<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____.
Commission File No. 1-13199
SL GREEN REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 13-3956775
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
420 Lexington Avenue, New York, New York 10170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES - ZIP CODE)
(212) 594-2700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes /X/ No / /.
The number of shares outstanding of the registrant's common stock, $0.01 par
avlue was 30,078,937 at April 15, 2002.
<Page>
SL GREEN REALTY CORP.
INDEX
<Table>
<Caption>
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001 3
Condensed Consolidated Statements of Income for the three months ended March 31, 2002 and 2001
(unaudited) 4
Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2002
(unaudited) 5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001
(unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 31
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 31
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 31
ITEM 5. OTHER INFORMATION 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31
SIGNATURES. 32
</Table>
2
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED) (NOTE 1)
ASSETS
Commercial real estate properties, at cost:
Land and land interests $ 138,337 $ 138,337
Buildings and improvements 699,610 689,094
Building leasehold 145,012 144,736
Property under capital lease 12,208 12,208
-------------------------------------------------------------------------------------------------------------------
995,167 984,375
Less accumulated depreciation (108,034) (100,776)
-------------------------------------------------------------------------------------------------------------------
887,133 883,599
Cash and cash equivalents 12,429 13,193
Restricted cash 37,126 38,424
Tenant and other receivables, net of allowance of $4,229 and $3,629 in 2002
and 2001, respectively 7,754 8,793
Related party receivables 3,417 3,498
Deferred rents receivable, net of allowance of $5,492 and $5,264 in 2002
and 2001, respectively 53,816 51,855
Investment in and advances to affiliates 2,811 8,211
Structured finance investments, net of $497 and $593 discount in 2002
and 2001, respectively 189,120 188,638
Investments in unconsolidated joint ventures 124,958 123,469
Deferred costs, net 34,416 34,901
Other assets 15,005 16,996
------------------------------------------------------------------------------------------------------------------
Total assets $ 1,367,985 $ 1,371,577
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 408,186 $ 409,900
Revolving credit 86,931 94,931
Derivative instruments at fair value 2,002 3,205
Accrued interest payable 1,617 1,875
Accounts payable and accrued expenses 24,386 22,819
Deferred compensation awards 671 1,838
Deferred revenue 1,676 1,381
Capitalized lease obligations 15,644 15,574
Deferred land lease payable 14,246 14,086
Dividend and distributions payable 16,596 16,570
Security deposits 19,019 18,829
------------------------------------------------------------------------------------------------------------------
Total liabilities 590,974 601,008
------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in Operating Partnership 47,295 46,430
8% Preferred Income Equity Redeemable Shares(SM) $0.01 par value $25.00
mandatory liquidation preference, 25,000 authorized and 4,600 outstanding
at March 31, 2002 and December 31, 2001 111,353 111,231
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value 100,000 shares authorized, 30,042 and 29,978
issued and outstanding at March 31, 2002 and December 31, 2001, respectively 301 300
Additional paid in-capital 584,407 583,350
Deferred compensation plans (6,234) (7,515)
Accumulated other comprehensive loss (1,709) (2,911)
Retained earnings 41,598 39,684
------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 618,363 612,908
------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,367,985 $ 1,371,577
==================================================================================================================
</Table>
The accompanying notes are an integral part of these financial statements.
3
<Page>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2002 2001
REVENUES
Rental revenue $ 47,784 $ 55,003
Escalation and reimbursement revenues 6,726 8,057
Signage rent 466 350
Investment income 3,720 3,274
Preferred equity income 1,911 ---
Other income 1,076 310
------------------------------------------------------------------------------------------------------------------
Total revenues 61,683 66,994
------------------------------------------------------------------------------------------------------------------
EXPENSES
Operating expenses including $1,513 (2002), $893 (2001) to affiliates 13,719 15,826
Real estate taxes 7,355 8,180
Ground rent 3,159 3,159
Interest 9,112 13,897
Depreciation and amortization 9,597 9,720
Marketing, general and administrative 3,202 3,547
------------------------------------------------------------------------------------------------------------------
Total expenses 46,144 54,329
------------------------------------------------------------------------------------------------------------------
Income before equity in net loss from affiliates, equity in net income of
unconsolidated joint ventures, gain on sale, minority interest,
extraordinary items and cumulative effect adjustment 15,539 12,665
Equity in net loss from affiliates (84) (269)
Equity in net income of unconsolidated joint ventures 3,333 1,513
------------------------------------------------------------------------------------------------------------------
Operating earnings 18,788 13,909
Gain on sale of rental properties --- 1,514
Minority interest in operating partnership (1,152) (1,081)
------------------------------------------------------------------------------------------------------------------
Income before extraordinary items and cumulative effect adjustment 17,636 14,342
Extraordinary items, net of minority interest of $8 in 2001 --- (98)
Cumulative effect of change in accounting principle --- (532)
------------------------------------------------------------------------------------------------------------------
Net income 17,636 13,712
Preferred stock dividends (2,300) (2,300)
Preferred stock accretion (123) (114)
------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 15,213 $ 11,298
==================================================================================================================
BASIC EARNINGS PER SHARE:
Net income before gain on sale and extraordinary items $ 0.51 $ 0.42
Gain on sale --- 0.06
Extraordinary items --- ---
Cumulative effect of change in accounting principle --- (0.02)
------------------------------------------------------------------------------------------------------------------
Net income $ 0.51 $ 0.46
==================================================================================================================
DILUTED EARNINGS PER SHARE:
Net income before gain on sale and extraordinary items $ 0.50 $ 0.41
Gain on sale --- 0.06
Extraordinary items --- ---
Cumulative effect of change in accounting principle --- (0.02)
------------------------------------------------------------------------------------------------------------------
Net income $ 0.50 $ 0.45
==================================================================================================================
Dividends per common share $ 0.4425 $ 0.3875
==================================================================================================================
Basic weighted average common shares outstanding 29,992 24,639
==================================================================================================================
Diluted weighted average common shares and common share equivalents outstanding 32,905 27,403
==================================================================================================================
</Table>
The accompanying notes are an integral part of these financial statements.
4
<Page>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
ACCUMULATED
Common Additional Deferred Other
Stock Paid- Compensation Comprehensive Retained
Shares Par Value In-capital Plans Loss Earnings
------ --- ----- ---------- ----- ---- --------
Balance at December 31, 2001 29,978 $300 $583,350 $(7,515) $(2,911) $39,684
Comprehensive Income:
Net income 17,636
Unrealized gain on derivative instruments 1,202
Preferred dividend and accretion requirements (2,423)
Deferred compensation plan and stock award (50) (1,102) 1,102
Amortization of deferred compensation plan 179
Proceeds from stock options exercised 114 1 2,159
Cash distributions declared ($0.4425) per
common share (13,299)
------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2002 30,042 $301 $584,407 $(6,234) $(1,709) $41,598
==============================================================================================================================
<Caption>
Comprehensive
Total Income
----- ------
Balance at December 31, 2001 $612,908
Comprehensive Income:
Net income 17,636 $17,636
Unrealized gain on derivative instruments 1,202 1,202
Preferred dividend and accretion requirement (2,423)
Deferred compensation plan and stock award ---
Amortization of deferred compensation plan 179
Proceeds from stock options exercised 2,160
Cash distributions declared ($0.4425) per
common share (13,299)
-------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2002 $618,363 $18,838
===============================================================================
</Table>
The accompanying notes are an integral part of these financial statements.
