Press Release Details
SL Green Realty Corp. Reports 23% Gain in Second Quarter FFO and Completes Sale of 5 Million Common Shares
Highlights
23% FFO increase, $0.80 per share (diluted) versus $0.65 prior year
17% same store portfolio cash NOI growth
Issued 5 million common shares at $29.80 net per share; raised $149 million in net proceeds
Completed acquisition of 317 Madison Avenue for $105.6 million
Completed One Park Avenue joint venture with SITQ Immobilier selling them a 45% interest
Established $250 million investment program with Prudential Real Estate Investors (PREI) for structured finance investments
Originated $85.7 million in structured finance investments
Financial Results
SL Green Realty Corp. (NYSE:SLG) reported a 23% increase in operating results for the three months ended June 30, 2001. During this period, funds from operations (FFO) before minority interests totaled $23.4 million, or $0.80 per share (diluted), compared to $18.3 million, or $0.65 per share (diluted), for the same quarter in 2000. This growth was primarily attributable to strong same-store cash NOI growth of 17%.
Six month results were also strong, reflecting a 20% FFO increase over 2000. FFO for the six months ended June 30, 2001 totaled $44.6 million or $1.53 per share (diluted) compared to $35.5 million or $1.27 per share (diluted) for the same period in the previous year. This growth is also attributable to strong same store cash NOI growth of 17%.
For the quarter, net income available to common shareholders, adjusted for property sales, extraordinary items and the cumulative effect of accounting change increased 38% to $12.5 million, or $0.51 per share (diluted) as compared to $8.6 million, or $0.37 per share (diluted), for the same period in the previous year. For the six months ended June 30, 2001, adjusted net income increased 29% to $22.9 million, or $0.91 per share (diluted), as compared to $16.0 million, or $0.72 per share (diluted), for the same period in the previous year.
Total quarterly revenues increased 18% in the second quarter to $66.5 million compared to last year's $56.5 million. The $10.0 million growth in revenue resulted from:
2001 acquisitions ($8.8 million)
2001 same store portfolio ($2.8 million)
Investment and other income ($1.5 million)
These revenue increases were partially offset by reduced revenues of properties sold ($2.5 million) and contributions to unconsolidated joint ventures ($0.5 million).
During the second quarter, same store cash NOI increased $4.0 million to $27.9 million in 2001, as compared to $23.9 million over the same period in the prior year. Cash NOI margins before ground rent improved year over year from 55.3% to 60.2%. The improvement in cash NOI was driven primarily by a $4.6 million increase in cash revenue due to:
A 55% increase in replacement rents over previous fully-escalated rents ($1.5 million)
Reduced free and straight-line rents ($1.8 million)
Rent steps from current in-place tenants ($0.5 million)
$1.4 million increase in escalation and reimbursement income primarily from increased electric recoveries ($0.4 million) and operating expense reimbursements ($0.8 million).
$0.4 million decrease in signage income
The increase in revenue was partially offset by $0.5 million or 5% increase in operating costs, which was related primarily to higher utility costs ($0.3 million). Approximately 90% of the quarterly electric expense was recovered through the utility clause in the tenants' leases.
The Company's second quarter EBITDA increased $7.9 million resulting in increased margins before ground rent of 68.8% in 2001, compared to 64.8% for the same period last year. After ground rent, margins improved to 63.6% in 2001 from 58.8% in the corresponding prior year period. Margin improvement was driven by the Company's primary real estate investment themes:
GAAP NOI of $8.2 million;
$6.2 million increase from 2001 acquisitions
$2.3 million increase from same store (9% improvement)
$1.4 million increase from joint ventures
$1.9 million decrease from properties sold or contributed to joint ventures
Income from structured finance ($1.1 million), and interest ($0.4 million)
These increases in EBITDA were partially offset by (i) an increase in MG&A ($0.5 million) primarily due to increased personnel costs and (ii) a loss from equity in affiliates ($0.6 million) as compared to net income in the prior year ($0.4 million). The increased losses in affiliates were primarily generated by e.Emerge.
FFO for the quarter ended June 30, 2001 improved $5.1 million primarily as a result of an $8.2 million increase in EBITDA that was partially offset by higher interest costs ($3.1 million). These higher interest costs were associated with higher average debt levels due to acquisition and structured finance debt ($3.7 million), the higher average debt levels due to the funding of ongoing capital projects and working capital requirements ($0.2 million), partially offset by lower interest rates ($0.8 million).
During the quarter ended June 30, 2000, the Company recorded an extraordinary loss of $0.4 million due to the early extinguishment of debt that was excluded from the Company's 2000 FFO results. The 2001 and 2000 results of the Company exclude gains on sales of properties that totaled $3.0 million and $4.8 million, respectively.
