<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____.
Commission File No. 1-13199
SL GREEN REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 13-3956775
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
420 Lexington Avenue, New York, New York 10170
(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 restraint was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No .
-- --
The number of shares outstanding of the registrant's common stock, $0.01 par
value was 24,396,688 at July 20, 2000.
1
<PAGE>
SL GREEN REALTY CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999............. 3
Condensed Consolidated Statements of Income for the three and six months ended June 30,
2000 and 1999 (unaudited)............................................................................... 5
Condensed Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2000
(unaudited)........................................................................................... 6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999
(unaudited)............................................................................................. 7
Notes to Condensed Consolidated Financial Statements (unaudited)........................................ 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................................... 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................. 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................................................... 23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................................... 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................... 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................ 23
SIGNATURES....................................................................................................... 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
---- ----
(UNAUDITED) (Note 1)
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost:
Land and land interests ................................................................ $ 131,991 $ 132,081
Buildings and improvements ............................................................. 646,150 632,004
Building leasehold ..................................................................... 135,886 132,573
Property under capital lease ........................................................... 12,208 12,208
----------- -----------
926,235 908,866
Less accumulated depreciation .......................................................... (68,653) (56,983)
----------- -----------
857,582 851,883
Properties held for sale ............................................................... --- 25,835
Cash and cash equivalents .............................................................. 15,317 21,561
Restricted cash ........................................................................ 31,126 34,168
Tenant and other receivables, net of allowance of $1,813 and $938 in 2000 and 1999,
respectively ......................................................................... 6,851 5,747
Related party receivables .............................................................. 781 463
Deferred rents receivable, net of reserve for tenant credit loss of $5,197 and $5,337 in
2000 and 1999, respectively .......................................................... 42,867 37,015
Investment in and advances to affiliates ............................................... 7,527 4,978
Mortgage loans receivable and preferred equity investment .............................. 76,962 20,000
Investments in unconsolidated joint ventures ........................................... 63,850 23,441
Deferred costs, net .................................................................... 37,922 30,540
Other assets ........................................................................... 20,057 15,611
----------- -----------
Total assets ..................................................................... $ 1,160,842 $ 1,071,242
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
---- ----
(UNAUDITED) (Note 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable ................................................. $ 346,294 $ 352,693
Revolving credit facilities ............................................ 145,752 83,000
Accrued interest payable ............................................... 1,823 2,650
Accounts payable and accrued expenses .................................. 26,851 17,167
Deferred revenue ....................................................... 1,838 306
Capitalized lease obligations .......................................... 15,165 15,017
Deferred land lease payable ............................................ 12,493 11,611
Dividend and distributions payable ..................................... 12,010 11,947
Security deposits ...................................................... 18,104 18,905
----------- -----------
Total liabilities ............................................... 580,330 513,296
Commitments and Contingencies
Minority interest in Operating Partnership ............................. 42,544 41,494
8% Preferred Income Equity Redeemable Shares-SM- $0.01 par value $25.00
mandatory liquidation preference, 25,000 authorized and 4,600
outstanding at December 31, 2000 and 1999 ........................... 110,561 110,348
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value 100,000 shares
authorized, 24,373 and 24,184 issued and outstanding at June 30, 2000
and December 31, 1999, respectively ................................. 244 242
Additional paid - in-capital ........................................... 425,837 421,958
Deferred compensation plans ............................................ (6,225) (6,610)
Officers' loans, net ................................................... (14) (64)
Retained earnings/(distributions) in excess of earnings ................ 7,565 (9,422)
----------- -----------
Total stockholders' equity ...................................... 427,407 406,104
----------- -----------
Total liabilities and stockholders' equity ............................. $ 1,160,842 $ 1,071,242
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue $ 46,410 $ 43,784 $ 93,351 $ 84,185
Escalation and reimbursement revenues 5,367 4,868 11,348 9,616
Signage rent 597 343 1,097 553
Investment income 3,923 1,424 4,936 2,262
Other income 197 390 521 855
--------- --------- --------- ---------
Total Revenues 56,494 50,809 111,253 97,471
--------- --------- --------- ---------
EXPENSES
Operating expenses (see Note 12 for affiliated
transactions) 13,443 11,264 26,633 22,485
Real estate taxes 7,053 7,339 14,388 14,422
Ground rent 3,159 3,183 6,342 6,390
Interest 10,053 6,711 19,545 11,949
Depreciation and amortization 8,403 6,590 16,219 12,028
Marketing, general and administrative 3,190 2,771 5,978 5,416
--------- --------- --------- ---------
Total Expenses 45,301 37,858 89,105 72,690
--------- --------- --------- ---------
Income before equity in net income from affiliates,
equity in net income of unconsolidated joint
ventures, gain on sale of rental property and
minority interests 11,193 12,951 22,148 24,781
Equity in net income from affiliates 369 117 539 328
Equity in net income of unconsolidated joint ventures 782 -- 1,623 --
Gain on sale of rental property 4,797 -- 19,022 --
--------- --------- --------- ---------
Income before minority interest, extraordinary item and
preferred stock dividends 17,141 13,068 43,332 25,109
Minority interest:
Operating partnership (1,316) (826) (3,467) (1,683)
Partially owned properties -- (838) -- (1,410)
--------- --------- --------- ---------
Net income before extraordinary item and preferred stock
dividends 15,825 11,404 39,865 22,016
Extraordinary item, net of minority interest of ($38) and
($57) in 2000 and 1999, respectively (430) (628) (430) (628)
--------- --------- --------- ---------
Net income 15,395 10,776 39,435 21,388
Preferred stock dividends (2,300) (2,300) (4,600) (4,600)
Preferred stock accretion (107) (99) (214) (198)
--------- --------- --------- ---------
Net income available to common shareholders $ 12,988 $ 8,377 $ 34,621 $ 16,590
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Net income before gain on sale and extraordinary item $ 0.35 $ 0.37 $ 0.67 $ 0.70
Gain on sale 0.20 -- 0.78 --
Extraordinary item (0.02) (0.02) (0.02) (0.02)
--------- --------- --------- ---------
Net income $ 0.53 $ 0.35 $ 1.43 $ 0.68
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net income before gain on sale and extraordinary item $ 0.37 $ 0.37 $ 0.72 $ 0.70
Gain on sale 0.18 -- 0.71 --
Extraordinary item (0.02) (0.02) (0.02) (0.02)
--------- --------- --------- ---------
Net income $ 0.53 $ 0.35 $ 1.41 $ 0.68
========= ========= ========= =========
Dividends declared per common share $ 0.3625 $ 0.35 $ 0.7250 $ 0.70
========= ========= ========= =========
Basic weighted average common shares outstanding 24,309 24,192 24,265 24,192
========= ========= ========= =========
Diluted weighted average common shares and
common share equivalents outstanding 27,045 26,688 26,929 26,676
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Retained
Earnings/
Additional Deferred (Distributions)
Common Paid in Compensation Officers' in Excess of
Stock Capital Plan Loans Earnings Total
----- ------- ---- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 242 $ 421,958 $(6,610) $(64) $ (9,422) $ 406,104
Net income 39,435 39,435
Preferred dividend and accretion requirement (4,814) (4,814)
Proceeds from options exercised 2 2,850 2,852
Deferred compensation plan and stock award 352 (352) --
Amortization of deferred compensation plan 737 737
Redemption of Units 677 677
Cash distributions declared ($0.7250 per
