Press Release Details
SL Green Realty Corp. Reports 12% Gain in Second Quarter FFO
Second Quarter Highlights
- 12% FFO increase, $0.65 per share (diluted) versus $0.58 prior year
- 19% same store portfolio cash NOI growth
- Closed new $250 million unsecured Line of Credit, $110 million increase in capacity
- Completes strategic alliances with ENN, Eureka Broadband and Broadband Office
- Sold 65% joint venture interest in 321 West 44th Street valuing property at $28.0 million
- eEmerge, SL Green's occupancy solution to technology businesses, commenced operations
Financial Results
SL Green Realty Corp. (NYSE:SLG) reported a 12% increase in operating results for the three months ended June 30, 2000. During this period funds from operations (FFO) before minority interest totaled $18.3 million, or $0.65 per share (diluted), compared to $15.8 million, or $0.58 per share for the same quarter in 1999.
Total revenues increased 11% in the second quarter to $56.5 million compared to $50.8 million last year. The $5.7 million growth in revenue resulted from:
- 2000 same store portfolio ($4.9 million)
- 1999 acquisitions ($2.0 million)
- Investment income ($2.5 million)
These revenue increases were partially offset by revenues lost as a result of property sales or properties contributed to unconsolidated joint ventures ($3.6 million).
During the quarter the Company recorded net additional income of $4.4 million, resulting from the sale of a 65% interest in 321 West 44th Street of $4.8 million and a loss on the early extinguishment of debt from the refinancing of the Company's senior unsecured line of credit of $0.4 million. These transactions are not reflected in the Company's FFO results, as they are excluded from the definition of FFO.
Same store cash NOI increased $3.6 million, or 19%, to $22.1 million over the same period in the prior year. Cash NOI margins before ground rent improved year over year from 52.9% to 55.6%. The improvement in cash NOI was driven primarily by a $5.6 million increase in cash revenue due to:
- A 31% increase in replacement rents over previously fully-escalated rents ($1.9 million)
- Reduced free rent as many properties reached stabilization
($1.1 million)
- Increased occupancy from 96% to 98% ($0.8 million)
- Rent steps from current in-place tenants ($0.8 million)
- $0.7 million increase in escalation and reimbursement income primarily from increased electric recoveries ($0.6 million)
- Increased signage and other income ($0.3 million)
The increase in revenue was partially offset by a $2.1 million or 26% increase in operating costs, over half of which was related to higher utility costs ($1.2 million). Much of the increase resulted from higher electric rates ($1.0 million) and unanticipated heating at the beginning of the quarter ($0.2 million). Approximately 60% of the electric increase was recovered from tenants under the utility clause of their lease. R&M costs and professional fees also increased ($0.5 million) as the Company has initiated several proactive programs throughout the portfolio to provide operating efficiencies in the portfolio and assess improvements to the lease administration process. These increased costs were partially offset by lower real estate taxes ($0.2 million).
The Company's EBITDA increased $4.4 million, resulting in increased margins before ground rent of 64.8% compared to 60.3% for the same period last year and after ground rent margin improvement of 58.8% from 53.8% in the corresponding period. Margin improvement was driven by each of the Company's real estate investment themes:
- GAAP NOI of $2.9 million, $2.5 million of which occurred in the same store portfolio (an 11% improvement)
- Income from structured finance ($2.5 million)
- Income from the unconsolidated joint ventures ($0.8 million)
- Service Corporation and other income ($0.5 million)
These increases in EBITDA were offset by lost GAAP NOI from property sales ($1.9 million), and higher MG&A ($0.4 million).
FFO improved $2.5 million as a result of:
- The $4.4 million increase in EBITDA
- A $0.9 million increase in income from unconsolidated joint
ventures, and
- $0.8 million resulting from the acquisition of the minority
interest in the BMW building.
These improvements were offset in part by higher interest costs ($3.3 million) associated with: higher average debt levels due to acquisition and new investment debt ($2.7 million), the higher average debt levels due to the funding of ongoing capital projects and working capital requirements ($0.9 million) and higher interest rates from floating rate debt ($0.3 million) and refinancing to fixed rate permanent financings ($0.2 million). The increase in interest expense was partially offset by the repayment of debt associated with property sales ($0.8 million).
At the end of the quarter, consolidated debt totaled $492.0 million, reflecting a debt to market capitalization ratio of 37.2%.
On June 27, 2000, the Company terminated and repaid the outstanding balance ($97.5 million) on its $140.0 million unsecured credit facility which would have expired in December 2000, obtaining a new unsecured revolving credit facility in the amount of $250.0 million. The $250.0 million 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 a leverage matrix. Upon the achievement of an investment grade rating, the spread over LIBOR will be reduced to 125 basis points. This credit facility may also be upsized to $300.0 million.
