SL Green Answers the Bell

After the closing bell Monday, SL Green Realty (NYSE: SLG  ) met analysts' expectations in posting third-quarter funds from operations of $55.5 million, or $1.13 per share. This was comparable with its year-ago quarter, when SL Green reported funds from operations of $51.7 million, or $1.13 per share. That quarter included an incentive fee of $10.8 million, or $0.24 per share. Funds from operations were up 35.8% when excluding that fee.

The company, a real estate investment trust, owns, manages, acquires, leases, and repositions commercial office properties in New York City. It continues to benefit from a tight office space rental market in Manhattan and has proven to be one of the market's top-performing REITs over the past several quarters. "Sustained high occupancy levels, limited new supply coming online, and accelerating rental-rate growth are expected to contribute to above-trend top-line growth," Wachovia Capital Markets analyst Stephen Swett wrote in a research note last week.

SL Green was trading at $119 at midday Tuesday. The stock price is up 55% year to date versus 26% for the MSCI U.S. REIT Index. While this REIT might not experience the same degree of run-up in price over the next three quarters as it did the past three quarters, it's well-positioned in the commercial rental market and carries a 2% dividend yield. The company reported an occupancy rate of 96.1% for the quarter ended Sept. 30, and reported that the average starting rent for lease renewals during the quarter was 25.8% higher than previously fully escalated rents.

While SL Green trades at a price-to-FFO ratio of 27 versus a price-to-FFO ratio of 24 for competitor BostonProperties (NYSE: BXP  ) , it has been making moves to ensure future growth for itself and its shareholders. In the third quarter, the company agreed to acquire competitor RecksonAssociates (NYSE: RA  ) for about $6 billion. The company also said Tuesday that its joint venture redevelopment project on West 34th Street in Manhattan had a major lease agreement with Apple Computer; it continues to grow its retail investment program launched less than two years ago.

Chief Operating Officer Gerard Nocera is leaving at the end of November, and senior management will assume his responsibilities while a replacement is sought. That aside, most of the other takeaways from the REIT's earnings release were positive. While I'm not expecting to see the company's stock price rise at the scorching pace of recent quarters, I do think that the office space premiums in New York City and this company's aggressive expansion will afford Fools returns that are superior to those of the S&P 500.

For related Foolishness:

• Who Couldn't Use More Green?
• Please Recycle .Your Capital
• The Truth About REITs

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.