common share) (17,634) (17,634)
Amortization of officers' loan 50 50
----- --------- ------- ---- -------- ---------
BALANCE AT JUNE 30, 2000 (UNAUDITED) $ 244 $ 425,837 $(6,225) $(14) $ 7,565 $ 427,407
===== ========= ======= ==== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................................ $ 39,435 $ 21,388
Adjustments to reconcile net income with net cash provided by operating activities:
Depreciation and amortization ................................................... 16,219 11,817
Amortization of discount on mortgage receivable ................................. (1,131) --
Gain on sale of rental property ................................................. (19,022) --
Extraordinary loss .............................................................. 430 628
Equity in net income from affiliates ............................................ (539) (328)
Equity in net (income) from unconsolidated joint ventures ....................... (1,623) --
Minority interest ............................................................... 3,467 3,093
Deferred rents receivable ....................................................... (7,412) (11,769)
Provision for deferred rents and bad debts ...................................... 1,179 2,131
Amortization of officer loans and deferred compensation ......................... 787 770
Changes in operating assets and liabilities:
Restricted cash - operations .................................................... (364) (1,378)
Tenant and other receivables, net ............................................... (1,979) (1,116)
Related party receivables ....................................................... (318) (334)
Deferred costs .................................................................. (5,004) (7,097)
Other assets .................................................................... (4,775) (4,201)
Accounts payable, accrued expenses and other liabilities ........................ (1,705) 2,976
Deferred revenue ................................................................ 1,532
Deferred land lease payable ..................................................... 882 882
--------- ---------
Net cash provided by operating activities ....................................... 20,059 17,462
--------- ---------
INVESTING ACTIVITIES:
Additions to land, buildings and improvements ................................... (29,554) (171,554)
Restricted cash - capital improvements .......................................... 3,406 (630)
Investment in and advances to affiliates ........................................ (2,011) 6,308
Investments in unconsolidated joint ventures .................................... (43,622) --
Distributions from unconsolidated joint ventures ................................ 11,860 --
Net proceeds from disposition of rental property ................................ 58,313 --
Mortgage loans receivable, net .................................................. (55,831) (14,500)
--------- ---------
Net cash used in investing activities ........................................... (57,439) (180,376)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable ............................................ 14,917 220,550
Repayments of mortgage notes payable and loans .................................. (21,316) (2,109)
Proceeds from revolving credit facilities ....................................... 220,252 103,500
Repayment of revolving credit facilities ........................................ (157,500) (39,300)
Repayments of secured bridge financing .......................................... -- (87,500)
Capitalized lease obligation .................................................... 148 135
Dividends and distributions paid ................................................ (23,913) (23,150)
Proceeds from options exercised ................................................. 2,852 --
Deferred loan costs ............................................................. (4,304) (5,380)
--------- ---------
Net cash provided by financing activities ....................................... 31,136 166,746
--------- ---------
Net (decrease) increase in cash and cash equivalents ............................ (6,244) 3,832
Cash and cash equivalents at beginning of period ................................ 21,561 6,236
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 15,317 $ 10,068
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................................ $ 20,372 $ 10,089
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Mortgage note payable assumed in connection with joint venture acquisition ........ $ 45,000
=========
Acquired Assets ................................................................... $ 7,714
=========
Assumed Liabilities ............................................................... $ 4,861
=========
Issuance of common stock as deferred officer compensation ......................... $ 352 $ 5,190
========= =========
Redemption of operating partnership units ......................................... $ 677
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION
SL Green Realty Corp. (the "Company"), a Maryland corporation, and SL Green
Operating Partnership, L.P. (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 (the
"Service Corporation"). The Company qualifies as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (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
shareholders, is permitted to reduce or avoid the payment of Federal income
taxes at the corporate level.
Substantially all of the Company's assets are held by, and its operations
conducted through, the Operating Partnership. The Company is the sole managing
general partner of the Operating Partnership. As of June 30, 2000, minority
investors hold, in the aggregate, an 8.9% limited partnership interest in the
Operating Partnership.
As of June 30, 2000, the Company's wholly-owned portfolio consisted of 19 Class
B commercial properties encompassing approximately 7.1 million rentable square
feet located primarily in midtown Manhattan, a borough of New York City
("Manhattan") (the "Properties"). As of June 30, 2000, the weighted average
occupancy (total occupied square feet divided by total available square feet) of
the Properties was 98%. The Company's portfolio also includes ownership
interests in unconsolidated joint ventures which own four Class B office
properties in Manhattan, encompassing approximately 2.0 million rentable square
feet. In addition, the Company continues to manage five office properties owned
by third-parties and affiliated companies encompassing approximately 1.2 million
rentable square feet.
BASIS OF QUARTERLY PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 fair
presentation have been included. The 2000 operating results for the periods
presented are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. These financial statements should be read in
conjunction with the financial statements and accompanying notes included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at 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.
PARTNERSHIP AGREEMENT
In accordance with the partnership agreement of the Operating Partnership (the
"Operating Partnership Agreement"), all allocations of distributions and profits
and losses are made in proportion to the percentage ownership interests of the
respective partners. As the managing general partner of the Operating
Partnership, the Company is required to take such reasonable efforts, as
determined by it in its sole discretion, to cause the Operating Partnership to
distribute sufficient amounts to enable the payment of sufficient dividends by
the Company to avoid any Federal income or excise tax at the Company level.
Under the Operating Partnership Agreement each limited partner will have the
right to redeem limited partnership units ("Units") for cash, or if the Company
so elects, shares of common stock. Under the Operating Partnership Agreement,
the Company is prohibited from selling 673 First Avenue and 470 Park Avenue
South through August 2009.
8
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, which are wholly-owned or controlled by the Company. Entities
which are not controlled by the Company are accounted for under the equity
method. All significant intercompany balances and transactions have been
eliminated.
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.
RECLASSIFICATION
Certain 1999 balances have been reclassified to conform with the 2000
presentation.
3. PROPERTY TRANSACTIONS
During the quarter ended March 31, 2000, the Company sold 29 West 35th Street
and 36 West 44th Street for a gross sales price of $43,200. The Company realized
a gain on the sales of $14,225.
On May 4, 2000, the Company sold a 65% interest in the property located at
321 West 44th Street to Morgan Stanley Real Estate Fund III, ("MSREF"),
valuing the property at $28,000. The Company realized a gain of $4,797 on
this transaction. The Company's retained 35% interest in the property
($6,500) was contributed to the joint venture with MSREF. The property, a
203,000 square foot building located in the Times Square submarket of
Manhattan, was acquired by the Company in March 1998. Simultaneous with the
closing of this joint venture to co-develop the repositioning of the
property, the venture received a $22,000 mortgage for the acquisition and
capital improvement program. The interest only mortgage matures on April 30,
2003 and has an interest rate based on LIBOR plus 250 basis points (9.14% at
June 30, 2000). In addition to retaining a 35% economic interest in the
property, SL Green will also act as the operating partner for the venture,
responsible for redevelopment, construction, leasing and management of the
property.
