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DOW   35,950.89
QQQ   388.83
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Elon Musk Gives Profanity-Laden Tirade During DealBook Interview: "Go F--- Yourself'
S&P 500   4,567.80
DOW   35,950.89
QQQ   388.83
Are blue chip stocks a good investment?
BREAKING: The truth about war with China (Ad)
Power Play: GE's game-changing technology for EVs and grids
Home sales hit a 13-year low... what now?
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Stock market today: Wall Street takes a breather after best trading month of the year
Salesforce.com completes a reversal: new all-time high in sight
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
A 15% gain in store for Five Below after rosy holiday outlook
Elon Musk Gives Profanity-Laden Tirade During DealBook Interview: "Go F--- Yourself'
S&P 500   4,567.80
DOW   35,950.89
QQQ   388.83
Are blue chip stocks a good investment?
BREAKING: The truth about war with China (Ad)
Power Play: GE's game-changing technology for EVs and grids
Home sales hit a 13-year low... what now?
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Stock market today: Wall Street takes a breather after best trading month of the year
Salesforce.com completes a reversal: new all-time high in sight
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
A 15% gain in store for Five Below after rosy holiday outlook
Elon Musk Gives Profanity-Laden Tirade During DealBook Interview: "Go F--- Yourself'
S&P 500   4,567.80
DOW   35,950.89
QQQ   388.83
Are blue chip stocks a good investment?
BREAKING: The truth about war with China (Ad)
Power Play: GE's game-changing technology for EVs and grids
Home sales hit a 13-year low... what now?
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Stock market today: Wall Street takes a breather after best trading month of the year
Salesforce.com completes a reversal: new all-time high in sight
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
A 15% gain in store for Five Below after rosy holiday outlook
Elon Musk Gives Profanity-Laden Tirade During DealBook Interview: "Go F--- Yourself'

Are Dividend-Paying Office REITs Finally Staging A Comeback?

Dividend-paying Office REITs

Key Points

  • Small-cap office REIT SL Green Realty announced the sale of a 49.9% interest in a New York property, lifting confidence throughout the industry.
  • The pass-through requirement for REITs mandates that at least 90% of generated income must be distributed to shareholders.
  • Barclays and BMO Capital Markets increased price targets for SL Green Realty stock after the sale.
  • 5 stocks we like better than SL Green Realty

If you haven’t exactly been monitoring the performance of office-building investments, that’s understandable. With offices sitting empty as employees prefer to work from home, the biggest real estate investment trusts, Alexandria Real Estate Equities NYSE: ARE, Boston Properties NYSE: BXP, Corporate Office Properties Trust NYSE: OFC, Kilroy Realty NYSE: KRC and Vornado Realty Trust NYSE: VNO were among the most-beaten down equities in the past 15 months. 

But in recent weeks, the industry has been seeing green shoots, not based on hopes and wishes, but on actual developments that are sending office REIT stocks higher. In addition to recent price increases, it’s worth noting that these REITs still pay good dividends. 

The REIT pass-through requirement mandates that at least 90% of the income generated must be distributed to shareholders, allowing REITs to avoid corporate-level tax rates. 

Before looking at what’s driving prices higher today, let’s take a step back to understand how the asset class became so downtrodden.

Office REITs stabilized beginning in November 2020, amid hopes that Covid would quickly recede and cities would once again fill up with office workers. As we now know, neither of those things happened, but office REITs, as a group, managed to trade sideways throughout 2021, without undercutting their 2020 lows. 


Back-To-Office Mandates Didn't Work

The floor fell out from these REITs in 2022, however, as it became clear that back-to-the-office mandates weren’t working. According to a report from S&P Global, “Office REIT financial performance dips amid declining occupancy,” the median office occupancy rate dropped to 87.4% during the first quarter, the lowest it has been since occupancy rates started declining in 2020.

That may not sound like such a bad rate, but it’s a real problem for not only REITs, which own and manage office properties, but also for employers, especially corporations with payments for leases they signed well before the pandemic. 

