SL Green Realty Corp. — Q1 2022 Form 10-Q
Business context and reporting period: The combined filing covers SL Green Realty Corp. and its consolidated operating partnership for the three months ended March 31, 2022. SL Green is a REIT focused primarily on owning, developing and managing office properties in the New York metropolitan area. Its portfolio totaled approximately 27.5 million square feet, with 91.0% weighted average occupancy; Manhattan office occupancy was 91.5%. Unless noted, financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $188.0 million | $226.1 million |
| Net income (loss) | $13.5 million | $(3.9) million |
| Net income (loss) attributable to common stockholders | $7.8 million | $(7.5) million |
| Diluted EPS | $0.11 | $(0.12) |
| NAREIT FFO attributable to common stockholders and unit holders | $115.8 million | $128.3 million |
| Cash provided by operating activities | $81.4 million | $18.6 million |
- Rental revenue was $156.0 million, down 17.1%. Same-store rental revenue increased 5.4%; the consolidated decline primarily reflected property dispositions, redevelopment and the prior-year deconsolidation of 220 East 42nd Street.
- Investment income increased 3.1% to $19.9 million. Other income declined 35.8% to $12.0 million, largely because of lower lease termination income.
- Net interest expense and deferred financing cost amortization declined to $17.0 million from $27.2 million. Average consolidated debt outstanding was $4.2 billion versus $5.4 billion; the average consolidated interest rate increased to 3.01% from 2.88%.
- At March 31, total assets were $11.0 billion and total liabilities were $5.7 billion. Consolidated debt was $4.13 billion, excluding lease liabilities and unconsolidated joint-venture debt. Fixed-rate debt represented 80.3% of consolidated debt; net variable-rate exposure was 13.3% of debt after variable-rate investments.
- Cash and cash equivalents were $223.7 million; cash, cash equivalents and restricted cash totaled $307.3 million. Management reported $1.1 billion of liquidity, including $0.8 billion of undrawn revolving credit capacity and $0.3 billion of consolidated cash on hand, inclusive of marketable securities.
Material changes versus the prior comparable period
- The company moved from a GAAP net loss to net income, helped by the absence of the prior-year joint-venture sale loss and real estate impairment charges, and lower depreciation and interest expense. FFO nevertheless declined year over year.
- Operating cash flow rose by $62.8 million. Investing cash flow was $13.5 million, while financing used $124.6 million, including $151.2 million of common-stock repurchases.
- Debt and preferred equity investments totaled $1.11 billion. The portfolio’s average yield was 7.3%, up from 6.8% a year earlier; $583.7 million was classified as watch-list risk and $6.9 million as high risk.
- During the quarter, SL Green sold 707 Eleventh Avenue for $95.0 million, recording a $0.8 million loss, and repurchased 1.97 million shares at an average $76.69 per share. It also paid a previously declared dividend that was partly settled in stock, followed by a 1.03060-for-1 reverse stock split.
Outlook, risks and unusual items
- No specific earnings or FFO guidance was provided. For the remainder of 2022, management estimated $67.2 million of recurring capital expenditures and $71.5 million of development or redevelopment spending on consolidated properties. Its expected share of joint-venture capital expenditures was $171.9 million.
- Management said expected liquidity sources include operating cash flow, cash, property and investment dispositions, revolving-credit borrowings and other financing. It cautioned that access to capital on efficient terms is not assured. Management expects liquidity and refinancing opportunities to support debt obligations.
- Scheduled 2022 maturities include $800 million of senior unsecured notes and $407.2 million of property mortgages and other loans; the filing also lists $422.4 million of joint-venture debt for the remainder of 2022. Maturity timing may depend on available extension options and conditions.
- Interest-rate sensitivity: a hypothetical 100-basis-point increase was estimated to raise annual consolidated interest cost, net of variable-rate investment income, by $4.8 million and SL Green’s share of joint-venture interest cost by $13.8 million.
- Credit and legal matters include an HNA-affiliated borrower’s Chapter 11 case relating to 245 Park Avenue, which SL Green is contesting; a related mezzanine loan of $55.3 million is disclosed. The filing also identifies a $225.4 million mezzanine loan on non-accrual, with no investment income recognized since it was placed on non-accrual in 2020. The filing states that two investments totaling $223.1 million and $6.8 million, net of reserves, were exceptions to otherwise performing investments.
- Subsequent to quarter-end, SL Green closed sales of 1080 Amsterdam Avenue for $42.7 million and its remaining Stonehenge portfolio interests for $1.0 million. The filing also reports an April 2022 sale of the company’s remaining interest in that portfolio.
- Key stated risks include New York office-market conditions and demand, tenant and borrower creditworthiness, development costs and delays, refinancing and interest rates, joint-venture funding, insurance availability and REIT qualification. The company reported compliance with debt covenants and no material litigation as of March 31, 2022.
Important facts for investors to verify
- Reconcile the decline in total rental revenue with the 5.4% same-store increase, including dispositions, redevelopment and the deconsolidation of 220 East 42nd Street.
- Review the status, collateral and expected recovery for the non-accrual loan, watch-list exposures and HNA-related investments, including developments in the bankruptcy appeal.
- Assess refinancing plans and extension conditions for 2022 maturities, especially the $800 million notes and near-term property and joint-venture debt.
- Track Manhattan office leasing, occupancy, renewal economics and tenant improvement and leasing costs; Q1 commenced Manhattan leases averaged $71.67 per rentable square foot and 8.5 years.
- Confirm the funding and timing of planned consolidated and joint-venture capital expenditures, and the effect of share repurchases and dividends on liquidity.