UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
For the quarterly period ended June 30, 2022
OR
For the transition period from to
Commission File Number: 1-13199 (SL Green Realty Corp.)
Commission File Number: 33-167793-02 (SL Green Operating Partnership, L.P.)
______________________________________________________________________
(Exact name of registrant as specified in its charter)
______________________________________________________________________
| SL Green Realty Corp. | ||||||||
| SL Green Operating Partnership, L.P. | ||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices—Zip Code)
(212 ) 594-2700
(Registrant's telephone number, including area code)
______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
SL Green Realty Corp. Yes x No o SL Green Operating Partnership, L.P. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
SL Green Realty Corp. Yes x No o SL Green Operating Partnership, L.P. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
SL Green Realty Corp.
| x | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | |||||||||||||
| Smaller Reporting Company | Emerging Growth Company | |||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | |||||||||||||
SL Green Operating Partnership, L.P.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| x | ||||||||||||||
| Smaller Reporting Company | Emerging Growth Company | |||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | |||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
SL Green Realty Corp. Yes ☐ No x SL Green Operating Partnership, L.P. Yes ☐ No x
Securities registered pursuant to Section 12(b) of the Act:
| Registrant | Trading Symbol | Title of Each Class | Name of Each Exchange on Which Registered | |||||||||||||||||
| SL Green Realty Corp. | ||||||||||||||||||||
| SL Green Realty Corp. | ||||||||||||||||||||
As of August 3, 2022, 64,300,766 shares of SL Green Realty Corp.'s common stock, par value $0.01 per share, were outstanding. As of August 3, 2022, 689,437 common units of limited partnership interest of SL Green Operating Partnership, L.P. were held by non-affiliates. There is no established trading market for such units.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2022 of SL Green Realty Corp. and SL Green Operating Partnership, L.P. Unless stated otherwise or the context otherwise requires, references to "SL Green Realty Corp.," the "Company" or "SL Green" mean SL Green Realty Corp. and its consolidated subsidiaries, including SL Green Operating Partnership, L.P.; and references to "SL Green Operating Partnership, L.P.," the "Operating Partnership" or "SLGOP" mean SL Green Operating Partnership, L.P. and its consolidated subsidiaries. The terms "we," "our" and "us" mean the Company and all the entities owned or controlled by the Company, including the Operating Partnership.
The Company is a Maryland corporation which operates as a self-administered and self-managed real estate investment trust, or REIT, and is the sole managing general partner of the Operating Partnership. As a general partner of the Operating Partnership, the Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.
As of June 30, 2022, the Company owns 93.94% of the outstanding general and limited partnership interest in the Operating Partnership and owns 9,200,000 Series I Preferred Units of the Operating Partnership. As of June 30, 2022, noncontrolling investors held, in aggregate, a 6.06% limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership.
The Company and the Operating Partnership are managed and operated as one entity. The financial results of the Operating Partnership are consolidated into the financial statements of the Company. The Company has no significant assets other than its investment in the Operating Partnership. Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership. Therefore, the assets and liabilities of the Company and the Operating Partnership are substantially the same.
Noncontrolling interests in the Operating Partnership, stockholders' equity of the Company and partners' capital of the Operating Partnership are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership not owned by the Company are accounted as noncontrolling interests, within mezzanine equity, in the Company's and the Operating Partnership's consolidated financial statements.
We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
•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; and
•Combined reports create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
•consolidated financial statements; and
•the following notes to the consolidated financial statements:
◦Note 11, Noncontrolling Interests on the Company’s Consolidated Financial Statements;
◦Note 12, Stockholders' Equity of the Company; and
◦Note 13, Partners' Capital of the Operating Partnership.
This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership, respectively, in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Company, in both their capacity as the principal executive officer and principal financial officer of the Company and the principal executive officer and principal financial officer of the general partner of the Operating Partnership, have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
On December 2, 2021, our Board of Directors declared an ordinary dividend of $0.3108 per share and a special dividend of $2.4392 per share (together, "the Total Dividend"). The Total Dividend was paid on January 18, 2022 to shareholders of record at the close of business on December 15, 2021 ("the Record Date"). Shareholders had the opportunity to elect to receive the Total Dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed. As a result of the elections made, the cash option was oversubscribed and was prorated. Shareholders who elected to receive cash received, for each share of common stock they owned as of the Record Date, approximately $0.3976 in cash and 0.0295 shares of common stock. Shareholders who elected to receive shares received, for each share of common stock they owned as of the Record Date, approximately 0.0345 shares of common stock. The number of shares issued was calculated based on the volume weighted average trading price of SLG's common stock between January 5-7, 2022 of $79.71 per share.
To mitigate the dilutive impact of the common stock issued in the special dividend, the Board of Directors also authorized a reverse stock split, which was effective after markets closed on January 21, 2022. On January 10, 2022, a committee of the Board of Directors calculated the ratio for the reverse stock split of our issued and outstanding shares of common stock as 1.03060-for-1. After the issuance of the dividend and the completion of the reverse stock split, the number of shares of our common stock outstanding was equivalent to the number of total shares outstanding on the Record Date (not including any issuances or repurchases that occurred following the Record Date, as well as any fractional shares that would have been issued but for which cash-in-lieu was paid). However, on a relative basis, some individual shareholders may have more shares of SLG’s common stock, and some individual shareholders may have fewer shares of our common stock, depending on their individual elections to receive cash or stock and as a result of the cash option being oversubscribed.
All share-related references and measurements including the number of shares outstanding, share prices, number of shares repurchased, earnings per share, dividends per share, and share-based compensation awards, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Quarterly Report on Form 10-Q.
SL GREEN REALTY CORP. AND SL GREEN OPERATING PARTNERSHIP, L.P.
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||||||||
| Item 1. | FINANCIAL STATEMENTS | |||||||
| FINANCIAL STATEMENTS OF SL GREEN REALTY CORP. | ||||||||
| Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 | ||||||||
| Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Consolidated Statements of Equity for the three and six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| FINANCIAL STATEMENTS OF SL GREEN OPERATING PARTNERSHIP, L.P. | ||||||||
| Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 | ||||||||
| Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Consolidated Statements of Capital for the three and six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) | ||||||||
| Notes to Consolidated Financial Statements (unaudited) | ||||||||
| Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
| Quantitative and Qualitative Disclosures about Market Risk | ||||||||
| Controls and Procedures (SL Green Realty Corp. and SL Green Operating Partnership, L.P.) | ||||||||
| PART II. | OTHER INFORMATION | |||||||
| Legal Proceedings | ||||||||
| Risk Factors | ||||||||
| Unregistered Sales of Equity Securities and Use of Proceeds | ||||||||
| Defaults Upon Senior Securities | ||||||||
| Mine Safety Disclosures | ||||||||
| Other Information | ||||||||
| Exhibits | ||||||||
| Signatures | ||||||||
SL GREEN REALTY CORP. AND SL GREEN OPERATING PARTNERSHIP, L.P.
PART I FINANCIAL INFORMATION
FITEM 1. FINANCIAL STATEMENTS
5
| June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Commercial real estate properties, at cost: | |||||||||||
Land and land interests | $ | $ | |||||||||
Building and improvements | |||||||||||
Building leasehold and improvements | |||||||||||
| Right of use asset - operating leases | |||||||||||
Less: accumulated depreciation | ( | ( | |||||||||
| Assets held for sale | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Investments in marketable securities | |||||||||||
| Tenant and other receivables | |||||||||||
| Related party receivables | |||||||||||
| Deferred rents receivable | |||||||||||
Debt and preferred equity investments, net of discounts and deferred origination fees of $ | |||||||||||
| Investments in unconsolidated joint ventures | |||||||||||
| Deferred costs, net | |||||||||||
| Other assets | |||||||||||
Total assets (1) | $ | $ | |||||||||
| Liabilities | |||||||||||
| Mortgages and other loans payable, net | $ | $ | |||||||||
| Revolving credit facility, net | |||||||||||
| Unsecured term loans, net | |||||||||||
| Unsecured notes, net | |||||||||||
| Accrued interest payable | |||||||||||
| Other liabilities | |||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Deferred revenue | |||||||||||
| Lease liability - financing leases | |||||||||||
| Lease liability - operating leases | |||||||||||
| Dividend and distributions payable | |||||||||||
| Security deposits | |||||||||||
| Liabilities related to assets held for sale | |||||||||||
| Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities | |||||||||||
Total liabilities (1) | |||||||||||
6
| June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Commitments and contingencies | |||||||||||
| Noncontrolling interests in Operating Partnership | |||||||||||
| Preferred units | |||||||||||
| Equity | |||||||||||
| SL Green stockholders' equity: | |||||||||||
Series I Preferred Stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in-capital | |||||||||||
| Treasury stock at cost | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Retained earnings | |||||||||||
| Total SL Green stockholders' equity | |||||||||||
| Noncontrolling interests in other partnerships | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
SL Green Realty Corp.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Rental revenue, net | $ | $ | $ | $ | ||||||||||||||||||||||
| Investment income | ||||||||||||||||||||||||||
| Other income | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||
Operating expenses, including related party expenses of $ | ||||||||||||||||||||||||||
| Real estate taxes | ||||||||||||||||||||||||||
| Operating lease rent | ||||||||||||||||||||||||||
| Interest expense, net of interest income | ||||||||||||||||||||||||||
| Amortization of deferred financing costs | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Transaction related costs | ||||||||||||||||||||||||||
| Marketing, general and administrative | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| Equity in net loss from unconsolidated joint ventures | ( | ( | ( | ( | ||||||||||||||||||||||
| Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate | ( | ( | ( | |||||||||||||||||||||||
| Purchase price and other fair value adjustments | ( | ( | ( | |||||||||||||||||||||||
| (Loss) gain on sale of real estate, net | ( | ( | ||||||||||||||||||||||||
| Depreciable real estate reserves and impairment | ( | |||||||||||||||||||||||||
| Net (loss) income | ( | ( | ||||||||||||||||||||||||
| Net (income) loss attributable to noncontrolling interests: | ||||||||||||||||||||||||||
| Noncontrolling interests in the Operating Partnership | ( | ( | ||||||||||||||||||||||||
| Noncontrolling interests in other partnerships | ( | ( | ||||||||||||||||||||||||
| Preferred units distributions | ( | ( | ( | ( | ||||||||||||||||||||||
| Net (loss) income attributable to SL Green | ( | ( | ||||||||||||||||||||||||
| Perpetual preferred stock dividends | ( | ( | ( | ( | ||||||||||||||||||||||
| Net (loss) income attributable to SL Green common stockholders | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Basic (loss) earnings per share | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Diluted (loss) earnings per share | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||||||||||||
| Diluted weighted average common shares and common share equivalents outstanding | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
SL Green Realty Corp.
Consolidated Statements of Comprehensive (Loss) Income
(unaudited, in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Increase (decrease) in unrealized value of derivative instruments, including SL Green's share of joint venture derivative instruments | ( | ( | ||||||||||||||||||||||||
| (Decrease) increase in unrealized value of marketable securities | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | |||||||||||||||||||||||||
| Comprehensive (loss) income | ( | |||||||||||||||||||||||||
| Net income attributable to noncontrolling interests and preferred units distributions | ( | ( | ( | ( | ||||||||||||||||||||||
| Other comprehensive (income) loss attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Comprehensive (loss) income attributable to SL Green | $ | ( | $ | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
9
SL Green Realty Corp.
Consolidated Statements of Equity
(unaudited, in thousands, except per share data)
| SL Green Realty Corp. Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series I Preferred Stock | Shares | Par Value | Additional Paid- In-Capital | Treasury Stock | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Noncontrolling Interests | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interest in the Operating Partnership | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of special dividend paid primarily in stock | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interest in the Operating Partnership | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions to consolidated joint venture interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
10
SL Green Realty Corp.
Consolidated Statements of Equity
(unaudited, in thousands, except per share data)
| SL Green Realty Corp. Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series I Preferred Stock | Shares | Par Value | Additional Paid- In-Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Noncontrolling Interests | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interest in the Operating Partnership | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions to consolidated joint venture interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of special dividend paid primarily in stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interest in the Operating Partnership | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions to consolidated joint venture interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
11
SL Green Realty Corp.
Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating Activities | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Equity in net loss from unconsolidated joint ventures | |||||||||||
| Distributions of cumulative earnings from unconsolidated joint ventures | |||||||||||
| Equity in net loss on sale of interest in unconsolidated joint venture interest/real estate | |||||||||||
| Purchase price and other fair value adjustments | ( | ||||||||||
| Depreciable real estate reserves and impairment | |||||||||||
| Loss (gain) on sale of real estate, net | ( | ||||||||||
| Deferred rents receivable | ( | ||||||||||
| Non-cash lease expense | |||||||||||
| Other non-cash adjustments | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Tenant and other receivables | ( | ||||||||||
| Related party receivables | ( | ||||||||||
| Deferred lease costs | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable, accrued expenses, other liabilities and security deposits | ( | ||||||||||
| Deferred revenue | ( | ||||||||||
| Lease liability - operating leases | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing Activities | |||||||||||
| Acquisitions of real estate property | ( | ||||||||||
| Additions to land, buildings and improvements | ( | ( | |||||||||
| Investments in unconsolidated joint ventures | ( | ( | |||||||||
| Distributions in excess of cumulative earnings from unconsolidated joint ventures | |||||||||||
| Net proceeds from disposition of real estate/joint venture interest | |||||||||||
| Cash assumed from consolidation of real estate investment | |||||||||||
| Proceeds from sale or redemption of marketable securities | |||||||||||
| Purchases of marketable securities | ( | ||||||||||
| Other investments | ( | ||||||||||
| Origination of debt and preferred equity investments | ( | ( | |||||||||
| Repayments or redemption of debt and preferred equity investments | |||||||||||
| Net cash provided by investing activities | |||||||||||
12
SL Green Realty Corp.
Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Financing Activities | |||||||||||
| Proceeds from mortgages and other loans payable | |||||||||||
| Repayments of mortgages and other loans payable | ( | ( | |||||||||
| Proceeds from revolving credit facility and unsecured notes | |||||||||||
| Repayments of revolving credit facility and unsecured notes | ( | ( | |||||||||
| Proceeds from stock options exercised and DRSPP issuance | |||||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Redemption of preferred stock | ( | ( | |||||||||
| Redemption of OP units | ( | ( | |||||||||
| Distributions to noncontrolling interests in other partnerships | ( | ( | |||||||||
| Contributions from noncontrolling interests in other partnerships | |||||||||||
| Distributions to noncontrolling interests in the Operating Partnership | ( | ( | |||||||||
| Dividends paid on common and preferred stock | ( | ( | |||||||||
| Other obligations related to secured borrowing | |||||||||||
| Tax withholdings related to restricted share awards | ( | ( | |||||||||
| Deferred loan costs | ( | ( | |||||||||
| Principal payments of on financing lease liabilities | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of year | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |||||||||||
| Redemption of units in the Operating Partnership for a joint venture sale | $ | $ | |||||||||
| Issuance of special dividend paid primarily in stock | |||||||||||
| Tenant improvements and capital expenditures payable | |||||||||||
| Fair value adjustment to noncontrolling interest in the Operating Partnership | |||||||||||
| Consolidation of real estate investment | |||||||||||
| Extinguishment of debt in connection with property dispositions | |||||||||||
| Debt and preferred equity investments | |||||||||||
| Removal of fully depreciated commercial real estate properties | |||||||||||
| Share repurchase payable | |||||||||||
| Recognition of right of use assets and related lease liabilities | |||||||||||
13
SL Green Realty Corp.
Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
14
| June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Commercial real estate properties, at cost: | |||||||||||
Land and land interests | $ | $ | |||||||||
Building and improvements | |||||||||||
Building leasehold and improvements | |||||||||||
| Right of use asset - operating leases | |||||||||||
Less: accumulated depreciation | ( | ( | |||||||||
| Assets held for sale | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Investments in marketable securities | |||||||||||
| Tenant and other receivables | |||||||||||
| Related party receivables | |||||||||||
| Deferred rents receivable | |||||||||||
Debt and preferred equity investments, net of discounts and deferred origination fees of $ | |||||||||||
| Investments in unconsolidated joint ventures | |||||||||||
| Deferred costs, net | |||||||||||
| Other assets | |||||||||||
Total assets (1) | $ | $ | |||||||||
| Liabilities | |||||||||||
| Mortgages and other loans payable, net | $ | $ | |||||||||
| Revolving credit facility, net | |||||||||||
| Unsecured term loans, net | |||||||||||
| Unsecured notes, net | |||||||||||
| Accrued interest payable | |||||||||||
| Other liabilities | |||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Deferred revenue | |||||||||||
| Lease liability - financing leases | |||||||||||
| Lease liability - operating leases | |||||||||||
| Dividend and distributions payable | |||||||||||
| Security deposits | |||||||||||
| Liabilities related to assets held for sale | |||||||||||
| Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities | |||||||||||
Total liabilities (1) | |||||||||||
| Commitments and contingencies | |||||||||||
Limited partner interests in SLGOP ( | |||||||||||
| Preferred units | |||||||||||
15
| June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Capital | |||||||||||
| SLGOP partners' capital: | |||||||||||
Series I Preferred Units, $ | |||||||||||
SL Green partners' capital ( | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total SLGOP partners' capital | |||||||||||
| Noncontrolling interests in other partnerships | |||||||||||
| Total capital | |||||||||||
| Total liabilities and capital | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
16
SL Green Operating Partnership, L.P.
Consolidated Statements of Operations
(unaudited, in thousands, except per unit data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Rental revenue, net | $ | $ | $ | $ | ||||||||||||||||||||||
| Investment income | ||||||||||||||||||||||||||
| Other income | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||
Operating expenses, including related party expenses of $ | ||||||||||||||||||||||||||
| Real estate taxes | ||||||||||||||||||||||||||
| Operating lease rent | ||||||||||||||||||||||||||
| Interest expense, net of interest income | ||||||||||||||||||||||||||
| Amortization of deferred financing costs | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Transaction related costs | ||||||||||||||||||||||||||
| Marketing, general and administrative | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| Equity in net loss from unconsolidated joint ventures | ( | ( | ( | ( | ||||||||||||||||||||||
| Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate | ( | ( | ( | |||||||||||||||||||||||
| Purchase price and other fair value adjustments | ( | ( | ( | |||||||||||||||||||||||
| (Loss) gain on sale of real estate, net | ( | ( | ||||||||||||||||||||||||
| Depreciable real estate reserves and impairment | ( | |||||||||||||||||||||||||
| Net (loss) income | ( | ( | ||||||||||||||||||||||||
| Net (income) loss attributable to noncontrolling interests: | ||||||||||||||||||||||||||
| Noncontrolling interests in other partnerships | ( | ( | ||||||||||||||||||||||||
| Preferred units distributions | ( | ( | ( | ( | ||||||||||||||||||||||
| Net (loss) income attributable to SLGOP | ( | ( | ||||||||||||||||||||||||
| Perpetual preferred unit distributions | ( | ( | ( | ( | ||||||||||||||||||||||
| Net (loss) income attributable to SLGOP common unitholders | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Basic (loss) earnings per unit | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Diluted (loss) earnings per unit | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Basic weighted average common units outstanding | ||||||||||||||||||||||||||
| Diluted weighted average common units and common unit equivalents outstanding | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
17
SL Green Operating Partnership, L.P.
Consolidated Statements of Comprehensive (Loss) Income
(unaudited, in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Increase (decrease) in unrealized value of derivative instruments, including SLGOP's share of joint venture derivative instruments | ( | ( | ||||||||||||||||||||||||
| (Decrease) increase in unrealized value of marketable securities | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | |||||||||||||||||||||||||
| Comprehensive (loss) income | ( | |||||||||||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Other comprehensive (income) loss attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Comprehensive (loss) income attributable to SLGOP | $ | ( | $ | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
18
SL Green Operating Partnership, L.P.
