The financial performance of one of New York’s biggest office owners has slipped through the end of 2021 as it continues to sell assets.
Courtesy of Kohn Pedersen Fox Associates
A rendering of the One Madison Avenue office project in Manhattan, of which SL Green sold a 25% stake last November.
SL Green reported a fourth-quarter net loss of $51.3 million, or 82 cents a share, in its earnings release Wednesday. In the fourth quarter of 2020, SL Green made a net profit of $171 million. Its cash flow also fell – it reported $108.3 million in funds from operations in the fourth quarter of 2021, compared to $119.2 million the previous year. The metric is widely used to assess the operational performance of REITs.
In an earnings call on Thursday, SL Green CEO Marc Holliday said the company’s portfolio companies plan to bring workers back from February, after the omicron variant caused a “reset”. in the city in January.
“We remain optimistic about achieving our ambitious leasing targets for 2022 on the heels of signing 250,000 square feet of office leases following our December investor conference,” Holliday said. “The positive finding is that companies continue to see the desktop as the central and necessary hub of business activity and are making long-term commitments, and expansions within the portfolio far outweigh contractions.”
More generally, Holliday pointed to security in the city as the biggest issue for his recovery, saying he endorsed Mayor Eric Adams’ approach to ending rising gun violence.
“I’m pretty optimistic that the polls coming from both City Hall and Albany are the kinds of things we want to see,” he said, adding that the state was ” full” of money and he wasn’t doing it. Don’t expect Albany lawmakers to revert to any “regressive” revenue improvements.
SL Green continued its theme of reducing its holdings, announcing five investment transactions during the quarter, all of which were disposals.
Three sales completed during the quarter: the office building at 590 Fifth Ave. for $103 million, after SL Green seized the building’s former owner in 2020; a 25% stake in the development of One Madison Avenue to an anonymous foreign investor for no less than $259.3 million; and its interest in office and garage condominiums at 110 East 42nd St. for $117.1 million. The REIT has also agreed to sell the office building at 707 11th Ave. for $95 million after buying it in 2020 for $90 million.
“There’s plenty of cash for deals big and small,” SL Green chairman Andrew Mathias said, pointing to the sale of the HSBC tower for $850 million late last year. “There’s a tremendous amount of activity in the capital markets, on development deals, on cash flow deals, on partially vacant deals. We’re seeing a very active market selling investments.”
On the leasing front, SL Green has locked in 52 Manhattan office leases 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 under six years, and average tenant concessions included seven months of free rent and an improvement allowance of just over $56 per SF — except deals signed at his Midtown One Vanderbilt supertall.
SL Green said in the statement it executed more than 1.9 million square feet of office leases for the full year of 2021, beating its forecast of 1.3 million square feet. This brought One Vanderbilt, which opened in September 2020 at 70% rented, to over 95% rented with a pair of offers for pre-built suites.
Leases on previously occupied space were signed at an average starting price per SF of $70, a decrease of 4% from previous leases for the same space. The occupancy rate of the Manhattan portfolio rose from 93.2% to 93%, including the consideration of leases signed but not yet started.
SL Green’s share price fell more than 3.6% in Thursday’s session, and its closing price of $69.96 is down 9.45% year-to-date. .