On Monday, SL Green Realty (NYSE:SLG) was downgraded by Evercore ISI from In Line to Underperform, with a new price target set at $44.00. The real estate investment trust (REIT), which has seen its shares climb 13% year-to-date (YTD) compared to the RMZ's YTD decline of 2.8%, is now believed to have its good news factored into its current valuation, according to the firm.
The downgrade comes after SL Green's significant outperformance in 2023, where it saw a 48% rise versus the 14% for the RMZ. The company's aggressive asset disposition strategy, which included a partial sale of 245 Park and the disposition of 625 Madison, has been a key driver of its stock performance.
The firm's Investor Day in December 2023 outlined plans for further sales totaling $1.45 billion in 2024. These planned sales include a 25% interest in 245 Park, 760 Madison condominiums, and a partial sale of One Vanderbilt Avenue (OVA).
Despite the strong performance, Evercore ISI suggests that the majority of positive developments are already reflected in the stock price. The firm sees other REITs as having better upside potential in the current market. A potential risk to the downgrade is the possibility that SL Green could achieve better-than-expected pricing on its planned dispositions, which could cause the stock to rise, especially given the high short interest of over 20%.
SL Green's management has been commended for their leasing achievements in a challenging office market. The company is on track to meet its 2.0 million square feet leasing goal for the year, as reiterated during a recent investor conference. However, for the stock to significantly outperform its peers and the REIT index as it has in the past 15 months, a substantial uplift in earnings is required in 2025 and beyond.
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