Bloomberg News

SL Green Quarterly FFO Drops 40% as Loan Gain Not Repeated

October 26, 2011

(Updates with adjusted FFO in fifth paragraph.)

Oct. 26 (Bloomberg) -- SL Green Realty Corp., Manhattan’s biggest office landlord, said third-quarter funds from operations fell 40 percent as last year’s gain from a debt investment in a Midtown tower went unrepeated.

FFO, which gauges a property company’s ability to generate cash, was $87.9 million, or $1 a share, compared with $145.3 million, or $1.82, a year earlier, the New York-based real estate investment trust said today in a statement. The company was expected to have FFO of 99 cents a share, the average estimate of 18 analysts in a Bloomberg survey.

SL Green Chief Executive Officer Marc Holliday has been bullish on a recovery in the New York office market, projecting in 2010 that rents would rise 25 percent over three years. Manhattan office leasing declined 36 percent in the quarter from what had been a “phenomenal” pace in the previous three months, brokerage Cushman & Wakefield Inc. said on Oct. 4.

“Though the New York office market has shown solid signs of improvement through most of 2011, recent commentary from the broker community suggests some slowing,” John Perry, an analyst at Deutsche Bank AG, wrote in an Oct. 20 report. Perry, who has a “buy” rating on SL Green, said he will “look for commentary from the company regarding demand for block space in the city.”

Without the gain of 81 cents a share on last year’s debt investment in 510 Madison Ave., FFO would have been $1.01 a share in the third quarter, down from $1.05 a year earlier, SL Green said. The comparable measures are adjusted to add 1 cent for transaction-related costs in the three months ended Sept. 30, and 4 cents in the third quarter of 2010.

Revenue Declines

Revenue fell 3 percent to $308.6 million, largely on a decline in preferred equity and investment income to $18.4 million from $84.4 million. Rental revenue rose 25 percent to $244.9 million.

The company signed 626,908 square feet (58,242 square meters) of leases in Manhattan in the third quarter, with rents averaging 6.7 percent more than expiring agreements, according to the statement. Same-store occupancy in the borough was 95.1 percent, up from 94.4 percent a year earlier.

SL Green has been among New York’s busiest real estate buyers and financiers. In the last two months, the REIT entered joint ventures to buy Manhattan retail and residential properties including 1552 Broadway in Times Square and 724 Fifth Ave., where Prada SpA, the Milan-based luxury-goods maker, occupies about 20,700 square feet.

Debt Investment

The company’s year-earlier results included a profit from its investment in the debt on 510 Madison Ave., a newly built tower in Midtown whose owner was in arrears. When rival Boston Properties Inc. bought the building last year, SL Green had a gain of 81 cents a share on its investment.

The 17-member Bloomberg REIT Office Property Index lost 20 percent in the third quarter as concern mounted that Europe’s debt crisis may spur a global recession and the U.S. economy is weakening, potentially reducing tenant demand for space. SL Green fell 30 percent in the three months ended Sept. 30, the worst performance since the first quarter of 2009.

As of Sept. 30, SL Green had ownership interests in 25.8 million square feet of Manhattan properties, including the Graybar Building and the News Building near Grand Central Terminal, and Citigroup Inc.’s trading complex on Greenwich Street in lower Manhattan.

Third-quarter earnings were announced after the close of regular U.S. trading. SL Green rose 2.8 percent to $67.54 today in New York.

(SL Green will hold a conference call tomorrow at 2 p.m. New York time. See SLG US <Equity> EVT <GO> or LIVE <GO>.)

--Editors: Daniel Taub, Josh Friedman

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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