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Filed Pursuant to Rule 424(b)(3)
Registration Number 333-70111
PROSPECTUS
2,383,284 SHARES
[LOGO]
COMMON STOCK
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This prospectus relates to the offer and sale from time to time by certain
shareholders of up to 2,383,284 shares of our common stock issued to
shareholders in exchange for units of limited partnership interest in SL Green
Operating Partnership, L.P.
We are registering these shares as required under the terms of certain
agreements between the selling shareholders and us to provide unitholders with
freely tradable securities upon redemption. The registration of the shares does
not necessarily mean that any of the unitholders will redeem their units or that
any of the shares will be offered or sold by the selling shareholders. We will
receive no proceeds of any sales of the shares, but will incur expenses in
connection with the offering. See "Selling Shareholders" and "Plan of
Distribution."
We will acquire units from the redeeming unitholders in exchange for shares
of common stock that we issue. Upon any redemption, we may elect to pay cash for
the units tendered rather than common shares.
Our common stock is listed on the New York Stock Exchange under the Symbol
SLG.
The selling shareholders from time to time may offer and sell the shares
held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in the
section of this prospectus entitled "Plan of Distribution" or in an accompanying
prospectus supplement. Each of the selling shareholders reserves the sole right
to accept or reject, in whole or in part, any proposed purchase of the shares to
be made directly or through agents.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS FOR A DESCRIPTION
OF FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offence.
January 28, 2000
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TABLE OF CONTENTS
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INFORMATION ABOUT SL GREEN................................................................................. 2
RISK FACTORS............................................................................................... 2
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............................................................ 9
NO PROCEEDS TO THE COMPANY................................................................................. 10
SECURITIES TO BE OFFERED................................................................................... 10
SELLING SHAREHOLDERS....................................................................................... 10
DESCRIPTION OF COMMON STOCK................................................................................ 12
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK................................................................. 13
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS................................................................. 15
PLAN OF DISTRIBUTION....................................................................................... 24
LEGAL MATTERS.............................................................................................. 25
EXPERTS.................................................................................................... 25
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 25
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INFORMATION ABOUT SL GREEN
SL Green is a self managed real estate investment trust, which we refer to
as a REIT, with in-house capabilities in property management, development,
construction and acquisitions. We are the first such REIT to own, manage, lease,
acquire and reposition only Class B office properties in Manhattan. We own all
of our assets and conduct substantially all of our business through our
operating partnership, SL Green Operating Partnership, L.P. We are the managing
general partner of the operating partnership and as of September 30, 1999, we
owned 90.9% of the outstanding partnership interests in the operating
partnership.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but are in good
physical condition, enjoy widespread acceptance by high-quality tenants and are
situated in desirable locations in Manhattan. Class B office properties can be
distinguished from Class A properties in that Class A properties are generally
newer properties with higher finishes and obtain the highest rental rates within
their markets.
Several areas of Manhattan are dominated by Class B office space and contain
no or very limited Class A office space. Examples of these areas include the
Garment District, the Flatiron district, the areas immediately south and north
of Houston Street, Chelsea, and the area surrounding the United Nations. Various
industries are significantly concentrated in these areas, including the
following industries: new media, garment, toy, jewelry, interior decoration,
antiques, giftware, contract furnishing and United Nations-related businesses.
We were incorporated in the State of Maryland on June 10, 1997. Our
executive offices are located at 420 Lexington Avenue, New York, New York 10170
and our telephone number is (212) 594-2700.
RISK FACTORS
An investment in our units of SL Green Operating Partnership, which are
redeemable on a one-for-one basis for common shares or their cash equivalent,
involves various risks.
FUTURE DECLINES IN THE DEMAND FOR OFFICE SPACE IN MIDTOWN MANHATTAN COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND, CONSEQUENTLY, OUR ABILITY TO
MAKE DISTRIBUTIONS TO SHAREHOLDERS.
Most of our office properties are located in midtown Manhattan. As a result,
our business is largely dependent on the condition of the New York City economy
in general and the market for office space in midtown Manhattan, in particular.
The New York City economy may not continue to grow. The market for office space
in midtown Manhattan has experienced downturns, most recently in the late 1980's
and the early 1990's. A similar downturn could result in a reduction of our
revenue and thus adversely affect our ability to make distributions to
shareholders.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE. When our
tenants decide not to renew their leases upon their expiration, we may not be
able to relet the space. Even if tenants do renew or we can relet the space, the
terms of renewal or reletting, including the cost of required renovations, may
be less favorable than current lease terms. Over the next five years, through
the end of 2003, leases will expire on approximately 40% of the rentable square
feet at our properties. As of September 30, 1999, approximately 2.5 million
square feet are scheduled to expire by December 31, 2003 and these leases
currently have annualized escalated rental income totaling $63.6 million. If we
are unable to promptly renew the leases or relet this space at similar rates,
our cash flow and ability to service debt and make distributions to shareholders
would be adversely affected.
THE EXPIRATION OF LONG TERM LEASES OR OPERATING SUBLEASE INTERESTS COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATION. Our interest in four of our
properties is through either long-term leasehold or operating sublease interests
in the land and the improvements, rather than by a fee interest in the land.
These properties are 673 First Avenue, 420 Lexington Avenue, 711 Third Avenue,
and 1140 Avenue of the
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Americas. Unless we can purchase a fee interest in the underlying land or extend
the terms of these leases before their expiration, we will lose our right to
operate these properties and our interest in the improvements upon expiration of
the leases. The average term of these long term leases, including our unilateral
extension rights on two of the properties, is 49 years. Pursuant to the
operating sublease arrangements, we, as tenant under the operating sublease,
perform the functions traditionally performed by landlords with respect to our
subtenants. We are responsible for not only collecting rent from our subtenants,
but also maintaining the property and paying expenses relating to the property.
The annualized escalated rents of these properties at September 30, 1999 totaled
$69.8 million or 38.1% of SL Green's total annualized revenue.
RELIANCE ON MAJOR TENANTS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATION. Giving effect to signed leases in effect as of September 30, 1999
for properties owned as of September 30, 1999, five tenants each accounted for
more than 1.43% of our total annualized rental revenues and collectively
accounted for approximately 9.97% of our total annualized rental revenues. Our
business would be adversely affected if any of these tenants became insolvent,
declared bankruptcy or otherwise refused to pay rent in a timely fashion or at
all.
OUR DEPENDENCE ON SMALLER AND GROWTH-ORIENTED BUSINESSES TO RENT CLASS B OFFICE
SPACE COULD ADVERSELY AFFECT OUR CASH FLOW
Many of the tenants in our properties are smaller, growth-oriented
businesses that may not have the financial strength of larger corporate tenants.
Smaller companies generally experience a higher rate of failure than large
businesses. Growth-oriented firms may seek other office space, including
Class A space, as they develop. Dependence on these companies could create a
higher risk of tenant defaults, turnover and bankruptcies, which could adversely
affect our distributable cash flow.
DEBT FINANCING, FINANCIAL COVENANTS, DEGREE OF LEVERAGE, AND INCREASES IN
INTEREST RATES COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATION. The total principal amount of our combined outstanding indebtedness
was $422.4 million as of September 30, 1999, $61.0 million of which is
borrowings under our credit facility and $293.3 million of which is non-recourse
mortgage loans on 15 of our properties and $68.1 million which is SL Green's
portion of indebtedness on three joint venture properties. Cash flow could be
insufficient to pay distributions at expected levels and meet the payments of
principal and interest required under our current mortgage indebtedness and our
credit facility. The credit facility matures on December 18, 2000, which date
may be extended by an additional year, subject to the consent of the lenders.
If we are unable to make payments under our credit facility, all amounts due
and owing at such time shall accrue interest at a rate equal to 4% higher than
the rate at which each such loan was made. Based on a 100 basis point move in
the interest rates underlying our credit facility, SL Green's annual interest
expense would increase $0.6 million. If a property is mortgaged to secure
payment of indebtedness and we are unable to meet mortgage payments, the
mortgagee could foreclose on the property, resulting in loss of income and asset
value. Foreclosure on mortgaged properties or an inability to make scheduled
payments under the credit facility would likely have a negative impact on our
financial condition and results of operations.
We may not be able to refinance existing indebtedness, which in virtually
all cases requires substantial principal payments at maturity. In June, 2000,
$52.75 million of debt on one of our buildings will have matured and in
November 2000, $44 million of debt on another of our buildings will have
matured. At the present time we intend to refinance the debt associated with
both properties on or prior to their respective maturity dates. If any principal
payments due at maturity cannot be refinanced, extended or paid with proceeds of
other capital transactions, such as new equity capital, our cash flow
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will not be sufficient in all years to repay all maturing debt. At the time of
refinancing, prevailing interest rates or other factors such as the possible
reluctance of lenders to make commercial real estate loans, may result in higher
interest rates. Increased interest expense on the refinanced debt would
adversely affect cash flow and our ability to service debt and make
distributions to shareholders.
FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR ABILITY TO CONDUCT OUR
BUSINESS. The mortgages on our properties contain negative covenants which
limit our ability to further mortgage the property, to enter into new leases or
materially modify existing leases, and to discontinue insurance coverage. In
addition, our credit facility contains restrictions and requirements on our
method of operations. The credit facility also has requirements that designate
total debt to assets ratios, debt service coverage ratios and minimum ratios of
unencumbered assets to unsecured debt are maintained. Restrictions on our
ability to conduct business could adversely affect our results of operations and
our ability to make distributions to shareholders.
RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW. Advances under
our credit facility and property-level mortgage debt will bear interest at a
variable rate. Borrowings under our credit facility bear interest at a rate
equal to the London Interbank Offered Rate plus 140 basis points. As of
September 30, 1999 borrowings under the facility bear interest at 6.74%.
Additionally, advances under property-level mortgage debt ($201.3 million) bear
interest at a variable rate. We may incur indebtedness in the future that also
bears interest at a variable rate or may be required to refinance our debt at
higher rates. Accordingly, increases in interest rates above that which we
anticipated based upon historical trends could adversely affect our ability to
continue to make distributions to shareholders. At September 30, 1999, a
hypothetical 100 basis point increase in interest rates along the entire rate
curve would have adversely affected SL Green's annual interest cost by
approximately $2.4 million annually.
OUR POLICY OF NO LIMITATION ON DEBT COULD ADVERSELY AFFECT OUR CASH
FLOW. Our organizational documents do not contain any limitation on the amount
of indebtedness we may incur. As of September 30, 1999, assuming the conversion
of all outstanding units of the operating partnership into shares of our common
stock, our debt to market capitalization ratio was approximately 37.6%. However,
our policy is to incur debt only if upon this incurrence our debt to market
capitalization ratio would be 50% or less. Our board of directors can alter or
eliminate this policy and would do so if our board of directors determines that
this action is in the best interests of our business. If this policy is changed
and we become more highly leveraged, an increase in debt service that could
adversely affect cash available for distribution to shareholders and could
increase the risk of default on our indebtedness. In addition, any change that
increases our debt to market capitalization percentage could be viewed
negatively by investors. As a result, our share price could decrease.
We have established our debt policy relative to the total market
capitalization of our business rather than relative to the book value of our
assets. We use total market capitalization because we believe that the book
value of our assets, which to a large extent is the depreciated original cost of
our properties, our primary tangible assets, does not accurately reflect our
ability to borrow and to meet debt service requirements. Our market
capitalization, however, is more variable than book value, and does not
necessarily reflect the fair market value of our assets at all times. We also
will consider factors other than market capitalization in making decisions
regarding the incurrence of indebtedness, such as the purchase price of
properties to be acquired with debt financing, the estimated market value of our
properties upon refinancing and the ability of particular properties and our
business as a whole to generate cash flow to cover expected debt service.
INVESTMENTS IN MORTGAGE LOANS COULD CAUSE EXPENSES WHICH COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS. We own a mortgage interest in three
properties with an aggregate book value of $40.9 million. To the extent we
invest in mortgage loans, such mortgage loans may or may not be recourse
obligations of the borrower and generally will not be insured or guaranteed by
governmental
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agencies or otherwise. In the event of a default under these obligations, we may
have to foreclose our mortgages or protect our investments by acquiring title to
a property and thereafter making substantial improvements or repairs in order to
maximize the property's investment potential. Borrowers may contest enforcement
of foreclosure or other remedies, seek bankruptcy protection against such
enforcement and/or bring claims for lender liability in response to actions to
enforce mortgage obligations. Relatively high loan-to-value ratios and declines
in the value of the property may prevent us from realizing an amount equal to
its mortgage loan upon foreclosure.
JOINT INVESTMENTS COULD BE ADVERSELY AFFECTED BY OUR LACK OF SOLE
DECISION-MAKING AUTHORITY AND RELIANCE UPON A CO-VENTURER'S FINANCIAL
CONDITION. We co-invest with third parties through partnerships, joint ventures
or co-tenancies, acquiring non-controlling interests in, or sharing
responsibility for managing the affairs of, a property, partnership, joint
venture, co-tenancy or other entity. Therefore, we will not be in a position to
exercise sole decision-making authority regarding that property, partnership,
joint venture or other entity. Investments in partnerships, joint ventures, or
other entities may involve risks not present were a third party not involved,
including the possibility that our partners, co-tenants or co-venturers might
become bankrupt or otherwise fail to fund their share of required capital
contributions. Additionally, our partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with our
business interests or goals. These investments may also have the potential risk
of impasses on decisions such as a sale, because neither we nor the partner,
co-tenant or co-venturer would have full control over the partnership or joint
venture. Consequently, actions by such partner, co-tenant or co-venturer might
result in subjecting properties owned by the partnership or joint venture to
additional risk. In addition, we may in specific circumstances be liable for the
actions of our third-party partners, co-tenants or co-venturers. SL Green is
currently participating in two unconsolidated joint ventures for two properties
and has an aggregate cost basis in the joint ventures totaling $22.5 million.
OUR SHAREHOLDERS' ABILITY TO EFFECT CHANGES IN CONTROL OF SL GREEN IS LIMITED
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS COULD INHIBIT CHANGES
IN CONTROL. Provisions contained in our articles of incorporation and bylaws may
delay or prevent a change in control of SL Green. These provisions, discussed
more fully below, are:
- staggered board of directors;
- ownership limitations for tax purposes; and
- the board of directors ability to issue additional common stock and
preferred stock without shareholder approval,
OUR BOARD OF DIRECTORS IS STAGGERED INTO THREE SEPARATE CLASSES. The board
of directors of SL Green is divided into three classes. The terms of the
class I, class II and class III directors expire in 2000, 2001 and 2002,
respectively. Our classified board may deter changes in control because of the
increased time period necessary for a third party to acquire control of the
board.
WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES. To remain qualified
as a REIT for federal income tax purposes, not more than 50% in value of our
outstanding capital stock may be owned, directly or indirectly, by five or fewer
individuals at any time during the last half of any year. To avoid violating
this rule regarding share ownership limitations and maintain our REIT
qualification, our articles of incorporation prohibit ownership by any single
shareholder of more than 9.0% in value or number of shares of any class or
series of our stock.
The board of directors has the discretion to raise or waive this limitation
on ownership for any shareholder if deemed to be in our best interest. To obtain
a waiver, a shareholder must present the
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board and our tax counsel with evidence that ownership in excess of this limit
will not affect our present or future REIT status.
Absent any exemption or waiver, stock acquired or held in excess of the
limit on ownership will be transferred to a trust for the exclusive benefit of a
designated charitable beneficiary, and the shareholder's rights to distributions
and to vote would terminate. The shareholder would be entitled to receive, from
the proceeds of any subsequent sale of the shares transferred to the charitable
trust, the lesser of:
- the price paid for the stock or, if the owner did not pay for the
stock, the market price of the stock on the date of the event causing
the stock to be transferred to the charitable trust; and
- the amount realized from the sale.
THIS LIMITATION ON OWNERSHIP OF STOCK COULD DELAY OR PREVENT A CHANGE IN
CONTROL.
FUTURE ISSUANCES OF COMMON STOCK AND PREFERRED STOCK COULD DILUTE EXISTING
SHAREHOLDERS' INTERESTS. Our articles of incorporation authorize our board of
directors to issue additional shares of common stock and preferred stock without
shareholder approval. This issuance could dilute our existing shareholders'
interests. Also, any future series of preferred stock may have voting provisions
that could delay or prevent a change of control.
THERE ARE POTENTIAL CONFLICTS OF INTEREST BETWEEN US AND MESSRS. GREEN AND
FELDMAN.
There is a potential conflict of interest relating to the disposition of the
property contributed to us by Stephen L. Green, and his family and Benjamin P.
Feldman. Both Mr. Green and Mr. Feldman are members of senior management and
serve as members of the board of directors. As part of our formation, these
individuals contributed appreciated property, with a net book value of
$73.4 million, to the operating partnership in exchange for units of interest in
the operating partnership. They did not recognize any taxable gain as a result
of the contribution. The operating partnership, however, took a tax basis in the
contributed property equal to that of the contributing unitholder. The fair
market value of the property contributed by these individuals exceeded its tax
basis by approximately $34.0 million at the time of contribution. The difference
between fair market value and tax basis at the time of contribution represents a
built-in gain. If we sell a property in a transaction in which a taxable gain is
recognized, for tax purposes the built-in gain would be allocated solely to
those individuals but not to us. As a result, Messrs. Green and Feldman have a
conflict of interest if the sale of a property which they contributed is in our
best interest but not theirs.
