<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 September 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 24,480,871 at November 3, 2000.
1
<PAGE>
SL GREEN REALTY CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
Condensed Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999... ........................................ 3
Condensed Consolidated Statements of Income for the three and nine
months ended September 30, 2000 and 1999 (unaudited)......................... 4
Condensed Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 2000 (unaudited).................................. 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited)................................ 6
Notes to Condensed Consolidated Financial Statements (unaudited)....... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 16 OPERATIONS............................................ 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......... 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 25
SIGNATURES................................................................... 26
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
---- ----
(UNAUDITED) (Note 1)
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost:
Land and land interests .................................... $ 125,572 $ 132,081
Buildings and improvements ................................. 609,089 632,004
Building leasehold ......................................... 137,441 132,573
Property under capital lease ............................... 12,208 12,208
----------- -----------
884,310 908,866
Less accumulated depreciation .............................. (72,179) (56,983)
----------- -----------
812,131 851,883
Properties held for sale ................................... 49,890 25,835
Cash and cash equivalents .................................. 14,064 21,561
Restricted cash ............................................ 34,583 34,168
Tenant and other receivables, net of allowance of $1,930 and
$938 in 2000 and 1999, respectively ....................... 9,132 5,747
Related party receivables .................................. 964 463
Deferred rents receivable, net of allowance for tenant
credit loss of $5,002 and $5,337 in 2000 and 1999,
respectively .............................................. 43,452 37,015
Investment in and advances to affiliates ................... 7,943 4,978
Mortgage loans receivable and preferred equity investment .. 49,903 20,000
Investments in unconsolidated joint ventures ............... 59,632 23,441
Deferred costs, net ........................................ 37,924 30,540
Other assets ............................................... 34,100 15,611
----------- -----------
Total assets ......................................... $ 1,153,718 $ 1,071,242
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable ..................................... $ 345,351 $ 352,693
Revolving credit facilities ................................ 126,752 83,000
Accrued interest payable ................................... 3,069 2,650
Accounts payable and accrued expenses ...................... 25,212 17,167
Accrued deferred long-term compensation .................... 2,833 --
Deferred revenue ........................................... 1,444 306
Capitalized lease obligations .............................. 15,242 15,017
Deferred land lease payable ................................ 12,805 11,611
Dividend and distributions payable ......................... 12,065 11,947
Security deposits .......................................... 18,951 18,905
----------- -----------
Total liabilities ................................... 563,724 513,296
Commitments and Contingencies
Minority interest in Operating Partnership ................. 41,753 41,494
8% Preferred Income Equity Redeemable SharesSM $0.01 par
value $25.00 mandatory liquidation preference, 25,000
authorized and 4,600 outstanding at September 30, 2000
and December 31, 1999 ................................... 110,667 110,348
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value 100,000 shares authorized,
24,516 and 24,184 issued and outstanding at
September 30, 2000 and December 31, 1999, respectively .... 245 242
Additional paid - in-capital ............................... 428,635 421,958
Deferred compensation plans ................................ (5,939) (6,610)
Officers' loans, net ....................................... -- (64)
Retained earnings/(distributions) in excess of earnings .... 14,633 (9,422)
----------- -----------
Total stockholders' equity .......................... 437,574 406,104
----------- -----------
Total liabilities and stockholders' equity ................. $ 1,153,718 $ 1,071,242
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue ................................... $ 47,647 $ 45,080 $ 140,998 $ 129,267
Escalation and reimbursement revenues
............................................... 7,593 6,856 18,941 16,473
Signage rent ..................................... 496 559 1,593 1,112
Investment income ................................ 4,968 1,469 9,903 3,731
Other income ..................................... 170 688 693 1,545
--------- --------- --------- ---------
Total Revenues ................................ 60,874 54,652 172,128 152,128
--------- --------- --------- ---------
EXPENSES
Operating expenses (see Note 13 for
affiliated
transactions) ................................. 15,260 14,293 41,893 36,778
Real estate taxes ................................ 7,299 7,481 21,688 21,904
Ground rent ...................................... 3,164 3,183 9,505 9,572
Interest ......................................... 10,698 7,772 30,243 19,722
Depreciation and amortization .................... 8,300 7,677 24,519 19,705
Marketing, general and administrative ............ 2,540 2,979 8,517 8,387
--------- --------- --------- ---------
Total Expenses ................................ 47,261 43,385 136,365 116,068
--------- --------- --------- ---------
Income before equity in net income from
affiliates, and unconsolidated joint
ventures, gain on sale of rental
property, minority interests,
extraordinary items and preferred
stock dividends ............................... 13,613 11,267 35,763 36,060
Equity in net income from
affiliates .................................... 71 223 609 551
Equity in net income of unconsolidated
joint ventures ................................ 586 151 2,209 151
Gain on sale of rental properties, net of
transaction and deferred compensation costs.... 5,624 -- 24,646 --
--------- --------- --------- ---------
Income before minority interest,
extraordinary item and preferred
stock dividends ............................... 19,894 11,641 63,227 36,762
Minority interest:
Operating
partnership ................................... (1,496) (815) (4,964) (2,498)
Partially owned
properties .................................... -- (354) -- (1,764)
--------- --------- --------- ---------
Net income before extraordinary item and
preferred stock
