UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____.
Commission File No. 1-13199
SL GREEN REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland 13-3956755
State or other jurisdiction (I.R.S. Employer of
incorporation or organization) Identification No.)
420 Lexington Avenue, New York, New York 10170
(Address of principal executive offices - zip code)
(212) 594-2700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the restraint was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 9, 2000, there were 24,229,997 shares of the Registrant's
common stock outstanding. The aggregate market value of common stock held
by non-affiliates of the Registrant (22,994,581 shares) at March 9, 2000,
was $513,066,589. The aggregate market value was calculated by using the
closing price of the stock as of that date on the New York Stock
Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Stockholders'
Meeting to be held May 16, 2000 are incorporated by reference into Part
III.
SL GREEN REALTY CORP.
FORM 10-K REPORT INDEX
10-K PART AND ITEM NO. PAGE
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PART I
1. BUSINESS ......................................................................... 3
2. PROPERTIES ....................................................................... 11
3. LEGAL PROCEEDINGS ................................................................ 19
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............................. 19
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............. 20
6. SELECTED FINANCIAL DATA .......................................................... 20
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ................................................................ 23
7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................... 29
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................................... 31
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ......................................................... 74
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .............................. 74
11. EXECUTIVE COMPENSATION .......................................................... 74
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .................. 74
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................................. 74
PART IV
14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K ........... 74
THE "COMPANY" MEANS SL GREEN REALTY CORP., A MARYLAND CORPORATION, AND
ONE OR MORE OF ITS SUBSIDIARIES (INCLUDING SL GREEN OPERATING
PARTNERSHIP, L.P.), AND THE PREDECESSORS THEREOF (THE "SL GREEN
PREDECESSOR") OR, AS THE CONTEXT MAY REQUIRE, SL GREEN REALTY CORP.
ONLY OR SL GREEN OPERATING PARTNERSHIP, L.P. ONLY AND (ii) "STEPHEN L.
GREEN PROPERTIES." MEANS SL GREEN PROPERTIES, INC., A NEW YORK
CORPORATION, AS WELL AS THE AFFILIATED PARTNERSHIPS AND OTHER ENTITIES
THROUGH WHICH STEPHEN L. GREEN HAS HISTORICALLY CONDUCTED COMMERCIAL
REAL ESTATE ACTIVITIES.
INFORMATION CONTAINED IN THIS FINANCIAL REPORT CONTAINS
"FORWARD-LOOKING STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE
ECONOMIC PERFORMANCE, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS AND PROJECTIONS OF REVENUE AND OTHER FINANCIAL ITEMS, WHICH
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "FACTORS
THAT MAY INFLUENCE RESULTS AND ACCURACY OF FORWARD LOOKING STATEMENTS"
AND ELSEWHERE IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
The Company is a self-managed real estate investment trust ("REIT")
with in-house capabilities in property management, development,
construction and leasing and was formed in June 1997 for the purpose of
continuing the commercial real estate business of S. L. Green
Properties, Inc. For more than 19 years, S. L. Green Properties had
been engaged in the business of owning, managing, leasing, acquiring
and repositioning Class B office properties in Manhattan, a borough of
New York City ("Manhattan"). As of December 31, 1999, the Company's
portfolio consisted of 22 Class B commercial properties encompassing
approximately 7.6 million rentable square feet located primarily in
midtown Manhattan (the "Properties"). The Company's wholly-owned
interests in the Properties represent fee ownership (18), including
ownership in condominium units, leasehold ownership (2) and operating
sublease ownership (2). 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. As of December 31, 1999, the weighted average
occupancy (total occupied square feet divided by total available square
feet) of the Properties was 97%. The Company's portfolio also includes
ownership interests in unconsolidated joint ventures which own two
Class B office properties in Manhattan, encompassing approximately 1.0
million rentable square feet. In addition, the Company continues to
manage six office properties owned by third-parties and affiliated
companies encompassing approximately 1.6 million rentable square feet.
S. L. Green Properties was founded in 1980 by Stephen L. Green, its
Chairman, and Chief Executive Officer. Since that time, S. L. Green
Properties became a full service, fully integrated real estate company.
Prior to the Company's initial public offering (the "Offering" or
"IPO") in August 1997, S. L. Green Properties had been involved in the
acquisition of 31 Class B office properties in Manhattan containing
approximately four million square feet and the management of 50 Class B
office properties in Manhattan containing approximately 10.5 million
square feet.
There are numerous office properties that compete with the Company in
attracting tenants and numerous companies that compete in selecting
properties for acquisition.
The Company's corporate offices are located in midtown Manhattan at 420
Lexington Avenue, New York, New York 10170. The Company's corporate
staff consists of 85 persons, including 56 professionals experienced in
all aspects of commercial real estate. The Company can be contacted at
(212) 594-2700 or visit the Company's website at www.slgreen.com.
The Company's primary business objective is to maximize total return to
shareholders through growth in distributable cash flow and appreciation
in the value of its assets. The Company plans to achieve this objective
by assembling the most compelling portfolio of Class B Manhattan office
properties through acquisition and repositioning and by capitalizing on
the growth opportunities described below.
FORMATION AND INITIAL PUBLIC OFFERING
In connection with the Company's IPO the Operating Partnership received
a contribution of interests in real estate properties as well as 95% of
the economic non-voting interest in the management, leasing and
construction companies (the "Service Corporation"). The Company is
organized so as to qualify and has elected to qualify as a REIT under
the Internal Revenue Code of 1986, as amended.
The authorized capital stock of the Company consists of 200 million
shares of capital stock, $.01 par value, of which the Company has
authorized the issuance of up to 100 million shares of Common Stock,
$.01 par value per share, 75 million shares of Excess Stock, at $.01
par value per share, and 25 million shares of Preferred Stock, par
value $.01 per share.
INITIAL PUBLIC OFFERING
On August 20, 1997, the Company issued 11.615 million shares of its
Common Stock (including the underwriters' over-allotment option of 1.52
million shares) to the public through the Offering. Concurrent with the
consummation of the Offering, the Company issued 38,094 shares of
restricted common stock pursuant to stock loans and 85,600 shares of
restricted common stock to a financial advisor. In addition, the
Company previously issued to its executive officers approximately
553,616 shares, as founders' shares. The net cash proceeds received by
the Company from the Offering (after deducting underwriting discounts)
was $228.7 million.
Concurrent with the consummation of the Offering, the Company and the
Operating Partnership, together with the partners and members of
affiliated partnerships of the SL Green Predecessor and other parties
which held ownership interests in the properties contributed to the
Operating Partnership (collectively, the "Participants"), engaged in
certain formation transactions (the "Formation Transactions").
MAY 1998 PUBLIC OFFERINGS
On May 12, 1998 the Company completed the sale of 11.5 million shares
of Common Stock and 4.6 million share of 8% Preferred Income Equity
Redeemable Shares with a mandatory liquidation preference of $25.00 per
share (the "PIERS"). Gross proceeds from these equity offerings ($353
million, net of underwriter's discount) were used principally to repay
the Acquisition Facility (see Item 1 - Financing Activity) and acquire
additional properties. These offerings resulted in the reduction of
continuing investor's interest in the Operating Partnership from 16.2%
to 9.2%.
SUMMARY OF OFFERINGS
At December 31, 1999 the Operating Partnership had 26,612,273
outstanding partnership units. These outstanding units were the result
of (i) 23,115,000 units issued to the Company in exchange for the net
proceeds from the Company's initial and secondary public offering of
23,115,000 common shares, (ii) 2,383,284 units representing 9.2% of the
total units outstanding were issued for the contribution of interests
in the properties owned by S.L. Green Properties Inc. immediately prior
to the IPO and 100% (representing 95% of the economic interest) of the
non-voting common stock of the Service Corporation (iii) 44,772 units
issued for partial consideration for the 50% fee interest in the
property located at 711 Third Avenue in July 1998 and (iv) the issuance
of 1,069,217 units underlying common shares of the Company previously
issued to management and a Company financial advisor. The Company's
management and continuing investors own 3,411,672 units and common
stock or 12.8% of the common equity. Pursuant to the terms of the
Operating Partnership's partnership agreement, the units issued to the
Company's management and continuing investors at the IPO may not, for
up to two years from the IPO date, transfer any of their rights or
redeem their units as a limited partner without the consent of the
Company.
Substantially all of the Company's assets are held by, and all of its
operations are conducted through, the Operating Partnership, a Delaware
limited partnership. The Company is the sole managing general partner
of the Operating Partnership. All of the management and leasing
operations with respect to the Properties is conducted through the SL
Green Management LLC (the "Management LLC"). The operating partnership
owns 100% interest in Management LLC.
THE SERVICE CORPORATION
In order to maintain the Company's qualifications as a REIT while
realizing income from management, leasing, tenant representation and
construction contracts with third parties, all of these service
operations with respect to properties in which the Company will not own
100% of the interest are conducted through the Service Corporation. The
Company, through the Operating Partnership, owns 100% of the non-voting
common stock (representing 95% of the total equity) of the Service
Corporation. Through dividends on its equity interest, the Operating
Partnership expects to receive substantially all of the cash flow from
the Service Corporation's operations. All of the voting common stock of
the Service Corporation (representing 5% of the total equity) is held
by the Service Corporation LLC. This controlling interest gives the
Service Corporation LLC the power to elect all directors of the Service
Corporation.
MANHATTAN OFFICE MARKET BACKGROUND
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but which
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.
A variety of tenants who do not require, desire or cannot afford Class
A space are attracted to Class B office properties due to their prime
locations, excellent amenities, distinguished architecture and
relatively less expensive rental rates. Class B office space has
historically attracted many smaller growth oriented firms and has
played a critical role in satisfying the space requirements of
particular industry groups in Manhattan, such as the advertising,
apparel, business services, engineering, not-
for-profit, "new media" and publishing industries. In addition, several
areas of Manhattan, including many in which particular trades or
industries traditionally congregate, are dominated by Class B office
space and contain no or very limited Class A office space. Examples of
such areas include the Garment District (where four of the Properties
are located), the Flatiron District (where one Property is located),
the areas immediately south and north of Houston Street , Chelsea
(where one Property is located), and the area surrounding the United
Nations ("UN") (where one Property is located). Businesses
significantly concentrated in certain of these areas include those in
the following industries: "new media", garment, apparel, toy, jewelry,
interior decoration, antiques, giftware, and UN-related businesses. The
concentration of businesses creates strong demand for the available
Class B office space in those locations. By way of example, some of the
tenants that currently occupy space in Company owned properties include
The City of New York, BMW of Manhattan, Inc., Metro North, New York
Life Insurance Company, St. Luke's Roosevelt Hospital, CNNfn, Parade
Publications, Dow Jones, Crain Communications, Ann Taylor, Escada,
Cowles Business Media, Kallir, Philips, Ross Inc., Bank Leumi, MCI
International, New York Presbyterian Hospital, Newbridge
Communications, Ross Stores, UNICEF, and Bell Atlantic.
The Company's management team has developed a comprehensive knowledge
of the Manhattan Class B office market, an extensive network of tenant
and other business relationships and experience in acquiring
underperforming office properties and repositioning them into
profitable Class B properties through intensive full service management
and leasing efforts.
The Company believes that the recovery of the New York commercial real
estate market from the downturn of the late 1980s and early 1990s
combined with the ongoing strength of the New York City economy creates
an attractive environment for owning, operating and acquiring Class B
office properties in Manhattan.
GROWTH STRATEGIES
The Company seeks to capitalize on current opportunities in the Class B
Manhattan office market through (i) property acquisitions (including
through joint ventures) - continuing to acquire Class B office
properties at significant discounts to replacement costs that provide
attractive initial yields and the potential for cash flow growth, (ii)
property repositioning - repositioning acquired properties that are
underperforming through renovations, active management and proactive
leasing (iii) property dispositions and (iv) integrated leasing and
property management.
PROPERTY ACQUISITIONS. In acquiring properties, the Company believes
that it has the following advantages over its competitors: (i)
management's 20 years of experience as a full service, fully integrated
real estate company focused on the Class B office market in Manhattan,
(ii) enhanced access to capital as a public company, (as compared to
the generally fragmented institutional or venture oriented sources of
capital available to private companies) and (iii) the ability to offer
tax-advantaged structures to sellers through the exchange of ownership
interests as opposed to solely cash transactions. In addition, the
Company may benefit from the Tax Relief Extension Act of 1999 (See
Recent Developments) and from tax law developments reducing the
transfer tax rates applicable to certain REIT acquisition transactions.
These previous barriers to the sale of real property have been greatly
reduced or eliminated, making transactions more economically viable for
property sellers.
PROPERTY REPOSITIONING. The Company believes that there are properties
that may be acquired which could greatly benefit from management's
experience in enhancing property cash flow and value by renovating and
repositioning properties to be among the best in their submarkets. Many
Class B buildings are located in or near submarkets which are
undergoing major reinvestment and where the properties in these markets
have low vacancy rates. Featuring unique architectural design, large
floor plates or other amenities and functionally appealing
characteristics, reinvestment in these properties poses an opportunity
to the Company to meet market needs.
PROPERTY DISPOSITIONS. The Company continuously evaluates and
identifies properties which it considers as being non-core holdings,
including smaller side-street properties. The Company believes that by
disposing of these non-core holdings at attractive prices, they will be
able to redeploy the capital by making other higher yielding property
acquisitions or investing in high-yield investment opportunities.
LEASING AND PROPERTY MANAGEMENT. The Company seeks to capitalize on
management's extensive knowledge of the Class B Manhattan marketplace
and the needs of the tenants therein by continuing a proactive approach
to leasing and management, which includes (i) the use of in-depth
market research, (ii) the utilization of an extensive network of
third-party brokers, (iii) comprehensive building management analysis
and planning and (iv) a commitment to tenant satisfaction by providing
"Class A" tenant services. The Company believes proactive leasing
efforts have contributed to average occupancy rates at the Properties
that are above the market average. In addition, the Company's
commitment to tenant service and satisfaction is evidenced by the
Company's and its predecessor past record of renewal of approximately
70% of the expiring leases and rentable square footage at the
Properties owned and managed by the Company and its predecessor during
the period from January 1, 1994 through December 31, 1999.
1998 ACQUISITIONS
During 1998 the Company completed the acquisition of six additional
properties for an aggregate purchase price of approximately $339
million. These properties were financed through excess proceeds from
the Company's May public offerings, use of the Company's revolving line
of credit, and additional property level debt. These six properties
have an aggregate rentable area of approximately 2.9 million square
feet.
420 Lexington Avenue and 1466 Broadway
On March 18, 1998 the Company closed on its purchase of the fee
interest in one property (1466 Broadway) and the operating interest of
another property (420 Lexington Avenue, The Graybar Building) from the
Helmsley organization. (together, the "Helmsley Properties"). The
Graybar Building is located adjacent to Grand Central Station and
encompasses approximately 1.2 million square feet. 1466 Broadway is
located in the heart of Times Square at 42nd Street and Broadway
encompassing approximately 290,000 square feet. The aggregate base
purchase price for the two properties was $142 million. At the time the
acquisition was announced, the Graybar Building was 83% leased and 1466
Broadway was approximately 87% leased.
321 West 44th Street
On March 31, 1998 the Company closed on its purchase of a 203,000
square foot office building at 321 West 44th Street. The property was
acquired for $17 million in cash and was approximately 96% leased at
the time the acquisition was announced.
711 Third Avenue
On May 21, 1998 the Company acquired the outstanding leasehold mortgage
of the property located at 711 Third Avenue for approximately $44.6
million in cash. The 20-story, 524,000 square foot building was 79%
occupied at the date of acquisition. The Company's outstanding mortgage
position provides for the Company to receive 100% of the economic
benefit from the property, and accordingly for the period owned, the
Company has recorded the operating results of the property in the
statement of operations. On July 2, 1998 the Company acquired 50% of
the fee interest in 711 Third Avenue for $20 million and 44,772
Operating Partnership Units.
440 Ninth Avenue
On June 1, 1998 the Company acquired the property located at 440 Ninth
Avenue for approximately $32 million in cash. The 18-story, 340,000
square foot building was 76% occupied at the date of acquisition. In
connection with this purchase, the Company contracted to acquire the
properties located at 38 East 30th Street in Manhattan and 116 Nassau
Street in Brooklyn and later assigned these contracts to third parties.
In connection with the assignment 38 East 30th Street, the Company
extended a mortgage for $6.2 million bearing interest at 8% and was
repaid during September 1998.
1412 Broadway
On August 14, 1998 the Company purchased the property located at 1412
Broadway,The Fashion Gallery Building,for $72 million, plus
approximately $5 million for reimbursement of loan prepayment charges
and $5 million related to capital expenditures, commissions and other
closing costs. The property is a 25-story office building totaling
389,000 square feet with an occupancy rate at the acquisition date,
including pending leases, of 89.5%.
OTHER TRANSACTIONS
On January 8, 1998, the Company acquired fee title to its property
located at 1372 Broadway. Prior to this date, the Company held a
mortgagee's interest in this property with a right to acquire the fee
without additional cost.
On April 14, 1998, the Company converted its mortgage interest in 36
West 44th Street into a fee interest and its mortgage interest in 36
West 43rd Street into a leasehold interest (collectively, the "Bar
Building") for an additional cost of approximately $1.0 million.
On January 15, 1999 the Company discontinued the current redevelopment
and subsequent purchase of 636 11th Avenue, and did not purchase the
469,000 square foot industrial and warehouse property. Termination of
the purchase agreement signed last June resulted in a 1998 charge of
approximately $1.1 million. The Company continued to hold a $10.9
million first mortgage which was fully secured by the property yielding
a current rate of 8.875%, increasing to 9%, effective April 1, 1999.
This loan was repaid in full in December 1999.
1999 ACQUISITIONS
During 1999, the Company completed the acquisition of four wholly-owned
properties for an aggregate purchase price of approximately $150.7
million. These acquisitions were financed through the use of the
Company's revolving line of credit, and additional property level debt.
These properties have an aggregate rentable area of approximately 1.3
million square feet. In addition, the Company invested approximately
$23.4 million in two unconsolidated joint ventures. These properties
have an aggregate rentable area of approximately 1.0 million square
feet.
Graybar Building
During January 1999, the Company purchased a sub-leasehold interest in
420 Lexington Avenue for $27.3 million. The sub-leasehold expires on
December 30, 2008 with one 21-year renewal term expiring on December
30, 2029. The acquisition was funded through the Company's revolving
line of credit.
BMW Building
During January 1999, the Company acquired a 65% controlling interest in
555 West 57th Street (the "BMW Building") for approximately $66.7
million (including 65% interest in the previously existing third-party
mortgage debt totaling $45 million). The 941,000 square foot property
was 100% leased as of the acquisition date. The assets, liabilities and
operating results of the property are included in the consolidated
financial statements. On November 5, 1999 the Company acquired the
remaining 35% interest in the BMW Building for $34.1 million.
Tower Properties
During May 1999, the Company acquired four Manhattan properties located
at 90 Broad Street ("90 Broad"), 286, 290 and 292 Madison Avenue (the
"Madison Properties") (collectively, the "Tower Properties") for $84.5
million. The properties total 675,000 square feet and were
approximately 89% leased as of the acquisition date. During July 1999
the Company contributed 90 Broad into a joint venture arrangement (see
below).
Unconsolidated Joint Ventures
During July 1999, the Company entered into a joint venture agreement
with Morgan Stanley Real Estate Fund III, L.P. to own 90 Broad Street
located in Manhattan. The property was contributed to the venture by
the Company and the Company retained a 35% economic interest in the
venture. At the time of the contribution the property was valued at
$34.6 million which approximated the Company's cost basis in the asset.
In addition, the venture assumed the existing $20.8 million first
mortgage that was collateralized by the property. The Company will
continue to provide management, leasing and construction services at
the property on a fee basis. During 1999, the company earned $62,000
for such services. The venture agreement provides the Company with an
opportunity to receive a promotional interest with respect to sales
proceeds and cash distributions once a fixed hurdle rate is achieved.
During August 1999, the Company entered into a joint venture agreement
with Carlyle Realty to purchase 1250 Broadway located in Manhattan for
$93.0 million. The property is 670,000 square feet and was 97% leased
at acquisition. The Company holds a 49.9% stake in the venture and
provides management, leasing and construction services at the property
on a fee basis. During 1999, the Company earned $371,000 for such
services. The acquisition was partially financed with a floating rate
mortgage totaling $64.7 million maturing in 3 years. This facility has
the ability to be increased to $69.7 million as funding of capital
requirements is needed. The interest rate is 300 basis points over
30-day LIBOR. The venture agreement provides the Company with an
opportunity to receive a promotional interest with respect to sales
proceeds and cash distributions once a fixed hurdle rate is achieved.
LEASING ACTIVITY
The following represents the change in occupancy rates of the
Properties from December 31, 1997 (or their date of acquisition in 1998
or 1999) as compared to December 31, 1999:
Occupancy Percent
-----------------
December 31,
------------
Property 1999 1998
-------- ---- ----
Same Store(1) 97% 93%
ACQUIRED 1998 December 31, 1999 December 31, 1998 At Acquisition Acquisition Date
----------------- ----------------- -------------- ----------------
1466 Broadway 91% 90% 87% March 1998
420 Lexington Ave 97% 98% 83% March 1998
321 West 44th Street 97% 97% 96% March 1998
711 Third Avenue 96% 96% 79% May 1998
440 Ninth Avenue 100% 73% 76% June 1998
1412 Broadway 95% 89% 90% August 1998
ACQUIRED 1999 December 31, 1999 At Acquisition Acquisition Date
----------------- -------------- ----------------
555 West 57th Street 100% 100% January 1999
286 Madison Avenue 94% 99% May 1999
290 Madison Avenue 86% 86% May 1999
292 Madison Avenue 100% 97% May 1999
(1) Represents properties owned by the Company at December 31, 1997.
FINANCING ACTIVITY
On December 19, 1997 the Company entered into a $140 million three year
senior unsecured revolving credit facility (the "Credit Facility") due
December 2000, which is extendable for one year. Availability under the
Credit Facility may be limited to an amount less than the $140 million
which is calculated by several factors including recent acquisition
activity and most recent quarterly property performance. Outstanding
loans under the Credit Facility bear interest on a graduated rate per
annum equal to the London Interbank Offered Rate ("LIBOR") applicable
to each interest period plus 130 basis points to 145 basis points per
annum. The Credit Facility requires the Company to comply with certain
covenants, including but not limited to, maintenance of certain
financial ratios. As of December 31, 1999 current borrowings on the
$140 million Credit Facility totaled $83.0 million, with remaining
availability of $57.0 million and with a current effective interest
rate of 7.82%. Availability was further reduced by the issuance of $7.5
million of Letters of Credit for acquisition deposits.
During March 1998, the Company asked the Credit Facility banking group
to temporarily relieve the Company from its obligations under the
financial covenants of the Credit Facility in order to close an
additional financing necessary to acquire the Helmsley properties (the
"Acquisition Facility"). The Acquisition Facility, which closed on
March 18, 1998, financed the acquisition of the Helmsley properties,
paid-off the outstanding balance on the Credit Facility and provided
liquidity for future acquisition and corporate needs. The term of the
Acquisition Facility was one year with a graduated interest rate that
was determined by a schedule based on the percent of loan commitment
outstanding and the duration of the outstanding commitments, ranging
from 170 to 300 basis points over LIBOR. The Acquisition Facility was
secured by the unencumbered assets of the Company. The Acquisition
Facility was repaid through the Company's May 1998 equity financings,
resulting in an extraordinary charge to earnings of $0.6 million due to
the write-off of unamortized deferred financing costs. All assets were
released from the lien related to the Acquisition Facility, resulting
in some being reassigned to the Credit Facility unencumbered asset
pool. The Company's Credit Facility was reinstated subsequent to the
repayment of the Acquisition Facility during the second quarter.
During December 1998, the Company closed two short-term bridge
financings totaling $87.5 million. The first financing was a $51.5
million bridge loan with Prudential Securities at an interest rate
(7.58% at December 31, 1998) equal to 200 basis points over the current
one-month LIBOR. The loan was scheduled to mature on December 30, 1999
and was secured by the properties located at 1412 Broadway and 633
Third Avenue. The second financing was a $36 million bridge loan with
Lehman Brothers at an interest rate (8.29% at December 31, 1998) equal
to 275 basis points over the current one-month LIBOR. The loan was
scheduled to mature on December 15, 1999 and was secured by the
properties located at 70 West 36th Street, 1414 Avenue of the Americas
and The Bar Building. These bridge loans were repaid early out of the
proceeds of the April 1999 fixed-rate mortgage financing (see below).
The Company recorded an extraordinary loss of $0.6 million due to the
write-off of unamortized deferred financing costs.
