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SL Green's (SLG) Q1 FFO & Revenues Miss Estimates, NOI Up

Zacks Equity Research

SL Green Realty Corp. SLG reported first-quarter 2019 funds from operations (FFO) of $1.68 per share, missing the Zacks Consensus Estimate of $1.72. This tally was net of a non-cash charge of $2 million, related to a tenant bankruptcy at 625 Madison Avenue. Nonetheless, results compare favorably with the year-ago figure of $1.66.

Results reflect growth in same-store cash net operating income (NOI). However, same-store occupancy for the company’s suburban portfolio witnessed a decline. 

Net rental revenues of $212.6 million in the reported quarter missed the Zacks Consensus Estimate of $215 million. The revenue figure also compares unfavorably with the year-ago tally of $215.4 million.

Quarter in Detail

For the first quarter, same-store cash NOI, including SL Green’s share of same-store cash NOI from unconsolidated joint ventures, climbed 5.1% year over year. This excluded free rent and lease termination income given to Viacom for space at 1515 Broadway. 

In the Manhattan portfolio, SL Green signed 32 office leases for 407,902 square feet of space during the quarter. Importantly, in the Jan-Mar quarter, the mark-to-market on signed Manhattan office leases was 4.5% higher than the previous fully-escalated rents on the same spaces. As of Mar 31, 2019, Manhattan’s same-store occupancy, inclusive of leases signed but not yet commenced, was 95.8%, 30 basis points (bps) higher than the end of the first-quarter 2018.

In the Suburban portfolio, SL Green signed eight office lease deals for 32,970 square feet of space. Same-store occupancy for the Suburban portfolio, inclusive of leases signed but not yet commenced, was 91.1% as of Mar 31, 2019, compared to 92.4% at Mar 31, 2018.

Liquidity

SL Green exited the Mar-end quarter with cash and cash equivalents of nearly $144.3 million, up from $129.5 million recorded at the end of 2018.

Investment Activity

In 2019, the company repurchased 0.4 million shares of common stock under its $2.5-billion share repurchase program. The shares were bought back at average price of $86.07 per share.

Additionally, the company, along with its joint-venture partner entered into agreements, to sell 521 Fifth Avenue for $381 million. The transaction is expected to close in second-quarter 2019 and cash proceed for the company will likely be nearly $100 million.

Our Take

The U.S. office real estate market is benefiting from a decent economy and steady growth in the job market.Hence, reaping benefits of the favorable real estate trend and a dominant office footprint in the New York real estate market, SL Green entered into several lease agreements for its office properties.

Nonetheless, the retail real estate environment is currently turbulent. Mall traffic has been declining significantly amid rapid growth in online sales, forcing retailers to opt for store closures. In fact, the bankruptcy of Dieselat 625 Madison Avenuenegativelyimpacted SL Green’s bottom-line performance.

SL Green Realty Corporation Price, Consensus and EPS Surprise
 


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

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 Cousins Properties Incorporated CUZ, Iron Mountain Incorporated IRM and Duke Realty Corporation DRE that are slated to report first-quarter numbers next week.

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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