Consolidated Statements of Capital
(unaudited, in thousands, except per unit data)
| SL Green Operating Partnership Unitholders | ||||||||||||||||||||||||||||||||||||||
| Partners' Interest | ||||||||||||||||||||||||||||||||||||||
| Series I Preferred Units | Common Units | Common Unitholders | Accumulated Other Comprehensive (Loss) Income | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Preferred distributions | ( | ( | ||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interests in the Operating Partnership | ( | ( | ||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ||||||||||||||||||||||||||||||||||||||
| Repurchases of common units | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||
| Issuance of special distribution paid primarily in units | ||||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Preferred distributions | ( | ( | ||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interests in the operating partnership | ||||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ||||||||||||||||||||||||||||||||||||||
| Contribution to consolidated joint venture interests | ||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
19
SL Green Operating Partnership, L.P.
Consolidated Statements of Capital
(unaudited, in thousands, except per unit data)
| SL Green Operating Partnership Unitholders | ||||||||||||||||||||||||||||||||||||||
| Partners' Interest | ||||||||||||||||||||||||||||||||||||||
| Series I Preferred Units | Common Units | Common Unitholders | Accumulated Other Comprehensive (Loss) Income | Noncontrolling Interests | Total | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net loss | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Preferred distributions | ( | ( | ||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interests in the Operating Partnership | ( | ( | ||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Contribution to consolidated joint venture interests | ||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||
| Issuance of special distribution paid primarily in units | ||||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net income | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||||||||||||||
| Preferred distributions | ( | ( | ||||||||||||||||||||||||||||||||||||
| DRSPP proceeds | ||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interests in the operating partnership | ( | ( | ||||||||||||||||||||||||||||||||||||
| Deferred compensation plan and stock awards, net of forfeitures and tax withholdings | ( | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Contribution to consolidated joint venture interests | ||||||||||||||||||||||||||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||
Cash distributions declared ($ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
20
SL Green Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating Activities | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Equity in net loss from unconsolidated joint ventures | |||||||||||
| Distributions of cumulative earnings from unconsolidated joint ventures | |||||||||||
| Equity in net loss on sale of interest in unconsolidated joint venture interest/real estate | |||||||||||
| Purchase price and other fair value adjustments | ( | ||||||||||
| Depreciable real estate reserves and impairment | |||||||||||
| Loss (gain) on sale of real estate, net | ( | ||||||||||
| Deferred rents receivable | ( | ||||||||||
| Non-cash lease expense | |||||||||||
| Other non-cash adjustments | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Tenant and other receivables | ( | ||||||||||
| Related party receivables | ( | ||||||||||
| Deferred lease costs | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable, accrued expenses, other liabilities and security deposits | ( | ||||||||||
| Deferred revenue | ( | ||||||||||
| Lease liability - operating leases | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing Activities | |||||||||||
| Acquisitions of real estate property | ( | ||||||||||
| Additions to land, buildings and improvements | ( | ( | |||||||||
| Investments in unconsolidated joint ventures | ( | ( | |||||||||
| Distributions in excess of cumulative earnings from unconsolidated joint ventures | |||||||||||
| Net proceeds from disposition of real estate/joint venture interest | |||||||||||
| Cash assumed from consolidation of real estate investment | |||||||||||
| Proceeds from sale or redemption of marketable securities | |||||||||||
| Purchases of marketable securities | ( | ||||||||||
| Other investments | ( | ||||||||||
| Origination of debt and preferred equity investments | ( | ( | |||||||||
| Repayments or redemption of debt and preferred equity investments | |||||||||||
| Net cash provided by investing activities | |||||||||||
21
SL Green Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Financing Activities | |||||||||||
| Proceeds from mortgages and other loans payable | |||||||||||
| Repayments of mortgages and other loans payable | ( | ( | |||||||||
| Proceeds from revolving credit facility and unsecured notes | |||||||||||
| Repayments of revolving credit facility and unsecured notes | ( | ( | |||||||||
| Proceeds from stock options exercised and DRSPP issuance | |||||||||||
| Repurchase of common units | ( | ( | |||||||||
| Redemption of preferred units | ( | ( | |||||||||
| Redemption of OP units | ( | ( | |||||||||
| Distributions to noncontrolling interests in other partnerships | ( | ( | |||||||||
| Contributions from noncontrolling interests in other partnerships | |||||||||||
| Distributions paid on common and preferred units | ( | ( | |||||||||
| Other obligations related to secured borrowing | |||||||||||
| Tax withholdings related to restricted share awards | ( | ( | |||||||||
| Deferred loan costs | ( | ( | |||||||||
| Principal payments of on financing lease liabilities | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of year | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |||||||||||
| Redemption of units in the Operating Partnership for a joint venture sale | $ | $ | |||||||||
| Issuance of special distribution paid primarily in units | |||||||||||
| Tenant improvements and capital expenditures payable | |||||||||||
| Fair value adjustment to noncontrolling interest in the Operating Partnership | |||||||||||
| Consolidation of real estate investment | |||||||||||
| Extinguishment of debt in connection with property dispositions | |||||||||||
| Debt and preferred equity investments | |||||||||||
| Removal of fully depreciated commercial real estate properties | |||||||||||
| Share repurchase payable | |||||||||||
| Recognition of right of use assets and related lease liabilities | |||||||||||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
22
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements
June 30, 2022
(unaudited)
1. Organization and Basis of Presentation
SL Green Realty Corp., which is referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Operating Partnership received a contribution of interest in the real estate properties, as well as 95 % of the economic interest in the management, leasing and construction companies which are referred to as S.L. Green Management Corp, or the Service Corporation. All of the management, leasing and construction services that are provided to the properties that are wholly-owned by us and that are provided to certain joint ventures are conducted through SL Green Management LLC and S.L. Green Management Corp., respectively, which are 100 % owned by the Operating Partnership. The Company has qualified, and expects to qualify in the current fiscal year, as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, and operates as a self-administered, self-managed REIT. A REIT is a legal entity that holds real estate interests and, through payments of dividends to stockholders, is permitted to minimize the payment of Federal income taxes at the corporate level. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership.
Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. The Company is the sole managing general partner of the Operating Partnership. As of June 30, 2022, noncontrolling investors held, in the aggregate, a 6.06 % limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership. The Operating Partnership is considered a variable interest entity, or VIE, in which we are the primary beneficiary. See Note 11, "Noncontrolling Interests on the Company's Consolidated Financial Statements."
On December 2, 2021, our Board of Directors declared an ordinary dividend of $0.3108 per share and a special dividend of $2.4392 per share (together, "the Total Dividend"). The Total Dividend was paid on January 18, 2022 to shareholders of record at the close of business on December 15, 2021 ("the Record Date"). Shareholders had the opportunity to elect to receive the Total Dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed. As a result of the elections made, the cash option was oversubscribed and was prorated. Shareholders who elected to receive cash received, for each share of common stock they owned as of the Record Date, approximately $0.3976 in cash and 0.0295 shares of common stock. Shareholders who elected to receive shares received, for each share of common stock they owned as of the Record Date, approximately 0.0345 shares of common stock. The number of shares issued was calculated based on the volume weighted average trading price of SLG's common stock between January 5-7, 2022 of $79.71 per share.
To mitigate the dilutive impact of the common stock issued in the special dividend, the Board of Directors also authorized a reverse stock split, which was effective after markets closed on January 21, 2022. On January 10, 2022, a committee of the Board of Directors calculated the ratio for the reverse stock split of our issued and outstanding shares of common stock as 1.03060 -for-1. After the issuance of the dividend and the completion of the reverse stock split, the number of shares of our common stock outstanding was equivalent to the number of total shares outstanding on the Record Date (not including any issuances or repurchases that occurred following the Record Date, as well as any fractional shares that would have been issued but for which cash-in-lieu was paid). However, on a relative basis, some individual shareholders may have more shares of SLG’s common stock, and some individual shareholders may have fewer shares of our common stock, depending on their individual elections to receive cash or stock and as a result of the cash option being oversubscribed.
All share-related references and measurements including the number of shares outstanding, share prices, number of shares repurchased, earnings per share, dividends per share, and share-based compensation awards, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Quarterly Report on Form 10-Q.
23
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
As of June 30, 2022, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties:
| Consolidated | Unconsolidated | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Location | Property Type | Number of Buildings | Approximate Square Feet (unaudited) | Number of Buildings | Approximate Square Feet (unaudited) | Number of Buildings | Approximate Square Feet (unaudited) | Weighted Average Occupancy(1) (unaudited) | ||||||||||||||||||||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Manhattan | Office | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Retail | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Development/Redevelopment | (1) | (2) | N/A | |||||||||||||||||||||||||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Suburban | Office | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total commercial properties | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Residential: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Manhattan | Residential | (2) | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Total portfolio | % | |||||||||||||||||||||||||||||||||||||||||||||||||
(1)The weighted average occupancy for commercial properties represents the total occupied square footage divided by the total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by the total available units. Properties under construction are not included in the calculation of weighted average occupancy.
(2)As of June 30, 2022, we owned a building at 7 Dey Street / 185 Broadway that was comprised of approximately 140,382 square feet (unaudited) of residential space and approximately 50,206 square feet (unaudited) of office and retail space that is under development. For the purpose of this report, we have included this building in the number of residential properties we own. However, we have included only the residential square footage in the residential approximate square footage, and have listed the balance of the square footage as development square footage.
As of June 30, 2022, we also manage one office building owned by a third party encompassing approximately 0.3 million square feet (unaudited), and held debt and preferred equity investments with a book value of $1.2 billion, excluding debt and preferred equity investments and other financing receivables totaling less than $0.1 billion that are included in balance sheet line items other than the Debt and preferred equity investments line item.
Partnership Agreement
In accordance with the partnership agreement of the Operating Partnership, or the Operating Partnership Agreement, we allocate all distributions and profits and losses in proportion to the percentage of ownership interests of the respective partners, subject to the priority distributions with respect to preferred units and special provisions that apply to Long Term Incentive Plan ("LTIP") Units. As the managing general partner of the Operating Partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the Operating Partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to minimize any Federal income or excise tax at the Company level. Under the Operating Partnership Agreement, each limited partner has the right to redeem units of limited partnership interests for cash, or if we so elect, shares of SL Green's common stock on a one-for-one basis.
Basis of Quarterly Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the financial position of the Company and the Operating Partnership at June 30, 2022 and the results of operations for the periods presented have been included. The operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These financial statements should be read in conjunction with the financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2021 of the Company and the Operating Partnership.
The consolidated balance sheet at December 31, 2021 has been derived from the audited financial statements as of that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
24
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method. See Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures." All significant intercompany balances and transactions have been eliminated.
We consolidate a VIE in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.
Investment in Commercial Real Estate Properties
We allocate the purchase price of real estate to land and building (inclusive of tenant improvements) and, if determined to be material, intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building (inclusive of tenant improvements) over their estimated useful lives, which generally range from 3 years to 40 years. We amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease, which generally range from 1 15 1 year to 15 years. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. To the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material, we amortize such below-market lease value into rental income over the renewal period.
The Company classifies those leases under which the Company is the lessee at lease commencement as finance or operating leases. Leases qualify as finance leases if the lease transfers ownership of the asset at the end of the lease term, the lease grants an option to purchase the asset that we are reasonably certain to exercise, the lease term is for a major part of the remaining economic life of the asset, or the present value of the lease payments exceeds substantially all of the fair value of the asset. Leases that do not qualify as finance leases are deemed to be operating leases. At lease commencement the Company records a lease liability which is measured as the present value of the lease payments and a right of use asset which is measured as the amount of the lease liability and any initial direct costs incurred. The Company applies a discount rate to determine the present value of the lease payments. If the rate implicit in the lease is known, the Company uses that rate. If the rate implicit in the lease is not known, the Company uses a discount rate reflective of the Company’s collateralized borrowing rate given the term of the lease. To determine the discount rate, the Company employs a third party specialist to develop an analysis based primarily on the observable borrowing rates of the Company, other REITs, and other corporate borrowers with long-term borrowings. On the consolidated statements of operations, operating leases are expensed through operating lease rent while financing leases are expensed through amortization and interest expense. When applicable, the Company combines the consideration for lease and non-lease components in the calculation of the value of the lease obligation and right-of-use asset.
On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property as calculated in accordance with Accounting Standards Codification, or ASC 820. We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded.
For the three and six months ended June 30, 2022, we recognized a reduction of rental revenue of ($0.2 million) and ($0.3 million), respectively, for the amortization of aggregate above-market leases in excess of below-market leases resulting from the allocation of the purchase price of the applicable properties. For the three and six months ended June 30, 2021 , we recognized a reduction of rental revenue of ($1.9 million) and ($3.8 million), respectively.
25
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) as of June 30, 2022 and December 31, 2021 (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Identified intangible assets (included in other assets): | |||||||||||
| Gross amount | $ | $ | |||||||||
| Accumulated amortization | ( | ( | |||||||||
Net (1) | $ | $ | |||||||||
| Identified intangible liabilities (included in deferred revenue): | |||||||||||
| Gross amount | $ | $ | |||||||||
| Accumulated amortization | ( | ( | |||||||||
Net (1) | $ | $ | |||||||||
Cash and Cash Equivalents
We consider all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash primarily consists of security deposits held on behalf of our tenants, interest reserves, as well as capital improvement and real estate tax escrows required under certain loan agreements.
Fair Value Measurements
See Note 16, "Fair Value Measurements."
Investment in Marketable Securities
At acquisition, we designate a debt security as held-to-maturity, available-for-sale, or trading. As of June 30, 2022, we did not have any debt securities designated as held-to-maturity or trading. We account for our available-for-sale securities at fair value pursuant to ASC 820-10, with the net unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. The cost of marketable securities sold and the amount reclassified out of accumulated other comprehensive income (loss) into earnings is determined using the specific identification method. Credit losses are recognized in accordance with ASC 326. We account for our equity marketable securities at fair value pursuant to ASC 820-10, with the net unrealized gains or losses reported in net income.
26
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
As of June 30, 2022 and December 31, 2021, we held the following marketable securities (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Commercial mortgage-backed securities | $ | $ | |||||||||
| Total marketable securities available-for-sale | $ | $ | |||||||||
| Equity marketable securities | $ | $ | |||||||||
| Total investment in marketable securities | $ | $ | |||||||||
The cost basis of the commercial mortgage-backed securities was $23.0 one 2.1 million and a fair market value of $5.6 million as of June 30, 2022, and an unrealized loss of $0.6 million and a fair value of $7.2 million as of December 31, 2021. This marketable security was in a continuous unrealized loss position for more than 12 months as of June 30, 2022 and December 31, 2021, and subsequent to June 30, 2022, was sold at par. We do not intend to sell our other securities, and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost bases.
We held equity marketable securities as of June 30, 2022 and December 31, 2021. We recognized $6.2 million and $6.2 million of unrealized losses for the three and six months ended June 30, 2022, respectively. We recognized $1.9
We did no 5.0 million from the repayment of one
Deferred Lease Costs
Deferred lease costs consist of incremental fees and direct costs that would not have been incurred if the lease had not been obtained and are amortized on a straight-line basis over the related lease term.
Lease Classification
Lease classification for leases under which the Company is the lessor is evaluated at lease commencement and leases not classified as sales-type leases or direct financing leases are classified as operating leases. Leases qualify as sales-type leases if the contract includes either transfer of ownership clauses, certain purchase options, a lease term representing a major part of the economic life of the asset, or the present value of the lease payments and residual guarantees provided by the lessee exceeds substantially all of the fair value of the asset. Additionally, leasing an asset so specialized that it is not deemed to have any value to the Company at the end of the lease term may also result in classification as a sales-type lease. Leases qualify as direct financing leases when the present value of the lease payments and residual value guarantees provided by the lessee and unrelated third parties exceeds substantially all of the fair value of the asset and collection of the payments is probable.
Revenue Recognition
Rental revenue for operating leases is recognized on a straight-line basis over the term of the lease. Rental revenue recognition commences when the leased space is available for its intended use by the lessee.
To determine whether the leased space is available for its intended use by the lessee, management evaluates whether we or the tenant are the owner of tenant improvements for accounting purposes. When management concludes that we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete. In certain instances, when management concludes that we are not the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space.
27
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets.
In addition to base rent, our tenants also generally will pay variable rent, which represents their pro rata share of increases in real estate taxes and certain operating expenses for the building over a base year. In some leases, in lieu of paying additional rent based upon increases in certain building operating expenses, the tenant will pay additional rent based upon increases in the wage rate paid to porters over the porters' wage rate in effect during a base year or increases in the consumer price index over the index value in effect during a base year. In addition, many of our leases contain fixed percentage increases over the base rent to cover escalations. Electricity is most often supplied by the landlord either on a sub-metered basis, or rent inclusion basis (i.e., a fixed fee is included in the rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant). Base building services other than electricity (such as heat, air conditioning and freight elevator service during business hours, and base building cleaning) are typically provided at no additional cost, with the tenant paying additional rent only for services which exceed base building services or for services which are provided outside normal business hours. These escalations are based on actual expenses incurred in the prior calendar year. If the expenses in the current year are different from those in the prior year, then during the current year, the escalations will be adjusted to reflect the actual expenses for the current year.
Rental revenue is recognized if collectability is probable. If collectability of substantially all of the lease payments is assessed as not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current-period adjustment to rental revenue. A subsequent change in the assessment of collectability to probable may result in a current-period adjustment to rental revenue for any difference between the rental revenue that would have been recognized if collectability had always been assessed as probable and the rental revenue recognized to date.
The Company provides its tenants with certain customary services for lease contracts such as common area maintenance and general security. We have elected to combine the non-lease components with the lease components of our operating lease agreements and account for them as a single lease component in accordance with ASC 842.
We record a gain or loss on sale of real estate assets when we no longer have a controlling financial interest in the entity owning the real estate, a contract exists with a third party and that third party has control of the assets acquired.
Investment income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is collectible. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt.
Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield. Discounts or premiums associated with the purchase of loans are amortized or accreted into interest income as a yield adjustment on the effective interest method based on expected cash flows through the expected maturity date of the related investment. If we purchase a debt or preferred equity investment at a discount, intend to hold it until maturity and expect to recover the full value of the investment, we accrete the discount into income as an adjustment to yield over the term of the investment. If we purchase a debt or preferred equity investment at a discount with the intention of foreclosing on the collateral, we do not accrete the discount. For debt investments acquired at a discount for credit quality, the difference between contractual cash flows and expected cash flows at acquisition is not accreted. Anticipated exit fees, the collection of which is expected, are also recognized over the term of the loan as an adjustment to yield.
We consider a debt and preferred equity investment to be past due when amounts contractually due have not been paid. Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition is resumed on any debt or preferred equity investment that is on non-accrual status when such debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed.
28
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income.
Asset management fees are recognized on a straight-line basis over the term of the asset management agreement.
Debt and Preferred Equity Investments
Debt and preferred equity investments are presented at the net amount expected to be collected in accordance with ASC 326. An allowance for loan losses is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected through the expected maturity date of such investments. The expense for loan loss and other investment reserves is the charge to earnings to adjust the allowance for loan losses to the appropriate level. Amounts are written off from the allowance when we de-recognize the related investment either as a result of a sale of the investment or acquisition of equity interests in the collateral.
The Company evaluates the amount expected to be collected based on current market and economic conditions, historical loss information, and reasonable and supportable forecasts. The Company's assumptions are derived from both internal data and external data which may include, among others, governmental economic projections for the New York City Metropolitan area, public data on recent transactions and filings for securitized debt instruments. This information is aggregated by asset class and adjusted for duration. Based on these inputs, loans are evaluated at the individual asset level. In certain instances, we may also use a probability-weighted model that considers the likelihood of multiple outcomes and the amount expected to be collected for each outcome.
The evaluation of the possible credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor requires significant judgment, which include both asset level and market assumptions over the relevant time period.
In addition, quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from lower risk to higher risk, which ratings are defined as follows: 1 - Low Risk Assets - Low probability of loss, 2 - Watch List Assets - Higher potential for loss, 3 - High Risk Assets - Loss more likely than not. Loans with risk ratings of 2 or above are evaluated to determine whether the expected risk of loss is appropriately captured through the combination of our expectations of current conditions, historical loss information and supportable forecasts described above or whether risk characteristics specific to the loan warrant the use of a probability-weighted model.
Financing investments that are classified as held for sale are carried at the expected amount to be collected or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its expected amount to be collected.
Other financing receivables that are included in balance sheet line items other than the Debt and preferred equity investments line are also measured at the net amount expected to be collected.
