SL Green Realty Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. SL Green is a self-managed REIT focused primarily on owning, operating, developing and financing commercial real estate in the New York metropolitan area, principally Manhattan. The filing combines SL Green Realty Corp. and its operating partnership; their consolidated financial results are substantially the same.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $187.9 million | $245.8 million |
| Net income (loss) | $18.4 million | $(38.4) million |
| Net income (loss) attributable to common stockholders | $13.1 million; $0.20 per diluted share | $(39.7) million; $(0.63) per diluted share |
| Cash from operating activities | $(24.7) million | $42.3 million |
| Funds from Operations (FFO), attributable to common stockholders and unit holders | $215.4 million | $105.5 million |
The filing does not present a single consolidated operating-margin measure. FFO is a non-GAAP measure and is not a substitute for GAAP income or operating cash flow.
Balance sheet, debt and liquidity
- At March 31, total assets were $9.76 billion and total liabilities were $5.52 billion. Unrestricted cash and cash equivalents were $196.0 million; restricted cash was $122.5 million.
- Consolidated debt was $3.80 billion, up from $3.51 billion at December 31, 2023. The effective interest rate was 5.19%; 20.0% of consolidated debt was variable-rate before considering variable-rate investments. Including those investments, net variable-rate exposure was 16.2% of debt.
- SL Green’s share of unconsolidated joint-venture debt was $7.09 billion. This is separate from consolidated debt. Consolidated debt had a weighted-average remaining term of 2.30 years.
- Management reported $0.8 billion of liquidity: $600 million of undrawn revolving-credit capacity and $206.7 million of consolidated cash on hand, including marketable securities. This measure excludes $124.3 million representing SL Green’s share of joint-venture cash.
- The company declared a quarterly common dividend of $0.75 per share, compared with $0.812 per share in Q1 2023.
Material changes versus Q1 2023
- Revenue declined 23.6%, mainly because the 2023 deconsolidation of 245 Park Avenue reduced reported rental revenue. Same-store rental revenue fell 5.6%, primarily due to increased vacancy at 555 West 57th Street.
- Manhattan office leased occupancy was 88.6% at quarter-end; overall commercial portfolio occupancy was 88.0%. Q1 commenced leases totaled approximately 393,600 rentable square feet, at average initial rent of $69.74 per rentable square foot and tenant improvements/leasing costs of $52.96 per rentable square foot.
- Net income improved from a loss to income, but included material, non-recurring and valuation-related items. Equity income from unconsolidated joint ventures was $111.2 million, including a $141.7 million gain at 2 Herald Square from discounted debt extinguishment. SL Green also recorded a $26.8 million gain on its sale of an interest in 717 Fifth Avenue.
- Those items were partly offset by $52.1 million of depreciable real estate reserves and impairments and a $50.5 million negative purchase-price and fair-value adjustment. The latter included a $55.7 million negative adjustment upon consolidating 10 East 53rd Street.
- Operating cash flow moved from positive $42.3 million to negative $24.7 million. The filing cites working-capital movements, including a $50.0 million outflow from accounts payable, accrued expenses, other liabilities and security deposits.
- Interest expense, net of interest income, was lower at $31.2 million versus $41.7 million, reflecting, among other factors, the 245 Park deconsolidation. However, the consolidated weighted-average interest rate rose to 5.19% from 4.41% in the period’s results discussion.
Outlook, risks and unusual items
- For the remainder of 2024, management estimated $50.2 million of leasing capital expenditures, $14.1 million of recurring capital expenditures and $63.8 million of development or redevelopment expenditures at consolidated properties. SL Green’s expected share of joint-venture capital expenditures was $163.8 million, of which $120.4 million was expected to be funded by construction facilities or loan reserves.
- Management expects liquidity sources to include operating cash flow, cash, asset and investment dispositions or repayments, revolving-credit borrowings and other financing. It believes these sources and potential refinancings can meet obligations, but notes that access to capital at efficient terms is not assured.
- Near-term refinancing and extension risks include 2024 maturities and joint-venture loans. Two joint-venture loans were past maturity and in discussions with lenders; a loan on 100 Park Avenue was extended in April 2024, and the 280 Park Avenue loan was modified and extended after quarter-end.
- Two alternative-strategy debt investments, with total carrying value of $49.8 million, were not performing according to their terms. One other investment was on non-accrual and fully reserved; the borrower on another defaulted loan remained in discussions with the company.
- After quarter-end, SL Green agreed to sell 719 Seventh Avenue for $30.5 million. The company recorded a $46.3 million impairment in Q1 to reduce the property’s carrying value to the contracted price; it expects to repay the existing $50 million mortgage for $32 million in connection with the sale. The sale is subject to customary conditions.
- Palisades Premier Conference Center was classified as held for sale for $26.3 million, with closing expected in Q2 2024. The company also recorded a $5.9 million impairment related to 625 Madison Avenue, which remained under contract for sale at quarter-end.
- Key risks include New York office-market demand and vacancy, tenant and borrower credit, interest rates and capital availability, refinancing needs, development costs, joint-venture obligations, insurance availability and maintaining REIT qualification. Management reported covenant compliance at quarter-end, effective disclosure controls and no material litigation or material changes to previously reported risk factors.
Important facts for investors to verify
- How much of reported earnings and FFO reflects recurring property operations versus the 2 Herald Square debt-extinguishment gain, 717 Fifth Avenue sale gain, impairments and fair-value adjustments.
- Leasing progress, vacancy and concessions—particularly at 555 West 57th Street—and whether signed leases translate into commenced occupancy and cash rent.
- Liquidity and refinancing plans for consolidated and joint-venture maturities, including status of past-maturity loans, extensions and required property-level capital.
- Completion and net proceeds of the 719 Seventh Avenue and Palisades Premier Conference Center sales, and the resolution of the 625 Madison Avenue sale contract.
- Cash-flow sustainability: Q1 operating cash flow was negative while the company declared a $0.75 quarterly dividend; assess recurring cash generation and planned capital spending against distributions and debt service.