The recent economic slowdown caused by the pandemic has compelled lawmakers to introduce protections for the people. Maybe most notably, several states across the country imposed temporary eviction bans to allow tenants to defer with no penalty. And some states — like New York — have extended these anti-eviction laws to contend with high levels of unemployment. Hence, real estate stocks that operate or have assets in the state are now in a rut.
What’s more, the New York Legislature announced a further extension of its anti-eviction laws in late December. The measure bars landlords from evicting the majority of their tenants for at least 60 days. Earlier in the month, Governor Andrew Cuomo also used his executive powers to extend New York’s ban on commercial evictions through the end of January.
Of course, property owners have vehemently criticized these extensions. Many feel it completely disregards their financial challenges. Nevertheless, these measures are weighing on New York-based real estate stocks.
So, let’s look at three names that seem to be struggling the most.
Real Estate Stocks to Sell: Empire State Realty Trust (ESRT)
Empire State Realty Trust is one the top office and retail real estate investment trusts (REITs) primarily operating in Manhattan and the greater New York metropolitan area. Its portfolio of properties covers over 10 million rentable square feet. Over the past one month, ESRT stock has dropped roughly 3.5%, compared to the S&P 500 which has gained about 4% in the same period.
Of course, the company has had it incredibly tough in the past year, marked by creeping losses and a revenue slowdown. In November, office vacancies exceeded 13.5% in Manhattan, which is the highest level of availability since 2003. ESRT also recently reported its third-quarter results, its second consecutive quarter with a loss.
Revenue of $146.6 million represented a 24% year-over-year (YOY) drop. Moreover, the company’s net loss was $12.3 million, down 54% from $26.8 million the year before. Finally, topping off its woes was a massive debt balance of roughly $2 billion (Page 13) with just $373 million in cash (Page 8). Clearly, the pandemic is not treating this one of the real estate stocks well.
SL Green Realty (SLG)
Next on my list of real estate stocks to sell is SL Green Realty, an integrated REIT and “Manhattan’s largest office landlord,” according to its site. Right now, the company has its hands in more than 90 buildings, covering over 40 million square feet. What’s more, roughly 84% of SL Green’s net operating income comes from its Manhattan properties. However, the current work-from-home trend as well as the excess supply of office space have weighed down on SLG stock in the past few months.
In the past two quarters, the company’s revenues dropped by more than 20%. Additionally, its reported Q3 net income of $13.9 million plummeted some 58% YOY. The REIT’s funds from operations (FFO) were at $135.5 million, too, far less than its $151.4 million in the prior-year period. Finally, total debt was at $5.3 billion as of Q3, with just $221.4 million in cash.
So, with the Manhattan real estate market in a slump for the foreseeable future, I expect a slow recovery for this company.
Boston Properties (BXP)
The last name on my list of suffering real estate stocks is Boston Properties, one of the largest owners of office properties and developers in the United States. The company operates in five main areas in the country with 196 properties amounting to over 50 million square feet, but one of its largest exposures is to the New York market. Right now, BXP stock’s one-month return is down 5.4%.
Unsurprisingly, earnings results for the company have been lackluster over the past two quarters. In the third quarter, net income dropped 17% as office occupancy sank in New York City and San Francisco. Additionally, FFO decreased by roughly $10 million to $244 million. Moreover, the company’s cash position is worrying, with $1.71 billion in its till but $13.48 billion in total debt.
With many tenants not expected to return in meaningful numbers until the second half of 2021, BXP could be facing some serious issues in the near future.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.