SL Green Realty Corp. (NYSE:SLG) Files An 8-K Other Events

SL Green Realty Corp. (NYSE:SLG) Files An 8-K Other Events
Item 8.01. Other Events

Third Quarter 2017 Results

Summary

On October19, 2017, SL Green Realty Corp., or the Company, reported net income attributable to common stockholders for the quarter ended September30, 2017 of $38.9 million, or $0.40 per share (diluted), as compared to net income attributable to common stockholders of $34.3 million, or $0.34 per share (diluted), for the same quarter in 2016. The Company also reported net income attributable to common stockholders for the nine months ended September30, 2017 of $58.4 million, or $0.59 per share (diluted), as compared to net income attributable to common stockholders of $190.9 million, or $1.90 per share (diluted), for the same period in 2016. Net income attributable to common stockholders for the nine months ended September30, 2017 includes $12.9 million, or $0.12 per share (diluted), of net gains recognized from the sale of real estate as compared to $254.3 million, or $2.43 per share (diluted), for the same period in 2016.

The Company reported funds from operations, or FFO, for the quarter ended September30, 2017 of $152.9 million, or $1.49 per share (diluted), as compared to FFO for the same period in 2016 of $171.6 million, or $1.63 per share (diluted). FFO for the third quarter of 2016 included $41.1 million, or $0.39 per share (diluted), of additional income related to the recapitalization of a debt investment offset by $19.6 million, or $0.19 per share (diluted), of lost income and accounting write-offs related to space previously leased to Aeropostale at 1515 Broadway. The Company also reported FFO for the nine months ended September30, 2017 of $505.6 million, or $4.85 per share (diluted), as compared to FFO for the same period in 2016 of $719.1 million, or $6.86 per share (diluted). FFO for the first nine months of 2016 included $207.6 million, or $1.98 per share (diluted), of income related to the sale of 388-390 Greenwich Street, which was closed in the second quarter of 2016.

For the quarter ended September30, 2017, the Company reported consolidated revenues and operating income of $374.6 million and $206.1 million, respectively, compared to $416.7 million and $232.8 million, respectively, for the same period in 2016.

Same-store cash NOI, including our share of same-store cash NOI from unconsolidated joint ventures, increased by 1.4% for the quarter ended September30, 2017, or 1.7% excluding lease termination income, as compared to the same period in 2016. For the quarter, consolidated property same-store cash NOI increased by 0.2% to $159.3 million, while unconsolidated joint venture property same-store cash NOI increased by 8.6% to $29.1 million in the third quarter 2017 as compared to the same period in 2016. Same-store cash NOI, including our share of same-store cash NOI from unconsolidated joint ventures, increased by 1.3% for the nine months ended September30, 2017, or 1.9% excluding lease termination income, as compared to the same period in 2016. For the nine months ended September30, 2017, consolidated property same-store cash NOI increased by 0.2% to $484.0 million, inclusive of the effect of expected tenant move-outs at 485 Lexington Avenue, 1515 Broadway and 220 E 42ndStreet, while unconsolidated joint venture property same-store cash NOI increased by 8.3% to $87.2 million in 2017 as compared to the same period in 2016.

In the third quarter, the Company signed 56 office leases in its Manhattan portfolio totaling 489,160 square feet. Forty-four leases comprising 314,212 square feet, representing office leases on space that had been occupied within the prior twelve months, are considered replacement leases on which mark-to-market is calculated. Those replacement leases had average starting rents of $70.97 per rentable square foot, representing a 4.0% increase over the previously fully escalated rents on the same office spaces. The average lease term on the Manhattan office leases signed in the third quarter was 7.0 years and average tenant concessions were 4.0 months of free rent with a tenant improvement allowance of $57.99 per rentable square foot.

