SL Green(SLG) - 2023 Q3 - Quarterly Report

Filing Information - Registrants: SL Green Realty Corp. (Maryland, NYSE: SLG) and SL Green Operating Partnership, L.P. (Delaware)[3][7] - Filing Type: Quarterly Report on Form 10-Q for the period ended September 30, 2023[2] - Filer Status: SL Green Realty Corp. is a Large accelerated filer; SL Green Operating Partnership, L.P. is a Non-accelerated filer[5][7] Outstanding Shares as of November 2, 2023 | Registrant | Shares Outstanding | | :----------------------- | :------------------- | | SL Green Realty Corp. Common Stock | 64,416,699 | Explanatory Note - Combined Report: Integrates 10-Q filings for SL Green Realty Corp. and SL Green Operating Partnership, L.P.[9] - Relationship: SL Green Realty Corp. is a REIT and the sole managing general partner of the Operating Partnership[10] - Ownership: As of September 30, 2023, SL Green Realty Corp. owns 93.96% of the Operating Partnership's outstanding interests[11] - Benefits of Combined Report: Enhances investor understanding, eliminates duplicative disclosure, and creates time/cost efficiencies[15] PART I. FINANCIAL INFORMATION Item 1. Financial Statements The section presents unaudited consolidated financial statements for SL Green Realty Corp. and SL Green Operating Partnership, L.P., including balance sheets, statements of operations, comprehensive income, equity/capital, cash flows, and detailed notes Financial Statements of SL Green Realty Corp. Consolidated Balance Sheet Highlights (SL Green Realty Corp.) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total Assets | $9,690,582 | $12,355,794 | | Commercial Real Estate Properties, net | $4,994,297 | $7,159,245 | | Total Liabilities | $5,168,616 | $7,260,936 | | Mortgages and other loans payable, net | $1,512,746 | $3,227,563 | | Total SL Green Stockholders' Equity | $4,039,713 | $4,585,033 | Consolidated Statements of Operations Highlights (SL Green Realty Corp.) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | $173,220 | $212,456 | $617,865 | $601,865 | | Net (Loss) Income Attributable to SL Green Common Stockholders | $(23,967) | $7,377 | $(423,892) | $(28,748) | | Interest Expense, net | $27,440 | $21,824 | $109,714 | $51,854 | | Depreciable Real Estate Reserves and Impairment | $389 | — | $(305,527) | — | Consolidated Statements of Comprehensive (Loss) Income Highlights (SL Green Realty Corp.) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Comprehensive (Loss) Income Attributable to SL Green | $(8,382) | $60,094 | $(392,667) | $86,797 | | Increase in unrealized value of derivative instruments | $12,799 | $50,488 | $23,062 | $111,378 | Consolidated Statements of Cash Flows Highlights (SL Green Realty Corp.) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $181,338 | $249,628 | | Net Cash Provided by Investing Activities | $271,684 | $273,314 | | Net Cash Used in Financing Activities | $(527,753) | $(474,848) | | Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash | $(74,731) | $48,094 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $309,323 | $385,078 | Financial Statements of SL Green Operating Partnership, L.P. Consolidated Balance Sheet Highlights (SL Green Operating Partnership, L.P.) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total Assets | $9,690,582 | $12,355,794 | | Commercial Real Estate Properties, net | $4,994,297 | $7,159,245 | | Total Liabilities | $5,168,616 | $7,260,936 | | Mortgages and other loans payable, net | $1,512,746 | $3,227,563 | | Total Capital | $4,107,243 | $4,646,922 | Consolidated Statements of Operations Highlights (SL Green Operating Partnership, L.P.) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | $173,220 | $212,456 | $617,865 | $601,865 | | Net (Loss) Income Attributable to SLGOP Common Unitholders | $(25,541) | $7,868 | $(451,385) | $(30,579) | | Interest Expense, net | $27,440 | $21,824 | $109,714 | $51,854 | | Depreciable Real Estate Reserves and Impairment | $389 | — | $(305,527) | — | Consolidated Statements of Comprehensive (Loss) Income Highlights (SL Green Operating Partnership, L.P.) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Comprehensive (Loss) Income Attributable to SLGOP | $(8,053) | $62,183 | $(414,808) | $89,810 | | Increase in unrealized value of derivative instruments | $12,799 | $50,488 | $23,062 | $111,378 | Consolidated Statements of Cash Flows Highlights (SL Green Operating Partnership, L.P.) