On Thursday, SL Green Realty
SL Green will now hold a total of 28.1 million square feet of real estate, with 23 million square feet being located in Manhattan. News of the transaction and strong second-quarter earnings were the key drivers that led Deutsche Securities to upgrade the REIT from a hold to a buy rating on Friday.
The stock's recent 52-week high of $115.20 is backed by solid fundamentals. At the end of July, the company reported a second quarter that saw its quarterly funds from operations rise 23% compared to the prior year's second quarter. SL Green hit $57.2 million, or $1.22 per share for the quarter, compared to funds from operations of $46.4 million, or $1.02 per share for the same period last year. The increase is largely attributable to increased office rents. The stock still has room to run, as evidenced by its aggressive acquisition history and a price/FFO ratio of 25 that is comparable to the 24 maintained by competitor Boston Properties
Potential investors in this stock should also note that it is the second-largest holding of the perennial market-outperformer CGMRealty Fund
Being strategically located in a market where the company can virtually name its price on its rentals, I wouldn't expect this juggernaut to cool off anytime soon. While many investors might have shied away from real estate in general over the past year on concerns of being on the losing end of a bubble, SL Green is in a market virtually immune to any such potential bubbles. With Manhattan office rentals experiencing a vacancy rate presently less than 6%, potential lessees will be at the mercy of this company and its fellow landlords for some time to come.
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.