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SL Green (SLG), RXR Buy Stake in Manhattan’s Worldwide Plaza


New York-based office REIT SL Green Realty Corp. SLG, in partnership with private investment manager RXR Realty, recently signed a deal to acquire a combined stake of 48.7% in New York REIT’s NYRT Worldwide Plaza. The transaction values the asset at $1.725 billion. It is likely to be completed in fourth-quarter 2017.

Located in midtown Manhattan, this trophy asset comprises a 49-story, 1.8 million-square-foot Class A office tower, along with a 252,000 retail building with a parking garage and a large open-air plaza. Also, this prominent complex is fully leased.

The above discussed acquisition is a strategic fit for SL Green, given that it helps in expansion on Manhattan's West Side and adds a trophy asset which is completely leased to institutional tenants. In fact, the office building houses the North American headquarters for Nomura Holdings, Inc., and Cravath Swaine and Moore LLP.

Additionally, its tenant roster includes names of high-quality office tenants, including WebMD, WNet.org and CBS Broadcasting. On the other hand, the retail part has a five-stage off-Broadway theater, a fitness gym, as well as a 475-space parking garage.

Furthermore, with an excellent location — at the juncture of Manhattan's Columbus Circle and Times Square submarkets — this property enjoys suitable access to transit. Thus, along with top-tier tenants, it is likely to enjoy steady cash flows from tenants over time.

SL Green’s high-quality office properties, diverse tenant base, opportunistic investments and solid balance-sheet strength are likely to help the company ride the growth curve. Furthermore, its leasing activity is likely to remain decent amid an improving economy and job market scenario. However, the company faces intense competition from developers, owners and operators of office properties and other commercial real estate. Also, rate hike add to its woes.

SL Green currently has a Zacks Rank #3 (Hold). However, over the past three months, shares of SL Green have descended 7.4%, underperforming 0.5% loss incurred by the industry.

Stocks to Consider

Better-ranked stocks in the REIT space include PS Business Parks, Inc. PSB and InfraREIT Inc. HIFR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PS Business Parks and InfraREIT have expected long-term growth rates of 5% and 8%, respectively.

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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