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $181,338 | $249,628 | | Net Cash Provided by Investing Activities | $271,684 | $273,314 | | Net Cash Used in Financing Activities | $(527,753) | $(474,848) | | Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash | $(74,731) | $48,094 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | $309,323 | $385,078 | Notes to Consolidated Financial Statements 1. Organization and Basis of Presentation SL Green Realty Corp. operates as a self-administered and self-managed REIT, with substantially all assets and operations conducted through its Operating Partnership, holding 93.96% of its interests as of September 30, 2023, and combining financial statements for both entities - SL Green Realty Corp. (Company/SL Green): Maryland corporation, self-administered/self-managed REIT[66] - SL Green Operating Partnership, L.P. (Operating Partnership/SLGOP): Delaware limited partnership, substantially all assets and operations[66][67] - Ownership: As of September 30, 2023, SL Green owns 93.96% of the Operating Partnership[67] - Property Portfolio: Primarily office properties in the New York metropolitan area (midtown Manhattan), including 27 consolidated and 24 unconsolidated properties, totaling 29.7 million square feet[67] 2. Significant Accounting Policies This note details the company's key accounting policies, including principles of consolidation, real estate valuation, cash, fair value, marketable securities, joint ventures, lease costs, revenue, debt, income taxes, and the adoption of ASU 2022-02 and evaluation of ASU 2023-05 - Consolidation: Includes wholly-owned or controlled subsidiaries; Variable Interest Entities (VIEs) are consolidated if the Company is the primary beneficiary[74][75] - Real Estate Valuation: Purchase price allocated to land, building, and intangibles; depreciation over estimated useful lives (3-40 years); impairment assessed if undiscounted future cash flows are less than carrying value[76][79] - Impairment Charge: A $305.9 million charge was recorded in Q2 2023 for 625 Madison Avenue due to increased ground rent[80] - Debt & Preferred Equity Investments: Measured at net amount expected to be collected; allowance for loan losses based on market conditions, historical data, and forecasts; risk ratings (1-3) assigned[107][108][110] - Income Taxes: SL Green is a REIT, generally not subject to federal income tax; Taxable REIT Subsidiaries (TRSs) generate federal and state income tax liability[115][117] - ASU Adoption: Adopted ASU 2022-02 (Credit Losses) on Jan 1, 2023, with no material impact; evaluating ASU 2023-05 (Joint Venture Formations)[125][126] 3. Property Acquisitions During the nine months ended September 30, 2023, SL Green Realty Corp. did not acquire any properties from a third party - No Acquisitions: No properties acquired from third parties during the nine months ended September 30, 2023[128] 4. Properties Held for Sale and Property Dispositions As of September 30, 2023, no properties were classified as held for sale, and the Company disposed of a 49.9% interest in 245 Park Avenue, resulting in deconsolidation and a $28.3 million loss on sale - Properties Held for Sale: None as of September 30, 2023[129] Property Dispositions (9 months ended Sep 30, 2023) | Property | Disposition Date | Property Type | Approximate Usable Square Feet | Sales Price (in millions) | Loss on Sale (in millions) | | :-------------- | :--------------- | :------------ | :----------------------------- | :------------------------ | :------------------------- | | 245 Park Avenue | June 2023 | Fee Interest | 1,782,793 | $1,995.0 | $(28.3) | 5. Debt and Preferred Equity Investments The Company's debt and preferred equity investments decreased significantly from $623.3 million at December 31, 2022, to $334.3 million at September 30, 2023, primarily due to redemptions/sales/equity ownership conversions, with the allowance for loan losses increasing to $13.5 million and three investments totaling $88.8 million not performing Debt and Preferred Equity Investments Balance | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Balance at end of period | $334,327 | $623,280 | Allowance for Loan Losses | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Balance at end of period | $13,520 | $6,630 | - Non-Performing Investments: As of September 30, 2023, three investments with carrying values totaling $88.8 million were not performing[137] - 625 Madison Avenue: Mezzanine debt investments converted to a 90.43% ownership interest in September 2023 following a UCC foreclosure[145] 6. Investments in Unconsolidated Joint Ventures The book value of investments in unconsolidated joint ventures was $3.2 billion as of September 30, 2023, with the Company disposing of its 50.0% interest in 121 Greene Street for a $0.3 million loss, and several joint venture loans are in maturity default or under discussion