Bay Street News

SL Green Realty Corp. Reports Fourth Quarter 2023 EPS of ($2.45) per Share; and FFO of $0.72 per Share After Non-Recurring Charges

Financial and Operating Highlights

Investing Highlights

Financing Highlights

NEW YORK, Jan. 24, 2024 (GLOBE NEWSWIRE) — SL Green Realty Corp. (the “Company”) (NYSE: SLG) today reported a net loss attributable to common stockholders for the quarter ended December 31, 2023 of $155.6 million, or $2.45 per share, as compared to a net loss of $64.3 million, or $1.01 per share, for the same quarter in 2022. Net loss for the fourth quarter of 2023 included $105.8 million, or $1.53 per share, of non-recurring charges comprised of depreciable real estate reserves, non-cash fair value adjustments on mark-to-market derivatives and general and administrative charges and was net of $49.1 million, or $0.71 per share, of depreciation and amortization.

The Company also reported a net loss attributable to common stockholders for the year ended December 31, 2023 of $579.5 million, or $9.12 per share, as compared to a net loss of $93.0 million, or $1.49 per share, for the same period in 2022. Net loss attributable to common stockholders for the year ended December 31, 2023 included $464.0 million, or $6.72 per share, of net losses from the sale of real estate interests, depreciable real estate reserves, non-cash fair value adjustments on mark-to-market derivatives and non-recurring general and administrative charges related to the non-renewal of the Company’s former President, and was net of $247.8 million, or $3.59 per share, of depreciation and amortization. Net loss attributable to common stockholders for the year ended December 31, 2022 included $99.0 million, or $1.43 per share, of net losses recognized from the sale of real estate interests, depreciable real estate reserves, non-cash fair value adjustments on mark-to-market derivatives, and was net of $216.2 million, or $3.13 per share, of depreciation and amortization.

The Company reported FFO for the quarter ended December 31, 2023 of $49.7 million, or $0.72 per share, or $78.7 million, or $1.14 per share, before giving effect to $10.3 million, or $0.15 per share, of non-cash fair value adjustments on mark-to-market derivatives and $18.7 million, or $0.27 per share, of non-recurring general and administrative charges related to the non-renewal of the Company’s former President, which includes severance and the acceleration of stock-based compensation expense related to previously granted awards. The Company reported FFO for the same period in 2022 of $100.0 million, or $1.46 per share.

The Company also reported FFO for the year ended December 31, 2023 of $341.3 million, or $4.94 per share, or $351.8 million, or $5.09 per share, before giving effect to $10.5 million, or $0.15 per share, of non-cash fair value adjustments on mark-to-market derivatives, as compared to FFO for the same period in 2022 of $458.8 million, or $6.64 per share. As previously reported, FFO for the year ended December 31, 2023 is net of $6.9 million, or $0.10 per share, of reserves on one debt and preferred equity investment and $18.7 million, or $0.27 per share, of non-recurring general and administrative charges related to the non-renewal of the Company’s former President.

All per share amounts are presented on a diluted basis.

Operating and Leasing Activity

Same-store cash NOI, including our share of same-store cash NOI from unconsolidated joint ventures, increased by 4.8% for the fourth quarter of 2023, or 3.9% excluding lease termination income, as compared to the same period in 2022.

Same-store cash NOI, including our share of same-store cash NOI from unconsolidated joint ventures, increased by 5.1% for the year ended December 31, 2023, or 5.8% excluding lease termination income, as compared to the same period in 2022.

During the fourth quarter of 2023, the Company signed 26 office leases in its Manhattan office portfolio totaling 505,152 square feet. The average rent on the Manhattan office leases signed in the fourth quarter of 2023, excluding leases signed at One Madison, was $105.01 per rentable square foot with an average lease term of 14.7 years and average tenant concessions of 14.9 months of free rent with a tenant improvement allowance of $120.56 per rentable square foot. Sixteen leases comprising 323,947 square feet, representing office leases on space that had been occupied within the prior twelve months, are considered replacement leases on which mark-to-market is calculated. Those replacement leases had average starting rents of $115.61 per rentable square foot, representing a 3.2% increase over the previous fully escalated rents on the same office spaces.

