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SL Green made another deal to buy out a partner in a Midtown office building at a low price, then refinanced the mortgage at a surprisingly favorable rate, all of which helped the developer deliver solid first-quarter earnings and raise its forecast for all of 2024.
SL Green agreed to buy out Canada Pension Plan Investment Board’s 45% stake in 10 E. 53rd St. for $7 million in cash and about $92 million in assumed debt. CPPIB invested $57 million in 2012. The plan recently sold its 29% stake in the office building at 360 Park Avenue South back to Boston Properties for one dollar.
The 37-story 10 E. 53rd holds 385,000 square feet and is 98% occupied with tenants including Swarovski North America and the International Swaps and Derivatives Association. It was the last Manhattan office building owned by CPPIB, according to an annual filing. A decade ago the pension fund owned 1221 Sixth Ave., 600 Lexington Ave., and three others. The fund, which manages more than $400 billion in assets, didn’t return a request for comment.
This was the second fire-sale transaction struck by SL Green since announcing in February it would buy out an Israeli partner’s 44% stake in 2 Herald Square for no cash.
SL Green is the city’s largest commercial landlord with 32 million square feet mostly in Midtown. Its strategy of doubling down on Manhattan real estate, at what could turn out to be bargain prices, is winning rave reviews on Wall Street.
“SLG on verge of breakout,” Piper Sandler analyst Alexander Goldfarb predicted in a client note Tuesday, meaning the stock is about to jump in value. Rents are rising in buildings near Grand Central Terminal and he said SL Green is getting around $140 per square foot at 245 Park Ave., considerably more than the prior owner, Chinese conglomerate HNA.
Goldfarb added Thursday that SL Green refinanced $2.1 billion worth of debt last quarter at essentially no change in interest rates, a striking achievement when getting an office loan is still difficult. Only $40 million worth of loans were paid down, meaning banks were willing to lend almost as much as before to properties including 280 Park Ave., 100 Park Ave., and 10 E. 53rd. As part of the 280 Park refinancing, SL Green and partner Vornado Realty Trust paid off a $125 million mezzanine loan for just $62.5 million.
BMO Capital Markets analyst John Kim described the terms as “surprisingly favorable” for SL Green.
All the wheeling and dealing helped SL Green produce $3.07 a share in funds from operations last quarter, double the year-earlier period. The firm bumped up its FFO forecast by 23%, to as high as $7.65 a share for the year.
Still, occupancy continued to erode last quarter, to 87.1%, from 88.7% at the end of 2023 and 88.9% a year earlier. The firm leased 634,000 square feet of space, 130,000 more than a year earlier. Rents were down 5.5%, but Goldfarb believes management will deliver on its target of up to 5% growth by year end. Evercore ISI’s Steve Sakwa said new vacancies exceeded new tenants by 120,000 square feet, resulting in “negative absorption.”
SL Green shares were little changed in early trading Thursday, at about $50 each.
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Aaron Elstein , 2024-04-18 17:16:35
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