for extension - Book Value: $3,152,752 thousand as of September 30, 2023[148][167] - VIEs: 800 Third Avenue, 21 East 66th Street, and 625 Madison Avenue are VIEs where the Company is not the primary beneficiary[150] Disposition of Joint Venture Interests (9 months ended Sep 30, 2023) | Property | Ownership Interest Disposed | Disposition Date | Gross Asset Valuation (in millions) | Loss on Sale (in millions) | | :---------------- | :-------------------------- | :--------------- | :---------------------------------- | :------------------------- | | 121 Greene Street | 50.0% | February 2023 | $14.0 | $(0.3) | Joint Venture Mortgages and Other Loans Payable, Net | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | Total joint venture mortgages and other loans payable, net | $14,707,926 | $12,348,954 | - Loan Defaults: Loans for 717 Fifth Avenue and 11 West 34th Street were in maturity default as of the filing date[163] 7. Deferred Costs Deferred costs, primarily deferred leasing costs, decreased from $121.2 million at December 31, 2022, to $108.4 million at September 30, 2023, due to accumulated amortization Deferred Costs, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----- | :----------- | :----------- | | Net | $108,370 | $121,157 | - Composition: Primarily deferred leasing costs[171] 8. Mortgages and Other Loans Payable Mortgages and other loans payable, net, significantly decreased from $3.2 billion at December 31, 2022, to $1.5 billion at September 30, 2023, largely due to the deconsolidation of 245 Park Avenue Mortgages and Other Loans Payable, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total mortgages and other loans payable, net | $1,512,746 | $3,227,563 | | Fixed Rate Debt | $1,398,724 | $3,115,814 | | Floating Rate Debt | $120,148 | $120,148 | - Impact of 245 Park Avenue: Deconsolidation of 245 Park Avenue significantly reduced fixed rate debt by $1,712,750 thousand[173] 9. Corporate Indebtedness The Company's corporate indebtedness includes a $1.25 billion revolving credit facility and $1.25 billion in term loans, with the $425.0 million 2022 term loan fully repaid in September 2023, and the Company remains in compliance with all restrictive covenants - 2021 Credit Facility: Consists of a $1.25 billion revolving credit facility and $1.25 billion in term loans (Term Loan A: $1.05B, Term Loan B: $200M)[176] - Undrawn Capacity: $850.0 million under the 2021 credit facility as of September 30, 2023[180] - 2022 Term Loan: The $425.0 million term loan was repaid in full in September 2023[182] - Senior Unsecured Notes: $100.0 million outstanding, maturing December 2025[185] - Compliance: The Company was in compliance with all restrictive covenants as of September 30, 2023[188] Combined Aggregate Principal Maturities (in thousands) | Year | Total | | :----------- | :----------- | | Remaining 2023 | $261,635 | | 2024 | $537,237 | | 2025 | $470,000 | | 2026 | $0 | | 2027 | $1,950,000 | | Thereafter | $150,000 | | Total | $3,368,872 | 10. Related Party Transactions Related party transactions include services from Alliance Building Services, investments by Marc Holliday and Andrew Mathias in One Vanderbilt, and lease agreements for corporate headquarters and Summit One Vanderbilt - Alliance Building Services: Income from profit participation was $0.0 million for the three months ended September 30, 2023, compared to $1.4 million for the same period in 2022[193] - One Vanderbilt Investment: Marc Holliday and Andrew Mathias exercised rights to tender 50% of their interests in 2022 for $17.9 million and $11.9 million, respectively[195] - One Vanderbilt Leases: Rent expense for corporate headquarters was $0.7 million (Q3 2023); rent expense for Summit One Vanderbilt was $17.0 million (Q3 2023), with $11.7 million recognized as income in equity in net loss from unconsolidated joint ventures[198] 11. Noncontrolling Interests on the Company's Consolidated Financial Statements Noncontrolling interests in the Operating Partnership decreased from $269.9 million at December 31, 2022, to $248.2 million at September 30, 2023, primarily due to net loss and distributions, partially offset by issuance of common units and fair value adjustments Noncontrolling Interests in Operating Partnership (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Balance at end of period | $248,222 | $269,993 | - Ownership: Noncontrolling unit holders owned 6.04% (4,139,334 units) of the Operating Partnership as of September 30, 2023[201] - Preferred Units: Various series of preferred units outstanding with stated distribution rates and liquidation preferences[204] 12. Stockholders' Equity of the Company