During the year ended December 31, 2023, the Company signed 160 office leases in its Manhattan office portfolio totaling 1,776,414 square feet. The average rent on the Manhattan office leases signed in 2023, excluding leases signed at One Vanderbilt and One Madison, was $87.46 per rentable square foot with an average lease term of 9.3 years and average tenant concessions of 9.1 months of free rent with a tenant improvement allowance of $79.26 per rentable square foot. Ninety-six leases comprising 1,247,143 square feet, representing office leases on space that had been occupied within the prior twelve months, are considered replacement leases on which mark-to-market is calculated. Those replacement leases had average starting rents of $89.87 per rentable square foot, representing a 0.8% increase over the previous fully escalated rents on the same office spaces.

Occupancy in the Company’s Manhattan same-store office portfolio increased to 90.0% as of December 31, 2023, inclusive of 177,836 square feet of leases signed but not yet commenced, as compared to 89.9% at the end of the previous quarter.

Significant leasing activity in the fourth quarter includes:

Investment Activity

In January 2024, together with our joint venture partner, the Company closed on the sale of the retail condominium at 717 Fifth Avenue for total consideration of $963.0 million. The transaction is expected to generate net proceeds to the Company of $27.6 million, which will be used for corporate debt repayment.

In January 2024, the Company closed on the acquisition of interests in the joint venture that owns the leasehold interest at 2 Herald Square for no consideration, which increases the Company’s interest in the joint venture to 95%. In addition, the joint venture entered into an agreement to satisfy the existing $182.5 million mortgage on the property for a net payment of $7.0 million. The payoff is expected to close in the first quarter of 2024.

The Company expects to launch fundraising for its $1.0 billion New York City Opportunity debt fund in January 2024.

In December, together with our joint venture partners, the Company closed on the previously announced sale of the equity interests in the condominium units at 21 East 66th Street for total consideration of $40.6 million. The transaction generated net proceeds to the Company of $9.6 million, which was used for corporate debt repayment.

In December, together with our joint venture partner, the Company entered into an agreement to sell the fee ownership interest in 625 Madison Avenue for a gross sales price of $634.6 million, which reflects an increased price due to the exercise of an extended closing option, to a global real estate investor. In connection with the sale, the Company, together with its joint venture partner, will originate a $235.5 million preferred equity investment in the property. The transaction is expected to close in the first quarter of 2024.

Debt and Preferred Equity Investment Activity

The carrying value of the Company’s debt and preferred equity (“DPE”) portfolio was $346.7 million at December 31, 2023. The portfolio had a weighted average current yield of 7.9%, or 9.6% excluding the effect of a $50.0 million investment that is on non-accrual. During the fourth quarter, no investments were sold or repaid and the Company did not originate or acquire any new investments. As previously reported, in October, the Company closed on a $20.0 million upsize and three-year extension of an existing $39.1 million debt and preferred equity investment that was scheduled to mature in October 2023.

Financing Activity

In December, the Company closed on a modification of the mortgage at 185 Broadway to extend the maturity date to November 2026, as fully extended. The modification also converted the previous floating rate of 2.85% over Term SOFR to a fixed rate of 6.65% per annum through November 2025 and 2.55% over Term SOFR thereafter. The Company made a $20.0 million principal payment at closing resulting in an outstanding loan amount of $190.1 million as of December 31, 2023.

As of December 31, 2023, the value of the Company’s derivatives, at share, net of the mark-to-market derivatives that negatively impacted reported FFO, was $32.9 million.

Earnings Guidance

The Company is increasing its earnings guidance ranges for the year ending December 31, 2024 to FFO per share of $5.90 to $6.20, and net income per share of $2.73 to $3.03, as compared to the previous guidance ranges of FFO per share of $4.90 to $5.20 and net income per share of $1.35 to $1.65 primarily to reflect incremental gains on discounted debt extinguishment.

Dividends

In the fourth quarter of 2023, the Company declared:

Conference Call and Audio Webcast

The Company’s executive management team, led by Marc Holliday, Chairman and Chief Executive Officer, will host a conference call and audio webcast on Thursday, January 25, 2024, at 2:00 pm ET to discuss the financial results.

Supplemental data will be available prior to the quarterly conference call in the Investors section of the SL Green Realty Corp. website at www.slgreen.com under “Financial Reports.”