1999 FINANCINGS
During April 1999, the Company closed on two fixed-rate mortgage
financings totaling $102.8 million with maturities of 10 years ($50.8
million secured by 1414 Avenue of the Americas, 36 West 44th Street,
633 Third Avenue and 70 West 36th Street) and 7 years ($52 million
secured by 1412 Broadway). The weighted average interest rate on these
financings is 7.78%. These mortgages replaced $87.5 million in secured
floating-rate bridge financings (see above) and provided
approximately $13 million in additional liquidity that was used to
reduce the amount outstanding under the Company's Credit Facility.
During May 1999, the Company closed on loans totaling $117.7 million.
The first loan of $65 million is secured by the Company's interest in
420 Lexington Avenue. The term of this loan is two years and bears
interest at a rate of 275 basis points over the 30-day LIBOR rate
(9.25% at December 31, 1999). In October 1999, the company repurchased
a $10.0 million non-investment grade tranche lowering the effective
spread over the 30-day LIBOR from 275 basis points to 203 basis points.
The second loan was a $52.7 million one-year floating rate facility,
secured by the Madison Properties ($26.9 million), 90 Broad ($20.8
million), and 711 Third Avenue ($5.0 million) and bears interest at a
rate of 150 basis points over the 30-day LIBOR rate (7.98% at December
31, 1999).
During September 1999, the Company closed a $49.2 million fixed rate
financing secured by the property located at 711 Third Avenue. This
mortgage matures in 6 years and carries a fixed interest rate of 8.13%.
The proceeds were used to repay a $5.0 million existing financing on
the property (see above) with the balance used to reduce the amount
outstanding under the Company's Credit Facility.
During November 1999, simultaneous with the closing of the remaining 35
percent interest in the BMW Building, the Company obtained a new $70.0
million first mortgage from Bank of New York. The mortgage has a term
of five years with a floating interest rate of 200 basis points over
30-day LIBOR. At the time of the financing, the Company entered into an
interest rate protection agreement with Bank of New York. The agreement
fixes the LIBOR interest rate at 6.10%; however, the LIBOR interest
rate on the loan will begin floating if the actual LIBOR rate exceeds
6.10%, and is capped at a maximum LIBOR rate of 6.58%. At closing the
loan's effective interest rate inclusive of the collar arrangement was
8.17%. This interest rate "collar" agreement is in effect for five
years to correspond with the term of the loan. The Company used funds
from the $70.0 million first mortgage to repay the $45.0 million
mortgage assumed as part of the acquisition. Due to the limited
interest rate exposure resulting from the collar arrangement, the
Company considers this loan to be fixed in nature.
On December 28, 1999, the Company closed on a $30.0 million credit
facility with Prudential Securities Credit Corp. ("PSCC") (the "PSCC
Facility"). The current borrowing capacity is $15.0 million. The PSCC
Facility is secured by the Company's preferred equity interest in 1370
Avenue of the Americas and a repurchased mortgage participation
interest in the mortgage at 420 Lexington Avenue. Interest-only is
payable based on the 1-Month LIBOR plus 125 basis points. The PSCC
Facility may be prepaid at any time during its term without penalty.
The PSCC Facility matures on December 27, 2000.
INTEREST RATE PROTECTION AGREEMENT
In anticipation of financing properties, the Company executed a forward
treasury rate lock on September 2, 1998 for $100 million of future
debt. The underlying rate for that position was 5.13%. On December 3rd
this rate lock expired and was not renewed. The negative value of this
hedge at expiration was $3.2 million. In connection with the hedge, the
Company had mortgage commitments to complete five permanent mortgage
financings. The hedge cost represents a deferred financing cost which
will be amortized over the life of these financings, except for $0.2
million which related to a mismatch in terms resulting in a charge to
1998 earnings.
COMPETITION IN ITS MARKETPLACE
All of the Properties are located in highly developed areas of
Manhattan that include a large number of other office properties.
Manhattan is by far the largest office market in the United States and
contains more rentable square feet than the next six largest central
business district office markets in the United States combined. Of the
total inventory of 379 million rentable square feet in Manhattan,
approximately 172 million rentable square feet is comprised of Class B
office space and 207 million rentable square feet is comprised of Class
A office space. Many tenants have been attracted to Class B properties
in part because of their relatively less expensive rental rates (as
compared to Class A properties) and the tightening of the Class A
office market in midtown Manhattan. Consequently, an increase in
vacancy rates and/or a decrease in rental rates for Class A office
space would likely have an adverse effect on rental rates for Class B
office space. Also, the number of competitive Class B office properties
in Manhattan (some of which are newer and better located) could have a
materially adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able
to charge.
In addition, the Company competes with other property owners that may
have greater resources than the Company. In particular, although
currently no other publicly traded REITs have been formed solely to
own, operate and acquire Manhattan Class B office properties, the
Company may in the future compete with such other REITs. In addition,
the Company may face competition from other real estate companies
(including other REITs that currently invest in markets other than
Manhattan) that may have greater financial resources than the Company
or that are willing to acquire properties in transactions which are
more highly leveraged than the Company is willing to undertake. The
Company also faces competition from other real estate companies that
provide management, leasing and construction services similar to those
to be provided by the Service Corporation. In addition, certain
requirements for REIT qualification may in the future limit the
Company's ability to increase operations conducted by the Service
Corporation without jeopardizing the Company's qualifications as a
REIT.
EMPLOYEES
At February 4, 2000, the Company employed approximately 465 employees,
over 65 of whom were managers and professionals, approximately 362 of
whom were hourly paid employees involved in building operations and
approximately 38 of whom were clerical, data processing and other
administrative employees. There are currently three collective
bargaining agreements relating to 19 of the Company's properties
covering 362 employees of the Company.
RECENT DEVELOPMENTS
On February 11, 2000, the Company sold 29 West 35th Street for $11.7
million (before selling costs), realizing a gain of approximately $5.0
million on the sale.
On February 16, 2000, the Board of Directors of the Company authorized
a dividend distribution of one preferred share purchase right ("Right")
for each outstanding share of common stock which will be distributed to
all holders of record of the common stock on March 31, 2000. Each Right
entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series B junior participating preferred
stock, par value $0.01 per share ("Preferred Shares"), at a price of
$60.00 per one one-hundredth of a Preferred Share ("Purchase Price"),
subject to adjustment as provided in the rights agreement. The Rights
expire on March 5, 2010, unless the expiration date is extended or the
Right is redeemed or exchanged earlier by the Company.
The Rights are attached to each share of common stock. The Rights are
generally exercisable only if a person or group becomes the beneficial
owner of 17 percent or more of the outstanding common stock or
announces a tender offer for 17 percent or more of the outstanding
stock ("Acquiring Person"). In the event that a person or group becomes
an Acquiring Person, each holder of a Right, excluding the Acquiring
Person, will have the right to receive, upon exercise, common stock
having a market value equal to two times the Purchase Price of the
Right.
On February 18, 2000, the Company acquired a 49.9 percent managing
interest in 100 Park Avenue ("100 Park"), an 834,000 square foot,
36-story property, located in Manhattan. The purchase price of $95.8
million was funded through a combination of cash and debt. The Company
will provide managing and leasing services for 100 Park.
On March 8, 2000, the Company sold 36 West 44th Street for $31.5
million (before selling costs), realizing a gain of approximately $9.9
million on the sale.
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 the Company presently is 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. The Company has made no decision at this time with regard to
any actions it might take relating to the provisions contained in
the Tax Relief Extension Act. However, because the Company currently
has a 95% economic interest in its management subsidiary which is
more than 10% of its value, the Company 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, the Company may decide
to simplify its capital structure, including that of its management
subsidiary. If so, the Company then could consolidate its financial
statements. None of the actions the Company 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 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 December
31, 1999 the amount of SL Green's assets attributable to our taxable
subsidiary was approximately 0.5%.
ITEM 2. PROPERTIES
THE PORTFOLIO
GENERAL. As of December 31, 1999, the Company owned interests in 22
Class B office properties encompassing approximately 7.6 million
rentable square feet located primarily in midtown Manhattan. Certain of
the Properties include at least a small amount of retail space on the
lower floors, as well as basement/storage space. The Company's
portfolio also includes ownership interests in unconsolidated joint
ventures which own two Class B office properties in Manhattan,
encompassing approximately 1.0 million rentable square feet. These two
properties were approximately 94% leased at December 31, 1999.
The following table sets forth certain information with respect to
each of the properties in the portfolio as of December 31, 1999:
Percentage
of Percentage
Approximate Portfolio of
Year Rentable Rentable Portfolio Number
Built/ Square Square Percent Annualized Annualized of
Property Renovated Submarket Feet Feet Leased Rent(1) Rent Leases
- -------- --------- --------- ---- ---- ------ ------- ---- ------
17 Battery Place... 1906/1999 World Trade/ 811,000 10.7% 87% $14,159,850 7.6% 53
Battery Place
29 W. 35th Street (10) 1911/1985 Garment 78,000 1.0 97 1,621,098 0.9 6
50 W. 23rd Street. 1892/1992 Chelsea 333,000 4.5 100 6,920,420 3.7 17
36 West 44th Rockefeller
Street (5)...... 1922/1998 Center 165,000(5) 2.2 100 4,673,012(5) 2.5 68
70 W. 36th Street. 1923/1994 Garment 151,000 2.0 100 3,092,818 1.7 35
110 E. 42nd Street 1921/---- Grand Central No.251,000 3.3 100 6,683,104 3.6 36
470 Park Avenue Park Avenue
South(4)........ 1912/1994 South 260,000(4) 3.4 98 6,280,299 3.4 27
633 Third Avenue (7) 1962/1996 Grand Central No. 41,000 0.5 100 1,569,244 0.8 3
673 First Avenue (13) 1928/1990 Grand Central So.422,000 5.6 100 11,798,002 6.4 15
1140 Avenue of the Rockefeller
Americas........ 1926/1998 Center 191,000 2.5 100 5,659,916 3.1 33
1372 Broadway .... 1914/1998 Garment 508,000 6.9 100 12,419,992 6.7 29
1414 Avenue of the Rockefeller
Americas........ 1923/1998 Center 111,000 1.5 100 3,451,311 1.9 33
1466 Broadway..... 1907/1982 Times Square 289,000 3.8 91 9,471,807 5.1 138
420 Lexington (8). 1927/1999 Grand Cent.No. 1,188,000 15.7 97 34,140,285 18.4 265
321 W. 44th Street 1929/---- Times Square 203,000 2.7 97 4,506,734 2.4 28
440 Ninth Avenue.. 1927/1989 Garment 339,000 4.5 100 6,243,610 3.4 20
711 Third Avenue(9) 1955/---- Grand Cent.No. 524,000 6.9 96 14,737,966 7.9 26
1412 Broadway .... 1927/1998 Times Square 389,000 5.2 95 11,089,090 6.0 115
555 West 57th Street (13)1971/---- Midtown West 941,000 12.5 100 17,586,002 9.5 28
286 Madison Avenue 1918.1997 Grand Central So 112,000 1.5 94 2,566,328 1.4 37
290 Madison Avenue 1952/---- Grand Central So 36,800 0.5 86 1,106,223 0.6 3
292 Madison Avenue 1923/---- Grand Central So 187,000 2.5 100 6,100,242 3.3 18
------------ ------ -- ------------ ------ -----
Total/Weighted
average wholly-owned 7,530,800(6) 100.0% 97% $185,832,353 100.0% 1,033
------------ ------ -- ------------ ------ -----
------------ ------ -- ------------ ------ -----
90 Broad Street (11) 1930/---- Financial 339,000 83 6,777,310 40
1250 Broadway (12)(13) 1968/---- Penn Station 670,000 100 16,069,180 30
--------- --- ------------ -----
Total/Weighted
average joint ventures 1,009,000 94% 22,846,490 70
--------- --- ------------ -----
--------- --- ------------ -----
Grand Total/Weighted
average portfolio 8,539,800 97% $208,678,843 1,103
--------- --- ------------ -----
--------- --- ------------ -----
Annual
Net
Annualized Effective
Rent Rent
Per Per
Leased Leased
Square Square
Property Foot(2) Foot(3)
- -------- ------- -------
17 Battery Place... $20.07 $20.62
29 W. 35th Street (10) 21.43 24.91
50 W. 23rd Street. 20.78 18.53
36 West 44th
Street (5)...... 28.32 32.37
70 W. 36th Street. 20.48 19.74
110 E. 42nd Street 26.71 26.94
470 Park Avenue
South(4)........ 24.62 20.90
633 Third Avenue (7) 38.27 38.10
673 First Avenue (13) 27.96 24.15
1140 Avenue of the
Americas........ 29.63 27.91
1372 Broadway .... 24.45 20.25
1414 Avenue of the
Americas........ 31.09 34.25
1466 Broadway..... 36.02 33.07
420 Lexington (8). 29.63 29.85
321 W. 44th Street 22.89 17.44
440 Ninth Avenue.. 18.42 20.37
711 Third Avenue(9) 29.30 26.98
1412 Broadway .... 30.01 30.07
555 West 57th Street (13) 18.69 20.28
286 Madison Avenue 24.38 25.47
290 Madison Avenue 33.53 37.24
292 Madison Avenue 32.62 29.44
------ ------
Total/Weighted
average wholly-owned $25.47 $24.76
------ ------
------ ------
90 Broad Street (11) 24.09 22.91
1250 Broadway (12)(13) 23.98 24.09
------ ------
Total/Weighted
average joint ventures $24.05 $23.74
------ ------
------ ------
Grand Total/Weighted
average portfolio $25.42 $24.64
------ ------
------ ------
(1) Annualized Rent represents the monthly contractual rent under
existing leases as of December 31, 1999 multiplied by 12. This
amount reflects total rent before any rent abatements and
includes expense reimbursements, which may be estimated as of
such date. Total rent abatements for leases in effect as of
1999 for the 12 months ended December 31, 2000 are
approximately $2,046,973 for the wholly-owned Properties and
$382,938 for the joint ventures.
(2) Annualized Rent Per Leased Square Foot, represents Annualized
Rent, as described in footnote (1) above, presented on a per
leased square foot basis.
(3) Annual Net Effective Rent Per Leased Square Foot represents
(a) for leases in effect at the time an interest in the
relevant property was first acquired by SL Green, the
remaining lease payments under the lease (excluding operating
expense pass-throughs, if any) divided by the number of months
remaining under the lease multiplied by 12 and (b) for leases
entered into after an interest in the relevant property was
first acquired by SL Green or the Company, all lease payments
under the lease (excluding operating expense pass-throughs, if
any) divided by the number of months in the lease multiplied
by 12, and, in the case of both (a) and (b), minus tenant
improvement costs and leasing commissions, if any, paid or
payable by the Company and presented on a per leased square
foot basis. Annual Net Effective Rent Per Leased Square Foot
includes future contractual increases in rental payments and
therefore, in certain cases, may exceed Annualized Rent Per
Leased Square Foot.
(4) 470 Park Avenue South is comprised of two buildings, 468 Park
Avenue South (a 17-story office building) and 470 Park Avenue
South (a 12-story office building).
(5) The 36 West 44th Street is comprised of two buildings, 36 West
44th Street (a 14-story building) and 35 West 43rd Street (a
four-story building).
(6) Includes approximately 6,974,700 square feet of rentable
office space, 406,000 square feet of rentable retail space and
150,100 square feet of garage space.
(7) The Company holds fee interests in condominium units.
(8) The Company holds an operating sublease interest in the land
and improvements.
(9) The Company holds a leasehold mortgage interest, a net
sub-leasehold interest and a co-tenancy interest in this
property.
(10) This property was sold on February 11, 2000.
(11) The Company owns a 35% economic interest in this joint
venture.
(12) The Company owns a 49.9% interest in this joint venture.
(13) Includes a parking garage.
HISTORICAL OCCUPANCY. The Company has historically achieved consistently higher
occupancy rates in comparison to the overall Class B Midtown Markets, as shown
in the following table:
OCCUPANCY RATE OF CLASS B
PERCENT OFFICE PROPERTIES
LEASED AT THE IN THE MIDTOWN
PROPERTIES (1) MARKETS (2)
-------------- -----------
December 31, 1999.............................. 97% 93%
December 31, 1998.............................. 93 92
December 31, 1997.............................. 94 90
December 31, 1996.............................. 95 89
December 31, 1995.............................. 95 87
December 31, 1994.............................. 98 86
December 31, 1993.............................. 96 84
- -----------
(1) Includes space for leases that were executed as of the relevant date in
Properties owned by the Company or SL Green as of that date.
(2) Includes vacant space available for direct lease, but does not include
vacant space available for sublease; including vacant space available
for sublease would reduce the occupancy rate as of each date shown.
Sources: RELocate, Rosen Consulting Group.
LEASE EXPIRATIONS. Leases at the Properties, as at many other Manhattan
office properties, typically extend for a term of ten or more years,
compared to typical lease terms of 5-10 years in other large U.S. office
markets. From January 1, 1994 through December 31, 1999, the Company or its
predecessor renewed approximately 70% of the leases scheduled to expire at
the Properties owned and managed by the Company or its predecessor during
such period, constituting renewal of approximately 70% of the expiring
rentable square footage during such period. Through December 31, 2004, the
average annual rollover at the Properties is approximately 594,000 square
feet, representing an average annual expiration of 8.1% of the total leased
square feet at the Properties per year (assuming no tenants exercise
renewal or cancellation options and no tenant bankruptcies or other tenant
defaults).
The following tables set forth a schedule of the annual lease expirations
at the wholly-owned Properties and joint ventures, respectively, with
respect to leases in place as of December 31, 1999 for each of the next ten
years and thereafter (assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other
tenant defaults):
ANNUALIZED
RENT
WHOLLY-OWNED PROPERTIES PERCENTAGE PER
SQUARE OF ANNUALIZED LEASED
NUMBER FOOTAGE TOTAL RENT SQUARE
OF OF LEASED OF FOOT OF
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES(1) LEASES (2)
- ------------------------ ------ ------ ---- --------- ----------
2000...................... 261 614,974 8.40% $17,140,683 $27.87
2001...................... 130 520,330 7.11% 13,644,811 26.22
2002...................... 151 600,186 8.20% 14,752,576 24.58
2003...................... 126 619,510 8.47% 16,303,530 26.32
2004...................... 105 617,246 8.44% 16,352,108 26.49
2005...................... 42 546,179 7.46% 14,252,074 26.09
2006...................... 43 452,655 6.19% 11,984,496 26.48
2007...................... 36 475,152 6.49% 10,860,478 22.86
2008...................... 41 610,643 8.34% 17,107,401 28.02
2009...................... 42 612,086 8.36% 16,129,440 26.35
2010 & thereafter...... 56 1,648,658 22.53% 37,304,756 22.63
-- --------- ------ ---------- -----
Total/weighted
average........... 1,033 7,317,619 100% $185,832,353 $25.47
===== ========= ==== ============ ======
ANNUALIZED
RENT
JOINT VENTURES PERCENTAGE PER
SQUARE OF ANNUALIZED LEASED
NUMBER FOOTAGE TOTAL RENT SQUARE
OF OF LEASED OF FOOT OF
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES(1) LEASES (2)
- ------------------------ ------ ------ ---- --------- ----------
2000...................... 10 51,011 5.37% $1,284,844 $25.19
2001...................... 3 7,824 0.82% 217,484 27.80
2002...................... 7 63,456 6.68% 1,757,163 27.69
2003...................... 11 194,343 20.45% 4,407,750 22.68
2004...................... 10 140,124 14.75% 3,545,258 25.30
2005...................... 4 10,745 1.13% 396,342 36.89
2006...................... 3 179,219 18.86% 3,662,495 20.44
2007...................... 2 74,603 7.85% 1,535,465 20.58
2008...................... 9 92,612 9.75% 2,360,055 25.48
2009...................... 8 88,313 9.30% 2,360,934 26.73
2010 & thereafter...... 3 47,851 5.04% 1,318,700 27.56
- ------ ----- --------- -----
Total/weighted
average........... 70 950,101 100% $22,846,490 $24.05
== ======= ==== =========== ======
(1) Annualized Rent of Expiring Leases, as used throughout this report,
represents the monthly contractual rent under existing leases as of
December 31, 1999 multiplied by 12. This amount reflects total rent
before any rent abatements and includes expense reimbursements, which
may be estimated as of such date. Total rent abatements for leases in
effect as of December 31, 1999 for the 12 months ending December 31,
2000 are approximately $2,046,973 for the wholly-owned Properties and
$383,000 for the joint venture properties.
(2) Annualized Rent Per Leased Square Foot of Expiring Leases, as used
throughout this report, represents Annualized Rent of Expiring Leases,
as described in footnote (1) above, presented on a per leased square
foot basis.
TENANT DIVERSIFICATION. The wholly-owned Properties currently are leased to over
1,000 tenants which are engaged in a variety of businesses, including
publishing, health services, retailing and banking. The following table sets
forth information regarding the leases with respect to the 20 largest tenants at
the Properties, based on the amount of square footage leased by such tenants as
of December 31, 1999:
PERCENTAGE
OF PERCENTAGE
AGGREGATE OF
PORTFOLIO AGGREGATE
REMAINING LEASED PORTFOLIO
LEASE TERM TOTAL LEASED SQUARE ANNUALIZED ANNUALIZED
TENANT(1) PROPERTIES IN MONTHS SQUARE FEET FEET RENT RENT
- --------- ---------- --------- ----------- ---- ---- ----
City Of New York(3) 17 Battery Place 96 295,371 4.04% 5,794,689 3.12%
BMW of Manhattan, Inc. 555 West 57th Street 151 183,438 2.51% 2,348,718 1.26%
City University of NY-
CUNY 555 West 57th Street 181 144,661 1.98% 3,393,205 1.83%
MTA .(4) 420 Lexington Avenue 193 134,687 1.84% 3,255,806 1.75%
St. Luke's Roosevelt
Hospital 555 West 57th Street 116 133,700 1.83% 2,993,732 1.61%
CBS, Inc. 555 West 57th Street 48 106,644 1.46% 1,599,988 0.86%
New York Presbyterian 555 West 57th Street and
Hospital (5) 673 First Avenue 120 99,650 1.36% 2,426,161 1.31%
Parade Publications, Inc. 711 Third Avenue 128 82,444 1.13% 1,813,768 0.98%
Kallir, Phillips, Ross, Inc. 673 First Avenue 54 80,000 1.09% 2,403,695 1.29%
UNICEF 673 First Avenue 48 80,000 1.09% 2,520,411 1.36%
Greater New York Hospital 555 West 57th Street 171 74,937 1.02% 2,161,648 1.16%
New York Life Insurance
Company 420 Lexington Avenue 126 73,373 1.00% 2,523,438 1.36%
Gibbs & Cox Inc. 50 West 23rd Street 68 71,200 0.97% 1,685,371 0.91%
TBWA-Ketchum Public
Relations 292 Madison Avenue 72 70,791 0.97% 2,151,404 1.16%
Cirpriani 42nd Street, LLC 110 East 42nd Street 108 69,703 0.95% 2,499,996 1.35%
Wildcat Service Corporation 17 Battery Place 114 68,860 0.94% 1,387,836 0.75%
Crain Communications, Inc. 711 Third Avenue 109 66,735 0.91% 2,068,785 1.11%
Ross Stores 1372 Broadway 89 64,144 0.88% 1,436,942 0.77%
Capital Mercury Shirt 1372 Broadway 67 64,122 0.88% 1,410,684 0.76%
NYC Board of Education 50 West 23rd Street 126 64,000 0.87% 731,649 0.39%
---------------------------------------------------------------
TOTAL/Weighted
Average(2).... 109 2,028,460 27.72% $46,607,927 25.09%
---------------------------------------------------------------
Joint Venture Properties
- ------------------------
The City of New York (if 1250 Broadway and
combined) 17 Battery Place 96 343,371 6,866,414
Visiting Nurse Service of NY 1250 Broadway 80 168,000 3,441,345
Information Builders Inc. 1250 Broadway 39 88,571 1,988,651
------- -----------
TOTAL 599,942 $12,296,410
======= ===========
(1) This list is not intended to be representative of the Company's tenants
as a whole.
(2) Weighted average calculation based on total rentable square footage
leased by each tenant.
(3) 30,740 square feet expire February 2006; 264,631 square feet expire
December 2007.
(4) 22,467 square feet expire January 2008; 112,220 square feet expire
January 2016.