Accrued interest receivable amounts related to these debt and preferred equity investment and other financing receivables are recorded at the net amount expected to be collected within Other assets in the consolidated balance sheets. Accrued interest receivables that are written off are recognized as an expense in loan loss and other investment reserves.
Income Taxes
SL Green is taxed as a REIT under Section 856(c) of the Code. As a REIT, SL Green generally is not subject to Federal income tax. To maintain its qualification as a REIT, SL Green must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If SL Green fails to qualify as a REIT in any taxable year, SL Green will be subject to Federal income tax on its taxable income at regular corporate rates. SL Green may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on its undistributed taxable income.
29
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
The Operating Partnership is a partnership and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective income tax returns. The only provision for income taxes included in the consolidated statements of operations relates to the Operating Partnership’s consolidated taxable REIT subsidiaries. The Operating Partnership may also be subject to certain state, local and franchise taxes.
We have elected, and may elect in the future, to treat certain of our corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, TRSs may perform non-customary services for the tenants of the Company, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business. The TRSs generate income, resulting in Federal and state income tax liability for these entities.
During the three and six months ended June 30, 2022, we recorded a Federal, state and local tax provision of $1.4 million and $2.3 million, respectively. During the three and six months ended June 30, 2021, we recorded a Federal, state and local tax provision of $0.8 million and $1.5 million, respectively.
We follow a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, debt and preferred equity investments and accounts receivable. We place our cash investments with high quality financial institutions. The collateral securing our debt and preferred equity investments is located in New York City. See Note 5, "Debt and Preferred Equity Investments."
For the three months ended June 30, 2022, the following properties contributed more than 5.0% of our annualized cash rent from office properties, including our share of annualized cash rent from joint venture office properties:
| Property | Three months ended June 30, 2022 | ||||
| One Vanderbilt Avenue | |||||
| 11 Madison Avenue | |||||
| 1185 Avenue of the Americas | |||||
| 420 Lexington Ave | |||||
| 1515 Broadway | |||||
| 280 Park Avenue | |||||
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
30
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Accounting Standards Updates
In March 2022, the FASB issued ASU No. 2022-02 Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. Additionally, ASU 2022-02 requires an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for entities in accordance with Subtopic 326-20, which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination. ASU 2022-02 is effective for reporting periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2022-02 on our consolidated financial statements, but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
In July 2021, the FASB issued ASU No. 2021-05 Leases (Topic 842) Lessors - Certain Leases with Variable Lease Payments. ASU 2021-05 amends the lease classification requirements for lessors when classifying and accounting for a lease with variable lease payments that do not depend on a reference rate index or a rate. The update provides criteria, that if met, the lease would be classified and accounted for as an operating lease. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 and it did not have a material impact on the Company's consolidated financial statements.
In August 2020, the FASB issued Accounting Standard Update, or "ASU," No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for reporting periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 and it did not have a material impact on the Company's consolidated financial statements.
3. Property Acquisitions
4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
As of June 30, 2022, no properties were classified as held for sale.
31
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Property Dispositions
The following table summarizes the properties disposed of during the six months ended June 30, 2022:
| Property | Disposition Date | Property Type | Approximate Square Feet | Sales Price (in millions) | (Loss) Gain (in millions) (1) | |||||||||||||||||||||||||||
| 707 Eleventh Avenue | February 2022 | Fee Interest | $ | $ | ( | |||||||||||||||||||||||||||
| 1080 Amsterdam Avenue | April 2022 | Leasehold Interest | ||||||||||||||||||||||||||||||
| 1591-1597 Broadway | May 2022 | Fee Interest | ( | |||||||||||||||||||||||||||||
| 609 Fifth Avenue | June 2022 | Fee Interest | ( | |||||||||||||||||||||||||||||
(1)The (losses) gains on sale are net of $5.6 million of employee compensation accrued in connection with the realization of the investment dispositions during the six months ended June 30, 2022. Additionally, the amounts do not include adjustments for expenses recorded in subsequent periods.
5. Debt and Preferred Equity Investments
Below is a summary of the activity in our debt and preferred equity investments for the six months ended June 30, 2022 and the twelve months ended December 31, 2021 (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
Balance at beginning of year (1) | $ | $ | |||||||||
Debt investment originations/fundings/accretion (2) | |||||||||||
Preferred equity investment originations/accretion (2) | |||||||||||
Redemptions/sales/syndications/equity ownership/amortization (3) | ( | ( | |||||||||
| Net change in loan loss reserves | |||||||||||
Balance at end of period (1) | $ | $ | |||||||||
(1)Net of unamortized fees, discounts, and premiums.
(2)Accretion includes amortization of fees and discounts and paid-in-kind investment income.
(3)Certain participations in debt investments that were sold or syndicated, but did not meet the conditions for sale accounting, are included in Other assets and Other liabilities on the consolidated balance sheets.
Below is a summary of our debt and preferred equity investments as of June 30, 2022 (dollars in thousands):
| Floating Rate | Fixed Rate | Total Carrying Value | Senior Financing | Weighted Average Yield at End of Period | Maturity (1) | |||||||||||||||||||||||||||||||||
| Type | Carrying Value | Face Value | Interest Rate | Carrying Value | Face Value | Interest Rate | ||||||||||||||||||||||||||||||||
| Senior Mortgage Debt | $ | $ | L + | $ | $ | $ | $ | 2022 - 2023 | ||||||||||||||||||||||||||||||
| Mezzanine Debt | L + | 2022 - 2029 | ||||||||||||||||||||||||||||||||||||
| Preferred Equity | — | 2022 - 2027 | ||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
(1)Excludes available extension options to the extent they have not been exercised as of the date of this filing.
The following table is a roll forward of our total allowance for loan losses for the six months ended June 30, 2022 and the twelve months ended December 31, 2021 (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Balance at beginning of year | $ | $ | |||||||||
| Write-offs charged against the allowance | ( | ||||||||||
Balance at end of period (1) | $ | $ | |||||||||
(1)As of June 30, 2022, all financing receivables on non-accrual had an allowance for loan loss except for one debt investment with a carrying value of $225.4 million.
32
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
As of June 30, 2022 and December 31, 2021, all debt and preferred equity investments were performing in accordance with their respective terms, with the exception of two 228.1 6.8
The following table sets forth the carrying value of our debt and preferred equity investment portfolio by risk rating as of June 30, 2022 and December 31, 2021 (dollars in thousands):
| Risk Rating | June 30, 2022 | December 31, 2021 | ||||||||||||
1 - Low Risk Assets - Low probability of loss | $ | $ | ||||||||||||
2 - Watch List Assets - Higher potential for loss | ||||||||||||||
| 3 - High Risk Assets - Loss more likely than not | ||||||||||||||
| $ | $ | |||||||||||||
The following table sets forth the carrying value of our debt and preferred equity investment portfolio by year of origination and risk rating as of June 30, 2022 (dollars in thousands):
As of June 30, 2022 | ||||||||||||||||||||||||||||||||
| Risk Rating | 2022 (1) | 2021 (1) | 2020 (1) | Prior (1) | Total | |||||||||||||||||||||||||||
1 - Low Risk Assets - Low probability of loss | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
2 - Watch List Assets - Higher potential for loss | ||||||||||||||||||||||||||||||||
3 - High Risk Assets - Loss more likely than not | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
(1)Year in which the investment was originated or acquired by us or in which a material modification occurred.
We have determined that we have one
Included in Other assets is an additional amount of financing receivables representing loans to joint venture partners totaling $8.9 million and $10.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company recorded no
33
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Debt Investments
| Loan Type | June 30, 2022 Future Funding Obligations | June 30, 2022 Senior Financing | June 30, 2022 Carrying Value (1) | December 31, 2021 Carrying Value (1) | Maturity Date (2) | |||||||||||||||||||||||||||
| Fixed Rate Investments: | ||||||||||||||||||||||||||||||||
| Mezzanine Loan | $ | $ | $ | $ | August 2022 | |||||||||||||||||||||||||||
| Mortgage Loan | April 2023 | |||||||||||||||||||||||||||||||
Mezzanine Loan (3) | June 2023 | |||||||||||||||||||||||||||||||
| Mezzanine Loan | June 2023 | |||||||||||||||||||||||||||||||
Mezzanine Loan (4a)(5) | June 2024 | |||||||||||||||||||||||||||||||
| Mezzanine Loan | January 2025 | |||||||||||||||||||||||||||||||
Mezzanine Loan (6) | June 2027 | |||||||||||||||||||||||||||||||
| Mezzanine Loan | December 2029 | |||||||||||||||||||||||||||||||
| Total fixed rate | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Floating Rate Investments: | ||||||||||||||||||||||||||||||||
| Mezzanine Loan | $ | $ | $ | $ | July 2023 | |||||||||||||||||||||||||||
Mezzanine Loan (4b) | August 2022 | |||||||||||||||||||||||||||||||
| Mortgage and Mezzanine Loan | December 2022 | |||||||||||||||||||||||||||||||
| Mezzanine Loan | April 2023 | |||||||||||||||||||||||||||||||
| Mezzanine Loan | May 2023 | |||||||||||||||||||||||||||||||
| Mezzanine Loan | May 2023 | |||||||||||||||||||||||||||||||
| Total floating rate | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Allowance for loan loss | — | — | ( | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
(1)Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees.
(2)Represents contractual maturity, excluding any extension options to the extent they have not been exercised as of the date of this filing.
(3)This loan was put on non-accrual in July 2020 and remains on non-accrual as of June 30, 2022. No investment income has been recognized subsequent to it being put on non-accrual. The Company is in discussions with the borrower.
(4)Carrying value is net of the following amounts that were sold or syndicated, which are included in Other assets and Other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting: (a) $12.0 million, and (b) $0.4 million.
(5)This loan went into default and was put on non-accrual in June 2020 and remains on non-accrual as of June 30, 2022. No investment income has been recognized subsequent to it being put on non-accrual. The Company is in discussions with the borrower. Additionally, we determined the borrower entity to be a VIE, in which we are not the primary beneficiary.
(6)The borrower under this mezzanine loan is an entity affiliated with HNA, which owns an equity interest in 245 Park Avenue. The borrower filed for bankruptcy protection on October 31, 2021, which the Company contested. See below table for additional information for 245 Park Avenue.
34
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Preferred Equity Investments
As of June 30, 2022 and December 31, 2021, we held the following preferred equity investments with an aggregate weighted average current yield of 9.28 % as of June 30, 2022 (dollars in thousands):
| Type | June 30, 2022 Future Funding Obligations | June 30, 2022 Senior Financing | June 30, 2022 Carrying Value (1) | December 31, 2021 Carrying Value (1) | Mandatory Redemption (2) | |||||||||||||||||||||||||||
Preferred Equity (3) | $ | $ | $ | $ | June 2022 | |||||||||||||||||||||||||||
| Preferred Equity | February 2027 | |||||||||||||||||||||||||||||||
| Total Preferred Equity | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Allowance for loan loss | — | — | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
(1)Carrying value is net of deferred origination fees.
(2)Represents contractual redemption, excluding any unexercised extension options.
(3)On October 31, 2021, HNA, through an affiliated entity, filed for Chapter 11 bankruptcy protection on account of its investment in 245 Park Avenue, together with another asset in Chicago. On July 8, 2022, certain of the debtors and affiliates of SL Green entered into a Plan Sponsorship and Investment Agreement, pursuant to which SL Green became the stalking horse bidder for the property. Since the debtors did not receive any qualifying bids for the property, SL Green expects to acquire full ownership and control of the property in September 2022, subject to Plan confirmation.
6. Investments in Unconsolidated Joint Ventures
We have investments in several real estate joint ventures with various partners. As of June 30, 2022, the book value of these investments was $3.1 billion, net of investments with negative book values totaling $108.5 million for which we have an implicit commitment to fund future capital needs.
As of June 30, 2022, 800 Third Avenue and 21 East 66th Street are VIEs in which we are not the primary beneficiary. As of December 31, 2021, 800 Third Avenue, 21 East 66th Street, and certain properties within the Stonehenge Portfolio were VIEs in which we were not the primary beneficiary. Our net equity investment in these VIEs was $88.0 million and $85.6 million as of June 30, 2022 and December 31, 2021, respectively. Our maximum loss is limited to the amount of our equity investment in these VIEs. See the "Principles of Consolidation" section of Note 2, "Significant Accounting Policies." All other investments below are voting interest entities. As we do not control the joint ventures listed below, we account for them under the equity method of accounting.
35
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
The table below provides general information on each of our joint ventures as of June 30, 2022:
| Property | Partner | Ownership Interest (1) | Economic Interest (1) | Unaudited Approximate Square Feet | ||||||||||
| 100 Park Avenue | Prudential Real Estate Investors | |||||||||||||
| 717 Fifth Avenue | Wharton Properties/Private Investor | |||||||||||||
| 800 Third Avenue | Private Investors | |||||||||||||
| 919 Third Avenue | New York State Teacher's Retirement System | |||||||||||||
| 11 West 34th Street | Private Investor/Wharton Properties | |||||||||||||
| 280 Park Avenue | Vornado Realty Trust | |||||||||||||
1552-1560 Broadway (2) | Wharton Properties | |||||||||||||
| 10 East 53rd Street | Canadian Pension Plan Investment Board | |||||||||||||
21 East 66th Street (3) | Private Investors | |||||||||||||
650 Fifth Avenue (4) | Wharton Properties | |||||||||||||
| 121 Greene Street | Wharton Properties | |||||||||||||
| 11 Madison Avenue | PGIM Real Estate | |||||||||||||
| One Vanderbilt Avenue | National Pension Service of Korea/Hines Interest LP | |||||||||||||
| Worldwide Plaza | RXR Realty / New York REIT | |||||||||||||
| 1515 Broadway | Allianz Real Estate of America | |||||||||||||
| 2 Herald Square | Israeli Institutional Investor | |||||||||||||
| 115 Spring Street | Private Investor | |||||||||||||
15 Beekman (5) | A fund managed by Meritz Alternative Investment Management | |||||||||||||
| 85 Fifth Avenue | Wells Fargo | |||||||||||||
One Madison Avenue (6) | National Pension Service of Korea/Hines Interest LP/International Investor | |||||||||||||
| 220 East 42nd Street | A fund managed by Meritz Alternative Investment Management | |||||||||||||
450 Park Avenue (7) | Korean Institutional Investor / Israeli Institutional Investor | |||||||||||||
(1)Ownership interest and economic interest represent the Company's interests in the joint venture as of June 30, 2022. Changes in ownership or economic interests within the current year are disclosed in the notes below.
(2)The joint venture also owns a long-term leasehold interest in the retail space and certain other spaces at 1560 Broadway, which is adjacent to 1552 Broadway.
(3)We hold a 32.28 % interest in three retail units and one residential unit at the property and a 16.14 % interest in two residential units at the property.
(4)The joint venture owns a long-term leasehold interest in the retail space at 650 Fifth Avenue.
(5)In 2020, the Company formed a joint venture, which then entered into a long-term sublease with the Company.
(6)In 2020, the Company admitted partners to the One Madison Avenue development project, which resulted in the Company no longer retaining a controlling interest in the entity, as defined in ASC 810, and the deconsolidation of our remaining 50.5 % interest. We recorded our investment at fair value, which resulted in the recognition of a fair value adjustment of $187.5 million in 2020. The fair value of our investment was determined by the terms of the joint venture agreement governing the capitalization of the project. The partners have committed aggregate equity to the project totaling no less than $492.2 million and their ownership interest in the joint venture is based on their capital contributions, up to an aggregate maximum of 49.5 %. As of June 30, 2022, the total of the two partners' ownership interests based on equity contributed was 39.2 %. In 2021, the Company admitted an additional partner to the development project for a committed aggregate equity investment totaling no less than $259.3 million. The partner's indirect ownership interest in the joint venture is based on it's capital contributions, up to an aggregate maximum of 25.0 %. The transaction did not meet sale accounting under ASC 860 and, as a result, was treated as a secured borrowing for accounting purposes and is included in Other liabilities in our consolidated balance sheets at June 30, 2022 and December 31, 2021.
(7)The 50.1 % ownership interest reflected in this table is comprised of our 25.1 % economic interest and a 25.0 % economic interest held by a third-party. The third-party's economic interest is held within a joint venture that we consolidate and recognize in Noncontrolling interests in other partnerships on our consolidated balance sheet. An additional third-party owns the remaining 49.9 % economic interest in the property.
Disposition of Joint Venture Interests or Properties
The following table summarizes the investments in unconsolidated joint ventures disposed of during the six months ended June 30, 2022:
36
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
| Property | Ownership Interest Disposed | Disposition Date | Gross Asset Valuation (in millions) | (Loss) Gain on Sale (in millions) (1) | ||||||||||||||||||||||
| Stonehenge Portfolio | Various | April 2022 | $ | $ | ||||||||||||||||||||||
(1)Represents the Company's share of the gain or loss.
Joint Venture Mortgages and Other Loans Payable
We generally finance our joint ventures with non-recourse debt. In certain cases we may provide guarantees or master leases, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases as of June 30, 2022 and December 31, 2021, respectively, are as follows (dollars in thousands):
| Property | Economic Interest (1) | Current Maturity Date | Final Maturity Date (2) | Interest Rate (3) | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||
| Fixed Rate Debt: | ||||||||||||||||||||||||||||||||||||||
| 717 Fifth Avenue (mortgage) | % | July 2022 | July 2022 | % | $ | $ | ||||||||||||||||||||||||||||||||
| 717 Fifth Avenue (mezzanine) | % | July 2022 | July 2022 | % | ||||||||||||||||||||||||||||||||||
| 650 Fifth Avenue (mortgage) | % | October 2022 | October 2022 | % | ||||||||||||||||||||||||||||||||||
| 650 Fifth Avenue (mezzanine) | % | October 2022 | October 2022 | % | ||||||||||||||||||||||||||||||||||
| 21 East 66th Street | % | April 2023 | April 2028 | % | ||||||||||||||||||||||||||||||||||
| 919 Third Avenue | % | June 2023 | June 2023 | % | ||||||||||||||||||||||||||||||||||
| 1515 Broadway | % | March 2025 | March 2025 | % | ||||||||||||||||||||||||||||||||||
| 11 Madison Avenue | % | September 2025 | September 2025 | % | ||||||||||||||||||||||||||||||||||
| 800 Third Avenue | % | February 2026 | February 2026 | % | ||||||||||||||||||||||||||||||||||
| Worldwide Plaza | % | November 2027 | November 2027 | % | ||||||||||||||||||||||||||||||||||
| One Vanderbilt Avenue | % | July 2031 | July 2031 | % | ||||||||||||||||||||||||||||||||||
| Stonehenge Portfolio | ||||||||||||||||||||||||||||||||||||||
| Total fixed rate debt | $ | $ | ||||||||||||||||||||||||||||||||||||
| Floating Rate Debt: | ||||||||||||||||||||||||||||||||||||||
| 280 Park Avenue | % | September 2022 | September 2024 | L+ | % | $ | $ | |||||||||||||||||||||||||||||||
| 1552 Broadway | % | October 2022 | October 2022 | L+ | % | |||||||||||||||||||||||||||||||||
| 121 Greene Street | % | November 2022 | November 2022 | L+ | % | |||||||||||||||||||||||||||||||||
| 2 Herald Square | % | November 2022 | November 2023 | L+ | % | |||||||||||||||||||||||||||||||||
| 11 West 34th Street | % | January 2023 | January 2023 | L+ | % | |||||||||||||||||||||||||||||||||
| 220 East 42nd Street | % | June 2023 | June 2025 | L+ | % | |||||||||||||||||||||||||||||||||
| 115 Spring Street | % | September 2023 | September 2023 | L+ | % | |||||||||||||||||||||||||||||||||
| 100 Park Avenue | % | December 2023 | December 2025 | L+ | % | |||||||||||||||||||||||||||||||||
15 Beekman (4) | % | January 2024 | July 2025 | L+ | % | |||||||||||||||||||||||||||||||||
| 10 East 53rd Street | % | February 2025 | February 2025 | L+ | % | |||||||||||||||||||||||||||||||||
| 450 Park Avenue | % | June 2025 | June 2027 | S+ | % | |||||||||||||||||||||||||||||||||
One Madison Avenue (5) | % | November 2025 | November 2026 | L+ | % | |||||||||||||||||||||||||||||||||
| 21 East 66th Street | % | June 2033 | June 2033 | T+ | % | |||||||||||||||||||||||||||||||||
| Total floating rate debt | $ | $ | ||||||||||||||||||||||||||||||||||||
| Total joint venture mortgages and other loans payable | $ | $ | ||||||||||||||||||||||||||||||||||||
| Deferred financing costs, net | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total joint venture mortgages and other loans payable, net | $ | $ | ||||||||||||||||||||||||||||||||||||
(1)Economic interest represents the Company's interests in the joint venture as of June 30, 2022. Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures table above.
