SL Green Realty Corp. — Q1 2013 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2013, compared with the same period in 2012. SL Green is a REIT focused principally on owning, operating, leasing, acquiring and repositioning commercial real estate in the New York metropolitan area. Its portfolio included 67 office properties with approximately 29.7 million square feet and 91.6% weighted average occupancy, plus retail, residential, development and West Coast office investments. It also held $1.4 billion of debt and preferred equity investments.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total revenue | $370.0 million | $339.1 million; up 9.1% |
| Net income attributable to common stockholders | $18.9 million | $25.3 million |
| Basic and diluted EPS | $0.21 | $0.29 |
| Funds from Operations (FFO) | $109.2 million | $99.3 million; up 10.0% |
| Same-store NOI | $172.1 million | $169.8 million; up 1.4% |
| Net cash from operating activities | $102.5 million | $56.8 million |
| Cash and cash equivalents at quarter end | $220.1 million | $190.0 million at December 31, 2012 |
| Consolidated debt at quarter end | $6.68 billion | $6.52 billion at December 31, 2012 |
Rental revenue was $270.5 million, up 3.7%; investment and preferred equity income was $52.7 million, up 100.4%. Net income included a $18.5 million loss on early extinguishment of debt. Q1 2013 also included $12.9 million of additional income from selling half of an interest in a debt investment and a $1.1 million gain on a property sale. In Q1 2012, income included a $7.3 million gain on a joint-venture/real-estate interest sale and a $6.6 million gain on discontinued operations.
Net interest expense was $81.3 million, versus $80.1 million. Depreciation and amortization was $80.7 million, versus $77.1 million. The effective interest rate on consolidated debt was 4.86%; 87% of consolidated debt was fixed-rate, including hedged variable-rate debt. The company reported $23.0 million of marketable securities; cash plus securities totaled approximately $243.1 million. Its credit facility had $30.0 million drawn on the revolver, $400.0 million drawn on the term loan and approximately $91.9 million of letters of credit; the filing states $1.2 billion of undrawn capacity.
Material changes and operating trends
- Same-store rental and reimbursement revenue rose 2.5%, while same-store occupancy was 91.1%, compared with 91.3% a year earlier. Manhattan same-store occupancy improved to 93.9% from 93.5%; Suburban occupancy declined to 78.4% from 80.8%.
- Property operating expenses, real estate taxes and ground rent together increased 3.5% to $138.3 million, chiefly reflecting higher taxes and ground rent.
- Debt and preferred equity income benefited from a larger investment balance and the $12.9 million loan-interest item. The weighted-average investment balance was $1.4 billion, with a 10.6% yield, compared with $1.0 billion and 9.0% in Q1 2012. The portfolio’s weighted-average current yield was 11.1% for debt and 11.4% for preferred equity.
- Cash used in investing was $174.5 million, versus $294.2 million, including $48.5 million for real estate acquisitions and $65.6 million net investment in debt and preferred equity. Financing provided $102.1 million, versus $232.8 million; dividends and distributions paid were $38.6 million.
- In February, SL Green refinanced the 1515 Broadway mortgage with a $900 million, 12-year fixed-rate loan at 3.93%, recording the debt-extinguishment loss. In March, it acquired 84 residential units in Brooklyn for $54.9 million through a 90%-owned joint venture.
Outlook, risks and contingencies
The filing provides no formal earnings or FFO guidance. Management expected positive operating cash flow and stated it believed liquidity sources would be sufficient for capital needs over the next 12 months. It estimated approximately $141.0 million of capital expenditures during the remaining nine months of 2013 on consolidated properties and $26.8 million for its share of joint-venture expenditures. The company intended to continue regular quarterly dividends; at the then-current annual rate of $1.32 per share, common dividends would total approximately $120.9 million annually, subject to cash availability, operating needs and debt restrictions.
Consolidated debt maturities, including extension options, totaled approximately $573 million for the remainder of 2013; the company’s share of joint-venture debt added approximately $185 million due in 2013. Management noted that access to capital markets is not assured. A hypothetical 100-basis-point rate increase was estimated to raise annual interest costs by approximately $8.4 million for the company and $9.1 million for its share of joint ventures. Risks include concentration in the New York market, tenant and borrower credit, refinancing and capital availability, interest-rate changes, development costs, joint-venture obligations, REIT qualification and insurance availability or adequacy. Certain insurance policies expire in 2013, and federal terrorism-insurance legislation was scheduled to expire December 31, 2014. The company reported compliance with debt covenants, no material litigation known to management, and no material changes to previously disclosed risk factors. Management said disclosure controls were effective and reported no significant change in internal control over financial reporting.
Important facts for investors to verify
- Near-term debt maturities and refinancing progress, including joint-venture obligations and the September 2013 master repurchase facility maturity.
- Whether operating cash flow and available credit can fund planned capital expenditures, leasing costs, dividends and investment commitments.
- Occupancy and leasing performance, particularly Suburban properties and lease expirations; three tenants each represented approximately 6.0%–7.0% of the company’s share of annualized cash rent.
- Debt and preferred equity investment performance, collateral values, borrower payment status, and remaining funding commitments; the portfolio included a $7.0 million allowance against an impaired $10.75 million investment.
- Interest-rate exposure, insurance renewals and terrorism coverage, related-party transactions, and the extent to which reported income and FFO reflect nonrecurring items.