SL Green(SLG) - 2023 Q1 - Quarterly Report

FORM 10-Q Filing Information Filing Details and Registrant Information This is a Quarterly Report on Form 10-Q for the period ended March 31, 2023, filed by SL Green Realty Corp. and SL Green Operating Partnership, L.P. The registrants are based in New York, NY - The report is a Quarterly Report on Form 10-Q for the period ended March 31, 2023[2] - Registrants are SL Green Realty Corp. and SL Green Operating Partnership, L.P., with principal executive offices at One Vanderbilt Avenue, New York, NY 10017[3] Registrant Status and Securities SL Green Realty Corp. is a large accelerated filer, while SL Green Operating Partnership, L.P. is a non-accelerated filer. Both registrants have filed all required reports and submitted Interactive Data Files. SL Green Realty Corp.'s common stock and preferred stock are listed on the New York Stock Exchange Registrant Filer Status | Registrant | Filer Status | | :----------------------------- | :------------- | | SL Green Realty Corp. | Large accelerated filer | | SL Green Operating Partnership, L.P. | Non-accelerated filer | Securities Registered | Registrant | Trading Symbol | Title of Each Class | Name of Each Exchange on Which Registered | | :-------------------- | :------------- | :------------------------------------------------ | :---------------------------------------- | | SL Green Realty Corp. | SLG | Common Stock, $0.01 par value | New York Stock Exchange | | SL Green Realty Corp. | SLG.PRI | 6.500% Series I Cumulative Redeemable Preferred Stock, $0.01 par value | New York Stock Exchange | - As of May 4, 2023, 64,375,527 shares of SL Green Realty Corp.'s common stock were outstanding[7] EXPLANATORY NOTE Company Structure and Consolidation SL Green Realty Corp. operates as a self-administered and self-managed real estate investment trust (REIT) and is the sole managing general partner of SL Green Operating Partnership, L.P. The Company owns 93.82% of the Operating Partnership, and their financial results are consolidated, as the Company has no significant assets other than its investment in the Operating Partnership - SL Green Realty Corp. is a Maryland REIT and the sole managing general partner of SL Green Operating Partnership, L.P[10] - As of March 31, 2023, the Company owns 93.82% of the outstanding general and limited partnership interest in the Operating Partnership[11] - The financial results of the Operating Partnership are consolidated into the Company's financial statements, as substantially all assets and operations are held by the Operating Partnership[12] Benefits of Combined Reporting Combining the quarterly reports of SL Green Realty Corp. and SL Green Operating Partnership, L.P. into a single report enhances investor understanding by presenting the business holistically, eliminates duplicative disclosure for a streamlined presentation, and creates time and cost efficiencies - Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business - Combined reports eliminate duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Company and the Operating Partnership - Combined reports create time and cost efficiencies through the preparation of one combined report instead of two separate reports[15] PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for SL Green Realty Corp. and SL Green Operating Partnership, L.P. for the three months ended March 31, 2023, and comparative periods, including balance sheets, statements of operations, comprehensive income, equity/capital, and cash flows, along with detailed notes FINANCIAL STATEMENTS OF SL GREEN REALTY CORP. Consolidated Balance Sheets SL Green Realty Corp.'s consolidated balance sheets show a slight decrease in total assets and an increase in total liabilities from December 31, 2022, to March 31, 2023, leading to a reduction in total equity Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Total Assets | $12,342,119 | $12,355,794 | | Total Liabilities | $7,361,827 | $7,260,936 | | Total Equity | $4,529,174 | $4,646,922 | Consolidated Statements of Operations For the three months ended March 31, 2023, SL Green Realty Corp. reported a net loss of $38.4 million, a significant decline from a net income of $13.5 million in the prior year, primarily driven by increased expenses, particularly interest expense and depreciation Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $223,575 | $187,964 | | Total Expenses | $253,029 | $168,699 | | Net (Loss) Income | $(38,357) | $13,485 | | Net (Loss) Income Attributable to SL Green Common Stockholders | $(39,731) | $7,751 | | Basic (Loss) Earnings Per Share | $(0.63) | $0.12 | | Diluted (Loss) Earnings Per Share | $(0.63) | $0.11 | - Rental revenue, net, increased from $156,031 thousand in 2022 to $195,042 thousand in 2023 - Investment income decreased from $19,888 thousand in 2022 to $9,057 thousand in 2023 - Interest expense, net of interest income, significantly increased from $15,070 thousand in 2022 to $41,653 thousand in 2023 - Depreciation and amortization increased from $46,983 thousand in 2022 to $78,548 thousand in 2023[29] Consolidated Statements of Comprehensive (Loss) Income SL Green Realty Corp. reported a comprehensive loss of $70.4 million for the three months ended March 31, 2023, a substantial shift from a comprehensive income of $55.3 million in the prior year, primarily due to a decrease in the unrealized value of derivative instruments Consolidated Statements of Comprehensive (Loss) Income Highlights (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net (Loss) Income | $(38,357) | $13,485 | | (Decrease) Increase in Unrealized Value of Derivative Instruments (including JV share) | $(31,059) | $43,567 | | Decrease in Unrealized Value of Marketable Securities | $(968) | $(1,793) | | Other Comprehensive (Loss) Income | $(32,027) | $41,774 | | Comprehensive (Loss) Income | $(70,384) | $55,259 | | Comprehensive (Loss) Income Attributable to SL Green | $(66,169) | $50,986 | Consolidated Statements of Equity SL Green Realty Corp.'s total equity decreased from $4.65 billion at December 31, 2022, to $4.53 billion at March 31, 2023, primarily due to net loss, other comprehensive loss, and cash distributions Consolidated Statements of Equity Highlights (in thousands) | Item | Balance at December 31, 2022 | Balance at March 31, 2023 | | :------------------------------------ | :--------------------------- | :------------------------ | | Total SL Green Stockholders' Equity | $4,585,033 | $4,460,486 | | Noncontrolling Interests in Other Partnerships | $61,889 | $68,688 | | Total Equity | $4,646,922 | $4,529,174 | - Net loss attributable to SL Green common stockholders was $(35,993) thousand for the three months ended March 31, 2023 - Other comprehensive loss was $(30,176) thousand for the three months ended March 31, 2023 - Cash distributions declared totaled $(52,236) thousand for the three months ended March 31, 2023[35] Consolidated Statements of Cash Flows SL Green Realty Corp. experienced a net decrease in cash, cash equivalents, and restricted cash of $26.8 million for the three months ended March 31, 2023. This was driven by net cash used in investing activities ($66.4 million) and financing activities ($2.8 million), partially offset by cash provided by operating activities ($42.3 million) Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Provided by Operating Activities | $42,349 | $81,402 | | Net Cash (Used in) Provided by Investing Activities | $(66,369) | $13,496 | | Net Cash Used in Financing Activities | $(2,772) | $(124,564) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(26,792) | $(29,666) | - Cash and cash equivalents at period end were $158,937 thousand in 2023, down from $223,674 thousand in 2022 - Restricted cash at period end increased to $198,325 thousand in 2023 from $83,644 thousand in 2022[42] FINANCIAL STATEMENTS OF SL GREEN OPERATING PARTNERSHIP, L.P. Consolidated Balance Sheets SL Green Operating Partnership, L.P.'s consolidated balance sheets show a slight decrease in total assets and an increase in total liabilities from December 31, 2022, to March 31, 2023, mirroring the Company's consolidated figures due to their integrated operations SLGOP Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Total Assets | $12,342,119 | $12,355,794 | | Total Liabilities | $7,361,827 | $7,260,936 | | Total Capital | $4,529,174 | $4,646,922 | Consolidated Statements of Operations For the three months ended March 31, 2023, SL Green Operating Partnership, L.P. reported a net loss of $38.4 million, a significant shift from a net income of $13.5 million in the prior year, reflecting similar trends to the parent company due to increased expenses SLGOP Consolidated Statements of Operations Highlights (in thousands, except per unit data) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $223,575 | $187,964 | | Total Expenses | $253,029 | $168,699 | | Net (Loss) Income | $(38,357) | $13,485 | | Net (Loss) Income Attributable to SLGOP Common Unitholders | $(42,068) | $8,243 | | Basic (Loss) Earnings Per Unit | $(0.63) | $0.12 | | Diluted (Loss) Earnings Per Unit | $(0.63) | $0.11 | Consolidated Statements of Comprehensive (Loss) Income SL Green Operating Partnership, L.P. reported a comprehensive loss of $70.4 million for the three months ended March 31, 2023, a significant change from a comprehensive income of $55.3 million in the prior year, primarily due to a decrease in the unrealized value of derivative instruments SLGOP Consolidated Statements of Comprehensive (Loss) Income Highlights (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net (Loss) Income | $(38,357) | $13,485 | | (Decrease) Increase in Unrealized Value of Derivative Instruments (including JV share) | $(31,059) | $43,567 | | Decrease in Unrealized Value of Marketable Securities | $(968) | $(1,793) | | Other Comprehensive (Loss) Income | $(32,027) | $41,774 | | Comprehensive (Loss) Income | $(70,384) | $55,259 | | Comprehensive (Loss) Income Attributable to SLGOP | $(66,908) | $53,125 | Consolidated Statements of Capital SL Green Operating Partnership, L.P.'s total capital decreased from $4.65 billion at December 31, 2022, to $4.53 billion at March 31, 2023, primarily due to net loss, other comprehensive loss, and cash distributions, consistent with the parent company's equity changes SLGOP Consolidated Statements of Capital Highlights (in thousands) | Item | Balance at December 31, 2022 | Balance at March 31, 2023 | | :------------------------------------ | :--------------------------- | :------------------------ | | Total SLGOP Partners' Capital | $4,585,033 | $4,460,486 | | Noncontrolling Interests in Other Partnerships | $61,889 | $68,688 | | Total Capital | $4,646,922 | $4,529,174 | - Net loss was $(35,993) thousand for the three months ended March 31, 2023 - Other comprehensive loss was $(30,176) thousand for the three months ended March 31, 2023 - Cash distributions declared totaled $(52,236) thousand for the three months ended March 31, 2023[56] Consolidated Statements of Cash Flows SL Green Operating Partnership, L.P. experienced a net decrease in cash, cash equivalents, and restricted cash of $26.8 million for the three months ended March 31, 2023, mirroring the parent company's cash flow trends, with investing and financing activities being net cash outflows SLGOP Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Provided by Operating Activities | $42,349 | $81,402 | | Net Cash (Used in) Provided by Investing Activities | $(66,369) | $13,496 | | Net Cash Used in Financing Activities | $(2,772) | $(124,564) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(26,792) | $(29,666) | Notes to Consolidated Financial Statements (unaudited) 1. Organization and Basis of Presentation SL Green Realty Corp. is a self-administered, self-managed REIT primarily engaged in commercial real estate in the New York metropolitan area, with most assets and