5
<Page>
SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2002 2001
---- ----
OPERATING ACTIVITIES
Net income $ 17,636 $ 13,712
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,597 9,720
Amortization of discount on structured finance investments (96) (759)
Cumulative effect of change in accounting principle --- 532
Gain on sale of rental properties/preferred investment --- (1,514)
Extraordinary item, net of minority interest --- 98
Equity in net loss from affiliates 84 269
Equity in net income from unconsolidated joint ventures (3,333) (1,513)
Minority interest 1,152 1,081
Deferred rents receivable (2,477) (4,170)
Allowance for bad debts 600 1,124
Amortization for officer loans and deferred compensation (179) (658)
Changes in operating assets and liabilities:
Restricted cash - operations 2,397 978
Tenant and other receivables (74) (1,778)
Related party receivables 102 (129)
Deferred lease costs (1,656) (2,098)
Other assets 1,034 1,593
Accounts payable, accrued expenses and other liabilities (541) (1,241)
Deferred revenue 295 961
Deferred land lease payable 160 354
------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,700 16,562
------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to land, buildings and improvements (5,761) (292,263)
Restricted cash - capital improvements/acquisitions (1,098) 42,400
Investment in and advances to affiliates 1,055 (815)
Distribution from affiliate 739 ---
Investments in unconsolidated joint ventures --- (6,991)
Distributions from unconsolidated joint ventures 1,844 862
Net proceeds from disposition of rental property --- 12,431
Structured finance investments (482) (40,930)
------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,703) (285,306)
------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable --- 150,000
Repayments of mortgage notes payable (1,714) (35,807)
Proceeds from revolving credit facilities 10,000 193,348
Repayments of revolving credit facilities (18,000) (27,796)
Proceeds from stock options exercised 2,160 621
Capitalized lease obligation 70 66
Dividends and distributions paid (14,277) (12,700)
Deferred loan costs --- (1,703)
------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (21,761) 266,029
------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (764) (2,715)
Cash and cash equivalents at beginning of period 13,193 10,793
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,429 $ 8,078
==================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 9,370 $ 12,570
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock as deferred compensation $ 3,705
Derivative instruments at fair value $ 1,202 $ 2,814
</Table>
The accompanying notes are an integral part of these financial statements.
6
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
1. ORGANIZATION AND BASIS OF PRESENTATION
SL Green Realty Corp. (the "Company" or "SL Green"), a Maryland corporation, and
SL Green Operating Partnership, L.P. (the "Operating Partnership"), a Delaware
limited partnership, were formed in June 1997 for the purpose of combining the
commercial real estate business of S.L. Green Properties, Inc. and its
affiliated partnerships and entities. The Operating Partnership received a
contribution of interest in the real estate properties, as well as 95% of the
economic interest in the management, leasing and construction companies (the
"Service Corporation"). The Company qualifies as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), and
operates as a self-administered, self-managed REIT. A REIT is a legal entity
that holds real estate interests and, through payments of dividends to
shareholders, is permitted to reduce or avoid the payment of Federal income
taxes at the corporate level.
Substantially all of the Company's assets are held by, and its operations are
conducted through, the Operating Partnership. The Company is the sole managing
general partner of the Operating Partnership. As of March 31, 2002, minority
investors held, in the aggregate, a 7.0% limited partnership interest in the
Operating Partnership.
As of March 31, 2002, the Company's wholly-owned portfolio (the "Properties")
consisted of 19 commercial properties (encompassing approximately 6.9 million
rentable square feet located primarily in midtown Manhattan ("Manhattan"), a
borough of New York City. As of March 31, 2002, the weighted average occupancy
(total occupied square feet divided by total available square feet) of the
Properties was 96.6%. The Company's portfolio also includes ownership interests
in unconsolidated joint ventures which own six commercial properties in
Manhattan, encompassing approximately 3.1 million rentable square feet which
were 98.1% occupied as of March 31, 2002. The Company also owned one triple-net
leased property located in Shelton, Connecticut. In addition, the Company
continues to manage four office properties owned by third-parties and affiliated
companies encompassing approximately 1.0 million rentable square feet.
PARTNERSHIP AGREEMENT
In accordance with the partnership agreement of the Operating Partnership (the
"Operating Partnership Agreement"), all allocations of distributions and profits
and losses are made in proportion to the percentage ownership interests of the
respective partners. As the managing general partner of the Operating
Partnership, the Company is required to take such reasonable efforts, as
determined by it in its sole discretion, to cause the Operating Partnership to
distribute sufficient amounts to enable the payment of sufficient dividends by
the Company to avoid any Federal income or excise tax at the Company level.
Under the Operating Partnership Agreement each limited partner will have the
right to redeem limited partnership units ("Units") for cash, or if the Company
so elects, shares of common stock. Under the Operating Partnership Agreement,
the Company is prohibited from selling 673 First Avenue and 470 Park Avenue
South through August 2009.
7
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
BASIS OF QUARTERLY PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. The 2002
operating results for the period presented are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. These
financial statements should be read in conjunction with the financial statements
and accompanying notes included in the Company's annual report on Form 10-K for
the year ended December 31, 2001.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, which are wholly-owned or controlled by the Company. Entities
which are not controlled by the Company are accounted for under the equity
method. All significant intercompany balances and transactions have been
eliminated.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." The adoption did not have a material impact on the Company's results of
operations or financial position.
INCOME TAXES
The Company is taxed as a REIT under Section 856(c) of the Code. As a REIT, the
Company generally is not subject to Federal income tax. To maintain its
qualification as a REIT, the Company must distribute at least 90% 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. Under certain
circumstances, Federal income and excise taxes may be due on its undistributed
taxable income.
Pursuant to amendments to the Code that became effective January 1, 2001, the
Company has elected to treat certain of its existing or newly created corporate
subsidiaries as taxable REIT subsidiaries (each a "TRS"). In general, a TRS of
the Company may perform non-customary services for tenants of the Company, hold
assets that the Company cannot hold directly and generally may engage in any
real estate or non-real estate related business (except for the operation or
management of health care facilities or lodging facilities or the provision to
any person, under a franchise, license or otherwise, rights to any brand name
under which any lodging facility or health care facility is operated). A TRS is
subject to corporate Federal income tax.
8
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the current
year presentation.
3. PROPERTY ACQUISITIONS
During the quarter ended March 31, 2002, the Company did not acquire any
properties.
PRO FORMA
The following table summarizes, on an unaudited pro forma basis, the combined
results of operations of the Company for the quarter ended March 31, 2001 as
though the 2001 acquisition of 317 Madison Avenue (May 2001) and the offering of
5,000,000 shares of common stock (July 2001) were made on January 1, 2001.
<Table>
<Caption>
2001
----
Pro forma revenues $ 70,392
Pro forma net income $ 11,057
Pro forma basic earnings per common share $ 0.37
Pro forma diluted earnings per common share $ 0.37
Common share - basic 29,639
Common and common equivalent share - diluted 32,403
</Table>
4. PROPERTY DISPOSITIONS
During the quarter ended March 31, 2002, the Company did not dispose of any
office property.
5. STRUCTURED FINANCE INVESTMENTS
During the quarter ended March 31, 2002, the Company originated $593 in
structured finance investments (net of discount). There was also $110 in
repayments and participations during the quarter. At March 31, 2002, all loans
were performing in accordance with the terms of the loan agreements. All
collateral securing the mortgage loans receivable is located in Manhattan.
