SL Green Beats on Q4 FFO & Revs - Analyst Blog

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SL Green Realty Corp. ( SLG ) reported fourth-quarter 2013 funds from operations (FFO) of $1.38 per share, beating the Zacks Consensus Estimate by 3 cents and the prior-year quarter figure by 24 cents.

The results at this real estate investment trust (REIT) came on the back of notable revenue growth and strong portfolio enhancement activity. Also, FFO before transaction costs for fourth quarter stood at $1.42 per share, which rose from $1.16 per share in the prior-year quarter.

However, for full-year 2013, the company's FFO per share came in at $5.16, down from $5.28 last year. Also, FFO, before transaction costs, stood at $5.21 per share, which declined from 2012 FFO of $5.35 per share before transaction.

Total revenue for the fourth quarter climbed 8.1% year over year to $374.7 million and also substantially surpassed the Zacks Consensus Estimate of $302 million. For full-year 2013, total revenue increased 6.2% year over year to $1.47 billion.

Quarter in Detail

During fourth-quarter 2013, same-store cash net operating income (NOI), on a combined basis, rose 3.1% year over year to $179.4 million. As of Dec 31, 2013, same-store occupancy for SL Green's Manhattan portfolio (before reclassifying 317 Madison Avenue, 331 Madison Avenue and 51 East 42nd Street to development and including inked lease deals that is yet to start) increased 30 basis points sequentially to 96.1%. On the other hand, for the Suburban portfolio same-store occupancy (including inked lease deals that are yet to start) rose 90 basis points sequentially to 82.1%.

In the Manhattan portfolio, SL Green inked 57 office leases for 3.4 million square feet of space. This included a notable lease extension deal with an affiliate of Citigroup, Inc ( C ) for 2.6 million square foot of space. The average lease term of the deals penned was 14.3 years. Notably, in the quarter, the replacement lease average initial rent were 11.4% higher than the earlier full rents increment on the same spaces.

Additionally, in the Suburban portfolio, SL Green penned 35 office lease deals for 183,896 square feet of space during fourth-quarter 2013. The average lease term of the deals was 6.6 years. Noticeably, the replacement leases average initial rent was 1.3% higher in comparison to fully escalated rents on the same spaces, on the prior occasion.

Portfolio Restructuring Activities in Q4   

SL Green acquired a mixed-use residential and commercial property at 315 West 33rd Street for $386.8 million in Manhattan. The commercial space at the property is 100% leased at below-market rental rates. In addition, the company concluded the buyout of an assemblage of 3 retail development assets on Fifth Avenue in Manhattan for $146.2 million in the quarter.

Moreover, SL Green penned a deal to buy out the lease of retailer Juicy Couture at 650 Fifth Avenue. The deal followed the acquisition of a 49-year leasehold interest encompassing the whole retail section of 650 Fifth Avenue.

Additionally, SL Green sold its joint venture interest for $70.1 million in a property located at 27-29 West 34th Street in Manhattan. Subsequent to quarter-end, the company divested its joint venture interest in an asset situated on 21-25 West 34th Street in Manhattan for $114.9 million.

Debt and Preferred Equity Investments

As of Dec 31, 2013, SL Green's debt and preferred equity investment portfolio totaled $1.3 billion, same as of Sep 30, 2013. During the fourth quarter, SL Green originated new debt and preferred equity investments worth $412.3 million, all of which were secured by the New York City commercial office assets. Moreover, SL Green recorded principal reductions of $114.7 million from investments that were sold or paid off.

Liquidity

As of Dec 31, 2013, SL Green had $206.7 million of cash and cash equivalents, up from $190.0 million as of Dec 31, 2012. During the fourth quarter, SL Green offered 2.6 million of common shares at $95.94 per share and reaped net proceeds of $248.9 million, excluding offering expenses.

Our Viewpoint

Keeping its winning streak alive, SL Green came up with another impressive result in the fourth quarter. Successful execution of strategic initiatives and notable operating portfolio performance were the major drivers in the quarter. SL Green is seeking to tap opportunities in New York City's premium locations with its retail investments complementing its core office and structured finance businesses. In particular, the expansion in the renowned New York City retail corridor is commendable and provides significant growth prospects for this Zacks Rank #2 (Buy) stock.

We are looking forward to the results of other REITs that are scheduled to report early next week. These include BRE Properties Inc. ( BRE ) and UDR, Inc. ( UDR ) both having a same rank as SL Green.

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.



BRE PROPERTIES (BRE): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

SL GREEN REALTY (SLG): Free Stock Analysis Report

UDR INC (UDR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BRE , C , SLG , UDR

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