There is a potential conflict of interest relating to the refinancing of
indebtedness allocated to Messrs. Green and Feldman. These individuals would
recognize gain if they were to receive a distribution of cash from the operating
partnership in an amount that exceeds their tax basis in their respective
partnership units. Their tax basis includes their share of debt, including
mortgage indebtedness, owed by the operating partnership. If the operating
partnership were to retire such debt, then these individuals would experience a
decrease in their share of liabilities which, for tax purposes, would be treated
as a distribution of cash to them. To the extent the deemed distribution of cash
exceeded their tax basis, they would recognize gain.
LIMITATIONS ON ABILITY TO SELL OR REDUCE THE INDEBTEDNESS ON SPECIFIC MORTGAGED
PROPERTIES COULD ADVERSELY AFFECT THE VALUE OF THE STOCK.
We have agreed to restrictions relating to future transactions involving 673
First Avenue and 470 Park Avenue. During the period of time that these
restrictions apply, our ability to manage or use these properties in a manner
that is in our overall best interests may be impaired. In particular, these
restrictions could preclude us from participating in major transactions
otherwise favorable to us if a
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disposition of these restricted assets is required. These restrictions may also
inhibit a change in control of SL Green even though a disposition or change in
control might be in the best interests of the shareholders.
Specifically, we have agreed not to sell our interest in these properties
until August 20, 2009 without the approval of unit holders holding at least 75%
of the units issued in consideration for these properties. The current carrying
value of the commercial real estate totaled $76.0 million at September 30, 1999.
We have also agreed not to reduce the mortgage indebtedness ($25.4 million at
September 30, 1999), other than pursuant to scheduled amortization, on either
property until one year prior to their respective maturity dates without the
same consent. In addition, we are obligated to use commercially reasonable
efforts to refinance these mortgages prior to their respective maturity dates in
amounts not less than the principal amount outstanding on the maturity date.
With respect to 673 First Avenue, Stephen Green controls at least 75% of the
units whose approval is necessary. With respect to 470 Park Avenue, Stephen
Green controls at least 65% of the units whose approval is necessary. Finally,
during this period, we may not incur debt secured by any of these properties if
the amount of our new debt would exceed the greater of 75% of the value of the
property securing the debt or the amount of existing debt being refinanced plus
associated costs. The maturity date for the mortgage loan for 673 First Avenue
is December 12, 2003 and the maturity date for the mortgage loan for 470 Park
Avenue is April 1, 2004.
In connection with future acquisitions of interests in properties, we may
agree to similar restrictions on our ability to sell or refinance the acquired
properties with similar potential adverse consequences.
MEMBERS OF MANAGEMENT MAY HAVE A CONFLICT OF INTEREST OVER WHETHER TO
ENFORCE TERMS OF AGREEMENTS WITH ENTITIES IN WHICH SENIOR MANAGEMENT, DIRECTLY
OR INDIRECTLY, HAS AN INTEREST. Two entities owned by one of Mr. Green's sons,
First Quality Maintenance, L.P. and Classic Security LLC, currently provide
cleaning and security services to all but one of our office properties at a cost
totaling $2.6 million for the nine months ended September 30, 1999. SL Green and
our tenants account for approximately 29.5% of First Quality Maintenance, L.P.'s
1998 total revenue and 44.02% of Classic Security LLC's 1998 total revenue.
While the contracts pursuant to which these services are provided are reviewed
annually by the board of directors, they are not the result of arm's length
negotiations and, therefore, there can be no assurance that the terms and
conditions are not less favorable than those which could be obtained from third
parties providing comparable services.
MEMBERS OF MANAGEMENT MAY HAVE A CONFLICT OF INTEREST OVER WHETHER TO
ENFORCE TERMS OF SENIOR MANAGEMENT'S EMPLOYMENT AND NONCOMPETITION AGREEMENTS.
Mr. Green, David J. Nettina, Nancy A. Peck, Steven H. Klein, Benjamin P.
Feldman, Marc Holliday and Gerard Nocera have entered into employment and
noncompetition agreements with us pursuant to which they have agreed not to
engage in the acquisition, development or operation of office real estate in the
New York City metropolitan area. However, Mr. Green has interests in two
properties in Manhattan which are exempt from the non-competition provisions of
his employment and non-competition agreement. With the exception of Ms. Peck's
agreement, for the most part these restrictions apply to the executive both
during their employment and for a period of time thereafter. Each executive is
also prohibited from otherwise disrupting or interfering with our business
through the solicitation of our employees or clients or otherwise. To the extent
that we choose to enforce our rights under any of these agreements, we may
determine to pursue available remedies, such as actions for damages or
injunctive relief, less vigorously than we otherwise might because of our desire
to maintain our ongoing relationship with the individual involved. Additionally,
the non-competition provisions of these agreements despite being limited in
scope and duration, could be difficult to enforce, or may be subject to limited
enforcement, should litigation arise over them in the future.
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OUTSIDE INTERESTS OF OFFICERS AND DIRECTORS COULD CONFLICT WITH OUR
INTERESTS. As we have previously stated, Messrs. Green and Feldman own
interests in some of our properties through their ownership of units in the
operating partnership. In addition, Mr. Green, Mr. Feldman and Ms. Peck own
direct and indirect interests in office properties and other real estate assets
and these interests may give rise to conflicts of interest concerning the
fulfillment of their responsibilities as officers and, in the case of Messrs.
Green and Feldman, directors of SL Green.
FAILURE OF SL GREEN TO QUALIFY AS A REIT WOULD BE COSTLY
SL Green operates in a manner to qualify as a REIT for federal income tax
purposes. Many of these requirements, however, are highly technical and complex.
The determination that we are a REIT requires an analysis of factual matters and
circumstances. These matters, some of which may not be totally within our
control, can affect our qualification as a REIT. For example, to qualify as a
REIT, at least 95% of our gross income must come from sources that are itemized
in the REIT tax laws. We are also required to distribute to shareholders at
least 95% of our REIT taxable income excluding capital gains. The fact that we
hold our assets through the operating partnership and its subsidiaries further
complicates the application of the REIT requirements. Even a technical or
inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and
the IRS might make changes to the tax laws and regulations, and the courts might
issue new rulings that make it more difficult, or impossible for us to remain
qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS grants us relief under specific
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. If we failed to qualify as a
REIT, we would have to pay significant income taxes and would therefore have
less money available for investments or for distributions to shareholders. This
would likely have a significant adverse affect of the value of our securities.
In addition, we would no longer be required to make any distributions to
shareholders.
THE FINANCIAL CONDITION OF THIRD-PARTY PROPERTY MANAGEMENT, LEASING AND
CONSTRUCTION BUSINESSES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATION
In order to maintain and preserve our status as a REIT, we cannot provide
various services, including management, leasing or construction services,
directly to tenants of properties that we do not wholly own. Rather than
providing these services ourselves, we have a subsidiary over which we do not
have voting control, but do have a 95% economic interest, provide such services.
As a result, we do not have the ability to elect or remove any members of the
board of directors of this service corporation, and, therefore, our ability to
influence the day-to-day decisions is limited. We are subject to the risks
associated with the management, leasing and construction businesses that are
conducted by it. These risks include the risk that management and leasing
contracts with third party property owners will not be renewed upon expiration,
will be canceled pursuant to cancellation options, or will not be renewed on
terms at least as favorable to us as current terms. Additionally, the rental
revenues upon which management, leasing and construction fees are based could
decline as a result of general real estate market conditions or specific market
factors affecting properties we service, and that leasing and construction
activity generally could decline. Since our initial public offering, 11
management and leasing contracts with third party property owners have been
cancelled, representing an aggregate decrease of approximately $0.9 million in
annual revenue. We do not intend to seek to replace the contracts or to pursue
other third party management and leasing opportunities. Each of these
developments could adversely affect the revenues of the service subsidiary and
could adversely affect our ability to continue to make expected distributions to
our shareholders.
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WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
Because of distribution requirements imposed on us to qualify as a REIT, it
is not likely that we will be able to fund all future capital needs, including
acquisitions, from income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms or at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings. In addition, we anticipate having to
raise money in the public equity and debt markets with some regularity, and our
ability to do so will be dependent upon the general conditions prevailing in
these markets. Recent conditions have demonstrated that conditions may exist
which effectively prevent us, and REITs in general, from accessing these
markets. Moreover, additional equity offerings may result in substantial
dilution of our shareholders' interests, and additional debt financing may
substantially increase our leverage.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document and the documents that are incorporated by reference contain
forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of our operations, including any forecasts, projections and plans
and objections for future operations. You can identify forward looking
statements by the use of forward looking expressions like "may," "will,"
"should," "expect," "anticipate," "estimate," or "continue" or any negative or
other variations on the expressions. Many factors could affect our actual
financial results, and could cause actual results to differ materially from
those in the forward-looking statements. These factors include the following:
- general economic or business conditions, either nationally or in New York
City, being less favorable than expected;
- demand for office space;
- risks of real estate acquisition;
- availability and creditworthiness of prospective tenants;
- adverse changes in the real estate markets;
- unanticipated increases occurring in financing and other costs;
- competition with other companies;
- legislative or regulatory changes adversely affecting real estate
investment trusts and the real estate business; and
- environmental and/or safety requirements.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus might not occur.