9
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
As of March 31, 2002, the Company held the following structured finance
investments:
<Table>
<Caption>
INTEREST PAYMENT GROSS SENIOR PRINCIPAL INITIAL
LOAN TYPE RATE TERMS INVESTMENT FINANCING OUTSTANDING MATURITY DATE
- --------- ---- ----- ---------- --------- ----------- -------------
First Mortgage(1) 10.58% Variable $ 14,000 $ 8,000 $ 5,296 April 2002
Mezzanine Loan 12.49% Variable 40,265 130,000 40,094 January 2003
Mezzanine Loan(2) 13.88% Variable 50,000 107,000 24,676 April 2004
Junior Participation(3) 15.78% Variable 27,723 67,277 27,723 November 2002
Junior Participation(4) 13.40% Variable 30,000 178,000 29,880 November 2004
--------------
$127,669
==============
</Table>
(1) The Company received a fee for servicing the loan. This loan was repaid
in full on April 15, 2002.
(2) On July 20, 2001, this loan was contributed to a joint venture with the
Prudential Real Estate Investors ("PREI"). The Company retained a 50%
interest in the loan.
(3) In connection with the acquisition of a subordinate first mortgage
interest, the Company obtained $22,178 of financing from the senior
participant which is co-terminous with the mortgage loan. As a result,
the Company's net investment is $5,545. This financing carries a
variable interest rate of 100 basis points over the 30-day LIBOR.
(4) On April 12, 2002 this loan was contributed to a joint venture with
PREI. The Company retained a 50% interest in the loan.
PREFERRED EQUITY INVESTMENTS
The Company made a $8,000 preferred equity investment. This investment
entitles the Company to receive a preferential 10% yield. The initial
redemption date is May 2006. The Company will also participate in the
appreciation of the property upon sale to a third party above a specified
threshold. The balance on the investment was $7,951 at March 31, 2002. The
property is encumbered by $65,000 of senior financing.
The Company made a $53,500 preferred equity investment. The initial
redemption date is September 2006. This variable rate investment had a yield
of 12.6% at March 31, 2002. The Company will also participate in the
appreciation of the property upon sale to a third party above a specified
threshold. The Company also receives asset management fees. The property is
encumbered by $186,500 of senior financing.
6. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
SITQ IMMOBILIER JOINT VENTURE
On March 27, 2002, the Company announced that it had entered into a
contribution agreement to acquire 1515 Broadway, New York, NY in a
transaction valued at approximately $480,000. The property is a 1.75 million
square foot, 54-story office tower located on Broadway between 44th and 45th
Streets. The property is being acquired in a joint venture with SITQ
Immobilier, with SL Green retaining an approximate 55% interest in the
asset. The transaction is anticipated to close during the second quarter
2002.
The property is being acquired with $335,000 of financing committed by
Lehman Brothers and Bear Stearns. The balance of the proceeds will be funded
from the Company's unsecured line of credit and from proceeds of the sale of
the joint venture interest to SITQ.
10
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
The condensed combined balance sheets for the unconsolidated joint
ventures at March 31, 2002 and December 31, 2001 are as follows:
<Table>
<Caption>
March 31, December 31,
2002 2001
---- ----
ASSETS
Commercial real estate property $654,328 $656,222
Other assets 63,249 63,634
-----------------------------------------------------------------------------------------------------
Total assets $717,577 $719,856
=====================================================================================================
LIABILITIES AND MEMBERS' EQUITY
Mortgage payable $444,469 $444,784
Other liabilities 18,238 19,564
Members' equity 254,870 255,508
-----------------------------------------------------------------------------------------------------
Total liabilities and members' equity $717,577 $719,856
=====================================================================================================
Company's net investment in unconsolidated joint ventures $124,958 $123,469
=====================================================================================================
</Table>
The condensed combined statements of operations for the unconsolidated
joint ventures for the three months ended March 31, 2002 and 2001 is as
follows:
<Table>
<Caption>
2002 2001
---- ----
Total revenues $28,221 $18,270
- --------------------------------------------------------------------------------------------------------------
Operating expenses 7,115 4,688
Real estate taxes 4,254 2,855
Interest 5,922 5,371
Depreciation and amortization 4,120 2,289
- --------------------------------------------------------------------------------------------------------------
Total expenses $21,411 $15,203
- --------------------------------------------------------------------------------------------------------------
Net income $ 6,810 $ 3,067
==============================================================================================================
Company's equity in earnings of unconsolidated joint ventures $ 3,333 $ 1,513
==============================================================================================================
</Table>
7. INVESTMENT IN AND ADVANCES TO AFFILIATES
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
---- ----
Investment in and advances to Service Corporation, net $ 2,811 $ 3,781
Investment in and advances to eEmerge, net --- 4,430
-------------------------------------------------------------------------------------------
Investments in and advances to affiliates $ 2,811 $ 8,211
===========================================================================================
</Table>
11
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
SERVICE CORPORATION
In order to maintain the Company's qualification as a REIT while realizing
income from management, leasing and construction contracts from third parties
and joint venture properties, all of the management operations are conducted
through an unconsolidated company, the Service Corporation. The Company, through
the Operating Partnership, owns 100% of the non-voting common stock
(representing 95% of the total equity) of the Service Corporation. Through
dividends on its equity interest, the Operating Partnership receives
substantially all of the cash flow from the Service Corporation's operations.
All of the voting common stock of the Service Corporation (representing 5% of
the total equity) is held by a Company affiliate. This controlling interest
gives the affiliate the power to elect all directors of the Service Corporation.
The Company accounts for its investment in the Service Corporation on the equity
basis of accounting because it has significant influence with respect to
management and operations, but does not control the entity. Effective January 1,
2001, the Service Corporation elected to be taxed as a TRS.
All of the management, leasing and construction services with respect to the
properties wholly-owned by the Company, are conducted through Management LLC
which is 100% owned by the Operating Partnership.
eEMERGE
On May 11, 2000, the Operating Partnership formed eEmerge, Inc., a Delaware
corporation ("eEmerge"), in partnership with Fluid Ventures LLC ("Fluid"). In
March 2001, the Company bought out Fluid's entire ownership interest in eEmerge.
eEmerge is a separately managed, self-funded company that provides fully-wired
and furnished office space, services and support to help e-businesses grow.
The Company, through the Operating Partnership, owned all of the non-voting
common stock of eEmerge. Through dividends on its equity interest, the Operating
Partnership received approximately 100% of the cash flow from eEmerge
operations. All of the voting common stock was held by a Company affiliate. This
controlling interest gave the affiliate the power to elect all the directors of
eEmerge. The Company accounted for its investment in eEmerge on the equity basis
of accounting because it had significant influence with respect to management
and operations, but did not control the entity. Effective March 26, 2002, the
Company acquired all the voting common stock previously held by the Company
affiliate. As a result, the Company controls all the common stock of eEmerge.
Effective with the quarter ended March 31, 2002, the Company consolidates the
accounts of eEmerge.
Effective January 1, 2001, eEmerge elected to be taxed as a TRS.
12
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
On June 8, 2000, eEmerge and EUREKA BROADBAND CORPORATION ("Eureka") formed
eEmerge.NYC LLC, a Delaware limited liability company ("ENYC") whereby eEmerge
has a 95% interest and Eureka has a 5% interest in ENYC. ENYC was formed to
build and operate a 45,000 square foot fractional office suites business
marketed to the technology industry. ENYC entered into a 10-year lease with the
Operating Partnership for its premises, which is located at 440 Ninth Avenue,
Manhattan. Allocations of net profits, net losses and distributions shall be
made in accordance with the limited liability company agreement of ENYC.
