SL Green vs. Boston Properties: Which REIT Is The Better Buy?

After poor performances by real estate investment trust (REIT) stocks in 2022, this could be one of the best times to buy them since the pandemic started in 2020. 

REIT prices are down and yields have risen, but many REITs have surpassed analysts’ expectations on third-quarter operating results. How do investors know which REITs to buy?

Here are two of the leading office REITs, compared by eight different measures to help determine which is the better buy:

SL Green Realty Corp. SLG is an office REIT and the largest office landlord in New York City with 62 buildings totaling 33.6 million square feet.

Boston Properties Inc. BXP is a Boston-based office REIT with nearly 200 properties concentrated in the largest cities from Boston to Seattle. The firm calls itself “the largest publicly traded developer, owner and manager of premier workplaces in the United States.”

Size and diversity: Boston Properties has three times as many buildings under its portfolio. SL Green’s entire portfolio is in New York City, while Boston Properties’ portfolio is spread across the country. Boston Properties is the clear winner in this category.

Long-term performance: Over the past five years, and without reinvesting dividends, SL Green has a total return of -9.96%, while Boston Properties’ total return is -24.82%. While both results are poor, SL Green has outperformed and gets the edge.

Recent performance: Over the past five trading days, SL Green stock is up 6.93%, while Boston Properties stock is up 3.38%. Over the past month, SL Green is up 2.27% while Boston Properties is down 0.51%. SL Green gets the edge.

Most recent quarterly operating results: Both companies recently reported third-quarter operating results. Boston Properties’ results were:

Revenue of $784.4 million (up 8.6% from the third quarter of 2021).

Funds from operations (FFO): $299.8 million (up 11% from third quarter of 2021).

FFO margin: 38% (in line with third quarter of 2021).

FFO per share: $1.90 (up from $1.73 in third quarter of 2021).

Revenue beat analyst estimates by 3.7%. Earnings per share (EPS) also bested the analyst estimates by a whopping 198%.

By contrast, SL Green reported the following third-quarter operating results:

Revenue: $190.5 million (flat from the third quarter of 2021).

FFO: $114.2 million (down 10.0% from the third quarter of 2021).

FFO margin: 60% (down from 67% in the third quarter of 2021).

FFO per share: $1.80 (down from $1.97 in the third quarter of 2021).

Revenue exceeded analyst estimates by 3.6%. EPS was also better than analyst estimates by 36%. 

Although both companies surprised to the upside, the clear edge goes to Boston Properties, whose numbers rose or were in line with third-quarter 2021, while SL Green’s numbers were flat or down from the previous year’s third quarter.

Current dividend yield: The current dividend yield for SL Green is 9.18%. The current dividend yield for Boston Properties is 5.26%. SL Green clearly wins this category.

Dividend growth: Over the past five years, SL Green has raised its annual dividend from $3.45 to $3.73, an increase of 8.1%. In March 2020, it changed its dividend payment schedule from quarterly to monthly. Over the past five years, Boston Properties has raised its annual dividend from $3.20 to $3.92, an increase of 22.5%. The clear edge goes to Boston Properties unless one needs monthly dividends.

Dividend coverage by FFO: SL Green’s annual forward FFO is $6.69, and its forward annual dividend is $3.73. Therefore, the dividend payout ratio to FFO is 55%, which is within the 35% to 55% payout range that is usually cited as ideal for a REIT.

Boston Properties’ forward annual FFO of $7.51 easily covers the forward dividend yield of $3.92, with a payout ratio of 52.1% — also within the ideal range. Slight edge to Boston Properties.

FFO multiple (price/FFO): Similar to a stock’s price-earnings (P/E) ratio, price-FFO (P/FFO) is a measure of a REIT’s current price to its next fiscal year consensus of FFO. The forward P/FFO for SL Green is 6.07. The forward P/FFO for Boston Properties is 9.91. Slight edge to SL Green.

So, which is the better REIT to buy? SL Green comes out ahead on both recent and long-term performance, current dividend yield and FFO multiple. On the other hand, Boston Properties excelled in size and diversity, most recent operating results, dividend growth and dividend coverage. So it’s a 4-4 tie, but which categories are the most important?

The answer in this competition depends upon your priorities as an investor. If income is your need, SL Green with its higher yield and monthly payments is the better stock to own. Another plus is SL Green’s superior short- and long-term performance, and that could continue with its 6.07 FFO multiple.

On the other hand, if future safety is your concern, the edge goes to Boston Properties with its larger size, greater diversity, superior dividend growth and coverage. Its third-quarter results are also a positive factor.

Each investor will just have to decide their own priorities and act accordingly.

REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.