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
are not, and the underwriters are not making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should not
assume that the information contained or incorporated by reference in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
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NO PROCEEDS TO SL GREEN
SL Green will not receive any of the proceeds from sales of shares by the
selling shareholders. All costs and expenses incurred in connection with the
registration under the Securities Act of 1933 of the offering made hereby will
be paid by SL Green, other than any brokerage fees and commissions, fees and
disbursements of legal counsel for the selling shareholders and share transfer
and other taxes attributable to the sale of the shares, which will be paid by
the selling shareholders.
SECURITIES TO BE OFFERED
This prospectus relates to:
- the possible issuance from time to time by SL Green of up to 2,383,284
shares of common stock, if and to the extent that we elect to issue such
shares to the holders of up to 2,383,284 units in SL Green Operating
Partnership, upon the tender of such units for redemption; and
- the offer and sale from time to time by selling shareholders named in this
prospectus of up to 2,383,284 shares of our Common Stock issued to
Shareholders in exchange for units.
We will not receive any cash proceeds from the issuance of the common
shares, but will acquire units in SL Green Operating Partnership operating in
exchange for any shares of common stock that we issue.
As used herein, "units" refers to units of limited partnership in SL Green
Operating Partnership and "unitholders" refers to the holder of such units.
Pursuant to SL Green Operating Partnership's partnership agreement, each
unit may be tendered for redemption for cash equal to the fair market value of a
share of common stock at the time of the redemption. SL Green Operating
Partnership has the right to elect to acquire directly any units tendered for
redemption, rather than causing SL Green Operating Partnership to redeem such
units for cash. We generally expect that we will elect to acquire units tendered
for redemption and issue common stock in exchange therefor rather than paying
cash, although we will make the determination whether to pay cash or issue
common stock at the time units are tendered for redemption. With each
redemption, our interest in SL Green Operating Partnership will increase.
SELLING SHAREHOLDERS
SL Green may issue the shares to selling shareholders holding up to an
aggregate of 2,383,284 units, if and to the extent that such selling
shareholders redeem their units and we issue them shares of common stock in
exchange therefor. The following table provides the name of each selling
shareholder, the number of shares of common stock owned by each selling
shareholder before the offering to which this prospectus relates, and the number
of shares offered by each selling shareholder. All of the shares represent
shares of common stock that may be issued by SL Green upon the redemption of the
selling shareholder's units. Since the selling shareholders may sell all or some
of their shares, no estimate can be made of the number of shares that will be
sold by the selling shareholders or that will be owned by the selling
shareholders upon completion of the offering. There is no assurance that the
selling shareholders will sell any of the shares. The shares represent
approximately 9.1% of the total shares of
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common stock (assuming redemption of all outstanding units for common stock)
outstanding as of September 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OWNED AND
NAME OF SELLING STOCKHOLDER OFFERED HEREBY
- ----------------------------------------------------------------- ---------------------------
<S> <C>
Hippomenes Associates, LLC....................................... 108,195(1)
Stephen L. Green................................................. 572,012(2)
673 Realty Corp.................................................. 3,810(1)
Stanley and Carol Nelson......................................... 4,762
Sheldon Lowe..................................................... 16,190
Miami Corp....................................................... 476
S.L. Green Properties, Inc....................................... 905,485(1)
EBG Midtown South Corp........................................... 476(1)
Green 6th Avenue Associates, L.P................................. 304,846(1)
Northwest Partners............................................... 211,904
PLR Associates................................................... 19,048
Estate of Aaron Levy............................................. 2,619
Neil Cohen....................................................... 19,048
Nancy A. Peck.................................................... 19,048(3)
Benjamin P. Feldman.............................................. 18,698(4)
Louis A. Olsen................................................... 7,619(5)
Robert Ivanhoe................................................... 47,619
Paul J. Konigsberg............................................... 26,492
Jeffrey Konigsberg............................................... 1,000
Stephen Konigsberg............................................... 1,000
Robert Konigsberg................................................ 25,492
Joshua Konigsberg................................................ 1,000
Gregory Reimer................................................... 1,000
James Ryan Konigsberg............................................ 1,000
Nancy Mendelow................................................... 64,445
-----------
TOTAL............................................................ 2,383,284
===========
</TABLE>
- ------------------------
(1) Mr. Green, who is chairman of the Board and chief executive officer of SL
Green, may be deemed to be the beneficial owner of all the shares of common
stock owned and offered by this selling shareholder.
(2) Mr. Green is chairman of the Board and chief executive officer of SL Green.
(3) Ms. Peck is an executive vice president of SL Green and is married to
Mr. Green. Ms. Peck owns an additional 197,720 shares of common stock not
offered hereby.
(4) Mr. Feldman is secretary, general counsel, a director and an executive vice
president of SL Green. Mr. Feldman is the beneficial owner of an additional
117,832 shares of common stock not offered hereby.
(5) Until August 20, 1998, Mr. Olson was a senior vice president of SL Green.
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DESCRIPTION OF COMMON STOCK
GENERAL
SL Green's articles of incorporation provide that we may issue up to
100 million shares of common stock, $.01 par value per share. Subject to the
provisions of the articles of incorporation regarding excess stock, each
outstanding share of common stock entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of directors, and,
except as provided with respect to any other class or series of stock, the
holders of this stock will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of common stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors. On December 31, 1999, there were
24,203,633 shares of common stock outstanding.
All shares of common stock offered hereby have been duly authorized, and
will be fully paid and nonassessable. Subject to the preferential rights of any
other shares or series of stock and to the provisions of the articles of
incorporation regarding excess stock, holders of shares of common stock are
entitled to receive dividends on this stock if, as and when authorized and
declared by the board of directors of SL Green out of assets legally available
therefor and to share ratably in the assets of SL Green legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding up after payment of or adequate provision for all known debts and
liabilities of SL Green.
Holders of shares of common stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of SL Green. Subject to the provisions of the
articles of incorporation regarding excess stock, shares of common stock will
have equal dividend, liquidation and other rights.
PROVISIONS OF SL GREEN'S ARTICLES OF INCORPORATION
The articles of incorporation authorize the board of directors to reclassify
any unissued shares of common stock into other classes or series of classes of
stock and to establish the number of shares in each class or series and to set
the preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series.
The board of directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
shareholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors will help to assure the
continuity and stability of the board of directors and our business strategies
and policies as determined by the board of directors. The use of a staggered
board may delay or defer a change in control of SL Green or removal of incumbent
management.
RESTRICTIONS ON OWNERSHIP
For SL Green to qualify as a REIT under the Internal Revenue Code of 1986,
as amended, not more than 50% in value of its outstanding common stock may be
owned, directly or indirectly, by five or fewer individuals, according to the
definition in the Code, during the last half of a taxable year and the common
stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year. To satisfy the above ownership requirements and other
requirements for qualification as a REIT, the board of directors has adopted,
and the shareholders prior to the initial public offering approved, a provision
in the articles of incorporation restricting the ownership or acquisition of
shares of common stock. SEE "RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is the American Stock
Transfer & Trust Company.
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RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
EXCESS STOCK
The articles of incorporation provide that SL Green may issue up to
75 million shares of excess stock, par value $.01 per share. FOR A DESCRIPTION
OF EXCESS STOCK, SEE "--RESTRICTIONS ON OWNERSHIP" BELOW.
RESTRICTIONS ON OWNERSHIP
For SL Green to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half of a taxable
year, other than the first year, and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months, other than the first year, or during a proportionate part of
a shorter taxable year. Pursuant to the Code, common stock held by specific
types of entities, such as pension trusts qualifying under Section 401(a) of the
Code, United States investment companies registered under the Investment Company
Act of 1940, partnerships, trusts and corporations, will be attributed to the
beneficial owners of these entities for purposes of the five or fewer
requirement. For example, the beneficial owners of these entities will be
counted as shareholders of SL Green.
In order to protect SL Green against the risk of losing its status as a REIT
due to a concentration of ownership among its shareholders, its articles of
incorporation, subject to exceptions, provide that no shareholder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.0% which we refer to as the "Ownership Limit," of the aggregate number or
value of SL Green's outstanding shares of common stock. Limitations on the
ownership of preferred stock may also be imposed by SL Green. Any direct or
indirect ownership of shares of stock in excess of the Ownership Limit or that
would result in the disqualification of SL Green as a REIT, including any
transfer that results in shares of capital stock being owned by fewer than 100
persons or results in SL Green being "closely held" within the meaning of
Section 856(h) of the Code, shall be null and void, and the intended transferee
will acquire no rights to the shares of capital stock. The foregoing
restrictions on transferability and ownership will not apply if the board of
directors determines that it is no longer in the best interests of SL Green to
attempt to qualify, or to continue to qualify, as a REIT. The board of directors
may, in its sole discretion, waive the Ownership Limit if evidence satisfactory
to the board of directors and SL Green's tax counsel is presented that the
changes in ownership will not then or in the future jeopardize SL Green's REIT
status and the board of directors otherwise decides that this action is in the
best interest of SL Green.
