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What's in Store for SL Green (SLG) This Earnings Season?

SL Green Realty Corp. SLG is slated to report fourth-quarter and full year 2021 results on Jan 26, 2022, after market close. SLG’s quarterly results are likely to reflect a decline from the year-ago quarter’s reported figure in both funds from operations (FFO) per share and revenues.

In the last reported quarter, this New York office landlord witnessed a negative surprise of 12.7%.

Over the preceding four quarters, SL Green’s FFO per share surpassed estimates on three occasions and missed the mark on the remaining one, the average surprise being 5.6%. This is depicted in the graph below:

Let’s see how things have shaped up prior to this announcement.

Factors at Play

With relaxations of the pandemic-related restrictions and accelerated vaccine roll-outs, there has been a noticeable return of the workforce to offices and other places of businesses of late. Per Cushman & Wakefield CWK report, the U.S. office sector is already on the path of recovery.

Though the U.S. office sector witnessed a negative net absorption of 8.6 million square feet, the same improved 33% on a quarter-over-quarter basis. The vacancy rate has increased minimally since the pandemic, ending the year at 17.6%.

SL Green is poised to bank on the improving office real-estate market, backed by its high-quality office properties at key locations. The REIT saw an uptick in leasing activity in the fourth quarter. As of Dec 6, 2021, SLG signed 359,032 square feet of Manhattan office leases.

In December, SL Green signed a 191,207-square-foot expansion lease with Bloomberg at 919 Third Avenue. In addition, SLG signed a new 19,522-square-foot lease with Flexpoint Ford and a 6,554-square-foot expansion lease with Stone Point Capital LLC at One Vanderbilt Avenue. With these, One Vanderbilt achieved 92.7% leaseing.

SL Green is also expected to have benefited from its opportunistic investments, a diversified tenant base and a strong balance sheet. In December, SLG refinanced its corporate credit facility. With this, SLG extended the maturity date as well as reduced the borrowing cost and the overall size of its unsecured corporate credit facility.

However, the rising supply of office properties remains a major concern for SLG. The company faces intense competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors.

The Zacks Consensus Estimate for the fourth-quarter revenues is pegged at $142.4 billion, suggesting a decline of 13.8% from the prior-year quarter’s reported number.

Analysts seem pessimistic about SLG’s prospects before the fourth-quarter earnings release as the Zacks Consensus Estimate for the quarterly FFO per share has been revised 1.3% downward to $1.53 over the past month. Further, the same calls for a 1.9% decrease from the prior-year period’s reported figure.

For the full year, the Zacks Consensus Estimate for FFO per share has been revised marginally upward to $6.64 over the past month. The figure indicates a 13.6% decrease from the prior-year on revenues of $611 million.

Earnings Whispers

SL Green does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: SL Green has an Earnings ESP of -3.27%.

Zacks Rank: SL Green currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are some stocks like Highwoods Properties HIW and EastGroup Properties EGP worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:

Highwoods Properties, slated to release fourth-quarter earnings on Feb 8, has an Earnings ESP of +2.67% and a Zacks Rank of 3 at present.

EastGroup Properties, scheduled to report quarterly figures on Feb 8, has an Earnings ESP of +0.32% and a Zacks Rank #2, currently.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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