dividends ..................................... 18,398 10,472 58,263 32,500
Extraordinary item, net of minority
interest of ($38) and ($57) in 2000
and 1999, respectively ........................ -- -- (430) (628)
--------- --------- --------- ---------
Net income ....................................... 18,398 10,472 57,833 31,872
Preferred stock
dividends ..................................... (2,300) (2,300) (6,900) (6,900)
Preferred stock
accretion ..................................... (107) (99) (320) (298)
========= ========= ========= =========
Net income available to common
shareholders .................................. $ 15,991 $ 8,073 $ 50,613 $ 24,674
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Net income before gain on sale and
extraordinary item ............................ $ 0.42 $ 0.33 $ 1.09 $ 1.05
Gain on sale .................................. 0.23 -- 1.01 --
Extraordinary item ............................ -- -- (0.02) (0.03)
========= ========= ========= =========
Net income ....................................... $ 0.65 $ 0.33 $ 2.08 $ 1.02
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Net income before gain on sale and
extraordinary item ............................ $ 0.43 $ 0.33 $ 1.16 $ 1.05
Gain on sale .................................. 0.21 -- 0.91 --
Extraordinary item ............................ -- -- (0.02) (0.03)
--------- --------- --------- ---------
Net income ....................................... $ 0.64 $ 0.33 $ 2.05 $ 1.02
========= ========= ========= =========
Dividends declared per common
share ............................................ $ 0.3625 $ 0.35 $ 1.0875 $ 1.05
========= ========= ========= =========
Basic weighted average common shares
outstanding ................................... 24,458 24,200 24,329 24,195
========= ========= ========= =========
Diluted weighted average common shares and
common share equivalents
outstanding ................................... 27,300 26,706 27,063 26,686
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<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
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 57,833 57,833
Preferred dividend and
accretion requirement (7,220) (7,220)
Proceeds from options
exercised 2 3,803 3,805
Deferred compensation plan
and stock award 746 (457) 259
Amortization of deferred
compensation plan 1,158 1,158
Redemption of Units 1 2,128 2,129
Cash distributions declared
($1.0875 per common share) (26,558) (26,558)
Amortization of officers' loan 64 64
--------- --------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30,
2000 (UNAUDITED) $ 245 $ 428,635 $ (5,939) $ -- $ 14,633 $ 437,574
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................ $ 57,833 $ 31,872
Adjustments to reconcile net income with net cash
provided by operating activities:
Depreciation and amortization ....................................... 24,519 19,705
Amortization of discount on mortgage receivable ..................... (2,405) --
Gain on sale of rental property ..................................... (24,646) --
Extraordinary loss .................................................. 430 628
Equity in net income from affiliates ................................ (609) (551)
Equity in net (income) from unconsolidated joint ventures ........... (2,209) (151)
Minority interest ................................................... 4,964 4,262
Deferred rents receivable ........................................... (10,920) (15,642)
Provision for deferred rents and bad debts .......................... 1,664 2,983
Amortization of officer loans and deferred compensation ............. 1,222 1,197
Proceeds from options exercised ..................................... 3,805 --
Changes in operating assets and liabilities:
Restricted cash - operations ........................................ (2,105) 1,292
Tenant and other receivables ........................................ (4,377) (4,958)
Related party receivables ........................................... (501) (546)
Deferred costs ...................................................... (6,790) (10,371)
Other assets ........................................................ 3,204 3,374
Accounts payable, accrued expenses and other liabilities ............ 1,254 5,024
Deferred revenue .................................................... 1,138 --
Deferred land lease payable ......................................... 1,194 1,223
--------- ---------
Net cash provided by operating activities ........................... 46,665 39,341
--------- ---------
INVESTING ACTIVITIES:
Additions to land, buildings and improvements ....................... (65,396) (178,705)
Restricted cash - capital improvements .............................. 1,690 (4,283)
Investment in and advances to affiliates ............................ (2,356) 6,359
Investments in unconsolidated joint ventures ........................ (43,722) (17,604)
Distributions from unconsolidated joint ventures .................... 16,765 --
Net proceeds from disposition of rental property .................... 70,424 --
Mortgage loans receivable, net ...................................... (27,498) (14,500)
--------- ---------
Net cash used in investing activities ............................... (50,093) (208,733)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable ................................ 14,917 269,775
Repayments of mortgage notes payable and loans ...................... (22,259) (7,647)
Proceeds from revolving credit facilities ........................... 254,424 116,500
Repayment of revolving credit facilities ............................ (210,672) (79,300)
Repayments of secured bridge financing .............................. -- (87,500)
Capitalized lease obligation ........................................ 225 205
Dividends and distributions paid .................................... (35,918) (34,768)
Deferred loan costs ................................................. (4,786) (5,700)
--------- ---------
Net cash (used in) provided by financing activities ................. (4,069) 171,565
--------- ---------
Net (decrease) increase in cash and cash equivalents ................ (7,497) 2,173
Cash and cash equivalents at beginning of period .................... 21,561 6,236
--------- ---------
Cash and cash equivalents at end of period .......................... $ 14,064 $ 8,409
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................................ $ 29,824 $ 17,875
========= =========
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 ............. $ 746 $ 5,438
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
SEPTEMBER 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 are
conducted through, the Operating Partnership. The Company is the sole managing
general partner of the Operating Partnership. As of September 30, 2000, minority
investors hold, in the aggregate, an 8.6% limited partnership interest in the
Operating Partnership.