On June 20, 2000, the Company acquired a 64,195 square foot retail building
located in the City of Shelton, Fairfield County, Connecticut for approximately
$16,600. The Company redeployed the proceeds from previous asset sales to fund
this acquisition. The property is triple-net leased to Shaw's Supermarkets, Inc.
for 25 years. The Shaw's lease is guaranteed by J Sainsbury PLC, an investment
grade corporation with a long-term issued credit rating of "A" by Standard &
Poor's and "A1" by Moody's. The property is encumbered by a $14,900 mortgage.
The 25 year mortgage has a fixed annual interest rate of 8.32 percent.
4. MORTGAGE LOANS RECEIVABLE AND PREFERRED INVESTMENT
On March 30, 2000, the Company acquired a $51,900 interest in an existing
first mortgage loan collateralized by 2 Grand Central Tower, Manhattan at a
discount. The discount to the face amount of $3,250 and the back-end fees of
$3,440 are being amortized into investment income over the term of the loan.
This is a subordinate participation interest in an existing first mortgage
loan currently held by Credit Suisse First Boston Mortgage Capital, LLC. The
loan matures on September 30, 2000, but can be extended until September 30,
2001. Two Grand Central Tower, also known as 140-148 East 45th Street and
147-151 East 44th Street, is an approximately 620,000 square foot commercial
office building located in the heart of the Grand Central submarket.
On April 14, 2000, the Company made a loan in the amount of $10,000 to DPSW West
14 LLC. The loan, which can be increased to $14,000, is secured by the property
located at 17-29 West 14th Street, Manhattan. The initial term of the loan ends
on April 16, 2001, but a one-year extension is available. Interest, payable
monthly, is based on the 30-day LIBOR plus 400 basis points (10.65% as of June
30, 2000). The loan is prepayable subject to yield maintenance. The Company will
receive a fee for servicing the loan.
9
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA))
JUNE 30, 2000
5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
On February 18, 2000, the Company acquired a 49.9 percent interest in a joint
venture which purchased 100 Park Avenue ("100 Park"), an 834,000 square foot,
36-story property, located in Manhattan. The purchase price of $95,800 was
funded through a combination of cash and debt. The Company will provide managing
and leasing services for 100 Park.
The Company received a commitment from AIG/SunAmerica to issue a $120,000
mortgage collateralized by the property located at 100 Park Avenue, Manhattan.
This will replace the current $112,000 mortgage. The loan is expected to close
in the third quarter.
On March 1, 2000, the $20,800 mortgage on 90 Broad Street was assigned to a new
lender. The new lender advanced an additional $11,200 to the joint venture. The
two loans were then consolidated, amended and restated into a consolidated
$32,000 mortgage which matures on March 1, 2002. Interest only is payable on the
loan at the rate of LIBOR plus 175 basis points (8.40% at June 30, 2000).
See Note 3 for a description of the investment in 321 West 44th Street.
The condensed combined balance sheets for the unconsolidated joint ventures are
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Commercial real estate property ......................... $352,286 $130,585
Other assets ............................................ 28,021 14,236
-------- --------
Total assets ...................................... $380,307 $144,821
======== ========
LIABILITIES AND MEMBERS' EQUITY
Mortgage payable ........................................ $230,650 $ 85,450
Other liabilities ....................................... 13,856 7,278
Members' equity ......................................... 135,801 52,093
-------- --------
Total liabilities and members' equity ............. $380,307 $144,821
======== ========
Company's net investment in unconsolidated joint ventures $ 63,850 $ 23,441
======== ========
</TABLE>
The condensed combined statement of operations for the unconsolidated joint
ventures is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------------ ----------------
<S> <C> <C>
Total revenues .............................................. $15,167 $27,181
------- -------
Operating expense ........................................... 3,816 6,782
Real estate taxes ........................................... 2,653 4,526
Interest .................................................... 4,874 8,349
Depreciation and amortization ............................... 2,149 3,793
Extraordinary item .......................................... -- 108
------- -------
Total expenses ......................................... 13,492 23,558
------- -------
Net income .................................................. $ 1,675 $ 3,623
======= =======
Company's equity in earnings of
unconsolidated joint ventures .......................... $ 782 $ 1,623
======= =======
</TABLE>
10
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
6. INVESTMENT IN AFFILIATES
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Investment in Service Corporation, net ........ $5,760 $4,978
Investment in eEmerge, net .................... 1,767 --
------ ------
Investments in and advances to affiliates $7,527 $4,978
-------------------------------------------- ====== ======
</TABLE>
SERVICE CORPORATION
In order to maintain the Company's qualification as a REIT while realizing
income from management, leasing and construction contracts from third parties,
all of the management operations with respect to properties in which the Company
does not own a 100% interest are conducted through an unconsolidated company,
the Service Corporation. The Company, through the Operating Partnership, owns
100% of the non-voting common stock (representing 95% of the total equity) of
the Service Corporation. Through dividends on its equity interest, the Operating
Partnership receives substantially all of the cash flow from the Service
Corporation's operations. All of the voting common stock of the Service
Corporation (representing 5% of the total equity) is held by a Company
affiliate. This controlling interest gives the affiliate the power to elect all
directors of the Service Corporation. The Company accounts for its investment in
the Service Corporation on the equity basis of accounting because it has
significant influence with respect to management and operations, but does not
control the entity.
All of the management, leasing and construction services with respect to the
properties wholly-owned by the Company, are conducted through Management LLC
which is 100% owned by the Operating Partnership.
eEMERGE
On May 11, 2000, the Operating Partnership formed eEmerge, Inc., a Delaware
corporation ("eEmerge"), in partnership with Fluid Ventures LLC. eEmerge is a
separately managed, self-funded company that provides fully-wired and furnished
office space, services and support to help e-businesses grow.
The Company, through the Operating Partnership, owns 96.5% of the non-voting
common stock (representing 87.0% of the total equity) of eEmerge. Through
dividends on its equity interest, the Operating Partnership receives
approximately 87% of the cash flow from eEmerge operations. Approximately 96.5%
of the voting common stock (representing 9.5% of the total equity) is held by a
Company affiliate. This controlling interest gives the affiliate the power to
elect all the directors of eEmerge. The Company accounts for its investment in
eEmerge on the equity basis of accounting because it has significant influence
with respect to management and operations, but does not control the entity. The
Company has invested approximately $1,767 in eEmerge as of June 30, 2000 out of
a total commitment of $5,000.
On June 8, 2000, eEmerge and EUREKA BROADBAND CORPORATION ("Eureka") formed
eEmerge.NYC LLC, a Delaware limited liability company ("ENYC") whereby
eEmerge has a 95% interest and Eureka has a 5% interest in ENYC. ENYC was
formed to build and operate a 45,000 square foot fractional office suites
business marketed to the technology industry. ENYC entered into a 10-year
lease with the Operating Partnership for its premises, which is located at
440 Ninth Avenue, Manhattan. Allocations of net profits, net losses and
distributions shall be made in accordance with the Limited Liability Company
Agreement of ENYC.
7. MORTGAGE NOTES PAYABLE
In April, 2000, the Company extended the maturity date of the $26,950 mortgage
encumbering the properties located at 286, 290 and 292 Madison Avenue, Manhattan
by one year to May 31, 2001.
