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SL Green (SLG) Q2 FFO, Revenues Beat on Solid Leasing Activity

Zacks Equity Research

SL Green Realty Corp. SLG reported second-quarter 2019 funds from operations (FFO) of $1.82 per share, surpassing the Zacks Consensus Estimate of $1.73. The tally includes promote income from the sale of 521 Fifth Avenue of $3.4 million or 4 cents per share. Results also compare favorably with the year-ago quarter’s $1.69.

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

Net rental revenues of $216.5 million in the second quarter outpaced the Zacks Consensus Estimate of $213.5 million. The revenue figure also compares favorably with the prior-year tally of $211.4 million.

Quarter in Detail

For the second quarter, same-store cash NOI, including SL Green’s share of same-store cash NOI from unconsolidated joint ventures, declined 2.7% year over year. However, excluding free rent and lease termination income given to Viacom for space at 1515 Broadway, the figure inched up 1.1%. 

In the Manhattan portfolio, SL Green signed 40 office leases for 507,743 square feet of space during the quarter. Importantly, for the six-month period ended June 2019, the mark-to-market on signed Manhattan office leases was 30.5% higher than the previous fully-escalated rents on the same spaces. As of Jun 30, 2019, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 95.2%, shrinking 80 basis points year over year. 

In the Suburban portfolio, SL Green signed 10 office lease deals for 77,712 square feet of space. Same-store occupancy for the Suburban portfolio, inclusive of leases signed but not yet commenced, was 90% as of Jun 30, 2019, compared to 92.2% as of Jun 30, 2018.

Liquidity

SL Green exited the June-end quarter with cash and cash equivalents of nearly $149 million, up from $129.5 million recorded at the end of 2018.

Investment Activity

In first-half 2019, the company repurchased 1.3 million shares of common stock under its $2.5-billion share-repurchase program. The shares were bought back at an average price of $86.42 per share.

Additionally, the company, along with its joint-venture partnerclosed the sale of 521 Fifth Avenue for $381 million. The transaction generated cash proceed of $106 million for the company.

Our Take

SL Green’s office and retail platforms have dominant market share in the large- and high-barrier to entry New York real estate market, making the company a preeminent leader in the region.

Hence, reaping benefits of its strategic portfolio and the favorable real estate trend in the office market, SL Green entered into several lease agreements for its office properties during the quarter. Additionally, the company has made impressive progress regarding leasing space at One Vanderbilt office tower. In fact, the property is 59% leased ahead of its in August 2020.

SL Green Realty Corporation Price, Consensus and EPS Surprise
 

SL Green Realty Corporation Price, Consensus and EPS Surprise


SL Green Realty Corporation price-consensus-eps-surprise-chart | SL Green Realty Corporation Quote

Nonetheless, such development activities might create near-term capital expenditure pressure for SL Green. This apart, softness in the retail market continues to dampen the company’s retail properties.

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 Cousins Properties Incorporated CUZ, Iron Mountain Incorporated IRM and PS Business Parks PSB slated to report their quarterly numbers on Jul 24, Aug 1 and Jul 23, respectively.

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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