As of September 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") and one triple-net leased property located
in Shelton, Connecticut. As of September 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 commercial
properties in Manhattan, encompassing approximately 2.0 million rentable
square feet (99% occupied as of September 30, 2000). In addition, the Company
continues to manage four office properties owned by third-parties and
affiliated companies encompassing approximately 1.0 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.
7
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
SEPTEMBER 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was scheduled to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. In 1999, the FASB delayed
implementation of FASB 133 by one year. The Company will adopt the new
Statement effective January 1, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivative will either be offset against the change in fair value of the
hedged asset, liability, or firm commitment through earnings, or recognized in
other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) 101, Revenue Recognition in Financial Statements, in December 1999. The
SAB summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. In June
2000, the SEC issued SAB 101B, which delays the implementation date of SAB 101
until no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. The Company does not believe that adoption of this SAB will
have a significant impact on its financial statements.
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.
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 of $14,225 on the sales.
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 and retained a 35% interest in the property
($6,500), which 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, the venture received a
$22,000 mortgage for the acquisition and capital improvement program, which
is estimated at $3,300. The interest only mortgage matures on April 30, 2003
and has an interest rate based on LIBOR plus 250 basis points (9.1275% at
September 30, 2000). The venture intends to substantially improve and
reposition the property. In addition to retaining a 35% economic interest in
the property, SL Green acting as the operating partner for the venture, is
responsible for redevelopment, construction, leasing and management of the
property. The venture agreement provides the Company with the opportunity to
gain certain economic benefits based on the financial performance 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 the sale of
29 West 35th Street, through a like-kind tax deferred exchange, 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.
The Company has entered into an agreement to purchase 1370 Broadway, Manhattan,
a 16-story, 254,573 square foot office building for $50,400, excluding closing
costs. The transaction is expected to close in the fourth quarter.
On September 29, 2000, the Company entered into an agreement to acquire various
ownership and mortgage interests in the 913,000 square foot, 20-story office
building at One Park Avenue, Manhattan. The Company will acquire the fee
interest in the property, which is subject to a ground lease position held by
third-parties, and certain mortgage interests in the property for $233,900,
excluding closing costs. As part of the transaction, SL Green is acquiring an
option to purchase the ground lease position. The acquisition will be financed
with a mortgage loan provided by Lehman Brothers Holdings Inc. and funds
provided by the Company's unsecured line of credit. The transaction is expected
to close in the first quarter 2001.
4. PROPERTIES HELD FOR SALE
At September 30, 2000, the Company had two properties, 17 Battery Place South
and 633 Third Avenue, comprising approximately 435,000 rentable square feet held
for sale. These properties were under contract for sale in the aggregate gross
amount of $66,250, with deposits of $4,825. There can be no assurance that such
properties held for sale will be sold.
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)
SEPTEMBER 30, 2000
The following table discloses certain information regarding the properties held
for sale by the Company:
2000
----
Total Revenues $ 7,633
Operating Expenses 3,964
Depreciation and Amortization 931
Other 464
---------
Net Income $ 2,274
=========
Net Carrying Value (including related costs)
at September 30, 2000 $ 49,890
=========
5. MORTGAGE LOANS RECEIVABLE AND PREFERRED EQUITY 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 (2GCT) 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 extended term of
the loan resulting in a total yield on the investment of approximately 22%.
This is a subordinate participation interest in an existing first mortgage
loan currently held by Credit Suisse First Boston Mortgage Capital, LLC. The
loan which was initially due to mature on September 30, 2000, provided the
borrower a one year extension option which was exercised on August 30, 2000.
The final maturity date of the loan is September 30, 2001. The loan carries a
weighted average interest rate of 793 basis points over the 30-day LIBOR
(14.55% as of September 30, 2000). 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 July 19, 2000, the Company acquired an additional $9,344 interest in an
existing first mortgage loan collateralized by 2GCT at a $1,000 discount. The
terms of this note were identical to those of the previous note. On September
29, 2000, the Company sold its interest in this loan for approximately $8,492.
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. On September 27, 2000, the Company
sold an $8 million senior participation interest in this loan to Manufacturers
and Traders Trust Company (MT). Once the loan is fully drawn down, MT will
purchase an additional $2 million senior participation interest. 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
(10.62% as of September 30, 2000). The loan is prepayable subject to yield
maintenance. The Company will receive a fee for servicing the loan.
On September 15, 2000, the Company's preferred equity interest of $20,000 in
1370 Avenue of the Americas was redeemed. In connection with the early
redemption, the Company received a prepayment of interest of $692. As a result
of the sale of the ownership interest in the property, the Company realized a
gain of approximately $8,600. Contemporaneous with the closing, an award of
$2,800 was granted to several members of management earned in connection with
the realization of this investment gain. This award will be paid out over a
three year period. The gain on sale is presented in the financial statements
net of transaction and compensation costs ($5,624).
