Is SFL Corporation a Hidden Gem in a Challenging Market?

The real estate sector has faced headwinds in recent years, with shifting tenant preferences and economic uncertainty testing even the strongest players. SFL Corporation (NYSE:SFL), a Paris-focused property investment firm, presents an intriguing case: despite short-term revenue declines, its fortress-like occupancy rates, strategic asset management, and high-value redevelopment pipeline suggest it could be a compelling value play for long-term investors.

Navigating Short-Term Challenges

SFL’s Q1 2025 results revealed a 4.9% drop in rental income to €60.8 million compared to the prior year, driven by the loss of two major tenants: WeWork (exiting its Haussmann Saint-Augustin lease) and GRDF (leaving the Condorcet headquarters). These departures cost the company €6.2 million in revenue. However, a deeper look shows resilience: on a like-for-like basis (excluding portfolio changes), rental income rose 4.1%, thanks to rent hikes and proactive pre-marketing of vacated spaces like the Washington Plaza and Edouard VII buildings.

The Case for Long-Term Confidence

1. Occupancy Rates at Record Highs: SFL’s physical occupancy hit 99.3% in Q1, with office properties (excluding redevelopments) fully leased. New leases signed in the quarter averaged €1,000/sq.m., a strong indicator of demand for its premium assets.
2. Redevelopment Pipeline: The vacant Haussmann Saint-Augustin and Condorcet buildings are undergoing full transformations. The former, set to reopen mid-2025, and the latter (targeting 2027 delivery) promise higher rental income once completed. These projects align with SFL’s strategy to reposition properties in prime locations, a move that typically commands premium pricing.
3. Credit Stability: Standard & Poor’s reaffirmed SFL’s BBB+ credit rating in April 2025, signaling confidence in its balance sheet amid market volatility.

Stock Performance and Analyst Outlook

The stock (SFL) has traded in a narrow range recently, closing at $8.32 on May 5, 2025. While Q1 earnings missed expectations—analysts projected a negative EPS of -$0.01 versus $0.36 in 2024—the focus should remain on the 2026 rebound, with EPS forecasts jumping to $0.46, a 872.8% increase from 2025’s estimated -$0.06.

Analyst sentiment is mixed but improving. Fearnleys’ upgrade to Buy in November 2024 reflects growing confidence in SFL’s ability to capitalize on its high-quality portfolio. Meanwhile, dividend-paying investors can look forward to the $0.27/share dividend (yielding ~3.2% at current prices), reinforcing SFL’s appeal as a steady income generator.

Risks and Considerations

• Tenant Dependency: SFL’s reliance on a few major tenants historically created vulnerability, as seen with WeWork and GRDF. However, the rapid repositioning of vacated properties suggests the company has learned to mitigate this risk.
• Geopolitical Risks: While Paris remains a global commercial hub, macroeconomic slowdowns or geopolitical tensions could delay office demand.

Conclusion: A Play on Paris’s Premium Real Estate

SFL Corporation is positioned as a contrarian bet on Paris’s enduring appeal as a top-tier commercial destination. With 99.3% occupancy, a redevelopment pipeline targeting mid-2025 and 2027, and a €7.6 billion portfolio anchored in the CBD, the company appears well-equipped to recover from near-term headwinds.

Crucially, the like-for-like rental growth of 4.1% and aggressive asset management—such as pre-marketing vacancies—signal a disciplined approach to maximizing returns. While 2025’s revenue is projected to drop 18.7% year-over-year, the 2026 EPS rebound and BBB+ credit rating provide a foundation for sustained growth.

For investors seeking a dividend-paying real estate play with exposure to one of Europe’s most resilient markets, SFL offers a compelling entry point at current prices. The key catalysts—redevelopment completions and renewed tenant demand—are within sight, making this a stock worth monitoring for long-term gains.

Investors should consider their risk tolerance and consult with a financial advisor before making any investment decisions.