Investors in Manhattan's largest office landlord, SL Green Realty (NYSE: SLG), have taken it on the chin this year. Shares of the office real estate investment trust (REIT) have tumbled more than 30% due to worries that the COVID-19 outbreak will have a significant long-term impact on its operations. While the company has experienced some headwinds this year, it has navigated the downturn relatively well as it quickly shored up its liquidity by selling properties. That gave it the cash to buy back some of its beaten-down stock.
It also gave the company confidence to reward investors who have stuck with it during this trying year. The REIT plans to do that by giving them a raise and paying a special dividend.
The gift that keeps on giving
SL Green announced that it would increase its dividend by 2.8%. That pushes the annual rate up to $3.64 a share and the monthly payment to $0.3033 a share. It's a milestone increase for the REIT, which has now grown its payout each year for the past decade.
With this latest raise, SL Green's dividend now yields 5.7%. While the market has had some concerns about the sustainability of the REIT's high-yielding payout due to the impact the COVID-19 outbreak is having on the Manhattan real estate market, this news should boost investors' confidence in the payout's long-term sustainability.
SL Green also plans to pay a special dividend. It will have a value of $1.6967 per share and get paid alongside the next monthly dividend on January 15th, bringing the total payment to $2.00 per share. However, what's noteworthy about the special dividend is that SL Green will pay it in stock. Investors can elect to receive the entire next payment in either all cash or all stock, subject to proration.
By paying the special dividend in stock, the company is in a sense giving its existing investors another raise. That's because the new shares will entitle them to future monthly dividend payments.
Putting itself in a position to reward shareholders
SL Green has worked hard to reward its investors during this challenging year. The company responded quickly to the pandemic by launching a plan to generate $1 billion in cash via asset sales to shore up its liquidity. It achieved that plan ahead of schedule, which allowed it to maintain its dividend and start repurchasing shares. Meanwhile, it took advantage of strong buyer interest for trophy assets leased to an in-demand tenant by selling its 410 Tenth Avenue redevelopment project for $952.5 million. That deal enabled the company to lock in "extraordinary profits" while giving it the cash to reduce debt and repurchase shares.
SL Green also secured low-cost debt financing on several properties, completed construction on a new iconic office building in Manhattan, and secured new tenant leases despite most businesses continuing to have their employees work from home. When combined with the growing frustrations many companies have working remotely and a string of recent positive vaccine data, these actions increased the company's confidence that tenants will be returning to the office in the coming months. As that happens, it could spur demand for additional office space as companies focus on the health and safety of their employees by spreading them out to allow for greater social distancing.
A great office REIT for income investors
SL Green Realty worked hard to navigate through a challenging year for the Manhattan office market. The company exceeded its goals as it sold more assets than expected, which enabled it to bolster its balance sheet, buy back stock, and reward its investors with a dividend increase and a special payment. With the REIT exiting the pandemic in a better position than it entered, it's an even better option for income-seeking investors, especially since its lower share price enables them to lock in an even higher monthly dividend stream.