Jefferies Says 11 Madison Avenue Purchase is 'A Nice Get' for SL Green Realty (SLG) and Reiterates Buy

Jefferies maintains a Buy rating and $142 price target on SL Green Realty (NYSE: SLG) following SLG's 11 Madison Ave. purchase. Analyst Omotayo Okusanya believes that pricing is solid, given the tight Manhattan Market. However, he does note that leverage could be an issue with financing the purchase.

Okusanya comments on SLG, saying, "Utilizing the widely reported forward cash NOI figure of ~$120M, we calculate the stabilized cash cap rate was ~4.6%, which compares favorably to recent Manhattan trophy office deals of ~4%. On a per sq. ft basis, the transaction price equates to ~$1,124 psf, which is also favorable to the recent Manhattan trophy office deal average of ~$1,260 psf. We find the deal fairly solid given SLG was able to lock in at favorable pricing, despite a very tight Manhattan market. Notably, management mentioned that other bidders were afoot, but SLG locked in the deal given its ability to quickly close the transaction and shore up financing (management expects to issue ~$1.4B of CMBS debt to help fund the purchase). Overall, we think 11 Madison Ave. represents a strong, long-term core holding for SLG with no immediate lease-rollover risk and that is located in a highly sought out sub-market of Manhattan. That said, we note that the $300M of tenant improvements on recent lease signings (~1.97M sf) SLG agreed to incur is fairly high at ~$9 psf per lease year."

For an analyst ratings summary and ratings history on SL Green Realty click here. For more ratings news on SL Green Realty click here.

Shares of SL Green Realty closed at $120.37 yesterday.

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