SL Green's (SLG) Q3 FFO Surpasses Estimates, Revenues Dip Y/Y

SL Green Realty Corp. (NYSE:SLG) reported third-quarter 2019 funds from operations (FFO) of $1.75 per share, surpassing the Zacks Consensus Estimate of $1.73. The figure also compares favorably with the year-ago quarter’s reported tally of $1.66.

Results reflect decent leasing activity in the company’s Manhattan portfolio. Further, total revenues for the quarter improved year over year.

Net rental revenues of $215.45 million in the third quarter lagged the Zacks Consensus Estimate of $215.63 million. The revenue figure also declined as compared to the prior-year tally of $221.8 million.

Quarter in Detail

For the third quarter, same-store cash NOI, including SL Green’s share of same-store cash NOI from unconsolidated joint ventures, inched up 1.5% as compared with the prior-year period. This excludes free rent and lease termination income given to Viacom for space at 1515 Broadway.

In the Manhattan portfolio, SL Green signed 31 office leases for 268,349 square feet of space during the quarter. The average lease term on these leases is 7.2 years, while average tenant concessions were 3.9 months of free rent.

Importantly, for the third quarter, the mark-to-market on signed Manhattan office replacement leases was 3.2% higher than the previous fully-escalated rents on the same spaces. As of Sep 30, 2019, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 95.3%, up 10 basis points as compared with the prior quarter.

The company also decreased the carrying value of its debt and preferred equity investment portfolio to $1.99 billion.

Liquidity

SL Green exited the September-end quarter with cash and cash equivalents of nearly $121.7 million, down from $129.5 million recorded at the end of 2018.

Investment Activity

The company has repurchased 2.7 million shares of common stock and Operating Partnership units under its $2.5-billion share-repurchase program, in the year-to-date period. The shares were bought back at an average price of $84.08 per share.

Additionally, the company entered into a contract to sell 1010 Washington Boulevard in Stamford, CT,for $23.1 million. This transaction, projected to generate cash proceeds of $21.6 million, will likely close in fourth-quarter 2019.

Our Take

In September, the company announced that its trophy office tower in East Midtown in New York City — One Vanderbilt — has topped out at 1,401 feet. With this, the building’s construction is ahead of its schedule by more than three months and $100 million under budget. The property’s extremely active leasing is encouraging.

Moreover, amid concerns in the retail estate space, sale of the company’s 49% interest in a retail condominium at 115 Spring Street in Soho is a strategic fit.

SL Green Realty Corporation Price, Consensus and EPS Surprise

SL Green currently carries a Zacks Rank of 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 Equity Residential (NYSE:EQR) , Highwoods Properties, Inc. (NYSE:HIW) and PS Business Parks (NYSE:PSB) that are slated to report their quarterly numbers on Oct 22.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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