SL Green Realty Corp. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. SL Green is a REIT focused primarily on owning, leasing, developing and financing commercial real estate in the New York metropolitan area. The filing combines SL Green Realty Corp. and its operating partnership; their operations and financial results are substantially the same.
Business context and portfolio
- At year-end, the portfolio comprised 69 properties and interests totaling approximately 29.5 million square feet, with weighted average occupancy of 91.2%. The portfolio is concentrated in Manhattan office properties.
- SL Green held $1.1 billion of debt and preferred equity investments on the balance sheet and had a 94.71% economic interest in its operating partnership.
- Five properties accounted for 35.1% of portfolio annualized cash rent. ViacomCBS was the largest tenant, contributing about 5.6% of SL Green’s share of annualized cash rent.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $1.053 billion | $1.239 billion |
| Net income | $414.8 million | $291.5 million |
| Net income attributable to common stockholders | $356.1 million | $255.5 million |
| Basic/diluted EPS | $4.88 / $4.87 | $3.20 / $3.19 |
| NAREIT FFO attributable to common stockholders and unit holders | $562.7 million | $605.7 million |
| Cash provided by operating activities | $554.2 million | $376.5 million |
| Cash provided by investing activities | $1.056 billion | $114.5 million |
| Cash used in financing activities | $1.479 billion | $528.7 million |
- Revenue fell 15.0%, while net income rose 42.3%. The increase in net income reflected substantial disposition gains and a $187.5 million One Madison Avenue fair-value adjustment following deconsolidation; it should not be read as equivalent growth in recurring operations. FFO declined about 7.1%.
- Rental revenue declined 18.2%, to $804.4 million, and investment income declined 38.5%, to $120.2 million. Other income increased to $128.2 million, including higher lease-termination income and a settlement fee.
- Year-end total assets were $11.7 billion and total liabilities were $6.2 billion. Consolidated debt principal was approximately $5.0 billion, compared with $5.6 billion a year earlier. SL Green’s share of non-recourse joint-venture debt was approximately $4.7 billion; gross joint-venture debt was $9.9 billion.
- Year-end liquidity was $1.7 billion: $1.4 billion available under the revolving credit facility and $0.3 billion of consolidated cash and marketable securities. Total cash, cash equivalents and restricted cash were $372.8 million.
- Approximately 63.2% of consolidated debt was fixed-rate; the weighted-average consolidated debt interest rate was 2.91% for 2020. A 100-basis-point increase in rates was estimated to increase annual consolidated net interest cost by $14.0 million and SL Green’s share of joint-venture interest cost by $20.6 million.
Changes versus the prior year
- Same-store Manhattan office occupancy, including signed but uncommenced leases, decreased to 93.4% from 96.2%; total portfolio occupancy fell to 91.2% from 94.3%.
- Manhattan office leasing volume was 12.8 million square feet in 2020 versus 34.7 million in 2019. SL Green signed approximately 1.2 million square feet of Manhattan office leases; replacement leases were 3.6% below previously escalated rents.
- SL Green sold interests in properties with reported gross valuations totaling approximately $1.7 billion, including 410 Tenth Avenue and The Olivia. Net gains on real estate sales were $215.5 million, compared with a $16.7 million loss in 2019.
- Depreciable real estate reserves and impairments increased to $60.5 million from $7.0 million; loan-loss and other investment reserves were $35.3 million, versus none in 2019. Debt and preferred equity investment balances decreased to $1.1 billion from $1.6 billion.
- Consolidated debt declined, and lower LIBOR, debt repayment and interest capitalization contributed to lower interest expense. The weighted-average debt balance was $5.8 billion, versus $6.1 billion in 2019.
Outlook, risks and notable items
- Management warned that COVID-19 could materially adversely affect operations, liquidity, cash flows and prospects, potentially beyond the pandemic period. Key uncertainties include tenant rent payment, office and retail demand, continued work-from-home practices, borrower performance, construction costs and access to capital.
- Management reported collection of 95.5% of 2020 gross tenant billings as of the filing date: 97.9% from office tenants and 85.4% from retail tenants.
- Management intended to repay, refinance or extend debt as it matured. The filing identifies material 2021 maturities, including joint-venture debt; refinancing may be more costly or unavailable. The company reported covenant compliance at year-end.
- For 2021, management estimated $88.0 million of recurring capital expenditures and $192.2 million of development or redevelopment expenditures at consolidated properties, plus $343.1 million as its share of joint-venture capital expenditures. These amounts were expected to be funded by operating cash flow, liquidity and construction facilities.
- The filing provides no quantified earnings or FFO guidance. It states a current annual common dividend rate of $3.64 per share. A declared ordinary and special dividend was paid in January 2021, primarily in stock; a 1.02918-for-1 reverse stock split followed. Per-share and share-count data in the filing are retroactively adjusted for the split.
- Major additional risks include concentrated exposure to the New York office market, lease expirations and reletting costs, development delays and overruns, debt and preferred-equity credit losses, joint-venture decision limitations, interest-rate and LIBOR transition risk, and possible property damage or inadequate insurance.
- The company recorded impairments at 106 Spring Street, 133 Greene Street and 712 Madison Avenue. Two debt investments were on non-accrual at year-end; one investment with a carrying value of $6.8 million was reported as not performing in accordance with its terms. Management reported no material litigation and no material environmental liability known to it.
Investor verification priorities
- Reconcile the increase in GAAP net income with the decline in FFO, excluding disposition gains and the One Madison Avenue fair-value adjustment.
- Monitor occupancy, new leasing, rent mark-to-market and tenant collections as New York office demand and work patterns evolve.
- Review the schedule and status of 2021 consolidated and joint-venture maturities, refinancing or extension outcomes, and remaining revolver availability.
- Track performance, risk ratings, non-accrual status and collateral values for debt and preferred equity investments, including subsequent resolutions of troubled loans.
- Confirm funding and completion progress for major developments, including One Vanderbilt, One Madison Avenue and 15 Beekman, and compare actual costs with disclosed budgets.
- Assess cash dividend sustainability against operating cash flow, capital spending, debt service and the stock component of the January 2021 special dividend.