(5) 76,000 square feet expire August 2006; 23,650 square feet expire
December 2009
420 LEXINGTON AVENUE (THE GRAYBAR BUILDING)
The Company purchased the operating sublease at 420 Lexington Avenue, a.k.a. the
Graybar Building in March 1998. This 31-story office property sits at the foot
of Grand Central Terminal in the Grand Central North sub-market of the midtown
Manhattan office market. The Property was designed by Sloan and Robertson and
completed in 1927. The building takes its name from its original owner, the
Graybar Electric Company. The Property contains approximately 1.2 million
rentable square feet (including approximately 1,150,000 square feet of office
space, 12,260 square feet of mezzanine space and 27,463 square feet of retail
space), with floor plates ranging from 17,000 square feet to 50,000 square feet.
The Company restored the grandeur of this building through the implementation of
an $11.9 million capital improvement program geared toward certain cosmetic
upgrades including new entrance and storefronts, new lobby, elevator cabs, and
elevator lobbies and corridors.
The Graybar Building offers unsurpassed convenience to transportation. This
Property enjoys excellent accessibility to a wide variety of transportation
options with a direct passageway to Grand Central Station. Grand Central Station
is the major transportation destination for commutation from southern
Connecticut and Westchester County. Major bus and subway lines serve this
Property, as well. The Property is ideally located to take advantage of the
renaissance of Grand Central Terminal, which has been redeveloped into a major
retail/transportation hub containing restaurants such as Michael Jordan's
Steakhouse and retailers such as Banana Republic and Kenneth Cole.
The Graybar Building consists of the building at 420 Lexington Avenue and fee
title to a portion of the land above the railroad tracks and associated
structures which form a portion of the Grand Central Terminal complex in midtown
Manhattan. The Company interest consists of a tenant's interest in a controlling
sublease, as described below. The ownership structure of the Graybar Building is
as follows.
Fee title to the building and the land parcel is owned by an unaffiliated third
party, who also owns the landlord's interest under a lease expiring December 31,
2008 subject to renewal by the tenant through December 31, 2029 (the "Ground
Lease"). The Company controls the exercise of this renewal option through the
terms of the subordinate leases described below.
The tenant under the Ground Lease is the holder of the landlord's interest under
a lease (the "Ground Sublease") which is coterminous (except that it ends on
December 30, 2029) and has a complementary renewal option term structure and
control to the Ground Lease. The tenant's interest under the Ground Sublease is
held by an unaffiliated third party. The tenant under the Ground Sublease is the
holder of the landlord's interest under a lease (the "Operating Lease") which is
coterminous (except that it ends on December 28, 2029) and has a complementary
renewal option term structure and control to the Ground Lease. The tenant's
interest under the Operating Lease is held by an unaffiliated third party. The
tenant under the Operating Lease is the holder of the landlord's interest under
a lease (the "Operating Sublease") which is coterminous and has a complementary
renewal option term structure and control to the Ground Lease. The tenant's
interest under the Operating Sublease is held by the Company.
As of December 31, 1999, approximately 98% of the rentable square footage in the
Graybar Building was leased. The office space was 99% leased, the mezzanine
space was 95% leased and the retail space was 75% leased. The following table
sets forth certain information with respect to the Property:
ANNUALIZED
RENT PER LEASED
YEAR-END PERCENT OCCUPIED SQUARE FOOT
- ----------- ---------------- ---------------
1999.......................................................... 97% $29.63
1998.......................................................... 98 25.30
1997.......................................................... 86 26.80
1996.......................................................... 88 27.26
1995.......................................................... 91 28.97
As of December 31, 1999, the Graybar Building was leased to 248 tenants
operating in various industries, including legal services, financial services
and advertising, none of whom occupied 10% or more of the rentable square
footage at the Property.
The following table sets out a schedule of the annual lease expirations at the
Graybar Building for leases executed as of December 31, 1999 with respect to
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
ANNUALIZED
SQUARE PERCENTAGE ANNUALIZED RENT PER
NUMBER FOOTAGE OF RENT LEASED
OF OF TOTAL OF SQUARE FOOT OF
EXPIRING EXPIRING LEASED SQUARE EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES
- ------------------------ -------- -------- ------------- ---------- --------------
2000.............................. 54 143,862 12.3% $ 3,884,490 $27.00
2001.............................. 38 115,927 9.9% 3,570,552 30.80
2002.............................. 37 131,227 11.2% 3,800,525 28.96
2003.............................. 34 77,094 6.6% 2,360,445 30.62
2004.............................. 32 101,600 8.7% 3,121,618 30.72
2005.............................. 14 65,290 5.6% 2,055,296 31.48
2006.............................. 6 73,967 6.3% 1,935,367 26.17
2007.............................. 12 35,489 3.0% 1,062,734 29.95
2008.............................. 7 94,402 8.1% 2,973,682 31.50
2009.............................. 7 91,932 7.9% 2,919,378 31.76
2010 and thereafter............... 7 221,620 20.4% 6,456,198 29.13
----------------------------------------------------------------------------
Subtotal/Weighted average......... 248 1,152,410 100% $34,140,285 $29.63
----------------------------------------------------------------------------
The aggregate undepreciated tax basis of depreciable real property at the
Graybar Building for Federal income tax purposes was $123.9 million as of
December 31, 1999. Depreciation and amortization are computed for Federal
income tax purposes on the straight-line method over lives which range up
to 39 years.
The current real estate tax rate for all Manhattan office properties is
$9.742 per $100 of assessed value. The total annual tax for the Graybar
Building at this rate including the applicable BID tax for the 1999-00 tax
year is $5.7 million (at a taxable assessed value of $58.8 million).
555 WEST 57TH STREET (BMW BUILDING)
555 West 57th Street, The BMW Building, is a 20-story, 941,000 square foot
building located between 10th and 11th Avenues in the Columbus Circle -
Midtown West area of New York City. The building was constructed in 1973
and has undergone recent improvements including elevator modernization,
HVAC and fire alarm systems, and is currently undergoing a facade
restoration. The building is 100% occupied by primarily large institutional
and commercial entities. The ground floor of the building is a newly
designed 23,000 square foot BMW automobile showroom. The Company owns a
100% fee simple interest in the property.
ANNUALIZED RENT PER
YEAR END PERCENT OCCUPIED LEASED SQUARE FOOT
--------- ----------------- --------------------
1999............... 100% $18.69
As of December 31, 1999, the property was leased to 28 tenants. The five
largest tenants, all of whom occupy 10% or more of the rentable square
footage at the property, occupy approximately 71% of the rentable square
footage of the property.
The following table sets out a schedule of the property's annual lease
expirations with respect to leases executed as of December 31, 1999 for
each of the next ten years and thereafter (assuming that no tenants
exercise renewal or cancellation options and that there are no tenant
bankruptcies or other tenant defaults):
PERCENTAGE ANNUALIZED
OF TOTAL ANNUALIZED RENT PER
SQUARE LEASED RENT OF LEASED SQUARE
NUMBER OF FOOTAGE OF SQUARE EXPIRING FOOT OF
YEAR OF LEASE EXPIRATION EXPIRING LEASES EXPIRING LEASES FOOTAGE LEASES EXPIRING LEASES
------------------------ --------------- --------------- ----------- ----------- ------------------
2000 4 6,580 0.7% $244,187 $37.11
2001 1 19,000 2.0% 457,650 24.09
2002 3 36,424 3.9% 569,190 15.63
2003 4 145,505 15.5% 2,433,049 16.72
2004 2 5,100 0.6% 100,796 19.76
2005 1 6,800 0.7% 115,600 17.00
2006 2 32,415 3.4% 654,460 20.19
2007 -- -- -- -- --
2008 1 1,800 0.2% 35,000 19.44
2009 2 43,403 4.6% 1,017,000 23.43
2010 and thereafter 8 643,973 68.4% 11,959,070 18.57
---------------- ------------- -------------- --------------- ----------------
Subtotal/Weighted Average
28 941,000 100% $17,586,002 $18.69
================ ============= ============== =============== ================
The aggregate undepreciated tax basis of depreciable real property at 555
West 57th Street for Federal income tax purposes was $101.7 million as of
December 31, 1999. Depreciation and amortization are computed on the
straight-line method over 39 years.
The current real estate tax rate for all Manhattan office properties is
$9.989 per $100 of assessed value. The total annual tax for 555 West 57th
Street at this rate for the 1999-00 tax year is $2.8 million (at an
assessed value of $28.3 million).
ENVIRONMENTAL MATTERS
The Company engaged independent environmental consulting firms to perform
Phase I environmental site assessments on the Properties, in order to
assess existing environmental conditions. All of the Phase I assessments
have been conducted since March 1997, except for the Bar Building, where a
Phase I assessment was conducted in September 1996. All of the Phase I
assessments met the ASTM Standard. Under the ASTM Standard, a Phase I
environmental site assessment consists of a site visit, an historical
record review, a review of regulatory agency data bases and records,
interviews, and a report, with the purpose of identifying potential
environmental concerns associated with real estate. The Phase I
assessments conducted at the Properties also addressed certain issues that
are not covered by the ASTM Standard, including asbestos, radon,
lead-based paint and lead in drinking water. These environmental site
assessments did not reveal any known environmental liability that the
Company believes will have a material adverse effect on the Company's
financial condition or results of operations or would represent a material
environmental cost.
The following summarizes certain environmental issues described in the
Phase I environmental site assessment reports:
The asbestos surveys conducted as part of the Phase I site assessments
identified immaterial amounts of damaged, friable asbestos-containing
material ("ACM") in isolated locations in three properties owned as of the
IPO (470 Park Avenue South, 29 West 35th Street and the Bar Building) and
in the Acquisition Properties (1140 Avenue of the Americas and 1372
Broadway). At each of these Properties, the environmental consultant
recommended abatement of the damaged, friable ACM and this was completed
by the Company at each of these properties. At all of the Properties
except 50 West 23rd Street, non-friable ACM, in good condition, was
identified. For each of these Properties, the consultant recommended
preparation and implementation of an asbestos Operations and Maintenance
("O & M") program, to monitor the condition of ACM and to ensure that any
ACM that becomes friable and damaged is properly addressed and as of this
date the Company has implemented such an Operations and Maintenance
program.
The Phase I environmental site assessments identified minor releases of
petroleum products at the Bar Building and at 70 West 36th Street. The
consultant recommended implementation of certain measures to further
investigate, and to clean up, these releases. The Company does not believe
that any actions that may be required as a result of these releases will
have a material adverse effect on the Company's business.
GENERAL TERMS OF LEASES IN THE MIDTOWN MARKETS
Leases entered into for space in the midtown markets typically contain
terms which may not be contained in leases in other U.S. office markets.
The initial term of leases entered into for space in excess of 10,000
square feet in the midtown markets generally is ten to 15 years. The
tenant often will negotiate an option to extend the term of the lease for
one or two renewal periods of five years each. The base rent during the
initial term often will provide for agreed upon increases periodically
over the term of the
lease. Base rent for renewal terms, and base rent for the final years of a
long-term lease (in those leases which do not provide an agreed upon rent
during such final years), often is based upon a percentage of the fair
market rental value of the premises (determined by binding arbitration in
the event the landlord and the tenant are unable to mutually agree upon
the fair market value), but not less than the base rent payable at the end
of the prior period. Leases typically do not provide for increases in rent
based upon increases in the consumer price index.
In addition to base rent, the tenant also generally will pay the tenant's
pro rata share of increases in real estate taxes and operating expenses
for the building over a base year. In some leases, in lieu of paying
additional rent based upon increases in real estate taxes and building
operating expenses, the tenant will pay additional rent based upon
increases in the wage rate paid to porters over the porters' wage rate in
effect during a base year.
Electricity is most often supplied by the landlord either on a submetered
basis or rent inclusion basis (i.e., a fixed fee is included in the rent
for electricity, which amount may increase based upon increases in
electricity rates or increases in electrical usage by the tenant). Base
building services other than electricity (such as heat, air conditioning
and freight elevator service during business hours, and base building
cleaning) typically are provided at no additional cost, with the tenant
paying additional rent only for services which exceed base building
services or for services which are provided other than during normal
business hours.
In a typical lease for a new tenant, the landlord, at its expense, will
deliver the premises with all existing improvements demolished and any
asbestos abated. The landlord also typically will provide a tenant
improvement allowance, which is a fixed sum which the landlord will make
available to the tenant to reimburse the tenant for all or a portion of
the tenant's initial construction of its premises. Such sum typically is
payable as work progresses, upon submission of invoices for the cost of
construction. However, in certain leases (most often for relatively small
amounts of space), the landlord will construct the premises for the
tenant.
MORTGAGE INDEBTEDNESS
The Company has outstanding approximately $352.7 million of indebtedness
secured by 15 of the Properties. Of this total, $270.7 million was fixed
rate debt (weighted average interest rate of 7.97%) and $82.0 million was
floating rate debt (weighted average interest rate of 8.34%). The mortgage
notes payable collateralized by the respective properties and assignment
of leases at December 31, 1999 are as follows:
PROPERTY MORTGAGE NOTES 1999 1998
-------- -------------- ---- ----
50 West 23rd Street Note payable to GMAC with interest at 7.33%, due
December 2007............................................... $21,000 $21,000
29 West 35th Street First mortgage note with interest payable at 8.464%, due
February 1, 2001............................................ 2,825 2,903
673 First Avenue First mortgage note with interest payable at 9.0%, due
December 13, 2003........................................... 14,740 16,452
470 Park Avenue South First mortgage note with interest payable at 8.25%, due
April 1, 2004.............................................. 10,153 10,507
1414 Avenue of Americas,
633 Third Avenue, 36
West 44th Street and First mortgage note with interest payable at 7.9%, due
70 West 36th Street May 1, 2009................................................. 50,800 ---
1412 Broadway First mortgage note with interest payable at 7.62%, due
May 1, 2006................................................. 52,000 ---
711 Third Avenue First mortgage note with interest payable at 8.13%, due
September 10, 2005.......................................... 49,225 ---
--------- ----------
555 West 57th Street First mortgage note with interest payable at 8.10%, due
November 4, 2004 (1)........................................ 70,000 ---
--------- ----------
Total fixed rate debt.................................. 270,743 50,862
--------- ----------
420 Lexington Avenue First mortgage note with interest payable at 9.25%, due
May 21, 2001................................................ 55,000 ---
Madison Properties First mortgage note with interest payable at 7.98%, due
June 1, 2000................................................ 26,950 ---
--------- ----------
Total floating rate debt............................... 81,950 ---
--------- ----------
Total mortgage notes payable................................ $352,693 $50,862
========= ==========
(1) The Company entered into an interest rate protection agreement which
fixed the LIBOR interest rate at 6.10% at December 31, 1999. If LIBOR
exceeds 6.10%, the loan will float until the maximum cap of 6.58% is
reached.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1999 the Company was not involved in any material
litigation nor, to management's knowledge, is any material litigation
threatened against them or their properties other than routine litigation
arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company began trading on the New York Stock
Exchange ("NYSE") on August 15, 1997 under the symbol "SLG". On March 9,
2000, the reported closing sale price per share of Common Stock on the
NYSE was $22 5/16 and there were approximately 58 holders of record of
the Company's Common Stock. The table below sets forth the quarterly high
and low closing sales prices of the Common Stock on the NYSE and the
distributions paid by the Company with respect to the periods indicated.
HIGH LOW DISTRIBUTIONS
---- -------- ----------------
Quarter ended March 31, 1998 $27 7/8 $24 $0.35
Quarter ended June 30, 1998 $26 1/2 $21 15/16 $0.35
Quarter ended September 30, 1998 $24 3/8 $17 7/8 $0.35
Quarter ended December 31, 1998 $21 3/4 $17 1/2 $0.35
Quarter ended March 31, 1999 $22 3/16 $17 3/4 $0.35
Quarter ended June 30, 1999 $22 1/4 $17 11/16 $0.35
Quarter ended September 30, 1999 $21 5/8 $19 1/2 $0.35
Quarter ended December 31, 1999 $22 $17 7/8 $0.3625
Dividends are declared during each quarter and the dividend is paid
during the subsequent quarter.
UNITS
At December 31, 1999 the Company had 2,428,056 Operating Partnership
Units outstanding. These units received distributions per unit in the
same manner as dividends were distributed per share to common
shareholders.
SALE OF UNREGISTERED SECURITIES
The Company's issuance of securities in the transactions referenced below
were registered under the Securities Act of 1933, pursuant to the
exemption contemplated by Section 4(2) thereof for transactions not
involving a public offering.
The Company issued 159,515 and 240,000 shares of its Common Stock in July
1998 and January 1999, respectively, for deferred stock-based
compensation in connection with employment contracts.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company,
and on an historical combined basis for the SL Green Predecessor (as
defined below), and should be read in conjunction with the Company's
Financial Statements and notes thereto included in Item 8, "Financial
Statements and Supplementary Data" and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in this
Form 10-K. The balance sheet information as of December 31, 1999, 1998
and 1997 represents the consolidated balance sheet of the Company and the
statement of income for the years ended December 31, 1999 and 1998 and
the period August 21, 1997 to December 31, 1997 represents consolidated
results of the Company since the IPO. The combined balance sheet
information as of December 31, 1996, and 1995 and statements of income
for the period January 1, 1997 to August 20, 1997 and for the years ended
December 31, 1996, and 1995 of the SL Green Predecessor have been derived
from the historical combined financial statements.
The "SL Green Predecessor" consists of the assets, liabilities, and
owners' deficits and results of operations of two properties, 1414 Avenue
of the Americas and 70 West 36th Street, equity interests in four other
properties, 673 First Avenue, 470 Park Avenue South, 29 West 35th Street
and the Bar Building (which interests are accounted for under the equity
method) and of the assets, liabilities and owners' equity and results of
operations of the Company's affiliated Service Corporation.
THE COMPANY AND THE SL GREEN PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THE COMPANY SL GREEN PREDECESSOR
----------------------------------------- ----------------------------------------
YEAR ENDED YEAR ENDED AUGUST 21 - JANUARY 1 - YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, AUGUST 20, -------------------------
1999 1998 1997 1997 1996 1995
---------- ---------- -------- -------- ---------- ----------
Operating Data:
Total revenue ................. $ 206,017 $ 134,552 $ 23,207 $ 9,724 $ 10,182 $ 6,564
--------- --------- --------- --------- --------- ---------
Property operating
expenses .................... 62,168 45,207 7,077 2,722 3,197 2,505
Real estate taxes ............. 29,198 21,224 3,498 705 703 496
Interest ...................... 28,610 13,086 2,135 1,062 1,357 1,212
Depreciation and
amortization ................ 27,260 15,404 2,815 811 975 775
Loss on terminated
project ..................... -- 1,065 -- -- -- --
Loss on hedge transaction ..... -- 176 -- -- -- --
Marketing, general and
administration .............. 10,922 5,760 948 2,189 3,250 3,052
--------- --------- --------- --------- --------- ---------
Total expenses ................ 158,158 101,922 16,473 7,489 9,482 8,040
--------- --------- --------- --------- --------- ---------
Operating income (loss) ....... 47,859 32,630 6,734 2,235 700 (1,476)
Equity in net income (loss)
from Service Corporation .... 730 387 (101) -- -- --
Equity in net income of
unconsolidated joint
ventures .................... 377 -- -- -- -- --
Equity in net loss of
uncombined joint ventures ... -- -- -- (770) (1,408) (1,914)
--------- --------- --------- --------- --------- ---------
Income (loss) before
minority interest and
extraordinary items ......... 48,966 33,017 6,633 1,465 (708) (3,390)
Minority interest ............. (5,121) (3,043) (1,074) -- -- --
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary items ......... 43,845 29,974 5,559 1,465 (708) (3,390)
Extraordinary items (net of
minority interest) .......... (989) (522) (1,874) 22,087 8,961 --
--------- --------- --------- --------- --------- ---------
Net income (loss) ............. 42,856 29,452 3,685 23,552 8,253 (3,390)
Preferred divi-
dends and accretion ......... (9,598) (5,970) -- -- -- --
--------- --------- --------- --------- --------- ---------
Income available to common
shareholders ................ $ 33,258 $ 23,482 $ 3,685 $ 23,552 $ 8,253 $ (3,390)
========= ========= ========= ========= ========= =========
Income per common share
before extraordinary item
(basic and diluted) ......... $ 1.41 $ 1.22 $ 0.45
========= ========= =========
Net income per common share
(basic and diluted) ......... $ 1.37 $ 1.19 $ 0.30
========= ========= =========
Cash dividends declared per
common share ................ $ 1.41 $ 1.40 $ 0.51
========= ========= =========
Basic weighted average common
shares outstanding ........ 24,192 19,675 12,292
========= ========= =========
Diluted weighted average
common share and common
share equivalents outstanding 26,680 22,145 12,404
========= ========= =========
THE COMPANY SL GREEN PREDECESSOR
--------------------------------------- ----------------------
DECEMBER 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
Commercial real estate,
before accumulated
depreciation ........... $908,866 $697,061 $338,818 $ 26,284 $ 15,559
Total assets ............. 1,071,242 777,796 382,775 30,072 16,084
Mortgages and notes payable 435,693 162,162 128,820 16,610 12,700
Accrued interest payable.. 2,650 494 552 90 2,894
Minority interest ........ 41,494 41,491 33,906 --- ---
Stockholders' equity/owners'
(deficit)............... 406,104 404,826 176,208 (8,405) (18,848)
THE COMPANY SL GREEN PRECEDESSOR
------------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED AUGUST 21 - JANUARY 1 YEAR ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, AUGUST 20, -------------------------
1999 1998 1997 1997 1996 1995
------------- -------------- ------------- ------------ -------- ------
Other Data:
Funds from operations
after distributions
to preferred share-
holders (1) ............. $ 62,645 $ 42,858 $ 9,355 $ -- $ -- $---
Funds from operations
before distributions to
preferred shareholders(1) 71,845 48,578 9,355 -- -- --
Net cash provided by
(used in) operating
activities .............. 48,013 22,665 5,713 2,838 272 (234)
Net cash provided by
financing activities .... 195,990 347,382 224,234 2,782 11,960 63
Net cash (used in)
investing activities .... (228,678) (376,593) (217,165) (5,559) (12,375) (432)
----------
(1) The White Paper on Funds from Operations ("FFO") approved by the
Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") in March 1995 defines FFO as net income
(loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of properties and
significant non-recurring events that materially distort the
comparative measurement of the Company's performance over time, plus
real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. In
October 1999, NAREIT revised the definition of FFO to include
non-recurring events. This revised definition is effective for all
periods beginning on or after January 1, 2000. The Company believes
that FFO is helpful to investors as a measure of the performance of
an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company
to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes FFO in accordance with the
current standards established by NAREIT which may not be comparable
to FFO reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. FFO does not
represent cash generated from operating activities in accordance
with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available for the
Company's cash needs, including its ability to make cash
distributions. For a reconciliation of net income and FFO, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Funds from Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements
of historical facts, included in this report that address activities,
events or developments that the Company expects, believes or anticipates
will or may occur in the future, including such matters as future capital
expenditures, dividends and acquisitions (including the amount and nature
thereof), expansion and other development trends of the real estate
industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other
factors it believes are appropriate. Such statements are subject to a
number of assumptions, risks and uncertainties, general economic and
business conditions, the business opportunities that may be presented to
and pursued by the Company, changes in laws or regulations and other
factors, many of which are beyond the control of the Company. Any such
statements are not guarantees of future performance and actual results or
developments may differ materially from those anticipated in the
forward-looking statements.
The following discussion related to the consolidated financial
statements of the Company and the combined financial statements of SL
Green Predecessor should be read in conjunction with the financial
statements appearing in Item 8. In connection with the Formation
Transactions as described in Note 1 to the financial statements there
were significant changes in the financial condition and results of
operations of the Company which are outlined below. Consequently, the
comparison of the 1998/1997 historical periods provides only limited
information regarding the operations of the Company. Therefore, in
addition to the historical comparison, the Company has provided a
comparison of the results of operations on a pro forma basis for that
period.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31,
1998
The following comparison for the year ended December 31, 1999 compared
to the year ended December 31, 1998 makes reference to the following:
(i) the effect of the "Same-Store Properties," which represents all
properties owned by the Company at December 31, 1997, (ii) the effect of
the "1998 Acquisitions," which represents all properties acquired in
1998, and (iiii) the effect of the "1999 Acquisitions," which represents
all properties acquired in 1999.
Rental revenue for the year ended December 31, 1999 totaled $174.9
million representing an increase of $60.0 million compared to $114.9
million for the year ended December 31, 1998. The increase is primarily
attributable to the revenue associated with the following: (i)
Same-Store Properties which increased rental revenue $5.5 million, (ii)
the 1998 Acquisitions which increased rental revenue by $30.0 million,
and (iii) the 1999 Acquisitions which increased rental revenue by $24.5
million.