During the first nine months of 2017, the Company signed 145 office leases in its Manhattan portfolio totaling 1,149,904 square feet. One hundred five leases comprising 692,257 square feet, representing office leases on space that had been occupied within the prior

twelve months, are considered replacement leases on which mark-to-market is calculated. Those replacement leases had average starting rents of $71.86 per rentable square foot, representing a 11.0% increase over the previously fully escalated rents on the same office spaces. The average lease term on the Manhattan office leases signed in the first nine months of 2017 was 8.3 years and average tenant concessions were 4.5 months of free rent with a tenant improvement allowance of $56.65 per rentable square foot.

Occupancy in the Company’s Manhattan same-store portfolio increased to 95.3% as of September30, 2017, inclusive of 571,442 square feet of leases signed but not yet commenced, as compared to 94.9% as of June30, 2017.

In the third quarter, the Company signed 20 office leases in its Suburban portfolio totaling 120,034 square feet. Eight leases comprising 45,241 square feet, representing office leases on space that had been occupied within the prior twelve months, are considered replacement leases on which mark-to-market is calculated. Those replacement leases had average starting rents of $34.47 per rentable square foot, representing a 3.7% decrease over the previously fully escalated rents on the same office spaces.The average lease term on the Suburban office leases signed in the third quarter was 6.6 years and average tenant concessions were 7.8 months of free rent with a tenant improvement allowance of $24.25 per rentable square foot.

During the first nine months of 2017, the Company signed 67 office leases in its Suburban portfolio totaling 425,872 square feet. Thirty-four leases comprising 188,712 square feet, representing office leases on space that had been occupied within the prior twelve months, are considered replacement leases on which mark-to-market is calculated. Those replacement leases had average starting rents of $33.20 per rentable square foot, representing a 2.5% increase over the previously fully escalated rents on the same office spaces. The average lease term on the Suburban office leases signed in the first nine months of 2017 was 6.7 years and average tenant concessions were 6.1 months of free rent with a tenant improvement allowance of $28.13 per rentable square foot.

Occupancy in the Company’s Suburban same-store portfolio increased to 86.8% as of September30, 2017, inclusive of 67,639 square feet of leases signed but not yet commenced, as compared to 85.5% as of June30, 2017.

Significant leases that were signed in the third quarter included:

(85,336

)

(10,387

)

Gain (loss) on sale of marketable securities

3,262

(83

)

Net income

45,795

43,343

62,734

224,941

Net income attributable to noncontrolling interests in the Operating Partnership

(1,812

)

(1,663

)

(2,707

)

(8,171

)

Net loss (income) attributable to noncontrolling interests in other partnerships

1,474

(836

)

18,179

(6,245

)

Preferred unit distributions

(2,850

)

(2,854

)

(8,551

)

(8,382

)

Net income attributable to SL Green

42,607

37,990

69,655

202,143

Perpetual preferred stock dividends

(3,738

)

(3,738

)

(11,213

)

(11,213

)

Net income attributable to SL Green common stockholders

$

38,869

$

34,252

$

58,442

$

190,930

Earnings Per Share (EPS)

Net income per share (Basic)

$

0.40

$

0.34

$

0.59

$

1.91

Net income per share (Diluted)

$

0.40

$

0.34

$

0.59

$

1.90

Funds From Operations (FFO)

FFO per share (Basic)

$

1.49

$

1.64

$

4.86

$

6.89

FFO per share (Diluted)

$

1.49

$

1.63

$

4.85

$

6.86

Basic ownership interest

Weighted average REIT common shares for net income per share

97,783

100,233

99,431

100,140

Weighted average partnership units held by noncontrolling interests

4,543

4,497

4,570

4,272

Basic weighted average shares and units outstanding

102,326

104,730

104,001

104,412

Diluted ownership interest

Weighted average REIT common share and common share equivalents

98,027

100,646

99,710

100,489

Weighted average partnership units held by noncontrolling interests

4,543

4,497

4,570

4,272

Diluted weighted average shares and units outstanding

102,570

105,143

104,280

104,761

SL GREEN REALTY CORP.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

September 30,

December31,

(Unaudited)