The live conference call will be webcast in listen-only mode and a replay will be available in the Investors section of the SL Green Realty Corp. website at www.slgreen.com under “Presentations & Webcasts.”

Research analysts who wish to participate in the conference call must first register at https://register.vevent.com/register/BI3a0c30ce6c6e475994a2c328b1f04e01.

Company Profile

SL Green Realty Corp., Manhattan’s largest office landlord, is a fully integrated real estate investment trust, or REIT, that is focused primarily on acquiring, managing and maximizing value of Manhattan commercial properties. As of December 31, 2023, SL Green held interests in 58 buildings totaling 32.5 million square feet. This included ownership interests in 28.8 million square feet of Manhattan buildings and 2.8 million square feet securing debt and preferred equity investments.

To obtain the latest news releases and other Company information, please visit our website at www.slgreen.com or contact Investor Relations at investor.relations@slgreen.com.

Disclaimers

Non-GAAP Financial Measures
During the quarterly conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A reconciliation of each non-GAAP financial measure and the comparable GAAP financial measure can be found in this release and in the Company’s Supplemental Package.

Forward-looking Statements

This press release 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 press release 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 press release are subject to a number of risks and uncertainties, many of which are beyond our control, 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. Factors and risks to our business that could cause actual results to differ from those contained in the forward-looking statements include risks and uncertainties described in our filings with the Securities and Exchange Commission. 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.

SL GREEN REALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share data)

  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
Revenues:   2023       2022       2023       2022  
             
Rental revenue, net $ 131,927     $ 172,892     $ 603,694     $ 588,824  
Escalation and reimbursement revenues   19,430       24,393       79,641       82,676  
SUMMIT Operator revenue   35,240       28,237       118,260       89,048  
Investment income   6,856       11,305       34,705       81,113  
Other income   18,271       13,839       77,410       77,793  
Total revenues   211,724       250,666       913,710       919,454  
Expenses:              
Operating expenses, including related party expenses of $2 and $5 in 2023 and $6 and $5,701 in 2022   48,090       46,912       196,696       174,063  
Real estate taxes   31,294       41,551       143,757       138,228  
Operating lease rent   7,083       6,514       27,292       26,943  
SUMMIT Operator expenses   24,887       24,503       101,211       89,207  
Interest expense, net of interest income   27,400       37,619       137,114       89,473  
Amortization of deferred financing costs   1,510       1,909       7,837       7,817  
SUMMIT Operator tax expense   2,320       1,078       9,201       2,647  
Depreciation and amortization   49,050       73,158       247,810       216,167  
Loan loss and other investment reserves, net of recoveries               6,890        
Transaction related costs   16       88       1,099       409  
Marketing, general and administrative   42,257       24,224       111,389       93,798  
Total expenses   233,907       257,556       990,296       838,752  
               
Equity in net loss from unconsolidated joint ventures   (32,039 )     (26,696 )     (76,509 )     (57,958 )
Equity in net loss on sale of interest in unconsolidated joint venture/real estate   (13,289 )           (13,368 )     (131 )
Purchase price and other fair value adjustments   (10,273 )     (770 )     (17,260 )     (8,118 )
Loss on sale of real estate, net   (4,557 )     (23,381 )     (32,370 )     (84,485 )
Depreciable real estate reserves   (76,847 )     (6,313 )     (382,374 )     (6,313 )
Loss on early extinguishment of debt   (870 )           (870 )      
Net loss   (160,058 )     (64,050 )     (599,337 )     (76,303 )
Net loss (income) attributable to noncontrolling interests:              
Noncontrolling interests in the Operating Partnership   9,972       3,963       37,465       5,794  
Noncontrolling interests in other partnerships   109       1,147       4,568       (1,122 )
Preferred units distributions   (1,903 )     (1,599 )     (7,255 )     (6,443 )
Net loss attributable to SL Green   (151,880 )     (60,539 )     (564,559 )     (78,074 )
Perpetual preferred stock dividends   (3,737 )     (3,737 )     (14,950 )     (14,950 )
Net loss attributable to SL Green common stockholders $ (155,617 )   $ (64,276 )   $ (579,509 )   $ (93,024 )
Earnings Per Share (EPS)              
Basic loss per share $ (2.45 )   $ (1.01 )   $ (9.12 )   $ (1.49 )
Diluted loss per share $ (2.45 )   $ (1.01 )   $ (9.12 )   $ (1.49 )
               