Shares of capital stock owned, or deemed to be owned, or transferred to a
shareholder in excess of the Ownership Limit will automatically be converted
into shares of excess stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code. The
trustee of the trust will be deemed to own the excess stock for the benefit of
the charitable beneficiary on the date of the violative transfer to the original
transferee-shareholder. Any dividend or distribution paid to the original
transferee-shareholder of excess stock prior to the discovery by SL Green that
capital stock has been transferred in violation of the provisions of SL Green's
articles of incorporation shall be repaid to the trustee upon demand. Any
dividend or distribution authorized and declared but unpaid shall be rescinded
as void from the beginning with respect to the original transferee-shareholder
and shall instead be paid to the trustee of the trust for the benefit of the
charitable beneficiary. Any vote cast by an original transferee-shareholder of
shares of capital stock constituting excess stock prior to the discovery by SL
Green that shares of capital stock have been transferred in violation of the
provisions of the articles of incorporation shall be rescinded as void from the
beginning. While the excess stock is held in trust, the original
transferee-shareholder will be deemed to have given an irrevocable proxy to the
trustee to vote the capital stock for the benefit of the charitable beneficiary.
The trustee of the trust may transfer the interest in the trust representing the
excess stock to any person whose ownership of the shares of capital stock
converted into this excess stock would be permitted under the Ownership
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Limit. If this transfer is made, the interest of the charitable beneficiary
shall terminate and the proceeds of the sale shall be payable to the original
transferee-shareholder and to the charitable beneficiary as described herein.
The original transferee-shareholder shall receive the lesser of (a) the price
paid by the original transferee-shareholder for the shares of capital stock that
were converted into excess stock or, if the original transferee-shareholder did
not give value for the shares, the average closing price for the class of shares
from which the shares of capital stock were converted for the ten trading days
immediately preceding the sale or gift, and (b) the price received by the
trustee from the sale or other disposition of the excess stock held in trust.
The trustee may reduce the amount payable to the original transferee-shareholder
by the amount of dividends and distributions relating to the shares of excess
stock which have been paid to the original transferee-shareholder and are owed
by the original transferee-shareholder to the trustee. Any proceeds in excess of
the amount payable to the original transferee-shareholder shall be paid by the
trustee to the charitable beneficiary. Any liquidation distributions relating to
excess stock shall be distributed in the same manner as proceeds of a sale of
excess stock. If the foregoing transfer restrictions are determined to be void
or invalid by virtue of any legal decision, statute, rule or regulations, then
the original transferee-shareholder of any shares of excess stock may be deemed,
at the option of SL Green, to have acted as an agent on behalf of SL Green in
acquiring the shares of excess stock and to hold the shares of excess stock on
behalf of SL Green.
In addition, SL Green will have the right, for a period of 90 days during
the time any shares of excess stock are held in trust, to purchase all or any
portion of the shares of excess stock at the lesser of (a) the price initially
paid for the shares by the original transferee-shareholder, or if the original
transferee-shareholder did not give value for the shares, the average closing
price for the class of stock from which the shares of excess stock were
converted for the ten trading days immediately preceding the sale or gift, and
(b) the average closing price for the class of stock from which the shares of
excess stock were converted for the ten trading days immediately preceding the
date SL Green elects to purchase the shares. SL Green may reduce the amount
payable to the original transferee-shareholder by the amount of dividends and
distributions relating to the shares of excess stock which have been paid to the
original transferee-shareholder and are owed by the original
transferee-shareholder to the trustee. SL Green may pay the amount of the
reductions to the trustee for the benefit of the charitable beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-shareholder gives notice to SL
Green of the transfer or, if no notice is given, the date the board of directors
determines that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through the
New York Stock Exchange.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
Each shareholder shall upon demand be required to disclose to SL Green in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock of SL Green as the board of directors deems necessary
to comply with the provisions of the Code applicable to REITs, to comply with
the requirements of any taxing authority or governmental agency or to determine
any such compliance.
The Ownership Limit may have the effect of delaying, deferring or preventing
a change in control of SL Green unless the board of directors determines that
maintenance of REIT status is no longer in the best interest of SL Green.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material Federal income tax
consequences that are generally applicable to all prospective holders of the
offered securities. The specific tax consequences of owning the offered
securities will vary depending on the circumstances of a particular stockholder.
The discussion contained herein does not address all aspects of Federal income
taxation that may be relevant to particular holders. Therefore, we strongly
recommend that stockholders review the following
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<PAGE>
discussion and then consult with a tax advisor to determine the anticipated tax
consequences of owning offered securities.
The information in this section and the opinions of Brown & Wood LLP are
based on the Code, existing and proposed Treasury Regulations thereunder,
current administrative interpretations and court decisions. We cannot assume
that future legislation, Treasury Regulations, administrative interpretations
and court decisions will not significantly change current law or affect existing
interpretations of current law in a manner which is adverse to stockholders. Any
such change could apply retroactively to transactions preceding the date of
change. With the exception of the ruling below, SL Green and the operating
partnership do not plan to obtain any rulings from the IRS concerning any tax
issue with respect to SL Green other than that described below under Taxation of
SL Green--Requirements for Qualification--Income Tests. Thus, we cannot assume
that the opinions and statements set forth herein, which do not bind the IRS or
the courts, will not be challenged by the IRS or will be sustained by a court if
so challenged.
This summary does not discuss state, local or foreign tax considerations.
Except where indicated, the discussion below describes general Federal income
tax considerations applicable to individuals who are U.S. persons for federal
income tax purposes. Accordingly, the following discussion has limited
application to domestic corporations and persons subject to specialized Federal
income tax treatment, such as foreign persons, trusts, estates, tax-exempt
entities, regulated investment companies and insurance companies.
PROSPECTIVE STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH
STOCKHOLDERS' RESPECTIVE PERSONAL TAX SITUATIONS, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
TAXATION OF SL GREEN
We elected to be taxed as a REIT under Sections 856 through 860 of the Code
effective for our taxable year ending December 31, 1997. In the opinion of
Brown & Wood LLP, commencing with our taxable year ended December 31, 1997, we
have been organized in conformity with the requirements for qualification and
taxation as a REIT under the Code and our method of operation enables us to meet
the requirements for qualification and taxation as a REIT. This opinion is based
on factual representations relating to the organization and operation of SL
Green, the operating partnership, their respective subsidiaries, and factual
representations relating to our continued efforts to comply with the various
REIT tests. Qualification and taxation as a REIT depends upon our ability to
meet on a continuing basis, through actual annual operating results, the various
qualification tests imposed under the Code. Brown & Wood LLP will not review
compliance with these tests on a continuing basis. SEE "FAILURE TO QUALIFY"
BELOW.
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex.
If we qualify for taxation as a REIT, we generally will not be subject to
Federal corporate income taxes on net income that we distribute currently to
stockholders. This treatment substantially eliminates the double taxation
(taxation at both the corporate and stockholder levels) that generally results
from investment in a corporation. However, we will be subject to Federal income
and excise tax in specific circumstances, including the following:
- we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains, other than
retained capital gains as discussed below.
- we may be subject to the alternative minimum tax on our items of tax
preference.
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<PAGE>
- if we have (a) net income from the sale or other disposition of
foreclosure property, which is, in general, property acquired by
foreclosure or otherwise on default of a loan secured by the property,
held primarily for sale to customers in the ordinary course of business or
(b) other nonqualifying income from foreclosure property, we will be
subject to tax at the highest corporate rate on such income.
- if we have net income from prohibited transactions, which are, in general,
sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business, such income will be subject
to a 100% tax.
- if we fail to satisfy either the 75% gross income test or the 95% gross
income test, but nonetheless maintain our qualification as a REIT because
other requirements have been met, we will be subject to a 100% tax on the
greater of the amount by which we fail the 75% or 95% test, multiplied by
a fraction intended to reflect our profitability.
- if we fail to distribute during each calendar year at least the sum of
(a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT
capital gain net income for such year and (c) any undistributed taxable
income from prior years, we will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually
distributed.
- if we acquire any asset from a corporation generally subject to full
corporate level tax in a transaction in which the basis of the asset in
our hands is determined by reference to the basis of the asset in the
hands of the seller and we recognize gain on the disposition of such asset
during the ten-year period beginning on the date on which such asset was
acquired by us, then we will be subject to the built-in gain rule.