(2)Reflects exercise of all available options. The ability to exercise extension options may be subject to certain conditions, including meeting tests based on the operating performance of the property.
37
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
(3)Interest rates as of June 30, 2022, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated spread over the 30-day LIBOR ("L"), Term SOFR ("S") or 1-year Treasury ("T").
(4)This loan is a $125.0 million construction facility. Advances under the loan are subject to costs incurred.
(5)The loan is a $1.25 billion construction facility with an initial term of five years with one , one year extension option. Advances under the loan are subject to costs incurred. In conjunction with the loan, we provided partial guarantees for interest and principal payments, the amounts of which are based on certain construction milestones and operating metrics.
We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to certain of our joint ventures. We earned $3.0 million and $9.1 million from these services, net of our ownership share of the joint ventures, for the three and six months ended June 30, 2022, respectively. We earned $4.2 million and $6.8 million from these services, net of our ownership share of the joint ventures, for the three and six months ended June 30, 2021, respectively. In addition, we have the ability to earn incentive fees based on the ultimate financial performance of certain of the joint venture properties.
The combined balance sheets for the unconsolidated joint ventures, at June 30, 2022 and December 31, 2021 are as follows (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
Assets (1) | |||||||||||
| Commercial real estate property, net | $ | $ | |||||||||
| Cash and restricted cash | |||||||||||
| Tenant and other receivables, related party receivables, and deferred rents receivable | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and equity (1) | |||||||||||
| Mortgages and other loans payable, net | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
| Company's investments in unconsolidated joint ventures | $ | $ | |||||||||
(1)At June 30, 2022, $553.1 million of net unamortized basis differences between the amount at which our investments are carried and our share of equity in net assets of the underlying property will be amortized through equity in net income (loss) from unconsolidated joint ventures over the remaining life of the underlying items having given rise to the differences.
The combined statements of operations for the unconsolidated joint ventures, from acquisition date through the three and six months ended June 30, 2022 and 2021, are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Operating lease rent | |||||||||||||||||||||||
| Interest expense, net of interest income | |||||||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Loss on early extinguishment of debt | ( | ( | ( | ( | |||||||||||||||||||
| Net loss before (loss) gain on sale | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Company's equity in net loss from unconsolidated joint ventures | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
38
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
7. Deferred Costs
Deferred costs as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Deferred leasing costs | $ | $ | |||||||||
Less: accumulated amortization | ( | ( | |||||||||
| Deferred costs, net | $ | $ | |||||||||
8. Mortgages and Other Loans Payable
The mortgages and other loans payable collateralized by the respective properties and assignment of leases or debt investments as of June 30, 2022 and December 31, 2021, respectively, were as follows (dollars in thousands):
| Property | Current Maturity Date | Final Maturity Date (1) | Interest Rate (2) | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||
| Fixed Rate Debt: | ||||||||||||||||||||||||||||||||
| 420 Lexington Avenue | October 2024 | October 2040 | $ | $ | ||||||||||||||||||||||||||||
| Landmark Square | January 2027 | January 2027 | ||||||||||||||||||||||||||||||
| 485 Lexington Avenue | February 2027 | February 2027 | ||||||||||||||||||||||||||||||
| 100 Church Street | ||||||||||||||||||||||||||||||||
| 1080 Amsterdam | ||||||||||||||||||||||||||||||||
| Total fixed rate debt | $ | $ | ||||||||||||||||||||||||||||||
| Floating Rate Debt: | ||||||||||||||||||||||||||||||||
7 Dey / 185 Broadway (3) | November 2022 | November 2023 | L+ | $ | $ | |||||||||||||||||||||||||||
| 719 Seventh Avenue | September 2023 | September 2023 | L+ | |||||||||||||||||||||||||||||
| 690 Madison Avenue | July 2024 | July 2025 | L+ | |||||||||||||||||||||||||||||
| 100 Church Street | June 2025 | June 2027 | S+ | |||||||||||||||||||||||||||||
| 609 Fifth Avenue | ||||||||||||||||||||||||||||||||
2017 Master Repurchase Agreement (4) | ||||||||||||||||||||||||||||||||
| Total floating rate debt | $ | $ | ||||||||||||||||||||||||||||||
| Total fixed rate and floating rate debt | $ | $ | ||||||||||||||||||||||||||||||
| Mortgages reclassed to liabilities related to assets held for sale | ( | |||||||||||||||||||||||||||||||
| Total mortgages and other loans payable | $ | $ | ||||||||||||||||||||||||||||||
| Deferred financing costs, net of amortization | ( | ( | ||||||||||||||||||||||||||||||
| Total mortgages and other loans payable, net | $ | $ | ||||||||||||||||||||||||||||||
(1)Reflects exercise of all available options. The ability to exercise extension options may be subject to certain tests based on the operating performance of the property.
(2)Interest rate as of June 30, 2022, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated spread over the 30-day LIBOR ("L") or Term SOFR ("S"), unless otherwise specified.
(3)This loan is a $225.0 million construction facility, with reductions in interest cost based on meeting certain conditions, and has an initial three year term with two one year extension options. In October 2021, an extension option was exercised, and the maturity date of this loan was extended by one year . Advances under the loan are subject to incurred costs and funded equity requirements.
As of June 30, 2022 and December 31, 2021, the gross book value of the properties collateralizing the mortgages and other loans payable was approximately $1.9 billion and $2.1 billion, respectively.
39
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Master Repurchase Agreement
The Company entered into a Master Repurchase Agreement, or MRA, known as the 2017 MRA, which provides us with the ability to sell certain mortgage investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facility permit valuation adjustments based on capital markets activity, and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to collateralize the facility with additional assets from our portfolio of debt investments, our ability to satisfy margin calls with cash or cash equivalents and our access to additional liquidity. As of June 30, 2022, there have been no margin calls on the 2017 MRA.
In April 2018, we increased the maximum facility capacity from $300.0 million to $400.0 million. The facility bore interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate. The facility matured in June 2022 and the Company is in discussions with the lender on an extension. As of June 30, 2022, the facility had no outstanding balance.
9. Corporate Indebtedness
2021 Credit Facility
In December 2021, we entered into an amended and restated credit facility, referred to as the 2021 credit facility, that was previously amended by the Company in November 2017, or the 2017 credit facility, and was originally entered into by the Company in November 2012, or the 2012 credit facility. As of June 30, 2022, the 2021 credit facility consisted of a $1.25 billion revolving credit facility, a $1.05 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of May 15, 2026, May 15, 2027, and November 21, 2024, respectively. The revolving credit facility has two six-month , as-of-right extension options to May 15, 2027. We also have an option, subject to customary conditions, to increase the capacity of the credit facility to $4.5 billion at any time prior to the maturity dates for the revolving credit facility and term loans without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions.
As of June 30, 2022, the 2021 credit facility bore interest at a spread over adjusted Term SOFR plus 10 basis points with an interest period of one or three months, as we may elect, ranging from (i) 72.5 basis points to 140 basis points for loans under the revolving credit facility, (ii) 80 basis points to 160 basis points for loans under Term Loan A, and (iii) 85 basis points to 165 basis points for loans under Term Loan B, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. In instances where there are either only two ratings available or where there are more than two and the difference between them is one rating category, the applicable rating shall be the highest rating. In instances where there are more than two ratings and the difference between the highest and the lowest is two or more rating categories, then the applicable rating used is the average of the highest two, rounded down if the average is not a recognized category.
As of June 30, 2022, the applicable spread over adjusted Term SOFR plus 10 basis points was 105 basis points for the revolving credit facility, 120 basis points for Term Loan A, and 125 basis points for Term Loan B. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. As of June 30, 2022, the facility fee was 25 basis points.
As of June 30, 2022, we had $8.5 million of outstanding letters of credit, $130.0 million drawn under the revolving credit facility and $1.25 billion outstanding under the term loan facilities, with total undrawn capacity of $1.12 billion under the 2021 credit facility. As of June 30, 2022 and December 31, 2021, the revolving credit facility had a carrying value of $122.4 million and $381.3 million, respectively, net of deferred financing costs. As of June 30, 2022 and December 31, 2021, the term loan facilities had a carrying value of $1.2 billion and $1.2 billion, respectively, net of deferred financing costs.
The Company and the Operating Partnership are borrowers jointly and severally obligated under the 2021 credit facility. The 2021 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
40
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Senior Unsecured Notes
The following table sets forth our senior unsecured notes and other related disclosures as of June 30, 2022 and December 31, 2021, respectively, by scheduled maturity date (dollars in thousands):
| Issuance | June 30, 2022 Unpaid Principal Balance | June 30, 2022 Accreted Balance | December 31, 2021 Accreted Balance | Interest Rate (1) | Initial Term (in Years) | Maturity Date | |||||||||||||||||||||||||||||||||||
October 5, 2017 (2) | $ | $ | $ | % | October 2022 | ||||||||||||||||||||||||||||||||||||
November 15, 2012 (3) | % | December 2022 | |||||||||||||||||||||||||||||||||||||||
December 17, 2015 (4) | % | December 2025 | |||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Deferred financing costs, net | — | ( | ( | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
(1)Interest rate as of June 30, 2022, taking into account interest rate hedges in effect during the period.
(2)Issued by the Operating Partnership with the Company as the guarantor.
(3)In October 2017, the Company and the Operating Partnership as co-obligors issued an additional $100.0 million of 4.50 % senior unsecured notes due December 2022. The notes were priced at 105.334 % of par.
(4)Issued by the Company and the Operating Partnership as co-obligors.
Restrictive Covenants
The terms of the 2021 credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, our ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that we will not, during any time when a default is continuing, make distributions with respect to common stock or other equity interests, except to enable the Company to continue to qualify as a REIT for Federal income tax purposes. As of June 30, 2022 and December 31, 2021, we were in compliance with all such covenants.
Junior Subordinated Deferrable Interest Debentures
In June 2005, the Company and the Operating Partnership issued $100.0 million in unsecured trust preferred securities through a newly formed trust, SL Green Capital Trust I, or the Trust, which is a wholly-owned subsidiary of the Operating Partnership. The securities mature in 2035 and bear interest at a floating rate of 125 basis points over the three-month LIBOR. Interest payments may be deferred for a period of up to eight consecutive quarters if the Operating Partnership exercises its right to defer such payments. The Trust preferred securities are redeemable at the option of the Operating Partnership, in whole or in part, with no prepayment premium. We do not consolidate the Trust even though it is a variable interest entity as we are not the primary beneficiary. Because the Trust is not consolidated, we have recorded the debt on our consolidated balance sheets and the related payments are classified as interest expense.
41
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Principal Maturities
Combined aggregate principal maturities of mortgages and other loans payable, the 2021 credit facility, trust preferred securities, senior unsecured notes and our share of joint venture debt as of June 30, 2022, including as-of-right extension options, were as follows (in thousands):
| Scheduled Amortization | Principal | Revolving Credit Facility | Unsecured Term Loans | Trust Preferred Securities | Senior Unsecured Notes | Total | Joint Venture Debt | ||||||||||||||||||||||||||||||||||||||||
| Remaining 2022 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Interest expense before capitalized interest | $ | $ | $ | $ | |||||||||||||||||||
| Interest on financing leases | |||||||||||||||||||||||
| Interest capitalized | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense, net | $ | $ | $ | $ | |||||||||||||||||||
10. Related Party Transactions
Cleaning/ Security/ Messenger and Restoration Services
Alliance Building Services, or Alliance, and its affiliates, which provide services to certain properties owned by us, were previously partially owned by Gary Green, a son of Stephen L. Green, who serves as a member and as the chairman emeritus of our Board of Directors. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements.
Income earned from the profit participation, which is included in Other income on the consolidated statements of operations, was $0.7 million and $1.4 million for the three and six months ended June 30, 2022, respectively, and $0.3 million and $0.7 million for the three and six months ended June 30, 2021, respectively.
We also recorded expenses, inclusive of capitalized expenses, of $4.3 million and $8.6 million for the three and six months ended June 30, 2022, respectively, and $3.3 million and $5.6 million for the three and six months ended June 30, 2021, respectively, for these services (excluding services provided directly to tenants).
Management Fees
S.L. Green Management Corp., a consolidated entity, receives property management fees from an entity in which Stephen L. Green owns an interest. We received management fees from this entity of $0.1 million and $0.3 million for the three and six months ended June 30, 2022, respectively. We received management fees from this entity of $0.2 million and $0.3 million for the three and six months ended June 30, 2021, respectively.
42
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
One Vanderbilt Avenue Investment
In December 2016, we entered into agreements with entities owned and controlled by our Chairman and CEO, Marc Holliday, and our President, Andrew Mathias, pursuant to which they agreed to make an investment in our One Vanderbilt project (inclusive of the property and Summit One Vanderbilt) at the appraised fair market value for the interests acquired. This investment entitles these entities to receive approximately 1.50 % - 1.80 % and 1.00 % - 1.20 %, respectively, of any profits realized by the Company from its One Vanderbilt project in excess of the Company’s capital contributions. The entities have no right to any return of capital. Accordingly, subject to previously disclosed repurchase rights, these interests will have no value and will not entitle these entities to any amounts (other than limited distributions to cover tax liabilities incurred) unless and until the Company has received distributions from the One Vanderbilt project in excess of the Company’s aggregate investment in the project. In the event that the Company does not realize a profit on its investment in the project (or would not realize a profit based on the value at the time the interests are repurchased), the entities owned and controlled by Messrs. Holliday and Mathias will lose the entire amount of their investment. The entities owned and controlled by Messrs. Holliday and Mathias paid $1.4 million and $1.0 million, respectively, which equaled the fair market value of the interests acquired as of the date the investment agreements were entered into as determined by an independent third party appraisal that we obtained.
Messrs. Holliday and Mathias have the right to tender their interests in the project upon stabilization (50 % within three years after stabilization and 100 % three years or more after stabilization). In addition, the agreement calls for us to repurchase these interests in the event of a sale of One Vanderbilt or a transactional change of control of the Company. We also have the right to repurchase these interests on the 7 -year anniversary of the stabilization of the project or upon the occurrence of certain separation events prior to the stabilization of the project relating to each of Messrs. Holliday’s and Mathias’s continued service with us. The price paid upon a tender of the interests will equal the liquidation value of the interests at the time, with the value being based on the project's sale price, if applicable, or fair market value as determined by an independent third party appraiser. As of June 30, 2022, stabilization of the property (but not Summit One Vanderbilt) was achieved. Therefore, Messrs. Holiday and Mathias exercised their rights to tender 50 % of their interests in the property (but not Summit One Vanderbilt) for liquidation values of $17.9 million and $11.9 million, respectively, which were paid in July 2022.
One Vanderbilt Avenue Leases
In November 2018, we entered into a lease agreement with the One Vanderbilt Avenue joint venture covering certain floors at the property. In March 2021, the lease commenced and we relocated our corporate headquarters to the leased space. For the three and six months ended June 30, 2022, we recorded $0.7 million and $1.5 0.7 million and $0.9 million, respectively, of rent expense under the lease. Additionally, in June 2021, we, through a wholly-owned subsidiary, entered into a lease agreement with the One Vanderbilt Avenue joint venture for Summit One Vanderbilt, which commenced in October 2021. For the three and six months ended June 30, 2022, we recorded $8.0 million and $17.7 million, respectively, of rent expense under the lease, including percentage rent, of which $5.3 million and $11.9 million, respectively, was recognized as income as a component of Equity in net loss from unconsolidated joint ventures in our consolidated statements of operations.
Other
We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to certain of our joint ventures as further described in Note 6, "Investments in Unconsolidated Joint Ventures." Amounts due from joint ventures and related parties as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Due from joint ventures | $ | $ | |||||||||
| Other | |||||||||||
| Related party receivables | $ | $ | |||||||||
11. Noncontrolling Interests on the Company's Consolidated Financial Statements
43
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Common Units of Limited Partnership Interest in the Operating Partnership
As of June 30, 2022 and December 31, 2021, the noncontrolling interest unit holders owned 6.06 %, or 4,144,467 units, and 5.57 %, or 3,781,565 units, of the Operating Partnership, respectively, inclusive of retroactive adjustments to reflect the reverse stock split effectuated by SL Green in January 2022. As of June 30, 2022, 4,144,467 shares of our common stock were reserved for issuance upon the redemption of units of limited partnership interest of the Operating Partnership.
Noncontrolling interests in the Operating Partnership is recorded at the greater of its cost basis or fair market value based on the closing stock price of our common stock at the end of the reporting period.
Below is a summary of the activity relating to the noncontrolling interests in the Operating Partnership for the six months ended June 30, 2022 and the twelve months ended December 31, 2021 (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Distributions | ( | ( | |||||||||
| Issuance of common units | |||||||||||
| Redemption and conversion of common units | ( | ( | |||||||||
| Net (loss) income | ( | ||||||||||
| Accumulated other comprehensive income allocation | |||||||||||
| Fair value adjustment | |||||||||||
| Balance at end of period | $ | $ | |||||||||
Preferred Units of Limited Partnership Interest in the Operating Partnership
Below is a summary of the preferred units of limited partnership interest in the Operating Partnership as of June 30, 2022:
| Issuance | Stated Distribution Rate | Number of Units Authorized | Number of Units Issued | Number of Units Outstanding | Annual Dividend Per Unit(1) | Liquidation Preference Per Unit(2) | Conversion Price Per Unit(3) | Date of Issuance | ||||||||||||||||||||||||||||||||||||||||||
Series A (4) | % | $ | $ | $ | August 2015 | |||||||||||||||||||||||||||||||||||||||||||||
| Series F | % | January 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series K | % | August 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series L | % | August 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series P | % | July 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series Q | % | July 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series R | % | August 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series S | % | August 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series V | % | May 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Series W (5) | (6) | (6) | (6) | (6) | January 2020 | |||||||||||||||||||||||||||||||||||||||||||||
(1)Dividends are cumulative, subject to certain provisions.
(2)Units are redeemable at any time at par for cash at the option of the unit holder unless otherwise specified.
(3)If applicable, units are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) the amount shown in the table.
(4)Issued through a consolidated subsidiary. The units are convertible on a one-for-one basis, into the Series B Preferred Units of limited partnership interest, or the Subsidiary Series B Preferred Units. The Subsidiary Series B Preferred Units can be converted at any time, at the option of the unitholder, into a number of common stock equal to 6.71348 shares of common stock for each Subsidiary Series B Preferred Unit. As of June 30, 2022, no Subsidiary Series B Preferred Units have been issued.
(5)The Series W preferred unit was issued in January 2020 in exchange for the then-outstanding Series O preferred unit. The holder of the Series W preferred unit is entitled to quarterly dividends in an amount calculated as (i) 1,350 multiplied by (ii) the current distribution per common unit of limited partnership in SL Green Operating Partnership. The holder has the right to require the Operating Partnership to repurchase the Series W unit for cash, or convert the Series W unit for Class B units, in each case at a price that is determined based on the closing price of the Company's common stock at the time such right is exercised. The unit's liquidation preference is the fair market value of the unit plus accrued distributions at the time of a liquidation event.
44
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Below is a summary of the activity relating to the preferred units in the Operating Partnership for the six months ended June 30, 2022 and the twelve months ended December 31, 2021 (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Issuance of preferred units | |||||||||||
| Redemption of preferred units | ( | ( | |||||||||
| Dividends paid on preferred units | ( | ( | |||||||||
| Accrued dividends on preferred units | |||||||||||
| Balance at end of period | $ | $ | |||||||||
12. Stockholders’ Equity of the Company
Common Stock
Our authorized capital stock consists of 260,000,000 shares, $0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01 par value per share, 75,000,000 shares of excess stock, at $0.01 par value per share, and 25,000,000 shares of preferred stock, par value $0.01 per share. As of June 30, 2022, 64,301,588 shares of common stock and no shares of excess stock were issued and outstanding.
