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Will SL Green's (SLG) Q2 Earnings Lag on Expense Worries? - Analyst Blog

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New York-based real estate investment trust ("REIT") SL Green Realty Corp.SLG is expected to report second-quarter 2015 results on Jul 22, after the market closes.

SL Green has posted positive surprises in all the last four quarters, with an average beat of 5.41%. The Zacks Consensus Estimate for second-quarter funds from operations ("FFO") per share is currently pegged at $1.55.

Let's see how things have shaped up for this announcement.

Factors to Consider This Quarter

Over the past four quarters, SL Green's property operating expenses have been trending upward. In first-quarter 2015, property operating expenses climbed 2.4% sequentially and 8% year over year. Given the company's robust development pipeline, we do not foresee any decline in expenses for second-quarter 2015, and this might adversely impact its second-quarter results.

A significant part of SL Green's revenues (over 70%) is sourced from Manhattan office portfolio; and the company intends to reduce its Suburban portfolio, going forward. Divestiture of Suburban portfolio will likely lead to earnings dilution.

Nevertheless, SL Green has been following an opportunistic investment policy to boost its overall portfolio. This includes investment in long-term core properties, opportunistic assets, and debt and preferred equities. Also, to facilitate such investments, SL Green continues to divest non-core assets. In tune with this strategy, the company had completed several transactions during the first quarter; which are expected to aid second-quarter earnings.

Earnings Whispers

Our proven model does not conclusively show that SL Green will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Negative Zacks ESP : That is because the Most Accurate estimate stands at $1.52, while the Zacks Consensus Estimate is pegged higher at $1.55. There is a difference of -1.94%.

Zacks Rank #2 : SL Green's Zacks Rank #2, when combined with a negative Earnings ESP, makes surprise prediction difficult.

Note that, we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Stocks to Consider

You could consider stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:

Pennsylvania Real Estate Investment Trust PEI has an Earnings ESP of +2.38% and a Zacks Rank #2. The company will report second-quarter results on Jul 28.

Equity Residential EQR , with an Earnings ESP of +1.18% and a Zacks Rank #2, will report second-quarter results on Jul 28.

Ashford Hospitality Trust, Inc. AHT , with an Earnings ESP of +2.50% and a Zacks Rank #1, will report second-quarter results on Aug 6.

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.

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EQUITY RESIDENT (EQR): Free Stock Analysis Report

SL GREEN REALTY (SLG): Free Stock Analysis Report

ASHFORD HOSPTLY (AHT): Free Stock Analysis Report

PENN RE INV TR (PEI): Free Stock Analysis Report

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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.


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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