8. REVOLVING CREDIT FACILITIES
PSCC FACILITY
On March 30, 2000, Prudential Securities Credit Corp. ("PSCC") increased the
secured PSCC Facility by $20,000 to $50,000. No other terms were changed from
the original $30,000 secured PSCC Facility. At June 30, 2000, the Company had
availability of
11
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
$7,248 under its PSCC Facility (weighted average interest rate of 7.89
percent).
$140 MILLION CREDIT FACILITY
The $140,000 unsecured credit facility was repaid in full and retired in
connection with the Company obtaining the new $250,000 unsecured revolving
credit facility ("$250 Million Unsecured Facility"), as described below. The
Company recorded a $430 extraordinary loss, net of the minority interest's share
of the loss ($38) for the early extinguishment of debt related to the write-off
of unamortized financing costs associated with the $140,000 unsecured credit
facility.
$250 MILLION CREDIT FACILITY
On June 27, 2000, the Company repaid in full and terminated the $140 Million
Credit Facility and obtained a new unsecured revolving credit facility in the
amount of $250,000 from a group of 9 lender banks. The $250 Million Credit
Facility has a term of three years and bears interest at a spread ranging from
137.5 basis points to 175 basis points over LIBOR, based on the Company's
leverage ratio. Upon the achievement of an investment grade rating, the spread
over LIBOR will be reduced to 125 basis points. The Company has the ability to
upsize this credit facility to $300,000. Approximately $103,000 was outstanding
at June 30, 2000 and had a weighted average interest rate of 8.16 percent.
The terms of the $250 Million Credit Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the minimum amount of tangible net worth, the minimum amount
of debt service coverage, the minimum amount of fixed charge coverage, the
minimum amount of unsecured indebtedness, the minimum amount of unencumbered
property debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Company to
continue to qualify as a REIT under the Code, the Company will not during any
four consecutive fiscal quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 90 percent of
funds from operations for such period, subject to certain other adjustments. The
$250 Million Credit Facility also requires a 15 to 25 basis point fee on the
unused balance payable quarterly in arrears.
The lending group for the $250 Million Credit Facility consists of Fleet
National Bank, NA, as administrative agent, Citibank/Salomon Smith Barney, Inc,
as syndication agent, Deutsche Banc Alex Brown, as documentation agent,
Commerzbank Aktiengesellschaft, New York Branch, The Bank of New York, Wells
Fargo Bank, N.A., Bank Leumi USA, PNCBank, N.A., and Key Bank, N.A.
9. INCOME TAXES
The Company is taxed as a REIT under Section 856 through Section 860 of the
Internal Revenue Code of 1986, as amended. As a REIT, the Company is generally
not subject to Federal income tax. The Service Corporation and eEmerge, Inc. are
taxable C-corporations and thus may be subject to Federal, state and local
corporate income taxes.
10. STOCKHOLDERS' EQUITY
COMMON SHARES
The following table presents the changes in the Company's issued and outstanding
common shares since December 31, 1999 (excluding 2,389 and 2,428 Units
outstanding at June 30, 2000 and December 31, 1999, respectively, which are
convertible into common shares on a one-for-one basis, or the cash equivalent
thereof, subject to certain restrictions):
<TABLE>
<S> <C>
Outstanding at December 31, 1999 ........... 24,184
Issued through exercise of options ......... 132
Issued through redemption of Units ......... 39
Issued through deferred compensation plan .. 18
------
Outstanding at June 30, 2000 ............... 24,373
======
</TABLE>
12
<PAGE>
SL GREEN REALTY CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
OWNERSHIP OF OPERATING PARTNERSHIP
The Company's ownership in the Operating Partnership was approximately 91.1% as
of both June 30, 2000 and December 31, 1999.
RIGHTS PLAN
On February 16, 2000, the Board of Directors of the Company authorized a
dividend distribution of one preferred share purchase right ("Right") for each
outstanding share of common stock which was distributed to all holders of record
of the common stock on June 30, 2000. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series B junior
participating preferred stock, par value $0.01 per share ("Preferred Shares"),
at a price of $60.00 per one one-hundredth of a Preferred Share ("Purchase
Price"), subject to adjustment as provided in the rights agreement. The Rights
expire on March 5, 2010, unless the expiration date is extended or the Right is
redeemed or exchanged earlier by the Company.
The Rights are attached to each share of common stock. The rights are
generally exercisable only if a person or group becomes the beneficial owner
of 17% or more of the outstanding common stock or announces a tender offer
for 17% or more of the outstanding stock ("Acquiring Person"). In the event
that a person or group becomes an Acquiring Person, each holder of a Right,
excluding the Acquiring Person, will have the right to receive, upon
exercise, common stock having a market value equal to two times the Purchase
Price of the Preferred Shares.
EARNINGS PER SHARE
Earnings per share is computed as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30, 2000 For the Quarter Ended June 30, 1999
----------------------------------- -----------------------------------
INCOME SHARES PER SHARE Income Shares Per Share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) Amount
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings:
Income available to common
shareholders $12,988 24,309 $ 0.53 $ 8,377 24,192 $ 0.35
Effect of Dilutive Securities:
Redemption of Units to
common shares 1,316 2,391 826 2,428
Stock Options -- 345 -- 68
------------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings:
Income available to common
shareholders $14,304 27,045 $ 0.53 $ 9,203 26,688 $ 0.35
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000 For the Six Months Ended June 30, 1999
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE Income Shares Per Share
(NUMERATOR) (DENOMINATOR) AMOUNT (Numerator) (Denominator) Amount
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings:
Income available to common
shareholders $34,621 24,265 $ 1.43 $16,590 24,192 $ 0.68
Effect of Dilutive Securities:
Redemption of Units to
common shares 3,467 2,404 1,683 2,428
Stock Options -- 260 -- 56
------------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings:
Income available to common
shareholders $38,088 26,929 $ 1.41 $18,273 26,676 $ 0.68
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
11. COMMITMENTS AND CONTINGENCIES
The Company and the Operating Partnership are not presently involved in any
material litigation nor, to their knowledge, is any material litigation
threatened against them or their properties, other than routine litigation
arising in the ordinary course of business. Management believes the costs, if
any, incurred by the Company and the Operating Partnership related to the
routine litigation will not materially affect the financial position, operating
results or liquidity of the Company and the Operating Partnership.
On July 5, 2000, the Company entered into an agreement to acquire and operate a
Class B office building located in Manhattan. The Company has posted a deposit
of $2,100. The transaction is expected to close in the fourth quarter of 2000.
12. RELATED PARTY TRANSACTIONS
There are business relationships with related parties which involve maintenance
expenses in the ordinary course of business. The Company's transactions with the
related parties amounted to $1,215 and $2,150 for the three and six month
periods ended June 30, 2000. The Company's transactions with the related parties
amounted to $879 and $1,635 for the three and six month period ended June 30,
1999.
13. SEGMENT INFORMATION
The Company is a REIT engaged in owning, managing, leasing and repositioning
Class B office properties in Manhattan and has one reportable segment, office
real estate. The Company evaluates real estate performance and allocates
resources based on net income.
