SL Green Realty Corp. SLG has finally sold Tower 45 for $365 million. The sale of this Midtown Manhattan office building, declared in July, was intended to generate funds for the company’s iconic Eleven Madison Avenue buyout.
This 440,000-square-foot office tower became part of SL Green’s portfolio in 2007 with its merger with Reckson Associates. Later, the company made notable capital improvements to the property in an attempt to reposition it.
Importantly, in Aug 2015, SL Green announced the acquisition of Eleven Madison Avenue, a trophy asset in New York City, for $2.285 billion to enhance its portfolio. The acquisition also included around $300 million of costs associated with lease-related improvements to the property.
In order to fund the Eleven Madison Avenue acquisition, the company had to resort to asset dispositions like that of Tower 45 in Manhattan. Moreover, SL Greens has recently revealed a deal to dispose of two retail development sites on Fifth Avenue for $125.4 million to a single buyer.
The Fifth Avenue sites disposition would not only help it to reap returns on its original investment (around 60% premium to its acquisition amount of $78.7 million in Nov 2013), but also accumulate equity capital for tax-efficient redeployment into Eleven Madison Avenue. This would help in immediate accretion.
Bottom Line
The Eleven Madison Avenue acquisition seems to be a strategic buyout for the company. The property is well-leased for long term and positioned in one of the city's strongest commercial office submarkets. This offers SL Green ample growth prospects. This is why strategic sales and capital recycling moves for supporting such growth needs appear positive for the company.
SL Green currently carries a Zacks Rank #3 (Hold). Investors interested in REITs may consider stocks like Prologis, Inc. PLD, Public Storage PSA and PS Business Parks Inc. PSB. All three stocks hold a Zacks Rank #2 (Buy).
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