SL Green Realty Corp. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with Q1 2015 unless noted. SL Green is a self-managed REIT focused primarily on commercial real estate in the New York metropolitan area. The Company and its operating partnership are managed as one business, and their consolidated results are substantially the same.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior period |
|---|---|---|
| Total revenue | $455.4 million | $396.3 million; up 14.9% |
| Net income | $32.5 million | $55.6 million |
| Net income attributable to common stockholders | $23.2 million; $0.23 per diluted share | $43.3 million; $0.44 per diluted share |
| Same-store NOI | $167.3 million | $152.6 million; up 9.6% |
| FFO attributable to common stockholders and noncontrolling interests | $191.8 million | $154.4 million |
| Operating cash flow | $114.1 million | $91.0 million |
| Cash and cash equivalents at quarter-end | $316.2 million | $255.4 million at December 31, 2015 |
| Common dividend per share | $0.72 | $0.60 |
- Revenue growth reflected acquisitions, including 11 Madison Avenue, improved same-store rents and occupancy, and increased investment income. Investment income included $10.2 million of accelerated income from early loan repayments.
- Net income fell despite higher revenue: depreciation and amortization rose to $179.3 million from $108.3 million, and net interest expense rose to $94.7 million from $75.8 million. The 2016 result also included gains on real estate and joint-venture dispositions; 2015 included a gain on a discontinued-operations sale.
- Manhattan same-store office occupancy was 93.5%, up from 92.4%. The filing reports suburban same-store office occupancy of 83.4% for March 31, 2016, versus 80.4% for March 31, 2015.
- Net cash from investing activities was $338.9 million, including disposition proceeds and debt-investment repayments; financing activities used $392.1 million. FFO is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
Debt, liquidity and capital
- Consolidated debt was reported at approximately $10.1 billion at March 31, 2016, compared with $10.4 billion at December 31, 2015. The filing separately lists $1.7 billion as the Company’s share of joint-venture debt.
- Debt was 71.1% fixed-rate and 28.9% variable-rate; the reported effective interest rates were 4.23% for fixed-rate debt and 2.41% for variable-rate debt. Weighted-average consolidated debt maturity was 5.41 years.
- The $1.6 billion revolving facility had $775.0 million drawn, $74.3 million of letters of credit and $750.7 million of undrawn capacity, including letters of credit. Cash plus marketable securities totaled approximately $360.1 million.
- Scheduled principal maturities, including the Company’s share of joint-venture debt, totaled $878.8 million for the remainder of 2016 and $2.1 billion for 2017. Management expects liquidity from operations, cash, credit facilities, financing and asset dispositions to meet obligations, but access to capital is not assured.
Material changes, outlook and risks
- Same-store NOI rose 9.6%; company-wide revenue rose 14.9%. Higher depreciation, largely associated with 11 Madison Avenue and accelerated depreciation at 388-390 Greenwich Street, and higher interest costs weighed on reported earnings.
- 388-390 Greenwich Street was classified as held for sale. In April, SL Green agreed to accelerate its sale for $2.0 billion, net of $242.5 million of unfunded tenant concessions, with closing scheduled for June 2016 subject to customary conditions. Related assets and liabilities held for sale were $1.89 billion and $1.61 billion at quarter-end.
- The February sale of 885 Third Avenue for $453 million did not meet the accounting criteria for sale recognition; the property remained on the balance sheet. A $13.8 million gain was recorded on the sale of 248-252 Bedford Avenue.
- Management estimated 2016 capital expenditures of $252.6 million for recurring work and $177.9 million for development or redevelopment on consolidated properties, plus $46.1 million as its share of joint-venture capital expenditures. It expects to continue regular quarterly dividends; the stated annual common dividend rate was $2.88 per share.
- Belmont Insurance Company had $250.8 million of Federal Home Loan Bank advances. Under the then-current rule, its membership was to terminate in February 2017, requiring repayment unless the rule changed or other arrangements were made.
- Key risks include New York-area market concentration, leasing and tenant credit, real-estate development and disposition execution, financing availability and interest rates, debt covenants, joint-venture obligations, REIT qualification and insurance availability or adequacy. Management reported covenant compliance and effective disclosure controls; it reported no material litigation or material change in risk factors.
Important facts for investors to verify
- Whether the 388-390 Greenwich Street sale closed on schedule, on what final terms, and how the transaction affected debt and cash.
- The treatment and timing of the 885 Third Avenue sale for accounting purposes, and the amount ultimately realized.
- Near-term debt maturities and refinancing plans, including the 2016–2017 property and joint-venture obligations and the FHLB advances due upon membership termination.
- Whether rent growth, leasing spreads and occupancy support continued same-store NOI growth, particularly in suburban properties.
- The sustainability of the common dividend and planned capital spending relative to operating cash flow, dispositions and borrowing needs.
- Interpretation of the filing’s occupancy comparison: the suburban occupancy sentence appears to repeat the 2015 date, although it gives 83.4% for 2016 and 80.4% for 2015.