6. 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,
representing SL Green's interest, was funded through a combination of cash and
a new mortgage on the property of $112,000 ($55,888 represents SL Green's
share of the debt). The Company will provide managing and leasing services for
100 Park.
On August 11, 2000 AIG/SunAmerica issued a $120,000 mortgage collateralized by
the property located at 100 Park which replaced the pre-existing $112,000
mortgage. The 8 percent fixed rate loan has a 10 year term.
On March 1, 2000, the $20,800 mortgage on 90 Broad Street ("90 Broad") 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 (8.37%
at September 30, 2000). The Company entered into a contract to sell 90 Broad
for $60,000, excluding closing costs. The transaction is expected to close in
the fourth quarter.
See Note 3 for a description of the investment in 321 West 44th Street.
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))
SEPTEMBER 30, 2000
The Company and Morgan Stanley Real Estate Fund III, L.P. entered into a
contract to acquire 180 Madison Avenue, Manhattan, for $41,250, excluding
closing costs. The property is a 264,960 square foot, 23 story building. In
addition to having a 49.9 percent ownership interest in the property, SL Green
will act as the operating partner for the venture, and will be responsible for
leasing and managing the property. The Company has posted a deposit of $2,100.
The transaction is expected to close in the fourth quarter of 2000.
The condensed combined balance sheets for the unconsolidated joint ventures are
as follows:
SEPTEMBER DECEMBER
30, 31,
2000 1999
---- ----
ASSETS
Commercial real estate property ............. $352,144 $130,585
Other assets ................................ 28,937 14,236
-------- --------
Total assets .......................... $381,081 $144,821
======== ========
LIABILITIES AND MEMBERS' EQUITY
Mortgage payable ............................ $238,650 $ 85,450
Other liabilities ........................... 13,856 7,278
Members' equity ............................. 128,575 52,093
-------- --------
Total liabilities and members'
equity .............................. $381,081 $144,821
======== ========
Company's net investment in unconsolidated
joint ventures ............................ $ 59,632 $ 23,441
======== ========
The condensed combined statement of operations for the unconsolidated joint
ventures is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
Total revenues ......................... $16,628 $ 2,906 $43,809 $ 2,906
------- ------- ------- -------
Operating expense ...................... 5,595 933 12,377 933
Real estate taxes ...................... 2,695 410 7,221 410
Interest ............................... 5,166 770 13,515 770
Depreciation and
amortization ........................... 2,047 456 5,840 456
Extraordinary item ..................... -- -- 108 --
------- ------- ------- -------
Total expenses ...................... 15,503 2,569 39,061 2,569
------- ------- ------- -------
Net income ............................. $ 1,125 $ 337 $ 4,748 $ 337
======= ======= ======= =======
Company's equity in earnings of
unconsolidated joint ventures ....... $ 586 $ 151 $ 2,209 $ 151
======= ======= ======= =======
7. INVESTMENT IN AFFILIATES
2000 1999
---- ----
Investment in Service Corporation, net $5,710 $4,978
Investment in eEmerge, net 2,233 --
------ ------
Investments in and advances to affiliates $7,943 $4,978
====== ======
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,
and joint venture properties all of the management operations 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
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)
SEPTEMBER 30, 2000
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 funded approximately $2,233 in eEmerge as of September 30, 2000
out of a total commitment of $3,425. In addition, the Company made a landlord
contribution of $787 for the build-out of one floor.
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.
8. 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.
On October 2, 2000, the Company obtained a $125,000 mortgage encumbering the
property located at 420 Lexington Avenue. The 8.54% fixed rate loan has a 10
year term. Interest only is payable for the first 12 months. The proceeds were
used to repay the $65,000 loan on the property which was due to mature on May
21, 2001. The balance of the proceeds was used to pay down the $250 Million
Credit Facility.
9. 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 September 30, 2000, the Company
had $27,752 outstanding under its PSCC Facility (interest rate of 7.88
percent). The PSCC Facility is secured by the $49,903 in mortgage loans
receivable of 2GCT and DPSW West 14 LLC.
$140 MILLION CREDIT FACILITY
The $140,000 unsecured credit facility was repaid in full and retired in June
2000, in connection with the Company obtaining the new $250,000 unsecured
revolving credit facility ("$250 Million Credit 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 Million Credit Facility.
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)
SEPTEMBER 30, 2000
$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. $99,000 was outstanding at September
30, 2000 and had an interest rate of 8.15 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.
10. 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.
11. STOCKHOLDERS' EQUITY
COMMON SHARES
The following table presents the changes in the Company's issued and
outstanding common shares since December 31, 1999 (excluding 2,308 and 2,428
Units outstanding at September 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):
Outstanding at December 31, 1999 ... 24,184
Issued through exercise of options . 179
Issued through redemption of Units . 121
Issued through deferred compensation
plan ............................... 32
------
Outstanding at September 30, 2000 .. 24,516
======
OWNERSHIP OF OPERATING PARTNERSHIP
The Company's ownership in the Operating Partnership was approximately 91.4% and
90.9% as of September 30, 2000 and December 31, 1999, respectively.
