SL Green is one of the country’s largest office REITs and is focused exclusively on New York City. They released their first-quarter earnings report last week that told a tale of short term troubles mixed with long term optimism. Occupancy levels dropped to 90.2 percent, twice the rate of decline since the same period last year. The company’s stock price fell 4 percent on the news, hitting lows not seen since the aftermath of the GFC in 2009. Things do seem to be looking up, though. The pipeline of expected leases jumped by 70 percent.
It doesn’t sound like the SL Green is giving up on New York City any time soon. CEO Marc Holliday thinks that all of the talk of New York City’s office decline is overhyped. “Overly negative voices are overshadowing some of the positive signs that portend a slow but steady recovery for a market that offers what employers want most: a highly educated, diverse, youthful, and talented workforce,” he said. He also dispelled the idea that tech companies were liabilities in the current economy, “I look at our exposure to tech as good exposure.”
As always, the question and answer portion of the earnings call was the most entertaining portion of the call. When asked about loans expiring on two properties in SL Green’s portfolio Holliday said that those properties were “immaterial.” Chief Financial Offer Matthew DiLiberto further explained that “There’s no NAV. There’s no book value. There’s no earnings from the assets.”
To this answer Analyst for BMO Capital Markets John Kim said, “From your perspective, that’s ok?” Currently, many of SL Green’s loans don’t expire for years or even decades but the question of what will happen if they do expire in a higher interest rate environment seems to be on investors’ minds.
