SL Green CEO Marc Holliday attempted to dispel investor fears regarding tariffs during the company’s first-quarter conference call on Thursday, reassuring stakeholders that the company is prepared for any potential fallout — even though he does not foresee significant challenges ahead.
“In the early years of a recovery, our realized returns are typically far higher than the average returns we normally experience, and we expect 2025 and 2026 to be no different,” Holliday stated during the call.
Despite his bullish outlook, the company reported a decrease in occupancy rates and a drop in its funds from operations (FFO), a standard measure of cash flow for real estate investment trusts (REITs), in the first quarter of the year.
SL Green concluded the first three months of the year with an FFO of $1.40 per share, down from $1.81 in the fourth quarter and $3.07 the previous year.
Notably, over half of last year’s cash flow increase stemmed from SL Green’s agreement to pay just $7M to extinguish an outstanding $182.5M debt for 2 Herald Square.
Nevertheless, the company surpassed analysts’ FFO estimates of $1.27 and exceeded Wall Street’s consensus revenue projection of $158M by reporting $240M in quarterly revenue, an increase from $188M during the same period the prior year.
SL Green’s stock price saw a modest rise of less than 1% on Thursday, though it has surged nearly 8% this week.
However, on a year-to-date basis, the stock has fallen over 23%, significantly underperforming the S&P 500, which is down 10% since the beginning of 2025.
As New York City’s largest office landlord, SL Green’s recovery serves as a barometer for the overall revitalization of the city’s office sector.
According to Savills, landlords in New York City signed 12.2 million square feet of deals in the first quarter, reducing the city’s office vacancy rate from 20.1% to 17.7%.
Foot traffic in Class-A-plus Manhattan offices reached 81% of 2019 levels in February, according to data from the Real Estate Board of New York and Placer.ai.
For SL Green, occupancy saw a slight dip during Q1, falling from 92.4% at the end of 2024 to 91.8%.
The company leased out 602,000 square feet, a decrease from the 633,000 square feet leased out a year prior.
Director of Leasing and Real Property Steven Durels rejected suggestions that the company’s momentum is slipping, pointing out that occupancy has risen from 90% two years ago.
“Maybe there’s a slowdown because we’re working on a bunch of big deals,” Durels remarked.
Before tariff announcements, SL Green had 62 tenants in the pipeline, a number which has now increased to 64 — many with expansion requirements as part of their agreements.
In the last three weeks, 18 occupiers left but were replaced by 20 new tenants, with Durels noting that 14 of the departing tenants moved out because SL Green had opted to bring in new ones.
“We haven’t seen any pullback from any decisions in our portfolio yet,” he stated.
The company has remained active in its investments during the quarter, recently finalizing the acquisition of 500 Park Ave for $130M and buying out PGIM Real Estate’s 49.9% stake in 100 Park Ave for just $15M.
PGIM has held an interest in the 834,000 square-foot building for over two decades and recently divested from nearby 470 Park Ave. South for a fraction of its last sale price.
Meanwhile, SL Green has taken advantage of several opportunities to strengthen its core holdings by buying out its partners.
This includes a recent payment of $7M to Canada Pension Plan Investment Board for its 45% stake in 10 E. 53rd St.
In a similar vein, an unidentified Israeli partner at 2 Herald Square walked away, boosting SL Green’s ownership stake from 51% to 95% at no additional cost.
Holliday expressed the company’s eagerness to continue building new supply, highlighting the “enormous scarcity of high-quality office development sites that can be delivered over the next four or five years.”
“This is not a question of two months ago, we were excited about development, and two months later we’re not, and the next month we are, based on the stock market or tariffs,” he asserted.
“New York is the pivotal central business district in this country and is growing, reaching all sorts of records on employment, on Wall Street profits, on bank earnings.”
At the end of 2024, banks reported record-breaking performances.
Even though tariffs led to stock market declines, trading operations surged, resulting in increased revenues in the short term.
However, top executives in finance have voiced concerns regarding the long-term repercussions, suggesting that policy changes could hinder capital flows and lead to increased loan defaults.
There are also rising fears that the trade conflict could drive the country into a recession.
Nonetheless, SL Green executives remain unfazed by these prospects.
“With the credit markets in general, we can certainly expect to see some turbulence as a result of the macroenvironment across the country, but I expect New York City to mostly be immune from that,” Chief Investment Officer Harrison Sitomer stated.
Chief Financial Officer Matthew DiLiberto added that the company’s portfolio is liquid “in even the toughest of markets.”
According to its balance sheet, SL Green’s assets total over $11.4B, with cash and cash equivalents amounting to $180M.
Holliday further contended that recent fluctuations in the credit markets could actually serve as an advantage for the business.
The REIT’s debt fund had famously raised $250M from Canadian pension fund Caisse de Dépôt et Placement du Québec, as reported by Bloomberg in December.
During the conference call, Holliday noted that the firm is negotiating $1.2B in new debt investments.
Additionally, the company’s special servicing division has $4.8B in active assignments, with nearly $11B more designated for future special servicing roles.
“I highlighted that new originations, secondary market purchases, distressed opportunities, the new debt fund and our special servicing business are going to take center stage in 2025,” Holliday commented, referencing his previous remarks at an investor conference in December.
“Q1 performance in this area is certainly an affirmation of that belief, with much, much more to come.”
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