SL Green Realty Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. SL Green is a REIT focused mainly on owning, leasing, developing and financing Manhattan office real estate; the filing combines the Company and its Operating Partnership.
Business context and portfolio
At year-end, the portfolio included 52 properties or interests totaling approximately 29.7 million square feet, including consolidated and joint-venture assets. Portfolio occupancy was 90.3%, compared with 91.6% in 2021; Manhattan office occupancy was 90.7%. SL Green also held debt and preferred equity investments with a net book value of $623.3 million.
Financial results and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $826.7 million | $844.0 million |
| Rental revenue | $671.5 million | $678.2 million |
| Net income (loss) | $(76.3) million | $480.6 million |
| Net income (loss) attributable to common stockholders | $(93.0) million | $434.8 million |
| Diluted EPS | $(1.49) | $6.50 |
| NAREIT FFO attributable to common stockholders and unit holders | $458.8 million | $481.2 million |
| Cash flow from operating activities | $276.1 million | $256.0 million |
| Cash, cash equivalents and restricted cash, year-end | $384.1 million | $337.0 million |
GAAP net loss included an $84.5 million net loss on real estate sales, versus a $287.4 million gain in 2021, and $8.1 million of purchase-price and other fair-value adjustments, versus a $210.1 million gain in 2021. FFO declined about 4.7%; it is a non-GAAP measure and is not equivalent to cash available for distributions. The filing does not provide a single comparable operating-margin measure.
Consolidated debt principal was approximately $5.54 billion at year-end, up from $4.08 billion. The reported effective interest rate was 3.55% for 2022, versus 3.02% in the debt summary for 2021. After considering variable-rate investments, net variable-rate exposure was 7.0% of debt, versus 13.4% a year earlier. A 100-basis-point rate increase was estimated to raise annual consolidated interest costs by $3.5 million and SL Green’s share of joint-venture interest costs by $6.5 million.
Management reported liquidity of approximately $1.0 billion: $800.0 million available on the revolving credit facility and $214.5 million of consolidated cash and marketable securities. This excludes $143.8 million of SL Green’s share of joint-venture cash. The filing reports $3.19 billion of investments in unconsolidated joint ventures and $6.17 billion as the Company’s share of joint-venture debt; these obligations are generally non-recourse to SL Green.
Material changes versus FY2021
- Revenue declined 2.0%, while same-store rental revenue rose 5.0% to $556.7 million. Lower revenue from disposed or redeveloped properties offset same-store growth and the acquisition of 245 Park Avenue.
- Same-store Manhattan office occupancy fell to 91.2% from 93.0%. Manhattan market leasing volume improved to 24.3 million square feet from 18.6 million, but overall Manhattan office vacancy increased to 22.2% from 20.4%.
- Interest expense, net of interest income, increased to $89.5 million from $70.9 million; management attributed the increase to 245 Park Avenue and higher average benchmark rates. The consolidated weighted-average debt rate was 3.55% for the year, compared with 2.93% in the MD&A discussion.
- Cash from operations increased by $20.1 million. Investing cash flow fell to $425.8 million from $993.6 million, largely reflecting lower joint-venture distributions; financing cash used decreased to $654.8 million from $1.29 billion.
- In 2022 SL Green acquired 245 Park Avenue at a reported gross asset valuation of $1.96 billion, converted its 5 Times Square mezzanine loan into a 31.55% common-equity interest, and acquired a 25.1% interest in 450 Park Avenue. Property and interest sales generated $582.5 million of net proceeds to the Company, according to management.
Outlook, risks and unusual items
- Outlook: No specific earnings or FFO guidance is provided in the supplied filing text. For 2023, management estimated $82.0 million of recurring capital expenditures and $117.5 million of development or redevelopment spending on consolidated properties, plus $263.1 million as its share of joint-venture capital expenditures.
- Debt and refinancing: The $400 million 2022 term loan was due in October 2023, with an extension option to April 2024; it was increased to $425 million in January 2023. Management said it intended to repay, refinance or extend maturing debt. It also identified 2023 consolidated mortgage and joint-venture maturities of approximately $260 million and $1.1 billion, respectively. Some joint-venture loans had already matured or were approaching maturity, and the filing describes discussions with lenders on resolution for certain loans.
- Office-market exposure: Hybrid work, weaker tenant demand, lease rollover, concessions and costly tenant improvements could pressure occupancy, rents and cash flow. Approximately 40.8% of consolidated and 23.5% of joint-venture rentable square feet were scheduled to expire by the end of 2027.
- Concentration and development: Five properties represented 40.0% of portfolio annualized cash rent. One Vanderbilt Avenue represented 14.1%, and 245 Park Avenue 10.0%. One Madison Avenue redevelopment had a $2.3 billion total budget, with $1.4 billion remaining at year-end; completion was anticipated in fourth-quarter 2023. Cost overruns, delays or leasing weakness could affect returns.
- Interest rates and climate regulation: Rising rates may increase borrowing costs, particularly at joint ventures. New York City Local Law 97 emissions caps begin in 2024; management did not anticipate a material portfolio financial impact in the 2024–2029 first compliance period, but fines or retrofit costs remain possible risks.
- Distributions and other items: The December 2022 regular monthly distribution was $0.2708 per share, below the $0.3108 monthly amount declared in December 2021. The filing says distributions are discretionary and subject to cash needs, debt service, covenants and REIT requirements. No material litigation was reported. The auditors issued unqualified opinions on the financial statements and internal controls; the critical audit matter concerned judgment in joint-venture consolidation assessments.
Most important facts for investors to verify
- Current status, extension terms and refinancing plans for 2023 corporate, property-level and joint-venture maturities, including loans noted as matured or under lender discussions.
- Leasing progress, occupancy and net effective rents at Manhattan properties, particularly space expiring through 2027 and major assets including One Vanderbilt, 245 Park Avenue and 11 Madison Avenue.
- Remaining funding needs, committed partner equity, construction financing and delivery timing for One Madison Avenue and other redevelopment projects.
- Cash available for common dividends after debt service, capital spending, joint-venture needs and any further changes to the monthly distribution.
- Credit quality and recoverability of debt and preferred equity investments: $352.3 million was rated watch list and $6.9 million high risk at year-end; the filing also identifies non-accrual investments.