SL Green Plans To Buy Back Another $500M In Stock. Why?
For the same reason they are attractive acquisition targets, REITs are finding it profitable right now to buy back their shares.
NEW YORK CITY–SL Green Realty Corp. received authorization from its Board to increase, yet again, the size of its share repurchase program, this time by an additional $500 million. This latest moves brings the program to a total of $2 billion. In December 2017, it expanded it to $1.5 billion.
To date, the REIT has repurchased 15,067,975 shares under the program.
Share buybacks are hardly unique to REITs. Companies such as Toshiba and Apple are announcing giant-sized buy back programs, at $7 billion and a whopping $100 billion, respectively. The theory behind share buybacks or share repurchases is simple enough: with less shares outstanding in the market, the company owns a larger percentage of the shares and will make more profits.
But REITs are particularly well situated to take advantage of a share buyback right now — namely because they are considerably undervalued by the market, Continental Partners President Mitch Paskover tells GlobeSt.com. “On a book basis the properties are worth more as individual properties than as a whole based on earnings. Basically the PE ratio is really low so a lot of the REITs feel like it’s a good time to buy back stocks at a relatively cheap value.”
That is the case SL Green CEO Marc Holliday made about the company’s latest share repurchase move. “As we continue to evaluate the best use of capital, the purchase of our stock, which is highly discounted relative to the value of our underlying assets, remains an extremely attractive option while maintaining our discipline with regard to leverage, liquidity and our earnings trajectory,” he said in a prepared statement.
Other REITs and real estate companies are also pursuing buybacks for similar reasons. What makes SL Green stand out a bit is that in some cases it is making acquisitions with the intent of using the proceeds for its repurchase program.
In March, New York City-based office REIT SL Green Realty Corp. announced it and a joint venture partner had entered into an agreement to sell the 3-acre development site at 175-225 Third St. in Gowanus, Brooklyn for $115 million.
The joint venture, of which SL Green owns 95%, acquired the 140,000 square-foot site in 2014 for $72.5 million. When the transaction closes, it will generate net proceeds of approximately $70 million, which will be used to help fund the company’s stock repurchase program.
In April SL Green Realty and joint venture partner Ivanhoe Cambridge entered into a contract to sell the leasehold office condominium at 1745 Broadway in Manhattan for $633 million, or $939 per square foot, to an institutional client of Invesco Real Estate. SL Green has also separately entered into contracts to sell two suburban office properties in Valhalla, NY and in Rye Brook, NY, to different buyers for a combined sale price of approximately $67 million. These transactions are expected to generate combined net proceeds of approximately $190 million, which will be used for stock repurchase program.