We believe shares of SL Green Realty (NYSE: SLG) have a potential upside of 40% over the next 1-1.5 years, once consumer footfall in retail stores improves and that the strength of employees in offices will return to pre-Covid-19 levels. SL Green Realty, is a real estate investment trust that deals with commercial and residential real estate in the New York metropolitan area. It was trading at a pre-Covid high of $ 99 in February 2020 and is currently 29% below that level. In addition, SLG stock is up 66% from the low of $ 42 seen in March 2020, after the multibillion-dollar stimulus package announced by the US government, which helped the stock market recover in a large measure. The stock is lagging behind broader markets – the S & P500 has gained 103% since the March 2020 lows as investors worry about the mildness of the retail and office real estate environment.
SLG owns a total of 60 properties, including 52 commercial properties and 8 residential properties. Of this total, nearly 88% of its portfolio is located in the Manhattan neighborhood of New York. Despite the prime locations of its properties, SLG’s occupancy rates suffered in 2020 due to the Covid-19 crisis. The occupancy rates of its commercial real estate assets went from 98.4% in 2019 to 94.2% in 2020, then to 90.5% in the second quarter of 2021. Retail store sales suffered as more and more more customers are buying online. and store traffic is still declining, leading to store closures. Likewise, the occupancy rates of its office buildings are also lower than pre-Covid-19 levels due to the trend towards working from home. That said, as more people are vaccinated against Covid-19, consumer footfall in stores is expected to improve, benefiting the commercial real estate market. In addition, it will allow employers to recall their workforce to offices. Considering the growth of SL Green Realty stock since the end of March 2020, we believe the stock has strong growth potential over the next 1 to 1.5 years (back to its pre-Covid peak). Our conclusion is based on our detailed analysis of Share SL Green Realty during the 2008 recession versus now in an interactive dashboard analysis.
Coronavirus crisis 2020
- 12/12/2019: Coronavirus cases first reported in China
- 01/31/2020: WHO declares a global health emergency.
- 02/19/2020: Signs of effective containment in China and big central banks’ hopes of monetary easing help S&P 500 reach record high
- 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. It doesn’t help that oil prices collapse in mid-March amid the Saudi-led price war
- From 03/24/2020: the S&P 500 picks up 103% from lows seen on March 23, 2020, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.
On the other hand, here is how SLG and the market at large behaved during the crisis of 2007/2008.
Timeline of the 2007-08 crisis
- 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low point of the S&P 500 index
- 12/31/2009: Initial recovery to levels before the accelerated decline (around 09/01/2008)
SL Green Realty vs S&P 500 Performance during the 2007-08 financial crisis
SL Green Realty stock rose from levels of around $ 122 in October 2007 (the pre-crisis peak) to around $ 12 in March 2009 (as markets bottomed out), implying that the The stock has lost about 90% of its value from its approximate pre-crisis level. peak of crisis. This marked a steeper decline than the broader S&P, which fell about 51%.
SLG partially recovered from the 2008 crisis to reach around $ 52 in early 2010, an increase of 332% between March 2009 and January 2010. In comparison, the S&P rebounded by around 48% during the period. same period.
SL Green Realty’s fundamentals in recent years look strong
SL Green Realty’s revenues fell 30% from $ 1.5 billion in 2017 to $ 1.1 billion in 2020, mainly due to properties divested in 2018. However, this translated into a 310% increase in net profit to $ 415 million. The company’s second quarter 2021 revenue was 14% lower than a year earlier, but its EPS fell from $ 0.76 to $ 1.51.
Does SL Green Realty have enough liquidity to meet its obligations during the coronavirus crisis?
SL Green Realty’s total debt grew from $ 5.9 billion in 2017 to $ 4.7 billion at the end of the second quarter of 2021, while its cash and cash equivalents grew from $ 127.9 million. dollars to about $ 218.3 million over the same period. In addition, the company generated approximately $ 103.3 million in liquidity from its operations in the first half of 2021 and has a revolving credit facility of $ 1.5 billion to meet its liquidity needs. Overall, the company appears to be in good shape to weather the crisis.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
- From the end of March 2020: social distancing measures + confinements
- April 2020: Fed stimulus suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with the gradual lifting of confinements – no more panic despite a steady increase in the number of cases
- Since the end of 2020: Weak, but persistent quarterly results demand improvement and advances in vaccine development boost market sentiment
Keeping the trajectory in 2009-10 in mind, this suggests a potential recovery to around $ 99 (40% up) once the Covid-19 crisis subsides and economic conditions improve. This marks a full recovery to the $ 99 level of SLG’s stockpile before the coronavirus outbreak gains momentum globally.
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