Funds From Operations (FFO)              
Basic FFO per share $ 0.72     $ 1.47     $ 4.98     $ 6.71  
Diluted FFO per share $ 0.72     $ 1.46     $ 4.94     $ 6.64  
               
Basic ownership interest              
Weighted average REIT common shares for net income per share   63,885       63,919       63,809       63,917  
Weighted average partnership units held by noncontrolling interests   4,129       3,740       4,163       4,012  
Basic weighted average shares and units outstanding   68,014       67,659       67,972       67,929  
               
Diluted ownership interest              
Weighted average REIT common share and common share equivalents   65,171       64,910       64,869       65,041  
Weighted average partnership units held by noncontrolling interests   4,129       3,740       4,163       4,012  
Diluted weighted average shares and units outstanding   69,300       68,650       69,032       69,053  
               

SL GREEN REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

  December 31,   December 31,
    2023       2022  
Assets (Unaudited)    
Commercial real estate properties, at cost:      
Land and land interests $ 1,092,671     $ 1,576,927  
Building and improvements   3,655,624       4,903,776  
Building leasehold and improvements   1,354,569       1,691,831  
Right of use asset – operating leases   953,236       1,026,265  
    7,056,100       9,198,799  
Less: accumulated depreciation   (2,035,311 )     (2,039,554 )
    5,020,789       7,159,245  
Cash and cash equivalents   221,823       203,273  
Restricted cash   113,696       180,781  
Investment in marketable securities   9,591       11,240  
Tenant and other receivables   33,270       34,497  
Related party receivables   12,168       27,352  
Deferred rents receivable   264,653       257,887  
Debt and preferred equity investments, net of discounts and deferred origination fees of $1,630 and $1,811 in 2023 and 2022, respectively, and allowances of $13,520 and $6,630 in 2023 and 2022, respectively   346,745       623,280  
Investments in unconsolidated joint ventures   2,983,313       3,190,137  
Deferred costs, net   111,463       121,157  
Other assets   413,670       546,945  
Total assets $ 9,531,181     $ 12,355,794  
       
Liabilities      
Mortgages and other loans payable $ 1,497,386     $ 3,235,962  
Revolving credit facility   560,000       450,000  
Unsecured term loan   1,250,000       1,650,000  
Unsecured notes   100,000       100,000  
Deferred financing costs, net   (16,639 )     (23,938 )
Total debt, net of deferred financing costs   3,390,747       5,412,024  
Accrued interest payable   17,930       14,227  
Accounts payable and accrued expenses   153,164       154,867  
Deferred revenue   134,053       272,248  
Lease liability – financing leases   105,531       104,218  
Lease liability – operating leases   827,692       895,100  
Dividend and distributions payable   20,280       21,569  
Security deposits   49,906       50,472  
Junior subordinate deferrable interest debentures held by trusts that issued trust preferred securities   100,000       100,000  
Other liabilities   471,401       236,211  
Total liabilities   5,270,704       7,260,936  
       
Commitments and contingencies          
Noncontrolling interests in Operating Partnership   238,051       269,993  
Preferred units   166,501       177,943  
       
Equity      
SL Green stockholders’ equity:      
Series I Preferred Stock, $0.01 par value, $25.00 liquidation preference, 9,200 issued and outstanding at both December 31, 2023 and December 31, 2022   221,932       221,932  
Common stock, $0.01 par value 160,000 shares authorized, 65,786 and 65,440 issued and outstanding (including 1,060 and 1,060 held in Treasury) at December 31, 2023 and December 31, 2022, respectively   660       656  
Additional paid-in capital   3,826,452       3,790,358  
Treasury stock at cost   (128,655 )     (128,655 )
Accumulated other comprehensive income   17,477       49,604  
Retained (deficit) earnings   (151,551 )     651,138  
Total SL Green Realty Corp. stockholders’ equity   3,786,315       4,585,033  
Noncontrolling interests in other partnerships   69,610       61,889  
Total equity   3,855,925       4,646,922  
Total liabilities and equity $ 9,531,181     $ 12,355,794  
               

