SL Green Profit Grows 41% on Rising New York Rents

SL Green Realty Corp., (SLG) New York's biggest owner of office buildings, said fourth-quarter earnings rose 41 percent, as rising Manhattan office rents boosted revenue.

Net income rose to $29.4 million, or 62 cents a share, from $20.8 million, or 48 cents a share a year earlier, the New York- based real estate investment trust said in a statement.

Rents for the highest-quality offices in Manhattan rose to a record $68.29 a square foot in 2006, according to Colliers ABR, a New York brokerage, a 34.8 percent jump over 2005. Vacancies fell to a post-Sept. 11 low of 6 percent. Brokers expect similar increases over the next two years, as the financial and law firms that dominate the market keep expanding.

``There were properties they purchased with high vacancy rates, and they leased them up, so those high occupancy rates are contributing to their growth,'' said Lou Taylor, a REIT analyst at Deutsche Bank Securities Inc., who has a ``buy'' rating on the stock. ``And they got much higher rents on the leases that expired in the last 12 to 18 months.''

The company reported funds from operations, a measure of cash flow used by REITs, of $60.5 million, or $1.18 a share, up from $46.9 million, or 1.02 cents a share a year ago. The results beat the average estimate of $1.12 a share by 10 analysts surveyed by Bloomberg. Funds from operations don't comply with generally accepted accounting standards.

Revenue was $159.5 million, 45 percent more than the $110.1 million the company made a year ago.

Reckson Acquisition

The report came four days after the company, whose founder and chairman is Stephen L. Green, increased its property holdings with the $4.5 billion purchase of Reckson Associates Realty Corp., which closed on Jan. 25. The Reckson purchase gave them six New York City skyscrapers.

SL Green sold most of the suburban properties it got in the Reckson purchase for $2 billion to RexCorp Realty, a newly created partnership led by Reckson Chief Executive Officer Scott Rechler.

The acquisition of Reckson, which added such midtown skyscrapers as 919 Third Avenue and 1350 Avenue of the Americas to its roster, should help SL Green's profitability this year, Taylor said. He said he is expecting the company to sell less profitable buildings as it absorbs the Reckson assets.

``The earnings accretion they're going to explain will cause people to realize there's more room to grow here,'' he said in an interview conducted before the earnings were released.

485 Lexington

In December, the company leased 55,000 square feet in 485 Lexington Avenue, a tower adjacent to Grand Central Terminal, then followed that up this month with a 13,700-square-foot lease to the law firm Grand & Eisenhofer PA, bringing the building occupancy to more than 90 percent. SL Green paid $225 million to insurer TIAA- CREF in 2004 for the 32-story, 926,000 square-foot building. The insurer vacated almost the entire building in 2005.

In a separate release, SL Green said it obtained a 10-year interest-only mortgage on 485 Lexington for $450 million, at a 5.56 percent interest rate.

Vacancies in SL Green's portfolio fell to 3 percent, from 3.9 percent last quarter and 4 percent a year ago. Starting rents for leases signed in the quarter were $61.99, a 28.7 percent increase over the previous rents.

Results were issued after the close of regular U.S. trading. SL Green shares fell $1.14 to $146.87 in New York Stock Exchange composite trading. They gained 74 percent in 2006, making them the top performer in the 138-member Bloomberg REIT index, which gained 28 percent.

(SL Green scheduled a conference call for tomorrow at 2 p.m. New York time. The call can be monitored at +1-866-203-3436 in the U.S., and +617-213-8849 internationally, using the pass code `SL Green.' The call will also be available at http://www.slgreen.com and http://www.streetevents.com)

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.

To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net

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