8. DEFERRED COSTS
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
--------- ------------
Deferred costs consist of the following:
Deferred financing $15,107 $16,086
Deferred leasing 41,301 40,856
- --------------------------------------------------------------------------------------
56,408 56,942
Less accumulated amortization (21,992) (22,041)
- ---------------------------------------------------------------------------------------
$34,416 $34,901
=======================================================================================
</Table>
9. MORTGAGE NOTES PAYABLE
The mortgage notes payable collateralized by the respective properties and
assignment of leases at March 31, 2002 and December 31, 2001 are as follows:
<Table>
<Caption>
PROPERTY FIRST MORTGAGE NOTES 2002 2001
- -------- -------------------- ---- ----
50 West 23rd Street Interest payable at 7.33%, due 8/1/07 $ 21,000 $ 21,000
673 First Avenue Interest payable at 9.0%, due 12/13/03 8,177 8,977
470 Park Avenue South Interest payable at 8.25%, due 4/1/04 9,246 9,356
1414 Avenue of the Americas &
70 West 36th Street Interest payable at 7.9%, due 5/1/09 (1) 25,934 26,023
711 Third Avenue Interest payable at 8.13%, due 9/10/05 (1) 48,719 48,824
875 Bridgeport Ave., Shelton, CT Interest payable at 8.32%, due 5/10/25 14,858 14,867
420 Lexington Avenue Interest payable at 8.44%, due 11/1/10 (1) 124,312 124,745
555 West 57th Street Interest payable at LIBOR + 2.09%, due 11/4/04 (2) 68,761 68,930
317 Madison Avenue Interest payable at LIBOR + 1.8%, due 8/20/04 (1)(3) 65,000 65,000
- --------------------------------------------------------------------------------------------------------------------
Total fixed rate debt 386,007 387,722
- --------------------------------------------------------------------------------------------------------------------
Total floating rate debt --- ---
- --------------------------------------------------------------------------------------------------------------------
Total mortgage notes payable (4) $386,007 $387,722
====================================================================================================================
</Table>
(1) Held in bankruptcy remote special purpose entity.
(2) The Company entered into an interest rate protection agreement which fixed
the LIBOR interest rate at 6.10% at March 31, 2002 since LIBOR was 1.88% at
that date. If LIBOR exceeds 6.10%, the loan will float until the maximum
rate of 6.58% is reached.
13
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
(3) Based on LIBOR rate of 1.88% at March 31, 2002. The Company obtained the
first mortgage on August 16, 2001. The mortgage, has two one-year extension
options. On October 18, 2001, the Company entered into a swap agreement
effectively fixing the LIBOR rate at 4.01% for four years.
(4) Excludes $22,178, loan obtained to fund a structured finance transaction
(See Note 5(3)).
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable,
revolving credit facilities and total joint venture debt as of March 31,
2002 are as follows:
<Table>
<Caption>
REVOLVING JOINT
SCHEDULED PRINCIPAL CREDIT VENTURE
AMORTIZATION REPAYMENTS FACILITIES TOTAL DEBT
---------------------------------------------------------------------------------------------
2002 $ 5,202 $ 22,178 --- $ 27,380 $ 1,248
2003 7,772 2,002 $ 86,931 96,705 38,524
2004 3,863 140,300 --- 144,163 174,697
2005 3,366 47,247 --- 50,613 33,687
2006 3,270 --- --- 3,270 2,795
Thereafter 21,065 151,921 --- 172,986 193,518
---------------------------------------------------------------------------------------------
$ 44,538 $ 363,648 $ 86,931 $ 495,117 $ 444,469
=============================================================================================
</Table>
10. REVOLVING CREDIT FACILITIES
2000 UNSECURED CREDIT FACILITY
On June 27, 2000, the Company repaid in full and terminated its $140 million
credit facility and obtained a new senior unsecured revolving credit facility in
the amount of $250,000 (the "2000 Unsecured Credit Facility") from a group of 9
banks. In March 2001, the Company exercised an option to increase the capacity
under this credit facility to $300,000. The 2000 Unsecured Credit Facility has a
term of three years and bears interest at a spread ranging from 137.5 basis
points to 175 basis points over LIBOR, based on the Company's leverage ratio. If
the Company was to receive an investment grade rating, the spread over LIBOR
will be reduced to 125 basis points. The 2000 Unsecured Credit Facility also
requires a 15 to 25 basis point fee on the unused balance payable quarterly in
arrears. At March 31, 2002, $52,000 was outstanding and carried an effective
interest rate of 3.24%. Availability under the 2000 Unsecured Credit Facility at
March 31, 2002 was further reduced by the issuance of letters of credit in the
amount of $30,000 for acquisition deposits.
14
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
The terms of the 2000 Unsecured Credit Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the minimum amount of tangible net worth, the minimum amount
of debt service coverage, the minimum amount of fixed charge coverage, the
minimum amount of unsecured indebtedness, the minimum amount of unencumbered
property debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Company to
continue to qualify as a REIT under the Code, the Company will not during any
four consecutive fiscal quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 90% of funds from
operations for such period, subject to certain other adjustments.
2001 SECURED CREDIT FACILITY
On December 20, 2001, the Company repaid in full and retired its $60,000 secured
credit facility in connection with the Company obtaining a $75,000 secured
credit facility (the "2001 Secured Credit Facility"). The 2001 Secured Credit
Facility has a term of two years with a one year extension option. It bears
interest at the rate of 150 basis points over LIBOR. At March 31, 2002, $34,931
was outstanding and carried a weighted average interest rate of 3.41%. The 2001
Secured Credit Facility includes certain restrictions and covenants which are
similar to those under the 2000 Unsecured Credit Facility.
11. STOCKHOLDERS' EQUITY
COMMON SHARES
As of March 31, 2002, the Company had 30,042,438 shares of common stock issued
and outstanding.
PREFERRED SHARES
The Company's 8% Preferred Income Equity Redeemable Shares ("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 have 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 Company may pay
the redemption price out of the sale proceeds of other shares of stock of the
Company. 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.
MINORITY INTEREST
The minority interest ownership in the Operating Partnership was approximately
7.0% as of both March 31, 2002 and December 31, 2001, respectively.
15
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
RIGHTS PLAN
On February 16, 2000, the Board of Directors of the Company authorized a
distribution of one preferred share purchase right ("Right") for each
outstanding share of common stock under a shareholder rights plan. This
distribution was made 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% or
more of the outstanding common stock or announces a tender offer for 17% or more
of the outstanding stock ("Acquiring Person"). In the event that a person or
group becomes an Acquiring Person, each holder of a Right, excluding the
Acquiring Person, will have the right to receive, upon exercise, common stock
having a market value equal to two times the Purchase Price of the Preferred
Shares.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company filed a registration statement with the SEC for the Company's
dividend reinvestment and stock purchase plan ("DRIP") which was declared
effective on September 10, 2001, and commenced on September 24, 2001. The
Company registered 3,000,000 shares of common stock under the DRIP.
During the quarter ended March 31, 2002, 35 shares were issued and $1 of
proceeds were received from dividend reinvestments and/or stock purchases under
the DRIP.
