SL Green Realty Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 10, 2021. Unaudited results. SL Green is a New York metropolitan-area REIT focused primarily on office properties; substantially all operations are conducted through SL Green Operating Partnership, L.P.
Business context and portfolio
At quarter-end, the portfolio comprised 65 properties totaling approximately 29.1 million square feet, including joint venture interests. Portfolio occupancy was 92.2% overall and 93.0% for commercial properties. The company also held $1.1 billion of debt and preferred equity investments. Its business is concentrated in the New York metropolitan area.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $226.1 million | $314.3 million; down 28.0% |
| Rental revenue | $188.1 million | $222.6 million; down 15.5% |
| Net income (loss) | $(3.9) million | $127.1 million |
| Net income (loss) attributable to common stockholders | $(7.5) million; $(0.11) per diluted share | $114.8 million; $1.51 per diluted share |
| Funds from Operations attributable to common stockholders | $128.3 million | $172.0 million |
| Cash from operating activities | $18.6 million | $42.0 million |
| Cash, cash equivalents and restricted cash | $401.6 million | $621.0 million at March 31, 2020 |
| Consolidated debt | $5.35 billion | $4.96 billion at December 31, 2020 |
Management reported $1.2 billion of liquidity at March 31, 2021, comprising approximately $0.9 billion of revolving-credit availability and $0.3 billion of consolidated cash, including marketable securities. The revolver had $630 million drawn and $16.5 million of letters of credit; the company reported $0.9 billion of undrawn capacity. Consolidated debt had a 2.54-year weighted average term to maturity. The effective interest rate was 2.88% for the quarter.
Changes versus the prior period
- Revenue fell primarily because of lower rental revenue from dispositions, vacancy and reduced investment income; the average debt and preferred equity investment balance declined to $1.1 billion from $1.8 billion, and average yield declined to 6.8% from 8.3%.
- Other income was lower partly because Q1 2020 included $45.2 million of incremental income from Credit Suisse at One Madison Avenue; Q1 2021 included $9.9 million of lease termination income.
- The prior-year quarter included a $72.6 million gain on real estate sales. Q1 2021 included a $15.2 million loss on the sale of the 55 West 46th Street joint venture interest, $8.2 million of real estate reserves and impairment, and a $1.4 million property-sale loss.
- Net interest expense and deferred financing-cost amortization declined, reflecting lower borrowing costs and a lower average consolidated debt balance. Operating cash flow also declined, to $18.6 million from $42.0 million.
- Q1 2021 FFO was $128.3 million versus $172.0 million. FFO is a non-GAAP measure and is not equivalent to cash available for distributions.
Outlook, risks and unusual items
- No specific earnings or FFO guidance is provided in the supplied filing text. Management estimated remaining-2021 recurring capital expenditures of $75.0 million and development or redevelopment spending of $174.6 million at consolidated properties; its share of joint venture capital expenditures was estimated at $220.0 million.
- Management cited COVID-19 and its uncertain duration, office demand and vacancy, tenant and borrower credit, New York market concentration, access to financing, interest rates, development costs, joint venture obligations, insurance availability and REIT qualification as risks. Management reported collecting 96.9% of Q1 tenant billings overall, including 98.9% from office and 90.9% from retail tenants.
- Debt maturities include $350 million of senior notes in 2021 and $800 million in 2022, in addition to property-level and joint venture debt. The company reported compliance with its debt covenants at quarter-end. Its share of joint venture debt was $4.42 billion and is not the same as consolidated debt.
- In January, SL Green consolidated 885 Third Avenue after a partner’s participating rights expired. It repurchased approximately 1.31 million common shares during the quarter at an average $61.46 per share. A special dividend was paid primarily in stock, followed by a 1.02918-for-1 reverse stock split; share and per-share figures were retroactively adjusted.
- Subsequent events included exercise of an option to acquire the fee interest at 461 Fifth Avenue for $28.0 million, expected to close in Q2 2021, and contracts to sell interests in 605 West 42nd Street and 400 East 57th Street, subject to closing conditions.
Important facts for investors to verify
- How office leasing, occupancy, rent collections and tenant concessions develop as pandemic-related conditions change.
- The timing and refinancing or repayment plans for near-term corporate, property-level and joint venture debt maturities; distinguish SL Green’s share of joint venture debt from consolidated obligations.
- Credit performance and recoverability of the $1.1 billion debt and preferred equity portfolio, including non-accrual exposures and watch-list assets.
- Completion, proceeds and any further accounting impacts from the announced property and joint venture dispositions, as well as the 461 Fifth Avenue acquisition.
- Capital spending, leasing costs and cash distributions relative to operating cash flow and available liquidity; review FFO alongside GAAP results and cash flows.