SL Green Realty Corp. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. SL Green is a REIT focused primarily on New York metropolitan-area real estate. The Company and its operating partnership are managed and reported as one consolidated business.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $249.8 million | $313.6 million | $817.8 million | $930.9 million |
| Net income | $20.7 million | $40.7 million | $214.4 million | $267.2 million |
| Net income attributable to common stockholders | $13.9 million | $33.2 million | $185.1 million | $238.1 million |
| Diluted EPS | $0.19 | $0.40 | $2.44 | $2.87 |
| FFO attributable to common stockholders | $135.5 million | $151.4 million | $443.6 million | $458.1 million |
- Q3 revenue declined 20.3% year over year and net income declined 49.1%; for the nine-month period, revenue fell 12.1% and net income fell 19.8%.
- Rental revenue was $195.5 million in Q3, down 21.2%. Investment income was $23.0 million, down from $51.5 million, reflecting a smaller debt and preferred-equity portfolio and lower yields.
- Q3 net income included $26.1 million of real estate sale gains, while the quarter also included $9.0 million of loan and investment reserves and $6.6 million of real estate reserves and impairment.
- Operating cash flow was $327.9 million for the first nine months, compared with $299.4 million a year earlier. Investing activities provided $375.0 million, versus $240.9 million used in 2019; financing activities used $639.9 million, versus $121.1 million used.
- Cash, cash equivalents and restricted cash totaled $304.4 million at September 30. Management reported $1.6 billion of liquidity, including $1.3 billion of revolving-credit availability and approximately $0.2 billion of consolidated cash and marketable securities.
- Consolidated debt was $5.47 billion. The effective interest rate was 2.91%; 61.1% of debt was fixed-rate, and the weighted-average debt maturity was 3.09 years. The company reported $1.3 billion of undrawn capacity under its credit facility and compliance with debt covenants.
Business and material developments
- The portfolio comprised 72 properties totaling approximately 30.3 million square feet, including unconsolidated joint ventures. Weighted-average occupancy was 92.7% for commercial properties and 91.9% for the total portfolio.
- Revenue comparisons reflected property dispositions, Credit Suisse’s early lease termination at One Madison Avenue ahead of redevelopment, increased vacancy at 625 Madison Avenue, and lower same-store revenue partly due to tenant receivable and straight-line rent reserves.
- Depreciation and amortization rose, primarily because of accelerated depreciation at One Madison Avenue related to redevelopment. Interest expense declined with lower LIBOR, debt repayments and capitalized redevelopment interest.
- For the first nine months, property sales generated $163.6 million of reported gains. The company sold 315 West 33rd Street, 609 Fifth Avenue retail condominium and 400 East 58th Street; it also recognized a gain associated with the 126 Nassau Street venture/sublease transaction.
- Adoption of the expected-credit-loss standard on January 1, 2020 reduced retained earnings by $39.2 million. Loan and other investment reserves were $27.0 million for the nine-month period.
Outlook, risks and contingencies
- Management warned that COVID-19 could materially adversely affect operating results, liquidity, cash flows and prospects, with the duration and severity uncertain. As of the filing, the company had collected 92.7% of Q3 gross tenant billings overall (96.9% office; 70.2% retail) and 93.0% of October billings (96.4% office; 72.6% retail).
- For the remainder of 2020, management estimated $22.9 million of recurring capital expenditures and $71.5 million of consolidated development/redevelopment expenditures; its share of joint-venture capital expenditures was estimated at $140.3 million. These estimates include expected construction-facility funding.
- In October, the company and its partners contracted to sell interests in 410 Tenth Avenue for gross consideration of $952.5 million. SL Green owned 70.9% of the venture; the venture is to retain a 5% interest through redevelopment completion. Closing was expected in Q4 2020, subject to conditions.
- Two debt/preferred-equity investments with a combined carrying value, net of reserves, of $25.3 million were exceptions to the otherwise-performing portfolio; one was in default and non-accrual and the company was discussing resolution with the borrower. A separate property loan matured in August and remained under lender discussions.
- Management reported no material litigation and no material changes to previously disclosed risk factors apart from COVID-19. Principal risks include NYC market concentration, tenant and borrower credit, office and retail demand, development execution and costs, refinancing and interest-rate exposure, joint-venture obligations, covenant compliance and insurance availability.
Investor facts to verify
- Tenant collections, rent concessions, receivable reserves and retail tenant credit as pandemic conditions evolve.
- Leasing, occupancy and renewal trends, including vacancy at One Madison Avenue and 625 Madison Avenue and the effect of redevelopment.
- Whether the 410 Tenth Avenue transaction closed on the expected terms and timing, and the resulting net proceeds and retained exposure.
- Debt maturities and refinancing plans, available revolver capacity, covenant headroom, and the status of the matured or defaulted loans disclosed.
- Capital requirements and funding for consolidated and joint-venture development, redevelopment and tenant improvements.
- Underlying recurring operating performance: reported earnings and FFO include significant property-sale gains and other unusual items; FFO is a non-GAAP measure and is not cash flow available for distributions.