EARNINGS PER SHARE
Earnings per share is computed as follows (in thousands):
<Table>
<Caption>
FOR THE QUARTER ENDED
MARCH 31,
-------------------------------------------------------------------------------------------------------
NUMERATOR (INCOME) 2002 2001
-------------------------------------------------------------------------------------------------------
Basic Earnings:
Income available to common shareholders $ 15,213 $ 11,298
Effect of Dilutive Securities:
Redemption of Units to common shares 1,152 1,081
Preferred Stock (if converted to common stock) --- ---
Stock Options --- ---
-------------------------------------------------------------------------------------------------------
Diluted Earnings:
Income available to common shareholders $ 16,365 $ 12,379
=======================================================================================================
</Table>
16
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
<Table>
<Caption>
DENOMINATOR (SHARES) 2002 2001
-------------------------------------------------------------------------------------------------------
Basic Earnings:
Income available to common shareholders 29,992 24,639
Effect of Dilutive Securities:
Redemption of Units to common shares 2,271 2,296
Preferred Stock (if converted to common stock) --- ---
Stock Options 642 468
-------------------------------------------------------------------------------------------------------
Diluted Earnings:
Income available to common shareholders 32,905 27,403
=======================================================================================================
</Table>
The PIERS outstanding in 2002 and 2001 were not included in the 2002 and 2001
computations of earnings per share as they were anti-dilutive during those
periods.
12. COMMITMENTS AND CONTINGENCIES
The Company and the Operating Partnership are not presently involved in any
material litigation nor, to their knowledge, is any material litigation
threatened against them or their properties, other than routine litigation
arising in the ordinary course of business. Management believes the costs, if
any, incurred by the Company and the Operating Partnership related to the
routine litigation will not materially affect the financial position, operating
results or liquidity of the Company and the Operating Partnership.
On October 24, 2001, an accident occurred at 215 Park Avenue South, a property
which the Company manages, but does not own. Personal injury claims have been
filed against the Company and others by 12 persons. The Company believes that
there is sufficient insurance coverage to cover the cost of such claims, as well
as any other personal injury or property claims which may arise.
13. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties, entities owned by
Stephen L. Green or relatives of Stephen L. Green, which involve management,
leasing, and construction fee revenues, rental income and maintenance and
security expenses in the ordinary course of business. These transactions for the
three month period ended March 31, 2002 and 2001 include the following:
<Table>
<Caption>
2002 2001
---- ----
Management revenue $ 73 $ 67
Maintenance expense 1,513 893
Rental revenue 39 38
</Table>
17
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
<Table>
<Caption>
2002 2001
---- ----
Amounts due from related parties at March 31, 2002 and
December 31, 2001, respectively, consist of:
17 Battery Condominium Association $ 143 $ 143
Morgan Stanley Real Estate Funds 585 378
SLG 100 Park LLC 323 347
One Park Realty Corp. 33 33
1250 Broadway Realty Corp. 489 906
Officers 1,533 1,484
Other 311 207
------------------------------------------------------------------------------------------------------------
Related party receivables $3,417 $3,498
============================================================================================================
</Table>
An officer received a $1,000 loan from the Company secured by the pledge of his
Company stock. Recourse for repayment of this loan is limited to those shares.
The loan is forgivable upon the attainment of specific financial performance
goals by December 31, 2006.
Sonnenblick-Goldman Company, a nationally recognized real estate investment
banking firm, provided mortgage brokerage services with respect to securing
approximately $85,000 of aggregate first mortgage financing for 1250 Broadway in
2001. Mr. Morton Holliday, the father of Mr. Marc Holliday, was a Managing
Director of Sonnenblick at the time of the financing. The fees paid by the
Company to Sonnenblick for such services was approximately $319 in 2001.
14. DEFERRED COMPENSATION AWARD
Contemporaneous with the closing of 1370 Avenue of the Americas, an award of
$2,833 was granted to several members of management earned in connection with
the realization of this investment gain. This award, which will be paid out over
a three-year period, is presented as Deferred compensation award on the balance
sheet. As of March 31, 2002, $2,162 had been paid against this compensation
award.
15. FINANCIAL INSTRUMENTS: DERIVATIVES AND HEDGING
Financial Accounting Standards Board's Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133") which became
effective January 1, 2001 requires 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 recorded a cumulative effect adjustment upon the adoption of SFAS
133. This cumulative effect adjustment, of which the intrinsic value of the
hedge was recorded in other comprehensive income ($811) and the time value
component was recorded in the statement of income ($532), was an unrealized loss
of $1,343. The transition amounts were determined based on the interpretive
guidance issued by the FASB at that date. The FASB continues to issue
interpretive guidance that could require changes in the Company's application of
the standard and adjustments to the transition amounts. SFAS 133 may increase or
decrease reported net income and stockholders' equity prospectively, depending
on future levels of interest rates and other variables affecting the fair values
of derivative instruments and hedged items, but will have no effect on cash
flows.
18
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
The following table summarizes the notional and fair value of the Company's
derivative financial instruments at March 31, 2002. The notional value is an
indication of the extent of the Company's involvement in these instruments at
that time, but does not represent exposure to credit, interest rate or market
risks.
<Table>
<Caption>
STRIKE
NOTIONAL VALUE RATE MATURITY FAIR VALUE
-------------- ------ -------- ----------
Interest Rate Collar $ 70,000 6.580% 11/2004 $(3,388)
Interest Rate Swap $ 65,000 4.010% 8/2005 $ 1,386
</Table>
On March 31, 2002, the derivative instruments were reported as an obligation at
their fair value of $2,002. Offsetting adjustments are represented as deferred
gains or losses in Accumulated Other Comprehensive Loss of $1,709. Currently,
all derivative instruments are designated as hedging instruments.
Over time, the unrealized gains and losses held in Accumulated Other
Comprehensive Loss will be reclassified into earnings as interest expense in the
same periods in which the hedged interest payments affect earnings. The Company
estimates that approximately $785 of the current balance held in Accumulated
Other Comprehensive Loss will be reclassified into earnings within the next
twelve months.
The Company is not currently hedging exposure to variability in future cash
flows for forecasted transactions other than anticipated future interest
payments on existing debt.
16. SEGMENT INFORMATION
The Company is a REIT engaged in owning, managing, leasing and repositioning
office properties in Manhattan and has two reportable segments, office real
estate and structured finance investments. The Company evaluates real estate
performance and allocates resources based on earnings contribution to net
operating 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
consist primarily of security, maintenance, utility costs, real estate taxes and
ground rent expense (at certain applicable properties).
Selected results of operations for the quarters ended March 31, 2002 and 2001,
and selected asset information as of March 31, 2002 and December 31, 2001,
regarding the Company's operating segments are as follows:
19
<Page>
SL GREEN REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 2002
<Table>
<Caption>
STRUCTURED
REAL ESTATE FINANCE TOTAL
SEGMENT SEGMENT COMPANY
-------------------------------------------------
TOTAL REVENUES
Three months ended:
March 31, 2002 $ 56,052 $ 5,631 $ 61,683
March 31, 2001 63,720 3,274 66,994
OPERATING EARNINGS
Three months ended:
March 31, 2002 $ 14,671 $ 4,117 $ 18,788
March 31, 2001 11,652 2,257 13,909
TOTAL ASSETS
March 31, 2002 $ 1,178,865 $ 189,120 $ 1,367,985
December 31, 2001 1,182,939 188,638 1,371,577
</Table>
Operating earnings represents total revenues less total expenses for the real
estate segment and total revenues less interest expense for the structured
finance segment. The Company does not allocate marketing, general and
administrative expenses ($3,202 and $3,547 for the three months ended March
31, 2002 and 2001, respectively) to the structured finance segment, since it
bases performance on the individual segments prior to allocating marketing,
general and administrative expenses. All other expenses, except interest,
relate entirely to the real estate assets.
There were no transactions between the above two segments.
