SL Green Realty Corp. (SLG) reported fourth-quarter 2014 adjusted funds from operations (“FFO”) of $1.45 per share, exceeding the Zacks Consensus Estimate of $1.43. Results also compare favorably with the prior-year quarter figure of $1.42.
The year-over-year rise in FFO per share came on the back of an improved top-line and strong portfolio-enhancement activities.
Total revenue for the fourth quarter rose 10.3% year over year to $386.6 million, surpassing the Zacks Consensus Estimate of $311 million.
For the full year 2014, adjusted FFO came in at $5.94 per share, exceeding the prior-year figure of $5.21 per share. However, it missed the Zacks Consensus Estimate of $6.06 per share.
Total revenue for 2014 grew 10.9% year over year to $1.52 billion, beating the Zacks Consensus Estimate of $1.20 billion.
Quarter in Detail
In the Manhattan portfolio, SL Green inked 42 office leases for 593,883 square feet of space. The average initial rent of the replacement lease was 13% higher than the earlier fully escalated rent on the same spaces. Additionally, in the Suburban portfolio, SL Green penned 42 office lease deals for 288,307 square feet of space. The average initial rent on the replacement leases was 2% higher than the previous fully escalated rents on the same spaces.
For the quarter, same-store cash net operating income (“NOI”), on a combined basis, rose 4.5% year over year to $171.8 million. As of Dec 31, 2014, same-store occupancy for SL Green’s Manhattan portfolio moved up 40 basis points (bps) sequentially to 95.7%. On the other hand, same-store occupancy for the Suburban portfolio increased 90 bps sequentially to 83.3%.
In tune with its portfolio-restructuring activity, SL Green completed several transactions in the quarter. These include the acquisition of commercial condominium units at 55 West 46th Street for $295.0 million, a site in Gowanus for $72.5 million and a retail property located at 102 Greene Street for $32.3 million. Further, the REIT acquired additional ownership interests in the office condominium at 1745 Broadway and purchased stake in a 23-building, 2.55 million square foot portfolio to expand its presence in New York City residential market. Moreover, the company closed the leased fee interest sale in 2 Herald Square for $18.8 million and 180 Maiden Lane for $470.0 million.
As of Dec 31, 2014, SL Green’s debt and preferred equity investment portfolio totaled $1.2 billion, compared to $1.4 billion as of Sep 30, 2014. In the quarter, the company originated and retained new debt and preferred equity investments worth $181.1 million.
SL Green exited fourth-quarter 2014 with cash and cash equivalents of $281.4 million, compared to $253.5 million as of Sep 30, 2014.
Our Take
Keeping its winning streak alive, SL Green came up with an impressive performance in the fourth quarter. The company has been actively pursuing portfolio enhancement initiatives through investment in opportunistic assets, and debt and preferred equities.
Further, with its retail investments, the company is seeking to tap opportunities in the premium retail locations of New York City. However, though such activities are encouraging for SL Green’s future growth, they increase operational risks in the near term.
SL Green currently carries a Zacks Rank #2 (Buy). We presently look forward to the results of other REITs – Simon Property Group Inc. (SPG), Equity Residential (EQR) and Kimco Realty Corporation (KIM) – which are scheduled to report in the upcoming days.
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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