The Company's real estate portfolio is located in one geographical market,
namely, Manhattan. The primary sources of revenue are generated from tenant
rents and escalations and reimbursement revenue. Real estate property operating
expenses consist primarily of security, maintenance, utility costs, real estate
taxes and ground rent expense (at certain applicable properties). The single
office real estate business segment meets the quantitative threshold for
determining reportable segments. Additionally, the Company has no tenant with
rental revenue greater than 10% of the Company's annual revenues.
14. PRO FORMA FINANCIAL INFORMATION
The following table summarizes, on an unaudited pro forma basis, the combined
results of operations of the Company for the six months ended June 30, 1999 as
though the 1999 acquisitions, including the 90 Broad Street, 286, 290 and 292
Madison Avenue (May 1999) and the minority interest in 555 West 57th Street
(November 1999), were made on January 1, 1999. There were no material
acquisitions during 2000.
<TABLE>
<CAPTION>
1999
----
<S> <C>
Pro forma revenues ......................... $103,660
Pro forma net income ....................... $ 16,934
Pro forma basic earnings per common share .. $ 0.70
Pro forma diluted earnings per common share $ 0.70
Common and common equivalent share - basic . 24,192
Common and common equivalent share - diluted 26,676
</TABLE>
15. TECHNOLOGY INVESTMENTS AND ALLIANCES
On March 29, 2000, the Company entered into an agreement with Broadband Office,
Inc. ("Broadband") to provide telecommunication and internet services to its
tenants. In exchange for providing Broadband with access to tenants at some of
the Company's properties, the Company received 219 shares of common stock with a
fair value of $315 on that date.
14
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
JUNE 30, 2000
In April 2000, the Company made a $1,000 limited partnership investment in
Internet Realty Partners, L.P. ("IRP"). The Company is committed to fund an
additional $1,000. IRP will invest in real estate-related internet, technology
and e-commerce companies.
On June 6, 2000, the Company entered into a marketing and cooperation agreement
with Eureka to provide telecommunication and internet services to its tenants.
In exchange for providing Eureka with access to tenants at some of the Company's
properties, the Company will receive warrants based on the square footage of
property provided. As of June 30, 2000, no warrants had been received.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements, other than statements of historical facts, included
in this report that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), expansion and other development trends of the
real estate industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate. Such statements are subject to a number of assumptions, risks and
uncertainties, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
laws or regulations and other factors, many of which are beyond the control of
the Company. Any such statements are not guarantees of future performance and
actual results or developments may differ materially from those anticipated in
the forward-looking statements.
The following discussion related to the consolidated financial statements of the
Company should be read in conjunction with the financial statements appearing
elsewhere in this report and the financial statements included in the Company's
1999 annual report on Form 10-K.
HIGHLIGHTS OF THE QUARTER
- 12% FFO increase, $0.65 per share (diluted) versus $0.58 prior year
- 19% same store portfolio cash NOI growth
- Closed new $250 million unsecured Line of Credit, $110 million increase
in capacity
- Completed strategic alliances with Elevator News Network, Eureka
Broadband and Broadband Office
- Sold 65% joint venture interest in 321 West 44th Street valuing
property at $28.0 million
- eEmerge, SL Green's fractional office technology space business,
commenced operations
On May 4, 2000, the Company sold a 65% interest in the property located at 321
West 44th Street to Morgan Stanley Real Estate Fund III ("MSREF") valuing the
property at $28.0 million. The Company realized a gain of $4.8 million on the
transaction. The Company's retained 35% interest in the property was contributed
to the joint venture with MSREF. The property, a 203,000 square foot building
located in the Times Square submarket of Manhattan, was acquired by the Company
in March 1998. Simultaneous with the closing of this joint venture to co-develop
the repositioning of the property, the venture received a $22.0 million mortgage
for the acquisition and capital improvement program. The interest only mortgage
matures on April 30, 2003 and has a LIBOR based floating interest rate,
currently 9.14%. In addition to retaining a 35% economic interest in the
property, SL Green will also act as the operating partner for the venture,
responsible for redevelopment, construction, leasing and management of the
property.
On May 11, 2000, the Operating Partnership commenced the operations of eEmerge,
Inc., a Delaware corporation ("eEmerge"), in partnership with Fluid Ventures
LLC. eEmerge is a separately managed, self-funded company that provides
fully-wired and furnished office space, services and support to help
e-businesses grow. The Company accounts for its investment in eEmerge on the
equity basis of accounting because it has significant influence with respect to
management and operations, but does not control the entity. The Company has
invested $1.8 million in eEmerge as of June 30, 2000 out of a total commitment
of $5.0 million.
On June 8, 2000, eEmerge and EUREKA BROADBAND CORPORATION ("Eureka") formed
eEmerge.NYC LLC, a Delaware limited liability company ("ENYC") whereby
eEmerge has a 95% interest and Eureka has a 5% interest in ENYC. ENYC was
formed to build and operate a 45,000 square foot fractional office suites
business marketed to the technology industry. ENYC entered into a 10-year
lease with the Operating Partnership for its premises, which is located at
440 Ninth Avenue, Manhattan.
RESULTS OF OPERATIONS
The following comparisons for the three and six months ended June 30, 2000
("2000") compared to the three and six months ended June 30, 1999 ("1999")
make reference to the following: (i) the effect of the "Same-Store
Properties," which represents all properties owned by the Company at January
1, 1999, (ii) the effect of the "1999 Acquisitions," which represents all
properties
16
<PAGE>
acquired in 1999, namely, 286, 290 and 292 Madison Avenue(May 1999) and 555
West 57th Street (November 1999), and (iii) the effect of the "2000
Dispositions," which represents all properties disposed of in 2000, namely,
29 West 35th Street (February 2000), 36 West 44th Street (March 2000), and
321 West 44th Street (May 2000) which was contributed to a joint venture.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999
Rental revenue for the three months ended June 30, 2000 totaled $46.4 million
representing an increase of $2.6 million compared to $43.8 million for the three
months ended June 30, 1999. The increase was primarily attributable to the
revenue associated with the following: (i) Same-Store Properties which increased
rental revenue $4.3 million, and (ii) the 1999 Acquisitions which increased
rental revenue by $0.9 million. This was partially offset by the 2000
Dispositions which decreased rental revenue by $2.6 million. The increase at
Same-Store Properties was primarily due to an overall increase in occupancy from
96% in 1999 to 98% in 2000. In addition, annualized rents from replacement rents
on previously occupied space at Same-Store Properties were 47% higher than
previous fully escalated rents.
Escalation and reimbursement revenue for the three months ended June 30, 2000
totaled $5.4 million representing an increase of $0.5 million compared to $4.9
million for the three months ended June 30, 1999. The increase was primarily
attributable to the revenue associated with the following: (i) Same-Store
Properties which increased revenue by $0.7 million, and (ii) the 1999
Acquisitions which increased revenue by $0.2 million. This was partially offset
by the 2000 Dispositions which decreased escalation and reimbursement revenue by
$0.4 million. The increase in Same-Store escalation and reimbursement revenue
was primarily due to the recovery of higher utility costs ($0.6 million).
Signage revenue for the three months ended June 30, 2000 totaled $0.6 million,
representing an increase of $0.3 million compared to $0.3 million for the three
months ended June 30, 1999. The increase was primarily attributable to 1466
Broadway ($0.3 million).
