SL Green Realty Corp. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. SL Green is a self-managed REIT focused primarily on New York metropolitan-area real estate; its operating partnership holds substantially all assets and conducts operations. Figures below are for the consolidated company unless stated otherwise.
Financial performance and position
- Q2 revenue: $398.2 million, down 35.5% from $617.6 million. Rental revenue was $279.4 million, down 33.0%; investment income rose to $60.6 million from $44.2 million.
- Q2 earnings: Net income attributable to common stockholders was $8.2 million, or $0.08 per diluted share, versus $133.5 million, or $1.33, a year earlier. For the first half, common-stockholder net income was $19.6 million ($0.19 diluted EPS) versus $156.7 million ($1.56).
- Operating trends: Same-store operating income increased 0.9% in Q2 and 1.7% for the first half. Portfolio occupancy was 90.0% overall; Manhattan office occupancy was 93.1%.
- Cash flow: First-half operating cash flow was $313.7 million, compared with $373.4 million. Investing used $263.8 million, versus $2.13 billion provided in 2016, when asset-sale proceeds were much larger. Financing used $58.4 million. Cash and cash equivalents ended at $271.0 million.
- Assets and liquidity: Total assets were $15.31 billion at June 30, down from $15.86 billion at year-end 2016. Cash plus marketable securities was approximately $300.5 million. The $1.6 billion revolving facility had $200 million drawn, $80.8 million of letters of credit, and $1.3 billion of undrawn capacity.
- Debt: Reported consolidated debt was $6.43 billion; 80.7% was fixed-rate and the weighted-average maturity was 5.0 years. Including the company’s share of joint-venture debt, scheduled aggregate principal maturities were $9.36 billion. Management reported compliance with debt covenants.
- Investments and distributions: Debt and preferred-equity investments totaled $1.99 billion, with a 9.73% weighted-average current yield for debt investments. The quarterly common dividend was $0.775 per share; management said it intended to continue regular quarterly dividends and cited a current annual rate of $3.10.
Material changes and unusual items
- Lower reported revenue and earnings primarily reflect prior property sales and deconsolidations, including 388-390 Greenwich Street and a partial interest in 11 Madison Avenue. The 2016 comparison also included a $94.0 million lease termination fee and substantial property-sale gains.
- First-half 2017 included $85.3 million of depreciable real-estate reserves, principally for 125 Chubb Avenue, Stamford Towers, and 520 White Plains Road. The two former properties were classified as held for sale; the Stamford Towers sale closed in July.
- Q2 recognized a $13.0 million deferred gain related to the 2014 sale of 747 Madison Avenue, alongside a $8.8 million loss recognized on the 885 Third Avenue sale and a $4.9 million gain on 102 Greene Street.
- Same-store rental revenue grew, while consolidated rental revenue fell because of dispositions. First-half capital expenditures for land, buildings, and improvements were $165.3 million.
- The company repurchased approximately 2.45 million shares during Q2 at an average $103.41 per share; $746.8 million remained available under its $1.0 billion authorization at quarter-end.
Outlook, risks, and contingencies
- No quantified earnings or FFO guidance is provided in the supplied filing text. Management expected positive operating cash flow and identified cash, operations, credit facilities, financing, asset sales, and potential securities issuance as liquidity sources.
- For the remainder of 2017, management estimated $28.2 million of recurring and $130.2 million of development/redevelopment spending on consolidated properties, plus $211.8 million as its share of joint-venture capital expenditures. Funding was expected from operations, liquidity, or additional borrowing.
- Interest-rate exposure, refinancing and capital availability, New York-area office demand and occupancy, tenant/borrower credit, development costs, joint-venture obligations, REIT qualification, and insurance availability are identified risks. A 100-basis-point rate increase was estimated to raise annual consolidated net interest cost by $0.1 million and the company’s share of joint-venture interest cost by $15.1 million.
- Management reported no material litigation or material environmental liability known to it. It cautioned that captive-insurer coverage is a form of self-insurance and catastrophe losses may exceed coverage. Disclosure controls were assessed as effective; no significant internal-control changes were reported.
Important facts for investors to verify
- How much of the earnings decline reflects portfolio changes and prior-year one-time items versus underlying property operations; review same-store results alongside GAAP earnings.
- Whether the stated property reserves and held-for-sale valuations prove adequate, and the final proceeds and accounting for asset dispositions.
- The maturity and refinancing plan for near-term corporate, property, and joint-venture debt, including the 2017 exchangeable notes and floating-rate exposure.
- Whether debt-investment yields, repayments, borrower performance, and the large joint-venture investment base sustain cash generation.
- Whether planned capital spending, share repurchases, and dividends remain supported by operating cash flow and available liquidity.