operations conducted through its Operating Partnership. As of March 31, 2023, the portfolio included 28 consolidated and 23 unconsolidated properties, totaling over 29.7 million square feet - SL Green Realty Corp. operates as a REIT, primarily focused on commercial real estate in the New York metropolitan area, mainly Manhattan[64] - As of March 31, 2023, the Company owns 93.82% of the Operating Partnership, which is considered a variable interest entity (VIE) where the Company is the primary beneficiary[65] Property Portfolio as of March 31, 2023 (Approximate Square Feet) | Property Type | Consolidated (SF) | Unconsolidated (SF) | Total (SF) | | :-------------- | :------------------ | :-------------------- | :----------- | | Manhattan Office | 10,181,934 | 13,629,381 | 23,811,315 | | Manhattan Retail | 17,888 | 294,865 | 312,753 | | Development/Redevelopment | 1,466,419 | 3,115,241 | 4,581,660 | | Suburban Office | 862,800 | — | 862,800 | | Manhattan Residential | 140,382 | — | 140,382 | | Total Portfolio | 12,669,423 | 17,039,487 | 29,708,910 | 2. Significant Accounting Policies This note details the significant accounting policies, including principles of consolidation, investment in commercial real estate properties (depreciation, impairment, lease accounting), cash and restricted cash, fair value measurements, marketable securities, unconsolidated joint ventures, deferred lease costs, revenue recognition, debt and preferred equity investments (loan loss reserves, risk ratings), income taxes, use of estimates, concentrations of credit risk, and recent accounting standards updates - The Company consolidates entities it controls or is the primary beneficiary of VIEs, accounting for non-controlled entities under the equity method[73][74] - Real estate purchase prices are allocated to land, building, and intangibles (above/below-market leases), with depreciation and amortization over estimated useful lives[76] - Rental revenue for operating leases is recognized on a straight-line basis, with collectability assessed as probable. Debt and preferred equity investments are presented at the net amount expected to be collected, with an allowance for loan losses[92][105] Identified Intangible Assets and Liabilities (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Identified intangible assets (net) | $200,477 | $213,486 | | Identified intangible liabilities (net) | $139,302 | $149,147 | - One tenant, Paramount Global, accounted for 5.5% of annualized cash rent as of March 31, 2023, indicating a concentration of credit risk[120] 3. Property Acquisitions During the three months ended March 31, 2023, SL Green Realty Corp. did not acquire any properties from a third party - No properties were acquired from a third party during the three months ended March 31, 2023[123] 4. Properties Held for Sale and Property Dispositions As of March 31, 2023, SL Green Realty Corp. had no properties classified as held for sale and did not dispose of any properties during the three months ended March 31, 2023 - As of March 31, 2023, no properties were classified as held for sale[124] - No properties were disposed of during the three months ended March 31, 2023[125] 5. Debt and Preferred Equity Investments SL Green's debt and preferred equity investments totaled $626.8 million as of March 31, 2023, with a net increase of $3.5 million from December 31, 2022. The allowance for loan losses increased to $13.5 million, and a significant portion of the portfolio is classified as 'Watch List Assets' (higher potential for loss) Debt and Preferred Equity Investments Activity (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Balance at beginning of year | $623,280 | $1,088,723 | | Debt investment originations/fundings/accretion | $8,455 | $62,992 | | Preferred equity investment originations/accretion | $1,958 | $37,505 | | Net change in loan loss reserves | $(6,890) | — | | Balance at end of period | $626,803 | $623,280 | Debt and Preferred Equity Investments by Risk Rating (in thousands) | Risk Rating | March 31, 2023 | December 31, 2022 | | :---------------------------------------- | :------------- | :---------------- | | 1 - Low Risk Assets | $232,642 | $264,069 | | 2 - Watch List Assets | $394,161 | $352,321 | | 3 - High Risk Assets | — | $6,890 | - As of March 31, 2023, the total allowance for loan losses was $13,520 thousand, up from $6,630 thousand at December 31, 2022, with a current period provision of $6,890 thousand[129] - Two debt investments with carrying values of $225.4 million and $50.0 million were on non-accrual status as of March 31, 2023[139][141][142] 6. Investments in Unconsolidated Joint Ventures SL Green holds $3.2 billion in unconsolidated joint venture investments, primarily in Manhattan commercial properties. The joint ventures reported a combined net loss of $7.2 million for the three months ended March 31, 2023, with increased interest expense being a significant factor. One joint venture interest (121 Greene Street) was disposed of, resulting in a $0.3 million loss - As of March 31, 2023, the book value of investments in unconsolidated joint ventures was $3.2 billion[145] Combined Statements of Operations for Unconsolidated Joint Ventures (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $389,452 | $335,266 | | Total Expenses | $396,677 | $341,287 | | Net Loss before Loss on Sale | $(7,225) | $(6,021) | | Company's Equity in Net Loss from Unconsolidated Joint Ventures | $(7,412) | $(4,715) | - The joint venture that owns 919 Third Avenue closed on a $500.0 million refinancing in April 2023, with a fixed interest rate of 6.11% through February 2026[72][160] - A 50.0% ownership interest in 121 Greene Street was disposed of in February 2023, resulting in a $0.3 million loss[154] 7. Deferred Costs Net deferred costs, primarily deferred leasing costs, decreased from $121.2 million at December 31, 2022, to $117.6 million at March 31, 2023, due to accumulated amortization Deferred