Morningstar | SL Green Delivers Reasonable 2018; Reconsidering FVE
No-moat-rated SL Green Realty delivered full-year results that were reasonable, but somewhat worse than we had anticipated. Funds from operations increased 2.6% to $6.62 per share, which largely reflects flat same-store occupancy at around 95.7% and somewhat lower-than-expected re-leasing spreads. That said, SL Green's same-store net operating income grew at 4.9%, which demonstrates the health of SL Green’s core portfolio. The New York landlord is disposing of several of its joint venture projects to generate cash for an extensive share buyback program, which we think is a reasonable use of cash. Given the continued low re-leasing spreads on SL Green’s long-term contracts and the flatness in occupancy, we are likely to moderately decrease our fair value estimate, but we do not see any fundamental change to our long-term view that SL Green’s high-quality properties will continue to attract the most elite tenants with the deepest pockets.We were pleased to see that the One Vanderbilt project continues to progress well. SL Green signed several leases during the fourth quarter, which brings the preleased proportion of the building to 52%. Although we believe that SL Green is taking on building-specific risk by investing so heavily in one megaskyscraper, management’s leasing team has been reasonably successful in preleasing the building. We also appreciate that the landlord refinanced some of its debt at a lower interest rate.
SL Green Realty is a self-managed real estate investment trust. The company is engaged in the acquisition, development, ownership, management and operation of commercial and residential real estate properties, mainly office properties, located in the New York metropolitan area. Substantially all of the company's assets are held by, and all of its operations are conducted through, SL Green Operating Partnership, L.P. (the Operating Partnership). All of the management, leasing and construction services that are provided to the properties that are wholly-owned by the company and that are provided to certain joint ventures are conducted through SL Green Management LLC which is 100% owned by the Operating Partnership.
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