SL Green Realty Corp. 2013 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2013, filed jointly for SL Green Realty Corp. and its operating partnership. SL Green is a self-managed REIT focused primarily on Manhattan commercial real estate, with suburban and West Coast properties, retail, residential, development, and debt and preferred equity investments. At year-end, its office portfolio covered 28.5 million square feet and was 92.5% occupied. Manhattan occupancy was materially higher than suburban occupancy: 94.5% for consolidated Manhattan offices and 79.8% for consolidated suburban offices.
Financial and operating highlights
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $1.469 billion | $1.383 billion | +6.2% |
| Net income attributable to common stockholders | $101.3 million | $156.0 million | -35.0% |
| Diluted earnings per share | $1.10 | $1.74 | Down |
| Funds from operations (FFO), available to all stockholders | $491.6 million | $490.3 million | +0.3% |
| Same-store NOI | $657.0 million | $654.3 million | +0.4% |
| Cash from operating activities | $386.2 million | $346.8 million | +11.4% |
| Cash and cash equivalents at year-end | $206.7 million | $190.0 million | +$16.7 million |
| Consolidated debt | $6.920 billion | $6.520 billion | +$399.5 million |
| Common dividends declared per share | $1.49 | $1.08 | +38.0% |
- Revenue growth included investment income of $193.8 million, up from $119.2 million, primarily reflecting higher average investment balances and yields. The weighted-average investment balance and yield were $1.3 billion and 11.2%, respectively, versus $1.1 billion and 9.8% in 2012.
- Net income fell despite higher revenue; key year-over-year factors included lower equity income and gains from unconsolidated joint ventures and an $18.5 million loss on early debt extinguishment. The 2012 comparison also included a $498.2 million purchase-price fair-value adjustment, while 2013 included a negative $2.3 million adjustment.
- Net cash used in investing activities was $628.4 million, compared with $1.163 billion in 2012. Capital expenditures rose to $196.6 million from $148.1 million, principally due to redevelopment and leasing costs.
- At year-end, 80.9% of consolidated debt was fixed-rate; the effective interest rate was 4.81%, versus 5.08% in 2012. Total assets were $15.0 billion and total equity was $7.0 billion.
- Management reported approximately $238.7 million of consolidated cash and marketable securities and about $0.9 billion of undrawn capacity under the $1.6 billion credit facility. Consolidated debt-to-market capitalization, including the company’s share of joint venture debt, was 49.4%.
Material changes versus the prior comparable period
- Portfolio occupancy increased to 92.5% from 91.8%. Manhattan same-store occupancy, based on leases signed, rose to 96.6% from 95.1%; suburban consolidated occupancy remained comparatively weak.
- Same-store NOI improved modestly, up 0.4%. Same-store property operating expenses increased 3.3%, faster than same-store revenue growth of 1.5%.
- SL Green acquired properties and interests, including a 315 West 33rd Street mixed-use property and a Fifth Avenue retail assemblage, and consolidated 16 Court Street. It also sold properties and joint venture interests, including 333 West 34th Street and 300 Main Street.
- The company issued 2.6 million common shares for net proceeds of $248.9 million and raised a further $41.8 million net through its at-the-market program. It redeemed the remaining $192.5 million of Series C preferred stock, recording $12.2 million of redemption costs.
- Common dividends increased during the year; the fourth-quarter declared dividend was $0.50 per share, compared with $0.33 in the fourth quarter of 2012.
Outlook, commentary, risks and unusual items
- Management described New York City commercial real estate conditions as strengthening and cited improved Manhattan occupancy and positive leasing mark-to-market. Manhattan leases signed in 2013 that replaced occupied space had a 9.5% mark-to-market, based on management’s estimates.
- Management expected positive operating cash flow and said available liquidity and refinancing opportunities were expected to support near-term obligations. For 2014, it estimated recurring capital expenditures of $159.2 million and development expenditures of $95.5 million on consolidated properties; its share of joint venture capital expenditures was estimated at $206.1 million.
- Management intended to continue regular quarterly dividends, subject to earnings, liquidity, capital needs, debt maturities, REIT requirements and board discretion. The filing gives no formal earnings or FFO guidance.
- Combined 2014 principal maturities, including the company’s share of joint venture debt and extension options, were approximately $755.5 million. Management intended to extend, repay or refinance maturities. The 2012 credit facility had $0.9 billion of undrawn capacity and matures in 2017, with extension options; its term-loan component matures in 2018.
- Risks include dependence on the New York office market, tenant and property concentration, lease rollover, refinancing and interest-rate exposure, joint venture obligations, development risk, and reliance on external capital. Six properties represented approximately 37% of portfolio annualized cash rent; three tenants represented 7.5%, 6.6% and 6.1%, respectively.
- Approximately 35.1% of rentable area at consolidated properties and 49.4% at unconsolidated properties was scheduled to expire by the end of 2018. Related annualized escalated rent was $373.1 million and $106.7 million, respectively.
- In December 2013, SL Green’s joint venture extended Citigroup’s 2.63-million-square-foot triple-net lease at 388-390 Greenwich Street through 2035. Citigroup has an option to buy the properties for $2.0 billion during a specified period from December 2017 through December 2020.
- Financial statements were restated to present properties sold as discontinued operations in all periods shown; the filing says the reclassifications did not affect reported net income or FFO. Auditors issued unqualified opinions on the financial statements and internal controls.
- Unusual items include the $18.5 million early-extinguishment loss, preferred-stock redemption costs, property-sale gains, and the $2.2 million impairment charge on 300 Main Street. The filing reported no material litigation and no additional loan-loss reserves in 2013; year-end credit-loss reserves were $1.0 million.
Important facts for investors to verify
- Review the FFO-to-GAAP reconciliation and distinguish recurring property performance from joint venture gains, asset-sale gains, fair-value adjustments and financing costs.
- Confirm the maturity and refinancing plan for 2014 obligations, including joint venture debt, and assess covenant headroom and access to the undrawn credit facility.
- Track lease expirations, tenant renewals and leasing costs, especially the significant suburban rollover and the 2014 Manhattan expirations.
- Assess exposure to major tenants and properties, including the terms and purchase option attached to Citigroup’s extended lease.
- Reconcile the filing’s interest-rate sensitivity disclosures: one section estimates a 100-basis-point increase would add $7.5 million to annual net interest costs plus $8.5 million for the company’s share of joint ventures; another cites $12.8 million and $8.5 million, respectively.
- Review liquidity and capital needs alongside the dividend policy, planned capital expenditures, preferred obligations, and potential dilution from equity issuance.