20
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Such forward-looking statements relate to,
without limitation, the Company's 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. 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. The Company intends
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Exchange Act. Such
statements are subject to a number of assumptions, risks and uncertainties which
may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by these forward-looking statements. Forward-looking statements are generally
identifiable by the use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend," "project," or the negative of
these words, or other similar words or terms. Readers are cautioned not to place
undue reliance on these forward-looking statements. Among the factors about
which the Company has made assumptions are general economic and business
(particularly real estate) conditions, the business opportunities that may be
presented to and pursued by the Company, changes in laws or regulations
(including changes to laws governing the taxation of REITs), availability of
capital (debt and equity), interest rate fluctuations, competition, supply and
demand for properties in our current and any proposed market areas, tenants'
ability to pay rent at current or increased levels, accounting principles,
policies and guidelines applicable to REITs, environmental risks, tenant
bankruptcies and defaults, the availability and cost of comprehensive insurance,
including coverage for terrorist acts, and other factors, many of which are
beyond the control of the Company. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
future events, new information or otherwise.
The following discussion related to the consolidated financial statements of the
Company should be read in conjunction with the financial statements appearing
elsewhere in this report and the financial statements included in the Company's
2001 annual report on Form 10-K.
GENERAL
SL Green Realty Corp. (the "Company"), a Maryland corporation, and SL Green
Operating Partnership, L.P. (the "Operating Partnership"), a Delaware limited
partnership, were formed in June 1997 for the purpose of combining the
commercial real estate business of S.L. Green Properties, Inc. and its
affiliated partnerships and entities.
As of March 31, 2002, the Company's wholly-owned portfolio (the "Properties")
consisted of 19 commercial properties (encompassing approximately 6.9 million
rentable square feet located primarily in midtown Manhattan ("Manhattan"), a
borough of New York City. As of March 31, 2002, the weighted average occupancy
(total occupied square feet divided by total available square feet) of the
Properties was 96.6%. The Company's portfolio also includes ownership interests
in unconsolidated joint ventures which own six commercial properties in
Manhattan, encompassing approximately 3.1 million rentable square feet which
were 98.1% occupied as of March 31, 2002. The Company also owned one triple-net
leased property located in Shelton, Connecticut. In addition, the Company
continues to manage four office properties owned by third-parties and affiliated
companies encompassing approximately 1.0 million rentable square feet.
21
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 TO THE THREE MONTHS ENDED
MARCH 31, 2001
The following comparison for the three months ended March 31, 2002 ("2002") to
the three months ended March 31, 2001 ("2001") makes reference to the following:
(i) the effect of the "Same-Store Properties," which represents all properties
owned by the Company at January 1, 2001 and at March 31, 2002, (ii) the effect
of the "2001 Acquisitions," which represents all properties acquired in 2001,
namely, 1370 Broadway (January 2001) and 317 Madison Avenue (June 2001), and
(iii) the effect of the "2001 Dispositions," which represents all properties
disposed of in 2001, namely, 633 Third Avenue (January 2001), One Park Avenue
which was contributed to a joint venture (May 2001) and 1412 Broadway (June
2001).
RESULTS OF OPERATIONS
<Table>
<Caption>
RENTAL REVENUES (in millions) $ %
2002 2001 Change Change
------------------------------------------------
Rental revenue $47.8 $55.0 $(7.2) (13.1)%
Escalation and reimbursement revenue 6.7 8.1 (1.4) (17.3)
Signage revenue 0.5 0.4 0.1 25.0
------------------------------------------------
Total $55.0 $63.5 $(8.5) (13.4)%
================================================
Same Store Properties $47.9 $48.2 $(0.3) (0.6)%
2001 Acquisitions 5.9 1.6 4.3 ---
2001 Dispositions 1.6 14.7 (13.1) (89.1)
Other (0.4) (1.0) 0.6 60.0
------------------------------------------------
Total $55.0 $63.5 $(8.5) (13.4)%
------------------------------------------------
</Table>
The decrease in rental revenue in the Same-Store Properties was primarily due to
a decrease in occupancy from 98.5% in 2001 to 96.6% in 2002. Annualized rents
from replacement rents on previously occupied space at Same-Store Properties
were 37% higher than previous fully escalated rents. The Company estimates that
the difference between existing in-place fully escalated rents and current
market rents on its wholly-owned properties is approximately 29.8%.
Approximately 4.9% of the space leased at wholly-owned properties expires in
2002.
The decrease in escalation and reimbursement revenue was primarily due to the
decrease in electric reimbursement ($0.9 million) due to lower electric expense.
On an annualized basis, the Company expects to recover approximately 90% of its
electric costs.
The increase in signage revenue was primarily attributable to new temporary
signs leased at 420 Lexington Avenue and 317 Madison Avenue ($0.1 million).
<Table>
<Caption>
INVESTMENT AND OTHER INCOME (in millions) $ %
2002 2001 Change Change
-----------------------------------------
Equity in net income of unconsolidated joint ventures $ 3.3 $1.5 $1.8 120.0%
Investment and preferred equity income 5.6 3.3 2.3 69.7
Other 1.1 0.3 0.8 266.7
-----------------------------------------
Total $10.0 $5.1 $4.9 96.1%
-----------------------------------------
</Table>
22
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The increase in equity in net income of unconsolidated joint ventures is due to
the Company having had five joint venture investments in 2001 comprising 2.2
million square feet compared to six joint venture investments in 2002 comprising
3.1 million square feet. Occupancy at the joint venture properties increased
from 97.0% in 2001 to 98.1% in 2002. The Company estimates that the difference
between existing in-place fully escalated rents at its joint venture properties
and current market rents is approximately 36.8%. Approximately 12.2% of the
space leased at joint venture properties expires in 2002.
The increase in investment income primarily represents interest income from
structured finance transactions ($2.6). For 2002, the weighted average loan
balance outstanding and yield were $189.0 and 11.1%, respectively, compared to
$56.5 and 19.9%, respectively, for 2001. This was offset by a decrease in
investment income from excess cash on hand ($0.3 million).
The increase in other income is primarily due to asset management fees earned
from joint ventures ($0.6 million).
<Table>
<Caption>
PROPERTY OPERATING EXPENSES (in millions) $ %
2002 2001 Change Change
--------------------------------------------
Operating expenses (excluding electric) $10.5 $10.8 $(0.3) (2.8)%
Electric costs 3.2 5.0 (1.8) (36.0)
Real estate taxes 7.4 8.2 (0.8) (9.8)
Ground rent 3.2 3.2 --- ---
--------------------------------------------
Total $24.3 $27.2 $(2.9) (10.7)%
--------------------------------------------
Same Store Properties $20.6 $21.2 $(0.6) (2.8)%
2001 Acquisitions 2.6 0.5 2.1 420.0
2001 Dispositions 0.8 5.4 (4.6) (90.7)
Other 0.3 0.1 0.2 200.0
--------------------------------------------
Total $24.3 $27.2 $(2.9) (10.7)%
--------------------------------------------
</Table>
The decrease in operating expenses, excluding electricity, were primarily due to
lower steam costs ($0.7 million) and repairs and maintenance ($0.1 million).
These decreases were partially offset by increases in security costs ($0.2
million) and advertising and insurance costs ($0.2 million).
The decrease in electric costs was primarily due to lower electric rates in 2002
compared to 2001.
The decrease in real estate taxes was primarily attributable to the 2001
Dispositions which decreased real estate taxes by $1.7 million. This was
partially offset by an increase in real estate taxes attributable to the
Same-Store Properties ($0.3 million) and the 2001 Acquisitions ($0.6 million).