Costs (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Deferred leasing costs | $406,407 | $407,188 | | Less: accumulated amortization | $(288,805) | $(286,031) | | Deferred costs, net | $117,602 | $121,157 | 8. Mortgages and Other Loans Payable Total mortgages and other loans payable, net, remained stable at $3.23 billion as of March 31, 2023, compared to December 31, 2022. The majority of this debt is fixed-rate, with a significant portion maturing in 2027 Mortgages and Other Loans Payable (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Total mortgages and other loans payable | $3,234,489 | $3,235,962 | | Deferred financing costs, net | $(7,708) | $(8,399) | | Total mortgages and other loans payable, net | $3,226,781 | $3,227,563 | - Fixed rate debt constitutes $3.16 billion of the total, with a large portion ($1.71 billion) related to 245 Park Avenue maturing in June 2027[169] - The gross book value of properties collateralizing these loans was approximately $3.8 billion as of March 31, 2023[172] 9. Corporate Indebtedness SL Green's corporate indebtedness includes a $1.25 billion revolving credit facility, $1.25 billion in term loans, and $100.0 million in senior unsecured notes. The Company was in compliance with all debt covenants as of March 31, 2023. Interest expense, net, significantly increased to $41.7 million for the three months ended March 31, 2023, from $15.1 million in the prior year, driven by higher interest rates and increased debt balances - The 2021 credit facility includes a $1.25 billion revolving credit facility and $1.25 billion in term loans, with maturity dates ranging from May 2026 to May 2027[173] - As of March 31, 2023, $490.0 million was drawn under the revolving credit facility, and $1.25 billion was outstanding under term loan facilities, with $760.0 million undrawn capacity[177] - A $425.0 million 2022 term loan matures in October 2023, with a six-month extension option[179] - The Company was in compliance with all restrictive covenants related to its credit facilities and senior unsecured notes as of March 31, 2023[185] Consolidated Interest Expense, Net (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest expense before capitalized interest | $64,843 | $32,052 | | Interest capitalized | $(25,464) | $(17,941) | | Interest expense, net | $41,653 | $15,070 | 10. Related Party Transactions Related party transactions include services from Alliance Building Services (partially owned by a director's son prior to 2023), an investment by executives in the One Vanderbilt project, and lease agreements for corporate headquarters and Summit One Vanderbilt. Related party receivables totaled $26.8 million as of March 31, 2023 - Income from profit participation with Alliance Building Services (a related party) was $0.7 million for the three months ended March 31, 2022[190] - Executives Marc Holliday and Andrew Mathias invested in the One Vanderbilt project, with their entities receiving a percentage of profits above the Company's capital contributions[191] - Messrs. Holliday and Mathias tendered 50% of their interests in the One Vanderbilt property (excluding Summit) for $17.9 million and $11.9 million, respectively, in July 2022, following stabilization[192] Related Party Receivables (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------- | :------------- | :---------------- | | Due from joint ventures | $25,976 | $26,812 | | Other | $818 | $540 | | Related party receivables | $26,794 | $27,352 | 11. Noncontrolling Interests on the Company's Consolidated Financial Statements Noncontrolling interests in the Operating Partnership, representing 6.18% of outstanding units as of March 31, 2023, are recorded at the greater of cost basis or fair market value. Total noncontrolling interests in the Operating Partnership increased to $273.2 million from $270.0 million at December 31, 2022 - Noncontrolling interests in the Operating Partnership represent 6.18% (4,239,335 units) of outstanding units as of March 31, 2023[197] Noncontrolling Interests in Operating Partnership Activity (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------------- | :------------- | :---------------- | | Balance at beginning of period | $269,993 | $344,252 | | Distributions | $(3,822) | $(16,272) | | Issuance of common units | $6,265 | $22,855 | | Redemption and conversion of common units | $(5,220) | $(40,901) | | Net loss | $(2,337) | $(5,794) | | Fair value adjustment | $10,147 | $(39,974) | | Balance at end of period | $273,175 | $269,993 | 12. Stockholders' Equity of the Company SL Green's common stock outstanding was 64.37 million shares as of March 31, 2023. The Company has a $3.5 billion share repurchase program, under which no shares were repurchased in Q1 2023. The Dividend Reinvestment and Stock Purchase Plan (DRSPP) issued 5,280 shares in Q1 2023. Basic and diluted loss per share were $(0.63) for the three months ended March 31, 2023 - As of March 31, 2023, 64,373,485 shares of common stock were issued and outstanding[205] - The Company has a $3.5 billion share repurchase program, with no shares repurchased during the three months ended March 31, 2023[207][208] Common Stock Issued via DRSPP (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Shares of common stock issued | 5,280 | 1,132 | | Dividend reinvestments/stock purchases under the DRSPP | $184 | $89 | Basic and Diluted Earnings Per Share (in thousands, except per share data) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net (Loss) Income Attributable to SL Green Common Stockholders (Basic) | $(40,137) | $7,416 | | Basic (Loss) Earnings Per Share | $(0.63) | $0.12 | | Diluted (Loss) Earnings Per Share | $(0.63) | $0.11 | 13. Partners' Capital of the Operating Partnership As of March 31, 2023, SL Green owned 64.37 million partnership interests and 9.2 million Series I Preferred Units in the Operating Partnership. Non-SL Green limited partners owned 6.18% of common units. Basic