Blog

Thesis

SL Green Realty Corp. (NYSE: SLG) is an ideal REIT for investors seeking stable income during uncertain times. We believe the company’s commercial real estate portfolio in New York is attractive during this time, as companies continue to bring workers back to their offices and more start-ups and tech companies migrate to New York. The company’s management also has a proven track record of creating shareholder value, with high monthly dividends and generous stock buyback programs. We believe SL Green Realty shares can protect your capital while providing you with substantial dividend income.

Company presentation

SL Green Realty Corp is a real estate investment trust (REIT) specializing in the acquisition, management and valuation of commercial properties in Manhattan. SL Green Realty has over 64 constructions at the end of Q2 2022 and has invested in over 34.4 million square feet. The company operates iconic buildings such as the new One Vanderbilt and other New York landmarks like 1350 Avenue of the Americas. The stock’s performance has been lackluster since the start of the year, generating a year-to-date return of -35.61% compared to the S&P 500 return of -12.26%. The company has a market capitalization of $2.88 billion and is down 47.5% from its 52-week highs.

The return to the office continues

The pandemic has largely subsided, and while it is difficult to say that the work environment will return to what it once was during the pre-pandemic period, we believe there will be a continued need for office space as companies integrate a hybrid work environment and/or create spaces to entice workers back. Many financial services companies already require workers to work in the office for at least part of the week (some requiring to come into the office all five days of the week), but recently technology companies have moved to require workers come back to work. We think this trend is likely to continue as employers see the merits of at least a partial work environment in the office. This trend will continue to support strong occupancy rates across SL Realty’s portfolio, and we are already seeing this rebound in occupancy rates below, based on management’s estimates for the end of 2022.

Bullish on New York

SL Green Realty is a perfect play on the continued need for office space and other commercial space in New York City, specifically Manhattan. Unlike other REITs, SL Green Realty is heavily dependent on the fortunes of Manhattan, and we believe the company is well positioned to reap the benefits of continued office expansion and the need for space in New York. For example, Manhattan has seen an influx of tech companies set up shop, in addition to the creation of startups in the city – even giving rise to an area known as “Silicon Alley”. The expanding tech scene in New York will provide strong fundamental demand for long-term office space, as some of these start-ups will continue to grow and increase their need for commercial space accordingly. Even though the macroeconomic environment has recently been unfavorable to technology companies, we believe that in the medium term, technology companies will continue to grow and support our thesis. Although many start-ups may fail if the current economic situation deteriorates, we believe that there will be other start-ups that will survive and become great technology companies.

Shareholder friendly policies

SL Green Realty has a history of shareholder-friendly policies in the form of high dividends and generous stock buyback programs. The company has paid $3.72 over the past twelve months, which works out to a dividend yield of 8.3% based on the current share price. The company also pays monthly dividends, which should appeal to investors as the stock can provide stable, recurring monthly income for income-oriented investors. The company also recorded dividend growth of 21.63% on average, far exceeding the dividend growth of many major benchmarks. In addition to the dividend, the company has often engaged in various share buyback programs which amount to $3.5 billion. These programs have significantly reduced shares outstanding, from around 96 million shares in 2017 to around 64 million shares today. The impact of these share buyback programs is considerable because even at constant results, the value of each share has increased significantly thanks to the company’s share buyback programs. We believe the combination of high dividends and frequent buyback programs makes this stock extremely attractive in this environment.

Risks for the thesis

We believe that aside from macroeconomic risks, the main risk to SL Green Realty’s business model is the potential exodus of companies to other locations such as Florida and Texas. For example, previously dominant New York companies like JP Morgan and Morgan Stanley have built their second headquarters in New York, and we think this kind of trend could threaten the company’s New York-based real estate model. It is possible that in the long term, companies previously based in New York will continue to relocate jobs out of state and therefore require less commercial space than before. However, such fear has not yet been demonstrated on the results of the company’s rental operations, and we believe that the growth of the start-up economy and the expansion of the important technology presence in the city can help. compensate for any reduction in retail space requirements by traditional New York-based businesses.

Conclusion

SL Green Realty is an excellent investment for investors looking for a balance between dividend and capital protection. We believe SL Green Realty has an attractive portfolio of commercial real estate in New York that could benefit from back-to-office trends and the growth of technology companies and start-ups in New York. The company also has generous dividend and stock buyback programs that can provide a strong income stream while protecting shareholder value for long-term investors.