SL Green Realty Corp. — Q2 2022 Form 10-Q
Business context and reporting period. SL Green is a self-managed REIT focused on commercial real estate, principally Manhattan office properties. This filing covers the quarter and six months ended June 30, 2022; the financial statements are unaudited. The Company and its operating partnership are managed as one entity, and substantially all operations are conducted through the partnership.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $201.4 million | $218.1 million | $389.4 million | $444.2 million |
| Net income (loss) | $(37.9) million | $117.1 million | $(24.5) million | $113.3 million |
| Net income (loss) attributable to common stockholders | $(43.9) million | $105.3 million | $(36.1) million | $97.9 million |
| Diluted EPS | $(0.70) | $1.56 | $(0.58) | $1.44 |
| FFO attributable to common stockholders and unit holders | $128.8 million | $117.7 million | $244.5 million | $246.0 million |
- Revenue and operations: Q2 rental revenue was $155.2 million, down 15.9%; first-half rental revenue was $311.3 million, down 16.5%. Same-store revenue increased 2.6% in Q2 and 3.8% for the first half. Portfolio occupancy was 90.6% overall and 91.2% for Manhattan commercial properties at quarter-end.
- Profit drivers and unusual items: Q2 included a $64.4 million net loss on real estate sales, chiefly the $80.2 million loss on 609 Fifth Avenue, partly offset by a $17.9 million gain on 1080 Amsterdam Avenue. First-half real estate sale losses were $65.4 million. These disposition effects were a major factor in the year-over-year shift from profit to loss. Q2 same-store operating revenue improved, while total revenue fell largely due to dispositions and the prior-year deconsolidation of 220 East 42nd Street.
- Cash flow: First-half operating cash flow was $182.4 million, versus $103.3 million a year earlier. Investing activities provided $135.3 million, including disposition proceeds; financing activities used $377.7 million, including debt repayments, share repurchases and distributions. Cash, cash equivalents and restricted cash totaled $277.1 million at June 30, 2022.
- Debt and liquidity: Consolidated debt was $3.91 billion, down from $4.08 billion at year-end 2021. The effective interest rate was 3.23%; 79% of debt was fixed-rate, and reported net exposure to variable-rate debt was 14% of total debt after variable-rate investment offsets. A 100-basis-point rate increase was estimated to raise annual consolidated interest cost, net of investment income, by $4.7 million, plus $14.6 million on the Company’s share of joint-venture debt. Management reported $1.3 billion of liquidity, including $1.1 billion of revolver availability and $0.2 billion of consolidated cash and marketable securities. The Company was in compliance with debt covenants.
- Other balance-sheet exposures: Debt and preferred equity investments totaled $1.13 billion; $636.6 million was rated watch-list and $6.9 million high risk. Two investments totaling $228.1 million were identified as exceptions to otherwise performing investments; a $225.4 million loan was on non-accrual. Unconsolidated joint-venture investments were $3.07 billion, with $11.41 billion of gross joint-venture debt.
Material changes, outlook and risks
- Revenue and GAAP earnings declined versus 2021, while FFO increased in Q2 but decreased slightly for the first half. The filing attributes lower reported rental revenue mainly to property dispositions, redevelopment and the prior-year joint-venture deconsolidation. Same-store rental performance improved.
- Q2 leasing commencements totaled 363,448 rentable square feet, at average new cash rent of $85.92 per square foot; first-half commencements totaled 676,606 rentable square feet at $79.33. Management reported that same-store rental growth was supported by higher rents and occupancy gains at certain properties.
- No specific earnings or FFO guidance is provided. Management expects to fund near-term needs through operating cash flow, cash, asset dispositions, credit facilities and other financing. For the remainder of 2022, it estimated $41.8 million of recurring consolidated-property capital spending and $76.8 million of consolidated development or redevelopment spending; its expected share of joint-venture capital spending was $97.2 million.
- Approximately $800 million of senior unsecured notes were scheduled to mature in the remainder of 2022. Management cited liquidity and refinancing opportunities as sources to meet obligations, but noted that capital markets access and refinancing are not assured. Total scheduled debt and lease obligations, including the Company’s share of joint-venture debt and estimated interest, were $12.08 billion across the disclosed maturity schedule.
- 245 Park Avenue: An HNA-affiliated borrower filed for bankruptcy. SL Green became the stalking-horse bidder under a July 2022 agreement and expected to acquire full ownership and control in September, subject to plan confirmation. This was a post-quarter-end development, not a completed acquisition as of June 30.
- Key risks include New York office demand and vacancies, interest-rate and refinancing exposure, tenant and borrower credit, construction costs and delays, joint-venture funding, and insurance availability or adequacy. Management reported no material litigation at quarter-end and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Reconcile the quarter’s GAAP loss with FFO and assess the effect of property sales—especially the 609 Fifth Avenue loss—on recurring performance.
- Track occupancy, leasing commencements, achieved rents and tenant-improvement/free-rent costs against the substantial available space disclosed.
- Confirm repayment or refinancing of the $800 million notes due in 2022 and monitor revolver availability, covenant compliance and variable-rate exposure.
- Review the status, credit support and recoverability of watch-list and non-accrual investments, including the HNA-related 245 Park Avenue exposure and anticipated acquisition.
- Compare actual capital spending, joint-venture funding needs and disposition proceeds with management’s 2022 estimates and stated liquidity sources.