SL Green (SLG) Q4 FFO Misses Estimates, Revenues Decline Y/Y

SL Green Realty Corp. (NYSE:SLG) reported fourth-quarter 2018 funds from operations (FFO) of $1.61 per share, missing the Zacks Consensus Estimate of $1.72. This tally was net of $14.9 million, related to early repayment of loan at One Madison Avenue. Nonetheless, results compare favorably with the year-ago figure of $1.60.

Results were impacted by year-over-year decline in total revenues. Further, same-store occupancy for the company’s suburban portfolio witnessed a decline.

Net rental revenues of $216.5 million in the reported quarter missed the Zacks Consensus Estimate of $222.1 million. The revenue figure also compares unfavorably with the year-ago tally of $265.5 million.

For full-year 2018, FFO per share came in at $6.62, lagging the Zacks Consensus Estimate of $6.74. The figure improved from the year-earlier tally of $6.45. Net rental revenues for full-year 2018 declined 21.4% year over year to $865 million.

Quarter in Detail

For the reported quarter, same-store cash net operating income (NOI), including SL Green’s share of same-store cash NOI from unconsolidated joint ventures, climbed 2.7% year over year. Notably, consolidated property same-store cash NOI increased 4.4%.

In the Manhattan portfolio, SL Green signed 44 office leases for 837,881 square feet of space during the fourth quarter. Importantly, in the Oct-Dec quarter, the mark-to-market on signed Manhattan office leases was 8.6% higher over the previous fully-escalated rents on the same spaces. As of Dec 31, 2018, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 95.7%, remaining flat from the end of the third quarter.

On the other hand, in the Suburban portfolio, SL Green signed nine office lease deals for 137,882 square feet of space. Same-store occupancy for the Suburban portfolio, inclusive of leases signed but not yet commenced, was 91.8% as of Dec 31, 2018, shrinking 30 basis points from the end of the previous quarter.

Liquidity

SL Green exited the Dec-end quarter with cash and cash equivalents of nearly $129.5 million, up from $127.9 million recorded at the end of 2017.

Investment Activity

In November 2018, the company enhanced its share-buyback program by authorizing additional $500 million for repurchases, bringing the total to $2.5 billion.

Year to date, SL Green has repurchased 18.4 million shares of common stock and 0.4 millioncommon units of its Operating Partnership units. The shares were bought back at an average price of $98.51 per share.

Additionally, the company entered into agreements to sell 20% stake in 131-137 Spring Street to Invesco Real Estate. The transaction closed in January 2019 and cash proceeds for the company came in at $15.2 million.

Our Take

SL Green continues to reposition and enhance its portfolio through non-core asset sales and accretive property ownership and development. In fact, the company has significantly reduced its suburban footprint. Proceeds from these are being used for share buybacks, long-term core asset acquisitions, and investment in debt and preferred equities.

Nonetheless, SL Green’s two extensive development projects — One Vanderbilt and One Madison Avenue — will require huge capital outlays and might affect its liquidity position, going forward.

SL Green currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Duke Realty Corporation (NYSE:DRE) , Kimco Realty Corporation (NYSE:KIM) and Mid-America Apartment Communities, Inc. (NYSE:MAA) that are slated to report fourth-quarter and 2018 earnings on Jan 31.

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