SL Green Realty Corp. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. SL Green is a REIT focused principally on Manhattan office real estate; substantially all operations are conducted through SL Green Operating Partnership, L.P. Amounts below are consolidated unless stated otherwise.
Business context and portfolio
- At year-end, the portfolio comprised 59 properties and interests totaling approximately 27.7 million square feet, including office, retail, residential and development assets. Weighted average portfolio occupancy was 91.6%; Manhattan office occupancy was 92.1% across consolidated and joint venture properties. Same-store Manhattan office occupancy, including signed but uncommenced leases, was 93.0%.
- SL Green also held debt and preferred equity investments with a net book value of $1.1 billion and managed two third-party office buildings totaling approximately 2.1 million square feet.
- Manhattan market leasing activity improved to 18.6 million square feet in 2021 from 12.8 million in 2020, but market vacancy rose to 20.4% and average asking rents declined 4.8%, according to data cited by the company.
Financial results and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $844.0 million | $1,052.7 million | Down 19.8% |
| Net income | $480.6 million | $414.8 million | Up 15.9% |
| Net income attributable to common stockholders | $434.8 million | $356.1 million | Up 22.1% |
| Basic / diluted EPS | $6.57 / $6.50 | $5.03 / $5.01 | Higher |
| NAREIT FFO attributable to common stockholders and unit holders | $481.2 million | $562.7 million | Down 14.5% |
| Cash provided by operating activities | $256.0 million | $554.2 million | Down 53.8% |
- Revenue fell as properties were sold or moved into redevelopment, same-store rental revenue declined, and investment income decreased. Investment income was $80.3 million versus $120.2 million; the investment portfolio’s weighted-average balance and yield fell to $1.1 billion and 7.1%, from $1.4 billion and 7.7%.
- GAAP net income included $287.4 million of net gains on real estate sales and $210.1 million of purchase-price and other fair-value adjustments. These items materially affect the comparison with recurring operating performance. FFO, a non-GAAP measure, declined despite higher GAAP earnings.
- GAAP net income as a percentage of revenue was approximately 57% in 2021 versus 39% in 2020; this simple net margin is influenced by asset-sale gains and fair-value adjustments and is not a measure of recurring property-level margin. The filing does not provide a single comparable portfolio operating-margin measure in the text summarized here.
- Interest expense, net of interest income, was $70.9 million versus $116.7 million. The weighted-average consolidated debt balance was $4.8 billion versus $5.8 billion; the reported consolidated weighted-average interest rate was 2.93% versus 3.06%.
- Year-end total assets were $11.1 billion and total liabilities were $5.7 billion. Consolidated debt principal was approximately $4.1 billion, down from $5.0 billion a year earlier. SL Green’s share of non-recourse joint-venture debt was approximately $5.8 billion; joint ventures had $11.2 billion of total debt.
- Reported liquidity was $1.1 billion: $860.0 million of revolving-credit availability and $286.2 million of consolidated cash, including marketable securities. Cash, cash equivalents and restricted cash totaled $337.0 million; unrestricted cash and cash equivalents were $251.4 million.
Material changes and notable transactions
- SL Green sold all or part of interests in multiple properties and reported approximately $2.9 billion in gross asset valuations for 2021 dispositions. Proceeds were used primarily for share repurchases and debt reduction. It repurchased 4.5 million shares at an average reported price of $75.44.
- The company refinanced One Vanderbilt Avenue with a $3.0 billion, 10-year fixed-rate loan at a stated 2.855% coupon (2.947% including hedging costs), replacing a construction facility with approximately $1.54 billion outstanding.
- In December 2021, SL Green amended its corporate credit facility, comprising a $1.25 billion revolver and $1.25 billion in term loans. At year-end, $390 million was drawn on the revolver and $860 million remained available.
- Manhattan office leases signed during 2021 covered approximately 1.9 million square feet. On leases replacing previously occupied space, rents were 2.5% below prior fully escalated rents. Five major properties represented 39.0% of portfolio annualized cash rent, and ViacomCBS represented 6.3%.
- A $2.4392-per-share special dividend, payable entirely in stock, and an ordinary dividend of $0.3108 per share were declared in December and paid in January 2022. A 1.03060-for-1 reverse stock split took effect in January 2022; share and per-share figures in the filing were adjusted for the split.
Outlook, risks and contingencies
- The filing provides no specific earnings or FFO guidance. For 2022, management estimated $82.4 million of recurring capital expenditures and $107.8 million of development or redevelopment spending on consolidated properties, plus an expected $219.3 million share of joint-venture capital expenditures. Management expected to fund these needs through operating cash flow, liquidity and construction financing.
- Management said it intended to repay, refinance or exercise extension options for debt coming due. The filing identifies significant 2022 maturities, including senior unsecured notes and property and joint-venture debt; access to refinancing, interest rates and lender appetite could affect liquidity and costs. The company reported compliance with debt covenants at year-end.
- Key risks include continued COVID-19 effects, weaker office demand and rental rates, lease rollover and tenant defaults, concentration in Manhattan, development delays or cost overruns, rising interest rates, refinancing and joint-venture risks, and potential costs or fines under New York City building-emissions requirements beginning in 2024.
- Two investments tied to the 245 Park Avenue ownership structure were affected by an HNA-affiliated borrower’s Chapter 11 filing; SL Green contested the filing and was appealing the bankruptcy court ruling. Separately, a third party asserted ownership rights to the fee interest acquired at 1591–1597 Broadway, which the company is contesting.
- Two properties, 707 Eleventh Avenue and 1080 Amsterdam Avenue, were classified as held for sale, with transactions expected to close in the first quarter of 2022. A $15.0 million impairment was recorded for 707 Eleventh Avenue. The independent auditor issued unqualified opinions on the financial statements and internal controls; management also reported effective controls.
Important facts for investors to verify
- Whether operating cash flow and FFO stabilize, given their declines despite higher GAAP net income and the contribution of sales and fair-value items.
- Progress on 2022 debt maturities and refinancing, including corporate, property-level and joint-venture obligations, and any effects on liquidity or borrowing costs.
- Leasing, occupancy and effective rent trends, especially the negative mark-to-market on replacement leases, Manhattan market vacancy, and near-term expirations.
- Credit performance and resolution of the HNA-related exposure, other watch-list investments, and the contested 1591–1597 Broadway title claim.
- Actual 2022 development and capital spending, project delivery timelines, and compliance costs under Local Law 97.
- The cash-versus-stock composition and per-share effects of the January 2022 dividend and reverse split; share figures in the filing have been retroactively adjusted.