Investment income totaled $3.9 million for the three months ended June 30, 2000
representing an increase of $2.5 million compared to $1.4 million for the three
months ended June 30, 1999. The investment income for 2000 primarily represents
interest income from 2 Grand Central Tower ($2.7 million), 1370 Avenue of the
Americas ($0.6 million), 17-29 West 14th Street ($0.3 million) and interest from
excess cash on hand ($0.3 million).
Operating expenses for the three months ended June 30, 2000 totaled $13.4
million representing an increase of $2.1 million compared to $11.3 million for
the three months ended June 30, 1999. The increase was primarily attributable
to: (i) Same-Store Properties which increased operating expenses by $2.1
million, and (ii) the 1999 Acquisitions which increased operating expenses by
$0.5 million. This was partially offset by the 2000 Dispositions which decreased
operating expenses by $0.5 million. The increase in operating expenses at
Same-Store Properties were primarily due to higher utility costs ($1.2 million)
and repairs and maintenance ($0.3 million).
Interest expense for the three months ended June 30, 2000 totaled $10.0 million
representing an increase of $3.3 million compared to $6.7 million for the three
months ended June 30, 1999. This increase was primarily attributable to: (i)
Same-Store Properties ($2.5 million) as new secured mortgage financing was
placed on assets in this portfolio, (ii) the 1999 Acquisitions ($1.0 million)
due to mortgage financing associated with these purchases, and (iii) corporate
level debt ($0.1 million). These increases were partially offset by a $0.3
million decrease in interest expense due to the 2000 Dispositions.
Depreciation and amortization for the three months ended June 30, 2000 totaled
$8.4 million representing an increase of $1.8 million compared to $6.6 million
for the three months ended June 30, 1999. The increase is primarily attributable
to: (i) Same-Store Properties which increased depreciation and amortization by
$1.4 million, (ii) the 1999 Acquisitions which increased depreciation and
amortization by $0.4 million, and (iii), an increase in the amortization of
deferred finance costs totaling $0.3 million associated with fees incurred on
the Company's 1999 secured mortgage financings. This was partially offset by a
reduction in depreciation and amortization by $0.3 million due to the 2000
Dispositions.
Real estate taxes for the three months ended June 30, 2000 totaled $7.1 million
representing a decrease of $0.2 million compared to $7.3 million for the three
months ended June 30, 1999. The increase in real estate taxes attributable to
the 1999 Acquisitions of $0.2 million was offset by a decrease in real estate
taxes at Same-Store Properties ($0.2 million) due to reduced tax assessment
rates and by a reduction in real estate taxes of $0.2 million due to the 2000
Dispositions.
Marketing, general and administrative expense for the three months ended June
30, 2000 totaled $3.2 million representing an increase of $0.4 million compared
to $2.8 million for the three months ended June 30, 1999. Marketing, general and
administrative expenses have remained relatively stable as a percentage of total
revenues, representing approximately 5.5% of total revenues for both periods.
17
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED JUNE
30, 1999
Rental revenue for the six months ended June 30, 2000 totaled $93.4 million
representing an increase of $9.2 million compared to $84.2 million for the six
months ended June 30, 1999. The increase is primarily attributable to the
revenue associated with the following: (i) Same-Store Properties which increased
rental revenue $8.6 million, and (ii) the 1999 Acquisitions which increased
rental revenue by $3.5 million. This was partially offset by the 2000
Dispositions which decreased rental revenue by $2.9 million. The increase at
Same-Store Properties was primarily due to an overall increase in occupancy from
96% in 1999 to 98% in 2000. In addition, annualized rents from replacement rents
on previously occupied space at Same-Store Properties were 49% higher than
previous fully escalated rents.
Escalation and reimbursement revenue for the six months ended June 30, 2000
totaled $11.3 million representing an increase of $1.7 million compared to $9.6
million for the six months ended June 30, 1999. The increase is primarily
attributable to the revenue associated with the following: (i) Same-Store
Properties which increased revenue by $1.4 million, and (ii) the 1999
Acquisitions which increased revenue by $0.7 million. This was partially offset
by the 2000 Dispositions which decreased escalation and reimbursement revenue by
$0.4 million. The increase in Same-Store escalation and reimbursement revenue
was primarily due to the recovery of higher utility costs ($1.2 million).
Signage revenue for the six months ended June 30, 2000 totaled $1.1 million,
representing an increase of $0.5 million compared to $0.6 million for the six
months ended June 30, 1999. The increase is primarily attributable to 1466
Broadway ($0.5 million).
Investment income totaled $4.9 million for the six months ended June 30, 2000
representing an increase of $2.6 million compared to $2.3 million for the six
months ended June 30, 1999. The investment income for 2000 primarily represents
interest income from 2 Grand Central Tower ($2.7 million), 1370 Avenue of the
Americas ($1.3 million), 17-29 West 44th Street ($0.3 million) and interest from
excess cash on hand ($0.6 million).
Operating expenses for the six months ended June 30, 2000 totaled $26.6 million
representing an increase of $4.1 million compared to $22.5 million for the six
months ended June 30, 1999. The increase was primarily attributable to: (i)
Same-Store Properties which increased operating expenses by $3.3 million, and
(ii) the 1999 Acquisitions which increased operating expenses by $1.5 million.
This was partially offset by the 2000 Dispositions which decreased operating
expenses by $0.7 million. The increase in operating expenses at Same-Store
Properties were primarily due to higher utility costs ($1.8 million) and repairs
and maintenance ($0.7 million).
Interest expense for the six months ended June 30, 2000 totaled $19.5 million
representing an increase of $7.6 million compared to $11.9 million for the six
months ended June 30, 1999. This increase is primarily attributable to: (i)
Same-Store Properties ($6.2 million) as new secured mortgage financing was
placed on assets in this portfolio, (ii) the 1999 Acquisitions ($2.1 million)
due to mortgage financing associated with these purchases, and (iii) the 2000
Dispositions ($0.1 million) due to the April 1999 mortgage financing associated
with 36 West 44th Street. These increases were partially offset by a $0.8
million decrease in interest expense at the corporate level.
Depreciation and amortization for the six months ended June 30, 2000 totaled
$16.2 million representing an increase of $4.2 million compared to $12.0 million
for the six months ended June 30, 1999. The increase is primarily attributable
to: (i) Same-Store Properties which increased depreciation and amortization by
$3.1 million, (ii) the 1999 Acquisitions which increased depreciation and
amortization by $1.1 million, and (iii), an increase in the amortization of
deferred finance costs totaling $0.5 million associated with fees incurred on
the Company's 1999 secured mortgage financings. This was partially offset by a
reduction in depreciation and amortization by $0.5 million due to the 2000
Dispositions.
Real estate taxes for the six months ended June 30, 2000 totaled $14.4 million
representing no change when compared to $14.4 million for the six months ended
June 30, 1999. An increase attributable to the 1999 Acquisitions which increased
real estate taxes by $0.6 million, was offset by a decrease in real estate taxes
at Same-Store Properties ($0.3 million) due to reduced tax assessment rates and
the 2000 Dispositions ($0.3 million).