<Table>
<Caption>
OTHER EXPENSES (in millions) $ %
2002 2001 Change Change
---------------------------------------
Interest expense $ 9.1 $13.9 $(4.8) (34.5)%
Depreciation and amortization expense 9.6 9.7 (0.1) (1.0)
Marketing, general and administrative expense 3.2 3.5 (0.3) (8.6)
---------- --------- --------- -----------
Total $21.9 $27.1 $(5.2) (19.2)%
---------- --------- --------- -----------
</Table>
23
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The decrease in interest expense was primarily attributable to lower average
debt levels due to dispositions ($6.3 million) and reduced interest costs on
floating rate debt ($1.0 million). This was partially offset by increases due to
costs associated with new investment activity ($2.4 million) and the funding of
ongoing capital projects and working capital reserves ($0.2 million). The
weighted average interest rate decreased from 7.49% at March 31, 2001 to 7.13%
at March 31, 2002.
Marketing, general and administrative expense decreased primarily due to lower
personnel and severance costs ($0.3 million).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities increased $8.1 million to $24.7
million for the three months ended March 31, 2002 compared to $16.6 million for
the three months ended March 31, 2001. Operating cash flow was primarily
generated by the Same-Store Properties and 2001 Acquisitions, as well as the
structured finance investments, but was reduced by the decrease in operating
cash flow from the 2001 Dispositions.
Net cash used in investing activities decreased $281.6 million to $3.7 million
for the three months ended March 31, 2002 compared to $285.3 million for the
three months ended March 31, 2001. The decrease was due primarily to the lower
dollar volume of acquisitions and capital improvements in 2002 (none and $5.8
million, respectively) as compared to 2001 ($286.5 and $5.8 million,
respectively). This relates primarily to the acquisitions of One Park Avenue and
1370 Broadway in January 2001. Approximately $51 million was funded out of
restricted cash set aside from the sale of 17 Battery Place South. The Company
did not close on any new joint venture or structured finance investments during
the 2002 quarter.
Net cash provided by financing activities decreased $287.8 million to ($21.8)
million for the three months ended March 31, 2002 compared to $266.0 million for
the three months ended March 31, 2001. The decrease was primarily due to lower
borrowing requirements due to the decrease in acquisitions which would have been
funded with mortgage debt and draws under the line of credit.
CAPITALIZATION
On July 25, 2001, the Company completed the sale of 5,000,000 shares of common
stock under its shelf registration statement. The net proceeds from this
offering ($148.4 million) were used to pay down the 2000 Unsecured Credit
Facility. After this offering, the Company still has an effective shelf
registration with the SEC for an aggregate amount of $251 million in common and
preferred stock of the Company.
RIGHTS PLAN
On February 16, 2000, the Board of Directors of the Company authorized a
distribution of one preferred share purchase right ("Right") for each
outstanding share of common stock under a shareholder rights plan. This
distribution was made 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.
24
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Rights are attached to each share of common stock. The Rights are generally
exercisable only if a person or group becomes the beneficial owner of 17% or
more of the outstanding common stock or announces a tender offer for 17% or more
of the outstanding stock ("Acquiring Person"). In the event that a person or
group becomes an Acquiring Person, each holder of a Right, excluding the
Acquiring Person, will have the right to receive, upon exercise, common stock
having a market value equal to two times the Purchase Price of the Preferred
Shares.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company filed a registration statement with the SEC for the Company's
dividend reinvestment and stock purchase plan ("DRIP") which was declared
effective on September 10, 2001. The DRIP commenced on September 24, 2001. The
Company registered 3,000,000 shares of common stock under the DRIP.
During the quarter ended March 31, 2002, 35 shares were issued and $1,084 of
proceeds were received from dividend reinvestments and/or stock purchases under
the DRIP.
INDEBTEDNESS
At March 31, 2002, borrowings under the mortgage loans and credit facilities
(excluding our share of joint venture debt of $225.1 million) represented 29.2%
of the Company's market capitalization of $1.7 billion (based on a common stock
price of $33.60 per share, the closing price of the Company's common stock on
the New York Stock Exchange on March 31, 2002). Market capitalization includes
debt, common and preferred stock and conversion of all operating partnership
units.
The tables below summarize the Company's mortgage debt and lines of credit
indebtedness outstanding at March 31, 2002 and December 31, 2001, respectively
(in thousands).
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
---- ----
DEBT SUMMARY:
BALANCE
Fixed rate $252,247 $253,792
Variable rate - hedged 133,761 133,930
-------------------------------------------------------------------------------------------
Total fixed rate 386,008 387,722
-------------------------------------------------------------------------------------------
Variable rate 52,000 60,000
Variable rate-supporting variable rate assets 57,109 57,109
-------------------------------------------------------------------------------------------
Total variable rate 109,109 117,109
-------------------------------------------------------------------------------------------
Total $495,117 $504,831
===========================================================================================
PERCENT OF TOTAL DEBT:
Total fixed rate 78.00% 76.80%
Variable rate 22.00% 23.20%
-------------------------------------------------------------------------------------------
Total 100.00% 100.00%
===========================================================================================
EFFECTIVE INTEREST RATE AT END OF PERIOD
Fixed rate 8.23% 8.23%
Variable rate 3.26% 3.49%
-------------------------------------------------------------------------------------------
Effective interest rate 7.13% 7.13%
===========================================================================================
</Table>
25
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The variable rate debt shown above bears interest at an interest rate based on
LIBOR (1.88% at March 31, 2002). The Company's total debt at March 31, 2002 had
a weighted average term to maturity of approximately 4.77 years.
As of March 31, 2002, the Company had two variable rate structured finance
investments collateralizing the secured credit facility. These structured
finance investments, totaling $70.0 million, mitigate the Company's exposure to
interest rate changes on its unhedged variable rate debt.
MARKET RATE RISK
The Company is exposed to changes in interest rates primarily from its floating
rate debt arrangements. The Company uses 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 $1.5
million annually.
The Company recognizes 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 is
immediately recognized in earnings.
Approximately $386.0 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 interest rate on the variable rate
debt as of March 31, 2002 ranged from LIBOR plus 100 basis points to LIBOR plus
200 basis points.
MORTGAGE FINANCING
As of March 31, 2002, the Company's total mortgage debt (excluding the Company's
share of joint venture debt of approximately $225.1 million) consisted of
approximately $386.0 million of fixed rate debt with an effective interest rate
of approximately 8.23% and no unhedged variable rate debt. The Company's
mortgage debt at March 31, 2002, encumbering 10 Properties, will mature as
follows (in thousands):
<Table>
<Caption>
Scheduled Principal
Amortization Payment Total
------------ ------- -----
2002 $ 5,202 $ --- $ 5,202
2003 7,772 2,002 9,774
2004 3,863 140,300 144,163
2005 3,366 47,247 50,613
2006 3,270 --- 3,270
Thereafter 21,065 151,921 172,986
----------------------------------------------------------------------------------------------------
Total $44,538 $341,470 $ 386,008
====================================================================================================
</Table>
26
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVOLVING CREDIT FACILITIES
2000 UNSECURED CREDIT FACILITY
On June 27, 2000, the Company repaid in full and terminated its $140 million
credit facility and obtained a new senior unsecured revolving credit facility in
the amount of $250.0 million (the "2000 Unsecured Credit Facility") from a group
of 9 lender banks. In March 2001, the Company exercised an option to increase
the capacity under this credit facility to $300.0 million. The 2000 Unsecured
Credit Facility has a term of three years and bears interest at a spread ranging
from 137.5 basis points to 175 basis points over LIBOR, based on the Company's
leverage ratio. If the Company was to receive an investment grade rating, the
spread over LIBOR will be reduced to 125 basis points. The 2000 Unsecured Credit
Facility also requires a 15 to 25 basis point fee on the unused balance payable
quarterly in arrears. At March 31, 2002, $52.0 million was outstanding and
carried an effective interest rate of 3.24%. Availability under the 2000
Unsecured Credit Facility at March 31, 2002 was further reduced by the issuance
of letters of credit in the amount of $30.0 million for acquisition deposits.