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)
SEPTEMBER 30, 2000
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 FOR THE QUARTER ENDED
SEPTEMBER 30, 2000 SEPTEMBER 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 $15,991 24,458 $0.65 $8,073 24,200 $ 0.33
Effect of Dilutive
Securities:
Redemption of Units to
common shares 1,496 2,346 815 2,428
Stock Options -- 496 -- 78
--------------------------------------------------------------------------------------------------
Diluted Earnings:
Income available to
common shareholders $17,487 27,300 $0.64 $8,888 26,706 $0.33
--------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 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 $50,613 24,329 $2.08 $24,674 24,195 $ 1.02
Effect of Dilutive
Securities:
Redemption of Units
to common shares 4,964 2,385 2,498 2,428
Stock Options -- 349 -- 63
--------------------------------------------------------------------------------------------------
Diluted Earnings:
Income available to
common shareholders $55,577 27,063 $2.05 $27,172 26,686 $ 1.02
==================================================================================================
</TABLE>
12. 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.
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)
SEPTEMBER 30, 2000
13. 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 $1,234 and $3,384 for the three and nine month
periods ended September 30, 2000. The Company's transactions with the related
parties amounted to $1,234 and $2,869 for the three and nine month period ended
September 30, 1999.
14. 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.
15. PRO FORMA FINANCIAL INFORMATION
The following table summarizes, on an unaudited pro forma basis, the combined
results of operations of the Company for the nine months ended September 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.
1999
----
Pro forma revenues .......................... $158,317
Pro forma net income ........................ $ 24,886
Pro forma basic earnings per common share ... $ 1.03
Pro forma diluted earnings per common share . $ 1.03
Common and common equivalent share - basic .. 24,204
Common and common equivalent share - diluted 26,632
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)
SEPTEMBER 30, 2000
16. 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 164 shares of common stock with a
fair value of $235 on that date.
Through September 2000, the Company made a $1,500 limited partnership investment
in Internet Realty Partners, L.P. ("IRP"). The Company is committed to fund an
additional $500. IRP invests 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 September 30, 2000, 58 warrants had been received.
On August 22, 2000, the Company entered into an agreement with Verticore
Communications Ltd. ("Verticore") to participate in the elevator news network
program. In exchange for providing Verticore with access to the Company's
properties, the Company will receive warrants based on the number of qualifying
elevator cabs. As of September 30, 2000, 195 warrants had been received by the
Company. In addition, the Company made a $750 capital investment in exchange for
150 shares of Series 2 Class C Convertible Preferred Stock.
15
<PAGE>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT SQUARE FEET AND PER SHARE DATA)
SEPTEMBER 30, 2000
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.
GENERAL
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.
As of September 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") and one triple-net leased property located in
Shelton, Connecticut. As of September 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 commercial properties
in Manhattan, encompassing approximately 2.0 million rentable square feet (99%
occupied as of September 30, 2000). In addition, the Company continues to
manage four office properties owned by third-parties and affiliated companies
encompassing approximately 1.0 million rentable square feet.
HIGHLIGHTS OF THE QUARTER
- 21% FFO increase, $0.70 per share (diluted) versus $0.58 prior year
- 14% same store portfolio cash NOI growth
- Closed new $250 million unsecured Line of Credit, $110 million increase in
capacity
- Entered into agreements to buy One Park Avenue, 1370 Broadway and 180
Madison Avenue
- Entered into agreements to sell 17 Battery Place South, 633 Third Avenue
and 90 Broad Street
- Realized gain on early redemption of preferred equity investment
- Refinanced 420 Lexington Avenue, generating $70 million in net liquidity
RESULTS OF OPERATIONS
The following comparisons for the three and nine months ended September 30, 2000
("2000") compared to the three and nine months ended September 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 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.
16
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
$ %
RENTAL REVENUES (in millions) 2000 1999 Change Change
---- ---- ------ ------
Rental revenue $ 47.6 $ 45.1 $ 2.5 5.5%
Escalation and reimbursement
revenue 7.6 6.9 0.7 10.0
Signage revenue 0.5 0.6 (0.1) (16.6)
------- ------- ------ -----
Total $ 55.7 $ 52.6 $ 3.1 5.9%
======= ======= ====== =====
Same Store $ 47.3 $ 41.5 $ 5.8 14.0%
1999 Acquisitions 8.6 8.2 0.4 4.9
2000 Dispositions (0.2) 2.9 (3.1) (106.9)
------- ------- ------ ------
Total $ 55.7 $ 52.6 $ 3.1 5.9%
======= ======= ====== ======
The increase in rental revenues at Same-Store Properties was primarily due to an
overall increase in occupancy from 95% in 1999 to 98% in 2000. In addition,
annualized rents from replacement rents on previously occupied space at
Same-Store Properties and portfolio wide were 63% and 46% higher than previous
fully escalated rents, respectively.
The increase in escalation and reimbursement revenue was primarily due to the
recovery of higher utility costs ($0.6 million).
INVESTMENT AND OTHER INCOME $ %
(in millions) 2000 1999 Change Change
---- ---- ------ ------
Equity in net income of
unconsolidated joint
ventures $ 0.6 $ 0.2 $ 0.4 200.0%
Investment income 5.0 1.5 3.5 233.0
Other 0.2 0.7 (0.5) (71.4)
------ ------ ------ -----
Total $ 5.8 $ 2.4 $ 3.4 141.7%
====== ====== ====== =====
The increase in equity in net income of unconsolidated joint ventures is due to
the Company having only invested in 2 joint ventures in 1999 compared to 4 joint
ventures in 2000.