The Company's total stockholders' equity decreased to $4.0 billion as of September 30, 2023, with no share repurchases occurring during the nine months ended September 30, 2023, under the $3.5 billion share repurchase program - Total SL Green Stockholders' Equity: $4,039,713 thousand as of September 30, 2023[23] - Common Stock: 64,397,983 shares issued and outstanding as of September 30, 2023[210] - Share Repurchase Program: $3.5 billion authorized; no repurchases during the nine months ended September 30, 2023[213][214] - Perpetual Preferred Stock: 9,200,000 shares of 6.50% Series I Cumulative Redeemable Preferred Stock outstanding[215] DRSPP Activity (9 months ended Sep 30, 2023) | Metric | 9 Months Ended Sep 30, 2023 | | :-------------------------------------- | :-------------------------- | | Shares of common stock issued | 14,736 | | Dividend reinvestments/stock purchases | $439 | - Basic (Loss) Earnings Per Share: $(6.63) for the nine months ended September 30, 2023[26] 13. Partners' Capital of the Operating Partnership The Operating Partnership's total partners' capital decreased to $4.0 billion as of September 30, 2023, with the Company owning 64,397,983 general and limited partnership interests and 9,200,000 Series I Preferred Units - Total SLGOP Partners' Capital: $4,039,713 thousand as of September 30, 2023[47] - Company Ownership: SL Green owns 64,397,983 general and limited partnership interests and 9,200,000 Series I Preferred Units[221] - Limited Partner Units: Non-SL Green limited partners owned 6.04% (4,139,334 common units) as of September 30, 2023[224] - Basic (Loss) Earnings Per Unit: $(6.63) for the nine months ended September 30, 2023[50] 14. Share-based Compensation The Company has various share-based compensation plans for employees and directors, with no stock options granted in 2023, and restricted stock and LTIP units resulting in $5.8 million and $31.2 million in compensation expense for the nine months ended September 30, 2023, respectively - 2005 Stock Option and Incentive Plan: 4.0 million fungible units were available for issuance as of September 30, 2023[228] - Stock Options: 193,480 options outstanding at September 30, 2023; no compensation expense recognized for the nine months ended September 30, 2023[233][234] - Restricted Shares: 3,769,524 shares outstanding at September 30, 2023; compensation expense of $5.8 million for the nine months ended September 30, 2023[235] - LTIP Units: $50.5 million of total unrecognized compensation expense as of September 30, 2023; compensation expense of $31.2 million for the nine months ended September 30, 2023[236][237] - Deferred Compensation Plan for Directors: Compensation expense of $2.5 million for the nine months ended September 30, 2023[241] 15. Accumulated Other Comprehensive Income Accumulated other comprehensive income increased to $69.6 million as of September 30, 2023, primarily due to unrealized gains on derivative instruments, partially offset by reclassifications into earnings Accumulated Other Comprehensive Income (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | Balance at end of period | $69,616 | $49,604 | | Net unrealized gain (loss) on derivative instruments | $67,951 | $47,800 | | SL Green's share of joint venture net unrealized gain (loss) on derivative instruments | $3,432 | $2,046 | | Net unrealized loss on marketable securities | $(1,767) | $(242) | - Reclassifications: $(40,438) thousand reclassified from accumulated other comprehensive income (AOCI) into earnings during the nine months ended September 30, 2023[244] 16. Fair Value Measurements The Company measures certain financial assets and liabilities at fair value, primarily using Level 2 inputs for marketable securities and derivative instruments, and Level 3 inputs for debt and preferred equity investments and borrowings, with a $(17.0) million fair value adjustment for the retained interest in 245 Park Avenue upon deconsolidation - Fair Value Hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs)[247] Assets Measured at Fair Value (Sep 30, 2023, in thousands) | Asset | Total | Level 1 | Level 2 | Level 3 | | :-------------------------------------- | :------- | :------ | :------- | :------ | | Marketable securities available-for-sale | $9,616 | — | $9,616 | — | | Interest rate cap and swap agreements | $77,921 | — | $77,921 | — | Liabilities Measured at Fair Value (Sep 30, 2023, in thousands) | Liability | Total | Level 1 | Level 2 | Level 3 | | :-------------------------------------- | :------- | :------ | :------- | :------ | | Interest rate cap and swap agreements | $5,968 | — | $5,968 | — | - Non-Recurring Fair Value Adjustment: $(17.0) million for retained interest in 245 Park Avenue in Q3 2023 upon deconsolidation[249] - Fair Value of Debt & Preferred Equity Investments: Estimated between $0.3 billion and $0.3 billion as of September 30, 2023 (Level 3)[255] 17. Financial Instruments: Derivatives and Hedging The Company uses derivative instruments, such as interest rate swaps and caps, to manage interest rate risk, with all designated instruments being effective hedges, and the fair value of consolidated derivative financial instruments was $71.9 million as of September 30, 2023 - Purpose: Manage interest rate risk for variable rate debt[259] - Fair Value of Consolidated Derivatives (net asset): $71,953 thousand as of September 30, 2023[261] - Terminated Hedges: $(46.8) million of gains/losses in accumulated other comprehensive income (AOCI) expected to be reclassified to interest expense within 12 months[265] - Joint Venture Derivatives: Fair value of joint ventures' derivative financial instruments was $74,912 thousand as of September 30, 2023[269] 18. Lease Income Total rental revenue for operating leases increased for the nine months ended September 30, 2023, compared to the prior year, driven by fixed and variable lease payments, with sublease income contributing significantly to total lease payments Total Rental Revenue (Operating Leases, in thousands) | Period | 2023 | 2022 | | :----- | :----------- | :----------- | | 3 months | $150,991 | $162,952 | | 9 months | $531,978 | $474,215 | - Sublease Income: $49.7 million (3 months) and $147.4 million (9 months) for 2023[272] - Sales-Type Leases Interest Income: $1,113 thousand (3 months) and $3,328 thousand (9 months) for 2023[273] 19. Commitments and Contingencies As of September 30, 2023, the Company and Operating Partnership were not involved in any material litigation or environmental liabilities that would have a material adverse impact on their financial position - Legal Proceedings: No material litigation threatened or ongoing[274] - Environmental Matters: Properties are in material compliance; no material adverse environmental liability expected[275] 20. Segment Information The Company operates in two reportable segments: real estate and debt and preferred equity investments, with the real estate segment generating the majority of revenues and assets but incurring a significant net loss for the nine months ended September 30, 2023, while the debt and preferred equity segment remained profitable - Segments: Real Estate and Debt and Preferred Equity Investments[277] Selected Segment Results (9 months ended Sep 30, 2023, in thousands) | Metric | Real Estate Segment | Debt and Preferred Equity Segment | | :------------ | :------------------ | :-------------------------------- | | Total Revenues | $590,016 | $27,849 | | Net (Loss) Income | $(446,005) | $6,726 | | Total Assets (Sep 30, 2023) | $9,354,243 | $336,339 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, including an overview of its business, critical accounting policies, detailed comparisons of financial performance, and discussions on liquidity, capital resources, indebtedness, market risks, and forward-looking statements 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, with a portfolio of 51 properties totaling 29.7 million square feet as of September 30, 2023 - Business Focus: Acquisition, development, and management of commercial real estate, principally office properties in the New York metropolitan area[282] - Portfolio (as of Sep 30, 2023): 27 consolidated properties (10.9 million sq ft) and 24 unconsolidated properties (18.8 million sq ft), totaling 51 properties (29.7 million sq ft)[283] - Manhattan Office Occupancy: 89.3% weighted average leased occupancy[283] - Debt and Preferred Equity Investments: Book value of $334.3 million[285] Critical Accounting Policies and Estimates The Company's critical accounting policies and estimates, including those for real estate investments, joint ventures, lease classification, revenue recognition, and debt/preferred equity investments, remain consistent with the 2022 Annual Report on Form 10-K, with no material changes during the three and nine months ended September 30, 2023 - No Material Changes: Critical accounting policies and estimates are consistent with the 2022 Annual Report on Form 10-K, with no material changes during the three and nine months ended September 30, 2023[286] Results of Operations Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022 For the three months ended September 30, 2023, SL Green reported a net loss of $(21.7) million, a significant decline from a net income of $12.2 million in the prior year, driven