SL Green (SLG) Up 0.1% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for SL Green (SLG). Shares have added about 0.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SL Green due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

SL Green Q4 FFO & Revenues Top Estimates, Occupancy Up

SL Green reported fourth-quarter 2019 FFO per share of $1.75, surpassing the Zacks Consensus Estimate of $1.74. The figure also compares favorably with the year-ago quarter’s reported tally of $1.61.

Results reflected strong leasing activity in the company’s Manhattan portfolio. Further, rental revenues for the quarter improved year over year.

Net rental revenues of $218.5 million in the fourth quarter outpaced the Zacks Consensus Estimate of $216.1 million. The revenue figure also improved marginally from the prior-year tally of $216.5 million.

For full-year 2019, FFO per share came in at $7, ahead of the Zacks Consensus Estimate of $6.99 and the prior-year tally of $6.62. However, rental revenues witnessed marginal decline, year over year, to $863.1 million.

Quarter in Detail

For the December-end quarter, same-store cash NOI, including SL Green’s share of same-store cash NOI from unconsolidated joint ventures, improved 2% as compared with the prior-year period. This excludes free rent and lease termination income given to Viacom for space at 1515 Broadway.  

In the Manhattan portfolio, SL Green signed 59 office leases for 1,283,470 square feet of space during the period. The average lease term on these leases is 10.6 years, while average tenant concessions were 7.9 months of free rent.

Importantly, for the reported quarter, the mark-to-market on signed Manhattan office replacement leases was 56% higher than the previous fully-escalated rents in the same spaces. As of Dec 31, 2019, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 96.2%, up 90 basis points as compared with the prior quarter.

The company also decreased the carrying value of its debt and preferred equity investment portfolio to $1.61 billion.

Liquidity

SL Green exited 2019 with cash and cash equivalents of nearly $166.1 million, up from the $129.5 million recorded at the end of 2018.

Investment Activity

In December, the company’s board of directors authorized a $500-million addition to its share-repurchase program, bringing the tally to $3 billion. Under this program, as of Jan 22, the company has repurchased 22.7 million shares and redeemed 0.6 million common units of its Operating Partnership, or OP units. These were repurchased at an average price of $95.70 per share.  

Additionally, the company completed the sale of the development sites at 562 Fifth Avenue and 1640 Flatbush Avenue in Brooklyn for $52.4 million and $16.2 million, respectively. The disposals generated net cash proceeds of $50.9 million and $15.6 million, respectively.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, SL Green has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, SL Green has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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