On December 2, 2021, our Board of Directors declared an ordinary dividend of $0.3108 per share and a special dividend of $2.4392 per share (together, "the Total Dividend"). The Total Dividend was paid on January 18, 2022 to shareholders of record at the close of business on December 15, 2021 ("the Record Date"). Shareholders had the opportunity to elect to receive the Total Dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed. As a result of the elections made, the cash option was oversubscribed and was prorated. Shareholders who elected to receive cash received, for each share of common stock they owned as of the Record Date, approximately $0.3976 in cash and 0.0295 shares of common stock. Shareholders who elected to receive shares received, for each share of common stock they owned as of the Record Date, approximately 0.0345 shares of common stock. The number of shares issued was calculated based on the volume weighted average trading price of SLG's common stock between January 5-7, 2022 of $79.71 per share.
To mitigate the dilutive impact of the common stock issued in the special dividend, the Board of Directors also authorized a reverse stock split, which was effective after markets closed on January 21, 2022. On January 10, 2022, a committee of the Board of Directors calculated the ratio for the reverse stock split of our issued and outstanding shares of common stock as 1.03060 -for-1. After the issuance of the dividend and the completion of the reverse stock split, the number of shares of our common stock outstanding was equivalent to the number of total shares outstanding on the Record Date (not including any issuances or repurchases that occurred following the Record Date, as well as any fractional shares that would have been issued but for which cash-in-lieu was paid). However, on a relative basis, some individual shareholders may have more shares of SLG’s common stock, and some individual shareholders may have fewer shares of our common stock, depending on their individual elections to receive cash or stock and as a result of the cash option being oversubscribed.
All share-related references and measurements including the number of shares outstanding, share prices, number of shares repurchased, earnings per share, dividends per share, and share-based compensation awards, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Quarterly Report on Form 10-Q.
45
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Share Repurchase Program
In August 2016, our Board of Directors approved a $1.0 billion share repurchase program under which we can buy shares of our common stock. The Board of Directors has since authorized five separate $500.0 3.5 billion.
As of June 30, 2022, share repurchases executed under the program, excluding the redemption of OP units, were as follows:
Period | Shares repurchased | Average price paid per share | Cumulative number of shares repurchased as part of the repurchase plan or programs | ||||||||
| Year ended 2017 | $ | ||||||||||
| Year ended 2018 | $ | ||||||||||
| Year ended 2019 | $ | ||||||||||
| Year ended 2020 | $ | ||||||||||
| Year ended 2021 | $ | ||||||||||
| Six months June 30, 2022 | $ | ||||||||||
Perpetual Preferred Stock
We have 9,200,000 shares of our 6.50 % Series I Cumulative Redeemable Preferred Stock, or the Series I Preferred Stock, outstanding with a mandatory liquidation preference of $25.00 per share. The Series I Preferred stockholders receive annual dividends of $1.625 per share paid on a quarterly basis and dividends are cumulative, subject to certain provisions. We are entitled to redeem the Series I Preferred Stock at any time, in whole or from time to time in part, at par for cash. In August 2012, we received $221.9 million in net proceeds from the issuance of the Series I Preferred Stock, which were recorded net of underwriters' discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for 9,200,000 units of 6.50 % Series I Cumulative Redeemable Preferred Units of limited partnership interest, or the Series I Preferred Units.
Dividend Reinvestment and Stock Purchase Plan ("DRSPP")
In February 2021, the Company filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRSPP, which automatically became effective upon filing. The Company registered 3,500,000 shares of our common stock under the DRSPP. The DRSPP commenced on September 24, 2001.
The following table summarizes SL Green common stock issued, and proceeds received from dividend reinvestments and/or stock purchases under the DRSPP for the three and six months ended June 30, 2022 and 2021, respectively (dollars in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Shares of common stock issued | |||||||||||||||||||||||
| Dividend reinvestments/stock purchases under the DRSPP | $ | $ | $ | $ | |||||||||||||||||||
Earnings per Share
We use the two-class method of computing earnings per share (“EPS”), which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPS is computed by dividing the income available to common stockholders by the weighted-average number of common stock shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from share equivalent activity.
46
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
SL Green's earnings per share for the three and six months ended June 30, 2022 and 2021 are computed as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Numerator | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Basic Earnings: | |||||||||||||||||||||||
| (Loss) income attributable to SL Green common stockholders | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Less: distributed earnings allocated to participating securities | ( | ( | ( | ( | |||||||||||||||||||
| Less: undistributed earnings allocated to participating securities | ( | ||||||||||||||||||||||
| Net (loss) income attributable to SL Green common stockholders (numerator for basic earnings per share) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Add back: dilutive effect of earnings allocated to participating securities and contingently issuable shares | ( | ( | |||||||||||||||||||||
| Add back: undistributed earnings allocated to participating securities | |||||||||||||||||||||||
| Add back: effect of dilutive securities (redemption of units to common shares) | ( | ( | |||||||||||||||||||||
| Net (loss) income attributable to SL Green common stockholders (numerator for diluted earnings per share) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Denominator | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Basic Shares: | |||||||||||||||||||||||
| Weighted average common stock outstanding | |||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||
| Operating Partnership units redeemable for common shares | |||||||||||||||||||||||
| Stock-based compensation plans | |||||||||||||||||||||||
| Contingently issuable shares | |||||||||||||||||||||||
| Diluted weighted average common stock outstanding | |||||||||||||||||||||||
The Company has excluded 528,607 and 482,130 common stock equivalents from the calculation of diluted shares outstanding for the three and six months ended June 30, 2022, respectively, as they were anti-dilutive. The Company has excluded 964,338 and 1,033,173 common stock equivalents from the calculation of diluted shares outstanding for the three and six months ended June 30, 2021, respectively, as they were anti-dilutive.
13. Partners' Capital of the Operating Partnership
47
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
Net income (loss) allocated to the preferred unitholders and common unitholders reflects their pro rata share of net income (loss) and distributions.
All unit-related references and measurements including the number of units outstanding and earnings per unit have been retroactively adjusted to reflect the reverse stock split effectuated by SL Green’s Board of Directors in January 2021 for all periods presented in this Quarterly Report on Form 10-Q.
Limited Partner Units
As of June 30, 2022, limited partners other than SL Green owned 6.06 %, or 4,144,467 common units, of the Operating Partnership.
Preferred Units
Preferred units not owned by SL Green are further described in Note 11, “Noncontrolling Interests on the Company’s Consolidated Financial Statements - Preferred Units of Limited Partnership Interest in the Operating Partnership.”
Earnings per Unit
The Operating Partnership's earnings per unit for the three and six months ended June 30, 2022 and 2021, respectively, are computed as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Numerator | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Basic Earnings: | |||||||||||||||||||||||
Net (loss) income attributable to SLGOP common unitholders (numerator for diluted earnings per unit) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Less: distributed earnings allocated to participating securities | ( | ( | ( | ( | |||||||||||||||||||
| Less: undistributed earnings allocated to participating securities | ( | ||||||||||||||||||||||
| Net (loss) income attributable to SLGOP common unitholders (numerator for basic earnings per unit) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Add back: dilutive effect of earnings allocated to participating securities and contingently issuable shares | ( | ( | |||||||||||||||||||||
| Add back: undistributed earnings allocated to participating securities | |||||||||||||||||||||||
| Net (loss) income attributable to SLGOP common unitholders (numerator for diluted earnings per unit) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Denominator | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Basic units: | |||||||||||||||||||||||
| Weighted average common units outstanding | |||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||
| Stock-based compensation plans | |||||||||||||||||||||||
| Contingently issuable units | |||||||||||||||||||||||
| Diluted weighted average common units outstanding | |||||||||||||||||||||||
The Operating Partnership has excluded 528,607 and 482,130 common unit equivalents from the diluted units outstanding for the three and six months ended June 30, 2022, respectively, as they were anti-dilutive. The Operating Partnership has excluded 964,338 and 1,033,173 common unit equivalents from the diluted units outstanding for the three and six months ended June 30, 2021, respectively, as they were anti-dilutive.
48
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
14. Share-based Compensation
We have share-based employee and director compensation plans. Our employees are compensated through the Operating Partnership. Under each plan, whenever the Company issues common or preferred stock, the Operating Partnership issues an equivalent number of units of limited partnership interest of a corresponding class to the Company.
The Fifth Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's Board of Directors in April 2022 and its stockholders in June 2022 at the Company's annual meeting of stockholders. The 2005 Plan authorizes the issuance of stock options, stock appreciation rights, unrestricted and restricted stock, phantom shares, dividend equivalent rights, cash-based awards and other equity-based awards. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 32,210,000 fungible units may be granted under the 2005 Plan. Currently, different types of awards count against the limit on the number of fungible units differently, with (1) full-value awards (i.e., those that deliver the full value of the award upon vesting, such as restricted stock) counting as 2.59 Fungible Units per share subject to such awards, (2) stock options, stock appreciation rights and other awards that do not deliver full value and expire five years from the date of grant counting as 0.84 fungible units per share subject to such awards, and (3) all other awards (e.g., 10 -year stock options) counting as 1.0 fungible units per share subject to such awards. Awards granted under the 2005 Plan prior to the approval of the fifth amendment and restatement in June 2022 continue to count against the fungible unit limit based on the ratios that were in effect at the time such awards were granted, which may be different than the current ratios. As a result, depending on the types of awards issued, the 2005 Plan may result in the issuance of more or less than 32,210,000 shares. If a stock option or other award granted under the 2005 Plan expires or terminates, the common stock subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Shares of our common stock distributed under the 2005 Plan may be treasury shares or authorized but unissued shares. Currently, unless the 2005 Plan has been previously terminated by the Company's Board of Directors, new awards may be granted under the 2005 Plan until June 1, 2032, which is the tenth anniversary of the date that the 2005 Plan was most recently approved by the Company's stockholders. As of June 30, 2022, 5.0 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units.
Stock Options and Class O LTIP Units
Options are granted with an exercise price at the fair market value of the Company's common stock on the date of grant and, subject to employment, generally expire five years or ten years from the date of grant, are not transferable other than on death, and generally vest in one year to five years commencing one year from the date of grant. We have also granted Class O LTIP Units, which are a class of LTIP Units in the Operating Partnership structured to provide economics similar to those of stock options. Class O LTIP Units, once vested, may be converted, at the election of the holder, into a number of common units of the Operating Partnership per Class O LTIP Unit determined by the increase in value of a share of the Company’s common stock at the time of conversion over a participation threshold, which equals the fair market value of a share of the Company’s common stock at the time of grant. Class O LTIP Units are entitled to distributions, subject to vesting, equal per unit to 10 % of the per unit distributions paid with respect to the common units of the Operating Partnership.
The fair value of each stock option or LTIP Unit granted is estimated on the date of grant using the Black-Scholes option pricing model based on historical information. There were no
49
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
A summary of the status of the Company's stock options as of June 30, 2022 and December 31, 2021, and changes during the six months ended June 30, 2022 and year ended December 31, 2021 are as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Options Outstanding | Weighted Average Exercise Price | Options Outstanding | Weighted Average Exercise Price | ||||||||||||||||||||
| Balance at beginning of period | $ | $ | |||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Lapsed or canceled | ( | ( | |||||||||||||||||||||
| Balance at end of period | $ | $ | |||||||||||||||||||||
| Options exercisable at end of period | $ | $ | |||||||||||||||||||||
The remaining weighted average contractual life of the options outstanding was 2.3 years and the remaining average contractual life of the options exercisable was 2.3 years.
During the three and six months ended June 30, 2022, we recognized no no no unrecognized compensation cost related to unvested stock options.
Restricted Shares
Shares are granted to certain employees, including our executives, and vesting occurs upon the completion of a service period or our meeting established financial performance criteria. Vesting occurs at rates ranging from 15 % to 35 % once performance criteria are reached.
A summary of the Company's restricted stock as of June 30, 2022 and December 31, 2021 and changes during the six months ended June 30, 2022 and the year ended December 31, 2021, are as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Balance at beginning of period | |||||||||||
| Granted | |||||||||||
| Canceled | ( | ( | |||||||||
| Balance at end of period | |||||||||||
| Vested during the period | |||||||||||
| Compensation expense recorded | $ | $ | |||||||||
| Total fair value of restricted stock granted during the period | $ | $ | |||||||||
The fair value of restricted stock that vested during the six months ended June 30, 2022 and the year ended December 31, 2021 was $9.6 million and $11.3 million, respectively. As of June 30, 2022, there was $16.3 million of total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 2.0 years.
We granted LTIP Units, which include bonus, time-based and performance-based awards, with a fair value of $40.6 million and $55.0 million as of June 30, 2022 and December 31, 2021, respectively. The grant date fair value of the LTIP Unit awards was calculated in accordance with ASC 718. A third party consultant determined that the fair value of the LTIP Units has a discount to our common stock price. The discount was calculated by considering the inherent uncertainty that the LTIP Units will reach parity with other common partnership units and the illiquidity due to transfer restrictions. As of June 30, 2022, there was $64.5 million of total unrecognized compensation expense related to the time-based and performance based awards, which is expected to be recognized over a weighted average period of 1.7 years.
During the three and six months ended June 30, 2022, we recorded compensation expense related to bonus, time-based and performance based awards of $10.3 million and $20.3 million, respectively. During the three and six months ended June 30, 2021, we recorded compensation expense related to bonus, time-based and performance based awards of $9.1 million and $18.2 million, respectively.
50
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
For the three and six months ended June 30, 2022, $0.6 million and $0.9 million, respectively, was capitalized to assets associated with compensation expense related to our long-term compensation plans, restricted stock and stock options. For the three and six months ended June 30, 2021, $0.5 million and $1.0 million, respectively, was capitalized to assets associated with compensation expense related to our long-term compensation plans, restricted stock and stock options.
Deferred Compensation Plan for Directors
Under our Non-Employee Director's Deferral Program, which commenced July 2004, the Company's non-employee directors may elect to defer up to 100 % of their annual retainer fee, chairman fees, meeting fees and annual stock grant. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The program provides that a director's phantom stock units generally will be settled in an equal number of shares of common stock upon the earlier of (i) the January 1 coincident with or the next following such director's termination of service from the Board of Directors or (ii) a change in control by us, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of our common stock on the first business day of the respective quarter. Each participating non-employee director is also credited with dividend equivalents or phantom stock units based on the dividend rate for each quarter, which are either paid in cash currently or credited to the director’s account as additional phantom stock units.
During the six months ended June 30, 2022, 19,535 phantom stock units and 9,284 shares of common stock were issued to our Board of Directors. We recorded compensation expense of $0.4 million and $2.2 million during the three and six months ended June 30, 2022, respectively, related to the Deferred Compensation Plan. We recorded compensation expense of $0.2 million and $2.0 million during the three and six months ended June 30, 2021, respectively, related to the Deferred Compensation Plan.
As of June 30, 2022, there were 184,737 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program.
Employee Stock Purchase Plan
15. Accumulated Other Comprehensive Income (Loss)
The following tables set forth the changes in accumulated other comprehensive income (loss) by component as of June 30, 2022 (in thousands):
Net unrealized gain (loss) on derivative instruments (1) | SL Green’s share of joint venture net unrealized loss on derivative instruments (2) | Net unrealized (loss) gain on marketable securities | Total | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Other comprehensive gain before reclassifications | ( | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | ( | $ | ( | $ | |||||||||||||||||
(1)Amount reclassified from accumulated other comprehensive income (loss) is included in interest expense in the respective consolidated statements of operations. As of June 30, 2022 and December 31, 2021, the deferred net gains from these terminated hedges, which is included in accumulated other comprehensive income (loss) relating to net unrealized loss on derivative instruments, was $(0.5 ) million and $(0.6 ) million, respectively.
51
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
16. Fair Value Measurements
The following tables set forth the assets and liabilities that we measure at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy as of June 30, 2022 and December 31, 2021 (in thousands):
| June 30, 2022 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Marketable securities available-for-sale | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate cap and swap agreements (included in Other assets) | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Marketable securities available-for-sale | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate cap and swap agreements (included in Other assets) | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Interest rate cap and swap agreements (included in Other liabilities) | $ | $ | $ | $ | |||||||||||||||||||
We evaluate real estate investments and debt and preferred equity investments, including intangibles, for potential impairment primarily utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts, all of which are classified as Level 3 inputs.
Marketable securities classified as Level 1 are derived from quoted prices in active markets. The valuation technique used to measure the fair value of marketable securities classified as Level 2 were valued based on quoted market prices or model driven valuations using the significant inputs derived from or corroborated by observable market data. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.
The fair value of derivative instruments is based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well-recognized financial principles and reasonable estimates about relevant future market conditions, which are classified as Level 2 inputs.
52
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
The following table provides the carrying value and fair value of these financial instruments as of June 30, 2022 and December 31, 2021 (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
Carrying Value (1) | Fair Value | Carrying Value (1) | Fair Value | ||||||||||||||||||||
| Debt and preferred equity investments | $ | (2) | $ | (2) | |||||||||||||||||||
| Fixed rate debt | $ | $ | $ | $ | |||||||||||||||||||
| Variable rate debt | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
(1)Amounts exclude net deferred financing costs.
(2)As of June 30, 2022, debt and preferred equity investments had an estimated fair value ranging between $1.0 billion and $1.1 billion. As of December 31, 2021, debt and preferred equity investments had an estimated fair value ranging between $1.0 billion and $1.1 billion.
Disclosures regarding fair value of financial instruments was based on pertinent information available to us as of June 30, 2022 and December 31, 2021. Such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
53
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
17. Financial Instruments: Derivatives and Hedging
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collars and floors, to manage, or hedge interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedge asset, liability, or firm commitment through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all of our designated derivative instruments are effective hedging instruments.
The following table summarizes the notional value at inception and fair value of our consolidated derivative financial instruments as of June 30, 2022 based on Level 2 information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands).
| Notional Value | Strike Rate | Effective Date | Expiration Date | Balance Sheet Location | Fair Value | ||||||||||||||||||||||||||||||
| Interest Rate Cap | $ | % | November 2021 | November 2022 | Other Assets | $ | |||||||||||||||||||||||||||||
| Interest Rate Swap | % | January 2021 | January 2023 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | January 2022 | February 2023 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | February 2022 | February 2023 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | November 2021 | July 2023 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | November 2021 | July 2023 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | December 2021 | January 2024 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | December 2021 | January 2026 | Other Assets | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | December 2021 | January 2026 | Other Assets | |||||||||||||||||||||||||||||||
| $ | |||||||||||||||||||||||||||||||||||
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of June 30, 2022, there were no derivatives with a fair value in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements. As of June 30, 2022, the Company was not required to post any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value, which there was no value as of June 30, 2022.
Gains and losses on terminated hedges are included in accumulated other comprehensive income (loss), and are recognized into earnings over the term of the related mortgage obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive income (loss) will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that $(15.8 ) million of the current balance held in accumulated other comprehensive income (loss) will be reclassified into interest expense and $(2.0 ) million of the portion related to our share of joint venture accumulated other comprehensive income (loss) will be reclassified into equity in net loss from unconsolidated joint ventures within the next 12 months.
