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SL Green’s (SLG) Q3 Earnings Preview: What’s in Store?


SL Green Realty Corp. SLG is slated to report third-quarter 2016 results after the market closes on Oct 19. Last quarter, this real estate investment trust (“REIT”) had delivered a positive surprise of 7.2%.

In fact, SL Green beat estimates in all of the four trailing quarters, with a positive average earnings surprise of 7.2%. The Zacks Consensus Estimate for third-quarter funds from operations (“FFO”) per share is currently $1.52.

Let’s see how things are shaping up for this announcement.

Factors to Consider

SL Green is the leading commercial property owner in New York City. The company has been actively pursuing portfolio enhancement initiatives through investments in opportunistic assets and debt and preferred equities.

In September-end, the REIT closed the $1.5 billion financing for the construction of the iconic office tower One Vanderbilt, located in the in midtown Manhattan, NY. The One Vanderbilt, well-connected to the Grand Central’s network of mass transit, is an exquisite addition to the Manhattan skyline. The state-of-the-art office tower is likely to meet the demands of the modern workforce and will offer technologically advanced, Class A office space with best amenities to the clients.

Also, in early-September, SL Green, together with partner Ivanhoé Cambridge, inked a 603,650-square-foot lease extension with Penguin Random House at 1745 Broadway. The lease now runs for additional 15 years through Jun 2033 and reflects the robust demand for space at the company’s properties. The company also declared an expansion of its unsecured corporate credit facility by $250 million to $2.783 billion. This boosts the company’s financial flexibility for debt reduction and future investment activities. Further, this marks the third expansion of its credit facility in less than two years and reflects lenders’ confidence in the company.

However, a large chunk of SL Green’s revenues is derived from its office portfolio, demand for which is highly correlated with job growth. Apart from this, intense competition from owners, developers and operators of other office properties and commercial real estate limits its ability to retain tenants. Moreover, any rise in interest rate would negatively impact the REIT’s financials and hurt its dividend payout capability.

SL GREEN REALTY Price and EPS Surprise


Earnings Whispers

Our proven model does not conclusively show that SL Green will beat on earnings this season. 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. However, that is not the case here as you will see below.

Zacks ESP: Both the Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $1.52, which translates into an Earnings ESP of 0.00%.

Zacks Rank: SL Green currently has a Zacks Rank #3. Though this increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are three other REITs that you may want to consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

PS Business Parks Inc. PSB, slated to release earnings results on Oct 25, has an Earnings ESP of +1.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Properties Inc. BXP, slated to release earnings results on Oct 25, has an Earnings ESP of +0.70% and a Zacks Rank #3.

Essex Property Trust Inc. ESS, slated to release earnings results on Oct 27, has an Earnings ESP of +0.36% and a Zacks Rank #3.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. 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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