SL Green Realty Corp. SLG reported first-quarter 2016 adjusted funds from operations (“FFO”) of $1.85 per share, exceeding the Zacks Consensus Estimate of $1.65. In the prior-year quarter, the company reported adjusted FFO of $1.51 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 first quarter rose 13.9% year over year to around $345.6 million. Further, it surpassed the Zacks Consensus Estimate of $327.4 million.
Quarter in Detail
For the quarter, combined same-store cash NOI rose 10.2% year over year to $176 million.
In the Manhattan portfolio, SL Green inked 47 office leases for 849,586 square feet of space. As of Mar 31, 2016, Manhattan same-store occupancy increased 130 basis points (bps) year over year to 97.4%. Importantly, in the first quarter, the mark-to-market on signed Manhattan office leases was 39.4% higher than the previously fully escalated rents of the same spaces.
On the other hand, in the Suburban portfolio, SL Green signed 27 office lease deals for 244,795 square feet of space. Same-store occupancy for the Suburban portfolio was 84%, up 150 bps year over year. Moreover, in the first quarter, mark-to-market on signed Suburban office leases was 7.3% higher than the previously fully escalated rents of the same spaces.
SL Green exited first-quarter 2016 with cash and cash equivalents of $316.2 million, up from $255.4 million at the end of 2015.
Notable Investment Activities
In April, SL Green has inked a deal with an affiliate of Citigroup, Inc. C, for the accelerated sale of 388-390 Greenwich Street for $2 billion. The closing of the deal which was earlier slated for Dec 2017 has now been re-scheduled to Jun 2016.
In March, the company acquired 183 Broadway, the 9,106 square foot mixed-use building for $28.5 million. During the same month, SL Green, along with a joint venture partner, completed the sale of 7 Renaissance Square, for a gross price of $20.7 million.
In February, the company sold its 90% interest in the residential condominium, located at 248-252 Bedford Avenue for a gross price of $55 million. Also, in the same month, company sold the leased fee interest in 885 Third Avenue for $453 million.
Finally, in the first quarter, the company originated new debt and preferred equity investments of $124.1 million in total, of which $89.1 million was retained.
Outlook
On the basis of the accelerated sale of 388-390 Greenwich Street, SL Green has raised the NAREIT defined FFO per share guidance for 2016 to $8.17–$8.25 from the previous range of $6.90–$7.00.
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 #3 (Hold).
We now look forward to the results of other REITs such as Boston Properties Inc. BXP and Simon Property Group Inc. SPG, 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.
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