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SL Green (SLG) Q4 FFO Misses Estimates, Revenues Fall Y/Y

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SL Green Realty Corp.SLG reported fourth-quarter 2016 adjusted funds from operations ("FFO") of $1.43 per share, narrowly missing the Zacks Consensus Estimate of $1.44. The figure was also below the prior-year quarter's adjusted FFO per share of $1.61.

Results indicate a decline in quarterly revenues, which fell 12.0% year over year to $374.2 million. However, it surpassed the Zacks Consensus Estimate of $313 million.

For full-year 2016, the company reported adjusted FFO per share of $8.29, which fell shy of the Zacks Consensus Estimate of $8.30, but was up from $6.38 reported a year ago. Revenues for full-year 2016 jumped 12.1% year over year to around $1.9 billion.

Quarter in Detail

For the quarter, combined same-store cash net operating income (NOI) rose 5.5% year over year to $185.3 million.

In the Manhattan portfolio, SL Green inked 31 office leases for 414,977 square feet of space. As of Dec 31, 2016, Manhattan same-store occupancy, inclusive of leases signed but not yet commenced, contracted 40 basis points (bps) sequentially and 10 bps year over year to 97.10%. Importantly, in the fourth quarter, the mark-to-market on signed Manhattan office leases was 18.6% higher over the previous fully escalated rents on the same spaces.

On the other hand, in the Suburban portfolio, SL Green signed 20 office lease deals for 81,522 square feet of space. Same-store occupancy for the Suburban portfolio, inclusive of leases signed but not yet commenced, was 85.1% as of Dec 31, 2016, down 30 bps sequentially, but up 180 bps year over year. Moreover, in the fourth quarter, mark-to-market on signed Suburban office leases was 10.9% higher than the previously fully escalated rents on the same spaces.

SL Green exited the quarter with cash and cash equivalents of $279.4 million, up from $255.4 million at the end of 2015.

Notable Investment Activities

In October, SL Green closed the sale of a 49% stake in the entity that owns 400 East 57th Street for a gross asset valuation of $170.0 million. The company recognized a gain on the sale of $23.9 million.

Further, in November, the company acquired consent to the alterations to the mortgage on 11 Madison Avenue sought by the company in association with the 40% beneficial interest sale in the property to PGIM Real Estate in Aug 2016.

Finally, in the reported quarter, the company originated new debt and preferred equity investments of $485.0 million in total, of which $415.0 million was retained at a yield of 9.0%.

Our Take

We are disappointed with the lower-than-expected FFO per share figure in the fourth quarter. In addition, fall in quarterly revenues from the previous year is discouraging. Nevertheless, the company has been actively pursuing portfolio enhancement initiatives through investment in opportunistic assets, and debt and preferred equities. However, cut-throat competition and interest rate issues remain concerns.

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 the other REITs like Avalonbay Communities Inc. AVB , Boston Properties Inc. BXP and Simon Property Group, Inc. SPG , which are slated to report results next week.

Note: All EPS numbers presented in this write up represent funds from operations ("FFO") per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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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 Nasdaq, Inc.


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

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