SL Green Realty Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. SL Green is a REIT focused primarily on office properties in Manhattan and the New York metropolitan area. The company operates through SL Green Operating Partnership, L.P.; their consolidated financial results are substantially the same.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Prior comparable period |
|---|---|---|
| Total revenue | $223.6 million | $188.0 million |
| Rental revenue | $195.0 million | $156.0 million |
| Net income (loss) | $(38.4) million | $13.5 million |
| Net income (loss) attributable to common stockholders | $(39.7) million; $(0.63) per diluted share | $7.8 million; $0.11 per diluted share |
| Funds from Operations (FFO), attributable to common stockholders and unit holders | $105.5 million | $115.8 million |
| Cash flow from operations | $42.3 million | $81.4 million |
| Cash, cash equivalents and restricted cash | $357.3 million | $307.3 million at March 31, 2022 |
| Total assets / liabilities | $12.34 billion / $7.36 billion | Assets $12.36 billion / liabilities $7.26 billion at Dec. 31, 2022 |
| Consolidated debt | $5.60 billion; 4.41% weighted-average interest rate | $5.54 billion; 3.55% at Dec. 31, 2022 |
Liquidity was reported at approximately $0.9 billion: $760 million of undrawn revolving-credit capacity and $169.2 million of consolidated cash and marketable securities. This excludes $151.3 million representing SL Green’s share of cash at unconsolidated joint ventures. The company reported $42.3 million of operating cash flow, used $66.4 million in investing activities and used $2.8 million in financing activities.
Material changes and operating results
- Revenue rose 19%, primarily reflecting the 2022 acquisition of 245 Park Avenue and higher other income, including Summit One Vanderbilt operations and lease-termination income. Investment income fell 54%, reflecting a lower average investment balance and yield.
- The company swung to a GAAP net loss. Interest expense and deferred-financing-cost amortization rose to $43.7 million from $17.0 million, while depreciation and amortization increased to $78.5 million from $47.0 million. The filing attributes much of the increase to higher rates, increased debt balances and 245 Park Avenue.
- Operating cash flow declined to $42.3 million from $81.4 million. FFO also declined, to $105.5 million from $115.8 million.
- Manhattan office leased occupancy was 89.6%; suburban office occupancy was 78.8%. The company reported 481,227 square feet of commenced leases, including early renewals, at average initial rent of $68.65 per rentable square foot.
- Consolidated debt was 89.5% fixed-rate or variable-rate debt hedged to fixed rates; net variable-rate exposure after related investments was 8.0% of total debt. A 100-basis-point rate increase was estimated to raise annual consolidated interest cost, net of relevant investment income, by $4.1 million and SL Green’s share of joint-venture interest cost by $6.7 million.
Outlook, risks and unusual items
- No specific earnings or FFO guidance is provided in the supplied filing text. Management expects to fund liquidity needs from operating cash flow, cash, asset or investment dispositions, credit facilities and other financing, while cautioning that capital may not be available on efficient terms or at all.
- For the remainder of 2023, management estimated $63.7 million of recurring capital expenditures and $94.5 million of development or redevelopment spending on consolidated properties, plus $204.5 million as its share of joint-venture capital expenditures. Portions are expected to be funded by construction facilities or loan reserves.
- Significant debt maturities and refinancing needs remain, including $1.64 billion of combined company and joint-venture maturities remaining in 2023 and $2.17 billion in 2024, as presented in the company’s maturity schedule. Management said liquidity and potential refinancing should support obligations, subject to access to those sources. The company reported compliance with its debt covenants at March 31, 2023.
- Several joint-venture loans were in maturity default as of the filing, including 717 Fifth Avenue, 650 Fifth Avenue and 11 West 34th Street. Subsequent to quarter-end, the 919 Third Avenue joint venture refinanced its $500 million mortgage, and the 1552 Broadway loan maturity was extended to February 2024.
- Credit risks include non-accrual/defaulted debt investments. The company recorded a $6.9 million loan-loss provision in Q1 and reported a $13.5 million total allowance at quarter-end. Certain loans remained on non-accrual, with borrower discussions ongoing.
- In April 2023, a ground-rent appraisal for the 625 Madison Avenue leasehold reset annual rent from $4.61 million to $20.25 million, effective July 1, 2022. After strategic review, management said it intends to write down the leasehold investment to zero in Q2 2023.
- Principal risks include New York office demand and vacancies, tenant and borrower credit, interest rates and refinancing access, development costs, joint-venture obligations, insurance availability and REIT qualification. Management reported no material litigation and no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Progress and terms of upcoming corporate and joint-venture debt maturities, including the resolution of loans in maturity default.
- The expected timing and financial impact of the planned 625 Madison Avenue write-down.
- Performance, collection status and reserve adequacy for non-accrual or defaulted debt investments.
- Office leasing, occupancy, tenant demand and cash flow trends, including whether revenue growth translates into improved operating cash flow and FFO.
- Actual capital spending versus management’s estimates, and availability of refinancing or other liquidity sources.