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SL Green’s (SLG) Rating Upgraded by Fitch, Outlook Stable


SL Green Realty’s SLG whole lot of ratings has been upgraded by Fitch Ratings. Notably, SL Green’s Issuer Default Rating (IDR) and senior unsecured notes have been bumped by a notch to “BBB” from “BBB-.”

The rating agency also maintained its stable outlook.

The rating agency cited the company’s adherence to tighter financial policies and efforts to attain a balanced capital structure by targeting leverage below 7.0x. The upgrade also reflects the shift in the company’s borrowing strategy to an investment-grade, unsecured borrowing strategy.

Further, the company’s recent refinancing activity to increase its unsecured corporate credit capacity by $217 million to $3 billion and stretch the maturities of debts highlights its favorable access to bond markets. (Read more: SL Green Refinances Loan to Upsize Credit Facility)

The rating acknowledges SL Green’s premium New York office portfolio that enjoys decent demand for office space and has been able to deliver steady performance throughout the challenging real estate cycles. Additionally, the company’s office portfolio enjoys long-term leases to well capitalized tenants. Notably, in third-quarter 2017, the mark-to-market on signed Manhattan office leases was 4% higher than the previous fully-escalated rents on the same spaces.

The rating agency also acknowledged SL Green’s portfolio-repositioning efforts. The company resorts to non-core assets disposition, and reinvests the proceeds in strategic acquisitions and development efforts to reposition its portfolio. Such moves helped reap decent net operating income over the past years, according to Fitch Ratings. The company also enjoys a balanced lease maturity and a well-laddered debt maturity schedule.

Though geographic concentration and exposure to capital-intensive office assets serve as negative attributes, the high face rents stemming from the strong Manhattan portfolio would alleviate this risk.

Notably, this rating upgrade enhances the company’s creditworthiness in the market and is likely to boost investors’ confidence in the stock. In fact, such moves provide companies an opportunity to enjoy reduced costs on debts and better access to capital.

The company’s shares have underperformed its industry, year to date. During the period, shares of the company have lost 5.1%, while the industry recorded growth of 6.9%.

SL Green currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the real estate investment trust space include Franklin Street Properties FSP, Columbia Property Trust CXP and Easterly Government Properties DEA. All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Franklin Street Properties’ funds from operations (FFO) per share estimates for 2017 remained unchanged at $1.05 over the past month. Its share price has declined 7.9% in six months’ time.

Columbia Property Trust’s FFO per share estimates for the current year have moved up to $1.15 in a month’s time. Over the past six months, the company’s shares have gained 4.1%.

Easterly Government Properties’ FFO per share estimates for 2017 remained unchanged at $1.26 over the last 60 days. Its shares have gained 3.4% in the past six months.

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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