SL Green (SLG) Gears Up For Q2 Earnings: A Beat In Store?

SL Green Realty Corp. (NYSE:SLG) is slated to report second-quarter 2019 results on Jul 17, after the market closes. The company’s quarterly results will likely reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this New York office landlord reported FFO of $1.68 per share, missing the Zacks Consensus Estimate of $1.72. This tally was net of a non-cash charge of $2 million, related to a tenant bankruptcy at 625 Madison Avenue. Nonetheless, the reported figure compared favorably with the first-quarter 2018 tally of $1.66.

Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate in two occasions, met in the other and missed in another. It delivered an average negative surprise of 2.03% during this period. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

Factors to Consider

SL Green’s office and retail platforms have dominant market share in the large- and high-barrier to entry New York real estate market, making the company a preeminent leader in the region.

Per a report by the Newmark Knight Frank, the second-quarter office leasing at Midtown Manhattan reached 8.1 million, surpassing the record set in fourth-quarter 2018. However, with the addition of numerous large blocks of space being added in the market during the June-end quarter, availability remained flat, while average asking rents shrunk to $82.27 per square foot.

Hence, reaping benefits of the active leasing market, in April, the company entered into a contract to acquire a majority and controlling stake in the property at 460 West 34th Street. Further, it bagged First Republic Bank as anchor tenant at the building. The bank is set to occupy 211,521 square feet of space for corporate offices for a period of 15 years.

Additionally, making progress with leasing at One Vanderbilt office tower, the company signed a new lease with KPS Capital Partners LP for 28,024 square feet of space and rented out an additional 14,276 square feet of space to McDermott Will & Emery LLP.

These deals indicate the company to have enjoyed decent demand for its office properties amid decent economy and a steady job market. Particularly, as the economy revives, existing business grows and therefore, corporate sectors seek expansion, renting more space to accommodate the increased workforce. Amid these, the Zacks Consensus Estimate for second-quarter 2019 revenues is pinned at $213.5 million, reflecting a modest year-over-year increase of 1.03%.

Furthermore, the company has been strengthening its office portfolio on the back of redevelopment efforts and non-core asset divestures. We anticipate these strategic moves to have benefited the company in the quarter to be reported.

Although the company’s development activities provide value-creation opportunities, these projects are projected to have created capital expenditure pressure for SL Green.

Also, prior to the to-be-reported quarter’s earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the quarter remained unchanged at $1.73, over the past 30 days.

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 an earnings 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 +0.96%.

Zacks Rank: It currently carries a Zacks Rank #3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

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:

Highwoods Properties, Inc. (NYSE:HIW) , scheduled to release earnings on Jul 23, has an Earnings ESP of +0.59% and carries a Zacks Rank #3, at present.

Ventas Inc. (NYSE:VTR) , slated to report quarterly figures on Jul 26, has an Earnings ESP of +0.44% and carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. (NYSE:ARE) , set to release April-June quarter results on Jul 29, has an Earnings ESP of +0.15% and currently holds a Zacks Rank #2.

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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