The increase in investment income primarily represents interest income from 2
Grand Central Tower ($3.0 million), the prepayment of interest at 1370 Avenue of
the Americas in connection with its early redemption ($0.7 million), 17-29 West
14th Street ($0.3 million) and interest from excess cash on hand ($0.2 million).
This was offset by a decrease in investment income ($0.6 million) due to loans
on 636 11th Avenue and 521 Fifth Avenue being repaid in December 1999.
PROPERTY OPERATING EXPENSES $ %
(in millions) 2000 1999 Change Change
---- ---- ------ ------
Operating expenses $15.3 $14.3 $1.0 6.9%
Real estate taxes 7.3 7.5 (0.2) (2.6)
Ground rent 3.2 3.2 -- --
----- ----- ---- ---
Total $25.8 $25.0 $0.8 3.2%
===== ===== ==== ===
Same Store $21.6 $19.3 $2.3 11.9%
1999 Acquisitions 4.2 4.5 (0.3) (6.7)
2000 Dispositions -- 1.2 (1.2) (100.0)
---- ----- --- ---- ------
Total $25.8 $25.0 $0.8 3.2%
===== ===== ==== =====
17
<PAGE>
The increase in operating expenses were primarily due to higher utility costs
($0.5 million), higher cleaning costs related to increased overtime payroll
($0.2 million) and repairs and maintenance ($0.3 million).
The increase in real estate taxes attributable to the Same-Store Properties
($0.2 million) was offset by a reduction in real estate taxes of $0.4 million
due to the 2000 Dispositions.
$ %
OTHER EXPENSES (in millions) 2000 1999 Change Change
---- ---- ------ ------
Interest expense $ 10.7 $ 7.8 $ 2.9 37.2%
Depreciation and amortization
expense 8.3 7.7 0.6 7.8
Marketing, general and
administrative expense 2.5 3.0 (0.5) (16.6)
------- ------- ------ ----
Total $ 21.5 $ 18.5 $ 3.0 16.2%
======= ======= ====== ====
Interest expense increased due to increased borrowings in 2000 compared to 1999.
In addition, the weighted average interest rate at September 30, 2000 was 8.15
percent compared to 7.40 percent at September 30, 1999.
Depreciation and amortization increased primarily due to depreciation on
properties acquired and capital expenditures and tenant improvements incurred
during the periods.
Marketing, general and administrative expenses have decreased as a percentage of
total revenues, representing approximately 4.1% and 5.4% of total revenues for
2000 and 1999, respectively. The decrease is primarily due to an increased
amount of costs being allocated to the Company's joint ventures, as well as
reduced contractual employee costs.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
$ %
RENTAL REVENUES (in millions) 2000 1999 Change Change
---- ---- ------ ------
Rental revenue $ 140.9 $ 129.3 $ 11.6 8.9%
Escalation and reimbursement
revenue 18.9 16.5 2.4 14.5
Signage revenue 1.6 1.1 0.5 45.5
-------- -------- ------- ----
Total $ 161.4 $ 146.9 $ 14.5 9.9%
======== ======== ======= ====
Same Store $ 134.9 $ 118.5 $ 16.4 13.8%
1999 Acquisitions 24.8 20.2 4.6 22.7
2000 Dispositions 1.7 8.2 (6.5) (79.3)
-------- -------- ------- ----
Total $ 161.4 $ 146.9 $ 14.5 9.9%
======== ======== ======= ====
The increase at Same-Store Properties was primarily due to an overall increase
in occupancy from 95% in 1999 to 98% in 2000. In addition, annualized rents from
replacement rents on previously occupied space at Same-Store Properties and
portfolio wide were 46% and 33% higher than previous fully escalated rents,
respectively.
The increase in escalation and reimbursement revenue was primarily due to the
recovery of higher utility costs ($2.2 million).
The increase in signage revenue is primarily attributable to 1466 Broadway ($0.5
million).
18
<PAGE>
INVESTMENT AND OTHER INCOME (in $ %
millions) 2000 1999 Change Change
---- ---- ------ ------
Equity in net income
unconsolidated
joint ventures $2.2 $0.2 $2.0 1000.0%
Investment income 9.9 3.7 6.2 167.6
Other 0.7 1.6 (0.9) (56.3)
----- ---- ---- -----
Total $12.8 $5.5 $7.3 132.7%
===== ==== ==== =====
The increase in equity in net income of unconsolidated joint ventures is due to
the Company having only invested in 2 joint ventures in 1999 compared to 4 joint
ventures in 2000.
The increase in investment income primarily represents interest income from 2
Grand Central Tower ($5.7 million), 1370 Avenue of the Americas ($1.7 million,
which includes $0.7 million interest prepayment in connection with its early
redemption), 17-29 West 44th Street ($0.6 million) and interest from excess cash
on hand ($0.6 million). This was offset by a decrease in investment income ($2.3
million) due to loans on 636 11th Avenue, 521 Fifth Avenue and 17 Battery Place
being repaid in 1999.
