SL Green Realty CorporationSLG

Morningstar Rating

Stock Research and Analysis

by Todd Lukasik, CFA

SL Green is one of the most geographically concentrated office real estate investment trusts, with 85% of its business from the Manhattan office market. We see no evidence of an economic moat in its financial results, and we believe its tenant and geographical Read more

Bulls Say

Tenants sign long-term leases that include regular rent payments, a share of operating expenses, and rent bumps tied to inflation. This should result in a nice stream of recurring revenue for SL Green in the long term.

Recently, SL Green has been repurchasing its debt at a significant discount. For example, since October 2008, it repurchased $757 million in debt for $557 million.

SL Green's Manhattan property portfolio has historically performed better than the market, with recent occupancy rates averaging in the mid-90s, which exceeds the average occupancy rate for its markets by a few percentage points. Read more

Bears Say

Higher unemployment threatens to reduce tenants' demand for SL Green's office space, resulting in lower rents and occupancy rates, especially in the near term.

Many costs related to the ownership and management of office properties are fixed. As revenue falls, profitability and cash flow will fall disproportionately.

Office commercial real estate is likely to lose value over the next few years, as a reduction in demand coincides with the entry of new supply into the market.

If long-term interest rates rise more than we expect, this firm's cost of capital could increase, pressuring asset values and reducing cash flow. Read more

Strategy

SL Green's prospects are tied directly to the office market in Manhattan, as the firm focuses on properties within walking distance from Midtown's primary commuter stations. Recently, SL Green has acquired Read more

Management

SL Green receives fair marks in our stewardship model. We dislike the firm's takeover defenses (including staggered board elections, stock ownership limits, a stockholder rights plan, and change of control agreements with executives) and related-party Read more

Profile

SL Green is an office REIT that consolidates 21 Manhattan properties totaling 13.7 million square feet plus 28 suburban New York properties totaling 4.7 million square feet. Read more

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