SL Green Realty Corp. — Q2 2016 Form 10-Q
Business context and reporting period. SL Green is a self-managed REIT focused on commercial and residential real estate in the New York metropolitan area, primarily Manhattan. This combined filing covers SL Green Realty Corp. and its operating partnership for the quarter and six months ended June 30, 2016. Unless noted, figures below are consolidated and in U.S. dollars.
Key financial results
| Metric | Q2 2016 | Six months 2016 | Prior comparable period |
|---|---|---|---|
| Total revenue | $617.6 million | $1,073.1 million | $409.1 million and $805.4 million |
| Net income attributable to common stockholders | $133.5 million; $1.33 per diluted share | $156.7 million; $1.56 per diluted share | Net loss of $39.1 million; $(0.39) per share, and income of $4.2 million; $0.04 per share |
| Funds from Operations attributable to common stockholders and noncontrolling interests | $355.7 million | $547.5 million | $168.7 million and $323.1 million |
| Cash provided by operating activities | Quarterly cash flow is not clearly stated in the supplied filing text | $373.4 million | $233.5 million |
| Cash and cash equivalents | $276.2 million at June 30, 2016; cash plus marketable securities was $315.6 million | $255.4 million cash at December 31, 2015 | |
| Consolidated debt | $8.06 billion at June 30, 2016; 82% fixed-rate and 18% variable-rate | $10.43 billion at December 31, 2015 |
Material changes and operating performance
- Revenue rose 51% year over year in Q2 and 33% for the first half. The increase reflected acquisitions, including 11 Madison Avenue, and substantial nonrecurring items connected with the sale of 388-390 Greenwich Street.
- Reported earnings included a $206.5 million gain on the 388-390 Greenwich sale, $43.4 million of equity gains on joint-venture/property dispositions for the first half, and a $94.0 million lease termination fee at 388-390 Greenwich. The filing reports $149.9 million of accelerated below-market lease amortization in Q2 rental revenue and $172.4 million for the first half.
- Depreciation and amortization increased to $425.0 million in Q2 and $604.4 million for the first half, including accelerated depreciation tied to the 388-390 Greenwich sale. Before purchase-price adjustments and gains on sales, common-stockholder continuing-operations results were losses of $0.77 per share in both Q2 and the first half.
- Same-store NOI increased 3.4% for the first half, while Q2 same-store NOI declined 1.9%. Same-store cash NOI rose 8.3% for the first half and 6.1% in Q2. Overall commercial portfolio occupancy was 91.5%; Manhattan office occupancy was 95.6%.
- Investing cash flow was $2.13 billion for the first half, principally reflecting $1.92 billion of net proceeds from real estate and joint-venture dispositions. Financing cash flow used $2.48 billion, including substantial debt repayments. Capital expenditures were $157.1 million for the first half.
Debt, liquidity, outlook and risks
- At June 30, SL Green reported $276.2 million cash, $39.3 million of marketable securities, and $1.2 billion of undrawn capacity under its credit facility. The $2.53 billion credit facility comprised a $1.6 billion revolver and a $933 million term loan; $285 million was drawn on the revolver and $933 million on the term loan. The company said it expected positive operating cash flow and believed available funding sources would meet obligations, subject to access to capital and refinancing.
- Management’s maturity schedule showed $2.06 billion of consolidated and joint-venture-share principal maturities in 2017, and $1.56 billion in 2019. These amounts include joint-venture debt share and should not be read as consolidated debt alone.
- Belmont Insurance Company had $229 million of Federal Home Loan Bank advances at a 0.90% weighted-average rate. Under the then-current rule, its FHLB membership was due to terminate February 19, 2017, requiring repayment of the advances unless the rule changed. A new $300 million master repurchase facility was entered into in July 2016, after quarter-end.
- Management estimated a 100-basis-point rate increase would raise annual interest cost by $3.2 million on company debt, net of variable-rate investment income, and by $11.5 million on its share of joint-venture debt. It also cited market, tenant, financing, refinancing, development, partner-funding, insurance, and REIT-qualification risks.
- Management expected 2016 recurring capital expenditures of $178.6 million and development/redevelopment expenditures of $111.8 million on consolidated properties, plus $32.3 million as its share of joint-venture expenditures. The stated annual common dividend rate was $2.88 per share; Q2 dividends were $0.72 per share.
- The company reported compliance with debt covenants, effective disclosure controls, and no material litigation or material change in reported risk factors as of June 30, 2016.
Most important facts for investors to verify
- How much of reported revenue and earnings growth was noncash or transaction-related, particularly the 388-390 Greenwich lease amortization, termination fee, and sale gain.
- Underlying leasing and property performance: same-store NOI trends, Manhattan and suburban occupancy, rental spreads, and scheduled lease expirations.
- Debt maturities and refinancing plans, including the 2017 maturity concentration and repayment of the $229 million FHLB advances if membership ends.
- Whether disposal proceeds, operating cash flow, and available credit can support planned capital spending, dividends, and liquidity needs.
- Credit quality, collateral, and repayment timing of the debt and preferred equity investment portfolio, whose reported weighted-average term to maturity was 1.4 years.