BofA Securities analyst James Feldman upgrades SL Green (NYSE:SLG) and Vornado Realty Trust (NYSE:VNO) to Neutral from Underperform as he sees a more balanced risk-reward profile for the two office REITs with significant exposure to New York City.
"We expect SLG to continue on its plan to recycle assets, repurchase shares, and grow the development pipeline as it seeks to modernize the portfolio," Feldman writes in a note to clients. He also expects the company to become more active in opportunistic debt and asset buyer "as clarity on market conditions improves."
Lifts price target to $75 from $70.
For Vornado (VNO), Feldman sees some outsized growth at the REIT's PENN District redevelopments. "Similar to SLG, VNO has a strong leasing and asset management platform that we expect to prove key competitive assets as NYS works its way through the downturn to a recovery," he writes.
Increases price target to $46 from $42.
Vornado (VNO) shares rise 1.4% in premarket trading.
For both SLG and VNO, headwinds include limited visibility on when pricing power returns for NYC offices and risk of future vacancy when tenants get a better idea of their space needs.
Feldman sees the New York City office market ahead of San Francisco's environment due to fewer COVID restrictions and a less favorable view of hybrid work environments. He also points to reports of tech giants Google and Facebook expanding in NYC.
His rating on VNO also agrees with the Quant rating and the average Wall Street rating (2 Very Bullish, 2 Bullish, 5 Neutral, 3 Bearish, 1 Very Bearish).
In the past year, SLG's total return (+74%) outpaces Highwoods Properties (NYSE:HIW) (+45%), which operates mostly in the Sunbelt, and VNO (+42%) as seen in the chart below.
For office REITs with market cap over $1B, SL Green (SLG) rates 10th and Vornado (VNO) rates 15th using the SA equities screener.