and diluted loss per unit were $(0.63) for the three months ended March 31, 2023 - As of March 31, 2023, SL Green owned 64,373,485 general and limited partnership interests and 9,200,000 Series I Preferred Units in the Operating Partnership[215] - Limited partners other than SL Green owned 6.18% (4,239,335 common units) of the Operating Partnership as of March 31, 2023[219] Basic and Diluted Earnings Per Unit (in thousands, except per unit data) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net (Loss) Income Attributable to SLGOP Common Unitholders (Basic) | $(42,974) | $7,908 | | Basic (Loss) Earnings Per Unit | $(0.63) | $0.12 | | Diluted (Loss) Earnings Per Unit | $(0.63) | $0.11 | 14. Share-based Compensation SL Green's share-based compensation plans include the 2005 Stock Option and Incentive Plan, which had 6.1 million fungible units available for issuance as of March 31, 2023. No compensation expense was recognized for stock options in Q1 2023. Restricted stock compensation expense was $2.1 million, and LTIP Unit compensation expense was $10.0 million for the three months ended March 31, 2023 - The 2005 Stock Option and Incentive Plan authorizes various equity-based awards, with 6.1 million fungible units available for issuance as of March 31, 2023[224] - No compensation expense was recognized for stock options during the three months ended March 31, 2023[230] Restricted Stock Compensation (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Balance at beginning of period | 3,758,174 | 3,459,363 | | Granted | 13,000 | 314,995 | | Canceled | (950) | (16,184) | | Balance at end of period | 3,770,224 | 3,758,174 | | Vested during the period | 143,115 | 118,255 | | Compensation expense recorded | $2,064 | $10,134 | | Total fair value of restricted stock granted during the period | $484 | $16,805 | - Compensation expense for bonus, time-based, and performance-based LTIP Unit awards was $10.0 million for the three months ended March 31, 2023[233] 15. Accumulated Other Comprehensive Income Accumulated other comprehensive income decreased significantly from $49.6 million at December 31, 2022, to $19.4 million at March 31, 2023, primarily due to other comprehensive loss before reclassifications and amounts reclassified from accumulated other comprehensive income Changes in Accumulated Other Comprehensive Income (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------------- | :------------- | :---------------- | | Balance at beginning of period | $49,604 | $49,604 | | Other comprehensive loss before reclassifications | $(19,200) | — | | Amounts reclassified from accumulated other comprehensive income | $(10,976) | — | | Balance at end of period | $19,428 | $49,604 | - The decrease was driven by a net unrealized loss on derivative instruments and marketable securities[239] 16. Fair Value Measurements SL Green measures certain financial assets and liabilities at fair value using a three-level hierarchy. Marketable securities and derivative instruments are primarily valued using Level 2 inputs. Debt and preferred equity investments and borrowings are valued using Level 3 inputs, with estimated fair values for debt and preferred equity investments ranging between $0.5 billion and $0.6 billion as of March 31, 2023 - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[242] Assets and Liabilities Measured at Fair Value (in thousands) | Item | March 31, 2023 (Total) | March 31, 2023 (Level 2) | December 31, 2022 (Total) | December 31, 2022 (Level 2) | | :-------------------------------------------- | :--------------------- | :----------------------- | :------------------------ | :------------------------ | | Marketable securities available-for-sale | $10,273 | $10,273 | $11,240 | $11,240 | | Interest rate cap and swap agreements (Assets) | $37,082 | $37,082 | $57,660 | $57,660 | | Interest rate cap and swap agreements (Liabilities) | $15,759 | $15,759 | $10,142 | $10,142 | - Debt and preferred equity investments had an estimated fair value ranging between $0.5 billion and $0.6 billion as of March 31, 2023, and are classified as Level 3[249] 17. Financial Instruments: Derivatives and Hedging SL Green uses derivative instruments like interest rate swaps and caps to manage interest rate risk, recognizing them at fair value on the balance sheet. For the three months ended March 31, 2023, the Company recorded a $0.2 million gain from changes in the fair value of an interest rate cap sold. Gains and losses on terminated hedges are reclassified into earnings as an adjustment to interest expense over the related mortgage obligation term - The Company uses interest rate swaps, caps, collars, and floors to manage interest rate risk, recognizing all derivatives at fair value on the balance sheet[253] Consolidated Derivative Financial Instruments Fair Value (in thousands) | Instrument Type | Notional Value (Inception) | Fair Value (March 31, 2023) | | :---------------- | :------------------------- | :-------------------------- | | Interest Rate Cap | $1,786,717 | $5,615 | | Interest Rate Swap | $1,600,000 | $15,708 | | Total | $3,386,717 | $21,323 | - A gain of $0.2 million was recorded from changes in the fair value of an interest rate cap sold during Q1 2023[255] - An estimated $(38.5) million of accumulated other comprehensive income will be reclassified into interest expense within the next 12 months[258] 18. Lease Income Total rental revenue increased to $195.0 million for the three months ended March 31, 2023, from $156.0 million in the prior year. This increase was primarily driven by higher fixed lease payments and a positive amortization of acquired below-market leases Components of Lease Income from Operating Leases (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Fixed lease payments | $166,353 | $136,581 | | Variable lease payments | $20,450 | $19,555 | | Total lease payments | $186,803 | $156,136 | | Amortization of acquired above and below-market leases | $8,239 | $(105) | | Total rental revenue | $195,042 | $156,031 | - Sublease income was $48.9 million for Q1 2023, down from $56.2 million in Q1 2022[263] 19. Commitments and Contingencies As of March 31, 2023, SL Green Realty Corp. and its Operating Partnership were not involved in any material litigation and management believes properties are in compliance with environmental regulations, with no material adverse impact expected from environmental liabilities - No material litigation was ongoing or threatened against the Company or its portfolio as of March 31, 2023[265] - Management believes properties comply with environmental regulations, and no material adverse environmental liability is anticipated[266] 20. Segment Information SL Green operates in two reportable segments: real estate and debt and preferred equity investments. For Q1 2023, the real estate segment generated $214.5 million in revenue and a net loss of $45.3 million, while the debt and preferred equity segment generated $9.1 million in revenue and a net income of $6.9 million - The Company has two reportable segments: real estate and debt and preferred equity investments[269] Selected Consolidated Results of Operations by Segment (in thousands) | Segment | Total Revenues (Q1 2023) | Total Revenues (Q1 2022) | Net (Loss) Income (Q1 2023) | Net (Loss) Income (Q1 2022) | | :---------------------------- | :----------------------- | :----------------------- | :-------------------------- | :-------------------------- | | Real Estate Segment | $214,518 | $168,076 | $(45,301) | $(3,482) | | Debt and Preferred Equity Segment | $9,057 | $19,888 | $6,944 | $16,967 | | Total Company | $223,575 | $187,964 | $(38,357) | $13,485 | Selected Total Assets by Segment (in thousands) | Segment | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Real Estate Segment | $11,710,030 | $11,727,418 | | Debt and Preferred Equity Segment | $632,089 | $628,376 | | Total Company | $12,342,119 | $12,355,794 | PART II. OTHER INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on SL Green's financial condition and results of operations for the three months ended March 31, 2023, highlighting key drivers of revenue and expense changes, liquidity, capital resources, and risk management strategies Overview SL Green Realty Corp. is a self-managed REIT focused on acquiring, developing, and managing commercial real estate, primarily office properties in the New York metropolitan area. As of March 31, 2023, the portfolio included 28 consolidated and 23 unconsolidated properties, totaling over 29.7 million square feet, and $626.8 million in debt and preferred equity investments - SL Green is a REIT primarily engaged in commercial real estate, mainly office properties, in the New York metropolitan area[274] Property Portfolio as of March 31, 2023 (Approximate Square Feet) | Property Type | Consolidated (SF) | Unconsolidated (SF) | Total (SF) | | :-------------- | :------------------ | :-------------------- | :----------- | | Manhattan Office | 10,181,934 | 13,629,381 | 23,811,315 | | Manhattan Retail | 17,888 | 294,865 | 312,753 | | Development/Redevelopment | 1,466,419 | 3,115,241 | 4,581,660 | | Suburban Office | 862,800 | — | 862,800 | | Manhattan Residential | 140,382 | — | 140,382 | | Total Portfolio | 12,669,423 | 17,039,487 | 29,708,910 | - The Company held debt and preferred equity investments with a book value of $626.8 million as of March 31, 2023[277] Critical Accounting Policies and Estimates SL Green's critical accounting policies and estimates, including those for real estate investments, joint ventures, lease classification, revenue recognition, and debt/preferred equity investments, remained materially unchanged during the three months ended March 31, 2023 - No material changes occurred to critical accounting policies and estimates during the three months ended March 31, 2023[278] Results of Operations For the three months ended March 31, 2023, total revenues increased by 19.0% to $223.6 million, primarily due to the acquisition of 245 Park Avenue and higher other income. However, total expenses increased by 49.9% to $253.0 million, leading to a net loss of $38.4 million, a significant decline from a net income of $13.5 million in the prior year. This was mainly driven by substantial increases in interest expense and depreciation Consolidated Results of Operations (in millions) | Item | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------- | :------ | :------ | :--------- | :--------- | | Rental revenue | $195.0 | $156.0 | $39.0 | 25.0% | | Investment income | $9.1 | $19.9 | $(10.8) | (54.3)% | | Other income | $19.5 | $12.0 | $7.5 | 62.5% | | Total revenues | $223.6 | $187.9 | $35.7 | 19.0% | | Property operating expenses | $99.7 | $79.8 | $19.9 | 24.9% | | Interest expense and amortization of deferred financing costs, net of interest income | $(43.7) | $(17.0) | $(26.7) | 157.1% | | Depreciation and amortization | $(78.5) | $(47.0) | $(31.5) | 67.0% | | Loan loss and other investment reserves, net of recoveries | $(6.9) | — | $(6.9) | 100.0% | | Net (loss) income | $(38.4) | $13.5 | $(51.9) | (384.4)% | - Rental revenues increased primarily due to the acquisition of 245 Park Avenue ($40.8 million) - Investment income decreased due to a lower weighted average debt and preferred equity investment balance - Other income increased due to Summit One Vanderbilt operations ($5.8 million) and higher lease termination income ($6.4 million vs. $5.4 million) - Property operating expenses increased due to the acquisition of 245 Park Avenue ($14.5 million) and increased variable expenses and real estate taxes at Same-Store Properties - Equity in net loss from unconsolidated joint ventures increased due to higher interest expense across the joint venture portfolio ($15.2 million)[283][286][287][288][292] Liquidity and Capital Resources SL Green had $0.9 billion in liquidity as of March 31, 2023, comprising $760.0 million in revolving