Escalation and reimbursement revenue for the year ended December 31,
1999 totaled $21.9 million representing an increase of $6.0 million
compared to $15.9 million for the year ended December 31, 1998. The
increase is primarily attributable to the revenue associated with the
following: (i) the 1998 Acquisitions which increased revenue by $2.7
million, and (ii) the 1999 Acquisitions which increased revenue by $3.4
million, partially offset by the Same-Store Properties which decreased
revenue by $0.1 million.
Signage revenue for the year ended December 31, 1999 totaled $1.7
million, representing an increase of $1.6 million compared to $0.1
million for the year ended December 31, 1998. The increase is primarily
attributable to 1466 Broadway ($1.4 million) and 1414 Avenue of the
Americas ($0.2 million).
Investment income totaled $5.3 million for the year ended December 31,
1999 representing an increase of $2.0 million compared to $3.3 million
for the year ended December 31, 1998. The investment income for 1999
primarily represents interest income from the 17 Battery Park mortgage
($0.7 million), 521 Fifth Avenue ($1.3 million), 636 11th Avenue ($0.9
million), 1370 Avenue of the Americas ($1.6 million), interest on other
mortgage notes ($0.3 million) and interest from excess cash on hand
($0.5 million).
Operating expenses for the year ended December 31, 1999 totaled $49.4
million representing an increase of $15.3 million compared to $34.1
million for the year ended December 31, 1998. The increase was primarily
attributable to: (i) Same-Store Properties which increased operating
expenses by $0.9 million, (ii) the 1998 Acquisitions which increased
operating expenses by $5.7 million and (iii) the 1999 Acquisition
properties which increased operating expenses by $8.7 million.
Ground rent for the year ended December 31, 1999 totaled $12.8 million
representing an increase of $1.7 million compared to $11.1 million for
the year ended December 31, 1998. This increase primarily resulted from
increased ground rent at 420 Lexington Avenue ($1.2 million), and 711
Third Avenue ($0.5 million).
Interest expense for the year ended December 31, 1999 totaled $28.6
million representing an increase of $15.5 million compared to $13.1
million for the year ended December 31, 1998. This increase is primarily
attributable to: (i) SameStore Properties ($2.6 million) as new secured
mortgage financing was placed on assets in this portfolio, (ii) 1998
Acquisitions ($6.8 million) due to financing placed on 420 Lexington
Avenue, 711 Third Avenue and 1412 Broadway, (iii) 1999 Acquisitions
($5.0 million) due to mortgage financing associated with these purchases
and (iv) $1.1 million higher interest expense at the corporate level.
Depreciation and amortization for the year ended December 31, 1999
totaled $27.3 million representing an increase of $11.9 million compared
to $15.4 million for the year ended December 31, 1998. The increase is
primarily attributable to: (i) Same-Store Properties which increased
depreciation by $1.3 million, (ii) the 1998 Acquisitions which increased
depreciation by $6.4 million, (iii) the 1999 Acquisitions which
increased depreciation by $3.2 million, and (iv) an increase in the
amortization of deferred finance costs totaling $1.0 million associated
with fees incurred on the Company's 1999 secured mortgage financings.
Real estate taxes for the year ended December 31, 1999 totaled $29.2
million representing an increase of $8.0 million compared to $21.2
million for the year ended December 31, 1998. The increase is primarily
attributable to: (i) the 1998 Acquisitions which increased real estate
taxes by $4.3 million, and (ii) the 1999 Acquisitions which increased
real estate taxes by $4.0 million, partially offset by a decrease in
real estate taxes at Same-Store Properties ($0.3 million) due to reduced
tax rates.
Marketing, general and administrative expense for the year ended
December 31, 1999 totaled $10.9 million representing an increase of $5.1
million compared to $5.8 million for the year ended December 31, 1998.
The increase is primarily due to increased personnel costs associated
with the Company's recent growth ($3.3 million) and increased public
entity and technology costs ($0.9 million).
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31,
1997
For discussion purposes, the results of operations from the year ended
December 31, 1998 represent the operations of SL Green Realty Corp. and
the results of operations for the year ended December 31, 1997 represent
(i) the operating results of the SL Green Realty Predecessor
(represented by 70 West 36th Street, 1414 Avenue of the Americas and 36
West 44th Street (since the acquisition date in July 1997) for the
period January 1, 1997 to August 20, 1997 and (ii) the results of the
Company from August 21, 1997 to December 31, 1997. The following
transactions have occurred that have had a material impact on the
comparison of the 1998 and 1997 results: (i) the Formation Transactions
resulted in three buildings previously accounted for under the equity
method (673 Third Avenue, 470 Park Avenue South and 29 West 35th Street)
which are now reported as property results, three acquired buildings (50
West 23rd Street, 1140 Avenue of the Americas and 1372 Broadway)
collectively the "IPO Acquisitions" being included in the 1998 results
which were included in the 1997 results of the Company as of August 21,
1997; (ii) the results of 110 East 42nd Street (acquired September 1997)
17 Battery Place (acquired December 1997) and 633 Third Avenue (acquired
December 1997) "the 1997 Acquisitions" are included in the consolidated
results for 1998 and were included for only a portion of the 1997
results (iii) the results of 420 Lexington Avenue (acquired March 1998),
1466 Broadway (acquired March 1998), 321 West 44th Street (acquired
March 1998), 711 Third Avenue (acquired May 1998), 440 Ninth Avenue
(acquired June 1998) and 1412 Broadway (acquired August 1998) (the "1998
Acquisitions") which are included for a portion of the 1998 results, and
were not included in the 1997 results.
Rental revenue for the year ended December 31, 1998 totaled $117.3
million representing an increase of $93.2 million compared to $24.1
million for the year ended December 31, 1997. The increase is primarily
attributable to the revenue associated with the following: (i) the IPO
Acquisitions which increased rental revenue $28.1 million (ii) the 1997
Acquisitions which increased rental revenue by $17.8 million, (iii) the
1998 Acquisitions which increased rental revenue by $46.9 million and
(iv) $0.4 million due to increased rental revenue in the SL Green
Predecessor buildings.
Escalation and reimbursement revenue for the year ended December 31,
1998 totaled $15.9 million representing an increase of $12.9 million
compared to $3.0 million for the year ended December 31, 1997. The
increase is primarily attributable to the revenue associated with the
following: (i) the IPO Acquisitions which increased revenue by $3.3
million, (ii) the 1997 Acquisitions which increased revenue by $1.6
million, (iii) the 1998 Acquisitions which increased revenue by $8.0
million.
Investment income totaled $3.3 million for the year ended December 31,
1998 representing an increase of $2.8 million compared to $0.5 million
for the year ended December 31, 1997. This amount primarily represents
interest income from the 17 Battery Park mortgage ($1.9 million),
interest on other mortgage notes ($0.4 million) and interest from excess
cash on hand ($0.5 million).
As of the IPO date, third party management, leasing and construction
revenues and related expenses are incurred by the Service Corporations,
which are 95% owned subsidiaries of the Company, which are accounted for
on the equity method. This change in recognition of income and expense
from third party business activities was made in order to be consistent
with the REIT qualifying income test, as defined by the IRS.
Consequently, in 1998, management fees, leasing commissions and
construction fees, were recorded on these operating subsidiaries,
compared to the 1997 third party revenue, which was recorded on the SL
Green Predecessor.
Operating expenses for the year ended December 31, 1998 totaled $36.5
million representing an increase of $28.3 million compared to $8.2
million for the year ended December 31, 1997. The increase was primarily
attributable to: (i) the IPO Acquisitions which increased operating
expenses by $6.3 million (ii) the 1997 Acquisitions which increased
operating expenses by $6.7 million and (iii) the 1998 Acquisition
properties with operating expenses of $15.3 million.
Ground rent for the year ended December 31, 1998 totaled $11.1 million
representing an increase of $9.5 million compared to $1.6 million for
the year ended December 31, 1997. This increase primarily results from
newly acquired properties having ground and sub-lease lease arrangements
at 420 Lexington Avenue ($6.0 million), and 711 Third Avenue ($0.8
million) and increased ground rent at 673 First Avenue ($2.5 million)
and 1140 Avenue of the Americas ($0.2 million).
Interest expense for the year ended December 31, 1998 totaled $13.1
million representing an increase of $9.9 million compared to $3.2
million for the year ended December 31, 1997. This increase is primarily
attributable to (i) interest incurred on the Company's Credit Facility,
and Acquisition Facility ($7.0 million) principally used to acquire new
properties (ii) interest from the December 1998 bridge financings ($0.3
million) and (iii) additional secured mortgage debt, including interest
on the Company's capital lease obligation on 673 First Avenue which was
previously accounted for under the equity method, ($2.6 million).
Depreciation and amortization for the year ended December 31, 1998
totaled $15.4 million representing an increase of $11.8 million compared
to $3.6 million for the year ended December 31, 1997. The increase is
primarily attributable to: (i) the IPO Acquisitions which increased
depreciation by $4.2 milllion (ii) the 1997 Acquisitions which increased
depreciation by $2.0 million (iii) the 1998 Acquisitions which increased
depreciation by $4.6 million, (iv) and an increase in the amortization
of deferred finance costs totaling $1.0 million associated with fees
incurred on the Company's Credit Facility and Acquisition Facility.
Real estate taxes for the year ended December 31, 1998 totaled $21.2
million representing an increase of $17.0 million compared to $4.2
million for the year ended December 31, 1997. The increase is primarily
attributable to (i) the IPO Acquisitions which increased real estate
taxes by $4.2 million (ii) the 1997 Acquisitions which increased real
estate taxes by $3.2 million and (iii) the 1998 Acquisitions which
increased real estate taxes by $9.6 million.
Marketing, general and administrative expense for the year ended
December 31, 1998 totaled $5.8 million representing an increase of $2.7
million compared to $3.1 million for the year ended December 31, 1997.
The increase is due to increased personnel costs associated with the
Company's recent growth ($2.1 million) and increased public entity and
technology costs ($0.6 million). This increase was partially off-set by
third party costs included in the 1997 expense which were reclassified
to the Service Corporations in 1998 to correspond with the
reclassification of third party revenue which has been included in
equity in net loss from Service Corporations since August 21, 1997.
PRO FORMA RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED
DECEMBER 31, 1997
The pro forma statement of operations for the year ended December 31,
1997, is presented as if the Company's IPO and the Formation
Transactions occurred on January 1, 1997 and the effect thereof was
carried forward through December 31, 1997. In addition to the IPO and
Formation Transactions, the following transactions also affect the 1998
and 1997 comparable results: (i) the results of 110 East 42nd Street
(acquired September 1997), 17 Battery Place (acquired December 1997) and
633 Third Avenue (acquired December 1997) the "1997 Acquisitions" are
included in the consolidated results for the full year ended December
31, 1998 and included only for a portion of the 1997 results and (ii)
the results of 420 Lexington Avenue (acquired March 1998), 1466 Broadway
(acquired March 1998), 321 West 44th Street (acquired March 1998) 711
Third Avenue (acquired May 1998), 440 Ninth Avenue (acquired June 1998)
and 1412 Broadway (acquired August 1998) the "1998 Acquisitions" are
included in a portion of the 1998 results and not included in the 1997
results. During May 1998, the Company completed two public offerings for
11.5 million shares of common stock and 4.6 million of preferred shares
resulting in net proceeds of $353 million, net of underwriting costs.
The pro forma results of operations do not purport to represent what the
Company's results would have been assuming the completion of the
Formation Transactions and the Company's IPO at the beginning of the
period indicated, nor do they purport to project the Company's financial
results of operations at any future date or for any future period. The
pro forma statements of operations should be read in
conjunction with the combined financial statements of SL Green
Predecessor included in the Company's registration statements on Form
S-11 dated May 12, 1998 and August 14, 1997 and the consolidated
financial statements of the Company, included elsewhere herein.
Year ended December 31, 1998 compared to year ended December 31, 1997
(in thousands)
(Unaudited)
Dollar
1998 1997 Change
----------- ------------ -----------
(Historical) (Pro forma)
(Unaudited)
REVENUE
Rental revenue ......................................... $117,304 $ 49,472 $ 67,832
Escalation & reimbursement revenues .................... 15,923 5,500 10,423
Investment income ...................................... 3,267 485 2,782
Leasing commissions .................................... -- 2,251 (2,251)
Other income ........................................... 478 1,676 (1,198)
-------- -------- --------
Total revenues ....................... 136,972 59,384 77,588
-------- -------- --------
Equity in net income from Service
Corporations ......................................... 387 168 219
-------- -------- --------
EXPENSES
Operating income ....................................... 36,545 13,165 23,380
Ground rent ............................................ 11,082 4,297 6,785
Interest ............................................... 13,086 5,509 7,577
Depreciation and amortization .......................... 15,404 7,413 7,991
Real estate taxes ...................................... 21,224 8,658 12,566
Loss on terminated contract ............................ 1,065 -- 1,065
Loss on hedge transaction .............................. 176 -- 176
Marketing, general and administrative .................. 5,760 2,578 3,182
-------- -------- --------
Total expenses ....................... 104,342 41,620 62,722
-------- -------- --------
Income before minority interest,
preferred stock dividends and
extraordinary items................... $ 33,017 $ 17,932 $ 15,085
======== ======== ========
Rental revenue for the year ended December 31, 1998 totaled $117.3 million
representing an increase of $67.8 million compared to $49.5 million for the year
ended December 31, 1997. The increase is primarily attributable to the revenue
associated with the following properties not previously owned or acquired at the
IPO date: (i) the 1997 acquisitions which increased rental revenue by $17.8
million, (ii) the 1998 acquisitions which increased rental revenue by $46.9
million and (iii) increased occupancy and additional rollover rental income in
the other portfolio buildings which increased $3.1 million.
Escalation and reimbursement revenue for the year ended December 31, 1998
totaled $15.9 million an increase of $10.4 million compared to $5.5 million
during the year ended December 31, 1997. The increase is attributable to the
revenue associated with: (i) the 1997 Acquisitions which increased revenue by
$1.6 million, (ii) the 1998 Acquisitions which increased revenue by $8.0 million
and (iii) the properties owned or acquired at the IPO date where revenue
increased by $0.8 million.
Investment income for the year ended December 31, 1998 totaled $3.3 million,
which represents an increase of $2.8 million as compared to $0.5 million for the
year ended December 31, 1997. The increase in interest income is primarily due
to the 17 Battery Place mortgage ($1.9 million), other mortgage notes receivable
($0.4 million) and the balance ($0.5 million) earned from excess cash on hand.
Leasing commission income decreased $2.3 million. Leasing commission income as
reported in the 1997 pro forma financial statements represents Tenant-Rep income
through September 30, 1997 and is subsequently being recorded by the Service
Corporations for the remainder of 1997 and the comparable 1998 period.
Tenant-rep revenue totaled $2.6 million for the year ended December 31, 1998
representing a decrease of $0.3 million. This decrease reflects the strong
results in the 1997 period.
Other income for the year ended December 31, 1998 totaled $0.5 million
representing a decrease of $1.2 million as compared to December 31, 1997. The
decrease is the result of 1997 lease termination income exceeding 1998 primarily
due to a large tenant buy-out at 1372 Broadway.
Operating expenses for the year ended December 31, 1998 totaled $36.5 million
representing an increase of $23.4 million compared to $13.1 million for the year
ended December 31, 1997. The increase was primarily attributable to properties
not previously owned or acquired at the IPO date: (i) the 1997 Acquisitions
which increased operating expenses by $6.7 million and (ii) the 1998
Acquisitions which increased operating expenses by $15.3 million (iii) $1.4
million of increased costs from properties owned or acquired at the IPO date
primarily due to the provision for tenant straight-line credit loss which
increased $0.6 million.
Ground rent for the year ended December 31, 1998 totaled $11.1 million
representing an increase of $6.8 million compared to $4.3 million for the year
ended December 31, 1997. The increase is primarily attributable to the ground
and sub-lease rent on new acquisitions at 420 Lexington Avenue ($6.0 million)
and 711 Third Avenue ($0.8 million).
Interest expense for the year ended December 31, 1998 totaled $13.1 million
representing an increase of $7.6 million compared to $5.5 million for the year
ended December 31, 1997. The increase is primarily attributable to interest
incurred on the Company's Credit Facility and Acquisition Facility ($7.0
million) and additional mortgage loans ($0.6 million).
Depreciation and amortization for the year ended December 31, 1998 totaled $15.4
million representing an increase of $8.0 million compared to $7.4 million for
the year ended December 31, 1997. The increase is primarily attributable to
properties not previously owned or acquired at the IPO date: (i) the 1997
Acquisitions which increased depreciation by $2.0 million (ii) the 1998
Acquisitions which increased depreciation by $4.6 million, (iii) amortization of
financing costs increased $0.9 million primarily due to fees recognized on the
Company's revolving line of credit and acquisition facility and (iv) the
properties owned or acquired at the IPO date which increased $0.5 million
primarily due to increased tenant improvement amortization.
Real estate taxes for the year ended December 31, 1998 totaled $21.2 million
representing an increase of $12.5 million compared to $8.7 million for the year
ended December 31, 1997. The increase is primarily attributable to properties
not previously owned or acquired at the IPO date (i) the 1997 Acquisitions which
increased real estate taxes by $3.2 million and (ii) the 1998 Acquisitions which
increased real estate taxes by $9.6 million. These increases were partially
off-set by a $0.3 million reduction in taxes related to the core and IPO
properties primarily from lower tax rates and management's effort to obtain
reductions in assessed values.
Marketing, general and administrative expense for the year ended December 31,
1998 totaled $5.8 million representing an increase of $3.2 million compared to
$2.6 million for the year ended December 31, 1997. The increase is due to
additional staffing, and incremental absorption of lost third party management
related costs ($2.6 million), costs associated with management information
systems and year 2000 compliance and higher public entity costs ($0.6 million).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities increased $25.3 million to $48.0
million for the year ended December 31, 1999 compared to $22.7 million for the
year ended December 31, 1998. The increase was due primarily to the operating
cash flow generated by the Same-Store Properties, 1998 Acquisitions and 1999
Acquisitions as a result of higher occupancy rates, rents which have been marked
to market and flat property operating expense trends and an increase in
investment income. Net cash used in investing activities decreased $147.9
million to $228.7 million for the year ended December 31, 1999 compared to
$376.6 million for the year ended December 31, 1998. The decrease was due
primarily to the decreased amount of property acquisitions in 1999 ($223
million) as compared to the amount of property acquisitions in 1998 ($357
million). Net cash provided by financing activities decreased $151.4 million to
$196.0 million for the year ended December 31, 1999 compared to $347.4 million
provided by financing activities for the year ended December 31, 1998. The
decrease was primarily due to net proceeds from the Company's 1998 public
offerings of common stock ($242.1 million) and preferred stock ($109.7 million)
which were used to pay-off the Company's Acquisition Facility ($240 million) and
purchase certain 1998 acquisitions as well as an increase in the dividends and
distributions paid ($14.3 million).
CAPITALIZATION
During 1999, the Company financed its 1999 Acquisitions primarily with property
level debt. This debt totaled $97.0 million with interest rates ranging from
7.98 percent to 8.10 percent at December 31, 1999.
At December 31, 1999, borrowings under the mortgage loans, and credit facilities
represented 40.7% of the Company's market capitalization based on a total market
capitalization (debt and equity including preferred stock), assuming conversion
of all operating partnership units, of $1.2 billion (based on a common stock
price of $21.75 per share, the closing price of the Company's common stock on
the New York Stock Exchange on December 31, 1999). The Company's principal debt
maturities are scheduled to be $113.7 million and $63.0 million for the years
ending December 31, 2000 and 2001, respectively.
At December 31, 1999, the Company had $352.7 million of property level mortgage
debt (weighted average interest rate of 8.06 percent), encumbering 15
properties. This was comprised of $270.7 million in fixed rate debt and $82.0
million in floating rate debt.
At December 31, 1999, the Company had availability of $49.5 million under its
$140.0 million Credit Facility (weighted average interest rate of 7.82 percent).
On December 28, 1999, the Company closed on a $30.0 million credit facility with
PSCC. The current borrowing capacity is $15.0 million, of which none was drawn
down at December 31, 1999. The PSCC Facility is secured by the Company's
preferred equity interest in 1370 Avenue of the Americas and a repurchase
mortgage participation interest in the mortgage at 420 Lexington Avenue.
Interest-only is payable based on the 1-Month LIBOR plus 125 basis points. The
PSCC Facility may be prepaid at any time during its term without penalty. The
PSCC Facility matures on December 27, 2000.
The Company is currently evaluating its options with respect to $113.7 million
of debt maturing in 2000. The Company may refinance such debt or obtain new
loans.
The Company expects to make distributions to its stockholders primarily based on
its distributions received from the Operating Partnership primarily from
property revenues or, if necessary, from working capital or borrowings.
The Company estimates that for the years ending December 31, 2000 and 2001, it
will incur approximately $37.7 million and $18.2 million, respectively, of
capital expenditures (including tenant improvements) on properties currently
owned. In 2000 and 2001, $15.7 million and $9.1 million, respectively, of the
capital investments will be associated with the redevelopment of properties
acquired at or after the Company's IPO. The Company expects to fund these
capital expenditures with the credit facilities, operating cash flow and cash on
hand. Future property acquisitions may require substantial capital investments
in such properties for refurbishment and leasing costs. The Company expects that
these financing requirements will be provided primarily from the credit
facilities, from additional borrowings secured by the properties and from future
issuances of equity and debt. The Company believes that it will have sufficient
capital resources to satisfy its obligations during the next 12 month period.
Thereafter, the Company expects that capital needs will be met through net cash
provided by operations or additional borrowings.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, determined without regard to the dividends paid deduction and by
excluding net capital gains. Moreover, the Company intends to continue to make
regular quarterly distributions to its stockholders which, based upon current
policy, in the aggregate would equal approximately $35.1 million on an
annualized basis. However, any such distribution, whether for Federal income tax
purposes or otherwise, would only be paid out of available cash after meeting
both operating requirements and scheduled debt service on mortgages and loans
payable.
FUNDS FROM OPERATIONS
The White Paper on FFO approved by the Board of Governors of NAREIT in March
1995 defines FFO as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of properties and
significant non-recurring events that materially distort the comparative
measurement of the Company's performance over time, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. In October 1999, NAREIT revised the definition
of FFO to include non-recurring events. This revised definition is effective for
all periods beginning on or after January 1, 2000. The Company believes that FFO
is helpful to investors as a measure of the performance of an equity REIT
because, along with cash flow from operating activities, financing activities
and investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital expenditures
and to fund other cash needs. The Company computes FFO in accordance with the
current standards established by NAREIT which may not be comparable to FFO
reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently than the Company. FFO does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make cash distributions.
On a pro forma basis after giving effect to the Offering, Funds from Operations
for the year ended December 31, 1997 and for the years ended December 31, 1998
and 1999, on a historical basis, are as follows (in thousands):
Year ended
December 31
-------------------------------------------
1999 1998 1997
(Historical) (Historical) (Pro forma)
Income before minority interest and extraordinary
item................................................... $48,966 $33,017 $17,932
Add:
Depreciation and amortization ......................... 27,260 15,404 7,413
Loss on hedge transaction.............................. --- 176 ---
Loss on terminated transaction......................... --- 1,065 ---
FFO adjustment for unconsolidated joint ventures....... 433 --- ---
Less:
Dividends on preferred shares.......................... (9,200) (5,720) ---
Minority interest in the BMW Building.................. (1,765) --- ---
Amortization of deferred financing costs and
depreciation of non-rental real estate assets........ (3,049) (1,084) (186)
------- ------- ---------
Funds From Operations ................................... $62,645 $ 42,858 $ 25,159
======= ======== ========
Cash flows provided by operating activities.............. $48,103 $22,665
Cash flows used in investing activities.................. $(228,678) $(376,593)
Cash flows provided by financing activities.............. $195,990 $347,382
In compliance with the White Paper issued by NAREIT in March 1995, the Company
has excluded a loss from a hedge transaction ($176,000) and loss on terminated
transaction ($1.1 million) from the calculation of FFO. The Company believes
these transactions are non-recurring in nature based on the Company's operating
history of not entering into these types of transactions and, therefore, are
non-recurring and would materially distort the Company's performance if included
in the calculation of FFO. In accordance with the revised White Paper issued by
NAREIT in October 1999, these transactions would be included in the calculation
of FFO.
INFLATION
Substantially all of the office leases provide for separate real estate tax and
operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed escalations. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases and expense escalations described above.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was scheduled to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. In 1999, the FASB delayed
implementation of FASB 133 by one year. The Company expects to adopt the new
Statement effective January 1, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or
financial position.
