Viacom Lease at Times Square Tower Extended Through 2031

Viacom Inc. (VIAB), the owner of MTV, Nickelodeon and Paramount Pictures, extended its lease at SL Green Realty Corp. (SLG)’s 1515 Broadway in New York and is poised to occupy the entire office portion of the tower after 2020.

The media company’s lease will run through 2031 with the new agreement, SL Green President Andrew Mathias said in a telephone interview yesterday. After 2020, Viacom will have about 1.6 million square feet (149,000 square meters) at the Times Square building, which is its headquarters, he said.

The deal ends speculation that Viacom might leave Times Square after its leases expire in 2015. Projects in Manhattan including the World Trade Center and Hudson Yards are seeking anchor tenants. It’s the city’s largest-ever office lease, excluding deals in which a building was sold and immediately rented back from the buyer, according to SL Green.

“It’s a seminal moment for New York City and Times Square,” Mathias said. “It’s terrific to have them at the crossroads of the world with an enhanced and increased presence. It cements New York City’s status as the media capital of the world.”

SL Green rose 3.9 percent to $81.71, the highest price in almost nine months, at the close in New York. The real estate investment trust was today’s biggest gainer in the 120-member Bloomberg REIT Index. (BBREIT)

Bank of China

SL Green, based in New York, agreed to take a $775 million mortgage from Bank of China Ltd. on the 56-story Broadway tower, replacing $447 million of existing debt, Mathias said. The interest rate on the seven-year, floating-rate loan is tied to the London interbank offered rate, a benchmark for commercial mortgages, he said.

Mathias declined to disclose the interest rate or terms of the new Viacom agreement.

The Viacom deal is a “big positive” for SL Green, Brendan Maiorana, an analyst with Wells Fargo & Co., wrote in a note to clients. “The announcement removes a major overhang, in our view, since Viacom was considering a move downtown.”

The lease “sets up very well” for SL Green to consider bringing in a joint-venture partner to share ownership of the tower, Mathias said in a conference call with analysts today. The building, which includes two Broadway theaters, has retail space that may become available, providing “upside” to the building’s value, he said.

Chief Executive Officer Marc Holliday, on the call, put the skyscraper’s value at $1.6 billion. The company last year bought out partner SITQ, a real estate investment unit of Canadian pension-fund manager Caisse de Depot et Placement du Quebec, in a deal that valued the building at $1.21 billion.

Biggest Lease

The agreement is the biggest U.S. office lease since at least 2008, according to data from CoStar Group Inc. (CSGP), a Washington-based real estate data service. Other large deals include Morgan Stanley (MS)’s lease of almost 1.2 million square feet at 1 New York Plaza, announced last week, and two media deals from last year: NBC Universal’s renewal of more than 1.2 million square feet at 30 Rockefeller Plaza, and Conde Nast Publications Inc.’s 1 million-square-foot lease at 1 World Trade Center.

New York City is “a vibrant source of inspiration for Viacom’s innovative and creative employees,” Philippe Dauman, Viacom’s president and chief executive officer, said in a statement. “We have had a great partnership with SL Green and have been proud to lead the revitalization of the Times Square neighborhood for two decades.”

Viacom’s broker was CBRE Group Inc. (CBG), while SL Green was represented by company employees.

FFO Falls

Separately, SL Green yesterday reported first-quarter funds from operations of $99.3 million, down from $142.8 million a year earlier. The decline was due in part to a drop in gains from loan investments. Per-share FFO, which gauges a property company’s ability to generate cash, totaled $1.10 a share, beating the $1.08 average of 17 analyst estimates compiled by Bloomberg.

The company raised its projection for 2012 FFO to $4.50 to $4.60 a share, up from $4.45 to $4.55.

Matt DiLiberto, SL Green’s chief accounting officer, said on today’s conference call that the increase was the result of the “brisk” pace of acquisitions and leasing during the first four months of the year, as well as the 1515 Broadway refinancing.

Viacom rents 1.3 million square feet at an average of $61.59 a square foot from SL Green, making it the real estate investment trust’s second-biggest tenant, according to the REIT’s fourth-quarter regulatory filing. Its largest tenant is Citigroup Inc. (C)

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: Kara Wetzel at kwetzel@bloomberg.net

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