Analyst Note
| Suryansh Sharma |No-moat-rated SL Green Realty reported lackluster fourth-quarter results and reduced its annualized dividend by 13% to $3.25 per share from $3.73 per share. The firm reported funds from operations, or FFO, of $1.46 per share, 4.0% lower than the $1.52 in FFO during the fourth quarter of 2021. The company will continue to feel a disproportionate impact of higher interest rates due to its significantly leveraged capital structure. Management’s 2023 guidance implies a 1.5%-2.5% decline in same-store GAAP net operating income, or NOI, due to lower occupancy in its Manhattan office portfolio and downward rent pressure. The company expects approximately $70 million in higher interest expenses in 2023 compared with 2022. The midpoint of management’s full-year 2023 FFO guidance came at $371 million, 19% lower than the $459 million reported for the full year of 2022. A significant portion of the 2023 decline in FFO will be driven by higher interest payments. We have reduced our fair value estimate for SL Green Realty to $55 per share from $59 after moderating our long-term rent growth, occupancy, and interest expense expectations for the company.