-space demand in the upcoming period is likely to be driven by de-densification to allow higher square footage per office worker and the need for high-quality, well-amenetized office properties. This is expected to boost the demand for SLG’s high-quality portfolio of office assets with top-notch amenities at recently-developed office buildings in the forthcoming quarters.
In December 2022, SL Green, in association with Michelin-starred Chef Daniel Boulud, announced two new food and beverage concepts at One Madison Avenue, its newest office development.
Its diversified tenant base with a strong credit profile lowers the risk associated with dependency on single-industry tenants and assures stable rental revenues for the company.
SL Green follows an opportunistic investment policy to enhance its overall portfolio quality. Through this, it divests the mature and non-core assets and utilizes the proceeds to fund development projects and share buybacks. Such efforts augur well for its long-term growth and relieve its balance-sheet pressure.
SL Green robust balance-sheet position with ample financial flexibility poises it well to capitalize on long-term growth opportunities. It exited the third quarter of 2022 with $1 billion of liquidity. Moreover, its consolidated fixed charge coverage ratio has been steady over the recent quarters, indicating decent cash flow availability for near-term debt repayment and other fixed charges.
However, a rise in the supply of office properties in SL Green’s markets and intense competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants, limits SLG’s ability to increase rents and/or backfill tenant move-outs and vacancies.
A majority of SL Green’s operations is concentrated in midtown Manhattan, NY. Consequently, its concentration of assets in this particular geographic region makes it susceptible to the economic conditions prevailing in New York City.
Rising interest rates are likely to increase borrowing costs, affecting SLG’s ability to purchase or develop real estate.
Shares of this Zacks Rank #3 (Hold) company have lost 17.8% in the past three months against its industry’s growth of 2.2%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties VICI, Lamar Advertising LAMR and Terreno Realty TRNO, 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 Terreno Realty’s ongoing year’s FFO per share is pegged at $1.97.
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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