credit facility availability and $169.2 million in cash. The Company anticipates significant debt maturities and capital expenditures in the coming years, with $1.64 billion due in the remainder of 2023. Funding is expected from operations, existing liquidity, and potential refinancing or divestitures - As of March 31, 2023, liquidity totaled $0.9 billion, including $760.0 million available under the revolving credit facility and $169.2 million consolidated cash on hand[299] Combined Aggregate Principal Maturities (in thousands) | Year | Property Mortgages and Other Loans | Revolving Credit Facility | Unsecured Term Loans | Senior Unsecured Notes | Trust Preferred Securities | Financing Leases | Operating Leases | Estimated Interest Expense | Joint Venture Debt | Total | | :------------ | :--------------------------------- | :------------------------ | :------------------- | :--------------------- | :------------------------- | :--------------- | :--------------- | :------------------------- | :----------------- | :---------- | | Remaining 2023 | $264,502 | — | — | — | — | $2,353 | $39,951 | $189,204 | $1,146,281 | $1,642,291 | | 2024 | $337,237 | — | $625,000 | — | — | $3,180 | $58,068 | $215,423 | $927,320 | $2,166,228 | | 2025 | $370,000 | — | — | $100,000 | — | $3,228 | $58,207 | $181,523 | $1,585,610 | $2,298,568 | | 2026 | — | — | — | — | — | $3,276 | $58,347 | $154,671 | $107,137 | $323,431 | | 2027 | $2,262,750 | $490,000 | $1,000,000 | — | — | $3,325 | $58,358 | $53,961 | $299,417 | $4,167,811 | | Thereafter | — | — | $50,000 | — | $100,000 | $200,169 | $1,334,570 | $34,879 | $2,130,404 | $3,850,022 | | Total | $3,234,489 | $490,000 | $1,675,000 | $100,000 | $100,000 | $215,531 | $1,607,501 | $829,661 | $6,196,169 | $14,448,351 | - Expected recurring capital expenditures on consolidated properties for the remainder of 2023: $63.7 million - Expected development/redevelopment expenditures on consolidated properties for the remainder of 2023: $94.5 million - Expected share of capital expenditures at joint venture properties for the remainder of 2023: $204.5 million[298] Capitalization As of March 31, 2023, SL Green had 64.37 million common shares outstanding. The Company's $3.5 billion share repurchase program had no repurchases in Q1 2023. The Dividend Reinvestment and Stock Purchase Plan (DRSPP) issued 5,280 shares, and the 2005 Stock Option and Incentive Plan had 6.1 million fungible units available - As of March 31, 2023, 64,373,485 shares of common stock were issued and outstanding[307] - The $3.5 billion share repurchase program had no share repurchases during the three months ended March 31, 2023[308][309] DRSPP Activity (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Shares of common stock issued | 5,280 | 1,132 | | Dividend reinvestments/stock purchases under the DRSPP | $184 | $89 | - The 2005 Stock Option and Incentive Plan had 6.1 million fungible units available for issuance as of March 31, 2023[312] Indebtedness SL Green's total debt increased to $5.6 billion as of March 31, 2023, from $5.5 billion at December 31, 2022. The weighted average interest rate rose to 4.41% from 3.55%. Fixed-rate debt constituted 89.5% of the total, with a net exposure to variable rate debt of 8.0% after mitigating effects of variable rate investments. The Company was in compliance with all debt covenants Debt Summary (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------------- | :------------- | :---------------- | | Total debt | $5,599,489 | $5,535,962 | | Debt, preferred equity, and other investments subject to variable rate | $149,754 | $144,056 | | Net exposure to variable rate debt | $435,394 | $376,092 | Debt Composition and Effective Interest Rate | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------------- | :------------- | :---------------- | | Fixed rate debt (% of total) | 89.5% | 90.6% | | Variable rate debt (% of total) | 10.5% | 9.4% | | Effective interest rate | 4.41% | 3.55% | - The net ratio of variable rate debt to total debt was 8.0% as of March 31, 2023, inclusive of mitigating investments[318] - A hypothetical 100 basis point increase in floating rates would increase consolidated annual interest cost by $4.1 million and joint venture annual interest cost by $6.7 million[328] Off-Balance Sheet Arrangements SL Green has off-balance sheet investments, primarily joint ventures and debt/preferred equity investments, which are generally accounted for under the equity method due to significant influence but not control. These arrangements are detailed in Notes 5 and 6 of the financial statements - Off-balance sheet investments include joint ventures and debt and preferred equity investments, mostly accounted for under the equity method[331] Dividends/Distributions To maintain REIT qualification, SL Green must distribute at least 90% of its REIT taxable income annually. Dividends can be paid in cash, stock, or a combination, subject to IRS limitations and available cash after meeting operating requirements and debt service - To maintain REIT qualification, SL Green must pay annual dividends of at least 90% of its REIT taxable income[332] - Dividends may be paid in cash, stock, or a combination, and are subject to available cash after meeting operating requirements and debt service[333][334] Insurance SL Green maintains 'all-risk' property and rental value coverage, including terrorism, through two property insurance programs and liability insurance. It also uses captive insurance companies (Belmont and Ticonderoga) for NBCR terrorist acts. The Company monitors third-party insurance for joint ventures and triple net leases - SL Green maintains 'all-risk' property and rental value coverage, including flood, earthquake, and terrorism (excluding NBCR)[335] - Captive insurance companies, Belmont Insurance Company and Ticonderoga Insurance Company, provide coverage for NBCR terrorist acts[335] - The Company monitors insurance coverage for