YEAR 2000 COMPLIANCE
The Company identified three areas of focus for Year 2000 Compliance: internal
information technology, property operating equipment, and third party service
suppliers. The Company began a project to update its information technology
resources by installing new hardware and software throughout the Company and
completed the implementation of the systems during 1998. The Company inquired
regarding compliance status from all vendors providing systems identified as
having potential Year 2000 compliance problems. The Company then tested each
system with these vendors. At present, the Company has no automated interfaces
from third party service providers into the Company's financial systems. In
addition, limited contingency procedures were drafted in the event of Year 2000
failures associated with critical property level systems on the Company's
internal information technology.
The Company did not incur material direct costs related to Year 2000. These
direct costs excluded the costs to replace the hardware and software systems, as
the decision to replace these systems was not accelerated by Year 2000 issues.
Due to the Company's Year 2000 program, the Company experienced no operational
problems relating to the Year 2000 issue. The Company has concluded the Year
2000 project and anticipates no further Year 2000 compliance issues or
expenditures.
ITEM 7A MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is exposed to changes in interest rates primarily from its floating
rate debt arrangements. The Company currently does not use interest rate
derivative instruments to manage exposure to interest rate changes. A
hypothetical 100 basis point adverse move (increase) in interest rates along the
entire interest rate curve would adversely affect the Company's annual interest
cost by approximately $2.0 million annually.
The Company may enter into derivative financial instruments such as interest
rate swaps and interest rate collars in order to mitigate its interest rate risk
on a related financial instrument. The Company may designate these derivative
financial instruments as hedges and apply deferral accounting. Gains and losses
related to the termination of such derivative financial instruments are deferred
and amortized to interest expense over the term of the debt instrument. The
Company may also utilize interest rate contracts to hedge interest rate risk on
anticipated debt offerings. These anticipatory hedges are designated, as
effective hedges for identified debt issuances which have a high probability of
occurring. Gains and losses resulting from changes in the market value of these
contracts are deferred and amortized into interest expense over the life of the
related debt instrument. The cost of hedges determined to be ineffective and
hedges not correlated to financings are charged to operations.
Approximately $270.7 million of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in the market interest rates. The following table presents principal
cash flows (in thousands) based upon maturity dates of the debt obligations and
the related weighted-average interest rates by expected maturity dates for the
fixed rate debt. The interest rate on the variable rate debt as of December 31,
1999 ranged from LIBOR plus 125 basis points to LIBOR plus 275 basis points.
LONG-TERM DEBT, INCLUDING
CURRENT PORTION (IN FAIR
THOUSANDS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
- ------------------- -------- -------- --------- --------- ---------- ---------- -------- ---------
Fixed Rate .......... $ 3,675 $ 8,012 $ 6,374 $ 9,150 $ 78,477 $165,055 $270,743 $271,390
Average Interest Rate 7.96% 7.95% 7.93% 7.91% 7.81%
Variable Rate ....... $109,950 $ 55,000 -- -- -- -- $164,950 $164,950
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
SL GREEN REALTY CORP
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................. 34
Consolidated Statements of Income for the year ended December 31, 1999 and 1998 and the period
August 21, 1997 (Inception) to December 31, 1997....................................................... 36
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999 and 1998 and
for the period August 21, 1997 (Inception) to December 31, 1997 ....................................... 37
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and
for the period August 21, 1997 (Inception) to December 31, 1997........................................ 39
Notes to Consolidated Financial Statements .............................................................. 41
THE SL GREEN PREDECESSOR
Combined Statement of Income for the period January 1, 1997 to
August 20, 1997........................................................................................ 36
Combined Statement of Owners' Equity for the period
January 1, 1997 to August 20, 1997..................................................................... 38
Combined Statement of Cash Flows for the period January 1, 1997
to August 20, 1997..................................................................................... 39
Notes to the Combined Financial Statements .............................................................. 41
UNCOMBINED JOINT VENTURES - COMBINED FINANCIAL STATEMENTS
Combined Statement of Income for the period January 1, 1997 to
August 20, 1997........................................................................................ 63
Combined Statement of Owners' Equity for the period January 1,
1997 to August 20, 1997................................................................................ 64
Combined Statement of Cash Flows for the period January 1, 1997 to
August 20, 1997........................................................................................ 65
Notes to Combined Financial Statements .................................................................. 67
Schedule
Schedule III Real Estate and Accumulated Depreciation as of
December 31, 1999 ..................................................................................... 72
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
SL Green Realty Corp.
We have audited the accompanying consolidated balance sheets of SL
Green Realty Corp. as of December 31, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity and cash flows
for the two years ended December 31, 1999 and for the period August 21,
1997 (date of commencement of operations) to December 31, 1997. Our
audits also included the financial statement schedule listed in the
Index as Item 14(a)(2). These financial statements and schedule are the
responsibility of SL Green Realty Corp.'s management. Our responsibility
is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SL Green Realty Corp. at December 31, 1999 and 1998 and the consolidated
results of their operations and their cash flows for the two years ended
December 31, 1999 and for the period August 21, 1997 (date of
commencement of operations) to December 31, 1997 in conformity with
accounting principles generally accepted in the United States. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/S/ Ernst & Young LLP
New York, New York
February 11, 2000
except for Note 20, as to
which the date is March 8, 2000
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
SL Green Realty Corp.
We have audited the accompanying combined statement of income, owners'
equity and cash flows of SL Green Predecessor for the period from January
1, 1997 to August 20, 1997. We have also audited the financial statement
schedule listed in the Index as Item 14(a)(2). These financial statements
and schedule are the responsibility of SL Green Predecessor's management.
Our responsibility is to express an opinion on these financial statements
and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined results of SL Green
Predecessor's operations and their cash flows for the period from
January 1, 1997 to August 20, 1997 in conformity with accounting
principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/S/ Ernst & Young LLP
New York, New York
February 10, 1998
SL GREEN REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
----------------------------
1999 1998
----------- -----------
ASSETS
Commercial real estate properties, at cost:
Land and land interests ..................................................................... $ 132,081 $ 112,123
Buildings and improvements .................................................................. 632,004 492,568
Building leasehold .......................................................................... 132,573 80,162
Property under capital lease ................................................................ 12,208 12,208
----------- -----------
908,866 697,061
Less accumulated depreciation ............................................................... (56,983) (37,317)
----------- -----------
851,883 659,744
Properties held for sale .................................................................... 25,835 --
Cash and cash equivalents ................................................................... 21,561 6,236
Restricted cash ............................................................................. 34,168 18,635
Tenant and other receivables, net of allowance of $938 and $374 in 1999 and 1998,
respectively .............................................................................. 5,747 3,951
Related party receivables ................................................................... 463 245
Deferred rents receivable, net of reserve for tenant credit loss of $5,337 and $2,369 in 1999
and 1998, respectively .................................................................... 37,015 20,891
Investment in and advances to Service Corporation ........................................... 4,978 10,694
Mortgage loans receivable and preferred equity investment ................................... 20,000 26,401
Investments in unconsolidated joint ventures ................................................ 23,441 --
Deferred costs, net ......................................................................... 30,540 15,282
Other assets ................................................................................ 15,611 15,717
----------- -----------
Total assets ................................................................................ $ 1,071,242 $ 777,796
----------- -----------
----------- -----------
SL GREEN REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable ..................................................... $ 352,693 $ 50,862
Secured bridge facilities .................................................. -- 87,500
Revolving credit facilities ................................................ 83,000 23,800
Accrued interest payable ................................................... 2,650 494
Accounts payable and accrued expenses ...................................... 17,167 5,588
Deferred revenue ........................................................... 306 --
Accounts payable to related parties ........................................ -- 63
Capitalized lease obligations .............................................. 15,017 14,741
Deferred land lease payable ................................................ 11,611 9,947
Dividend and distributions payable ......................................... 11,947 11,585
Security deposits .......................................................... 18,905 16,949
----------- -----------
Total liabilities .......................................................... 513,296 221,529
Commitments and Contingencies
Minority interests in Operating Partnership ................................ 41,494 41,491
8% Preferred Income Equity Redeemable SharesSM $0.01 par value $25.00
mandatory liquidation preference, 25,000 authorized and 4,600
outstanding at December 31, 1999 and 1998 ............................... 110,348 109,950
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value 100,000 shares
authorized, 24,184 and 23,952 issued and outstanding at December 31, 1999
and 1998, respectively .................................................. 242 240
Additional paid - in capital ............................................... 421,958 416,939
Deferred compensation plans ................................................ (6,610) (3,266)
Officers' loans ............................................................ (64) (528)
Distributions in excess of earnings ........................................ (9,422) (8,559)
----------- -----------
Total stockholders' equity ................................................. 406,104 404,826
----------- -----------
Total liabilities and stockholders' equity ................................. $ 1,071,242 $ 777,796
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
SL GREEN REALTY CORP.
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SL GREEN REALTY CORP. SL GREEN PREDECESSOR
-------------------------------------- -------------------
(Consolidated) (Combined)
Years ended August 21 to January 1 to
December 31, December 31, August 20,
1999 1998 1997 1997
---- ---- ---- -----
REVENUES
Rental revenue .................................................... $ 174,939 $ 114,884 $ 20,033 $ 4,107
Escalation and reimbursement revenues ............................. 21,902 15,923 2,205 792
Signage rent ...................................................... 1,660 -- -- --
Management revenues, including $458 (1997),
from affiliates ................................................. -- -- -- 1,268
Leasing commissions ............................................... -- -- 484 3,464
Construction revenues, net, including $6 (1997),
from affiliates ................................................. -- -- -- 77
Investment income ................................................. 5,266 3,267 485 --
Other income ...................................................... 2,250 478 -- 16
--------- --------- --------- ---------
Total revenues .................................................... 206,017 134,552 23,207 9,724
--------- --------- --------- ---------
EXPENSES
Operating expenses including $4,707(1999), $2,118
(1998), and $282 (1997) to affiliates ........................... 49,414 34,125 5,517 2,709
Real estate taxes ................................................. 29,198 21,224 3,498 705
Ground rent ....................................................... 12,754 11,082 1,560 13
Interest .......................................................... 28,610 13,086 2,135 1,062
Depreciation and amortization ..................................... 27,260 15,404 2,815 811
Loss on terminated project ........................................ -- 1,065 -- --
Loss on hedge transaction ......................................... -- 176 -- --
Marketing, general and administrative ............................. 10,922 5,760 948 2,189
--------- --------- --------- ---------
Total expenses .................................................... 158,158 101,922 16,473 7,489
--------- --------- --------- ---------
Income before equity in net income (loss) from Service Corporation,
equity in net income (loss) of unconsolidated joint ventures and
uncombined joint
ventures, minority interest, and extraordinary item ............. 47,859 32,630 6,734 1,465
Equity in net income/(loss) from Service Corporation .............. 730 387 (101) --
Equity in net income of unconsolidated
joint ventures .................................................. 377 -- -- --
Equity in net (loss) of uncombined joint ventures ................. -- -- -- (770)
Minority interest:
Operating partnership ........................................... (3,356) (3,043) (1,074) --
Partially owned properties ...................................... (1,765) -- -- --
Extraordinary item, net of minority interest of $90, $52
and $362 in 1999, 1998 and 1997, respectively ................... (989) (522) (1,874) 22,087
--------- --------- --------- ---------
Net income ........................................................ 42,856 29,452 3,685 23,552
Preferred stock dividends ......................................... (9,200) (5,720) -- --
Preferred stock accretion ......................................... (398) (250) -- --
--------- --------- --------- ---------
Net income available to common shareholders ....................... $ 33,258 $ 23,482 $ 3,685 $ 23,552
========= ========= ========= =========
Per share data:
Income per common share before extraordinary item ................. $ 1.41 $ 1.22 $ 0.45
Extraordinary item per common share ............................... (0.04) (0.03) (0.15)
--------- --------- ---------
Net income per common share - basic and diluted ................... $ 1.37 $ 1.19 $ 0.30
========= ========= =========
Basic weighted average common shares outstanding .................. 24,192 19,675 12,292
========= ========= =========
Diluted weighted average common shares and common
share equivalents outstanding ................................ 26,680 22,145 12,404
========= ========= =========
The accompanying notes are an integral part of these financial statements.
SL GREEN REALTY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Additional Deferred Distributions
Common Paid-In Compensation Officers' In Excess of
Stock Capital Plan Loans Earnings Total
---------- ---------- ------------ -------- ------------- ---------
Balance at August 21, 1997 (inception)
Net proceeds from initial public
offering of common stock ...................... $ 123 $ 223,366 -- -- -- $ 223,489
Net income .................................... -- -- -- -- $ 3,685 3,685
Cash distributions declared ($0.51
per common share of which none
represented a return of capital for
federal income tax
purposes) ..................................... -- -- -- -- (6,269) (6,269)
Contribution of the net assets of SL
Green Predecessor in exchange for
Units of the Operating Partnership
and other Formation
Transactions .................................. -- (44,697) -- -- -- (44,697)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 .................. 123 178,669 -- -- (2,584) 176,208
Net income .................................... -- -- -- -- 29,452 29,452
Preferred dividend and accretion
requirement ................................... -- -- -- -- (5,970) (5,970)
Issuance of common stock net
offering cost ($1,615) and
revaluation increase in minority
interest ($6,934) ............................. 115 234,709 -- -- -- 234,824
Deferred compensation plan .................... 2 3,561 $ (3,563) -- -- --
Amortization of deferred
compensation plan ............................. -- -- 297 -- -- 297
Cash distributions declared ($1.40
per common share of which none
represented a return of capital for
federal income tax
purposes) ..................................... -- -- -- -- (29,457) (29,457)
Officers' loan net ............................ -- -- -- $ (528) -- (528)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 .................. 240 416,939 (3,266) (528) (8,559) 404,826
Net income .................................... -- -- -- -- 42,856 42,856
Preferred dividend and accretion
requirement ................................... -- -- -- -- (9,598) (9,598)
Deferred compensation plan and stock
award ......................................... 2 5,019 (4,771) -- -- 250
Amortization of deferred
compensation plan ............................. -- -- 1,427 -- -- 1,427
Cash distributions declared ($1.41
per common share of which $0.10
represented a return of capital for
federal income tax purposes) .................. -- -- -- -- (34,121) (34,121)
Officers' loan, net ........................... -- -- -- 464 -- 464
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1999 .................. $ 242 $ 421,958 $ (6,610) $ (64) $ (9,422) $ 406,104
========= ========= ========== ========== ========== =========
The accompanying notes are an integral part of these financial statements.
SL GREEN REALTY CORP.
COMBINED STATEMENT OF OWNERS' EQUITY
(AMOUNTS IN THOUSANDS)
SL Green
Predecessor
------------
Balance at December 31, 1996.................................. $ (8,405)
Distributions............................................... (4,024)
Contributions............................................... 25
Net income for the period ended August 20, 1997............. 23,552
---------
Balance at August 20, 1997.................................... $ 11,148
---------
---------
The accompanying notes are an integral part of these financial statements.
SL GREEN REALTY CORP.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SL Green Realty Corp SL Green Predecessor
-------------------------------------------- --------------------
(Consolidated) (Combined)
Years ended August 21 to January 1 to
December 31, December 31 August 20,
1999 1998 1997 1997
----------- --------- ------------ -------------------
OPERATING ACTIVITIES
Net income .............................................. $ 42,856 $ 29,452 $ 3,685 $ 23,552
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ......................... 27,260 15,404 2,815 811
Equity in net (income) loss from Service Corporation .. (730) (387) 101 --
Equity in net (income) from unconsolidated joint
ventures ............................................ (377)
Minority interest ..................................... 5,121 2,991 712 --
Share of net (income) from uncombined joint ventures--- -- -- (21,072)
Deferred rents receivable ............................. (20,363) (11,748) (946) (102)
Provision for straight-line credit loss ............... 3,883 2,420 -- --
Amortization for officer loans and deferred
compensation ........................................ 1,891 747 -- --
Extraordinary item - non-cash portion, net of
minority interest in 1999, 1998 and 1997 ............ 989 574 803 --
Changes in operating assets and liabilities:
Restricted cash ....................................... (9,229) (6,147) (223) --
Tenant and other receivables, net ..................... (2,391) (3,213) (614) (190)
Related party receivables ............................. (204) 619 (1,633) (365)
Deferred costs ........................................ (14,578) (5,810) (707) (279)
Other assets .......................................... 1,393 (8,441) (3,101) 656
Accounts payable, accrued expenses and other
liabilities ........................................... 10,829 4,738 4,524 (173)
Deferred land lease payable ........................... 1,663 1,466 297 --
--------- --------- --------- ---------
Net cash provided by operating activities ............... 48,013 22,665 5,713 2,838
--------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to land, buildings and improvements ........... (223,240) (357,243) (217,165) (7,411)
Investment in and advances to Service Corporation ....... 6,446 (8,449) -- --
Investments in unconsolidated joint ventures ............ (18,285) -- -- --
Mortgage loan receivable ................................ 6,401 (10,901) -- --
Contributions to partnership investments ................ -- -- -- (25)
Distributions from partnership investments .............. -- -- -- 1,877
--------- --------- --------- ---------
Net cash used in investing activities ................... (228,678) (376,593) (217,165) (5,559)
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
SL GREEN REALTY CORP.
STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SL Green Realty Corp. SL Green Predecessor
----------------------------------- --------------------
(Consolidated) (Combined)
Years ended August 21, to January 1, to
December 31, December 31, August 20,
1999 1998 1997 1997
------- -------- ------------- -------------------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable ............................ 339,775 -- 21,000 7,000
Payments of mortgage notes payable .............................. (62,144) (1,958) (76,822) (219)
Proceeds from bridge financings ................................. -- 327,460 -- --
Repayments of bridge financings ................................. (87,500) (239,960) -- --
Proceeds from senior revolving credit facility .................. 138,500 155,250 76,000 --
Repayments of senior revolving credit facility .................. (79,300) (207,450) -- --
Capitalized lease obligation .................................... 276 251 58 --
Mortgage loan receivable ........................................ -- -- (15,500) --
Net proceeds from sale of 8% mandatory preferred stock .......... -- 109,700 -- --
Cash distributions to owners .................................... -- -- -- (4,024)
Cash contributions from owners .................................. -- -- -- 25
Dividends and distributions paid ................................ (46,389) (32,144) (2,348) --
Deferred loan costs ............................................. (7,228) (5,822) (1,643) --
Net proceeds from sale of common stock .......................... -- 242,055 228,704 --
Formation expenses .............................................. -- -- (5,215) --
--------- --------- --------- ---------
Net cash provided by financing activities ....................... 195,990 347,382 224,234 2,782
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ................................................... 15,325 (6,546) 12,782 61
Cash and cash equivalents at beginning of period ................ 6,236 12,782 -- 476
--------- --------- --------- ---------
Cash and cash equivalents at end of period ...................... $ 21,561 $ 6,236 $ 12,782 $ 537
========= ========= ========= =========
Supplemental cash flow disclosures
Interest paid ................................................... $ 26,454 $ 13,144 $ 1,583 $ 1,085
--------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Land interest acquired for operating partnership units .......... $ 1,000
Assets acquired
Commercial real estate, net ................................... $ 91,123
Other assets .................................................. $ 7,714 $ 16,751
Liabilities assumed ............................................. $ 4,861
Issuance of common stock as deferred compensation ............... $ 5,019 $ 3,561
Contribution of property to joint venture ....................... $ 25,579
Mortgage notes payable assumed .................................. $ 45,000 $ 73,073
Mortgage notes payable assigned to joint venture ................ $ 20,800
Capitalized lease obligation .................................... $ 14,431
Deferred land lease ............................................. $ 8,184
Security deposits payable ....................................... $ 4,262
In December 1999, 1998 and 1997 the Company declared distributions per share of
$0.3625, $0.35 and $0.35, respectively. These distributions were paid in January
2000, 1999 and 1998, respectively.
The accompanying notes are an integral part of these financial statements.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION
INITIAL PUBLIC OFFERING AND FORMATION TRANSACTIONS
SL Green Realty Corp. (the "Company"), a Maryland corporation, and SL
Green Operating Partnership, L.P., (the "Operating Partnership"), a
Delaware limited partnership, were formed in June 1997 for the purpose of
combining the commercial real estate business of S.L. Green Properties,
Inc. and its affiliated partnerships and entities ("SL Green
Predecessor"). The Operating Partnership received a contribution of
interest in the real estate properties as well as 95% of the economic
interest in the management, leasing and construction companies (the
"Service Corporation"). The Company qualifies as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended and
operates as a fully integrated, self-administered, self-managed REIT. A
REIT is a legal entity that holds real estate interests and, through
payments of dividends to shareholders, is permitted to reduce or avoid
the payment of Federal income taxes at the corporate level.
Concurrent with the consummation of the initial public offering (the
"IPO") in August 1997, the Company and the Operating Partnership,
together with the partners and members of the affiliated partnerships of
the SL Green Predecessor and other parties which held ownership interests
in the properties contributed to the Operating Partnership (collectively,
the "Participants"), engaged in certain formation transactions (the
"Formation Transactions").
Substantially all of the Company's assets are held by, and it conducts
its operations through, the Operating Partnership. The Company is the
sole managing general partner of the Operating Partnership.
PRINCIPLES OF COMBINATION - SL GREEN PREDECESSOR
The SL Green Predecessor was not a legal entity but rather a combination
of real estate properties and affiliated real estate management,
construction and leasing entities under common control and management of
Stephen L. Green and interests owned by Stephen L. Green in entities
accounted for on the equity method (see Note 4) that were organized as
partnerships and a limited liability company. The entities included in
this financial statement have been combined for only the periods that
they were under common control and management. All significant
intercompany transactions and balances have been eliminated in
combination. Capital contributions, distributions and profits and losses
are allocated in accordance with the terms of the applicable agreements.
For the entities accounted for on the equity method, SL Green Predecessor
records its investments in partnerships and limited liability company at
cost and adjusts the investment accounts for its share of the entities'
income or loss and for cash distributions and contributions.
SERVICE CORPORATION
In order to maintain the Company's qualification as a REIT while
realizing income from management, leasing and construction contracts from
third parties, all of the management operations with respect to
properties in which the Company does not own a 100% interest are
conducted through an unconsolidated company, the Service Corporation. The
Company, through the Operating Partnership, owns 100% of the non-voting
common stock (representing 95% of the total equity) of the Service
Corporation. Through dividends on its equity interest, the Operating
Partnership receives substantially all of the cash flow (if any) from the
Service Corporation's operations. All of the voting common stock of the
Service Corporation (representing 5% of the total equity) is held by an
SL Green affiliate. This controlling interest gives the SL Green
affiliate the power to elect all directors of the Service Corporation.
The Company accounts for its investment in the Service Corporation on the
equity method of accounting because it has significant influence with
respect to management and operations, but does not control the entity.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
All of the management, leasing and construction services with respect to
the properties wholly-owned by the Company, are conducted through
Management LLC which is 100% owned by the Operating Partnership.
PARTNERSHIP AGREEMENT
In accordance with the partnership agreement of the Operating Partnership
(the "Operating Partnership Agreement"), all allocations of distributions
and profits and losses are to be made in proportion to the percentage
ownership interests of their respective partners. As the managing general
partner of the Operating Partnership, the Company will be required to
take such reasonable efforts, as determined by it in its sole discretion,
to cause the Operating Partnership to distribute sufficient amounts to
enable the payment of sufficient distributions by the Company (95% of
taxable income) to avoid any Federal income or excise tax at the Company
level. Under the Operating Partnership Agreement each limited partner
will have the right to redeem limited partnership interest for cash, or
if the Company so elects shares of common stock. In accordance with the
Operating Partnership Agreement, the Company is prohibited from selling
673 First Avenue and 470 Park Avenue South through August 2009.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, which are wholly-owned or controlled by the
Company. Entities which are not controlled by the Company are accounted
for under the equity method (see Note 6). All significant intercompany
balances and transactions have been eliminated.
INVESTMENT IN COMMERCIAL REAL ESTATE PROPERTIES
Rental properties are stated at cost less accumulated depreciation and
amortization. Costs directly related to the acquisition and redevelopment
of rental properties are capitalized. Ordinary repairs and maintenance
are expensed as incurred; major replacements and betterments, which
improve or extend the life of the asset, are capitalized and depreciated
over their estimated useful lives.
Properties are depreciated using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives are as
follows:
Category Term
--------------- -----------------
Building (fee ownership) 40 years
Building improvements shorter of remaining life of the building or useful life
Building (leasehold interest) lesser of 40 years or remaining life of the lease
Property under capital lease 49 years (lease term)
Furniture and fixtures four to seven years
Tenant improvements shorter of remaining life of the lease or useful life
Depreciation expense (including amortization of the capital lease asset)
amounted to $22,672 and $13,555 for the years ended December 31, 1999 and
1998, respectively, $2,526 for the period August 21, 1997 to December 31,
1997 and $591 for the period January 1, 1997 to August 20, 1997.