Commenting on the refinancing, David J. Nettina, President and Chief Operating Officer, said "We're enthusiastic about the completion of this refinancing, as it strengthens the Company's capital base through increased liquidity and expands our network of lenders, having added five new institutions to our credit network. Additional funds from this facility resulted from the growing value of our real estate portfolio. These funds will allow our management team to continue to enhance and reposition our unique portfolio of New York City office space from self-generated capital."
New Investments to Date
- On May 4, 2000, the Company sold a 65% interest in the property located at 321 West 44th Street to Morgan Stanley Real Estate Fund III (" MSREF') in a transaction valuing the entire property at $28.0 million. The Company's retained 35% interest in the property was contributed to the joint venture with MSREF. The property, a 203,000 square foot building located in the Times Square submarket of Manhattan, was acquired by the Company in March 1998. Simultaneous with the closing of this joint venture to co-develop the repositioning of the property, the venture received a $22.0 million mortgage for the acquisition and capital improvement program. The interest only mortgage matures on April 30, 2003 and has a LIBOR based floating interest rate, currently at 9.14%. In addition to retaining a 35% economic interest in the property, the Company will also act as the operating partner for the venture, responsible for redevelopment, construction, leasing and management of the property.
- On May 11, 2000, the Operating Partnership formed eEmerge, Inc., a Delaware corporation ("eEmerge"), in partnership with Fluid Ventures LLC. eEmerge is a separately managed, self-funded company that provides fully-wired and furnished office space, services and support to help e-businesses grow. The Company accounts for its investment in eEmerge on the equity basis of accounting because it has significant influence with respect to management and operations, but does not control the entity. The Company has committed $3.0 million to the initial capitalization of this entity.
-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 fractional office suites facility marketed to the technology industry. ENYC entered into a 10-year lease with the Operating Partnership for their 22,500 square feet premises, which is located at 440 Ninth Avenue, Manhattan.
- The Company entered into three strategic business alliances with Elevator News Network (ENN), Eureka Broadband and Broadband Office. These alliances allow the Company to improve the services offered its tenants without an outlay of capital. The Company also receives revenue sharing from these agreements and equity/co-invest rights in these companies.
At June 30, 2000, SL Green's portfolio consisted of interests in 23 properties, aggregating 9.1 million square feet. Since June 30, 1999, the portfolio has grown by a net 1.3 million square feet, or 17%.
SL Green Realty is a self-administered and self-managed real estate investment trust ("REIT") that acquires, owns and manages a Class B Manhattan office portfolio. The Company is the only publicly held REIT which exclusively specializes in this niche.
Financial Tables attached
To receive SL Green's latest news release and other corporate documents, including the Second Quarter Supplemental Data, via FAX at no cost, please contact the Investor Relations office at 212-216-1601.
All releases and supplemental data can also be downloaded directly from the SL Green website at: www.slgreen.com.
This press release contains forward-looking information based upon the Company's current best judgment and expectations. Actual results could vary from those presented herein. The risks and uncertainties associated with forward-looking information in this release include the strength of the commercial office and industrial real estate markets in New York, competitive market conditions, unanticipated administrative costs, timing of leasing income, general and local economic growth, interest rates and capital market conditions. For further information, please refer to the Company's filings with the Securities and Exchange Commission. -0-
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SL GREEN REALTY CORP.
STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------------------- ------------------
(unaudited) (unaudited)
Revenue:
Rental revenue, net $ 46,410 $ 43,784 $ 93,351 $ 84,185
Escalations &
reimbursement
revenues 5,367 4,868 11,348 9,616
Signage Rent 597 343 1,097 553
Investment income 3,923 1,424 4,936 2,262
Other income 197 390 521 855
--------- --------- --------- ---------
Total revenues 56,494 50,809 111,253 97,471
--------- --------- --------- ---------
Expenses:
Operating expenses 13,443 11,264 26,633 22,485
Ground rent 3,159 3,183 6,342 6,390
Interest 10,053 6,711 19,545 11,949
Depreciation
and amortization 8,403 6,590 16,219 12,028
Real estate taxes 7,053 7,339 14,388 14,422
Marketing,
general and
administrative 3,190 2,771 5,978 5,416
--------- --------- --------- ---------
Total expenses 45,301 37,858 89,105 72,690
--------- --------- --------- ---------
Income before minority
interests, preferred
