SL Green Records Loss, Cash Flow Dip Despite Improved Leasing
One of New York's largest office landlords' financial performance took a step back to end 2021 as it continues to sell off assets.
SL Green reported a net loss of $51.3M, or 82 cents per share, in the fourth quarter in its earnings release Wednesday. In Q4 2020, SL Green achieved a net income of $171M. Its cash flow also dipped — it reported $108.3M in funds from operations in Q4 2021, down from $119.2M a year prior. The metric is widely used to assess the operating performance of REITs.
On an earnings call Thursday, SL Green CEO Marc Holliday said companies in the firm's portfolio are planning to bring workers back starting in February, after the omicron variant caused a “reset” in the city in January.
“We remain optimistic about hitting our ambitious leasing goals for 2022 on the heels of signing 250K SF of office leases after our December investor conference,” Holliday said. “The positive takeaway is that companies continue to see the office as the central and necessary hub of business activity and are making long-term commitments, and expansions within the portfolio vastly outnumber contractions.”
More broadly, Holliday pointed to safety in the city as the biggest issue for its recovery, saying he approves of Mayor Eric Adams's approach to ending the increase of gun violence.
“I'm pretty optimistic that the soundings coming out of both City Hall and Albany are in line with the kinds of things we want to see,” he said, adding the state is “flush” with cash and that he doesn’t expect lawmakers in Albany to return to any “regressive” revenue enhancements.
SL Green continued its theme of whittling down its holdings, announcing five investment deals in the quarter, all of which were dispositions.
Three sales closed in the quarter: the office building at 590 Fifth Ave. for $103M, after SL Green foreclosed on the building’s previous owner in 2020; a 25% stake in the One Madison Avenue development to an unnamed foreign investor for no less than $259.3M; and its stake in office and garage condominiums at 110 East 42nd St. for $117.1M. The REIT also agreed to sell the 707 11th Ave. office building for $95M after buying it in 2020 for $90M.
"There's a lot of liquidity out there for transactions large and small," said SL Green President Andrew Mathias, pointing to the sale of the HSBC tower for $850M late last year. "There's a tremendous amount of capital markets activity out there, on development deals, on cash-flowing deals, on partially vacant deals. We see a very active investment sales market."
On the leasing front, SL Green locked down 52 office leases in Manhattan for nearly 574K SF combined, including Bloomberg's expansion into 191K SF for six years at 919 Third Ave. and Chelsea Piers Fitness’ lease for nearly 56K SF at One Madison Avenue for 20 years.
On average, the lease term was just shy of six years, and average tenant concessions included seven months of free rent and an improvement allowance of just over $56 per SF — except for deals inked at its Midtown supertall One Vanderbilt.
SL Green said in the release it executed more than 1.9M SF of office leases during all of 2021, beating its projections of 1.3M SF. It brought One Vanderbilt, which opened in September 2020 at 70% leased, to over 95% leased with a pair of deals for pre-built suites.
Leases on space that had previously been occupied were signed at an average starting price per SF of $70, a 4% decrease on previous leases for the same space. Occupancy in the Manhattan portfolio dropped from 93.2% to 93%, including accounting for leases signed but not yet started.
SL Green's stock price fell by more than 3.6% during trading Thursday, and its $69.96 closing price is down 9.45% year-to-date.