by decreased rental and investment income, increased interest expense, and higher property operating expenses, partially offset by a decrease in equity in net loss from unconsolidated joint ventures Key Financial Changes (3 Months Ended Sep 30, YoY) | Metric (in millions) | 2023 | 2022 | $ Change | % Change | | :------------------- | :------ | :------ | :------- | :------- | | Net (Loss) Income | $(21.7) | $12.2 | $(33.9) | (277.9)% | | Total Revenues | $173.2 | $212.5 | $(39.3) | (18.5)% | | Rental Revenue | $151.0 | $163.0 | $(12.0) | (7.4)% | | Investment Income | $9.7 | $29.5 | $(19.8) | (67.1)% | | Interest Expense, net | $29.6 | $23.9 | $5.7 | 23.8% | | Equity in net loss from unconsolidated joint ventures | $(15.1) | $(22.0) | $6.9 | (31.4)% | - Rental revenue decreased primarily due to the deconsolidation of 245 Park Avenue ($9.2 million)[291] - Investment income decreased due to a lower weighted average debt and preferred equity investment balance and a lower weighted average yield[294] - Interest expense increased due to rising SOFR rates, higher interest expense from unsecured corporate term loans ($12.4 million) and the revolving credit facility ($6.5 million)[298] Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022 For the nine months ended September 30, 2023, SL Green reported a substantial net loss of $(439.3) million, a significant increase from $(12.3) million in the prior year, primarily due to a $305.5 million depreciable real estate impairment charge for 625 Madison Avenue, increased interest expense, and higher property operating expenses, partially offset by increased rental revenue Key Financial Changes (9 Months Ended Sep 30, YoY) | Metric (in millions) | 2023 | 2022 | $ Change | % Change | | :------------------- | :-------- | :-------- | :-------- | :--------- | | Net Loss | $(439.3) | $(12.3) | $(427.0) | 3,471.5% | | Depreciable real estate reserves and impairment | $(305.5) | — | $(305.5) | 100.0% | | Total Revenues | $617.8 | $601.8 | $16.0 | 2.7% | | Rental Revenue | $532.0 | $474.2 | $57.8 | 12.2% | | Investment Income | $27.8 | $69.8 | $(42.0) | (60.2)% | | Interest Expense, net | $(116.0) | $(57.8) | $(58.2) | 100.7% | | Equity in net loss from unconsolidated joint ventures | $(44.5) | $(31.3) | $(13.2) | 42.2% | - Rental revenues increased primarily due to the acquisition of 245 Park Avenue ($67.8 million) during the third quarter of 2022, prior to its deconsolidation[306] - Investment income decreased due to a lower weighted average debt and preferred equity investment balance and a lower weighted average yield[310] - Equity in net loss from unconsolidated joint ventures increased due to increased interest expense across the joint venture portfolio ($50.7 million) and a decrease in income from operations at 919 Third Avenue ($7.8 million)[316] Liquidity and Capital Resources SL Green expects to meet its liquidity requirements through cash flow from operations, cash on hand, divestitures, credit facilities, and potential debt/equity offerings, with $1.0 billion in liquidity as of September 30, 2023, including $850.0 million available under its revolving credit facility and $199.4 million in consolidated cash - Sources of Funds: Cash flow from operations, cash on hand, divestitures, credit facilities, secured/unsecured financing, equity/debt offerings[322] - Liquidity (as of Sep 30, 2023): $1.0 billion, comprising $850.0 million revolving credit facility availability and $199.4 million consolidated cash[324] Estimated Capital Expenditures (Remaining 2023, in millions) | Category | Consolidated Properties | Joint Venture Properties | | :-------------------------------------- | :---------------------- | :----------------------- | | Recurring Capital Expenditures | $19.5 | — | | Development or Redevelopment Expenditures | $26.5 | $62.9 | Cash Flow Changes (9 Months Ended Sep 30, YoY, in thousands) | Metric | 2023 | 2022 | Change | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $181,338 | $249,628 | $(68,290) | | Net cash used in financing activities | $(527,753) | $(474,848) | $(52,905) | Capitalization The Company's authorized capital stock includes common, excess, and preferred shares, with no share repurchases made during the nine months ended September 30, 2023, under the $3.5 billion share repurchase program - Authorized Capital Stock: 260,000,000 shares ($0.01 par value), including 160,000,000 common, 75,000,000 excess, and 25,000,000 preferred shares[331] - Common Stock Outstanding (Sep 30, 2023): 64,397,983 shares[331] - Share Repurchase Program: $3.5 billion authorized; no repurchases in the nine months ended September 30, 2023[332][333] - DRSPP: Issued 14,736 common shares for $439 thousand in proceeds (9 months ended Sep 30, 2023)[335] - 2005 Stock Option and Incentive Plan: 4.0 million fungible units available for issuance[336] Indebtedness Total consolidated debt decreased significantly from $5.5 billion at December 31, 2022, to $3.4 billion at September 30, 2023, primarily due to the repayment of the 2022 term loan and deconsolidation of 245 Park Avenue, with a weighted average term to maturity of 2.82 years Total Consolidated Debt (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------- | :----------- | :----------- | | Total debt | $3,368,872 | $5,535,962 | - Fixed Rate Debt: 96.4% of total debt (Sep 30, 2023)[340] - Variable Rate Debt: 3.6% of total debt (Sep 30, 2023), with a net exposure of (1.2)% after mitigating effects of variable rate investments[340][342] - Weighted Average Term to Maturity: 2.82 years (Sep 30, 2023)[341] - 2021 Credit Facility: $400.0 million drawn on revolving credit facility, $1.25 billion outstanding on term loans[346] - 2022 Term Loan: The $425.0 million term loan was repaid in full in September 2023[348] Interest Rate Risk The Company is exposed to interest rate changes from its variable rate debt, managed through derivative instruments and variable rate investments, where a hypothetical 100 basis point increase in floating rates would reduce consolidated annual interest cost by $0.4 million but increase joint venture annual interest cost by $12.2 million - Exposure: Primarily from variable rate debt[352] - Mitigation: Interest rate derivative instruments and variable rate debt/preferred equity investments[352] - Impact of 100 bps increase (hypothetical): Consolidated annual interest cost (net) reduced by $0.4 million; Joint Venture annual interest cost increased by $12.2 million[352] - Derivative Instruments: Recognized at fair value on the balance sheet; effective hedging instruments[353] Off-Balance Sheet Arrangements The Company has off-balance sheet investments, including joint ventures and debt/preferred equity investments, primarily accounted for under the equity method due to significant influence but not control - Types: Joint ventures and debt/preferred equity investments[355] - Accounting Method: Primarily equity method for joint ventures where significant influence but not control exists[355] Dividends/Distributions To maintain REIT qualification, the Company must distribute at least 90% of its REIT taxable income, with dividends payable in cash, stock, or a combination, subject to IRS limitations and available cash after meeting operating requirements and debt service - REIT Qualification: Must distribute at least 90% of REIT taxable income[356] - Payment Form: Cash, stock, or combination[357] - Conditions: Subject to IRS limitations, available cash, and meeting operating/debt service requirements[357][358] Insurance The Company maintains "all-risk" property and rental value coverage, including terrorism, through two property insurance programs and liability insurance, with captive insurance companies (Belmont and Ticonderoga) providing additional coverage for NBCR terrorist acts - Coverage: "All-risk" property, rental value, liability, and terrorism (excluding nuclear, biological, chemical, and radiological terrorism - NBCR)[359] - Captive Insurers: Belmont Insurance Company and Ticonderoga Insurance Company provide NBCR terrorism coverage[359] - Risks: Potential for uninsured losses or exceeding policy limits; default on debt covenants if insurance is impractical/impossible to maintain[359][360] Funds from Operations (FFO) FFO, a non-GAAP measure, is used to evaluate REIT performance, excluding real estate depreciation, amortization, property sales gains/losses, and impairment charges, providing insight into operational trends but not cash flow or liquidity, and decreased for both the three and nine months ended September 30, 2023 - Definition: Net income (loss) excluding gains/losses from property sales, real estate impairment, plus real estate depreciation/amortization, and adjustments for unconsolidated partnerships[361] - Purpose: Supplemental measure of operating performance, reflects trends in occupancy, rental rates, operating costs, and interest costs[363] - Non-GAAP: Not a measure of cash flow or liquidity[363] Funds from Operations (FFO) Attributable to SL Green Common Stockholders and Unit Holders (in thousands) | Period | 2023 | 2022 | | :------- | :---------- | :---------- | | 3 months | $87,739 | $114,242 | | 9 months | $291,648 | $358,791 | Inflation The Company expects inflationary increases to be partially offset by contractual rent increases and