Assets

Commercial real estate properties, at cost:

Land and land interests

$

2,917,993

$

3,309,710

Building and improvements

7,468,436

7,948,852

Building leasehold and improvements

1,444,698

1,437,325

Properties under capital lease

47,445

47,445

11,878,572

12,743,332

Less accumulated depreciation

(2,457,071

)

(2,264,694

)

9,421,501

10,478,638

Assets held for sale

127,663

Cash and cash equivalents

241,489

279,443

Restricted cash

107,763

90,524

Investment in marketable securities

28,802

85,110

Tenant and other receivables, net of allowance of $18,365 and $16,592 in 2017 and 2016, respectively

54,663

53,772

Related party receivables

24,068

15,856

Deferred rents receivable, net of allowance of $21,257 and $25,203 in 2017 and 2016, respectively

393,793

442,179

Debt and preferred equity investments, net of discounts and deferred origination fees of $24,782 and $16,705 in 2017 and 2016, respectively

2,020,739

1,640,412

Investments in unconsolidated joint ventures

2,045,796

1,890,186

Deferred costs, net

247,981

267,600

Other assets

395,612

614,067

Total assets

$

15,109,870

$

15,857,787

Liabilities

Mortgages and other loans payable

$

3,845,061

$

4,140,712

Revolving credit facility

280,000

Unsecured term loan

1,183,000

1,183,000

Unsecured notes

1,068,562

1,133,957

Deferred financing costs, net

(52,667

)

(82,258

)

Total debt, net of deferred financing costs

6,323,956

6,375,411

Accrued interest payable

34,367

36,052

Other liabilities

96,818

212,493

Accounts payable and accrued expenses

144,767

190,583

Deferred revenue

252,779

217,955

Capitalized lease obligations

42,660

42,132

Deferred land leases payable

3,075

2,583

Dividend and distributions payable

85,007

87,271

Security deposits

68,465

66,504

Liabilities related to assets held for sale

1,141

Junior subordinate deferrable interest debentures held by trusts that issued trust preferred securities

100,000

100,000

Total liabilities

7,153,035

7,330,984

Commitments and contingencies

Noncontrolling interest in the Operating Partnership

470,898

473,882

Preferred units

301,885

302,010

Equity

Stockholders’ equity:

SeriesI Preferred Stock, $0.01 par value, $25.00 liquidation preference, 9,200 issued and outstanding at both September30, 2017 and December31, 2016

221,932

221,932

Common stock, $0.01 par value 160,000 shares authorized, 98,501 and 101,617 issued and outstanding at September30, 2017 and December31, 2016, respectively (including 1,055 held in Treasury at September30, 2017 and December31, 2016)

1,017

Additional paid-in capital

5,294,500

5,624,545

Treasury stock at cost

(124,049

)

(124,049

)

Accumulated other comprehensive income

14,185

22,137

Retained earnings

1,410,332

1,578,893

Total SL Green Realty Corp. stockholders’ equity

6,817,885

7,324,475

Noncontrolling interests in other partnerships

366,167

426,436

Total equity

7,184,052

7,750,911

Total liabilities and equity

$

15,109,870

$

15,857,787

SL GREEN REALTY CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(unaudited and in thousands, except per share data)

ThreeMonthsEnded

NineMonthsEnded

September30,

September30,

FundsFromOperations(FFO)Reconciliation:

Net income attributable to SL Green common stockholders

$

38,869

$

34,252

$

58,442

$

190,930

Add:

Depreciation and amortization

91,728

112,665

318,916

717,015

Joint venture depreciation and noncontrolling interest adjustments

23,517

23,349

72,936

42,191

Net income (loss) attributable to noncontrolling interests

2,499

(15,472

)

14,416

Less:

Gain (loss) on sale of real estate

(3,256

)

210,750

Equity in net gain on sale of interest in unconsolidated joint venture/real estate