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A
property's value is considered impaired if management's estimate of the
aggregate future cash flows (undiscounted and without interest charges)
to be generated by the property are less than the carrying value of the
property. To the extent impairment has occurred, the loss shall be
measured as the excess of the carrying amount of the property over the
fair value of the property. Management does not believe that the value of
any of its rental properties is impaired.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company accounts for its investments in unconsolidated joint ventures
under the equity method of accounting as the Company exercises
significant influence, but does not control these entities. These
investments are recorded initially at cost, as investments in
unconsolidated joint ventures, and subsequently adjusted for equity in
earnings (loss) and cash contributions and distributions. Any difference
between the carrying amount of these investments on the balance sheet of
the Company and the underlying equity in net assets is amortized as an
adjustment to equity in earnings (loss) of unconsolidated joint ventures
over 40 years. See Note 6.
RESTRICTED CASH
Restricted cash primarily consists of security deposits held on behalf of
tenants.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to
initiate and renew operating leases and are amortized on a straight-line
basis over the related lease term. Certain of the employees of the
Company provide leasing services to the Properties. A portion of their
compensation, approximating $1,572, $645 and $257 for the years ended
December 31, 1999 and 1998, and the period August 21, 1997 to December
31, 1997, respectively, was capitalized and is amortized over an
estimated average lease term of seven years.
DEFERRED FINANCING COSTS
Deferred financing costs represent commitment fees, legal and other third
party costs associated with obtaining commitments for financing which
result in a closing of such financing. These costs are amortized over the
terms of the respective agreements. Unamortized deferred financing costs
are expensed when the associated debt is refinanced before maturity.
Costs incurred in seeking financial transactions which do not close are
expensed in the period. Deferred costs associated with the Company's
forward treasury lock (see Note 8) are classified as deferred financing
costs and are being amortized over the term of the related mortgage
financings.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due
pursuant to the underlying leases are included in deferred rents
receivable on the accompanying balance sheets. The Company establishes,
on a current basis, a reserve for future potential tenant credit losses
which may occur against this account. The balance reflected on the
balance sheet is net of such allowance.
RENT EXPENSE
Rent expense is recognized on a straight-line basis over the initial term
of the lease. The excess of the rent expense recognized over the amounts
contractually due pursuant to the underlying lease is included in the
deferred land lease payable in the accompanying balance sheet.
INCOME TAXES
The Company is taxed as a REIT under Section 856(c) of the Internal
Revenue Code of 1986, as amended, commencing with the period August 21,
1997 to December 31, 1997. As a REIT, the Company generally is not
subject to Federal income tax. To maintain qualification as a REIT, the
Company must distribute at least 95% of its REIT taxable income to its
stockholders and meet certain other requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to
Federal income tax on its taxable income at regular corporate rates. The
Company may also be subject to certain state and local taxes on its
income and property. Under certain circumstances, Federal income and
excise taxes may be due on its undistributed taxable income.
UNDERWRITING COMMISSIONS AND COSTS
Underwriting commissions and costs incurred in connection with the
Company's stock offerings are reflected as a reduction of additional
paid-in-capital.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STOCK -BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations
("APB No. 25"). Under APB No. 25, compensation cost is measured as the
excess, if any, of the quoted market price of the Company's stock at the
date of grant over the exercise price of the option granted. Compensation
cost for stock options, if any, is recognized ratably over the vesting
period. The Company's policy is to grant options with an exercise price
equal to the quoted closing market price of the Company's stock on the
business day preceding the grant date. Accordingly, no compensation cost
has been recognized for the Company's stock option plans. Awards of
stock, restricted stock or employee loans to purchase stock, which may be
forgiven over a period of time, are expensed as compensation on a current
basis over the benefit period.
EXTRAORDINARY ITEM
Extraordinary item represents the effect resulting from the early
settlement of certain debt obligations, including related deferred
financing costs, prepayment penalties, yield maintenance payments and
other related items.
INTEREST RATE HEDGE TRANSACTIONS
The Company may enter into derivative financial instruments such as
interest rate swaps and interest rate collars in order to mitigate its
interest rate risk on a related financial instrument. The Company may
designate these derivative financial instruments as hedges and apply
deferral accounting. Gains and losses related to the termination of such
derivative financial instruments are deferred and amortized to interest
expense over the term of the debt instrument.
The Company may also utilize interest rate contracts to hedge interest
rate risk on anticipated debt offerings. These anticipatory hedges are
designated, and effective, as hedges of identified debt issuances which
have a high probability of occurring. Gains and losses resulting from
changes in the market value of these contracts are deferred and amortized
into interest expense over the life of the related debt instrument.
Hedges determined to be ineffective and hedges not correlated to
financings are charged to operations.
EARNINGS PER SHARE
In accordance with the Statement of Financial Accounting Standards No.
128 ("FASB No. 128"), the Company presents both basic and diluted
earnings per share ("EPS"). Basic EPS excludes dilution and is computed
by dividing net income available to common stockholders by the weighted
average number of shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock,
where such exercise or conversion would result in a lower EPS amount.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash investments and
accounts receivable. The Company places its cash investments with high
quality institutions. Management of the Company performs ongoing credit
evaluation of its tenants and requires certain tenants to provide
security deposits. Though these security deposits are insufficient to
meet the terminal value of a tenant's lease obligation, they are a
measure of good faith and a source of funds to offset the economic costs
associated with lost rent and the costs associated with retenanting the
space. Although the SL Green Predecessors' buildings and new acquisitions
are all located in Manhattan, a borough of New York City ("Manhattan"),
the tenants located in these buildings operate in various industries and
no single tenant represents 10% of the Company's revenue. Approximately
19% of the Company's revenue for the period August 21, 1997 to December
31, 1997 was derived from 673 First Avenue. Approximately 19% and 11% of
the Company's revenue was derived from 420 Lexington Avenue and 17
Battery Place, respectively, for the year ended December 31, 1998.
Approximately 18% and 10% of the Company's revenue was
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
derived from 420 Lexington Avenue and 555 West 57th Street, respectively,
for the year ended December 31, 1999. The Company currently has 78% of
its workforce covered by three collective bargaining agreements which
service all of the Company's properties.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which was scheduled to be
adopted in years beginning after June 15, 1999. The Statement permits
early adoption as of the beginning of any fiscal quarter after its
issuance. In 1999, the FASB delayed implementation of FASB 133 by one
year. The Company expects to adopt the new Statement effective January 1,
2001. The Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must
be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the
hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company
does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
MARKETABLE SECURITIES
Marketable securities held by the preferred stock subsidiaries in 1998
were classified as available for sale. The cost of these securities
approximated their fair value.
RECLASSIFICATION
Certain 1998 balances have been reclassified to conform with the 1999
presentation.
3. PROPERTY ACQUISITIONS
1999 ACQUISITIONS
During January 1999, the Company purchased a sub-leasehold interest in
420 Lexington Avenue for $27,300. The sub-leasehold expires on December
30, 2008 with one 21-year renewal term expiring on December 30, 2029.
During January 1999, the Company acquired a 65% controlling interest in
555 West 57th Street (the "BMW Building") for approximately $66,700
(including 65% interest in the previously existing third-party mortgage
debt totaling $45,000). The 941,000 square foot property was
approximately 100% leased as of the acquisition date. On November 5, 1999
the Company acquired the remaining 35% interest in the BMW Building for
$34,100. Simultaneous with this closing, the Company obtained a new
$70,000 first mortgage from Bank of New York and repaid the $45,000 debt
assumed (see Note 8).
During May 1999, the Company acquired four Manhattan properties located
at 90 Broad Street ("90 Broad"), 286, 290 and 292 Madison Avenue (the
"Madison Properties") (collectively, the "Tower Properties") for $84,500.
The properties total 675,000 square feet and were approximately 89%
leased as of the acquisition date. During July 1999, the Company
contributed 90 Broad into a joint venture arrangement (see Note 6).
1998 ACQUISITIONS
On January 8, 1998, the Company acquired fee title to its property
located at 1372 Broadway. Prior to this date the Company held a
mortgagee's interest in this property with a right to acquire the fee.
During March 1998, the Company purchased the operating leasehold interest
in the property located at 420 Lexington Avenue (the "Graybar Building")
and the fee interest in the property located at 1466 Broadway from the
Helmsley organization (together the "Helmsley Properties") for $142,000.
The Graybar Building is located adjacent to Grand Central Station and
encompasses approximately 1.2 million square feet and the property at
1466 Broadway is located at 42nd Street and Broadway encompassing
approximately 290,000 square feet.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
During March 1998 the Company purchased the property located at 321 West
44th Street for approximately $17,000, consisting of approximately
209,000 square feet.
On April 14, 1998, the Company converted its mortgage interest in 36 West
44th Street into a fee interest and its mortgage interest in 36 West 43rd
Street into a leasehold interest (collectively the "Bar Building") for an
additional cost of approximately $1,000.
On May 21, 1998 the Company acquired the outstanding mortgage of the
property located at 711 Third Avenue for approximately $44,600 in cash.
The 20-story, 524,000 square foot building was 79% occupied at the date
of acquisition. The Company's outstanding mortgage position provides for
the Company to receive 100% of the economic benefit from the property,
and accordingly for the period owned, the Company has recorded the
operating results of the property in the statement of operations. On July
2, 1998 the Company acquired 50% of the fee interest in 711 Third Avenue
for $20,000 and 44,772 Operating Partnership Units.
On June 1, 1998 the Company acquired the property located at 440 Ninth
Avenue for approximately $32,000 in cash. The 18-story, 340,000 square
foot building was 76% occupied at the date of acquisition. In connection
with this purchase, the Company obtained a $6,200 mortgage note
receivable secured by the property located at 38 East 30th Street. The
note's interest rate was 8% and was paid back during September 1998.
On August 6, 1998 the Company closed the acquisition of an existing first
mortgage secured by the property located at 636 11th Avenue, which is a
469,000 square foot industrial and warehouse block front property located
between 46th and 47th Streets for $10,900. The mortgage bore interest at
8.875% at December 31, 1998. The Company had contracted to buy this
mortgage on June 11, 1998 and simultaneously entered into an agreement to
purchase the property during January 1999. This property was in Chapter
11 bankruptcy proceedings. During January 1999 the Company terminated
this purchase agreement. The unrecoverable project costs and settlement
costs resulted in a $1,100 charge to 1998 earnings.
On August 14, 1998 the Company purchased the property located at 1412
Broadway (The Fashion Gallery Building) for $72,000, plus approximately
$5,000 for reimbursement of loan prepayment charges and $5,000 related to
capital expenditures, commissions and other closing costs. The property
is a 25-story office building totaling 389,000 square feet and had an
occupancy rate at the date of acquisition, including pending leases, of
89.5%.
1997 ACQUISITIONS
In connection with the Formation Transaction (see Note 1), the Company
acquired the first mortgage related to 1372 Broadway on August 21, 1997
which provides for substantially all of the economic interest in the
property and has the sole right to purchase the fee interest;
accordingly, the Company has accounted for the 1372 Broadway investment
as ownership interest in the property. The Company purchased the fee
interest in January 1998 for approximately $1,000.
On September 15, 1997, the Operating Partnership acquired the land and
building at 110 East 42nd Street for $30,000. The acquisition was funded
by proceeds of a Lehman Brothers Holdings, Inc. ("LBHI") loan and the
Offering.
On December 19, 1997, the Operating Partnership exercised the Company's
option to acquire an interest in 17 Battery Place for approximately
$59,000. In connection with this acquisition, the Company also loaned
$15,500 to the co-tenant at 17 Battery Place. The mortgage receivable
bore interest at 12% and was due March 31, 1999 and was secured by a
first mortgage on the mortgagor's condominium interest in the property.
The borrower did not make the scheduled payment on March 31, 1999,
putting the loan into default. The Company began collection proceedings
and collected the principal in full in addition to collecting all accrued
interest. The cash required to purchase the property and fund the loan
were financed through borrowings under the Company's senior unsecured
revolving credit facility.
On December 30, 1997 the Operating Partnership acquired a condominium
ownership interest at 633 Third Avenue for $10,500 and a capital reserve
of $1,000 (subsequently returned in 1998). The acquisition was funded by
proceeds from a mortgage loan on 50 West 23rd Street and cash on hand.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended
December 31, 1999 and 1998 as though the 1999 Acquisitions and the 1998
Acquisitions described above and the May 1998 Offering (see Note 13) were
made on January 1, 1998.
1999 1998
-------- --------
Pro forma revenues ...................................... $212,206 $192,826
Pro forma net income .................................... $33,470 $31,880
Pro forma basic earnings per common share ............... $1.38 $1.33
Pro forma diluted earnings per common share ............. $1.38 $1.33
Common and common equivalent share - basic .............. 24,184 23,952
Common and common equivalent share - diluted ............ 24,229 23,993
4. INVESTMENT IN UNCOMBINED JOINT VENTURES
The SL Green Predecessor's investments in three partnerships and a
limited liability company had been accounted for under the equity method
since control was shared with other parties.
Condensed combined statements of operations of the partnerships and the
limited liability company, are as follows:
JANUARY 1, TO
AUGUST 20,
1997
-------------
CONDENSED STATEMENTS OF OPERATIONS
Rental revenue and escalations.......................... $13,463
Other revenue........................................... 89
--------
Total revenues.......................................... 13,552
--------
Interest................................................ 5,320
Depreciation and amortization........................... 2,510
Operating and other expenses............................ 7,142
--------
Total expenses.......................................... 14,972
------
Operating loss before outside partner's interest........ (1,420)
Elimination of inter-company management fees............ 240
Extraordinary gain on forgiveness of debt............... 33,418
Other partner share of the (income)..................... (10,921)
--------
Income allocated to the SL Green Predecessor............ $21,317
--------
--------
There were several business relationships with related parties which
involved management, leasing and construction fee revenues and
maintenance expense. Transactions relative to the combined statements of
operations and balance sheet for the equity investees include the
following before elimination of intercompany transactions:
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JANUARY 1, TO
AUGUST 20,
1997
-------------
Management fee expenses $448
Leasing commission expenses............................. 295
Construction fees....................................... 1,796
Maintenance expenses.................................... 186
5. MORTGAGE LOANS RECEIVABLE AND PREFERRED EQUITY INVESTMENT
On January 15, 1999, the Company discontinued the current redevelopment
and subsequent purchase of 636 11th Avenue, and did not purchase the
469,000 square foot industrial and warehouse property. Termination of the
purchase agreement signed last June resulted in a 1998 charge of
approximately $1,100. The Company continued to hold a $10,900 first
mortgage which was fully secured by the property yielding a current rate
of 8.875%, increasing to 9%, effective April 1, 1999. This loan was
repaid in full in December 1999.
During April 1999, the Company originated and funded a $20,000 second
mortgage bridge loan to finance 521 Fifth Avenue Partners, LLC's
acquisition of a 440,000 square foot Manhattan office building located at
521 Fifth Avenue. The second mortgage bridge loan which had an initial
term of six months with a yield of 16%, was extended for an additional
three months with an expected yield of 17%. Goldman Sachs Mortgage
Company purchased a 50% participation in the investment. This loan was
repaid in full in December 1999.
During May 1999, the Company acquired a $20,000 preferred equity interest
in a venture holding the loan secured by fee title of 1370 Avenue of the
Americas located in Manhattan. The venture is entitled to receive all of
the cash flows from the building, in addition to shared control over the
management and leasing of the property. The venture also has the right to
obtain fee title to the property after a prescribed period of time. The
Company has also been reappointed manager of the property. The investment
entitled the Company to receive a yield of 700 basis points over 30-day
LIBOR preferentially on a current basis. In addition to receiving its
preferred return, the Company may participate in the value it creates
through a purchase option, entitling it to acquire 50% of the common
equity of the venture at a fixed price, based on today's estimate of
market value of the property. Further, the Company may obtain 100% of the
venture through the exercise of a right of first offer.
6. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
During July 1999, the Company entered into a joint venture agreement with
Morgan Stanley Real Estate Fund III, L.P. to own 90 Broad located in
Manhattan. The property was contributed to the venture by the Company and
the Company retained a 35% economic interest in the venture. At the time
of the contribution the property was valued at $34,600 which approximated
the Company's cost basis in the asset. In addition, the venture assumed
the existing $20,800 first mortgage that was collateralized by the
property. The Company will continue to provide management, leasing and
construction services at the property on a fee basis. During 1999, the
Company earned $62 for such services. The venture agreement provides the
Company with an opportunity to receive a promotional interest with
respect to sales proceeds and cash distributions once a fixed hurdle rate
is achieved.
During August 1999, the Company entered into a joint venture agreement
with Carlyle Realty to purchase 1250 Broadway located in Manhattan for
$93,000. The property is 670,000 square feet and was 97% leased at
acquisition. The Company holds a 49.9% stake in the venture and provides
management, leasing and construction services at the property on a fee
basis. During 1999, the Company earned $371 for such services. The
acquisition was partially financed with a floating rate mortgage
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
totaling $64.7 million maturing in 3 years. This facility has the ability
to be increased to $69,700 as funding of capital requirements is needed.
The interest rate is 300 basis points over 30-day LIBOR (9.48% at
December 31, 1999). The venture agreement provides the Company with an
opportunity to receive a promotional interest with respect to sales
proceeds and cash distributions once a fixed hurdle rate is achieved.
The condensed balance sheet for the unconsolidated joint ventures at
December 31, 1999, is as follows:
1999
---------
ASSETS
Commercial real estate property......................... $130,585
Other assets............................................ 14,236
--------
Total Assets........................................... $144,821
========
LIABILITIES AND MEMBERS' EQUITY
Mortgage payable........................................ $85,450
Other liabilities....................................... 7,278
Members' equity......................................... 52,093
---------
Total liabilities and members' equity.................. $ 144,821
=========
Company's net investment in
unconsolidated joint ventures......................... $ 23,441
=========
The condensed statement of operations for the unconsolidated joint
ventures from acquisition date through December 31, 1999 is as follows:
1999
---------
Total revenues ....................... $ 9,433
Operating expense .................... 3,069
Real estate taxes .................... 1,522
Interest ............................. 2,606
Depreciation and amortization ........ 1,356
---------
Total expenses ................... 8,553
---------
Net income ........................... $ 880
---------
Company's equity in earnings of
unconsolidated joint ventures ... $ 377
========
7. DEFERRED COSTS
1999 1998
-------- --------
Deferred costs consist of the following:
Deferred financing ..................... $ 15,096 $ 8,342
Deferred leasing ....................... 26,682 13,010
-------- --------
41,778 21,352
Less accumulated amortization .......... (11,238) (6,070)
-------- --------
$ 30,540 $ 15,282
======== ========
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. MORTGAGE NOTES PAYABLE AND REVOLVING CREDIT FACILITY
The mortgage notes payable collateralized by the respective properties
and assignment of leases at December 31, 1999 and 1998 are as follows:
PROPERTY MORTGAGE NOTES 1999 1998
--------------- -------------- ---- ----
50 West 23rd Street Note payable to GMAC with interest at 7.33% due
December 2007............................................... $21,000 $21,000
29 West 35th Street First mortgage note with interest payable at 8.464%, due
February 1, 2001............................................ 2,825 2,903
673 First Avenue First mortgage note with interest payable at 9.0%, due
December 13, 2003........................................... 14,740 16,452
470 Park Avenue South First mortgage note with interest payable at 8.25%, due
April 1, 2004.............................................. 10,153 10,507
1414 Avenue of Americas,
633 Third Avenue, 36
West 44th Street and First mortgage note with interest payable at 7.9%, due
70 West 36th Street May 1, 2009................................................. 50,800 ---
1412 Broadway First mortgage note with interest payable at 7.62%, due
May 1, 2006................................................. 52,000 ---
711 Third Avenue First mortgage note with interest payable at 8.13%, due
September 10, 2005.......................................... 49,225 ---
555 West 57th Street First mortgage note with interest payable at 8.10%, due
November 4, 2004 (1) ....................................... 70,000 ---
-------- ---------
Total fixed rate debt................................. 270,743 50,862
------- ---------
420 Lexington Avenue First mortgage note with interest payable at 9.25%, due
May 21, 2001................................................ 55,000 ---
Madison Properties First mortgage note with interest payable at 7.98%, due
June 1, 2000................................................ 26,950 ---
---------- ---------
Total floating rate debt.............................. 81,950 ---
---------- ---------
Total mortgage notes payable................................ $352,693 $50,862
========== =======
(1) The Company entered into an interest rate protection agreement which
fixed the LIBOR interest rate at 6.10% at December 31, 1999. If LIBOR
exceeds 6.10%, the loan will float until the maximum cap of 6.58% is
reached.
At December 31, 1999, the carrying value of the properties
collateralizing the mortgage notes was $567,680.
1999 FINANCING
During April 1999, the Company closed on two fixed-rate mortgage
financings totaling $102,800 with maturities of 10 years ($50,800 secured
by 1414 Avenue of the Americas, 36 West 44th Street, 633 Third Avenue and
70 West 36th Street) and 7 years ($52,000 secured by 1412 Broadway). The
weighted average interest rate on these financings is 7.78%. These
mortgages replaced $87,500 in secured floating-rate bridge financings
(see 1998 Financings) and provided approximately $13,000 in additional
liquidity that was used to reduce the amount outstanding under the
Company's revolving credit facility. The Company recorded a $600
extraordinary loss during the quarter ended June 30, 1999 for the early
extinguishment of debt related to the write-off of unamortized deferred
financing costs associated with these secured bridge loans.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
During May 1999, the Company closed on loans totaling $117,700. The first
loan of $65,000 is secured by the Company's interest in 420 Lexington
Avenue. The term of this loan is two years and bears interest at a rate
of 275 basis points over the 30-day LIBOR rate (9.25% at December 31,
1999). In October 1999, the Company repurchased a $10,000 non-investment
grade tranche lowering the effective spread from LIBOR plus 275 basis
points to LIBOR plus 203 basis points. Simultaneous with the closing, the
Company entered into an interest rate protection agreement which caps
LIBOR at 6.5% for the term of the loan. The second loan was a $52,700
one-year floating rate facility, secured by the Madison Properties
($26,900), 90 Broad ($20,800) and 711 Third Avenue ($5,000) and bears
interest at a rate of 150 basis points over the 30-day LIBOR rate (7.98%
at December 31, 1999).
During September 1999, the Company closed a $49,200 fixed rate financing
secured by the property located at 711 Third Avenue. This mortgage
matures in 6 years and carries a fixed interest rate of 8.13%. The
proceeds were used to repay a $5,000 existing financing on the property
(see above) with the balance used to reduce the amount outstanding under
the Company's revolving credit facility.
During November 1999, simultaneous with the closing of the remaining 35
percent interest in the BMW Building, the Company obtained a new $70,000
first mortgage from Bank of New York. The mortgage has a term of five
years with a floating interest rate of 200 basis points over 30-day
LIBOR. At the time of the financing, the Company entered into an interest
rate protection agreement with Bank of New York. The agreement has fixed
the LIBOR interest rate at 6.10% however, the LIBOR interest rate on the
loan will begin floating if the actual LIBOR rate exceeds 6.10% and is
capped at a maximum LIBOR rate of 6.58%. At closing the loan's effective
interest rate inclusive of the collar arrangement was 8.17%. This
interest rate "collar" agreement is in effect for five years to
correspond with the term of the loan. The Company recorded a $400
extraordinary loss during the quarter ended December 31, 1999 for the
early extinguishment of debt related to prepayment penalties incurred as
a result of the early repayment of the $45,000 debt assumed in January
1999.
On December 28, 1999, the Company closed on a $30,000 credit facility
with Prudential Securities Credit Corp. (the "PSCC Facility"). The
current borrowing capacity is $15,500, of which none was drawn down at
December 31, 1999. The PSCC Facility is secured by the Company's
preferred equity interest in 1370 Avenue of the Americas and a
repurchased mortgage participation interest in the mortgage at 420
Lexington Avenue. Interest-only is payable based on the 1-Month LIBOR
plus 125 basis points. The PSCC Facility may be prepaid at any time
during its term without penalty. The PSCC Facility matures on December
27, 2000.
1998 FINANCINGS
During March 1998, the Company converted the notes payable that were
collateralized by 50 West 23rd Street into fixed rate obligations at an
interest rate of 7.33%.