expense escalations in its office leases, which include provisions for real estate tax and operating expense adjustments - Mitigation: Contractual rent increases and expense escalations (real estate tax, operating expenses, CPI, porters' wage) in office leases[365] Accounting Standards Updates This section refers to Note 2 for details on recent accounting standards updates, including the adoption of ASU 2022-02 and the evaluation of ASU 2023-05 - Refer to Note 2: For details on ASU 2022-02 (Credit Losses) and ASU 2023-05 (Joint Venture Formations)[366] Forward-Looking Information The report contains forward-looking statements based on assumptions and analyses, which are subject to risks and uncertainties that may cause actual results to differ materially, including economic conditions, real estate market dynamics, capital availability, interest rate changes, and regulatory compliance - Nature: Statements about future events, activities, or developments[368] - Disclaimer: Not guarantees of future performance; actual results may differ materially[369] - Key Risks: General economic conditions, New York City real estate market, acquisitions/dispositions/development risks, debt/preferred equity investment risks, tenant/borrower creditworthiness, adverse changes in real estate markets, capital availability, financing costs (interest rates), financial covenant compliance, REIT status, joint venture risks, terrorist attacks, insurance adequacy, legislative/regulatory changes[370] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the "Interest Rate Risk" discussion within Management's Discussion and Analysis of Financial Condition and Results of Operations for quantitative and qualitative disclosures about market risk, with no material changes to market risk exposures since December 31, 2022 - Refer to MD&A: For details on interest rate risk[371] - No Material Changes: Market risk exposures have not materially changed since December 31, 2022[371] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures for both SL Green Realty Corp. and SL Green Operating Partnership, L.P., with management concluding these controls were effective as of September 30, 2023, and no significant changes in internal control over financial reporting occurred during the quarter SL Green Realty Corp. SL Green Realty Corp.'s management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2023, concluding they were effective, with no significant changes in internal control over financial reporting during the quarter - Disclosure Controls and Procedures: Evaluated as effective as of September 30, 2023[374] - Internal Control Over Financial Reporting: No significant changes during the quarter ended September 30, 2023[375] SL Green Operating Partnership, L.P. SL Green Operating Partnership, L.P.'s management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of September 30, 2023, concluding they were effective, with no significant changes in internal control over financial reporting during the quarter - Disclosure Controls and Procedures: Evaluated as effective as of September 30, 2023[377] - Internal Control Over Financial Reporting: No significant changes during the quarter ended September 30, 2023[378] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of September 30, 2023, neither SL Green Realty Corp. nor SL Green Operating Partnership, L.P. were involved in any material litigation that could adversely impact them - No Material Litigation: No material legal proceedings threatened or ongoing[379] Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as of September 30, 2023 - No Material Changes: Risk factors remain consistent with the 2022 Annual Report on Form 10-K[380] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company has a $3.5 billion share repurchase program, but no share repurchases were executed during the nine months ended September 30, 2023 - Share Repurchase Program: $3.5 billion authorized[382] - Repurchases (9 months ended Sep 30, 2023): None[383] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No Defaults: No defaults upon senior securities[385] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not Applicable[386] Item 5. Other Information No other information was reported under this item - None[387] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, financial statements in Inline XBRL, and the cover page interactive data file - Exhibits: Includes certifications (31.1-31.4, 32.1-32.4), financial statements in Inline XBRL (101), and Cover Page Interactive Data File (104)[388][389] Signatures - Signatory: Matthew J. DiLiberto, Chief Financial Officer[393][395] - Date: November 3, 2023[393][395]