Built-in gain is the excess of the fair market value of such property at
the time of acquisition by SL Green over the adjusted basis in such
property at such time. Under the built-in gain rule, such gain will be
subject to tax at the highest regular corporate rate applicable.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association
(a) that is managed by one or more trustees or directors;
(b) the beneficial ownership of which is evidenced by transferable shares or
by transferable certificates of beneficial interest;
(c) that would be taxable as a domestic corporation, but for Section 856
through 859 of the Code;
(d) that is neither a financial institution nor an insurance company subject
to specific provisions of the Code;
(e) the beneficial ownership of which is held by 100 or more persons;
(f) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five
or fewer individuals; and
(g) that meets other tests, described below, regarding the nature of its
income and assets.
The Code provides that conditions (a) through (d), inclusive, must be met
during the entire taxable year and that condition (e) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (e) and (f), however, will not
apply until after the first taxable year for which an election is made to be
taxed as a REIT. We believe we have issued and have outstanding sufficient
shares of stock with sufficient diversity of ownership to allow us to satisfy
conditions (e) and (f). In addition, we intend to comply with Treasury
Regulations requiring us to ascertain the actual ownership of our outstanding
shares. Our articles of incorporation include restrictions regarding the
transfer of shares of capital stock that are intended to assist us in continuing
to satisfy the share ownership requirements described in (e) and (f) above. SEE
"RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK."
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If a REIT owns a corporate subsidiary that is a qualified REIT subsidiary,
that subsidiary is disregarded for Federal income tax purposes and all assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as assets, liabilities and items of the REIT itself. Similarly, a single
member limited liability company owned by the REIT or by the operating
partnership is disregarded as a separate entity for Federal income tax purposes.
SEE "RECENT DEVELOPMENTS" BELOW.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that for purposes of the gross income tests and asset tests,
the REIT will be deemed to own its proportionate share, based on its interest in
partnership capital, of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and asset tests, that they have in
the hands of the partnership. Thus, our proportionate share of the assets,
liabilities and items of gross income of the operating partnership will be
treated as our assets, liabilities and items of gross income for purposes of
applying the requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, we must
annually satisfy gross income tests. First, at least 75% of the REIT's gross
income, excluding gross income from specific prohibited transactions, for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property, including rents from real property
and, in specific circumstances, interest, or from specific types of temporary
investments. Second, at least 95% of the REIT's gross income, excluding gross
income from prohibited transactions, for each taxable year must be derived from
such real property investments described above and from dividends, interest and
gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. If we fail to satisfy one or both of the 75% or
the 95% gross income tests for any taxable year, we nevertheless may qualify as
a REIT for such year if we are entitled to relief under specific provisions of
the Code. These relief provisions generally are available if our failure to meet
any such tests was due to reasonable cause and not due to willful neglect, we
attach a schedule of the sources of our income to our Federal corporate income
tax return and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these relief provisions. As
discussed above, even if these relief provisions were to apply, a tax would be
imposed with respect to the excess net income.
For purposes of the income test, rents received by a REIT will qualify as
rents from real property only if the following conditions are met:
- the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally
will not be excluded from rents from real property solely by reason of
being based on a fixed percentage or percentages of receipts or sales.
- rents received from a tenant will not qualify as rents from real property
in satisfying the gross income tests if the REIT, or a direct or indirect
owner of 10% or more of the REIT, directly or constructively, owns 10% or
more of such tenant.
- if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal
property will not qualify as rents from real property.
- the REIT generally must not operate or manage the property or furnish or
render services to tenants, except through an independent contractor who
is adequately compensated and from whom the REIT derives no income.
The independent contractor requirement, however, does not apply to the
extent the services provided by the REIT are usually or customarily rendered in
connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant. However, under the DE MINIMIS rule for
noncustomary services, if the value of the noncustomary service income with
respect to
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a property, valued at no less than 150% of the REIT's direct costs of performing
such services, is 1% or less of the total income derived from the property, then
all rental income except the noncustomary service income will qualify as rents
from real property.
We have recently received a favorable ruling from the IRS with respect to
our provision of telecommunication services, including high-speed Internet
access, to our tenants. Under the ruling, providing these services to a property
will not disqualify rents received from the property. In addition, amounts that
we receive for providing these services will constitute rents from real
property.
ASSET TESTS. In order to maintain qualification as a REIT, we must also
satisfy three tests relating to the nature of our assets at the close of each
quarter of our taxable year. SEE "RECENT DEVELOPMENTS" BELOW.
- at least 75% of the value of our total assets must be represented by real
estate assets, including (a) our allocable share of real estate assets
held by the operating partnership or any partnerships in which the
operating partnership owns an interest and (b) stock or debt instruments
held for not more than one year purchased with the proceeds of a stock
offering or long-term (i.e., at least five-year) public debt offering of
SL Green, cash, cash items and government securities.
- of the investments not included in the 75% asset class, the value of any
one issuer's securities owned by SL Green may not exceed 5% of the value
of our total assets.
- of the investments not included in the 75% asset class, we may not own
more than 10% of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If the failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, we are
required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to (a) the sum of (A) 95% of our REIT
taxable income (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (B) 95% of the net income, after tax, if any, from
foreclosure property, minus (b) the sum of specific items of non-cash income. We
must pay the distribution during the taxable year to which the distributions
relate, or during the following taxable year, if declared before we timely file
our tax return for the preceding year and paid on or before the first regular
dividend payment after the declaration. In addition, a dividend declared and
payable to a stockholder of record in October, November or December of any year
is treated as paid and received on December 31 of such year even if paid in
January of the following year. To the extent that we do not distribute all of
our net capital gain or distribute at least 95%, but less than 100%, of our REIT
taxable income, as adjusted, we will be subject to tax on the undistributed
amount at regular corporate capital gains rates and ordinary income tax rates.
Furthermore, if we fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income of such year, (b) 95% of our REIT capital
gain income for such year and (c) any undistributed taxable income from prior
periods, we will be subject to a 4% excise tax on the excess of such amounts
over the amounts actually distributed.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, it is expected that our REIT taxable
income will be less than our cash flow due to the allowance of depreciation and
other non-cash charges in computing REIT taxable income. Moreover, the
partnership agreement of the operating partnership authorizes us, as general
partner, to take such steps as may be necessary to cause the operating
partnership to make distributions to its partners in amounts sufficient to
permit us to meet these distribution requirements. It is possible, however, that
we may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement. In the event that such circumstances do occur, then in
order to meet the 95% distribution requirement, we
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may cause the operating partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required distributions.
Under specific circumstances, we may rectify a failure to meet the
distribution requirement for a year by paying deficiency dividends to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and other
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify as
a REIT will not be deductible by us, nor will we be required to make
distributions. Unless entitled to relief under specific statutory provisions, we
also will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances we would be entitled to such statutory
relief.
RECENT DEVELOPMENTS
The Tax Relief Extension Act of 1999 was recently enacted and contains
several tax provisions regarding REITs, including a reduction of the annual
distribution requirement for REIT taxable income from 95% to 90%, which
presently we are not planning on doing. The act also changes the 10% voting
securities test under current law to a 10% vote or value test. Thus, subject to
certain exceptions, a REIT will no longer be allowed to own more than 10% of the
vote or value of the outstanding securities of any issuer, other than a
qualified REIT subsidiary or another REIT. One exception to this new test, which
is also an exception to the 5% asset test under current law, allows a REIT to
own any or all of the securities of a "taxable REIT subsidiary." A taxable REIT
subsidiary can perform non-customary services for tenants of a REIT without
disqualifying rents received from such tenants for purposes of the REIT's gross
income tests and can also undertake third-party management and development
activities as well as non-real-estate-related activities. A taxable REIT
subsidiary will be taxed as a regular C corporation but will be subject to
earnings stripping limitations on the deductibility of interest paid to its
REIT. In addition, a REIT will be subject to a 100% excise tax on certain excess
amounts to ensure that (i) tenants who pay a taxable REIT subsidiary for
services are charged an arm's-length amount by the taxable REIT subsidiary for
the service, rather than paying an excessive amount to the REIT as rent,
(ii) shared expenses of a REIT and its taxable REIT subsidiary are allocated
fairly between the two, and (iii) interest paid by a taxable REIT subsidiary to
its REIT is commercially reasonable.
These new tax provisions are not effective until January 1, 2001. In
addition, grandfather protection is provided with respect to the 10% value test
for securities of a corporation held by a REIT on July 12, 1999, but such
protection ceases to apply after the corporation engages in a substantial new
line of business or acquires any substantial asset and also ceases to apply
after the acquisition of additional securities of the corporation by the REIT
after July 12, 1999. We have made no decision at this time with regard to any
actions we might take relating to the provisions contained in the Tax Relief
Extension Act. However, because we currently have a 95% economic interest in our
management subsidiary which is more than 10% of its value, we may have to
restructure the ownership of this company or have it elect to be a taxable REIT
subsidiary of SL Green in 2001. Furthermore, we may decide to simplify our
capital structure including that of our management subsidiary. If so, we then
could consolidate our financial statements. None of the actions we may take will
require shareholder approval.