SL GREEN REALTY CORP.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited and in thousands, except per share data)

  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
Funds From Operations (FFO) Reconciliation:   2023       2022       2023       2022  
               
Net loss attributable to SL Green common stockholders $ (155,617 )   $ (64,276 )   $ (579,509 )   $ (93,024 )
Add:              
Depreciation and amortization   49,050       73,158       247,810       216,167  
Joint venture depreciation and noncontrolling interest adjustments   73,062       67,541       284,284       252,893  
Net loss attributable to noncontrolling interests   (10,081 )     (5,110 )     (42,033 )     (4,672 )
Less:              
Equity in net loss on sale of interest in unconsolidated joint venture/real estate   (13,289 )           (13,368 )     (131 )
Purchase price and other fair value adjustments               (6,813 )      
Loss on sale of real estate, net   (4,557 )     (23,381 )     (32,370 )     (84,485 )
Depreciable real estate reserves   (76,847 )     (6,313 )     (382,374 )     (6,313 )
Depreciation on non-rental real estate assets   1,414       971       4,136       3,466  
FFO attributable to SL Green common stockholders and unit holders $ 49,693     $ 100,036     $ 341,341     $ 458,827  
                               

SL GREEN REALTY CORP.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited and in thousands, except per share data)

  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
Operating income and Same-store NOI Reconciliation:   2023       2022       2023       2022  
               
Net loss $ (160,058 )   $ (64,050 )   $ (599,337 )   $ (76,303 )
               
Depreciable real estate reserves   76,847       6,313       382,374       6,313  
Loss on sale of real estate, net   4,557       23,381       32,370       84,485  
Purchase price and other fair value adjustments   10,273       770       17,260       8,118  
Equity in net loss on sale of interest in unconsolidated joint venture/real estate   13,289             13,368       131  
Depreciation and amortization   49,050       73,158       247,810       216,167  
SUMMIT Operator tax expense   2,320       1,078       9,201       2,647  
Amortization of deferred financing costs   1,510       1,909       7,837       7,817  
Interest expense, net of interest income   27,400       37,619       137,114       89,473  
Operating income   25,188       80,178       247,997       338,848  
               
Equity in net loss from unconsolidated joint ventures   32,039       26,696       76,509       57,958  
Marketing, general and administrative expense   42,257       24,224       111,389       93,798  
Transaction related costs   16       88       1,099       409  
Loan loss and other investment reserves, net of recoveries               6,890        
SUMMIT Operator expenses   24,887       24,503       101,211       89,207  
Loss on early extinguishment of debt   870             870        
Investment income   (6,856 )     (11,305 )     (34,705 )     (81,113 )
SUMMIT Operator revenue   (35,240 )     (28,237 )     (118,260 )     (89,048 )
Non-building revenue   (10,935 )     (11,575 )     (44,568 )     (47,161 )
Net operating income (NOI)   72,226       104,572       348,432       362,898  
               
Equity in net loss from unconsolidated joint ventures   (32,039 )     (26,696 )     (76,509 )     (57,958 )
SLG share of unconsolidated JV depreciation and amortization   69,588       63,219       266,340       241,127  
SLG share of unconsolidated JV amortization of deferred financing costs   2,876       3,127       12,005       12,031  
SLG share of unconsolidated JV interest expense, net of interest income   73,012       61,362       272,217       209,182  
SLG share of unconsolidated JV loss on early extinguishment of debt                     325  
SLG share of unconsolidated JV investment income   (320 )     (424 )     (1,271 )     (1,420 )
SLG share of unconsolidated JV non-building revenue   106       (2,972 )     (14,336 )     (7,232 )
NOI including SLG share of unconsolidated JVs   185,449       202,188       806,878       758,953  
               
NOI from other properties/affiliates   (12,836 )     (32,077 )     (110,012 )     (69,939 )
Same-Store NOI   172,613       170,111       696,866       689,014  
               