PROPERTY OPERATING EXPENSES (in
millions) $ %
2000 1999 Change Change
---- ---- ------ ------
Operating expenses $41.9 $36.8 $5.1 13.8%
Real estate taxes 21.7 21.9 (0.2) (0.9)
Ground rent 9.5 9.6 (0.1) (1.0)
----- ----- ---- -----
Total $73.1 $68.3 $4.8 7.0%
===== ===== ==== =====
Same Store $59.9 $54.9 $5.0 9.1%
1999 Acquisitions 11.2 9.4 1.8 19.1
2000 Dispositions 2.0 4.0 (2.0) (50.0)
----- ----- ---- -----
Total $73.1 $68.3 $4.8 7.0%
===== ===== ==== =====
The increase in operating expenses were primarily due to higher utility costs
($3.0 million), higher cleaning costs ($1.1 million) and repairs and maintenance
($0.8 million).
The increase in real estate taxes attributable to the Same-Store Properties
($0.2 million) was offset by a reduction in real estate taxes of $0.4 million
due to the 2000 Dispositions.
$ %
OTHER EXPENSES (in millions) 2000 1999 Change Change
---- ---- ------ ------
Interest expense $30.2 $19.7 $10.5 53.3%
Depreciation and amortization
expense 24.5 19.7 4.8 24.4
Marketing, general and
administrative expense 8.5 8.4 0.1 1.2
----- ----- ----- ----
Total $63.2 $47.8 $15.4 32.2%
===== ===== ===== ====
Interest expense increased due to increased borrowings in 2000 compared to 1999.
In addition, the weighted average interest rate at September 30, 2000 was 8.15
percent compared to 7.40 percent at September 30, 1999.
Depreciation and amortization increased primarily due to depreciation on
properties acquired and capital expenditures and tenant improvements incurred
during the periods.
Marketing, general and administrative expenses have decreased as a percentage of
total revenues, representing approximately 4.9%
19
<PAGE>
and 5.4% of total revenues 2000 and 1999, respectively. The decrease is
primarily due to an increased amount of costs being allocated to the Company's
joint ventures, as well as reduced contractual employee costs.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities increased $7.3 million to $46.6
million for the nine months ended September 30, 2000 compared to $39.3
million for the nine months ended September 30, 1999. Net cash used in
investing activities decreased $158.6 million to $50.1 million for the nine
months ended September 30, 2000 compared to $208.7 million for the nine
months ended September 30, 1999. The decrease was due primarily to the lower
dollar volume of acquisitions and capital improvements in 2000 ($16.6 million
and $26.6 million, respectively) as compared to 1999 ($133.5 million and
$45.2 million, respectively). This was offset by an increase in acquisition
deposits of $22.2 million. The net investment in unconsolidated joint
ventures ($43.7 million) and mortgage loans ($27.5 million) was partially
offset by the proceeds from the dispositions of 29 West 35th Street, 36 West
44th Street, 321 West 44th Street and our interest in 1370 Avenue of the
Americas, totaling $70.4 million and distributions from the joint ventures
($16.7 million). Net cash provided by financing activities decreased $175.6
million to $(4.1) million for the nine months ended September 30, 2000
compared to $171.5 million for the nine months ended September 30, 1999. The
decrease was primarily due to lower borrowing requirements ($116.9 million)
due to lower volume of acquisitions, and higher debt repayments ($58.4
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 September 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 September 30, 2000, borrowings under the mortgage loans and credit
facilities, (excluding our share of joint venture debt of $111.0 million),
represented 35.2% 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 $28.0625 per share, the closing price of the Company's common stock on
the New York Stock Exchange on September 30, 2000).
The tables below summarize the Company's mortgage debt and line of credit
indebtedness outstanding at September 30, 2000 and December 31, 1999,
respectively (in thousands).
SEPTEMBER December
30, 31,
2000 1999
---- ----
DEBT SUMMARY:
BALANCE
Fixed rate ....................... $ 193,626 $ 145,743
Variable rate--hedged............. 124,775 125,000
----------- -----------
Total fixed rate ................. 318,401 270,743
Variable rate .................... 153,702 164,950
=========== ===========
Total ............................... $ 472,103 $ 435,693
=========== ===========
PERCENT OF TOTAL DEBT:
Total fixed rate ................. 67.00% 62.00%
Variable rate..................... 33.00% 38.00%
=========== ===========
Total ............................... 100.00% 100.00%
=========== ===========
EFFECTIVE INTEREST RATE AT END OF
PERIOD
Total fixed rate ................. 8.18% 7.97%
Variable rate..................... 8.10% 8.08%
=========== ===========
Effective interest rate ............. 8.15% 8.01%
=========== ===========
20
<PAGE>
A majority of the variable rate debt shown above bears interest at an interest
rate based on LIBOR (6.62% at September 30, 2000). The Company's total debt at
September 30, 2000 had a weighted average term to maturity of approximately 4.01
years.
As of September 30, 2000, the Company has two mortgage loans receivable. The
first loan, which has a face value of $51.9 million and matures on September
30, 2001, carries a weighted average interest rate of 793 basis points over
the 30-day LIBOR. The second loan, which has a face value of $2.4 million and
matures on April 16, 2001, carries a 400 basis point spread over the 30-day
LIBOR. These variable rate mortgage loans receivable mitigate the Company's
exposure to interest rate changes on its unhedged variable rate debt.
