Office landlord SL Green reported a net loss of $44 million, or 70 cents a share, in the second quarter as leasing fell behind targets and the company pivoted to paying down its debts amid rising interest rates.
The quarterly loss follows a net income of $1.56 per share for the same period last year, reflecting changes in strategy as the cost of borrowing and carrying debt increases.
Funds from operations, a key metric for REIT performance, rose to $1.87 per share, from $1.60 in the same period last year.
While it closed a $445 million acquisition of the office tower 450 Park Avenue tower in June, SL Green has paused further debt and preferred investments secured by real estate as well as buybacks of its shares in order to focus on paying off creditors. Its $3.5 billion stock buyback program is suspended, despite the company’s assessment that its shares — which closed at $48.04 Thursday — are undervalued.
“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,” said chief financial officer Matthew DiLiberto on an earnings call. “But in the current environment, we feel this capital allocation pivot is the most prudent path for right now.”
With interest rates expected to continue rising, the company is working to cut down on its $2 billion in floating rate debt exposed to rising LIBOR and SOFR rates.
“We by no means are signaling we are not going to continue with the stock buyback program,” CEO Marc Holliday said. “We are simply taking a moment in time to sort of reallocate and over-allocate to some near-term debt reduction.”
The company said leasing targets for its portfolio are behind its goal for the year, and took note of tech companies such as Meta and Amazon pulling out of office expansion plans in New York. But stronger demand for office space from financial-sector tenants, the company said, could partially make up for a tech retreat.
Financial firms accounted for half of all leases signed in the quarter, after making up about a third of overall leasing since the start of the pandemic, the company said.
SL Green’s portfolio is about 92 percent leased with 1.1 million square feet leased year to date, about 1 percent below projections. Reaching its goal of 94.3 percent lease-up by the end of the year will be “challenging to say the least,” DiLiberto said.
SL Green’s stock price slid to a low of $47.37 from its five-day high of $49.11 following the release of Wednesday’s earnings report, before recovering some lost ground toward the end of trading Thursday. Despite the quarterly loss, the stock opened Friday up more than 5 percent on the week, but down nearly 38 percent year-to-date as the broader stock market has also tumbled.
Investment giant Blackstone also posted a net loss in the second quarter of $29.4 million, or 4 cents a share, though its real estate holdings were among the stronger performers in its portfolio.