SL Green Unfazed by Delta Variant concerns

SL Green CEO Marc Holliday (Getty, SL Green)

While rising Covid cases and slowing office yields dampen optimism about a return to normal in the near term, New York City’s largest commercial landlord is still looking to the long term.

During a second-quarter earnings call on Thursday, SL Green executives held out in their belief that the city was poised for a strong recovery from the pandemic.

The commentary you hear from us is commentary to think about over a period of years, not September versus October, because that really doesn’t affect our portfolio’s performance, CEO Marc Holliday said in response to one of many analyst questions about implications of the Delta variant.

I do not think so [the Delta variant] would change everything tenants do for their five- or 10-year long-term planning, and it really shows in the ink on the leases, he continued.

Holliday noted that SL Green had signed 1 million square feet of leases in the first half of 2021 and had another 600,000 square feet in the pipeline. SL Green has rented a total of 1.2 million square meters throughout 2020.

In April, Holliday said he was looking forward to a truly explosive recovery in New York. That has not yet happened and the physical occupancy in the office portfolio of SL Greens is around 25 percent. In January, Holliday noted that tenants had made plans to return to the offices by the end of the summer. SL Green says it still expects tenants to return in earnest after Labor Day.

I continue to maintain that the safest place to be is in sound offices with policies and protocols, Holliday said. Wherever the spread is, it’s not in the SL Green portfolio, I can tell you that.

For the second quarter, the real estate investment trust reported funds from operations of $117.7 million or $1.60 per share, down from $1.70 per share in the second quarter of 2020. Despite some of the worst months of the pandemic included, the results for the second quarter of 2020 were positive. with $0.15 per share in rental termination income.

For the most recent quarter, net income $1.51 per share, nearly double the $0.76 per share for the same quarter a year ago.

SL Green was an active seller from April to June, ceding 635-641 Sixth Avenue to Spear Street Capital for $325 million, and a 20 percent stake in the Sky Apartments at 605 West 42nd Street to Joe Moinian, in a deal where the property was valued. at over $850 million.

Just hours before the afternoon’s earnings call, the company announced the sale of a 49 percent stake in the Daily News building at 220 East 42nd Street to South Korea’s Meritz Alternative Investment Management, in a deal that will sell the property on value estimated at $790 million.

A scrapped deal to sell the Daily News building to Jacob Chetrit for $815 million last year was one of the first victims of the pandemic. SL Green held onto a $35 million deposit and the parties settled their dispute in September.

We just decided there was an advantage in the rental listing that we wanted to continue mining, said SL Green president Andrew Mathias on the call, explaining the decision not to sell the property outright.

Proceeds from these sales went to SL Greens’ long-term $3.5 billion share repurchase program. The company has repurchased or repurchased 4 million shares so far this year.

We only buy back stock with the proceeds from asset sales, said chief financial officer Matthew DiLiberto. But we took the opportunity to pay off debt to keep leverage in line with some of the asset sales as well.

During the call, SL Green executives also outlined several milestones they were looking forward to in the third quarter: the start of vertical construction at One Madison next month; the launch of residential marketing at 185 Broadway next week; the start of demolition work for a retail and apartment complex with Giorgio Armani at 760 Madison Avenue; and the opening of One Vanderbilt’s observation deck in October.

Now that One Vanderbilt is nearly 90 percent leased and has just landed a record $3 billion, the company’s attention is focused on filling the top few floors of the office tower with rents at a record $322 per square foot. as The Real Deal reported Wednesday.

Be very selective about how we finish the top of the building, said Steven Durels, the company’s executive vice president and director of leasing. That could be an event in 2022, hopefully sooner, but we certainly didn’t plan ahead.