Many corporate tenants have been downsizing or not renewing leases at all. In June, Yelp Inc. NYSE: YELP said it was closing offices in New York, Washington, D.C., and Chicago, and downsizing its Phoenix office due to low utilization. Alphabet Inc. NASDAQ: GOOGL, Uber Technologies Inc. NYSE: UBER, AT&T Inc. NYSE: T, UnitedHealth Group Inc. NYSE: UNH and Electronic Arts Inc. NASDAQ: EA are among many corporations that are downsizing their real estate footprint in one way or another. 

SL Green's Plants Green Shoots

So where, exactly are these green shoots?

Look no further than an announcement from small-cap office REIT SL Green Realty Corp. NYSE: SLG, which on June 26 announced the sale of a 49.9% interest in an office property at 245 Park Avenue in New York. The buyer was Mori Trust Co., a development and investment company based in Tokyo.

Looking at SL Green Realty analyst ratings, you can see that after the announcement of the sale, Barclays boosted its price target on the stock. 

In addition, BMO Capital Markets analyst John Kim, who boosted his price target on the stock in April, reiterated his "outperform" rating and maintained his target of $32, an upside of 32.89%. 

Renewed Confidence In NYC Office Market

In his latest note, Kim said the sale of the stake in 245 Park Avenue adds confidence in the New York City transaction market, as well as in SL Green’s track record of executing deals. 

A glimpse at the SL Green Realty chart shows an uptrend that began when news of the transaction broke. Other REITs also notched big gains on June 26 and rallied in subsequent sessions.

The deal has illustrated that the market for office real estate may be more robust and liquid than investors previously believed, and maybe, just maybe, over time, workers will gradually start returning to offices, even in hybrid arrangements. Some analysts believe this trend could take three to five years to fully play out, but office REITs may still have potential. 

One week does not make a trend, but office REITs seem to be an asset class worth watching again, after their long decline. While the broad sentiment, at least among the general public, remains bearish, the dividend yield and the potential of gains could make these attractive once again.

Should you invest $1,000 in SL Green Realty right now?

Before you consider SL Green Realty, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and SL Green Realty wasn't on the list.

While SL Green Realty currently has a "Reduce" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
SL Green Realty (SLG)
1.8486 of 5 stars
$36.57-1.6%8.89%-4.78Reduce$33.50
Alexandria Real Estate Equities (ARE)
2.6619 of 5 stars
$109.40+0.4%4.53%78.71Moderate Buy$144.33
Alphabet (GOOGL)
2.481 of 5 stars
$132.53-1.8%N/A25.44Moderate Buy$147.12
Boston Properties (BXP)
2.2146 of 5 stars
$56.93-0.1%6.89%46.28Hold$67.87
Corporate Office Properties Trust (OFC)
2.3907 of 5 stars
$0.00-100.0%14.76Hold$29.00
Electronic Arts (EA)
2.3382 of 5 stars
$138.01+0.5%0.55%38.02Moderate Buy$141.75
Kilroy Realty (KRC)
2.166 of 5 stars
$33.01-0.9%6.54%17.84Moderate Buy$39.82
Uber Technologies (UBER)
2.4506 of 5 stars
$56.390.0%N/A115.08Buy$56.72
UnitedHealth Group (UNH)
2.8183 of 5 stars
$553.00+3.4%1.36%24.00Moderate Buy$579.65
Vornado Realty Trust (VNO)
1.7659 of 5 stars
$23.54-0.9%1.61%-11.65Reduce$20.91
Yelp (YELP)
1.8556 of 5 stars
$43.71+0.6%N/A34.69Hold$41.33
Compare These Stocks  Add These Stocks to My Watchlist 

Kate Stalter

About Kate Stalter

  • stalterkate@gmail.com

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Experience

Kate has been a contributing writer for MarketBeat since 2021.

Areas of Expertise

Asset allocation, technical and fundamental analysis, retirement strategies, income generation, risk management, sector and industry analysis

Education

B.A., Saint Mary’s College, Notre Dame, Indiana; MBA, Kellogg School of Management, Northwestern University

Additional Experience

Series 65-licensed investment advisor, financial advisor, Blue Marlin Advisors; investment columnist for Forbes, U.S. News & World Report

Past Experience

Founder, financial advisor for Better Money Decisions; editor, stock trading instructor for Investor’s Business Daily; columnist, podcast host, video host for MoneyShow.com; contributor for Morningstar magazine


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