MORTGAGE FINANCING
As of September 30, 2000, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $111.0 million)
consisted of approximately $318.4 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 8.13%. The Company's mortgage debt at
September 30, 2000, encumbering 14 properties, will mature as follows (in
thousands)
Scheduled Principal
AMORTIZATION REPAYMENTS TOTAL
------------ ---------- -----
October 1 to December 31, 2000 $ 1,020 $ -- $ 1,020
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 ......... $ 37,076 $308,275 $345,351
======== ======== ========
On October 2, 2000, the Company obtained a $125,000 mortgage encumbering the
property located at 420 Lexington Avenue. The 8.54% fixed rate loan has a 10
year term. Interest only is payable for the first 12 months. The proceeds were
used to repay the $65,000 loan on the property which was due to mature on May
21, 2001. The balance of the proceeds was used to pay down the $250 Million
Credit Facility.
The $26.9 million mortgage encumbering the properties
located at 286, 290 and 292 Madison Avenue was extended for one year to May
31, 2001. This extension was done in order to match the term of this
financing and availability to add these properties to the unencumbered asset
pool which collateralizes the Company's $250 Million Credit Facility. This
credit facility had not yet closed at the time of this term financing
expiration. The outstanding balance on this note will be repaid with proceeds
from the $250 Million Credit Facility when the assets are contributed.
$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. $99.0 million was outstanding at September
30, 2000 and had an interest rate of 8.15 percent. Approximately $24.0 million
was outstanding at October 20, 2000.
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
21
<PAGE>
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 million unsecured credit facility was repaid in full and retired in
June 2000 in connection with the Company obtaining the $250 Million Credit
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 Million Credit Facility.
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 September 30, 2000, the Company
had $27.8 million outstanding under its PSCC Facility (interest rate of 7.88
percent). Approximately $22.8 million was outstanding as of October 20, 2000.
CAPITAL EXPENDITURES
The Company estimates that for the three months ending December 31, 2000 and the
year ending December 31, 2001, it will incur approximately $9.7 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 $6.0 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.
DISTRIBUTIONS
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.
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 $35.6 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 164,000 shares of common stock
with a fair value of $235,000 on that date.
Through September 2000, the Company made a $1.5 million limited partnership
investment in Internet Realty Partners, L.P. ("IRP"). The Company is committed
to fund an additional $0.5 million. IRP invests 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 September 30, 2000, 58,000 warrants had been received.
On August 22, 2000, the Company entered into an agreement with Verticore
Communications Ltd. ("Verticore") to participate in the
22
<PAGE>
elevator news network program. In exchange for providing Verticore with access
to the Company's properties, the Company will receive warrants based on the
number of qualifying elevator cabs. As of September 30, 2000, 195,000 warrants
had been received by the Company. In addition, the Company made a $750,000
capital investment in exchange for 150,000 shares of Series 2 Class C
Convertible Preferred Stock.
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.
FFO for the three and nine months ended September 30, 2000 and 1999,
respectively, are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before minority interest, extraordinary
item, gain on sale and preferred stock dividend $ 14,270 $ 11,641 $ 38,581 $ 36,762
Add:
Depreciation and amortization .................. 8,300 7,677 24,519 19,705
FFO adjustment for unconsolidated joint ventures 842 120 2,468 120
Less:
Preferred stock dividend ....................... (2,300) (2,300) (6,900) (6,900)
Minority interest in the BMW Building .......... -- (354) -- (1,765)
Amortization of deferred financing costs and
Depreciation of non-real estate
assets ......................................... (1,042) (878) (3,105) (2,140)
--------- --------- --------- ---------
Funds from Operations - basic .................. 20,070 15,906 55,563 45,782
Dividends on preferred shares .................. 2,300 2,300 6,900 6,900
--------- --------- --------- ---------
Funds from Operations - diluted ................ $ 22,370 $ 18,206 $ 62,463 $ 52,682
========= ========= ========= =========
Cash flows (used in) provided by operating
activities ..................................... ($ 2,834) $ 21,879 $ 24,462 $ 39,341
Cash flows (used in) provided by investing
activities ..................................... $ 36,786 ($ 28,357) ($ 27,890) ($208,733)
Cash flows (used in) provided by financing
activities ..................................... ($ 35,205) $ 4,819 ($ 4,069) $ 171,565
</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 does 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 $1.5 million annually.
The Company enters into derivative financial instruments such as interest
rate swaps and interest rate collars in order to mitigate
23
<PAGE>
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 $318.4 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 September
30, 2000 ranged from LIBOR plus 125 basis points to LIBOR plus 202 basis points.
<TABLE>
<CAPTION>
LONG-TERM DEBT,
INCLUDING CURRENT
PORTION (IN FAIR
THOUSANDS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total fixed Rate ......... $1,020 $60,191 $6,195 $ 8,981 $78,329 $163,685 $318,401 $313,875
Average Interest Rate .... 8.18% 8.10% 8.09% 8.07% 7.85% 8.26% 8.20%
Variable Rate............. $27,752 $26,950 -- $99,000 -- -- $153,702 $153,702
Average Interest Rate .... 7.88% 8.13% 8.15% 8.13%
</TABLE>
24
<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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
25
<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: November 13, 2000
26
