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SL Green's (SLG) FFO Meets Estimates, Revenues Fall Y/Y

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SL Green Realty Corp. SLG reported third-quarter 2018 adjusted funds from operations (AFFO) of $1.69 per share, meeting the Zacks Consensus Estimate. This includes an unamortized cost that was written off due to early repayment of a mortgage and a reserve against a debt investment that was repaid.The figure also came inline with the year-ago FFO per share tally.

Results reflect a year-over-year rise in same-store cash net operating income (NOI). However, revenues from escalation and reimbursement witnessed a steep decline.

Net rental revenues of $221.8 million in the reported quarter missed the Zacks Consensus Estimate of $212 million. This compares unfavorably to the year-ago revenues of $274.77 million

SL Green Realty Corporation Price, Consensus and EPS Surprise

SL Green Realty Corporation Price, Consensus and EPS Surprise | SL Green Realty Corporation Quote

Quarter in Detail

For the reported quarter, same-store cash NOI, including the share of same-store cash NOI from unconsolidated joint ventures, rose 6.1% year over year. Notably, consolidated property same-store cash NOI increased 6.4%.

In the Manhattan portfolio, SL Green signed 50 office leases for 491,441 square feet of space during the third quarter. As of Sep 30, 2018, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 95.7%, down 20 basis points (bps) from the end of the last reported quarter. Importantly, in the Jul-Sep quarter, the mark-to-market on signed Manhattan office leases was 1% higher over the previous fully-escalated rents on the same spaces.

On the other hand, in the Suburban portfolio, SL Green signed eight office lease deals for 33,506 square feet of space. Same-store occupancy for the Suburban portfolio, inclusive of leases signed but not yet commenced, was 92.1% as of Sep 30, 2018, shrinking 10 bps from the end of the previous quarter. Moreover, in the quarter under review, mark-to-market on signed suburban office leases came in 2% lower than the previously fully-escalated rents on the same spaces.


SL Green exited the Sep-end quarter with cash and cash equivalents of nearly $160.2 million, up from $127.9 million recorded at the end of 2017.

Investment Activity

Year to date, SL Green has repurchased 7.7 million shares of common stock and 0.4 million under its 2-billion share-repurchase plan. The shares were bought back at an average price of $97.34 per share.

Additionally, the company entered into agreements to sell its stake in 3 Columbus Circle and 1231 Third Avenue. Both transactions are expected to close in fourth-quarter 2018.

Our Take

SL Green has put in significant efforts to reposition and enhance its portfolio through asset sales and accretive property ownership.This includes divesting its non-core assets and using the proceeds to fund share buybacks, long-term core asset acquisitions, and investment in debt and preferred equities. In addition, the company remains on track with its share-buyback program. 

Nonetheless, increase supply of office properties in its markets restricts the company’s ability to attract and retain tenants at relatively higher rents than competitors. Furthermore, it is feared that massive dispositions might impede SL Green’s near-term performance.

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 DRE, Cousins Properties CUZ and Simon Property Group SPG. Simon Property and Cousins Properties are slated to report third-quarter earnings on Oct 25, while Duke Realty is scheduled to release its Q3 numbers on Oct 24.

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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