SL Green Realty Corp. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. SL Green is a REIT focused primarily on office real estate in the New York metropolitan area; the filing combines the Company and its operating partnership, whose financial results are consolidated.
Business context and operating performance
At quarter-end, the portfolio comprised 52 properties totaling approximately 30.1 million square feet, with weighted-average occupancy of 90.9%. Manhattan office occupancy was 91.4%; suburban office occupancy was 80.1%. SL Green acquired full ownership of 245 Park Avenue in September, following the bankruptcy-related process involving its prior investment in the property.
For the quarter, commenced Manhattan leases totaled approximately 259,600 square feet, including early renewals; the average new cash rent was $76.37 per rentable square foot and average lease term was 5.3 years. Available Manhattan space was approximately 2.10 million square feet at period-end.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $212.5 million | $205.2 million | $601.9 million | $649.4 million |
| Net income (loss) | $12.2 million | $415.5 million | ($12.3 million) | $528.8 million |
| Net income (loss) attributable to common stockholders | $7.4 million | $388.2 million | ($28.7 million) | $486.1 million |
| EPS, diluted | $0.11 | $5.91 | ($0.47) | $7.24 |
| Funds from Operations (FFO), attributable to common stockholders and unit holders | $114.2 million | $127.0 million | $358.8 million | $373.0 million |
| Cash from operating activities | Not stated quarterly | Not stated quarterly | $249.6 million | $191.0 million |
Quarterly rental revenue rose 4.9% to $163.0 million, while investment income increased to $29.5 million from $20.1 million. Nine-month revenue fell 7.3%, primarily reflecting property sales, the 2021 deconsolidation of 220 East 42nd Street, and properties moved into redevelopment. The prior-year comparison also included substantial nonrecurring gains: a $209.5 million fair-value adjustment and $285.3 million gain on real estate sales for the nine months ended September 2021. In 2022, the nine-month net loss on real estate sales was $61.1 million, including the $80.2 million loss on 609 Fifth Avenue.
Quarterly net interest expense, net of interest income, was $21.8 million versus $14.8 million. The weighted-average consolidated interest rate was 3.57% for Q3 and 3.28% for the first nine months, compared with 3.06% and 2.91%, respectively, in 2021. For the nine months, cash from investing activities was $273.3 million and cash used in financing was $474.8 million. Cash, cash equivalents and restricted cash totaled $385.1 million at September 30.
At September 30, total assets were $12.72 billion and total liabilities were $7.49 billion. Consolidated debt was $5.64 billion, up from $4.08 billion at year-end 2021; 79.8% was fixed-rate and the reported weighted-average debt maturity was 2.28 years. SL Green reported $1.0 billion of liquidity, comprising $800 million of revolver availability and $217.8 million of consolidated cash on hand, inclusive of marketable securities. This liquidity figure excludes its share of cash at unconsolidated joint ventures.
Material changes, outlook, and risks
- Management attributed same-store rental revenue growth to higher occupancy at certain properties. Higher same-store operating expenses and taxes partly offset that growth.
- The 2021 credit facility had $800 million of undrawn capacity; the Company reported compliance with its debt covenants at September 30. The $500 million of senior unsecured notes due in October 2022 were repaid at maturity.
- Subsequent to quarter-end, SL Green entered into a $400 million unsecured term loan due October 6, 2023, with a six-month extension option. As of October 7, it bore interest at 140 basis points over adjusted SOFR; subject to conditions and lender commitments, capacity could increase to $500 million.
- Management estimated remaining-2022 consolidated recurring capital expenditures of $23.4 million and development or redevelopment expenditures of $56.6 million, plus a $43.9 million share of joint-venture capital expenditures. Management expects to fund these needs with operating cash flow, existing liquidity and construction financing. No specific earnings or FFO guidance is provided in the supplied filing text.
- Management cited risks including higher rates, refinancing and capital availability, office demand and vacancy, tenant and borrower credit, development costs, joint-venture funding, and insurance availability and cost. A 100-basis-point increase in floating rates was estimated to raise annual consolidated interest cost, net of related investment income, by $8.9 million and SL Green’s share of joint-venture interest cost by $14.0 million.
- Several joint-venture loans were at or near maturity: the 717 Fifth Avenue loan matured in July 2022 and the 1552 Broadway loan matured in October 2022, with lender discussions ongoing; the 650 Fifth Avenue loan was extended six months in October. The filing also reports a $225.4 million debt investment on non-accrual and a separate $6.9 million investment rated high risk. Management stated that no material litigation was pending and no material risk-factor changes had occurred.
Most important facts for investors to verify
- Refinancing or resolution of matured and near-term property and joint-venture loans, and repayment terms for the new $400 million term loan.
- Whether reported liquidity remains sufficient after debt service, dividends, leasing costs, and planned development and capital expenditures.
- Performance and recovery prospects for non-accrual and watch-list debt investments, including exposure related to 245 Park Avenue.
- Occupancy, leasing, and rent trends, especially the effect of available space and redevelopment on future cash flows.
- How much of earnings and FFO reflects recurring property operations versus asset sales, fair-value changes, and other unusual items.