Securities of a taxable REIT subsidiary will constitute non-real-estate
assets for purposes of determining whether at least 75% of a REIT's assets
consist of real estate. In addition, under current
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law, no more than 5% of a REIT's total assets can consist of securities of
taxable REIT subsidiaries. This act increases the limit to 20%. As of
September 30, 1999, the amount of SL Green's assets attributable to our taxable
subsidiary was approximately 0.5%.
TAXATION OF STOCKHOLDERS
The discussion does not address all of the tax consequences that may be
relevant to particular stockholders in light of their particular circumstances.
Stockholders should consult their own tax adviser for a complete description of
the tax consequences of investing in the offered stock.
U.S. STOCKHOLDERS
As used herein, the term U.S. Stockholder means a stockholder who is a U.S.
Person. A U.S. Person is defined as a citizen or resident of the United States,
a corporation or partnership (including an entity treated as a corporation or
partnership for United States Federal income tax purposes) created or organized
in or under the laws of the United States, any State of the United States or the
District of Columbia, other than a partnership that is not treated as a U.S.
Person under any applicable Treasury regulations, or an estate whose income is
subject to United States Federal income tax regardless of its source, or a trust
if a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more U.S. Persons have the authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, specific trusts in
existence on August 20, 1996, and treated as U.S. Persons prior to such date,
that elect to continue to be treated as U.S. Persons, also will be U.S. Persons.
DISTRIBUTIONS. As long as we qualify as a REIT, distributions made to our
taxable U.S. Stockholders out of current or accumulated earnings and profits and
not designated as capital gain dividends will be taken into account by them as
ordinary income. Corporate stockholders will not be eligible for the dividends
received deduction as to such amounts. Distributions that are designated as
capital gain dividends will be taxed as capital gains to the extent they do not
exceed our actual net capital gain for the taxable year without regard to the
period for which the stockholder has held our stock. If we elect to retain and
pay income tax on any net capital gain, U.S. Stockholders would include in their
income as capital gain their proportionate share of such net capital gain. A
U.S. Stockholder would also receive a refundable tax credit for such
stockholder's proportionate share of the tax paid by SL Green on such retained
capital gains and an increase in its basis in the stock of SL Green. This
increase in basis will be in an amount equal to the difference between the
undistributed capital gains and the amount of tax paid by SL Green.
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a stockholder to the extent that they do not exceed the adjusted
basis of the stock, but rather will reduce the adjusted basis of the stock. To
the extent that such distributions exceed a stockholder's adjusted basis in the
stock, such distribution will be included in income as capital gain, assuming
the stock is a capital asset in the hands of the stockholder.
Any dividend declared by us in October, November or December of any year
payable to a stockholder of record on a specific date in any such month shall be
treated as both paid by us and received by the stockholder on December 31 of
such year, even if the dividend is actually paid by us during January of the
following calendar year.
SALE OR EXCHANGE. In general, a U.S. Stockholder realizes capital gain or
loss on the sale or exchange of the stock equal to the difference between
(a) the amount of cash and the fair market value of any property received on
such disposition, and (b) the stockholder's adjusted basis in the stock. To the
extent a U.S. Stockholder who is an individual, a trust or an estate holds the
stock for at least one year, any gain realized would be subject to a maximum
rate of 20%.
BACKUP WITHHOLDING. We will report to our U.S. Stockholders and the IRS the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto.
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Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the holder
(a) is a corporation or comes within other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption, and otherwise complies with the applicable
requirements of the backup withholding rules. In addition, we may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to us.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
generally do not constitute unrelated business taxable income ("UBTI") when
received by a tax-exempt entity. Based on that ruling, the dividend income will
not be UBTI to a tax-exempt stockholder, provided that the tax-exempt
stockholder has not held stock as debt financed property within the meaning of
the Code and such stock is not otherwise used in a trade or business. Similarly,
income from the sale of the stock will not constitute UBTI unless such
tax-exempt stockholder has held such stock as debt financed property within the
meaning of the Code or has used the shares in a trade or business.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders, which refer to collectively as Non-U.S. Stockholders are complex
and no attempt will be made herein to provide more than a limited summary of
such rules. Non-U.S. Stockholders should consult with their own tax advisors to
determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in the stock, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are treated
as attributable to gain from sales or exchanges by us of U.S. real property
interests and other than distributions designated by us as capital gain
dividends, will be treated as ordinary income to the extent that they are made
out of our current or accumulated earnings and profits. Such distributions to
Non-U.S. Stockholders will ordinarily be subject to a withholding tax equal to
30% of the gross amount of the distribution, unless an applicable tax treaty
reduces that tax rate. However, if income from the investment in the shares of
the stock is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business, the Non-U.S. Stockholder generally will be
subject to a tax at graduated rates in the same manner as U.S. stockholders are
taxed with respect to such dividends and may also be subject to the 30% branch
profits tax if the stockholder is a foreign corporation.
Pursuant to the Final Regulations generally effective for payments made on
or after January 1, 2001, dividends paid to an address in a country outside the
United States are no longer presumed to be paid to a resident of such country
for purposes of determining the applicability of withholding discussed above and
the applicability of a tax treaty rate. A Non-U.S. Stockholder who wishes to
claim the benefit of an applicable treaty rate is now required to satisfy
specific certification and other requirements.
RETURN OF CAPITAL. Distributions in excess of our current and accumulated
earnings and profits, which are not treated as attributable to the gain from the
disposition by us of a U.S. real property interest, will not be taxable to a
Non-U.S. Stockholder to the extent that they do not exceed the adjusted basis of
the stock, but rather will reduce the adjusted basis of such stock. To the
extent that such distributions exceed the adjusted basis of the stock, they will
give rise to tax liability if the Non-U.S. Stockholder otherwise would be
subject to tax on any gain from the sale or disposition of its stock, as
described below. If it cannot be determined at the time a distribution is made
whether such distribution will be in excess of current and accumulated earnings
and profits, the distribution will be subject to withholding at the rate
applicable to dividends. However, the Non-U.S. Stockholder may seek
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a refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings and
profits.
CAPITAL GAIN DIVIDENDS. For any year in which we qualify as a REIT,
distributions that are attributable to gain from sales or exchanges by us of
U.S. real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders will be taxed on such distributions at the same
capital gain rates applicable to U.S. stockholders, subject to any applicable
alternative minimum tax and special alternative minimum tax (in the case of
nonresident alien individuals), without regard to whether such distributions are
designated by us as capital gain dividends. Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Stockholder not entitled to treaty relief or exemption. We are required
by applicable Treasury Regulations under FIRPTA to withhold 35% of any
distribution that could be designated by us as a capital gain dividend.
SALE OR EXCHANGE OF STOCK. Gain recognized by a Non-U.S. Stockholder upon a
sale or exchange of stock, including a redemption that is treated as a sale,
generally will not be taxed under FIRPTA if we are a domestically controlled
REIT. A domestically controlled REIT is defined generally as a REIT which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. However, gain not subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if (a) investment in the stock
is treated as effectively connected with the Non-U.S. Stockholder's U.S. trade
or business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, or (b) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a tax home in the
United States, or maintains an office or fixed place of business in the United
States to which the gain is attributable, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. A
similar rule will apply to capital gain dividends not subject to FIRPTA.
Although we anticipate that we will qualify as a domestically controlled
REIT, we cannot assume that we will continue to so qualify. If we were not a
domestically controlled REIT, whether or not a Non-U.S. Stockholder's sale of
stock would be subject to tax under FIRPTA would depend on whether or not the
stock was regularly traded on an established securities market and on the size
of the selling Non-U.S. Stockholder's interest in us. If the gain on the sale of
the stock were to be subject to tax under FIRPTA, the Non-U.S. Stockholder would
be subject to the same treatment as U.S. stockholders with respect to such gain,
subject to any applicable alternative minimum tax and a special alternative
minimum tax (in the case of nonresident alien individuals) and the purchaser of
such stock may be required to withhold 10% of the gross purchase price.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND OTHER ENTITIES ON REIT
QUALIFICATION. All of our significant investments are held through the
operating partnership. The operating partnership may hold interests in
properties through property-owning entities. The operating partnership and the
property-owning entities, as well as S.L. Green Management LLC, involve special
tax considerations. These tax considerations include:
- allocations of income and expense items of the operating partnership and
the property-owning entities, which could affect the computation of
taxable income of SL Green,
- the status of the operating partnership, the property-owning entities and
S.L. Green Management LLC as partnerships or entities that are disregarded
as entities separate from their owners as, opposed to associations taxable
as corporations, for income tax purposes and
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- the taking of actions by the operating partnership or any of the
property-owning entities that could adversely affect our qualification as
a REIT.