The terms of the 2000 Unsecured Credit Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the minimum amount of tangible net worth, the minimum amount
of debt service coverage, the minimum amount of fixed charge coverage, the
minimum amount of unsecured indebtedness, the minimum amount of unencumbered
property debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Company to
continue to qualify as a REIT under the Code, the Company will not during any
four consecutive fiscal quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 90% of funds from
operations for such period, subject to certain other adjustments.
2001 SECURED CREDIT FACILITY
On December 20, 2001, the Company repaid in full and retired its $60 million
secured credit facility in connection with the Company obtaining a $75.0 million
secured credit facility (the "2001 Secured Credit Facility"). The 2001 Secured
Credit Facility, which is secured by various structured finance investments, has
a term of two years with a one year extension option. It bears interest at the
rate of 150 basis points over LIBOR. At March 31, 2002, $34.9 million was
outstanding and carried a weighted average interest rate of 3.41%. The 2001
Secured Credit Facility includes certain restrictions and covenants, which are
similar to those under the 2000 Unsecured Credit Facility.
CAPITAL EXPENDITURES
The Company estimates that for the nine months ending December 31, 2002, it will
incur approximately $22.8 million of capital expenditures (including tenant
improvements) on properties currently owned. Of that total, over $15.7 million
of the capital investments are dedicated to redevelopment costs, including New
York City local law 11, associated with properties acquired after the Company's
IPO. The Company expects to fund these capital expenditures with operating cash
flow, borrowings under the credit facilities, additional property level mortgage
financings, and cash on hand. Future property acquisitions may require
substantial capital investments in such properties for refurbishment and leasing
costs. The Company expects that these financing requirements will be met in a
similar fashion. The Company believes that it will have sufficient resources to
satisfy its capital needs during the next 12 month period. Thereafter, the
Company expects that its capital needs will be met through a combination of net
cash provided by operations, borrowings, potential asset sales or additional
equity or debt issuances.
27
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DIVIDENDS
The Company expects to pay dividends to its stockholders primarily based on its
distributions received from the Operating Partnership primarily from property
revenues net of operating expenses or, if necessary, from working capital or
borrowings.
To maintain its qualification as a REIT, the Company must pay annual dividends
to its stockholders of at least 90% of its REIT taxable income, determined
before considering the dividends paid deduction and by excluding net capital
gains. Moreover, the Company intends to continue to pay regular quarterly
dividends to its stockholders which, based upon current policy, in the aggregate
would equal approximately $53.2 million on an annualized basis. However, any
such dividend, whether for Federal income tax purposes or otherwise, would only
be paid out of available cash to the extent permitted under the 2000 Unsecured
Credit Facility and the 2001 Secured Credit Facility after meeting both
operating requirements and scheduled debt service on mortgages and loans
payable.
FUNDS FROM OPERATIONS
The revised White Paper on Funds from Operations ("FFO") approved by the Board
of Governors of NAREIT in October 1999 defines FFO as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company computes FFO
in accordance with the current standards established by NAREIT which may not be
comparable to FFO reported by other REIT's that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. FFO does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
28
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FFO for the three months ended March 31, 2002 and 2001, respectively, are as
follows (in thousands):
<Table>
<Caption>
2002 2001
---- ----
Income before minority interest, extraordinary
item, gain on sale, preferred stock dividend and
cumulative effect adjustment $ 18,788 $ 13,909
Add:
Depreciation and amortization 9,597 9,720
FFO adjustment for unconsolidated joint ventures 1,881 996
Less:
Dividends on preferred shares (2,300) (2,300)
Amortization of deferred financing costs and
depreciation of non-rental real estate assets (987) (1,155)
- -------------------------------------------------------------------------------------------------
Funds From Operations - basic 26,979 21,170
Dividends on preferred shares 2,300 2,300
- -------------------------------------------------------------------------------------------------
Funds From Operations - diluted $ 29,279 $ 23,470
=================================================================================================
Cash flows provided by operating activities $ 24,700 $ 16,562
Cash flows used in investing activities $ (3,703) $(285,306)
Cash flows (used in) provided by financing activities $ (21,761) $ 266,029
</Table>
INFLATION
Substantially all of the office leases provide for separate real estate tax and
operating expense escalations. In addition, many of the leases provide for fixed
base rent increases. The Company believes that inflationary increases may be at
least partially offset by the contractual rent increases and expense escalations
described above.
CRITICAL ACCOUNTING POLICIES
The Company believes that the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties and structured finance investments may
be impaired. 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
asset. Management does not believe that the value of any of its rental
properties or structured finance investments is impaired at March 31, 2002.
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, an
allowance for future potential tenant credit losses, which may occur against
this account. The balance reflected on the balance sheet is net of such
allowance.
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its tenants to make required rent payments. If
the financial condition of a specific tenant were to deteriorate, resulting in
an impairment of its ability to make payments, additional allowances may be
required.
Interest income on structured finance investments is recognized over the life of
the investment using the effective interest method and recognized on the accrual
basis. Fees received in connection with loan commitments are deferred until the
loan is advanced and are then recognized over the term of the loan as an
adjustment to yield. Anticipated exit fees are also recognized over the term of
the loan as an adjustment to yield.
29
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Rate Risk" for additional information regarding
the Company's exposure to interest rate fluctuations.
The following table presents principal cash flows based upon maturity dates of
the debt obligations and mortgage receivables and the related weighted-average
interest rates by expected maturity dates (in thousands).
<Table>
<Caption>
Long-term Debt Mortgage Receivables
-------------- --------------------
Fixed Average Variable Average
Date Rate Interest Rate Rate Interest Rate Amount Yield
---- ---- ------------- ---- ------------- ------ -----
2002 $ 5,202 7.36% $ 22,178 3.22% $ 33,018 14.4%
2003 9,774 7.77% 86,931 3.31% 40,094 11.9%
2004 144,163 7.68% --- --- 54,557 13.5%
2005 50,613 8.34% --- --- --- ---
2006 3,270 8.24% --- --- 61,451 12.3%
Thereafter 172,986 8.33% --- --- --- ---
-------------------------------------------------------------------------------------------
Total $386,008 8.23% $109,109 3.26% $189,120 12.8%
===========================================================================================
Fair Value $403,193 $109,109 $189,120
============= =========== ==========
</Table>
30
<Page>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 1515 Broadway, New York, NY Contribution Agreement among Astor Plaza
Venture, L.P., a Delaware limited partnership, and 1515 Broadway Associates,
L.P., a Delaware limited partnership, and The Equitable Life Assurance Society
of the United States, a New York Corporation and SL Green Realty Acquisition
LLC, a Delaware limited liability company.
(b) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K on February 7, 2002 in
connection with its fourth quarter 2001 earnings release and supplemental
information package.
The Registrant filed a Current Report on Form 8-K on March 27, 2002 in
connection with its press release announcing its planned acquisition of 1515
Broadway.
31
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SL GREEN REALTY CORP.
By: /s/ Thomas E. Wirth
-------------------------------
Thomas E. Wirth
Executive Vice President,
Chief Financial Officer
Date: April 29, 2002
32