SL Green Realty Corp. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. SL Green is a New York Metropolitan-area REIT; its portfolio was 31.8 million square feet across 99 consolidated and unconsolidated properties, with weighted average occupancy of 90.4%. The filing combines SL Green Realty Corp. and its operating partnership, which are managed and operated as one entity.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $374.6 million | $416.7 million | $1,150.1 million | $1,489.7 million |
| Net income attributable to SL Green common stockholders | $38.9 million | $34.3 million | $58.4 million | $190.9 million |
| Common-stock EPS | $0.40 | $0.34 | $0.59 | $1.91 |
| Net cash from operating activities | — | $416.6 million | $508.8 million |
Q3 same-store operating income increased 8.9% to $174.2 million; nine-month same-store operating income rose 4.0% to $529.5 million. Q3 dividends were $0.775 per share; nine-month declared dividends were $2.325 per share.
At September 30, total assets were $15.11 billion and total liabilities $7.15 billion. Cash and cash equivalents were $241.5 million; marketable securities were $28.8 million. Consolidated debt was $6.48 billion, 79.6% fixed-rate and 20.4% variable-rate, with a 4.02% effective rate and 4.72-year weighted average maturity. The company reported $1.2 billion of undrawn capacity under its credit facility and $80.8 million of outstanding letters of credit. Debt represented 47.1% of combined market capitalization, including the company’s share of joint-venture debt.
Material changes versus comparable periods
- Revenue fell 10.1% in Q3 and 22.8% year to date. Rental revenue was pressured by property dispositions and deconsolidations, partly offset by same-store growth. Investment income fell year over year, in part because Q3 2016 included $41.0 million from a debt-investment recapitalization.
- Q3 common-stockholder net income and EPS increased from the prior year. For the nine-month period, net income fell substantially, chiefly reflecting the prior-year $206.5 million gain on the 388-390 Greenwich Street sale, lower gains on dispositions, and $85.3 million of 2017 real-estate reserves.
- Operating cash flow declined by $92.2 million year over year. Investing cash flow was a $101.0 million use, versus $2.41 billion provided in 2016, when disposition proceeds were much higher. Financing used $353.5 million; it included $350.0 million of common-stock repurchases.
- Same-store rental revenue increased 8.9% in Q3 and 4.8% year to date. The company cited leasing and recovery trends, including prior-period Aeropostale-related write-offs at 1515 Broadway.
Outlook, management commentary, risks and unusual items
- Management expected positive operating cash flow and intended to continue regular quarterly dividends. It estimated remaining-2017 recurring capital expenditures of $66.9 million, development/redevelopment expenditures of $14.6 million, and its share of joint-venture capital expenditures of $109.5 million.
- Management identified operating cash flow, cash, credit facilities, secured or unsecured financing, asset dispositions, investment repayments and potential equity or debt offerings as liquidity sources. It cautioned that market financing may not be available on efficient terms or at all.
- Two properties, 16 Court Street and 125 Chubb Avenue, were held for sale at quarter-end; both sales closed in October 2017. The company recorded $85.3 million of nine-month depreciable real-estate reserves relating to 125 Chubb Avenue, Stamford Towers and 520 White Plains Road.
- A $250 million mortgage/junior-mortgage investment acquired in maturity default was placed on non-accrual in August after the company concluded full repayment was uncertain. The company initiated foreclosure proceedings and stated it believed collateral value was sufficient to recover carrying value. No impairment was recorded. No financing receivables were 90 days past due at quarter-end.
- After quarter-end, holders exchanged the $269 million principal of notes due October 2017; the company repaid $350.8 million, excluding accrued interest. In October, it also issued $100 million of 4.50% notes due 2022 and $500 million of 3.25% notes due 2022.
- Principal risks include New York-area market concentration, tenant or borrower credit, vacancies and sublease supply, development costs and delays, access to capital, interest-rate changes, debt covenants, joint-venture obligations, REIT qualification, and insurance or catastrophic-loss exposure. Management reported covenant compliance and no material litigation; it reported no material change to previously disclosed risk factors.
Investor verification priorities
- Review the $85.3 million real-estate reserve, its property-level assumptions and any subsequent changes in asset values.
- Track collection, collateral recovery and foreclosure progress for the $250 million non-accrual loan, including any cash receipts after quarter-end.
- Assess refinancing and liquidity after the $350.8 million October note repayment, including subsequent note issuance and remaining credit-facility availability.
- Verify leasing, occupancy and rent trends, particularly the difference between Manhattan and suburban properties and the effect of dispositions on reported revenue.
- Evaluate dividend coverage, capital spending needs, repurchases and joint-venture debt exposure alongside operating cash flow.