Will SL Green (SLG) Grow With Stake Buyout, Refinancing?

We updated our research report on SL Green Realty Corporation (NYSE:SLG) on May 30, 2016. This real estate investment trust (“REIT”) mainly acquires, manages, develops and leases commercial office properties in the New York Metropolitan area, especially Manhattan.

In May, SL Green disclosed the acquisition of a 20% stake in Manhattan’s luxury residential tower “Sky”. The move enhances the company’s residential investments and reflects the scope of its debt and preferred equity platform.

The deal took place through an option that was granted to SL Green for purchasing the stake at a valuation agreed upon in Jul 2014 when the company originated a $50 million mezzanine loan on the property to the developer of the project, The Moinian Group.

Notably, the 71-story Sky is situated near the Hudson River in Manhattan's Midtown West. The property has 927,358 square feet of space and includes 1,176 rental units. Its proximity to New York's theater district, the High Line, Hudson River Park and Chelsea's concentration of art galleries, ensures solid demand for its space.

Moreover, recently, SL Green and Vornado Realty Trust (NYSE:VNO) completed the $900 million refinancing of a Manhattan office building, which is held in joint venture by the two REITs. This refinancing for 280 Park Avenue, a 1,250,000 square feet office asset is aimed at enhancing the financial capacity on favorable terms.

Earlier, the company reported first-quarter 2016 adjusted funds from operation (“FFO”) of $1.85 per share, which exceeded the Zacks Consensus Estimate of $1.65 and improved from the prior-year quarter figure of $1.51. A rise in combined same-store net operating income aided the results.

Going forward, substantial high-quality office properties in proximity to midtown Manhattan’s key commuter stations, a diverse tenant base, opportunistic investments and a decent balance sheet are expected to be the key drivers of its results. Yet, stiff competition and interest rate issues remain as concerns.

In the past seven days, the Zacks Consensus Estimate for 2016 and 2017 remained unchanged at $8.23 and $7.02, respectively. The stock presently carries a Zacks Rank #3 (Hold).

Investors interested in the REIT industry may consider stocks like Mack-Cali Realty Corp. (NYSE:CLI) and PS Business Parks Inc. (NYSE:PSB) . Both these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


VORNADO RLTY TR (VNO): Free Stock Analysis Report

PS BUSINESS PKS (PSB): Free Stock Analysis Report

MACK CALI CORP (CLI): Free Stock Analysis Report

SL GREEN REALTY (SLG): Free Stock Analysis Report

Original post

Zacks Investment Research