SL Green's High Leverage Is A Red Flag: Analyst Downgrades Stock

BMO Capital Markets analyst John P. Kim downgraded SL Green Realty Corp SLG to Market Perform from Outperform at an increased price target of $35 from $32.

The analyst believes SLG has high leverage and sees some refinancing headwinds amid higher interest rates.  

Notably, Kim notes SLG's leverage as significantly higher than 7.2x for the office sector and 5.5x for REITs and thinks increasing interest rates can make it more expensive to refinance debt.

Fitch recently downgraded SLG's issuer rating to BB+ from BBB-, due to higher cost of capital, added the analyst.

Nevertheless, the analyst notes that SLG shares rose 56% over the past three months, given the successful refinancing of two Midtown assets amid significant investor scrutiny. 

Also, the analyst believes SLG's strong leasing pipeline of 1.1 million sq. ft. can pave the way for occupancy growth. 

Kim lowered estimates for revenue to $756.6 million (from $793.4 million) for FY23 and $758.3 million (from $810.6 million) for FY24. 

Also, the analyst revised FFO per share estimates to $5.44 (from $5.42) for FY23 and $5.40 (from $5.55) for FY24.  

Last month, SLG reported rental revenues of $165.65 million versus $136.5 million a year ago and FFO per share of $1.43, declining from $1.87 a year ago.

Price Action: SLG shares are trading higher by 0.44% at $32.32 on the last check Thursday.