In the opinion of Brown & Wood LLP, based on the factual representations by
SL Green and the operating partnership, as set forth in the first paragraph of
this section, for Federal income tax purposes, the operating partnership will be
treated as a partnership and neither S.L. Green Management LLC nor any of the
property-owning entities will be treated as an association taxable as a
corporation. If, however, the operating partnership or any of such other
entities were treated as an association taxable as a corporation, we would fail
to qualify as a REIT for a number of reasons.
The partnership agreement requires that the operating partnership be
operated in a manner that will enable us to satisfy the requirements for
classification as a REIT. In this regard, we will control the operation of the
operating partnership through its rights as the sole general partner of the
operating partnership.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes.
Therefore, the partnership's basis is equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution. Pursuant to
Section 704(c) of the Code, income, gain, loss and deductions attributable to
such contributed property must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of unrealized gain or unrealized loss is generally
equal to the difference between the fair market value of the contributed
property at the time of contribution and the adjusted tax basis of such property
at the time of contribution, which we refer to as a "Book-Tax Difference". Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. The operating partnership was funded by way of contributions of
appreciated property to the operating partnership in the transactions leading to
its formation. Consequently, the partnership agreement will require these
allocations to be made in a manner consistent with Section 704(c) of the Code
and the regulations thereunder, which we refer to as the "Section 704(c)
Regulations".
The Section 704(c) Regulations require partnerships to use a "reasonable
method" for allocation of items affected by Section 704(c) of the Code and they
outline three methods which may be considered reasonable for these purposes. The
operating partnership intends to use the "traditional method" of Section 704(c)
allocations, which is the least favorable method from our perspective because of
technical limitations. Under the traditional method, depreciation with respect
to a contributed property for which there is a Book-Tax Difference first will be
allocated to SL Green and other partners who did not have an interest in the
property until they have been allocated an amount of depreciation equal to what
they would have been allocated if the operating partnership had purchased such
property for its fair market value at the time of contribution. In addition, if
this property is sold, gain equal to the Book-Tax Difference at the time of sale
will be specially allocated to the contributor of the property. These
allocations will tend to eliminate the Book-Tax Differences with respect to the
contributed properties over the depreciable lives of the contributed property.
However, they may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
This could cause us (a) to be allocated lower amounts of depreciation deduction
for tax purposes than would be allocated to us if all properties were to have a
tax basis equal to their fair market value at the time of contribution and
(b) to be allocated lower amounts of taxable loss in the event of a sale of such
contributed interests in the properties at a book loss, than the economic or
book loss allocated to us as a result of such sale, with a corresponding benefit
to the other partners in the operating partnership. These allocations might
adversely affect our ability to comply with REIT distribution requirements,
although we do not anticipate that this will occur. These allocations may also
affect our earnings and profits for purposes of determining the
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portion of distributions taxable as a dividend income. The application of these
rules over time may result in a higher portion of distributions being taxed as
dividends than would have occurred had we purchased our interests in the
Properties at their agreed values.
Interests in the properties purchased by the operating partnership for cash
simultaneously with or subsequent to our admission to the operating partnership
initially will have a tax basis equal to their fair market value. Thus,
Section 704(c) of the Code will not apply to such interests.
STATE AND LOCAL TAX
SL Green and our stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. Our tax
treatment and the tax treatment the stockholders in such jurisdictions may
differ from the Federal income tax treatment described above.
PLAN OF DISTRIBUTION
Any of the selling shareholders may from time to time, in one or more
transactions, sell all or a portion of the offered shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
common shares are listed or traded, in negotiated transactions, in underwritten
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The offering price of the offered
shares from time to time will be determined by the selling shareholders and, at
the time of the determination, may be higher or lower than the market price of
the common shares on the New York Stock Exchange. In connection with an
underwritten offering, underwriters or agents may receive compensation in the
form of discounts, concessions or commissions from a selling shareholder or from
purchasers of offered shares for whom they may act as agents, and underwriters
may sell offered shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Under agreements that may be entered into by SL Green, underwriters,
dealers and agents who participate in the distribution of offered shares may be
entitled to indemnification by SL Green against specific liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which such underwriters, dealers or agents may be required to make in
respect thereof. The offered shares may be sold directly or through
broker-dealers acting as principal or agent, or pursuant to a distribution by
one or more underwriters on a firm commitment or best-efforts basis. The methods
by which the offered shares may be sold include: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the offered shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) an exchange distribution in accordance with the rules of the New York Stock
Exchange; (e) privately negotiated transactions; and (f) underwritten
transactions. The selling shareholders and any underwriters, dealers or agents
participating in the distribution of the offered shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, and any profit
on the sale of the offered shares by the selling shareholders and any
commissions received by any such broker-dealers may be deemed to be underwriting
commissions under the Securities Act.
When a selling shareholder elects to make a particular offer of offered
shares, a prospectus supplement, if required, will be distributed which will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such selling shareholder and any
other required information.
In order to comply with state securities laws, if applicable, the offered
shares may be sold only through registered or licensed brokers or dealers. In
addition, in specific states, the offered shares may
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not be sold unless they have been registered or qualified for sale in such state
or an exemption from such registration or qualification requirement is available
and is complied with.
SL Green has agreed to pay all costs and expenses incurred in connection
with the registration under the Securities Act of 1933 of the offered shares,
including, without limitation, all registration and filing fees, printing
expenses and fees and disbursements of counsel and accountants for SL Green. The
selling shareholders will pay any brokerage fees and commissions, fees and
disbursements of legal counsel for the selling shareholders and stock transfer
and other taxes attributable to the sale of the offered shares. SL Green also
has agreed to indemnify each of the selling shareholders and their respective
officers, directors and trustees and each person who controls, within the
meaning of the Securities Act of 1933, such selling shareholder against
specified losses, claims, damages, liabilities and expenses arising under the
securities laws in connection with this offering. Each of the selling
shareholders has agreed to indemnify SL Green, its officers and directors and
each person who controls, within the meaning of the Securities Act of 1933,
SL Green, and each of the other selling shareholders, against any losses,
claims, damages, liabilities and expenses arising under the securities laws in
connection with this offering with respect to written information furnished to
SL Green by such selling shareholder; provided, however, that the
indemnification obligation is several, not joint, as to each selling
shareholder.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and the legal
matters described under "Federal Income Tax Considerations" will be passed upon
for SL Green by Brown & Wood LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule for the year ended December 31, 1998 and for
the period August 21, 1997, which is the date of commencement of operations to
December 31, 1997, the combined financial statements of the SL Green Predecessor
for the period January 1, 1997 to August 20, 1997 and for the year ended
December 31, 1996 and the combined financial statements of the uncombined joint
ventures of the SL Green Predecessor for the period January 1, 1997 to
August 20, 1997 and for the year ended December 31, 1996 included in our Annual
Report on Form 10-K and the statement of revenues and certain expenses for the
555 West 57(th) Street property for the year ended December 31, 1998, included
in our Current Report on Form 8-K/A dated January 25, 1999 and the statement of
revenues and certain expenses for the Madison Properties for the year ended
December 31, 1998, included in our Current Report on Form 8-K/A dated May 24,
1999 and the statement of revenues and certain expenses for the
90 Broad Street property for the fiscal year ended April 30, 1999, included in
our Current Report on Form 8-K/A dated May 24, 1999, as set forth in their
reports, which are incorporated by reference in this registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the SEC's public
reference rooms located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, Suite 1300, New York, NY 10048. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also
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available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
We have filed a registration statement on Form S-3, of which this prospectus
forms a part, to register the securities with the SEC. As allowed by SEC rules,
this prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about us, our
business and our finances.
<TABLE>
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DOCUMENT PERIOD
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<S> <C> <C>
Annual Report on Form 10-K (File No. 1-13199)........................... Year ended December 31, 1998
Quarterly Reports on Form 10-Q (File No. 1-13199)....................... Quarter ended March 31, 1999
Quarter ended June 30, 1999
Quarter ended September 30, 1999
DATED FILED
------------------- -------------------
Current Reports on Form 8-K (File No. 1-13199).......................... January 25, 1999 February 8, 1999
March 22, 1999 March 23, 1999
May 24, 1999 June 8, 1999
DATED FILED
------------------- -------------------
Amendments to Current Reports on Form 8-K
(File No. 1-13199).................................................... January 25, 1999 April 9, 1999
May 24, 1999 August 6, 1999
</TABLE>
Any documents which we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus but before the end of any
offering of securities made under this prospectus will also be considered to be
incorporated by reference.
If you request, either orally or in writing, we will provide you with a copy
of any or all documents which are incorporated by reference. Such documents will
be provided to you free of charge, but will not contain any exhibits, unless
those exhibits are incorporated by reference into the document. Requests should
be addressed to Benjamin Feldman, Esq., SL Green Realty Corp., 420 Lexington
Avenue, New York, NY 10170, telephone number (212) 594-2700.
26
<PAGE>
2,383,284 SHARES
SL GREEN REALTY CORP.
SHARES OF COMMON STOCK
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PROSPECTUS
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JANUARY 28, 2000
