Here's How SL Green (SLG) Looks Just Ahead of Q3 Earnings

SL Green Realty Corp. SLG is slated to report third-quarter 2020 results on Oct 21, after market close. The company’s quarterly results will likely reflect a year-over-year decline in funds from operations (FFO) per share and revenues.

In the last reported quarter, this New York-office landlord reported 2020 FFO per share of $1.70, surpassing the Zacks Consensus Estimate of $1.55. Results reflected growth in same-store cash net operating income (NOI).

Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate on all four occasions. It reported a surprise of 8.4%, on average, during this period. The graph below depicts the surprise history.

SL Green Realty Corporation Price and EPS Surprise


SL Green Realty Corporation Price and EPS Surprise

SL Green Realty Corporation price-eps-surprise | SL Green Realty Corporation Quote

Key Factors to Note

With workplace activity moderately increasing from the prior quarter, SL Green is expected to have witnessed reoccupation of its office space in its New York City and Manhattan portfolios during the July-September period.

In fact, given a significant deal flow in the New York City real estate market, which highlights confidence in the region, the company’s significant presence in the large and high-barrier-to-entry New York City real estate market has been beneficial in the third quarter. Markedly, as of Sep 14, SL Green’s leasing pipeline consisted of 48 leases for 682, 109 square feet of space.

With roughly 85% of its total NOI generated from Manhattan operating properties, the company is expected to have registered a sequential increase in NOI, owing to the resumption of office operations.

Moreover, amid these uncertain times, it is likely to have undertaken proactive steps to bolster the liquidity position on the back of financing, refinancing, and the repayment of existing positions in the debt and preferred equity (“DPE”) portfolio. Moreover, it resorted to sale of real estate assets and joint venture (JV) stake.

In fact, during the September-end quarter, SL Green refinanced a construction facility for 410 Tenth Avenue, the company’s 636,000-square-foot Manhattan office redevelopment project. Specifically, the new 5-year facility for $600 million replaces the previous $465-milion facility that was put in place in 2019.

Moreover, office rent collections remained decent, with July and August receipts totaling 96.1% and 96.3%, respectively. Overall, the company has collected 91% and 91.8% of rents for July and August, improving from 90.9% collected for June.

Nonetheless, amid the slow-leasing backdrop, landlords are offering tenant lease incentives and concessions. Hence, the company is expected to have faced headwinds like a slowdown in leasing activities and reduced market rents. This is likely to have dented top-line growth in the third quarter.

Moreover, rental collections from retail tenants have been low. SL Green has collected 63.7% and 70.5% of July and August rents from the retail tenants. This too is likely to have affected revenues. Notably, the Zacks Consensus Estimate for third-quarter 2020 rental revenues is pegged at $172 million, suggesting a 20% year-over-year decline.

Lastly, the company’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for third-quarter FFO has been unchanged at $1.56 over the past month. Further, it indicates a 10.9% year-over-year decline.

Key Developments During the Quarter

On Sep 15, SL Green opened New York City’s newest skyscraper — One Vanderbilt Avenue — along with its partners, Hines and National Pension Service of Korea. The construction project was delivered ahead of the schedule and under the budget.

The 1,401-feet tall tower spans 1.7 million square feet of space in the center of East Midtown.  The property is 70% leased and home to many preeminent finance, banking, law and real estate firms. Along with a prime location near the Grand Central Terminal, unparalleled amenities and innovative office design have likely enabled the property to attract tenants.

Advancing with its development strategy, SL Green funded its development for Pace University at 126 Nassau Street by entering a partnership and simultaneously obtaining a construction loan.

Earnings Whispers

Here is what our quantitative model predicts:

SL Green does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO 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 0.00%.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 surprise this quarter:

American Tower Corporation AMT, set to report quarterly numbers on Oct 29, currently has an Earnings ESP of +1.44% and a Zacks Rank of 2 (Buy).

Alpine Income Property Trust PINE, slated to release third-quarter earnings on Oct 21, has an Earnings ESP of +4.48% and a Zacks Rank of 3 at present.

Healthcare Trust of America, Inc. HTA, slated to release third-quarter earnings on Nov 3, has an Earnings ESP of +1.03% and a Zacks Rank of 3 at present.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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