1,030

16,166

43,588

Depreciable real estate reserve

(85,336

)

(10,387

)

Depreciation on non-rental real estate assets

1,636

1,505

FFO attributable to SL Green common stockholders and noncontrolling interests

$

152,865

$

171,634

$

505,612

$

719,096

ThreeMonthsEnded

NineMonthsEnded

September30,

September30,

OperatingincomeandSame-storeNOIReconciliation:

Net income

$

45,795

$

43,343

$

62,734

$

224,941

Equity in net gain on sale of interest in unconsolidated joint venture/real estate

(1,030

)

(225

)

(16,166

)

(43,588

)

(Gain) loss on sale of real estate, net

(397

)

3,256

(210,750

)

Depreciable real estate reserves

85,336

10,387

(Gain) loss on sale of marketable securities

(3,262

)

Depreciation and amortization

91,728

112,665

318,916

717,015

Interest expense, net of interest income

65,634

72,565

196,112

256,326

Amortization of deferred financing costs

4,008

4,815

12,201

20,180

Operating income

206,135

232,766

659,127

974,594

Equity in net (income) loss from unconsolidated joint ventures

(4,078

)

3,968

(14,104

)

(11,969

)

Marketing, general and administrative expense

23,963

25,458

72,362

73,974

Transaction related costs, net

2,593

5,987

Investment income

(47,820

)

(75,396

)

(148,741

)

(174,347

)

Non-building revenue

(2,704

)

(2,566

)

(19,259

)

(5,998

)

Net operating income (NOI)

175,682

186,823

549,750

862,241

Equity in net income (loss) from unconsolidated joint ventures

4,078

(3,968

)

14,104

11,969

SLG share of unconsolidated JV depreciation and amortization

28,819

23,515

91,320

53,915

SLG share of unconsolidated JV interest expense, net of interest income

23,893

15,069

67,862

53,686

SLG share of unconsolidated JV amortization of deferred financing costs

1,589

2,406

6,524

6,083

SLG share of unconsolidated JV loss on early extinguishment of debt

3,819

3,819

SLG share of unconsolidated JV transaction related costs

3,019

3,019

SLG share of unconsolidated JV investment income

(3,593

)

(4,601

)

(12,339

)

(11,700

)

SLG share of unconsolidated JV non-building revenue

(906

)

(714

)

(2,984

)

(1,408

)

NOI including SLG share of unconsolidated JVs

233,381

221,549

718,166

978,777

NOI from other properties/affiliates

(28,017

)

(31,706

)

(95,531

)

(377,695

)

Same-Store NOI

205,364

189,843

622,635

601,082

Ground lease straight-line adjustment

1,572

1,781

Straight-line and free rent

(9,855

)

(3,803

)

(30,308

)

(21,032

)

Rental income – FAS 141

(4,580

)

2,704

(13,832

)

(4,827

)

Joint Venture straight-line and free rent

(2,614

)

(3,063

)

(7,657

)

(11,957

)

Joint Venture rental income – FAS 141

(357

)

(429

)

(1,245

)

(1,312

)

Same-store cash NOI

$

188,482

$

185,817

$

571,165

$

563,735


About SL Green Realty Corp. (NYSE:SLG)

SL Green Realty Corp. is a self-managed real estate investment trust, with in-house capabilities in property management, acquisitions and dispositions, financing, development and redevelopment, construction and leasing. The Company acquires, owns, repositions, manages and leases commercial office, retail and multifamily properties in the New York Metropolitan area. It operates through two segments: real estate, and debt and preferred equity investments. It owns or holds interests in approximately 30 consolidated and over five unconsolidated commercial office buildings encompassing approximately 21.0 million rentable square feet and approximately 3.0 million rentable square feet, for a total of over 24.0 million rentable square feet, located primarily in midtown Manhattan. It invests in well-collateralized debt and preferred equity investments. It manages an office building owned by a third-party encompassing over 336,000 square feet and holds debt and preferred equity investments.

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