SL Green Prioritizing Reducing Debt Amid Leasing Challenges
By Andrew Coen July 22, 2022 12:02 pm
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SL Green Realty Corp. is shifting its strategy to prioritize debt repayments as New York City’s largest office landlord grapples with lower leasing activity in a rising interest rate environment.
Matthew DiLiberto, SL Green’s chief financial officer, said during the real estate investment trust’s (REIT) second quarter earnings call that it is planning to repay a $300 million bond maturity in September likely with proceeds from asset sales. The REIT is then looking to refinance a separate $500 million bond maturity with a “short duration bank or bond financing” that enables it to repay the principal amount after it expects to receive nearly $600 million in November 2023 from proceeds at its One Madison Avenue project.
“The corporate bond market is similar to the [commercial mortgage-backed securities] market,” DiLiberto said during the second quarter earnings call late Wednesday, in which SL Green reported a net loss of $44 million, or 70 cents a share. “It’s very choppy and we want to take some of those bonds out so I think that we have a good path to get an asset sale or twop done to pay off the $300 million of bonds and if we can’t find another $500 million then we’ll refinance those bonds short duration and pay them off when we get proceeds in next year from One Madison.”
DiLiberto said SL Green for the first time in recent memory did not originate any new debt preferred equity investments or repurchase any shares. The firm has also paused its $3.5 billion stock buyback program.
SL Green unloaded a number of properties in late 2021 including 707 11th Avenue, 1080 Amsterdam Avenue, 110 East 42nd Street, 590 Fifth Avenue, a 49 percent stake in the Daily News Building at 220 East 42nd Street and a 25 percent stake in One Madison Avenue. Jonathan Morris, founder of the REIT Academy and a former executive at three REITs, said bringing in joint venture equity partners such as what SL Green did with 450 Park Avenue, where it now owns only 25.1 percent of the asset, is an emerging trend for large office landlords such as Boston Properties.
“By going more ‘asset light’ and owning only 25.1% of 450 Park Avenue, this will soon be the ‘new normal’ for big office REITs because they know their markets intimately and can identify and negotiate great transactions,” Morris said. “This gives sovereign wealth funds’ looking for domestic U.S. office investments access to the REITs’ expertise (ncluding management and leasing.”
Leasing activity slowed in the second quarter with SL Green’s portfolio now roughly 92 percent occupied with 1.1 million square feet of office leases signed year-to-date, about 1 percent below its projections. DiLiberto said reaching the REIT’s year-end lease-up aim of 94.3 percent will be “very challenging goal to say the least,” but noted that there is a “substantial pipeline” of another 1.1 million square feet of leases and transactions lined up.
SL Green’s stock price struggled Thursday after the earnings announcement trading at a low of $47.37, coming down from a five-day high of $49.11 before, recovering some of the losses by the end of the day, The Real Deal reported early Friday. The REIT was trading at $49.07 as of Friday morning, up 2 percent from its $48.04 opening but down nearly 38 percent year-to-date.
“I hear the term ‘stupid cheap’ but that probably doesn’t even scratch the surface as we now trade at the equivalent value of just a handful of our assets,” DiLiberto said. “In the current environment, we feel this capital allocation pivot is the most prudent path for right now.”
Andrew Coen can be reached at acoen@commercialobserver.com.