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SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the three months ended June 30, 2022 and 2021, respectively (in thousands):
| Amount of Gain (Loss) Recognized in Other Comprehensive Loss | Location of Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | Amount of Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | ||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
| Derivative | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
| Interest Rate Swaps/Caps | $ | $ | ( | Interest expense | $ | ( | $ | ( | ||||||||||||||||||||||||
| Share of unconsolidated joint ventures' derivative instruments | ( | Equity in net loss from unconsolidated joint ventures | ( | ( | ||||||||||||||||||||||||||||
| $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the six months ended June 30, 2022 and 2021, respectively (in thousands):
| Amount of Gain (Loss) Recognized in Other Comprehensive Loss | Location of Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | Amount of Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | ||||||||||||||||||||||||||||||
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| Derivative | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
| Interest Rate Swaps/Caps | $ | $ | Interest expense | $ | ( | $ | ( | |||||||||||||||||||||||||
| Share of unconsolidated joint ventures' derivative instruments | ( | Equity in net loss from unconsolidated joint ventures | ( | ( | ||||||||||||||||||||||||||||
| $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
The following table summarizes the notional value at inception and fair value of our joint ventures' derivative financial instruments as of June 30, 2022 based on Level 2 information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands).
| Notional Value | Strike Rate | Effective Date | Expiration Date | Classification | Fair Value | ||||||||||||||||||||||||||||||
| Interest Rate Cap | $ | % | September 2021 | September 2022 | Asset | $ | |||||||||||||||||||||||||||||
| Interest Rate Cap | % | September 2021 | September 2022 | Asset | |||||||||||||||||||||||||||||||
| Interest Rate Cap | % | January 2021 | January 2023 | Asset | |||||||||||||||||||||||||||||||
| Interest Rate Cap | % | February 2022 | February 2023 | Asset | |||||||||||||||||||||||||||||||
| Interest Rate Cap | % | December 2021 | June 2023 | Asset | |||||||||||||||||||||||||||||||
| Interest Rate Cap | % | February 2022 | May 2024 | Asset | |||||||||||||||||||||||||||||||
| Interest Rate Cap | % | February 2022 | May 2024 | Asset | |||||||||||||||||||||||||||||||
| Interest Rate Swap | % | March 2016 | February 2026 | Asset | |||||||||||||||||||||||||||||||
| $ | |||||||||||||||||||||||||||||||||||
55
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
18. Lease Income
The Operating Partnership is the lessor and the sublessor to tenants under operating and sales-type leases. The minimum rental amounts due under the leases are generally subject to scheduled fixed increases or adjustments. The leases generally also require that the tenants reimburse us for increases in certain operating costs and real estate taxes above their base year costs.
The components of lease income from operating leases during the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Fixed lease payments | $ | $ | $ | $ | ||||||||||||||||||||||
| Variable lease payments | ||||||||||||||||||||||||||
Total lease payments (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| Amortization of acquired above and below-market leases | ( | ( | ( | ( | ||||||||||||||||||||||
| Total rental revenue | $ | $ | $ | $ | ||||||||||||||||||||||
(1)Amounts include $58.0 million and $114.2 million of sublease income during the three and six months ended June 30, 2022 and $66.7 million and $132.5 million of sublease income during the three and six months ended June 30, 2021, respectively.
The components of lease income from sales-type leases during the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Interest income (1) | $ | $ | $ | $ | ||||||||||||||||||||||
(1)These amounts are included in Other income in our consolidated statements of operations.
19. Commitments and Contingencies
Legal Proceedings
As of June 30, 2022, the Company and the Operating Partnership were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio which if adversely determined could have a material adverse impact on us.
On October 31, 2021, HNA, through an affiliated entity, filed for Chapter 11 bankruptcy protection on account of its investment in 245 Park Avenue, together with another asset in Chicago. On July 8, 2022, certain of the debtors and affiliates of SL Green entered into a Plan Sponsorship and Investment Agreement, pursuant to which SL Green became the stalking horse bidder for the property. Since the debtors did not receive any qualifying bids for the property, SL Green expects to acquire full ownership and control of the property in September 2022, subject to Plan confirmation. See Note 5, "Debt and Preferred Equity Investments."
Environmental Matters
Our management believes that the properties are in compliance in all material respects with applicable federal, state and local ordinances and regulations regarding environmental issues. Management is not aware of any environmental liability that it believes would have a materially adverse impact on our financial position, results of operations or cash flows. Management is unaware of any instances in which it would incur significant environmental cost if any of our properties were sold.
56
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2022
(unaudited)
20. Segment Information
The Company has two reportable segments, real estate and debt and preferred equity investments. We evaluate real estate performance and allocate resources based on earnings contributions.
The primary sources of revenue are generated from tenant rents, escalations and reimbursement revenue. Real estate property operating expenses consist primarily of security, maintenance, utility costs, insurance, real estate taxes and ground rent expense (at certain applicable properties). See Note 5, "Debt and Preferred Equity Investments," for additional details on our debt and preferred equity investments.
Selected consolidated results of operations for the three and six months ended June 30, 2022 and 2021, and selected asset information as of June 30, 2022 and December 31, 2021, regarding our operating segments are as follows (in thousands):
| Real Estate Segment | Debt and Preferred Equity Segment | Total Company | ||||||||||||||||||
| Total revenues | ||||||||||||||||||||
| Three months ended: | ||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | |||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Six months ended: | ||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | |||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Net (loss) income | ||||||||||||||||||||
| Three months ended: | ||||||||||||||||||||
| June 30, 2022 | $ | ( | $ | $ | ( | |||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Six months ended: | ||||||||||||||||||||
| June 30, 2022 | $ | ( | $ | $ | ( | |||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Total assets | ||||||||||||||||||||
| As of: | ||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | |||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
Interest costs for the debt and preferred equity segment include actual costs incurred for borrowings on the 2017 MRA. Interest is imputed on the investments that do not collateralize the 2017 MRA using our weighted average corporate borrowing cost. We also allocate loan loss reserves, net of recoveries, and transaction related costs to the debt and preferred equity segment. We do not allocate marketing, general and administrative expenses to the debt and preferred equity segment because the use of personnel and resources is dependent on transaction volume between the two segments and varies between periods. In addition, we base performance on the individual segments prior to allocating marketing, general and administrative expenses. For the three and six months ended June 30, 2022, marketing, general and administrative expenses totaled $23.5 million and $48.3 million. For the three and six months ended June 30, 2021, marketing, general and administrative expenses totaled $22.1 million and $44.9 million. All other expenses, except interest, relate entirely to the real estate assets.
There were no transactions between the above two segments.
57
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
SL Green Realty Corp., which is referred to as SL Green or the Company, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Company is a self-managed real estate investment trust, or REIT, engaged in the acquisition, development, repositioning, ownership, management and operation of commercial and residential real estate properties, principally office properties, located in the New York metropolitan area, principally Manhattan. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership.
The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in this Quarterly Report on this Form 10-Q and in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021.
As of June 30, 2022, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties:
| Consolidated | Unconsolidated | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Location | Property Type | Number of Buildings | Approximate Square Feet (unaudited) | Number of Buildings | Approximate Square Feet (unaudited) | Number of Buildings | Approximate Square Feet (unaudited) | Weighted Average Occupancy(1) (unaudited) | ||||||||||||||||||||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Manhattan | Office | 12 | 8,180,345 | 12 | 13,998,381 | 24 | 22,178,726 | 91.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Retail | 2 | (2) | 17,888 | 9 | 301,996 | 11 | 319,884 | 91.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Development/Redevelopment | (1) | 5 | 2,091,719 | 2 | 1,618,310 | 7 | 3,710,029 | N/A | ||||||||||||||||||||||||||||||||||||||||||
| 19 | 10,289,952 | 23 | 15,918,687 | 42 | 26,208,639 | 91.2 | % | |||||||||||||||||||||||||||||||||||||||||||
| Suburban | Office | 7 | 862,800 | — | — | 7 | 862,800 | 78.3 | % | |||||||||||||||||||||||||||||||||||||||||
| Total commercial properties | 26 | 11,152,752 | 23 | 15,918,687 | 49 | 27,071,439 | 90.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Residential: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Manhattan | Residential | 1 | (2) | 140,382 | — | — | 1 | 140,382 | 76.1 | % | ||||||||||||||||||||||||||||||||||||||||
| Total portfolio | 27 | 11,293,134 | 23 | 15,918,687 | 50 | 27,211,821 | 90.6 | % | ||||||||||||||||||||||||||||||||||||||||||
(1)The weighted average occupancy for commercial properties represents the total occupied square footage divided by the total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by the total available units. Properties under construction are not included in the calculation of weighted average occupancy.
(2)As of June 30, 2022, we owned a building at 7 Dey / 185 Broadway that was comprised of approximately 50,206 square feet (unaudited) of retail space and approximately 140,382 square feet (unaudited) of residential space. For the purpose of this report, we have included this building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.
As of June 30, 2022, we also managed one office building owned by a third party encompassing approximately 0.3 million square feet (unaudited), and held debt and preferred equity investments with a book value of $1.2 billion, excluding approximately $0.1 billion of debt and preferred equity investments and other financing receivables that are included in other balance sheet line items other than the Debt and preferred equity investments line item.
Critical Accounting Policies and Estimates
Refer to the 2021 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies and estimates, which include investment in commercial real estate properties, investment in unconsolidated joint ventures, lease classification, revenue recognition, and debt and preferred equity investments. During the three and six months ended June 30, 2022, there were no material changes to these policies.
58
Results of Operations
Comparison of the three months ended June 30, 2022 to the three months ended June 30, 2021
The following comparison for the three months ended June 30, 2022, or 2022, to the three months ended June 30, 2021, or 2021, makes reference to the effect of the following:
i.“Same-Store Properties,” which represents all operating properties owned by us at January 1, 2021 and still owned by us in the same manner as of June 30, 2022 (Same-Store Properties totaled 20 of our 27 consolidated operating buildings),
ii.“Acquisition Properties,” which represents all properties or interests in properties acquired in 2022 and 2021 and all non-Same-Store Properties, including properties that are under development or redevelopment,
iii."Disposed Properties," which represents all properties or interests in properties sold in 2022 and 2021, and
iv.“Other,” which represents properties where we sold an interest resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc.
| Same-Store | Disposed | Other | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | $ Change | % Change | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 139.6 | $ | 135.7 | $ | 3.9 | 2.9 | % | $ | — | $ | 10.3 | $ | 15.6 | $ | 38.6 | $ | 155.2 | $ | 184.6 | $ | (29.4) | (15.9) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment income | — | — | — | — | % | — | — | 20.4 | 20.1 | 20.4 | 20.1 | 0.3 | 1.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income | 0.8 | 1.1 | (0.3) | (27.3) | % | 5.0 | 2.1 | 20.0 | 10.2 | 25.8 | 13.4 | 12.4 | 92.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 140.4 | 136.8 | 3.6 | 2.6 | % | 5.0 | 12.4 | 56.0 | 68.9 | 201.4 | 218.1 | (16.7) | (7.7) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property operating expenses | 64.8 | 65.0 | (0.2) | (0.3) | % | 0.2 | 5.3 | 11.7 | 24.1 | 76.7 | 94.4 | (17.7) | (18.8) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing, general and administrative | — | — | — | — | % | — | — | 23.5 | 22.1 | 23.5 | 22.1 | 1.4 | 6.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 64.8 | 65.0 | (0.2) | (0.3) | % | 0.2 | 5.3 | 35.2 | 46.2 | 100.2 | 116.5 | (16.3) | (14.0) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expenses): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense and amortization of deferred financing costs, net of interest income | (16.9) | (22.3) | 5.4 | (24.2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (46.9) | (57.3) | 10.4 | (18.2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in net loss from unconsolidated joint ventures | (4.6) | (13.0) | 8.4 | (64.6) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate | (0.1) | 8.5 | (8.6) | (101.2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase price and other fair value adjustments | (6.2) | (1.9) | (4.3) | 226.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) gain on sale of real estate, net | (64.4) | 99.0 | (163.4) | (165.1) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciable real estate reserves and impairment | — | 2.5 | (2.5) | (100.0) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | $ | (37.9) | $ | 117.1 | $ | (155.0) | (132.4) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Rental Revenue
Rental revenues decreased primarily due to the deconsolidation of 220 East 42nd Street as a result of the sale of a joint venture interest during the third quarter of 2021 ($17.3 million) and Disposed Properties ($10.2 million).
The following table presents a summary of the commenced leasing activity for the three months ended June 30, 2022 in our Manhattan portfolio:
| Usable SF | Rentable SF | New Cash Rent (per rentable SF) (1) | Prev. Escalated Rent (per rentable SF) (2) | TI/LC per rentable SF | Free Rent (in months) | Average Lease Term (in years) | |||||||||||||||||||||||||||||||||||
| Manhattan | |||||||||||||||||||||||||||||||||||||||||
| Space available at beginning of the period | 1,884,947 | ||||||||||||||||||||||||||||||||||||||||
| Acquired Vacancies | 86,603 | ||||||||||||||||||||||||||||||||||||||||
Space which became available during the period (3) | |||||||||||||||||||||||||||||||||||||||||
• Office | 224,769 | ||||||||||||||||||||||||||||||||||||||||
• Retail | 73,865 | ||||||||||||||||||||||||||||||||||||||||
• Storage | 9,500 | ||||||||||||||||||||||||||||||||||||||||
| 308,134 | |||||||||||||||||||||||||||||||||||||||||
| Total space available | 2,279,684 | ||||||||||||||||||||||||||||||||||||||||
| Leased space commenced during the period: | |||||||||||||||||||||||||||||||||||||||||
• Office(4) | 265,005 | 281,837 | $ | 78.12 | $ | 66.79 | $ | 111.29 | 10.3 | 12.5 | |||||||||||||||||||||||||||||||
• Retail | 26,780 | 26,105 | $ | 182.80 | $ | 160.73 | $ | 80.85 | 7.7 | 15.8 | |||||||||||||||||||||||||||||||
• Storage | 1,674 | 1,623 | $ | 28.03 | $ | 31.01 | $ | — | — | 3.7 | |||||||||||||||||||||||||||||||
| Total leased space commenced | 293,459 | 309,565 | $ | 86.69 | $ | 75.56 | $ | 108.14 | 10.1 | 12.7 | |||||||||||||||||||||||||||||||
| Total available space at end of period | 1,986,225 | ||||||||||||||||||||||||||||||||||||||||
| Early renewals | |||||||||||||||||||||||||||||||||||||||||
| • Office | 45,552 | 51,795 | $ | 83.70 | $ | 83.50 | $ | 41.12 | 3.5 | 5.2 | |||||||||||||||||||||||||||||||
| • Storage | 2,088 | 2,088 | $ | 28.14 | $ | 28.14 | $ | — | — | 2.7 | |||||||||||||||||||||||||||||||
| Total early renewals | 47,640 | 53,883 | $ | 81.55 | $ | 81.35 | $ | 39.53 | 3.3 | 5.1 | |||||||||||||||||||||||||||||||
| Total commenced leases, including replaced previous vacancy | |||||||||||||||||||||||||||||||||||||||||
| • Office | 333,632 | $ | 78.99 | $ | 70.10 | $ | 100.39 | 9.3 | 11.4 | ||||||||||||||||||||||||||||||||
| • Retail | 26,105 | $ | 182.80 | $ | 160.73 | $ | 80.85 | 7.7 | 15.8 | ||||||||||||||||||||||||||||||||
| • Storage | 3,711 | $ | 28.09 | $ | 28.95 | $ | — | — | 3.1 | ||||||||||||||||||||||||||||||||
| Total commenced leases | 363,448 | $ | 85.92 | $ | 76.65 | $ | 97.96 | 9.1 | 11.6 | ||||||||||||||||||||||||||||||||
(1)Annual initial base rent.
(2)Escalated rent includes base rent plus all additional amounts paid by the tenant in the form of real estate taxes, operating expenses, porters wage or a consumer price index (CPI) adjustment.
(3)Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over.
(4)Average starting office rent excluding new tenants replacing vacancies was $69.95 per rentable square feet for 209,493 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $72.68 per rentable square feet for 261,288 rentable square feet.
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Investment Income
For the three months ended June 30, 2022, investment income increased primarily as a result of an increase in the weighted average yield of our debt and preferred equity investments. For the three months ended June 30, 2022, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $1.1 billion and 7.3%, respectively, as compared to $1.1 billion and 7.1%, respectively, for the three months ended June 30, 2021.
Other Income
Other income increased primarily due to construction management fee income ($5.5 million), income related to the resolution of the Company's investment in 1591-1597 Broadway ($5.0 million) and fee income related to the acquisition of 450 Park Avenue ($4.7 million) during the three months ended June 30, 2022.
Property Operating Expenses
Property operating expenses decreased primarily due to the sale of a joint venture interest and deconsolidation of 220 East 42nd Street ($5.8 million) in the third quarter of 2021, reduced real estate taxes at our Same-Store Properties ($5.2 million) and reduced variable expenses and real estate taxes at our Disposed and Acquisition Properties ($5.0 million and $4.5 million, respectively), partially offset by increased variable expenses at our Same-Store Properties ($5.0 million).
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased to $23.5 million for three months ended June 30, 2022, compared to $22.1 million for the same period in 2021.
Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income
Interest expense and amortization of deferred financing costs, net of interest income, decreased primarily due to the deconsolidation of 220 East 42nd Street ($4.8 million) in the third quarter of 2021, lower interest expense from senior unsecured notes ($1.1 million) and term loans ($0.6 million) resulting from a decrease in balances outstanding during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, and the sale of 1080 Amsterdam Avenue ($1.1 million), partially offset by interest capitalization in connection with properties that are under development ($3.9 million). The weighted average consolidated debt balance outstanding was $4.0 billion for the three months ended June 30, 2022, compared to $5.3 billion for the three months ended June 30, 2021. The consolidated weighted average interest rate was 3.23% for the three months ended June 30, 2022, as compared to 2.82% for the three months ended June 30, 2021.
Depreciation and Amortization
Depreciation and amortization decreased at our Disposed Properties ($4.2 million) and Acquired Properties ($1.6 million) during the three months ended June 30, 2022. Depreciation and amortization decreased further due to the deconsolidation of 220 East 42nd Street ($4.1 million) as a result of the interest sale during the third quarter of 2021.
Equity in net loss from unconsolidated joint ventures
Equity in net loss from unconsolidated joint ventures decreased primarily as a result of an increase in income from operations at One Vanderbilt Avenue ($8.7 million).
Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
During the three months ended June 30, 2022, we recognized a loss on the sale of our interest in the Stonehenge Portfolio. During the three months ended June 30, 2021, we recognized a gain on the sale of our interest in 605 West 42nd Street ($8.9 million).
Purchase price and other fair value adjustments
During the three months ended June 30, 2022, we recorded a $6.2 million fair value adjustment related to an investment in marketable securities. During the three months ended June 30, 2021, we recorded a $1.9 million fair value adjustment related to an investment in marketable securities.
(Loss) gain on sale of real estate, net
During the three months ended June 30, 2022, we recognized a loss on the sale of 609 Fifth Avenue ($80.2 million) offset by a gain on the sale of 1080 Amsterdam Avenue ($17.9 million). During the three months ended June 30, 2021, we recognized a gain on the sale of 635-641 Sixth Avenue ($99.4 million).
61
Depreciable real estate reserves and impairment
During the three months ended June 30, 2022, we did not recognize any depreciable real estate reserves and impairment. During the three months ended June 30, 2021, we recognized depreciable real estate reserves and impairment related to 106 Spring Street ($2.8 million).
