SL Green Pegs Share Buybacks to Trophy Assets Only
SL Green is making a straight-forward spread investment; sell assets in the 4% to 5% cap rate range and buy a larger stake in a portfolio that includes trophy assets like 11 Madison Avenue, said BTIG REIT Analyst Thomas Catherwood.
NEW YORK CITY— SL Green, a New York City-based real estate investment trust and the city’s largest office landlord, is trying to answer one question with the bulking of its shares buy-back program, “where can I earn the highest risk-adjusted return on my capital?” Thomas Catherwood, REIT analyst at global research firm BTIG, tells GlobeSt.com.
Just recently, the REIT added $500 million in common stock for a total of $3 billion to its share repurchase program, which is intended to increase share value and coincides with the selling off of mature assets for new, high-quality assets. The REIT is focused on Class-A properties only in its acquisition strategy, and buying back the shares from those new premium assets.
With shares trading at a significant discount to net asset value, by 30% according to BTIG’s estimate and even higher by SL Green’s estimate, the REIT is making a straight-forward spread investment; sell assets in the 4% to 5% cap-rate range and buy a larger stake in a portfolio that includes trophy assets like 11 Madison Ave., One Vanderbilt and Worldwide Plaza at a 6.5% implied cap rate, said Catherwood.
“As long as you believe in the long-term value of SL Green’s assets, which we do, and the NAV discount persists, the company’s share buyback strategy is a prudent allocation of capital,” he said.