During December 1998, the Company closed two short-term bridge
financings. The first financing was a $51,500 bridge loan with Prudential
Securities at an interest rate equal to 200 basis points over the current
one-month LIBOR (7.58% at December 31, 1998). The loan which was secured
by the properties located at 1412 Broadway and 633 Third Avenue was
repaid in April 1999. The second financing was a $36,000 bridge loan with
Lehman Brothers at an interest rate equal to 275 basis points over the
current one-month LIBOR (8.29% at December 31, 1998). The loan which was
secured by the properties located at 70 West 36th Street, 1414 Avenue of
the Americas and The Bar Building was repaid in April 1999.
1997 FINANCING
On December 19, 1997, the Company entered into a $140,000 three year
senior unsecured revolving credit facility (the"Credit Facility") due
December 2000. Availability under the Credit Facility may be limited to
an amount less than the $140,000 which is calculated by several factors
including recent acquisition activity and most recent quarterly property
performance. Outstanding loans under the Credit Facility bear interest on
a graduated rate per annum equal to the London Interbank Offered Rate
("LIBOR") applicable to each interest period plus 120 basis points to 145
basis points per annum. The Credit Facility requires
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
the Company to comply with certain covenants, including but not limited
to, maintenance of certain financial ratios. At December 31, 1999, the
outstanding amount of indebtedness under the Credit Facility was $83,000
and the interest rate on such indebtedness was 7.82% per annum.
Availability under the Credit Facility was reduced further by the
issuance of letters of credit in the amount of $7,500 $6,200 for
acquisition deposits for the years ended December 31, 1999 and 1998,
respectively. At December 31, 1999, the Company's borrowing capacity
under the Credit Facility was $49,500.
INTEREST RATE PROTECTION AGREEMENTS
In anticipation of financing properties, the Company executed a forward
treasury rate lock on September 2, 1998 for $100,000 of future financing.
The underlying rate for that position was 5.13%. On December 3rd this
rate lock expired and was not renewed. The negative value of this hedge
at expiration was $3,200. In connection with the hedge, the Company had
commitments to complete five permanent mortgage financings totaling
$103,000 on properties located at 70 West 36th Street, 36 West 44th
Street, 1414 Avenue of the Americas, 633 Third Avenue and 1412 Broadway.
The hedge cost represents a deferred financing cost which will be
amortized over the life of these financings, except for $200 which
related to a mismatch in terms resulting in a charge to 1998 earnings.
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable
as of December 31, 1999 are as follows:
Total
-----
2000........................... $113,625
2001........................... 63,012
2002........................... 6,374
2003........................... 9,150
2004........................... 78,477
Thereafter..................... 165,055
--------
$435,693
--------
--------
MORTGAGE RECORDING TAX - HYPOTHECATED LOAN
The Operating Partnership mortgage tax credit loans totaled approximately
$134,000 from LBHI at December 31,1998. These loans were collateralized
by the mortgages encumbering the Operating Partnership's interests in 711
Third Avenue. The loans were also collateralized by an equivalent amount
of the Company's cash which was held by LBHI and invested in US Treasury
securities. Interest earned on the cash collateral was applied by LBHI to
service the loans with interest rate commensurate with that of the
portfolio of six month US Treasury securities, which matured on May 18,
1999. The Operating Partnership and LBHI each had the right of offset and
therefore the loans and the cash collateral were presented on a net basis
in the consolidated balance sheet at December 31, 1998. The purpose of
these loans was to temporarily preserve mortgage recording tax credits
for future potential acquisitions of real property which the Company may
make, the financing of which may include property based debt, for which
these credits would be applicable and provide a financial savings. These
mortgage tax credit loans were all paid off during 1999.
9. PROPERTIES HELD FOR SALE
At December 31, 1999, the Company had two properties comprising
approximately 243,000 rentable square feet held for sale. These
properties were under contract for sale in the aggregate amount of
$43,200, with deposits of $2,000. There can be no assurance that such
properties held for sale will be sold.
The following table discloses certain information regarding the two
properties held for sale by the Company:
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998
---- ----
Total Revenues $ 7,206 $ 6,950
Operating Expenses (2,813) (3,008)
Depreciation and Amortization (883) (936)
Other (1,240) (336)
-------- --------
Net Income $ 2,270 $ 2,670
======== ========
Net Carrying Value (including related costs)
at December 31, 1999 $ 25,835
========
On February 11, 2000, the Company sold 29 West 35th Street for $11,700,
before selling costs, realizing a gain of approximately $5,000 on the
sale.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the
Company could realize on disposition of the financial instruments. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
Cash equivalents, mortgage receivables, and variable and fixed rate debt
are carried at amounts which reasonably approximate their fair values
based on discounted cash flow models.
Disclosure about fair value of financial instruments is based on
pertinent information available to management as of December 31, 1999.
Although management is not aware of any factors that would significantly
affect the reasonable fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date and current estimates of fair value may differ significantly
from the amounts presented herein.
11. RENTAL INCOME
The Operating Partnership is the lessor and the sublessor to tenants
under operating leases with expiration dates ranging from 2000 to 2019.
The minimum rental amounts due under the leases are generally either
subject to scheduled fixed increases or adjustments. The leases generally
also require that the tenants reimburse the Company for increases in
certain operating costs and real estate taxes above their base year
costs. Approximate future minimum rents to be received over the next five
years and thereafter for non-cancelable operating leases in effect at
December 31, 1999 are as follows:
2000........................ $171,066
2001........................ 175,187
2002........................ 149,238
2003........................ 140,316
2004........................ 121,923
Thereafter.................. 518,244
-------
$1,275,974
----------
----------
12. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties, entities
owned by Stephen L. Green or relatives of Stephen L. Green exclusive of
the uncombined joint ventures which involve management, leasing, and
construction fee revenues, rental income and maintenance expenses in the
ordinary course of business. These transactions for the years ended
December 31, include the following:
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SL Green Realty Corp. SL Green Predecessor
----------------------------------- --------------------
August 21 to January 1 to
December 31 August 20
1999 1998 1997 1997
------- ------- ------------- ---------------------
Management revenues ....... $ 171 $ 178 $ 78 $ 172
Leasing commission revenues 107 181 8 29
Construction fees ......... -- -- 14 37
Rental income ............. -- -- -- 43
Maintenance expense ....... 4,707 2,118 119 163
Amounts due from related parties at December 31, consist of:
1999 1998 1997
---- ---- ----
17 Battery Condominium Association ....................... $176 $245 --
Morgan Stanley Real Estate Fund .......................... 197 -- --
Carlyle Group ............................................ 13 -- --
Officers ................................................. 141 528 $725
---- ---- ----
$527 $773 $725
==== ==== ====
Amounts due to related parties at December 31, consist of:
1999 1998 1997
----- ---- ----
29 West 35th Street Predecessor Partnership .............. $-- $-- $ 45
36 West 44th Street Predecessor Partnership .............. -- 12 56
70 West 36th Street Predecessor Partnership .............. -- 12 67
1414 Avenue of the Americas Predecessor Partnership ...... -- 25 88
470 Park Avenue South Predecessor Partnership ............ -- 6 72
673 First Avenue Predecessor Partnership ................. -- 8 39
---- ---- ----
$-- $ 63 $367
==== ==== ====
13. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 200,000,000
shares, $.01 par value, of which the Company has authorized the issuance
of up to 100,000,000 shares of Common Stock, $.01 par value per share,
75,000,000 shares of Excess Stock, at $.01 par value per share, and
25,000,000 shares of Preferred Stock, par value $.01 per share. On August
20, 1997, the Company issued 11,615,000 shares of its Common Stock
(including the underwriters' over-allotment option of 1,520,000 shares)
through a public offering (the "Offering"). Concurrently with the
consummation of the Offering, the Company issued 38,095 shares of
restricted common stock pursuant to officer stock loans and 85,600 shares
of restricted common stock to a financial advisor. In addition, the
Company previously issued to its executive officers approximately 553,616
shares, as founders' shares. As of December 31, 1999, no shares of Excess
Stock were issued and outstanding.
On May 12, 1998 (the "May 1998 Offering"), the Company completed the sale
of 11,500,000 shares of common stock and 4,600,000 shares of 8% Preferred
Income Equity Redeemable Shares with a mandatory liquidation preference
of $25.00 per share (the "PIERS"). Gross proceeds from these equity
offerings ($353,000, net of underwriter's discount) were used principally
to repay the Acquisition Facility (see Note 17) and acquire additional
properties. These offerings resulted in the reduction of continuing
investor's interest in the Operating Partnership from 16.2% to 9.2%.
As of December 31, 1999 and 1998, the minority interest unitholders owned
9.1% (2,428,217 units) and 9.2% (2,428,217 units) of the Operating
Partnership, respectively.
At December 31, 1999, 10,102,217 shares of common stock were reserved for
the converstion of 2,428,217 units, 2,975,000 stock options and 4,699,000
PIERS.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STOCK OPTION PLANS
During August 1997, the Company instituted the 1997 Stock Option and
Incentive Plan (The "Stock Option Plan"). The Stock Option Plan
authorizes (i) the grant of stock options that qualify as incentive stock
options under Section 422 of the Code ("ISOs"), (ii) the grant of stock
options that do not so qualify ("NQSOs"), (iii) the grant of stock
options in lieu of cash Directors' fees and employee bonuses, (iv) grants
of shares of Common Stock, in lieu of compensation; and (v) the making of
loans to acquire shares of Common Stock, in lieu of compensation. The
exercise price of stock options will be determined by the Compensation
Committee, but may not be less than 100% of the fair market value of the
shares of Common Stock on the date of grant in the case of ISOs; provided
that, in the case of grants of NQSOs granted in lieu of cash Director's
fees and employee bonuses, the exercise price may not be less than 50% of
the fair market value of the shares of Common Stock on the date of grant.
At December 31, 1999, approximately 2,975,000 shares of Common Stock are
reserved for exercise of warrants and stock options.
Options granted under the 1997 qualified stock option plan are
exercisable at the fair market value on the date of grant and, subject to
termination of employment, expire ten years from the date of grant, are
not transferable other than on death, and are exercisable in three equal
annual installments commencing one year from the date of grant (with the
exception of 10,000 options which have a vesting period of one year).
The Company applies APB No. 25 and related interpretations in accounting
for its plan. Statement of Financial Accounting Standards No. 123 ("FAS
123") was issued by the Financial Accounting Standards Board in 1995 and,
if fully adopted, changes the methods for recognition of cost on plans
similar to that of the Company. Adoption of FAS 123 is optional,however,
pro forma disclosure, as if the Company adopted the cost recognition
requirements under FAS 123, are presented below. The Company did not
record any compensation expense under APB 25.
A summary of the status of the Company's stock options as of December 31,
1999 and 1998 and changes during the years ended December 31, 1999 and
1998, are presented below:
Outstanding Weighted Average
Shares Exercise Price
Balance at December 31, 1997 660,000 $ 21.27
Granted 1,306,000 $ 21.26
Exercised -- --
Lapsed or cancelled (168,000) $ 21.86
---------- ----------
Balance at December 31, 1998 1,798,000 $ 21.19
Granted 609,000 $ 20.59
Exercised -- --
Lapsed or cancelled (356,000) $ 22.41
---------- ----------
Balance at December 31, 1999 2,051,000 $ 20.80
========== ==========
Options exercisable at December 31, 1998 186,666 $ 21.23
Options exercisable at December 31, 1999 529,364 $ 21.06
========== ==========
The weighted average exercise price of the 2,051,000 options outstanding
was $20.80 as of December 31, 1999. The remaining weighted average
contractual useful life of the options was 9.3 years. The weighted
average fair value of options granted during the year was $2,300 and
$6,200 for the years ended December 31, 1999 and 1998, respectively. The
fair value of each share option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1999, 1998 and 1997.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997
------------------------------------------------ -------------------------- -------------------------- ----------
Dividend yield 5.00% 5.00% 5.00%
Expected life of option 4 years 4 years 4 years
Risk-free interest rate 5.00% 5.00% 5.00%
Expected stock price volatility 28.76% 36.95% 36.95%
The compensation cost under FAS 123 for the stock performance-based plan
would have been $1,600, $2,600 and $285 in 1999, 1998 and 1997,
respectively. Had compensation cost for the Company's grants for
stock-based compensation plans been determined consistent with FAS 123,
the Company's net income and net income per common share for 1999, 1998
and 1997 would approximate the pro forma amounts below:
1999 1998 1997
----------------------------------------------------- --------------------- -------------------------- --------------
Net income $31,705 $20,900 $3,400
Net income per common share - basic $1.31 $1.06 $0.28
Net income per common share - diluted $1.31 $1.06 $0.28
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts.
EARNINGS PER SHARE
Earnings per share is computed as follows:
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------------------------------------------- ------------------ ------------------------ -----------------------
Basic Earnings:
Income available to common
shareholders $33,258 24,192,000 $1.37
Effect of Dilutive Securities:
Redemption of Units to common shares 3,356 2,428,000
Stock Options --- 60,000
----------------------------------------------------- ------------------ ------------------------ ----------------------
Diluted Earnings:
Income available to common
shareholders $36,614 26,680,000 $1.37
----------------------------------------------------- ------------------ ------------------------ ----------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------------------------------------------- ------------------------ ------------------------ -----------------
Basic Earnings:
Income available to common
shareholders $23,482 19,675,000 $1.19
Effect of Dilutive Securities:
Redemption of Units to common shares 3,043 2,406,000
Stock Options --- 64,000
----------------------------------------------------- ------------------- ------------------------ --------------------
Diluted Earnings:
Income available to common
shareholders $26,525 22,145,000 $1.19
----------------------------------------------------- ------------------- ------------------------ ---------------------
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The conversion of the PIERS which are currently anti-dilutive using the
"if converted" method may result in the dilution of future earnings per
share.
PREFERRED STOCK
The Company's 8% PIERS are non-voting and are convertible at any time at
the option of the holder into the Company's common stock at a conversion
price of $24.475 per share. The conversion of all PIERS would result in
the issuance of 4,699,000 of the Company's common stock which has been
reserved for issuance. The PIERS receive annual dividends of $2.00 per
share paid on a quarterly basis and dividends are cumulative. On or after
July 15, 2003 the PIERS may be redeemed at the option of the Company at a
redemption price of $25.889 and thereafter at prices declining to the par
value of $25.00 on or after July 15, 2007, with a mandatory redemption on
April 15, 2008 at a price of $25.00 per share. The PIERS were recorded
net of underwriters discount and issuance costs. These costs are being
accreted over the expected term of the PIERS using the interest method.
14. BENEFIT PLANS
The building employees are covered by multi-employer defined benefit
pension plans and post-retirement health and welfare plans. Contributions
to these plans amounted to $644, $366, $35 and $44 during the years ended
December 31, 1999 and 1998, the periods August 21, 1997 to December 31,
1997, and January 1, 1997 to August 20, 1997, respectively. Separate
actuarial information regarding such plans is not made available to the
contributing employers by the union administrators or trustees, since the
plans do not maintain separate records for each reporting unit.
EXECUTIVE STOCK COMPENSATION
During July 1998, the Company issued 150,000 shares in connection with an
employment contract. These shares vest annually at rates of 15% to 35%
and were recorded at fair value. At December 31, 1999, 22,500 of these
shares had vested and the Company recorded compensation expense of
approximately $534.
Effective January 1, 1999 the Company implemented a deferred compensation
plan (the "Deferred Plan") covering certain executives of the Company. In
connection with the Deferred Plan the Company issued 240,000 restricted
shares. The shares issued under the Deferred Plan were granted to certain
executives and vesting will occur annually upon the Company meeting
established financial performance criteria. Annual vesting occurs at
rates ranging from 15% to 35% once performance criteria are reached. As
of December 31, 1999, 44,660 of these shares had vested and the Company
recorded compensation expense of approximately $893.
401(k) PLAN
During August 1997, the Company implemented a 401(k) Savings/Retirement
Plan (the "401(k) Plan") to cover eligible employees of the Company and
any designated affiliate. The 401(k) Plan permits eligible employees of
the Company to defer up to 15% of their annual compensation, subject to
certain limitations imposed by the Code. The employees' elective
deferrals are immediately vested and non-forfeitable upon contribution to
the 401(k) Plan. As of December 31, 1999, the Company has not made any
contributions to the 401(k) Plan.
15. COMMITMENTS AND CONTINGENCIES
The Company and the Operating Partnership are not presently involved in
any material litigation nor, to their knowledge, is any material
litigation threatened against them or their properties, other than
routine litigation arising in the ordinary course of business. Management
believes the costs, if any, incurred by the Company and the Operating
Partnership related to this litigation will not materially affect the
financial position, operating results or liquidity of the Company and the
Operating Partnership.
The Company has entered into employment agreements with certain
executives. Eight executives have employment agreements which expire
between July 2000 and July 2003. The cash based compensation associated
with these employment agreements totals approximately $1,500 annually.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In December 1999, the Company received 387,635 warrants from Onsite
Access Inc. ("Onsite") in exchange for providing Onsite with access to
its portfolio of properties. This arrangement provides certain marketing
preferences to Onsite in exchange for which the Company will receive a
share in the revenues of the service provider. The Company is also
entitled to receive up to an additional 494,718 warrants based on the
terms of the Warrant Issuance Agreement. Onsite provides comprehensive
communications solutions for small and medium-sized business customers in
multi-tenant commercial office buildings. The warrants had an estimated
fair value of $306 at December 31, 1999. This was recorded as Deferred
Revenue at December 31, 1999 and will be amortized over the term of the
agreement. The warrants are held in an LLC of which the Company owns a 75
percent managing member interest, and the remaining interest is held by
certain members of management.
During March 1998, the Company acquired an operating sub-leasehold
position at 420 Lexington Avenue. The operating sub-leasehold position
requires annual ground lease payments totaling $6,000 and sub-leasehold
position payments totaling $1,100 (excluding an operating sub-lease
position purchased January 1999 - see Note 3). The ground lease and
sub-leasehold positions expire 2008. The Company may extend the positions
through 2029 at no additional cost.
In April 1988, the SL Green Predecessor entered into a lease agreement
for property at 673 First Avenue in New York City, which has been
capitalized for financial statement purposes. Land was estimated to be
approximately 70% of the fair market value of the property. The portion
of the lease attributed to land is classified as an operating lease and
the remainder as a capital lease. The initial lease term is 49 years with
an option for an additional 26 years. Beginning in lease years 11 and 25,
the lessor is entitled to additional rent as defined by the lease
agreement.
The property located at 1140 Avenue of the Americas operates under a net
ground lease ($348 annually) with a term expiration date of 2016 and with
an option to renew for an additional 50 years.
The property located at 711 Third Avenue operates under an operating
sub-lease which expires in 2083. Under the sub-lease, the Company is
responsible for ground rent payments of $1,600 annually increasing to
$3,100 in July 2001 for ten years. The ground rent is reset after year
ten based on the estimated fair market value of the property.
The Company continues to lease the 673 First Avenue property which has
been classified as a capital lease with a cost basis of $12,208 and
cumulative amortization of $2,782 and $2,533 at December 31, 1999 and
1998, respectively. The following is a schedule of future minimum lease
payments under capital leases and noncancellable operating leases with
initial terms in excess of one year as of December 31, 1999:
NONCANCELLABLE
DECEMBER 31, CAPITAL LEASES OPERATING LEASES
----------- -------------- ----------------
2000 $1,177 $11,079
2001 1,290 11,687
2002 1,290 12,075
2003 1,290 12,075
2004 1,290 12,075
Thereafter 60,306 339,293
------ -------
Total minimum lease
payments 66,643 $398,284
========
Less amount
representing interest (51,626)
--------
Present value of net
minimum lease payments $15,017
=======
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. ENVIRONMENTAL MATTERS
The management of the Company believes that the properties are in
compliance in all material respects with applicable federal, state and
local ordinances and regulations regarding environmental issues.
Management is not aware of any environmental liability that management
believes would have a materially adverse impact on the Company's
financial position, results of operations or cash flows. Management is
unaware of any instances in which it would incur significant
environmental cost if any of the properties were sold.
17. EXTRAORDINARY ITEMS
In March 1998, the Company requested the Credit Facility banking group to
temporarily relieve the Company from its obligations under the financial
covenants of the Credit Facility, in order to close an additional
financing necessary to acquire the Helmsley Properties (the "Acquisition
Facility"). This Acquisition Facility closed on March 18, 1998 financed
the Helmsley Properties acquisition, paid-off the outstanding balance on
the Company's Credit Facility and provides on-going liquidity for future
acquisition and corporate needs. The term of the Acquisition Facility was
one year. The interest rate was determined by a schedule of the percent
of the loan commitment outstanding and the duration of the loan
commitment outstanding ranging from 170 basis points to 300 basis points
over LIBOR. As a result of the Company's May 1998 Public Equity
Offerings, on May 18, 1998, the Company repaid the Acquisition Facility
prior to its scheduled maturity date of March 18, 1999. The Company's
early extinguishment of the Acquisition Facility resulted in the
write-off of unamortized deferred financing costs totaling approximately
$522 (net of minority interest of $52) which were classified as an
extraordinary loss during the quarter ended June 30, 1998.
Forgiveness of subordinated property mortgage debt totaling $22,087 (net
of other partners' share of $11,332 for the period January 1, 1997 to
August 20, 1997) is reflected in the accompanying SL Green Predecessor
financial statements as an extraordinary gain.
Prepayment penalties of $1,071 (net of minority interest of $207) and
unamortized deferred charges of $803 (net of minority interest of $155)
related to mortgages paid in connection with the Formation Transactions
were expensed and are reflected in the Company's financial statements as
an extraordinary loss for the period August 21, 1997 to December 31,
1997. This debt was forgiven in connection with the Formation
Transactions.
See Note 8 for extraordinary items relating to the year ended December
31, 1999.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly data for the last two years is presented in the tables below:
1999 QUARTER ENDED DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ------------------ ----------- ------------ -------- ----------
Total revenues $ 53,890 $ 54,652 $ 50,809 $ 46,666
======== ======== ======== ========
Income net of minority interest and
before extraordinary item 11,345 10,475 11,408 10,617
Extraordinary item (361) -- (628) --
-------- -------- -------- ---------
Net income 10,984 10,475 10,780 10,617
Preferred dividends and accretion (2,399) (2,400) (2,399) (2,400)
-------- -------- -------- ---------
Income available to common
Shareholders $ 8,585 $ 8,075 $ 8,381 $ 8,217
======== ======== ======== ========
Income per common share before
extraordinary item $ 0.36 $ 0.33 $ 0.37 $ 0.34
======== ======== ======== ========
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income per common share -
basic and diluted $ 0.35 $ 0.33 $ 0.35 $ 0.34
============ ============= ======== ========
1998 QUARTER ENDED DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ----------------------------------- ------------ ------------- -------- --------
Total revenues $ 39,328 $ 39,750 $ 33,663 $ 21,811
============ ============= ======== ========
Income net of minority interest and
before extraordinary item 9,256 10,257 6,372 4,089
Extraordinary item -- -- (522) --
------------ ------------- -------- --------
Net income 9,256 10,257 5,850 4,089
Preferred dividends and accretion (2,346) (2,433) (1,191) --
------------ ------------- -------- --------
Income available to common
shareholders $ 6,910 $ 7,824 $ 4,659 $ 4,089
============ ============= ======== ========
Income per common share before
extraordinary item $ 0.29 $ 0.33 $ 0.28 $ 0.33
============ ============= ======== ========
Net income per common share -
basic and diluted $ 0.29 $ 0.33 $ 0.25 $ 0.33
============ ============= ======== ========
19. SEGMENT INFORMATION
The Company is a REIT engaged in owning, managing, leasing and
repositioning class B office properties Manhattan and has one reportable
segment, office real estate. The Company evaluates real estate
performance and allocates resources based on net income.
The Company's real estate portfolio is located in one geographical market
of Manhattan. The primary sources of revenue are generated from tenant
rents and escalations and reimbursement revenue. Real estate property
operating expenses primarily consist of security, maintenance, utility
costs and ground rent expense (at certain applicable properties). The
single office real estate business segment meets the quantitative
threshold for determining reportable segments. The Company has no tenant
with rental revenue greater than 10% of the Company's revenue.
20. SUBSEQUENT EVENTS
On February 16, 2000, the Board of Directors of the Company authorized a
dividend distribution of one preferred share purchase right ("Right") for
each outstanding share of common stock which will be distributed to all
holders of record of the common stock on March 31, 2000. Each Right
entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series B junior participating preferred
stock, par value $0.01 per share ("Preferred Shares"), at a price of
$60.00 per one one-hundredth of a Preferred Share ("Purchase Price"),
subject to adjustment as provided in the rights agreement. The Rights
expire on March 5, 2010, unless the expiration date is extended or the
Right is redeemed or exchanged earlier by the Company.
SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Rights are attached to each share of common stock. The rights are
generally exercisable only if a person or group becomes the beneficial
owner of 17 percent or more of the outstanding common stock or announces
a tender offer for 17 percent or more of the outstanding stock
("Acquiring Person"). In the event that a person or group becomes an
Acquiring Person, each holder of a Right, excluding the Acquiring Person,
will have the right to receive, upon exercise, common stock having a
market value equal to two times the Purchase Price of the Right.
On February 18, 2000, the Company acquired a 49.9 percent managing
interest in 100 Park Avenue ("100 Park"), an 834,000 square foot,
36-story property, located in Manhattan. The purchase price of $95,800
was funded through a combination of cash and debt. The Company will
provide managing and leasing services for 100 Park.
On March 8, 2000, the Company sold 36 West 44th Street for $31,500,
before selling costs, realizing a gain of approximately $9,900 on the
sale.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
SL Green Realty Corp.
We have audited the accompanying combined statement of income,
owners' equity and cash flows of the uncombined joint ventures on SL
Green Predecessor for the period from January 1, 1997 to August 20, 1997.
These financial statements are the responsibility of SL Green
Predecessor's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined results of the uncombined
joint ventures of SL Green Predecessor's operations and their cash flows
for the period from January 1, 1997 to August 20, 1997 in conformity with
accounting principles generally accepted in the United States.
/S/ Ernst & Young LLP
New York, New York
February 10, 1998
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
January 1, to
August 20
1997
--------------
Revenues:............................................
Rental revenue ....................................... $ 12,604
Escalation and reimbursement revenues ................ 859
Other income ......................................... 89
--------
Total revenues ......................................... 13,552
--------
Expenses:
Operating expenses:
Other .............................................. 2,342
Related parties ...................................... 634
Real estate taxes .................................... 1,741
Rent expense ......................................... 2,425
Interest ............................................. 5,320
Depreciation and amortization ........................ 2,510
--------
Total expenses ......................................... 14,972
--------
Loss before extraordinary gain ......................... (1,420)
--------
Extraordinary gain ..................................... 33,418
--------
Net income.............................................. $ 31,998
========
The accompanying notes are an integral part to these financial statements.
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENT OF OWNERS' EQUITY
(DOLLARS IN THOUSANDS)
SL Green & All other
Related Entities Partners Total
---------------- ----------- ------------
Balance at December 31, 1996............................ $(15,570) $(6,059) $(21,629)
Distributions ........................................ (1,702) (1,345) (3,047)
Other-reclassification of joint venture to
combined property .................................. (880) (4,463) (5,343)
Contributions ........................................ 450 385 835
Net income for the period ending August 20, 1997...... 21,101 10,897 31,998
-------- --------- --------
Balance at August 20, 1997 ............................. $ 3,399 $ (585) $ 2,814
-------- --------- --------
-------- --------- --------
The accompanying notes are an integral part to these financial statements.`
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
January 1, to
August 20
1997
-------------
OPERATING ACTIVITIES
Net Income (loss) ...................................... $ 31,998
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Extraordinary item ................................... (33,418)
Depreciation and amortization ........................ 2,510
Deferred rents receivable ............................ (293)
Other ................................................ 93
Changes in operating assets and liabilities:
Restricted cash ...................................... (135)
Deferred costs ....................................... (639)
Other assets ......................................... 1,552
Accounts payable and accrued expenses ................ (616)
Accounts payable to related parties .................. (85)
Security deposits ..................................... 133
Accrued interest on mortgage notes
payable ............................................ 1,144
--------
Net cash provided by operating activities .............. 2,244
--------
INVESTING ACTIVITIES
Additions to land, buildings and
improvements ......................................... (1,232)
--------
Net cash used in investing activities .................. (1,232)
--------
FINANCING ACTIVITIES
Payments of mortgage notes payable ..................... (1,211)
Cash distributions to owners............................ (3,047)
Cash contributions from owners ......................... 835
Capitalized lease obligations........................... 824
--------
Net cash provided by (used in) financing
activities ........................................... (2,599)
--------
Net increase (decrease) in cash and cash
equivalents .......................................... (1,587)
Cash transfer related to Praedium Bar
Associates, LLC presented as a
combined entity ...................................... (185)
Cash and cash equivalents at beginning
of period ............................................ 2,223
---------
Cash and cash equivalents at end of
period ............................................... $ 451
=========
Supplemental cash flow disclosures......................
Interest paid .......................................... $ 4,176
=========
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Supplemental schedule of non-cash investing and financing activities:
On June 30, 1997 the remaining interest of Praedium Bar Associates, LLC
("Praedium Bar") was purchased by an affiliate of Stephen L. Green. In
connection with the purchase as of June 30, 1997, the assets and
liabilities of Praedium Bar have been excluded from the financial
statements of the uncombined joint ventures of SL Green Predecessor and
have been presented in the combined financial statements of SL Green
Predecessor. The assets, liabilities and owners' equity of Praedium Bar,
as of June 30, 1997, were as follows:
Commercial real estate property, net..................... $14,383
Total assets............................................. 16,174
Mortgage notes payable................................... 10,200
Total liabilities........................................ 10,831
Owners' equity........................................... 5,343
See accompanying notes.
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
FOR THE PERIOD JANUARY 1, 1997 TO AUGUST 20, 1997
NOTES TO COMBINED STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The uncombined joint ventures of SL Green Predecessor were engaged in the
business of owning, managing and leasing, and repositioning Class B
office properties in Manhattan, New York.
FORMATION TRANSACTIONS
Concurrently with the consummation of the initial public offering of SL
Green Realty Corp. (the "REIT") Common Stock (the "Offering"), which was
completed on August 20, 1997 the REIT and a newly formed limited
partnership, SL Green Operating Partnership, L.P. (the "Operating
Partnership"), together with the partners and members of the affiliated
partnerships of the SL Green Predecessor and other parties which hold
ownership interests in the properties (collectively, the "Participants"),
engaged in certain formation transactions (the "Formation Transactions").
The Formation Transactions were designed to (i) enable the REIT to raise
the necessary capital to acquire the remaining interests in the
uncombined joint ventures of the SL Green Predecessor and repay certain
mortgage debt relating thereto and pay other indebtedness, (ii) enable
the REIT to acquire properties, (iii) fund costs, capital expenditures,
and working capital, (iv) provide a vehicle for future acquisitions, (v)
enable the REIT to comply with certain requirements under the Federal
income tax laws and regulations relating to real estate investment
trusts, and (vi) preserve certain tax advantages for certain
Participants.
The REIT is the sole general partner in the Operating Partnership. The
Operating Partnership received a contribution of interests in the real
estate properties in exchange for units of limited partnership interests
in the Operating Partnership and/or cash. The REIT is a fully integrated
self-administered and self-managed.
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
FOR THE PERIOD JANUARY 1, 1997 TO AUGUST 20, 1997
(DOLLARS IN THOUSANDS)
NOTES TO COMBINED STATEMENTS (CONTINUED)
PRINCIPLES OF COMBINATION
The uncombined joint ventures of the SL Green Predecessor was not a legal
entity but rather a combination of real estate properties (collectively,
the "Properties") and interests in entities that are organized as
partnerships and a limited liability company. The operations of the
properties are included in the financial statements of the SL Green
Predecessor from the date of acquisition and management. All significant
intercompany transactions and balances have been eliminated in
combination.
Capital contributions, distributions and profits and losses are allocated
to the owners in accordance with the terms of the applicable agreements.
The joint ventures, included in the accompanying combined financial
statements include partnerships and a limited liability company which are
managed but not controlled by the SL Green Predecessor, are as follows:
PARTNERSHIPS/LIMITED SL GREEN PREDECESSOR
LIABILITY COMPANY PROPERTY PERCENTAGE OWNERSHIP OWNERSHIP TYPE
----------------- -------- -------------------- --------------
673 First Realty Company..................... 673 First Avenue 67.0% Co-general partner
29/35 Realty Associates, LP.................. 29 West 35th Street 21.5% Co-general partner
470 Park South Associates, LP................ 470 Park Avenue South 65.0% Co-general partner
Praedium Bar Associates, LLC................. 36 West 44th Street 10.0%(A) Has veto rights
("Praedium Bar") relating to sale and
financing
(A) Praedium Bar acquired the first mortgage related to the property
in October, 1996 which provides for substantially all the economic
interest in the property and has the sole right to purchase the
fee interest, (the property deed is in escrow), for a nominal
cost; accordingly SL Green Predecessor has accounted for Praedium
Bar investment as an ownership in the property. On June 30, 1997,
the majority owner of SL Green Predecessor purchased the remaining
90% interest in Praedium Bar Associates, LLC for $6,300.
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
FOR THE PERIOD JANUARY 1, 1997 TO AUGUST 20, 1997
(DOLLARS IN THOUSANDS)
NOTES TO COMBINED STATEMENTS (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
DEPRECIATION OF REAL ESTATE PROPERTIES
Depreciation and amortization is computed on the straight-line method as
follows:
CATEGORY TERM
-------- ----
Building...................................................... 40 years
Property under capital lease.................................. 49 years
Building improvements......................................... remaining life of the building
Tenant improvements............................................ remaining life of the lease
Depreciation expense including the amortization of the capital lease
asset amounted to $1,859 for the period ended August 20, 1997.
CASH AND CASH EQUIVALENTS
The SL Green Predecessor considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of security deposits.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due
pursuant to the underlying leases are included in deferred rents
receivable on the accompanying combined balance sheet. Contractually due
but unpaid rents are included in other assets on the accompanying
combined balance sheet. Certain lease agreements provide for
reimbursement of real estate taxes, insurance and certain common area
maintenance costs and rental increases tied to increases in certain
economic indexes.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to
initiate and renew operating leases, and are amortized on a straight-line
basis over the initial lease term or renewal period as appropriate.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is retired before maturity.
CAPITALIZED INTEREST
Interest for borrowings used to fund development and construction is
capitalized to individual property costs.
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
FOR THE PERIOD JANUARY 1, 1997 TO AUGUST 20, 1997
(DOLLARS IN THOUSANDS)
NOTES TO COMBINED STATEMENTS (CONTINUED)
RENT EXPENSE
Rent expense is recognized on a straight-line basis over the initial term
of the lease. The excess of the rent expense recognized over the amounts
contractually due pursuant to the underlining lease is included in the
deferred lease payable in the accompanying combined balance sheet.
INCOME TAXES
The properties are not taxpaying entities for Federal income tax
purposes, and, accordingly, no provision or credit has been made in the
accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income
tax returns.
CONCENTRATION OF REVENUE AND CREDIT RISK
Approximately 50% of the properties revenue for the period January 1,
1997 to August 20, 1997 were derived from 673 First Avenue. The loss or a
material decrease in revenues from this building for any reason may have
a material adverse effect on the properties. In addition approximately
30% of the properties revenue for the two years ended December 31, 1996
and the period January 1, 1997 to August 20, 1997 were derived from three
tenants, (Society of NY Hospital, Kallir, Phillips, Ross, Inc. and
UNICEF), which lease space in the 673 First Avenue building.
Management of the SL Green Predecessor performs on going credit
evaluations of its tenants and requires certain tenants to provide
security deposits.
2. EXTRAORDINARY ITEM
Forgiveness of subordinated mortgage debt totaling $33,418 is reflected
in the 1997 Combined Statement of Operation as in extraordinary gain.
3. LEASE AGREEMENTS
CAPITAL LEASE
In April 1988, the SL Green Predecessor entered into a lease agreement
for property at 673 First Avenue in New York City, which has been
capitalized for financial statement purposes. Land was estimated to be
approximately 70% of the fair market value of the property. The portion
of the lease attributed to land is classified as an operating lease and
the remainder as a capital lease. The initial lease term is 49 years with
an option for an additional 26 years. Beginning in lease year 11 and 25,
the lessor is entitled to additional rent as defined by the lease
agreement.
For the period January 1, 1997 to August 20, 1997 rent expense amounted
to approximately $2,425.
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
FOR THE PERIOD JANUARY 1, 1997 TO AUGUST 20, 1997
(DOLLARS IN THOUSANDS)
NOTES TO COMBINED STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties which
involve management, leasing, and construction fee revenues and
maintenance expenses in the ordinary course of business.
Transactions include the following:
JANUARY 1, TO
AUGUST 20,
1997
--------------
Management expenses................ $448
Leasing commission expenses........ 295
Construction fees.................. 1,796
Maintenance expenses............... 186
5. BENEFIT PLAN
The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health
and welfare plans. Contributions to these plans amounted to $38 for the
period January 1 to August 20, 1997. Separate actuarial information
regarding such plans is not made available to the contributing employers
by the union administrators or trustees, since the plans do not maintain
separate records for each reporting unit.
6. CONTINGENCIES
SL Green Predecessor is party to a variety of legal proceedings relating
to the ownership of the Properties arising in the ordinary course of
business. SL Green Predecessor management believes that substantially all
of these liabilities are covered by insurance. All of these matters,
taken together, are not expected to have a material adverse impact on the
uncombined joint venture of SL Green Predecessor's, financial position,
results of operations or cash flows.
7. ENVIRONMENTAL MATTERS
The management of SL Green Predecessor believes that the properties are
in compliance in all material respects with applicable federal, state and
local ordinances and regulations regarding environmental issues.
Management is not aware of any environmental liability that management
believes would have a material adverse impact on the uncombined joint
venture of SL Green Predecessor's financial position, results of
operations or cash flows. Management is unaware of any instances in which
it would incur significant environmental cost if any of the properties
were sold.
SL GREEN REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------- ----------- INITIAL COST COST CAPITALIZED GROSS AMOUNT AT WHICH CARRIED
------------------- SUBSEQUENT TO ACQUISITION AT CLOSE OF PERIOD
------------------------- ------------------------------------
BUILDING AND BUILDING AND BUILDING AND
DESCRIPTION (1)( 5) ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------- ----------- ---- ------------ ---- ------------ ---- ------------ -----
70 West 36th St. (2) -- $1,517 $7,700 $13 $7,791 $1,530 $15,491 $17,021
1414 Avenue of the
Americas (2) -- 2,948 6,790 60 1,750 3,008 8,540 11,548
673 First Avenue $14,741 -- 43,618 -- 159 -- 43,777 43,777
470 Park Avenue South 10,154 3,750 30,718 1 1,604 3,751 32,322 36,073
1372 Broadway -- 10,478 41,912 67 5,581 10,545 47,493 58,038
1140 Avenue of the
Americas -- -- 21,035 -- 1,516 -- 22,551 22,551
50 West 23rd Street 21,000 7,217 28,866 43 1,529 7,260 30,395 37,655
17 Battery Place -- 11,686 46,744 20 18,107 11,706 64,851 76,557
110 East 42nd Street -- 6,000 24,070 26 2,862 6,026 26,932 32,958
633 Third Avenue (3) -- 2,171 8,682 (200) (1) 1,971 8,681 10,652
1466 Broadway -- 11,643 53,608 -- 2,039 11,643 55,647 67,290
420 Lexington Ave 55,000 -- 83,272 -- 51,573 -- 134,845 134,845
321 West 44th Street -- 3,404 14,355 -- 1,650 3,404 16,005 19,409
440 Ninth Avenue -- 6,326 25,172 -- 3,316 6,326 28,488 34,814
711 Third Avenue 49,225 19,843 40,342 -- 6,865 19,843 47,207 67,050
1412 Broadway (3) -- 16,221 64,886 3 1,625 16,224 66,511 82,735
555 West 57th Street 70,000 18,845 83,353 -- 2,320 18,845 85,673 104,518
286 Madison Avenue (4) -- 2,474 9,887 -- 436 2,474 10,323 12,797
290 Madison Avenue (4) -- 1,576 6,305 -- 313 1,576 6,618 8,194
292 Madison Avenue (4) -- 5,949 23,798 -- 637 5,949 24,435 30,384
-------- -------- -------- ------ -------- -------- ---- ---- --------
$220,120 $132,048 $665,113 $ 33 $111,672 $130,081 $776,785 $908,866
======== ======== ======== ==== ======== ======== ======== ========
COLUMN F COLUMN G COLUMN H COLUMN I
------------ ------------ -------- --------------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
------------ ------------ -------- --------------
70 West 36th St. (2) $7,271 12/19/84 Various
1414 Avenue of the
Americas (2) 849 6/18/96 Various
673 First Avenue 11,548 8/20/97 Various
470 Park Avenue South 9,630 8/20/97 Various
1372 Broadway 2,928 8/20/97 Various
1140 Avenue of the
Americas 1,071 8/20/97 Various
50 West 23rd Street 1,805 8/20/97 Various
17 Battery Place 3,034 12/19/97 Various
110 East 42nd Street 1,694 9/15/97 Various
633 Third Avenue (3) 442 12/30/97 Various
1466 Broadway 2,531 3/18/98 Various
420 Lexington Ave 5,513 3/18/98 Various
321 West 44th Street 665 3/31/98 Various
440 Ninth Avenue 1,165 6/1/98 Various
711 Third Avenue 1,843 5/20/98 Various
1412 Broadway (3) 2,376 8/14/98 Various
555 West 57th Street 2,001 1/1/99 Various
286 Madison Avenue (4) 153 5/24/99 Various
290 Madison Avenue (4) 98 5/24/99 Various
292 Madison Avenue (4) 366 5/24/99 Various
------
$56,983
=======
- -------------------
(1) All properties located in New York, New York
(2) Mortgage loan totaling $26,200 encumbers 1414 Avenue of Americas, and 70
West 36th Street
(3) Mortgage loan totaling $59,700 encumbers 1412 Broadway and 633 Third
Avenue
(4) Mortgage loan totaling $26,900 encumbers 286 Madison Avenue, 290 Madison
Avenue and 292 Madison Avenue
(5) Excludes properties held for sale with gross cost of $26,980,
encumberances of $19,773 and accumulated depreciation of $2,444.
SL GREEN REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1999,
are as follows:
1999 1998 1997
---- ---- ----
Balance at beginning of year....... $697,061 $338,818 $ 26,284
Property Acquisitions and Formation
Transactions..................... 152,187 339,072 306,752
Improvements....................... 86,598 19,171 5,782
Retirements/disposals.............. (26,980) --- ---
--------- -------- --------
Balance at end of year ............ $908,866 $697,061 $338,818
========= ======== ========
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1999 was approximately $948,000.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended
December 31, 1999, are as follows:
1999 1998 1997
---- ---- ----
Balance at beginning of year....... $37,317 $23,800 $ 5,721
Formation Transactions............. --- --- 14,073
Depreciation for year.............. 22,110 13,517 4,006
Retirements/disposals.............. (2,444) --- ---
------- ------- -------
Balance at end of year............. $56,983 $37,317 $23,800
======= ======= =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Election of Directors"
and "Principal and Management Stockholders--Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, as amended, prior to April 30,
2000 (the "2000 Proxy Statement"), is incorporated herein by
reference.
ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION
The information set forth under the captions "Election of
Directors--Directors Compensation" and "Executive Compensation" in the
2000 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the 2000 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Principal and Management
Stockholders" in the 2000 Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE, AND REPORTS ON FORM
8-K
(a)(1) Consolidated Financial Statements
SL GREEN REALTY CORP
Consolidated Balance Sheets as of December 31, 1999 and 1998 ..............................................34
Consolidated Statements of Income for the years ended December 31, 1999 and 1998 and the period
August 21, 1997 (Inception) to December 31, 1997.........................................................36
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999 and 1998
and the period August 21, 1997 (Inception) to December 31, 1997 .........................................37
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and the
period August 21, 1997 (Inception) to December 31, 1997 .................................................39
Notes to Consolidated Financial Statements ................................................................41
THE SL GREEN PREDECESSOR
Combined Statement of Income for the period January 1, 1997 to
August 20, 1997..........................................................................................36
Combined Statement of Owners' Equity for the period
January 1, 1997 to August 20, 1997.......................................................................38
Combined Statement of Cash Flows for the period January 1, 1997
to August 20, 1997.......................................................................................39
Notes to the Combined Financial Statements ................................................................41
UNCOMBINED JOINT VENTURES - COMBINED FINANCIAL STATEMENTS
Combined Statement of Income for the period January 1, 1997 to
August 20, 1997..........................................................................................63
Combined Statement of Owners' Equity for the Period January 1,
1997 to August 20, 1997..................................................................................64
Combined Statement of Cash Flows for the period January 1, 1997 to
August 20, 1997..........................................................................................65
Notes to Combined Financial Statements ....................................................................67
(a)(2) Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1999.............................72
Schedules other than those listed are omitted as they are not applicable
or the required or equivalent information has been included in the
financial statements or notes thereto.
INDEX TO EXHIBITS
(a)
EXHIBITS
3.1 Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Specimen Share certificate*
10.1 Form of Agreement of Limited Partnership of the Operating
Partnership*
10.2 Form of Articles of Incorporation and Bylaws of the Management
Corporation*
10.3 Form of Employment and Noncompetition Agreement among the
Executive Officers and the Company
10.4 Employment and Noncompetition Agreement between David J. Nettina
and the Company*
10.5 Form of Registration Rights Agreement between the Company and the
persons named therein*
10.6 Amended 1997 Stock Option and Incentive Plan**
10.7 Form of Purchase and Sale Agreement between Metropolitan
Operating Partnership, L.P., as Seller, and SL Green Operating
Partnership, L.P., as Purchaser***
10.8 Form of Amendment to Purchase and Sale Agreement between
Metropolitan Operating Partnership, L.P., as Seller, and
SL Green Operating Partnership, L.P., as Purchaser***
10.9 Form of Second Amendment to Purchase and Sale Agreement between
Metropolitan Operating Partnership, L.P., as Seller, and SL Green
Operating Partnership, L.P., as Purchaser***
10.10 Form of Agreement of Sale and Purchase between Blackacre
555 West 57th Street MM LLC and Blackacre 555 West 57th Street LLC,
as Sellers, and SL Green Operating Partnership, L.P., as
Purchaser****
10.11 Form of Amendment to Sale and Purchase between Blackacre 555
West 57th Street MM LLC and Blackacre 555 West 57th Street LLC,
as Sellers, and SL Green Operating Partnership, L.P., as
Purchaser.****
10.12 Form of Assignment and Assumption of Membership Interest between
Blackacre 555 West 57th Street LLC, as Assignor, and Green
W. 57th St., LLC, as Assignee****
10.13 Form of Assignment and Assumption of Sale and Purchase Agreement
between SL Green Operating Partnership, L.P., as Assignor, and
Green West 57th St., LLC, as Assignee****
10.14 Senior Unsecured Credit Facility documentation between the Company
and LBHI*
12.1 Calculation of Ratios of Combined Fixed Charges and Preferred
Stock Dividends
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
----------
* Incorporated by reference to the Company's Registration Statement
on Form S-11 (333-29329) declared effective by the Commission
on August 14, 1997.
** Incorporated by reference to the Company's Registration Statement
on Form S-11 (333-50309) declared effective by the Commission
on May 12, 1998.
*** Incorporated by reference to the Company's Form 8-K filed on
June 8, 1999.
**** Incorporated by reference to the Company's Form 8-K filed on
February 8, 1999.
(b) Report on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
December 31, 1999.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SL GREEN REALTY CORP.
Dated: March 15, 2000 By: /s/ Thomas E. Wirth
---------------------------
Thomas E. Wirth
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of SL Green Realty Corp. hereby severally constitute Stephen L.
Green, and Benjamin P. Feldman, and each of them singly, our true and
lawful attorneys and with full power to them, and each of them singly, to
sign for us and in our names in the capacities indicated below, the
Registration Statement filed herewith and any and all amendments to said
Annual Report on Form 10-K, and generally to do all such things in our
names and in our capacities as officers and directors to enable SL Green
Realty Corp. to comply with the provisions of the Securities Exchange Act
of 1934, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by
our said attorneys, or any of them, to said Annual Report on Form 10-K
and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/s/ Stephen L. Green*
--------------------------- Chairman of the Board of Directors March 15, 2000
Stephen L. Green Chief Executive Officer
/s/ David J. Nettina*
--------------------------- President and Chief Operating Officer March 15, 2000
David J. Nettina (Principal Executive Officer)
/s/ Thomas E. Wirth*
--------------------------- Executive Vice President and March 15, 2000
Thomas E. Wirth Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Benjamin P. Feldman*
-------------------------- Executive Vice President, March 15, 2000
Benjamin P. Feldman General Counsel, Secretary
and Director
/s/ John H. Alschuler, Jr*
-------------------------- Director March 15, 2000
John H. Alschuler, Jr.
/s/ Edwin Thomas Burton, III*
--------------------------- Director March 15, 2000
Edwin Thomas Burton, III
/s/ John S. Levy*
--------------------------- Director March 15, 2000
John S. Levy
*By Power of Attorney