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SLG, Manhattan's largest office landlord, outpaces expectations despite occupancy concerns
AInvestWednesday, Jul 17, 2024 9:58 pm ET
1min read
SLG --

SL Green Realty Corp. (SLG), Manhattan’s largest office landlord, reported robust Q2 earnings, with funds from operations (FFO) of $2.05 per share, significantly exceeding the consensus of $1.59. Revenues for the quarter fell by 9.4% year-over-year to $222.82 million, but outpaced the consensus of $133.83 million. The company issued in-line guidance for FY24, projecting FFO of $7.45 to $7.75 per share, compared to the consensus of $7.46.

Despite a slight decline in Manhattan same-store office occupancy to 89.6% from 89.8% a year ago, SLG managed to sign substantial leases, totaling 420,513 square feet during the second quarter and an additional 367,401 square feet in July. This brings the total office leases signed year-to-date to 1,421,574 square feet, with a pipeline of approximately 1.2 million square feet, indicating strong leasing activity despite challenging market conditions.

The company's financial performance showed a mix of strengths and challenges. Net operating income fell 24% year-over-year to $73.6 million, yet FFO increased by 46% to $143.9 million. This growth in FFO was partly driven by gains on discounted debt extinguishments at key properties, which contributed $48.5 million or $0.69 per share. The reported net earnings per share were -$0.04, a significant improvement from the -$5.63 per share recorded in the same period last year.

Management highlighted SLG's strategic advantage with its diverse revenue streams and strong occupancy rates, even as the market faces oversupply concerns. CEO Marc Holliday noted the company's efforts to reduce costs, reflected in a 4.8% decrease in CASM and better-than-expected CASM-ex1 up 2.1%. This cost management helped offset some of the revenue declines and maintain profitability.

SLG's guidance for FY24 remains optimistic, with an increase in the FFO per share range to $7.45 to $7.75, reflecting the outperformance of their real estate portfolio and additional fee generation from the SUMMIT One Vanderbilt project. The company also maintained its net income guidance range of $2.73 to $3.03 per share, indicating confidence in its financial stability and future growth prospects.

Leasing activity remained robust, with SLG signing 38 Manhattan office leases covering 420,513 square feet in Q2 2024 and 105 leases covering 1,421,574 square feet year-to-date. The mark-to-market on signed leases was 15.5% higher for the second quarter and 12.8% higher for the year-to-date, showcasing the company's ability to secure higher rents even in a competitive market.

Overall, SL Green Realty Corp. demonstrated a strong ability to navigate the current market landscape, with impressive FFO growth, effective cost management, and substantial leasing activity. The company's strategic initiatives and positive outlook for the remainder of 2024 underscore its resilience and leadership in the New York office real estate market. Investors will be keen to watch how SLG continues to capitalize on its strengths and manage market challenges moving forward.

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