Business context and reporting period
SL Green Realty Corp. and its operating partnership reported unaudited results for the quarter and six months ended June 30, 2021. SL Green is a REIT focused primarily on owning, operating, developing and financing commercial real estate in the New York metropolitan area. At quarter-end, its portfolio comprised 60 properties totaling approximately 28.0 million square feet; portfolio occupancy was 92.0% overall and 92.6% for commercial properties. Figures below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $218.1 million | $253.7 million | $444.2 million | $568.0 million |
| Net income | $117.1 million | $66.6 million | $113.3 million | $193.7 million |
| Net income attributable to common stockholders | $105.3 million | $56.4 million | $97.9 million | $171.2 million |
| Diluted EPS | $1.51 | $0.76 | $1.40 | $2.28 |
| FFO attributable to common stockholders | $117.7 million | $136.1 million | $246.0 million | $308.1 million |
| Cash from operations | — | $103.3 million | $224.3 million |
At June 30, 2021, total assets were $11.17 billion and total liabilities were $5.80 billion. Consolidated debt was approximately $4.73 billion; 83.2% was fixed-rate, and the effective interest rate was 2.80%. Management reported a 2.48-year weighted-average debt maturity. The company had $1.8 billion of liquidity, including $1.5 billion of undrawn revolving-credit capacity and approximately $0.3 billion of consolidated cash and marketable securities. This liquidity excludes its $395.5 million share of cash at unconsolidated joint ventures. Its share of joint-venture debt was $5.56 billion and is not included in consolidated debt.
Material changes versus comparable periods
- Second-quarter revenue fell 14.0%; first-half revenue fell 21.8%. Rental revenue declined 5.8% in Q2 and 10.9% in the first half. Investment income fell about 50% in both comparisons, reflecting lower average investment balances and yields.
- Q2 net income increased 75.8%, largely alongside a $99.0 million real-estate sale gain, including $99.4 million from 635-641 Sixth Avenue. First-half net income declined 41.5%; real-estate sale gains were $97.6 million versus $137.5 million a year earlier.
- FFO declined 13.5% in Q2 and 20.2% in the first half. Operating cash flow fell to $103.3 million from $224.3 million in the first half.
- Consolidated debt decreased from $4.96 billion at year-end 2020 to $4.73 billion. Variable-rate debt’s share fell to 16.8% from 36.8%; after variable-rate investments, net exposure was 11.0% of total debt versus 32.1%.
- Investing activities provided $641.5 million in first-half cash, including $417.5 million of distributions from joint ventures and $398.2 million of property and joint-venture disposition proceeds. Financing activities used $801.1 million, including $178.7 million of common-stock repurchases and $138.4 million of common and preferred dividends.
Outlook, commentary, risks and unusual items
- Management estimated remaining-2021 capital spending of $57.1 million for recurring work and $91.0 million for consolidated development and redevelopment. Its share of joint-venture capital spending was estimated at $162.8 million. Funding was expected from operating cash flow, liquidity and construction financing.
- Management said liquidity, potential asset sales and refinancing opportunities were expected to support debt obligations, but noted that access to capital on efficient terms is not assured. No earnings or revenue guidance was provided in the supplied filing text.
- Management highlighted continuing COVID-19 uncertainty, including the pandemic’s duration, variants, vaccination and the pace of economic recovery. Other risks include New York office demand and vacancy, tenant and borrower credit, development costs and delays, interest rates, capital availability, covenant compliance, joint-venture funding, REIT qualification and insurance coverage.
- In July 2021, the company sold a 49% joint-venture interest in 220 East 42nd Street for gross consideration of $790.1 million, based on a gross asset valuation of $783.5 million, and retained 51%. The property was not classified as held for sale at June 30.
- Credit and valuation items included debt investments on non-accrual or in default; one non-accrual debt investment had a $225.4 million carrying value. The company reported a $5.7 million first-half depreciable real-estate reserve and impairment charge, primarily related to 400 East 57th Street. The filing reported no material litigation and no material changes to previously disclosed risk factors.
- The January special dividend was paid partly in stock, followed by a 1.02918-for-1 reverse stock split. Share and per-share data in the filing were retrospectively adjusted.
Important facts for investors to verify
- How much reported earnings and FFO depend on property-sale gains, and how recurring leasing and investment income are trending.
- Whether occupancy, leasing spreads and tenant demand improve, particularly given lower first-half same-store rental revenue and office-market risks.
- The repayment or refinancing plans for near-term obligations, including $350 million of senior notes due in August 2021 and scheduled 2022 maturities.
- Performance, collateral and recovery prospects for non-accrual or defaulted loans, alongside the watch-list share of the $1.07 billion debt and preferred-equity portfolio.
- Whether projected capital spending, joint-venture funding and distributions can be supported without materially reducing liquidity or increasing leverage.
- That consolidated debt and the company’s share of unconsolidated joint-venture debt are assessed separately when evaluating total economic leverage.