SL Green Realty Corp. SLG reported first-quarter 2015 adjusted funds from operations (“FFO”) of $1.51 per share, exceeding the Zacks Consensus Estimate of $1.49. The bottom line, however, scaled 1.9% lower than the prior-year quarter’s adjusted figure of $1.54 per share.

The better-than-expected results were driven by a rise in combined same-store net operating income (“NOI”).

Net rental revenue for the first quarter rose 18.5% year over year to $303.3 million. However, it lagged the Zacks Consensus Estimate of $319 million.

Quarter in Detail

In the Manhattan portfolio, SL Green inked 44 office leases for 466,248 square feet of space. The average initial rent of the replacement lease was 17.1% higher than the earlier fully escalated rent on the same space. Additionally, in the Suburban portfolio, SL Green penned 33 office-lease deals for 210,910 square feet. The average initial rent on the replacement leases was 7.1% lower than the previous fully escalated rents on the same space.

For the quarter, same-store cash NOI, on a combined basis, rose 3% year over year to $169.8 million. As of Mar 31, 2015, same-store occupancy for SL Green’s Manhattan portfolio moved up 20 basis points (bps) sequentially to 95.9%. On the other hand, same-store occupancy for the Suburban portfolio was 83.5%, compared with 84% as of Dec 31, 2014.

In the quarter, SL Green completed several transactions in tune with its portfolio-restructuring activities. These include raising the ownership interest to 60.5% in the 526,000-square feet office building at 800 Third Avenue. The company also completed the acquisition of stake in the 22-building, 2.6-million square feet Stonehenge portfolio, which comprised 2,724 rental apartments and 88,984 square feet of retail space. Additionally, during the quarter, SL Green sold a property at 180 Maiden Lane and generated gross proceeds of $120.5 million.

As of Mar 31, 2015, SL Green’s debt and preferred equity investment portfolio totaled $1.5 billion, compared with $1.4 billion as of Dec 31, 2014. In the quarter, the company originated and retained new debt and preferred equity investments worth $230.7 million.

SL Green exited first-quarter 2015 with cash and cash equivalents of $330.8 million, compared with $281.4 million as of Dec 31, 2014.

Our Take

Keeping its winning streak alive, SL Green came up with an impressive performance in the first quarter. The company has been actively pursuing portfolio enhancement initiatives through investment in opportunistic assets, and debt and preferred equities.

Further, with its retail investments, the company is seeking to tap opportunities in the premium retail locations of New York City. However, though such activities are encouraging for SL Green’s future growth, they increase operational risks in the near term.

SL Green currently holds a Zacks Rank #2 (Buy).

Presently, we look forward to the results of other REITs such as General Growth Properties, Inc GGP, Avalonbay Communities Inc. AVB and Plum Creek Timber Co. Inc. PCL that are scheduled to report next week.

Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.