SL Green (SLG) Q4 FFO Beats Estimates, Revenues Miss
SL Green Realty Corp. SLG reported fourth-quarter 2015 adjusted funds from operations (“FFO”) of $1.62 per share, exceeding the Zacks Consensus tally of $1.61. In the prior-year quarter, the company had reported adjusted FFO of $1.45 per share. A rise in combined same-store net operating income (“NOI”) aided the better-than-expected results in the quarter.
Net rental revenue for the fourth quarter rose 8.8% year over year to around $320.0 million. However, it lagged the Zacks Consensus Estimate of $353 million.
For the full year, SL Green came up with adjusted FFO of $6.49 per share, higher than both the Zacks Consensus Estimate of $6.38 and the prior-year tally of $5.94.
Quarter in Detail
For the quarter, combined same-store cash NOI rose 5% year over year to $179.2 million.
In the Manhattan portfolio, SL Green inked 44 office leases for 416,198 square feet of space. As of Dec 31, 2015, Manhattan same-store occupancy increased 140 basis points (bps) year over year to 97.1%. Importantly, in the fourth quarter, the mark-to-market on signed Manhattan office leases was 20.5% higher than the previously fully escalated rents on the same spaces.
On the other hand, in the Suburban portfolio, SL Green signed 27 office lease deals for 193,370 square feet of space. Same-store occupancy for the Suburban portfolio was 82.5%, up 50 bps year over year. Moreover, in the fourth quarter, mark-to-market on signed Suburban office leases was 5.8% higher than the previously fully escalated rents on the same spaces.
SL Green exited 2015 with cash and cash equivalents of $255.4 million, down from $281.4 million at the end of the prior year.
Notable Investment Activities
Importantly, in January, Citigroup, Inc. C exercised the option to acquire 388-390 Greenwich Street for $2.0 billion (net of any unfunded tenant concessions). The closing of the transaction is slated for Dec 2017.
In Dec 2015, SL Green closed the acquisition of its joint-venture partner's 45% stake in 600 Lexington Avenue, a 36-story, 303,500 square foot Midtown Manhattan office building, at a gross asset valuation for the consolidated investment of $284.0 million.
On the other hand, SL Green closed the sales of 570-574 Fifth Avenue and 140-150 Grand Avenue for total gross asset valuations of $125.4 million and $32.0 million, respectively. The company also entered into agreement to sell 90% stake in the residential condominium at 248-252 Bedford Avenue for a total gross asset valuation of $55.0 million. Further, SL Green signed a new full-building, 49-year net lease for 562 Fifth Avenue. The lessee has the option to purchase the asset for $100.0 million from the company.
Finally, in the fourth quarter, the company originated new debt and preferred equity investments of $986.1 million in total, of which $338.1 million was retained.
Our Take
We are encouraged by the earnings beat at SL Green. The company has been actively pursuing portfolio enhancement initiatives through investment in opportunistic assets, and debt and preferred equities. Yet, stiff competition and interest rate issues remain concerns.
SL Green currently holds a Zacks Rank #2 (Buy).
We now look forward to the results of other REITs such as General Growth Properties, Inc GGP and Avalonbay Communities Inc. AVB, both of which are scheduled to report their earnings next week.
Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
CITIGROUP INC (C): Free Stock Analysis Report
GENL GRWTH PPTY (GGP): Free Stock Analysis Report
AVALONBAY CMMTY (AVB): Free Stock Analysis Report
SL GREEN REALTY (SLG): Free Stock Analysis Report
To read this article on Zacks.com click here.