Straight-line and free rent   (1,154 )     (1,267 )     (10,049 )     (5,933 )
Amortization of acquired above and below-market leases, net   13       13       53       (22 )
Operating lease straight-line adjustment   204       204       815       815  
SLG share of unconsolidated JV straight-line and free rent   (2,333 )     (7,368 )     (20,087 )     (48,207 )
SLG share of unconsolidated JV amortization of acquired above and below-market leases, net   (4,555 )     (4,433 )     (17,938 )     (17,598 )
SLG share of unconsolidated JV operating lease straight-line adjustment   143       192       678       770  
Same-store cash NOI $ 164,931     $ 157,452     $ 650,338     $ 618,839  
               
Lease termination income   (1,023 )     (5 )     (3,622 )     (1,199 )
SLG share of unconsolidated JV lease termination income   (355 )     (70 )     (2,265 )     (8,515 )
Same-store cash NOI excluding lease termination income $ 163,553     $ 157,377     $ 644,451     $ 609,125  
                               

SL GREEN REALTY CORP.
NON-GAAP FINANCIAL MEASURES – DISCLOSURES

Funds from Operations (FFO)

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 the Company’s ability to make cash distributions.

Funds Available for Distribution (FAD)

FAD is a non-GAAP financial measure that is calculated as FFO plus non-real estate depreciation, allowance for straight line credit loss, adjustment for straight line operating lease rent, non-cash deferred compensation, and pro-rata adjustments for these items from the Company’s unconsolidated JVs, less straight line rental income, free rent net of amortization, second cycle tenant improvement and leasing costs, and recurring capital expenditures.

FAD is not intended to represent cash flow for the period and is not indicative of cash flow provided by operating activities as determined in accordance with GAAP. FAD is presented solely as a supplemental disclosure with respect to liquidity because the Company believes it provides useful information regarding the Company’s ability to fund its dividends. Because all companies do not calculate FAD the same way, the presentation of FAD may not be comparable to similarly titled measures of other companies. FAD does not represent cash flow from operating, investing and finance 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, as an alternative to net cash flows from operating activities (determined in accordance with GAAP), or as a measure of the Company’s liquidity.

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre)

EBITDAre is a non-GAAP financial measure. The Company computes EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to EBITDAre reported by other REITs that do not compute EBITDAre in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than the Company does. The White Paper on EBITDAre approved by the Board of Governors of NAREIT in September 2017 defines EBITDAre as net income (loss) (computed in accordance with Generally Accepted Accounting Principles, or GAAP), plus interest expense, plus income tax expense, plus depreciation and amortization, plus (minus) losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property and investments in unconsolidated joint ventures, plus adjustments to reflect the entity’s share of EBITDAre of unconsolidated joint ventures.

The Company presents EBITDAre because the Company believes that EBITDAre, along with cash flow from operating activities, investing activities and financing activities, provides investors with an additional indicator of the Company’s ability to incur and service debt. EBITDAre should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company’s financial performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP), or as a measure of the Company’s liquidity.

Net Operating Income (NOI) and Cash NOI

NOI is a non-GAAP financial measure that is calculated as operating income before transaction related costs, gains/losses on early extinguishment of debt, marketing general and administrative expenses and non-real estate revenue. Cash NOI is also a non-GAAP financial measure that is calculated by subtracting free rent (net of amortization), straight-line rent, and the amortization of acquired above and below-market leases from NOI, while adding operating lease straight-line adjustment and the allowance for straight-line tenant credit loss.

The Company presents NOI and Cash NOI because the Company believes that these measures, when taken together with the corresponding GAAP financial measures and reconciliations, provide investors with meaningful information regarding the operating performance of properties. When operating performance is compared across multiple periods, the investor is provided with information not immediately apparent from net income that is determined in accordance with GAAP. NOI and Cash NOI provide information on trends in the revenue generated and expenses incurred in operating the Company’s properties, unaffected by the cost of leverage, straight-line adjustments, depreciation, amortization, and other net income components. The Company uses these metrics internally as performance measures. None of these measures is an alternative to net income (determined in accordance with GAAP) and same-store performance should not be considered an alternative to GAAP net income performance.

Coverage Ratios

The Company presents fixed charge and debt service coverage ratios to provide a measure of the Company’s financial flexibility to service current debt amortization, interest expense and operating lease rent from current cash net operating income. These coverage ratios represent a common measure of the Company’s ability to service fixed cash payments; however, these ratios are not used as an alternative to cash flow from operating, financing and investing activities (determined in accordance with GAAP).

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