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
The following comparison for the six months ended June 30, 2022, or 2022, to the six months ended June 30, 2021, or 2021, makes reference to the effect of the following:
i.“Same-Store Properties,” which represents all operating properties owned by us at January 1, 2021 and still owned by us in the same manner as of June 30, 2022 (Same-Store Properties totaled 20 of our 27 consolidated operating properties),
ii.“Acquisition Properties,” which represents all properties or interests in properties acquired in 2022 and 2021 and all non-Same-Store Properties, including properties that are under development, redevelopment or were deconsolidated during the period,
iii."Disposed Properties," which represents all properties or interests in properties sold or partially sold in 2022 and 2021, and
iv.“Other,” which represents properties that were partially sold resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc.
| Same-Store | Disposed | Other | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | $ Change | % Change | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 280.3 | $ | 269.8 | $ | 10.5 | 3.9 | % | $ | 0.9 | $ | 24.0 | $ | 30.1 | $ | 78.9 | $ | 311.3 | $ | 372.7 | $ | (61.4) | (16.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment income | — | — | — | — | % | — | — | 40.3 | 39.4 | 40.3 | 39.4 | 0.9 | 2.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income | 1.0 | 1.2 | (0.2) | (16.7) | % | 10.4 | 12.2 | 26.5 | 18.7 | 37.9 | 32.1 | 5.8 | 18.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 281.3 | 271.0 | 10.3 | 3.8 | % | 11.3 | 36.2 | 96.9 | 137.0 | 389.5 | 444.2 | (54.7) | (12.3) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property operating expenses | 129.6 | 130.7 | (1.1) | (0.8) | % | 1.6 | 11.4 | 25.7 | 46.7 | 156.9 | 188.8 | (31.9) | (16.9) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing, general and administrative | — | — | — | — | % | — | — | 48.3 | 44.9 | 48.3 | 44.9 | 3.4 | 7.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 129.6 | 130.7 | (1.1) | (0.8) | % | 1.6 | 11.4 | 74.0 | 91.6 | 205.2 | 233.7 | (28.5) | (12.2) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expenses): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense and amortization of deferred financing costs, net of interest income | (33.9) | (49.5) | 15.6 | (31.5) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (93.9) | (120.3) | 26.4 | (21.9) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in net loss from unconsolidated joint ventures | (9.3) | (15.8) | 6.5 | (41.1) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in net loss on sale of interest in unconsolidated joint venture/real estate | (0.1) | (4.2) | 4.1 | (97.6) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase price and other fair value adjustments | (6.2) | 0.7 | (6.9) | (985.7) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) gain on sale of real estate, net | (65.4) | 97.6 | (163.0) | (167) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciable real estate reserves and impairment | — | (5.7) | 5.7 | (100.0) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | $ | (24.5) | $ | 113.3 | $ | (137.8) | (121.6) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rental Revenue
Rental revenue decreased primarily due to the deconsolidation of 220 East 42nd Street as a result of the sale of a joint venture interest during the third quarter of 2021 ($33.9 million), our Disposed Properties ($23.1 million), and properties moved into redevelopment ($13.0 million). This was partially offset by a higher contribution from our Same-Store Properties ($10.4 million), primarily driven by increased rents at 485 Lexington Avenue ($3.4 million) as well as increased occupancy at both 1185 Avenue of the Americas ($2.1 million) and 1350 Avenue of the Americas ($1.8 million).
62
The following table presents a summary of the commenced leasing activity for the six months ended June 30, 2022 in our Manhattan and Suburban portfolio:
| Usable SF | Rentable SF | New Cash Rent (per rentable SF) (1) | Prev. Escalated Rent (per rentable SF) (2) | TI/LC per rentable SF | Free Rent (in months) | Average Lease Term (in years) | |||||||||||||||||||||||||||||||||||
| Manhattan | |||||||||||||||||||||||||||||||||||||||||
| Space available at beginning of the period | 1,638,009 | ||||||||||||||||||||||||||||||||||||||||
| Property out of redevelopment | 107,612 | ||||||||||||||||||||||||||||||||||||||||
| Acquired vacancies | 86,603 | ||||||||||||||||||||||||||||||||||||||||
Space which became available during the period (3) | |||||||||||||||||||||||||||||||||||||||||
• Office | 596,737 | ||||||||||||||||||||||||||||||||||||||||
• Retail | 84,560 | ||||||||||||||||||||||||||||||||||||||||
• Storage | 12,611 | ||||||||||||||||||||||||||||||||||||||||
| 693,908 | |||||||||||||||||||||||||||||||||||||||||
| Total space available | 2,526,132 | ||||||||||||||||||||||||||||||||||||||||
| Leased space commenced during the period: | |||||||||||||||||||||||||||||||||||||||||
• Office(4) | 502,562 | 551,222 | $ | 72.55 | $ | 70.52 | $ | 95.70 | 9.8 | 10.8 | |||||||||||||||||||||||||||||||
| • Retail | 32,725 | 31,504 | $ | 166.86 | $ | 160.73 | $ | 66.99 | 7.6 | 14.9 | |||||||||||||||||||||||||||||||
| • Storage | 4,620 | 4,814 | $ | 28.50 | $ | 31.20 | $ | 3.84 | 6.0 | 7.9 | |||||||||||||||||||||||||||||||
| Total leased space commenced | 539,907 | 587,540 | $ | 77.25 | $ | 74.49 | $ | 93.41 | 9.6 | 11.0 | |||||||||||||||||||||||||||||||
| Total available space at end of period | 1,986,225 | ||||||||||||||||||||||||||||||||||||||||
| Early renewals | |||||||||||||||||||||||||||||||||||||||||
| • Office | 70,231 | 78,826 | $ | 84.97 | $ | 84.25 | $ | 33.29 | 2.8 | 4.4 | |||||||||||||||||||||||||||||||
| • Retail | 7,198 | 8,152 | $ | 187.79 | $ | 206.76 | $ | — | — | 8.1 | |||||||||||||||||||||||||||||||
| • Storage | 2,088 | 2,088 | $ | 28.14 | $ | 28.14 | $ | — | — | 2.7 | |||||||||||||||||||||||||||||||
| Total early renewals | 79,517 | 89,066 | $ | 93.05 | $ | 94.15 | $ | 29.46 | 2.5 | 4.7 | |||||||||||||||||||||||||||||||
| Total commenced leases, including replaced previous vacancy | |||||||||||||||||||||||||||||||||||||||||
| • Office | 630,048 | $ | 74.11 | $ | 72.63 | $ | 87.90 | 8.9 | 10.0 | ||||||||||||||||||||||||||||||||
| • Retail | 39,656 | $ | 171.17 | $ | 173.17 | $ | 53.22 | 6.0 | 13.5 | ||||||||||||||||||||||||||||||||
| • Storage | 6,902 | $ | 28.39 | $ | 30.16 | $ | 2.68 | 4.2 | 6.3 | ||||||||||||||||||||||||||||||||
| Total commenced leases | 676,606 | $ | 79.33 | $ | 77.68 | $ | 84.99 | 8.7 | 10.2 | ||||||||||||||||||||||||||||||||
(1)Annual initial base rent.
(2)Escalated rent includes base rent plus all additional amounts paid by the tenant in the form of real estate taxes, operating expenses, porters wage or a consumer price index (CPI) adjustment.
(3)Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over.
(4)Average starting office rent excluding new tenants replacing vacancies was $67.76 per rentable square feet for 433,793 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $70.40 per rentable square feet for 512,619 rentable square feet.
Investment Income
For the six months ended June 30, 2022, investment income increased primarily as a result of a increase in the weighted average yield of our debt and preferred equity investments. For the six months ended June 30, 2022, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $1.1 billion and 7.3%, respectively, as compared to $1.1 billion and 6.9%, respectively, for the six months ended June 30, 2021.
Other Income
For the six months ended June 30, 2022, other income increased primarily due to income related to the resolution of the Company's investment in 1591-1597 Broadway ($5.0 million) and fee income related to the acquisition of 450 Park Avenue ($4.7 million). This increase was partially offset by lower lease termination income for the six months ended June 30, 2022 ($5.4 million) as compared to the same period in 2021 ($9.9 million).
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Property Operating Expenses
Property operating expenses decreased primarily due to the sale of a joint venture interest and deconsolidation of 220 East 42nd Street ($11.5 million) in the third quarter of 2021, reduced real estate taxes at our Same-Store Properties ($10.4 million) and reduced variable expenses and real estate taxes at our Acquired and Disposed Properties ($10.4 million and $9.6 million, respectively), partially offset by increased variable expenses at our Same-Store Properties ($9.2 million).
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased to $48.3 million for the six months ended June 30, 2022, compared to $44.9 million for the same period in 2021, primarily due to an increase in rent expense for the Company's corporate offices at One Vanderbilt Avenue.
Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income
Interest expense and amortization of deferred financing costs, net of interest income, decreased primarily due to deconsolidation of 220 East 42nd Street ($9.7 million) in the third quarter of 2021, lower interest expense from senior unsecured notes ($2.3 million) and term loans ($1.9 million) resulting from a decrease in balances outstanding during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, and the sale of 1080 Amsterdam Avenue ($1.2 million), partially offset by interest capitalization in connection with properties that are under development ($1.4 million). The weighted average consolidated debt balance outstanding was $4.1 billion for the six months ended June 30, 2022, compared to $5.3 billion for the six months ended June 30, 2021. The consolidated weighted average interest rate was 3.12% for the six months ended June 30, 2022, as compared to 2.85% for the six months ended June 30, 2021.
Depreciation and Amortization
Depreciation and amortization decreased primarily due to our Disposed and Acquired Properties ($11.2 million and $4.9 million, respectively) during the six months ended June 30, 2022. Depreciation and amortization decreased further due to the deconsolidation of 220 East 42nd Street ($8.6 million) as a result of the interest sale during the third quarter of 2021.
Equity in net loss from unconsolidated joint ventures
Equity in net loss from unconsolidated joint ventures decreased as a result of an increase in income from operations at 1515 Broadway ($8.4 million) and One Vanderbilt Avenue ($4.1 million). This increase was partially offset by a decrease in income from operations at 2 Herald Square ($2.2 million) and Worldwide Plaza ($2.2 million).
Equity in net loss on sale of interest in unconsolidated joint venture/real estate
During the six months ended June 30, 2022, we recognized a loss on the sale of our interest in the Stonehenge Portfolio. During the six months ended June 30, 2021, we recognized a loss on the sale of our interest in 55 West 46th Street ($15.2 million), offset by a gain on the sale of our interest in 605 West 42nd Street ($8.9 million).
Purchase price and other fair value adjustments
During the six months ended June 30, 2022, we recorded a $6.2 million fair value adjustment related to an investment in marketable securities. During the six months ended June 30, 2021, we recorded $2.7 million of purchase price and other fair value adjustment gains related to One Madison Avenue, partially offset by a $1.9 million fair value adjustment related to an investment in marketable securities.
(Loss) gain on sale of real estate, net
During the six months ended June 30, 2022, we recognized losses on the sales of 609 Fifth Avenue ($80.2 million) and 707 Eleventh Avenue ($0.8 million), offset by a gain on the sale of 1080 Amsterdam Avenue ($17.9 million). During the six months ended June 30, 2021, we recognized a gain on the sale of 635-641 Sixth Avenue ($99.4 million).
Depreciable real estate reserves and impairment
During the six months ended June 30, 2022, we did not recognize any depreciable real estate reserves. During the six months ended June 30, 2021, we recognized depreciable real estate reserves and impairments related to 400 East 57th Street ($5.7 million).
Liquidity and Capital Resources
We currently expect that the principal sources of funds to meet our short-term and long-term liquidity requirements for working capital, acquisitions, development or redevelopment of properties, tenant improvements, leasing costs, share repurchases, dividends to shareholders, distributions to unitholders, repurchases or repayments of outstanding indebtedness and for debt and preferred equity investments will include:
(1)Cash flow from operations;
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(2)Cash on hand;
(3)Net proceeds from divestitures of properties and redemptions, participations, dispositions and repayments of debt and preferred equity investments;
(4)Borrowings under the revolving credit facility;
(5)Other forms of secured or unsecured financing; and
(6)Proceeds from common or preferred equity or debt offerings by the Company or the Operating Partnership (including issuances of units of limited partnership interest in the Operating Partnership and Trust preferred securities).
Cash flow from operations is primarily dependent upon the collectability of rent, the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent, operating escalations and recoveries from our tenants and the level of operating and other costs. Additionally, we believe that our debt and preferred equity investment program will continue to serve as a source of operating cash flow.
The combined aggregate principal maturities of mortgages and other loans payable, the 2021 credit facility, senior unsecured notes (net of discount), trust preferred securities, our share of joint venture debt, including as-of-right extension options and put options, estimated interest expense, and our obligations under our financing and operating leases, as of June 30, 2022 were as follows (in thousands):
| Remaining 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| Property mortgages and other loans | $ | 212,959 | $ | 55,827 | $ | 337,237 | $ | 370,000 | $ | — | $ | 550,000 | $ | 1,526,023 | |||||||||||||||||||||||||||
| Revolving credit facility | — | — | — | — | — | 130,000 | 130,000 | ||||||||||||||||||||||||||||||||||
| Unsecured term loans | — | — | 200,000 | — | — | 1,050,000 | 1,250,000 | ||||||||||||||||||||||||||||||||||
| Senior unsecured notes | 800,000 | — | — | 100,000 | — | — | 900,000 | ||||||||||||||||||||||||||||||||||
| Trust preferred securities | — | — | — | — | — | 100,000 | 100,000 | ||||||||||||||||||||||||||||||||||
| Financing leases | 1,545 | 3,133 | 3,180 | 3,228 | 3,276 | 203,494 | 217,856 | ||||||||||||||||||||||||||||||||||
| Operating leases | 18,578 | 48,366 | 54,214 | 54,354 | 54,493 | 1,357,303 | 1,587,308 | ||||||||||||||||||||||||||||||||||
| Estimated interest expense | 65,519 | 124,024 | 115,981 | 87,124 | 71,722 | 55,208 | 519,578 | ||||||||||||||||||||||||||||||||||
| Joint venture debt | 418,310 | 750,513 | 624,297 | 1,521,793 | 107,137 | 2,429,821 | 5,851,871 | ||||||||||||||||||||||||||||||||||
| Total | $ | 1,516,911 | $ | 981,863 | $ | 1,334,909 | $ | 2,136,499 | $ | 236,628 | $ | 5,875,826 | $ | 12,082,636 | |||||||||||||||||||||||||||
We estimate that for the remainder of the year ending December 31, 2022, we expect to incur $41.8 million of recurring capital expenditures on existing consolidated properties and $76.8 million of development or redevelopment expenditures on existing consolidated properties, of which $1.2 million will be funded by construction financing facilities or loan reserves. We expect our share of capital expenditures at our joint venture properties will be $97.2 million, of which $58.5 million will be funded by construction financing facilities or loan reserves. We expect to fund capital expenditures from operating cash flow, existing liquidity, and borrowings from construction financing facilities. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs.
As of June 30, 2022, we had liquidity of $1.3 billion, comprised of $1.1 billion of availability under our revolving credit facility and $0.2 billion of consolidated cash on hand, inclusive of $26.3 million of marketable securities. This liquidity excludes $144.4 million representing our share of cash at unconsolidated joint venture properties. We may seek to divest of properties, interests in properties or debt and preferred equity investments or access private and public debt and equity capital when the opportunity presents itself, although there is no guarantee that this capital will be made available to us at efficient levels or at all. Management believes that these sources of liquidity, if we are able to access them, along with potential refinancing opportunities for secured and unsecured debt, will allow us to satisfy our debt obligations, as described above, upon maturity, if not before.
We have investments in several real estate joint ventures with various partners who we consider to be financially stable and who have the ability to fund a capital call when needed. Most of our joint ventures are financed with non-recourse debt. We believe that property level cash flows along with unfunded committed indebtedness and proceeds from the refinancing of outstanding secured indebtedness will be sufficient to fund the capital needs of our joint venture properties.
Cash Flows
The following summary discussion of our cash flows is based on our consolidated statements of cash flows in "Item 1. Financial Statements" and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
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Cash, restricted cash, and cash equivalents were $277.1 million and $316.5 million as of June 30, 2022 and 2021, respectively, representing a decrease of $39.4 million. The decrease was a result of the following changes in cash flows (in thousands):
| Six Months Ended June 30, | |||||||||||||||||
| 2022 | 2021 | Change | |||||||||||||||
| Net cash provided by operating activities | $ | 182,435 | $ | 103,264 | $ | 79,171 | |||||||||||
| Net cash provided by investing activities | 135,324 | 641,521 | (506,197) | ||||||||||||||
| Net cash used in financing activities | (377,682) | (801,079) | 423,397 | ||||||||||||||
Our principal sources of operating cash flow are the properties in our consolidated and joint venture portfolios and our debt and preferred equity portfolio. These sources generate a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund dividend and distribution requirements.
Cash is used in investing activities to fund acquisitions, development or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills and invest in existing buildings that meet our investment criteria. During the six months ended June 30, 2022, when compared to the six months ended June 30, 2021, we used cash primarily for the following investing activities (in thousands):
| Acquisitions of real estate | $ | 28,688 | |||
| Capital expenditures and capitalized interest | (8,881) | ||||
| Joint venture investments | (97,167) | ||||
| Distributions from joint ventures | (352,481) | ||||
| Proceeds from sales of real estate/partial interest in property | (44,320) | ||||
| Cash assumed from consolidation of real estate investment | (9,475) | ||||
| Debt and preferred equity and other investments | (22,561) | ||||
| Decrease in net cash provided by investing activities | $ | (506,197) | |||
Funds spent on capital expenditures, which are comprised of building and tenant improvements, increased from $118.1 million for the six months ended June 30, 2021 to $127.0 million for the six months ended June 30, 2022 due to increased spending on development and redevelopment projects.
We generally fund our investment activity through the sale of real estate, the sale of debt and preferred equity investments, property-level financing, our credit facilities, senior unsecured notes, and construction loans. From time to time, the Company may issue common or preferred stock, or the Operating Partnership may issue common or preferred units of limited partnership interest.
During the six months ended June 30, 2022, when compared to the six months ended June 30, 2021, we used cash for the following financing activities (in thousands):
| Proceeds from our debt obligations | $ | (73,576) | |||
| Repayments of our debt obligations | 361,224 | ||||
| Net distribution to noncontrolling interests | 47,734 | ||||
| Other financing activities | 68,334 | ||||
| Proceeds from stock options exercised and DRSPP issuance | (268) | ||||
| Repurchase of common stock | 27,469 | ||||
| Redemption of preferred stock | (14,337) | ||||
| Dividends and distributions paid | 6,817 | ||||
| Increase in net cash used in financing activities | $ | 423,397 | |||
Capitalization
Our authorized capital stock consists of 260,000,000 shares, $0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01 par value per share, 75,000,000 shares of excess stock, at $0.01 par value per share, and 25,000,000 shares of preferred stock, $0.01 par value per share. As of June 30, 2022, 64,301,588 shares of common stock and no shares of excess stock were issued and outstanding.
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On December 2, 2021, our Board of Directors declared an ordinary dividend of $0.3108 per share and a special dividend of $2.4392 per share (together, "the Total Dividend"). The Total Dividend was paid on January 18, 2022 to shareholders of record at the close of business on December 15, 2021 ("the Record Date"). Shareholders had the opportunity to elect to receive the Total Dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed. As a result of the elections made, the cash option was oversubscribed and was prorated. Shareholders who elected to receive cash received, for each share of common stock they owned as of the Record Date, approximately $0.3976 in cash and 0.0295 shares of common stock. Shareholders who elected to receive shares received, for each share of common stock they owned as of the Record Date, approximately 0.0345 shares of common stock. The number of shares issued was calculated based on the volume weighted average trading price of SLG's common stock between January 5-7, 2022 of $79.71 per share.
To mitigate the dilutive impact of the common stock issued in the special dividend, the Board of Directors also authorized a reverse stock split, which was effective after markets closed on January 21, 2022. On January 10, 2022, a committee of the Board of Directors calculated the ratio for the reverse stock split of our issued and outstanding shares of common stock as 1.03060-for-1. After the issuance of the dividend and the completion of the reverse stock split, the number of shares of our common stock outstanding was equivalent to the number of total shares outstanding on the Record Date (not including any issuances or repurchases that occurred following the Record Date, as well as any fractional shares that would have been issued but for which cash-in-lieu was paid). However, on a relative basis, some individual shareholders may have more shares of SLG’s common stock, and some individual shareholders may have fewer shares of our common stock, depending on their individual elections to receive cash or stock and as a result of the cash option being oversubscribed.
All share-related references and measurements including the number of shares outstanding, share prices, number of shares repurchased, earnings per share, dividends per share, and share-based compensation awards, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Quarterly Report on Form 10-Q.
Share Repurchase Program
In August 2016, our Board of Directors approved a $1.0 billion share repurchase program under which we can buy shares of our common stock. The Board of Directors has since authorized five separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, fourth quarter of 2018, fourth quarter of 2019, and fourth quarter of 2020 bringing the total program size to $3.5 billion.
