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SL Green Refinances Greenwich Street Properties

Zacks Equity Research

SL Green Realty Corp. (SLG) disclosed the completion of $1.45 billion worth new refinancing of 388-390 Greenwich Street properties located in Tribeca, near the south end of Manhattan. The 7-year term new mortgage, which replaces the previous $1.138 billion financing at the properties, has an interest rate of LIBOR +1.75%.

The loan has an initial 4-year term and three, 1-year as-of-right extension options. It was provided to SL Green by a group of financial institutions including Wells Fargo & Company (WFC), Barclays PLC (BCS) and Bank of China.

Notably, 388-390 Greenwich Street comprises two properties of which 388 Greenwich is a 39-story and 390 Greenwich is an 8-story building. The entire 2,634,670 square foot complex is triple-net leased to an affiliate of Citigroup Inc. (C) that will expire on 2035.

Along with this refinancing transaction closure, the company used part of the proceeds from it to complete the buyout of stake of Ivanhoe Cambridge in 388-390 Greenwich Street assets. As a matter of fact, in early March, SL Green penned a deal with Ivanhoe Cambridge to buy the latter’s stake in these properties for consolidated investment interest valued at $1.585 billion.

We view the refinancing closure as a strategic fit as it helped this Zacks Rank #2 (Buy) stock to obtain the new loan at favorable terms. This depicts the lenders’ confidence in the company’s liquidity position and improving New York office market fundamentals.Notably, as of Mar 31, 2014, SL Green had $447.2 million of cash and cash equivalents, up from $206.7 million as of Dec 31, 2013 and $220.1 million as of Mar 31, 2013.

Last month, riding high on the growth trajectory, SL Green reported a positive earnings surprise of 11.6% for first quarter 2014. Notable top-line growth and strong portfolio enhancement activity were the drivers. Also, SL Green raised its 2014 FFO per share outlook to the range of $5.90 to $5.96, up from $5.62 to $5.72 guided earlier.

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.

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