A 30% Yielding Setup On High Quality Manhattan Real Estate 🤔

2023년 3월 30일

IDEA:
Sell SL Green $12.5 strike puts expiring 5/19/2023 for $50 per contract (Currently $0.50 market bid. Be sure to check prices.)


NOTE:
Your broker will reserve $1,250 in buying power for every contract sold.


STATS:
-46% breakeven (We have this much “room” until we would be underwater at option expiry.)
30% annualized return
92% chance of max profit


COMMENTS:
SL Green. A company we never thought would be in the “trash” bin, but here it is. No company better exemplifies the modern troubles facing commercial real estate than SLG.

A leading owner of A+ level Manhattan office buildings, the company has been under immense stress as the pandemic WFH requirements shifted popular culture and paradigms surrounding remote work. With offices less necessary than ever before, companies are re-evaluating their big office leases, which has hurt SLG tremendously.

And, while FCF hasn’t dipped negative yet, many believe it’s only a matter of time as tenants continue to dribble out and SLG faces the prospect of converting office buildings to residential use, which would be an incredibly expensive undertaking.

That said, the stock is so hammered that a further 46% discount on the portfolio of real estate, or a 92% chance of a 30% annualized yield, has our mouths watering.


RISKS:
The company uses debt to finance its purchases. While payment ratios are fine now, the market may lose confidence in the ability for executives to effectively manage the company’s debt load and cash flow, which could lead to a BIG write down in shares. This could cause losses.


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