Marketing, general and administrative expense for the six months ended June 30,
2000 totaled $6.0 million representing an increase of $0.6 million compared to
$5.4 million for the six months ended June 30, 1999. Marketing, general and
administrative expenses have remained relatively stable as a percentage of total
revenues, representing approximately 5.5% of total revenues for both periods.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities increased $2.5 million to $20.0
million for the six months ended June 30, 2000 compared to $17.5 million for the
six months ended June 30, 1999. Net cash used in investing activities decreased
$123.0 million to $57.4 million for the six months ended June 30, 2000 compared
to $180.4 million for the six months ended June 30, 1999. The decrease was due
primarily to the lower dollar volume of acquisitions and capital improvements in
2000 ($16.6 million and $13.4 million, respectively) as compared to 1999 ($133.5
million and $38.0 million, respectively). The net investment in unconsolidated
joint ventures ($43.6 million) and mortgage loans ($55.8 million) was partially
offset by the proceeds from the dispositions of 29 West 35th Street, 36 West
44th Street, and 321 West 44th Street, totaling $58.3 million. Net cash provided
by financing activities decreased $135.6 million to $31.1 million for the six
months ended June 30, 2000 compared to $166.7 million for the six months ended
June 30, 1999. The decrease was primarily due to lower borrowing requirements
($88.9 million) due to lower volume of acquisitions and higher debt repayments
($49.9 million).
CAPITALIZATION
On February 16, 2000, the Board of Directors of the Company authorized a
dividend distribution of one preferred share purchase right ("Right") for each
outstanding share of common stock under a shareholder rights plan. This dividend
was distributed to all holders of record of the common stock on June 30, 2000.
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series B junior participating preferred stock, par
value $0.01 per share ("Preferred Shares"), at a price of $60.00 per one
one-hundredth of a Preferred Share ("Purchase Price"), subject to adjustment as
provided in the rights agreement. The Rights expire on March 5, 2010, unless the
expiration date is extended or the Right is redeemed or exchanged earlier by the
Company.
The Rights are attached to each share of common stock. The rights are generally
exercisable only if a person or group becomes the beneficial owner of 17% or
more of the outstanding common stock or announces a tender offer for 17% or more
of the outstanding stock ("Acquiring Person"). In the event that a person or
group becomes an Acquiring Person, each holder of a Right, excluding the
Acquiring Person, will have the right to receive, upon exercise, common stock
having a market value equal to two times the Purchase Price of the Preferred
Shares.
At June 30, 2000, borrowings under the mortgage loans and credit facilities,
(excluding our share of joint venture debt of $107.0 million), represented 37.2%
of the Company's market capitalization based on a total market capitalization
(debt and equity including preferred stock), assuming conversion of all
operating partnership units, of $1.3 billion (based on a common stock price of
$26.7344 per share, the closing price of the Company's common stock on the New
York Stock Exchange on June 30, 2000).
The tables below summarize the Company's mortgage debt and line of credit
indebtedness outstanding at June 30, 2000 and December 31, 1999, respectively
(in thousands).
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
---- ----
<S> <C> <C>
DEBT SUMMARY:
BALANCE
Fixed rate .......................... $319,344 $270,743
Variable rate ....................... 172,702 164,950
-------- --------
Total .................................. $492,046 $435,693
======== ========
PERCENT OF TOTAL DEBT:
Fixed rate .......................... 65% 62%
Variable rate ....................... 35% 38%
-------- --------
Total .................................. 100.00% 100.00%
======== ========
EFFECTIVE INTEREST RATE AT END OF PERIOD
Fixed rate .......................... 8.18% 7.97%
Variable rate ....................... 8.09% 8.08%
-------- --------
Effective interest rate ................ 8.15% 8.01%
======== ========
</TABLE>
19
<PAGE>
A majority of the variable rate debt shown above bears interest at an interest
rate based on LIBOR (6.65% at June 30, 2000). The Company's total debt at June
30, 2000 had a weighted average term to maturity of approximately 3.96 years.
MORTGAGE FINANCING
As of June 30, 2000, the Company's total mortgage debt (excluding the Company's
share of unconsolidated debt of approximately $107.0 million) consisted of
approximately $319.4 million of fixed rate debt with an effective interest rate
of approximately 8.18% and $26.9 million of variable rate debt with an effective
interest rate of 8.14%. The Company's mortgage debt at June 30, 2000,
encumbering 14 properties, will mature as follows (in thousands):
<TABLE>
<CAPTION>
Scheduled Principal
Amortization Repayments Total
------------ ---------- -----
<S> <C> <C> <C>
July 1 to December 31, 2000 $ 1,963 $ -- $ 1,963
2001 ..................... 5,191 81,950 87,141
2002 ..................... 6,195 -- 6,195
2003 ..................... 6,978 2,003 8,981
2004 ..................... 3,029 75,300 78,329
Thereafter ................ 14,663 149,022 163,685
-------- -------- --------
Total ...... $ 38,019 $308,275 $346,294
======== ======== ========
</TABLE>
$250 MILLION CREDIT FACILITY
On June 27, 2000, the Company repaid in full and terminated the $140 Million
Credit Facility (see below) and obtained a new unsecured revolving credit
facility in the amount of $250.0 million from a group of 9 lender banks (the
"$250 Million Credit Facility"). The $250 Million Credit Facility has a term
of three years and bears interest at a spread ranging from 137.5 basis points
to 175 basis points over LIBOR, based on the Company's leverage ratio. Upon
the achievement of an investment grade rating, the spread over LIBOR will be
reduced to 125 basis points. The Company has the ability to upsize this
credit facility to $300.0 million. Approximately $103.0 million was
outstanding at June 30, 2000 and had a weighted average interest rate of 8.16
percent.
The terms of the $250 Million Credit Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the minimum amount of tangible net worth, the minimum amount
of debt service coverage, the minimum amount of fixed charge coverage, the
minimum amount of unsecured indebtedness, the minimum amount of unencumbered
property debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Company to
continue to qualify as a REIT under the Code, the Company will not during any
four consecutive fiscal quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 90 percent of
funds from operations for such period, subject to certain other adjustments. The
$250 Million Credit Facility also requires a 15 to 25 basis point fee on the
unused balance payable quarterly in arrears.
The lending group for the $250 Million Credit Facility consists of Fleet
National Bank, NA, as administrative agent, Citibank/Salomon Smith Barney, Inc,
as syndication agent, Deutsche Banc Alex Brown, as documentation agent,
Commerzbank Aktiengesellschaft, New York Branch, The Bank of New York, Wells
Fargo Bank, N.A., Bank Leumi USA, PNCBank, N.A., and Key Bank, N.A.
$140 MILLION CREDIT FACILITY
The $140.0 million unsecured credit facility was repaid in full and retired in
connection with the Company obtaining the $250 Million Unsecured Facility, as
described above. The Company recorded a $430,000 extraordinary loss, net of the
minority interest's share of the loss ($38,000) for the early extinguishment of
debt related to the write-off of unamortized financing costs associated with the
$140.0 million unsecured credit facility.
20
<PAGE>
PSCC FACILITY
On March 30, 2000, Prudential Securities Credit Corp. increased the secured PSCC
Facility by $20.0 million to $50.0 million. No other terms were changed from the
original $30.0 million secured PSCC Facility. At June 30, 2000, the Company had
availability of $7.3 million under its PSCC Facility (weighted average interest
rate of 7.89 percent).