stock dividends, gain
on sales, extraordinary
item, service
corporation and
joint venture income 11,193 12,951 22,148 24,781
Equity in net income
from affiliates 369 117 539 328
Equity in net
income from
unconsolidated
joint ventures 782 -- 1,623 --
Minority interests (1,316) (1,664) (3,467) (3,093)
Extraordinary losses (430) (628) (430) (628)
Gain on sale of rental
properties 4,797 -- 19,022 --
Preferred stock
dividends and
accretion (2,407) (2,399) (4,814) (4,798)
--------- --------- --------- ---------
Net income available
to common
shareholders $ 12,988 $ 8,377 $ 34,621 $ 16,590
--------- --------- --------- ---------
Basic earnings
per share $ 0.53 $ 0.35 $ 1.43 $ 0.68
Diluted earnings
per share $ 0.53 $ 0.35 $ 1.41 $ 0.68
Funds From Operations
(FFO)
FFO per share
(Basic) $ 0.69 $ 0.59 $ 1.33 $ 1.12
FFO per share
(Diluted) $ 0.65 $ 0.58 $ 1.27 $ 1.10
FFO Calculation:
----------------
Income before minority
interests, extraordinary
items, preferred stock
dividends and gains
on sales $ 12,344 $ 13,068 $ 24,310 $ 25,109
Less:
-----
Preferred stock
dividend (2,300) (2,300) (4,600) (4,600)
Minority interest
in commercial
property -- (838) -- (1,410)
Add:
----
Joint venture
FFO adjustment 917 -- 1,626 --
Depreciation and
amortization 8,403 6,590 16,219 12,028
--------- --------- --------- ---------
Amortization of
deferred financing
costs and depreciation
of non-real
estate assets (1,040) (694) (2,063) (1,263)
--------- --------- --------- ---------
FFO - BASIC 18,324 15,826 35,492 29,864
Add:
Preferred stock
dividends 2,300 2,300 4,600 4,600
--------- --------- --------- ---------
FFO - DILUTED $ 20,624 $ 18,126 $ 40,092 $ 34,464
========= ========= ========= =========
Basic ownership
interests
Weighted average
REIT common
shares 24,309 24,192 24,265 24,192
Weighted average
partnership
units held by
minority interest 2,391 2,428 2,404 2,428
--------- --------- --------- ---------
Basic weighted average
shares and units
outstanding 26,700 26,620 26,669 26,620
========= ========= ========= =========
Diluted ownership
interest
Weighted average
REIT common and
common share
equivalent share 24,654 24,260 24,525 24,248
Weighted average
partnership units
held by minority
interests 2,391 2,428 2,404 2,428
Common share
equivalents for
preferred stock 4,699 4,699 4,699 4,699
--------- --------- --------- ---------
Diluted weighted
average equivalent
shares and units
outstanding 31,744 31,387 31,628 31,375
========= ========= ========= =========
SL Green Realty Corp.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
Assets
Commercial real estate properties, at cost:
Land and land interests $ 131,991 $ 132,081
Buildings and improvements 646,150 632,004
Building leasehold 135,886 132,573
----------- ------------
Property under capital lease 12,208 12,208
----------- ------------
926,235 908,866
Less accumulated depreciation (68,653) (56,983)
----------- ------------
857,582 851,883
Properties held for sale -- 25,835
Cash and cash equivalents 15,317 21,561
Restricted cash 31,126 34,168
Tenant and other receivables, net $1,813 and
$938 reserve in 2000 and 1999, respectively 6,851 5,747
Related party receivables 781 463
Deferred rents receivable net of provision
for doubtful accounts of $5,197 and
$5,337 in 2000 and 1999, respectively 42,867 37,015
Investment in and advances to affiliates 7,527 4,978
Investment in unconsolidated joint ventures 63,850 23,441
Mortgage loans and preferred investments 76,962 20,000
Deferred costs, net 37,922 30,540
Other assets 20,057 15,611
----------- ------------
Total assets $ 1,160,842 $ 1,071,242
=========== ============
Liabilities and Stockholders' Equity
Mortgage notes payable $ 346,294 $ 352,693
Revolving credit facility 145,752 83,000
Accrued interest payable 1,823 2,650
Accounts payable and accrued expenses 26,851 17,167
Deferred revenue 1,838 306
Capitalized lease obligations 15,165 15,017
Deferred land lease payable 12,493 11,611
Dividend and distributions payable 12,010 11,947
Security deposits 18,104 18,905
----------- ------------
Total liabilities 580,330 513,296
----------- ------------
Minority interests 42,544 41,494
8%Preferred Income Equity Redeemable Stock
$0.01 par value, $25.00
mandatory liquidation preference
25 million shares authorized, 4.6 million
outstanding in 2000 and 1999 110,561 110,348
Stockholders' Equity
Common stock, $.01 par value 100,000
shares authorized, 24,373 and 24,184
issued and outstanding in 2000 and
1999, respectively 244 242
Additional paid - in capital 425,837 421,958
Deferred compensation plan (6,239) (6,674)
Distributions in excess of earnings 7,565 (9,422)
----------- ------------
Total stockholders' equity 427,407 406,104
----------- ------------
Total liabilities and stockholders' equity $ 1,160,842 $ 1,071,242
=========== ============
SL GREEN REALTY CORP.
SELECTED OPERATING DATA-UNAUDITED
June 30, December 31,
2000 1999
-------- --------
Operating Data:
Net rentable area at end of period (in 000's)(1) 9,130 8,540
Portfolio occupancy percentage at end of period 98% 97%
Same Store occupancy percentage at end of period 98% 97%
Number of properties in operation 23 24
(1) Includes wholly-owned and minority owned properties.
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