properties held by joint ventures or subject to triple net leases, though it does not control these policies[336] Funds from Operations Funds from Operations (FFO) attributable to SL Green common stockholders and unitholders decreased to $105.5 million for the three months ended March 31, 2023, from $115.8 million in the prior year. FFO is a non-GAAP measure used to evaluate REIT performance, excluding real estate depreciation, amortization, and property disposition gains/losses - FFO is a non-GAAP financial measure used to evaluate REIT performance, excluding real estate depreciation, amortization, and property disposition gains/losses[337][338] Funds from Operations (FFO) (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net (Loss) Income Attributable to SL Green Common Stockholders | $(39,731) | $7,751 | | Funds from Operations Attributable to SL Green Common Stockholders and Unit Holders | $105,485 | $115,796 | Inflation SL Green expects inflationary increases to be partially offset by contractual rent increases and expense escalations in its office leases, which typically include provisions for real estate tax and operating expense adjustments based on CPI or other measures - Office leases generally include provisions for real estate tax and operating expense escalations, as well as fixed base rent increases, which are expected to partially offset inflationary increases[340] Accounting Standards Updates The Accounting Standards Updates are discussed in Note 2, 'Significant Accounting Policies-Accounting Standards Updates' in the accompanying consolidated financial statements - Accounting Standards Updates are detailed in Note 2 of the consolidated financial statements[341] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SL Green's exposures to market risk, primarily interest rate risk, have not materially changed since December 31, 2022. Further details are provided in Item 2 of this report and the Annual Report on Form 10-K - Market risk exposures have not materially changed since December 31, 2022[346] - Quantitative and qualitative disclosures about market risk are referenced to Item 2 of this Quarterly Report and Item 7 of the Annual Report on Form 10-K[346] ITEM 4. CONTROLS AND PROCEDURES Both SL Green Realty Corp. and SL Green Operating Partnership, L.P. concluded that their disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance for timely information disclosure. There were no significant changes in internal control over financial reporting during the quarter - SL Green Realty Corp.'s Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2023[349] - SL Green Operating Partnership, L.P.'s Chief Executive Officer and Chief Financial Officer also concluded that its disclosure controls and procedures were effective as of March 31, 2023[352] - No significant changes in internal control over financial reporting occurred for either registrant during the quarter ended March 31, 2023[350][353] ITEM 1. LEGAL PROCEEDINGS As of March 31, 2023, SL Green Realty Corp. and SL Green Operating Partnership, L.P. were not involved in any material litigation, nor was any material litigation threatened that could have a material adverse impact - No material litigation was ongoing or threatened against the Company or its portfolio as of March 31, 2023[354] ITEM 1A. RISK FACTORS There have been no material changes to the Risk Factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to the Risk Factors were disclosed as of March 31, 2023, compared to the Annual Report on Form 10-K for 2022[355] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SL Green has a $3.5 billion share repurchase program, which saw no share repurchases during the three months ended March 31, 2023. The program has cumulatively repurchased over 36.1 million shares through 2022 - The Company has a $3.5 billion share repurchase program, authorized by the Board of Directors[357] - No share repurchases were executed under the program during the three months ended March 31, 2023[358] Cumulative Share Repurchases (excluding OP units) | Period | Shares Repurchased | Average Price Paid per Share | | :------------ | :----------------- | :--------------------------- | | Year ended 2017 | 7,865,206 | $107.81 | | Year ended 2018 | 9,187,480 | $102.06 | | Year ended 2019 | 4,333,260 | $88.69 | | Year ended 2020 | 8,276,032 | $64.30 | | Year ended 2021 | 4,474,649 | $75.44 | | Year ended 2022 | 1,971,092 | $76.69 | ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities reported for the period - No defaults upon senior securities were reported[360] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to SL Green Realty Corp. or SL Green Operating Partnership, L.P - Mine Safety Disclosures are not applicable[361] ITEM 5. OTHER INFORMATION No other information was reported under this item - No other information was reported[362] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including amendments to the partnership agreement, certifications under the Sarbanes-Oxley Act, and financial statements formatted in Inline XBRL - Exhibit 3.1: Thirtieth Amendment to the first Amended and Restated Agreement of Limited Partnership of SL Green Operating Partnership, dated as of April 20, 2023 - Exhibits 31.1-31.4: Certifications by CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for both the Company and the Operating Partnership - Exhibits 32.1-32.4: Certifications by CEO and CFO pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for both the Company and the Operating Partnership - Exhibit 101: Financial statements formatted in Inline XBRL[364] SIGNATURES The report is duly signed on behalf of SL Green Realty Corp. and SL Green Operating Partnership, L.P. by Matthew J. DiLiberto, Chief Financial Officer, on May 5, 2023 - The report was signed by Matthew J. DiLiberto, Chief Financial Officer of SL Green Realty Corp. and the sole general partner of SL Green Operating Partnership, L.P., on May 5, 2023[368][370]