DISTRIBUTIONS AND CAPITAL EXPENDITURES
The Company expects to make distributions to its stockholders primarily based on
its distributions received from the Operating Partnership primarily from
property revenues or, if necessary, from working capital or borrowings.
The Company estimates that for the six months ending December 31, 2000 and the
year ending December 31, 2001, it will incur approximately $15.8 million and
$18.2 million, respectively, of capital expenditures (including tenant
improvements) on properties currently owned. For the remainder of 2000 and for
2001, over $5.0 million and $9.1 million, respectively, of the capital
investments are dedicated to redevelopment costs associated with properties
acquired at or after the Company's IPO. The Company expects to fund these
capital expenditures with the credit facility, additional property level
mortgage financings, operating cash flow and cash on hand. Future property
acquisitions may require substantial capital investments in such properties for
refurbishment and leasing costs. The Company expects that these financing
requirements will be met in a similar fashion. The Company believes that it will
have sufficient capital resources to satisfy its obligations during the next 12
month period. Thereafter, the Company expects that capital needs will be met
through a combination of net cash provided by operations, borrowings, potential
asset sales or additional equity issuances.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, determined without regard to the dividends paid deduction and by
excluding net capital gains. Moreover, the Company intends to continue to make
regular quarterly distributions to its stockholders which, based upon current
policy, in the aggregate would equal approximately $35.3 million on an
annualized basis. However, any such distribution, whether for Federal income tax
purposes or otherwise, would only be paid out of available cash after meeting
both operating requirements and scheduled debt service on mortgages and loans
payable.
TECHNOLOGY INVESTMENTS AND ALLIANCES
On March 29, 2000, the Company entered into an agreement with Broadband Office,
Inc. ("Broadband") to provide telecommunication and internet services to its
tenants. In exchange for providing Broadband with access to tenants at some of
the Company's properties, the Company received 219,000 shares of common stock
with a fair value of $315,000 on that date.
In April 2000, the Company made a $1.0 million limited partnership investment in
Internet Realty Partners, L.P. ("IRP"). The Company is committed to fund an
additional $1.0 million. IRP will invest in real estate-related internet,
technology and e-commerce companies.
On June 6, 2000, the Company entered into a marketing and cooperation agreement
with Eureka to provide telecommunication and internet services to its tenants.
In exchange for providing Eureka with access to tenants at some of the Company's
properties, the Company will receive warrants based on the square footage of
property provided. As of June 30, 2000, no warrants had been received.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations ("FFO") approved by the Board of
Governors of NAREIT in October 1999 defines FFO as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint ventures. The
Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company computes FFO
in accordance with the current standards established by NAREIT which may not be
comparable to FFO reported by other REIT's that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. 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 its ability to make cash distributions.
21
<PAGE>
FFO for the three and six months ended June 30, 2000 and 1999, respectively, are
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before minority interest, extraordinary item, gain on sale and
preferred stock dividend ............................................ $ 12,344 $ 13,068 $ 24,310 $ 25,109
Add:
Depreciation and amortization ....................................... 8,403 6,590 16,219 12,028
FFO adjustment for unconsolidated joint ventures .................... 917 -- 1,626 --
Less:
Preferred stock dividend ............................................ (2,300) (2,300) (4,600) (4,600)
Minority interest in the BMW Building ............................... -- (838) -- (1,410)
Amortization of deferred financing costs and Depreciation of non-real
estate assets ....................................................... (1,040) (694) (2,063) (1,263)
--------- --------- --------- ---------
Funds from Operations - basic ....................................... 18,324 15,826 35,492 29,864
Dividends on preferred shares ....................................... 2,300 2,300 4,600 4,600
--------- --------- --------- ---------
Funds from Operations - diluted ..................................... $ 20,624 $ 18,126 $ 40,092 $ 34,464
--------- --------- --------- ---------
Cash flows provided by operating activities ......................... $ 10,235 $ 4,541 $ 27,296 $ 17,462
Cash flows provided by investing activities ......................... $ (9,806) $(109,694) $ (64,676) $(180,376)
Cash flows provided by financing activities ......................... $ 4,741 $ 93,810 $ 31,136 $ 166,746
</TABLE>
INFLATION
Substantially all of the office leases provide for separate real estate tax and
operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed escalations. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases and expense escalations described above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its floating
rate debt arrangements. The Company currently does not use interest rate
derivative instruments to manage exposure to interest rate changes. A
hypothetical 100 basis point adverse move (increase) in interest rates along the
entire interest rate curve would adversely affect the Company's interest cost by
approximately $2.6 million annually.
The Company may enter into derivative financial instruments such as interest
rate swaps and interest rate collars in order to mitigate its interest rate risk
on a related financial instrument. The Company may designate these derivative
financial instruments as hedges and apply deferral accounting. Gains and losses
related to the termination of such derivative financial instruments are deferred
and amortized to interest expense over the term of the debt instrument. The
Company may also utilize interest rate contracts to hedge interest rate risk on
anticipated debt offerings. These anticipatory hedges are designated, as
effective hedges for identified debt issuances which have a high probability of
occurring. Gains and losses resulting from changes in the market value of these
contracts are deferred and amortized into interest expense over the life of the
related debt instrument. The cost of hedges determined to be ineffective and
hedges not correlated to financings are charged to operations.
Approximately $319.4 million of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in the market interest rates. The following table presents principal
cash flows (in thousands) based upon maturity dates of the debt obligations and
the related weighted-average interest rates by expected maturity dates for the
fixed rate debt. The interest rates on the variable rate debt as of June 30,
2000 ranged from LIBOR plus 125 basis points to LIBOR plus 202 basis points.
<TABLE>
<CAPTION>
LONG-TERM DEBT,
INCLUDING CURRENT FAIR
PORTION (IN THOUSANDS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---------------------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate .......... $ 1,963 $ 60,191 $ 6,195 $ 8,981 $ 78,329 $ 163,685 $319,344 $319,467
Average Interest Rate 8.18% 8.10% 8.09% 8.07% 7.85% 8.24%
Variable Rate ....... $ 42,752 $ 26,950 -- $103,000 -- -- $172,702 $172,702
</TABLE>
22
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 16, 2000, at
which the following matters were voted upon:
1. To elect two class III directors of the Company to service
until the 2003 Annual Meeting of stockholders.
2. To ratify the selection of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending
December 31, 2000.
The results of the meeting were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C> <C>
Directors: John H. Alschuler, Jr. 21,094,238 0 96,441
Stephen L. Green 21,094,238 0 96,441
Proposal 2: 21,183,438 2,520 4,676
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Form of June 27, 2000 Revolving Credit and Guaranty Agreement*
12.1 Calculation of Ratios of Combined Fixed Charges and Preferred
Stock Dividends
27.1 Financial Data Schedule
* Incorporated by reference to the Company's Form 8-K dated June 27, 2000,
filed with the Commission on July 12, 2000
(b) Reports on Form 8-K:
1. Form 8-K dated April 26, 2000, Item 5
2. Form 8-K dated June 27, 2000, Items 5 and 7
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SL GREEN REALTY CORP.
By: /s/ THOMAS E. WIRTH
-----------------------------
Thomas E. Wirth
Executive Vice President,
Chief Financial Officer
Date: July 26, 2000
24