As of June 30, 2022, share repurchases executed under the program, excluding the redemption of OP units, were as follows:
Period | Shares repurchased | Average price paid per share | Cumulative number of shares repurchased as part of the repurchase plan or programs | ||||||||
| Year ended 2017 | 7,865,206 | $107.81 | 7,865,206 | ||||||||
| Year ended 2018 | 9,187,480 | $102.06 | 17,052,686 | ||||||||
| Year ended 2019 | 4,333,260 | $88.69 | 21,385,946 | ||||||||
| Year ended 2020 | 8,276,032 | $64.30 | 29,661,978 | ||||||||
| Year ended 2021 | 4,474,649 | $75.44 | 34,136,627 | ||||||||
| Six months June 30, 2022 | 1,971,092 | $76.69 | 36,107,719 | ||||||||
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Dividend Reinvestment and Stock Purchase Plan ("DRSPP")
The following table summarizes SL Green common stock issued, and proceeds received from dividend reinvestments and/or stock purchases under the DRSPP for the three months ended June 30, 2022 and 2021, respectively (dollars in thousands):
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Shares of common stock issued | 1,762 | 1,505 | |||||||||
| Dividend reinvestments/stock purchases under the DRSPP | $ | 110 | $ | 116 | |||||||
Fifth Amended and Restated 2005 Stock Option and Incentive Plan
The Fifth Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's Board of Directors in April 2022 and its stockholders in June 2022 at the Company's annual meeting of stockholders. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 32,210,000 fungible units may be granted as options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under the 2005 Plan. As of June 30, 2022, 5.0 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units.
Deferred Compensation Plan for Directors
During the six months ended June 30, 2022, 19,535 phantom stock units and 9,284 shares of common stock were issued to our Board of Directors. We recorded compensation expense of $0.4 million and $2.2 million during the three and six months ended June 30, 2022, respectively, related to the Deferred Compensation Plan. We recorded compensation expense of $0.2 million and $2.0 million during the three and six months ended June 30, 2021, respectively, related to the Deferred Compensation Plan.
As of June 30, 2022, there were 184,737 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program.
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Indebtedness
The table below summarizes our consolidated mortgages and other loans payable, 2021 credit facility, senior unsecured notes and trust preferred securities outstanding as of June 30, 2022 and December 31, 2021, (amounts in thousands).
| Debt Summary: | June 30, 2022 | December 31, 2021 | |||||||||
| Balance | |||||||||||
| Fixed rate | $ | 1,736,297 | $ | 1,974,324 | |||||||
| Variable rate—hedged | 1,350,000 | 1,300,000 | |||||||||
| Total fixed rate | 3,086,297 | 3,274,324 | |||||||||
| Total variable rate | 820,148 | 801,051 | |||||||||
| Total debt | $ | 3,906,445 | $ | 4,075,375 | |||||||
| Debt, preferred equity, and other investments subject to variable rate | $ | 318,283 | $ | 294,970 | |||||||
| Net exposure to variable rate debt | 501,865 | 506,081 | |||||||||
Percent of Total Debt: | |||||||||||
| Fixed rate | 79.0 | % | 80.3 | % | |||||||
Variable rate (1) | 21.0 | % | 19.7 | % | |||||||
| Total | 100.0 | % | 100.0 | % | |||||||
| Effective Interest Rate for the Year: | |||||||||||
| Fixed rate | 3.38 | % | 3.14 | % | |||||||
| Variable rate | 2.05 | % | 2.11 | % | |||||||
| Effective interest rate | 3.23 | % | 3.02 | % | |||||||
(1) Inclusive of the mitigating effect of our debt, preferred equity, and other investments subject to variable rate, the percent of total debt of our net exposure to variable rate debt was 14.0% and 13.4% as of June 30, 2022 and December 31, 2021, respectively.
The variable rate debt shown above generally bears interest at an interest rate based on 30-day LIBOR (1.79% and 0.10% as of June 30, 2022 and December 31, 2021, respectively). As of December 6, 2021, the variable rate for our 2021 Credit facility bears interest at an interest rate based on adjusted Term SOFR (1.50% as of June 30, 2022). Our consolidated debt as of June 30, 2022 had a weighted average term to maturity of 3.26 years.
Certain of our debt and equity investments and other investments, with carrying values of $318.3 million as of June 30, 2022 and $295.0 million as of December 31, 2021, are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt. Inclusive of the mitigating effect of these investments, the net percent of our variable rate debt to total debt was 14.0% and 13.4%, respectively.
2021 Credit Facility
In December 2021, we entered into an amended and restated credit facility, referred to as the 2021 credit facility, that was previously amended by the Company in November 2017, or the 2017 credit facility, and was originally entered into by the Company in November 2012, or the 2012 credit facility. As of June 30, 2022, the 2021 credit facility consisted of a $1.25 billion revolving credit facility, a $1.05 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of May 15 2026, May 15, 2027, and November 21, 2024, respectively. The revolving credit facility has two six-month as-of-right extension options to May 15, 2027. We also have an option, subject to customary conditions, to increase the capacity of the credit facility to $4.5 billion at any time prior to the maturity dates for the revolving credit facility and term loans without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions.
As of June 30, 2022, the 2021 credit facility bore interest at a spread over adjusted Term SOFR plus 10 basis points with an interest period of one or three months, as we may elect, ranging from (i) 72.5 basis points to 140 basis points for loans under the revolving credit facility, (ii) 80 basis points to 160 basis points for loans under Term Loan A, and (iii) 85 basis points to 165 basis points for loans under Term Loan B, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. In instances where there are either only two ratings available or where there are more than two and the difference between them is one rating category, the applicable rating shall be the highest rating. In instances where there are more than two ratings and the difference between the highest and the lowest is two or more rating categories, then the applicable rating used is the average of the highest two, rounded down if the average is not a recognized category.
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As of June 30, 2022, the applicable spread over adjusted Term SOFR plus 10 basis points was 105 basis points for the revolving credit facility, 120 basis points for Term Loan A, and 125 basis points for Term Loan B. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. As of June 30, 2022, the facility fee was 25 basis points.
As of June 30, 2022, we had $8.5 million of outstanding letters of credit, $130.0 million drawn under the revolving credit facility and $1.25 billion outstanding under the term loan facilities, with total undrawn capacity of $1.12 billion under the 2021 credit facility. As of June 30, 2022 and December 31, 2021, the revolving credit facility had a carrying value of $122.4 million and $381.3 million, respectively, net of deferred financing costs. As of June 30, 2022 and December 31, 2021, the term loan facilities had a carrying value of $1.2 billion and $1.2 billion, respectively, net of deferred financing costs.
The Company and the Operating Partnership are borrowers jointly and severally obligated under the 2021 credit facility.
The 2021 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
Restrictive Covenants
The terms of the 2021 credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, our ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that, we will not during any time when a default is continuing, make distributions with respect to common stock or other equity interests, except to enable the Company to continue to qualify as a REIT for Federal income tax purposes. As of June 30, 2022 and December 31, 2021, we were in compliance with all such covenants.
Interest Rate Risk
We are exposed to changes in interest rates primarily from our variable rate debt. Our exposure to interest rate fluctuations are managed through either the use of interest rate derivative instruments and/or through our variable rate debt and preferred equity investments. Based on the debt outstanding as of June 30, 2022, a hypothetical 100 basis point increase in the floating rate interest rate curve would increase our consolidated annual interest cost, net of interest income from variable rate debt and preferred equity investments, by $4.7 million and would increase our share of joint venture annual interest cost by $14.6 million. As of June 30, 2022, 28.1% of our $1.1 billion debt and preferred equity portfolio was indexed to LIBOR.
We recognize most derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If a derivative is considered a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings.
Our long-term debt of $3.1 billion bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. Our variable rate debt and variable rate joint venture debt as of June 30, 2022 bore interest based on a spread to LIBOR of 120 basis points to 340 basis points, and Term SOFR of 115 basis points to 210 basis points.
Off-Balance Sheet Arrangements
We have off-balance sheet investments, including joint ventures and debt and preferred equity investments. These investments all have varying ownership structures. A majority of our joint venture arrangements are accounted for under the equity method of accounting as we have the ability to exercise significant influence, but not control, over the operating and financial decisions of these joint venture arrangements. Our off-balance sheet arrangements are discussed in Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures" in the accompanying consolidated financial statements.
Dividends/Distributions
We expect to pay dividends to our stockholders based on the distributions we receive from our Operating Partnership, which are generated by the collection of property revenues, net of operating expenses, interest on our debt and preferred equity portfolio, and asset sales.
To maintain our qualification as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains.
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Any dividend we pay may be in the form of cash, stock or a combination thereof, subject to IRS limitations on the use of stock for dividends. Additionally, if our REIT taxable income in a particular year exceeds the amount of cash dividends we pay in that year, we may pay stock dividends in order to maintain our REIT status and avoid certain REIT-level taxes.
Before we pay any cash dividend, whether for Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under the 2021 credit facility and senior unsecured notes, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable.
Insurance
We maintain “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism, excluding nuclear, biological, chemical, and radiological terrorism ("NBCR")), within three property insurance programs and liability insurance. Separate property and liability coverage may be purchased on a stand-alone basis for certain assets, such as development projects. Additionally, one of our captive insurance companies, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by our other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under our insurance policies, we would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under our debt instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by the Company or its affiliates.
Furthermore, with respect to certain of our properties, including properties held by joint ventures or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss.
Funds from Operations
FFO is a widely recognized non-GAAP financial measure of REIT performance. The Company computes FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than the Company does. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and subsequently amended in December 2018, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties and real estate related impairment charges, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.
The Company presents FFO because it considers it an important supplemental measure of the Company’s operating performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, particularly those that own and operate commercial office properties. The Company also uses FFO as one of several criteria to determine performance-based compensation for members of its senior management. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions, and real estate related impairment charges, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, providing perspective not immediately apparent from net income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including our ability to make cash distributions.
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FFO for the three months ended June 30, 2022 and 2021 are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net (loss) income attributable to SL Green common stockholders | $ | (43,876) | $ | 105,332 | $ | (36,125) | $ | 97,868 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Depreciation and amortization | 46,914 | 57,261 | 93,897 | 120,257 | |||||||||||||||||||
| Joint venture depreciation and noncontrolling interest adjustments | 61,030 | 59,485 | 121,462 | 115,187 | |||||||||||||||||||
| Net income attributable to noncontrolling interests | 591 | 6,242 | 940 | 4,267 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate | (131) | 8,471 | (131) | (4,158) | |||||||||||||||||||
| Depreciable real estate reserves and impairment | — | 2,545 | — | (5,696) | |||||||||||||||||||
| (Loss) gain on sale of real estate, net | (64,378) | 98,960 | (65,380) | 97,572 | |||||||||||||||||||
| Purchase price and other fair value adjustments | — | — | — | 2,664 | |||||||||||||||||||
| Depreciation on non-rental real estate assets | 415 | 672 | 1,136 | 1,199 | |||||||||||||||||||
Funds from Operations attributable to SL Green common stockholders and unit holders | $ | 128,753 | $ | 117,672 | $ | 244,549 | $ | 245,998 | |||||||||||||||
| Cash flows provided by operating activities | $ | 101,033 | $ | 84,662 | $ | 182,435 | $ | 103,264 | |||||||||||||||
| Cash flows provided by investing activities | 121,828 | 621,340 | 135,324 | 641,521 | |||||||||||||||||||
| Cash flows used in financing activities | (253,118) | (791,108) | (377,682) | (801,079) | |||||||||||||||||||
Inflation
Substantially all of our office leases provide for separate real estate tax and operating expense escalations as well as operating expense recoveries based on increases in the CPI or other measures such as porters' wage. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases will be at least partially offset by the contractual rent increases and expense escalations described above.
Accounting Standards Updates
The Accounting Standards Updates are discussed in Note 2, "Significant Accounting Policies-Accounting Standards Updates" in the accompanying consolidated financial statements.
Forward-Looking Information
This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), development trends of the real estate industry and the New York metropolitan area markets, business strategies, expansion and growth of our operations and other similar matters, are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate.
Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," "continue," or the negative of these words, or other similar words or terms.
Forward-looking statements contained in this report are subject to a number of risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by forward-looking statements made by us. These risks and uncertainties include:
•the effect of general economic, business and financial conditions, and their effect on the New York City real estate market in particular;
•dependence upon certain geographic markets;
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•risks of real estate acquisitions, dispositions, development and redevelopment, including the cost of construction delays and cost overruns;
•risks relating to debt and preferred equity investments;
•availability and creditworthiness of prospective tenants and borrowers;
•bankruptcy or insolvency of a major tenant or a significant number of smaller tenants or borrowers;
•adverse changes in the real estate markets, including reduced demand for office space, increasing vacancy, and increasing availability of sublease space;
•availability of capital (debt and equity);
•unanticipated increases in financing and other costs, including a rise in interest rates;
•our ability to comply with financial covenants in our debt instruments;
•our ability to maintain our status as a REIT;
•risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations;
•the threat of terrorist attacks;
•our ability to obtain adequate insurance coverage at a reasonable cost and the potential for losses in excess of our insurance coverage, including as a result of environmental contamination; and
•legislative, regulatory and/or safety requirements adversely affecting REITs and the real estate business including costs of compliance with the Americans with Disabilities Act, the Fair Housing Act and other similar laws and regulations.
Other factors and risks to our business, many of which are beyond our control, are described in other sections of this report and in our other filings with the SEC. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For quantitative and qualitative disclosure about market risk, see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Interest Rate Risk" in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022 for the Company and the Operating Partnership and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk" in the Annual Report on Form 10-K for the year ended December 31, 2021 for the Company and the Operating Partnership. Our exposures to market risk have not changed materially since December 31, 2021.
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ITEM 4. CONTROLS AND PROCEDURES
SL GREEN REALTY CORP.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Also, the Company has investments in certain unconsolidated entities. As the Company does not control these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
There have been no significant changes in the Company's internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
SL GREEN OPERATING PARTNERSHIP, L.P.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Also, the Company has investments in certain unconsolidated entities. As the Company does not control these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
There have been no significant changes in the Operating Partnership's internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 30, 2022, the Company and the Operating Partnership were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio which if adversely determined could have a material adverse impact on us.
On October 31, 2021, HNA, through an affiliated entity, filed for Chapter 11 bankruptcy protection on account of its investment in 245 Park Avenue, together with another asset in Chicago. On July 8, 2022, certain of the debtors and affiliates of SL Green entered into a Plan Sponsorship and Investment Agreement, pursuant to which SL Green became the stalking horse bidder for the property. Since the debtors did not receive any qualifying bids for the property, SL Green expects to acquire full ownership and control of the property in September 2022, subject to Plan confirmation. See Note 5, "Debt and Preferred Equity Investments."
ITEM 1A. RISK FACTORS
As of June 30, 2022 there have been no material changes to the Risk Factors disclosed in "Part I. Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In August 2016, our Board of Directors approved a $1.0 billion share repurchase program under which we can buy shares of our common stock. The Board of Directors has since authorized five separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, fourth quarter of 2018, fourth quarter of 2019, and fourth quarter of 2020 bringing the total program size to $3.5 billion.
As of June 30, 2022, share repurchases executed under the program, excluding the redemption of OP units, were as follows:
Period | Shares repurchased | Average price paid per share | Total number of shares repurchased as part of the repurchase plan or programs | ||||||||
| Year ended 2017 | 7,865,206 | $107.81 | 7,865,206 | ||||||||
| Year ended 2018 | 9,187,480 | $102.06 | 17,052,686 | ||||||||
| Year ended 2019 | 4,333,260 | $88.69 | 21,385,946 | ||||||||
| Year ended 2020 | 8,276,032 | $64.30 | 29,661,978 | ||||||||
| Year ended 2021 | 4,474,649 | $75.44 | 34,136,627 | ||||||||
| Six months June 30, 2022 | 1,971,092 | $76.69 | 36,107,719 | ||||||||
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
79
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated herein by reference and are listed in the attached Exhibit Index.
| Exhibit No. | Description | |||||||
| Certification by the Chairman and Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chairman and Chief Executive Officer of the Company, the sole general partner of the Operating Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chief Financial Officer of the Company, the sole general partner of the Operating Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chairman and Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chairman and Chief Executive Officer of the Company, the sole general partner of the Operating Partnership pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| Certification by the Chief Financial Officer of the Company, the sole general partner of the Operating Partnership pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | ||||||||
| 101 | The following financial statements from SL Green Realty Corp. and SL Green Operating Partnership L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive (Loss) Income (unaudited), (iv) Consolidated Statements of Equity (unaudited), (v) Consolidated Statements of Capital (unaudited) (vi) Consolidated Statements of Cash Flows (unaudited), and (vii) Notes to Consolidated Financial Statements (unaudited), detail tagged and filed herewith. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL in Exhibit 101) | |||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SL GREEN REALTY CORP. | ||||||||||||||
| By: | SL Green Realty Corp. | |||||||||||||
| /s/ Matthew J. DiLiberto | ||||||||||||||
| Dated: August 4, 2022 | By: | Matthew J. DiLiberto Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SL GREEN OPERATING PARTNERSHIP, L.P. | ||||||||||||||
| By: | /s/ Matthew J. DiLiberto | |||||||||||||
| Dated: August 4, 2022 | Matthew J. DiLiberto Chief Financial Officer of SL Green, the sole general partner of the Operating Partnership (Principal Financial and Accounting Officer) | |||||||||||||
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Exhibit 31.1
CERTIFICATION
I, Marc Holliday, certify that:
1.I have reviewed this quarterly report on Form 10-Q of SL Green Realty Corp. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 4, 2022 | ||||||||
| /s/ Marc Holliday | ||||||||
| Name: | Marc Holliday | |||||||
| Title: | Chairman and Chief Executive Officer | |||||||
Exhibit 31.2
CERTIFICATION
I, Matthew J. DiLiberto, certify that:
1.I have reviewed this quarterly report on Form 10-Q of SL Green Realty Corp. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 4, 2022 | ||||||||
| /s/ Matthew J. DiLiberto | ||||||||
| Name: | Matthew J. DiLiberto | |||||||
| Title: | Chief Financial Officer | |||||||
Exhibit 31.3
CERTIFICATION
I, Marc Holliday, certify that:
1.I have reviewed this quarterly report on Form 10-Q of SL Green Operating Partnership, L.P. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 4, 2022 | ||||||||
| /s/ Marc Holliday | ||||||||
| Name: | Marc Holliday | |||||||
| Title: | Chairman and Chief Executive Officer | |||||||
| of SL Green Realty Corp., the | ||||||||
| general partner of the registrant | ||||||||
Exhibit 31.4
CERTIFICATION
I, Matthew J. DiLiberto, certify that:
1.I have reviewed this quarterly report on Form 10-Q of SL Green Operating Partnership, L.P. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 4, 2022 | ||||||||
| /s/ Matthew J. DiLiberto | ||||||||
| Name: | Matthew J. DiLiberto | |||||||
| Title: | Chief Financial Officer | |||||||
| of SL Green Realty Corp., the | ||||||||
| general partner of the registrant | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SL Green Realty Corp. (the “Company”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc Holliday, Chairman and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Marc Holliday | ||||||||
| Name: | Marc Holliday | |||||||
| Title: | Chairman and Chief Executive Officer | |||||||
| August 4, 2022 | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SL Green Realty Corp. (the “Company”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. DiLiberto, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Matthew J. DiLiberto | ||||||||
| Name: | Matthew J. DiLiberto | |||||||
| Title: | Chief Financial Officer | |||||||
| August 4, 2022 | ||||||||
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SL Green Operating Partnership, L.P. (the “Operating Partnership”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, the sole general partner of the Operating Partnership, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.
| /s/ Marc Holliday | ||||||||
| Name: | Marc Holliday | |||||||
| Title: | Chairman and Chief Executive Officer | |||||||
| of SL Green Realty Corp., the | ||||||||
| general partner of the Operating Partnership | ||||||||
| August 4, 2022 | ||||||||
Exhibit 32.4
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SL Green Operating Partnership, L.P. (the “Operating Partnership”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. DiLiberto, Chief Financial Officer of SL Green Realty Corp, the sole general partner of the Operating Partnership, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.
| /s/ Matthew J. DiLiberto | ||||||||
| Name: | Matthew J. DiLiberto | |||||||
| Title: | Chief Financial Officer | |||||||
| of SL Green Realty Corp., the | ||||||||
| general partner of the Operating Partnership | ||||||||
| August 4, 2022 | ||||||||