At the end of the quarter, consolidated debt totaled $608.6 million, reflecting a debt to market capitalization ratio of 39.4%.
New Activity
Common Share Issuance
On July 19th, the Company announced that it had sold 5
million primary common shares at a gross price of $30.66 per
share. After the underwriter's discount, net proceeds to the
Company totaled $149.0 million, or $29.80 per share. The
immediate use of proceeds will be to pay down the Company's
unsecured revolving credit facility. After giving effect to
the issuance and the completed third quarter activity, the
Company's pro-forma debt to market capitalization is 29.10%
and the lines of credit availability is $267.3 million with
an outstanding balance of $71.0 million on the unsecured line
of credit and $21.7 million on the secured line of credit.
Following the offering, the Company's outstanding basic
common shares totaled 29.9 million and weighted-average fully
diluted shares totaled 37.2 million.
Real Estate Activity
317 Madison Avenue Acquisition
In June 2001, the Company closed on the acquisition of 317
Madison Avenue for an aggregate purchase price of $105.6
million ($235 per square foot). The property was acquired
from Richfield Investment Company. The 22-story building is
located at the Northeast corner of Madison Avenue and 42nd
Street with direct access to Grand Central Station. The
acquisition was funded, in part, with proceeds from the sale
of 1412 Broadway in a reverse 1031 tax-free exchange, thereby
deferring the capital gain resulting from such sale. The
balance of the acquisition was funded using the Company's
line of credit. The Company expects to complete a $65-$70
million first mortgage financing during the third quarter
with the proceeds repaying the unsecured line of credit.
One Park Joint Venture
In May 2001, the Company announced that it entered into a
joint venture with respect to the ownership of the Company's
interests in One Park Avenue with SITQ Immobilier, a
subsidiary of Caisse de Depot et Placement du Quebec, the
largest pension fund in Canada with over Cdn $125 billion in
assets under management. Under the terms of the joint
venture, SITQ Immobilier purchased a 45% interest in the
Company's interests in the property based upon a gross
aggregate price of $233.9 million and yielding proceeds of
approximately $41.0 million, inclusive of closing costs and
reimbursements. The transaction enables the Company to free
up capital for additional high growth opportunities while
enhancing the yield on its investment interests in One Park
Avenue through various fee arrangements with respect to the
investment.
1412 Broadway Sale
In June 2001, the Company completed the previously announced
sale of 1412 Broadway for $90.7 million, to an affiliate of
JER Partners, a subsidiary of the J.E. Robert Companies of
McLean, VA. As part of the transaction, the Company retained
a participating preferred equity position of $8.0 million in
the property. The Company realized a book gain on the sale in
the amount of approximately $4.1 million (before the write
off of a $1.0 million loss on the initial financing
arrangement). Proceeds from the sale of 1412 Broadway were
used to fund the acquisition of 317 Madison Avenue in a
reverse 1031 tax-free exchange allowing the Company to defer
all of the taxable gain.
Structured Finance Activity
Three separate transactions totaling $85.7 million originated at a retained yield of 15.8%
$51.9 million repaid yielding a 25.3% unlevered IRR
$25.0 million participation to PREI under the investment program
PREI Investment Program
The Company has entered into a non-exclusive investment
program with Prudential Real Estate Investors (PREI) that
will invest up to $250 million in structured finance
investments collateralized by New York City commercial real
estate. Under the terms of the program, the Company and PREI
will co-invest by purchasing 50% participation interests in
structured finance investments originated, managed and
serviced by the Company. The investment program will target
mezzanine loans, first mortgage bridge loans, preferred
equity, and junior mortgage participations in prime,
well-located commercial real estate primarily in Midtown
Manhattan. The Company will enhance its total return on
investment through fees charged to the venture for
origination, asset management and servicing as well as
incentive returns based upon the overall performance of the
investments.
As of June 30, 2001, the Company's portfolio consists of interests
in 25 properties, aggregating 10.1 million square feet.
SL Green Realty is a self-administered and self-managed real
estate investment trust ("REIT") that acquires, owns, repositions and
manages a portfolio of Manhattan office properties. The Company is the
only publicly held REIT who specializes exclusively in this niche.
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.
SL GREEN REALTY CORP.
STATEMENTS OF OPERATIONS--UNAUDITED
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
Revenue:
Rental revenue, net $53,405 $46,410 $108,408 $93,351
Escalations &
reimbursement
revenues 7,296 5,367 15,353 11,348
Signage rent 179 597 529 1,097
Investment income 5,046 3,923 8,320 4,936
Other income 550 197 860 521
Total revenues 66,476 56,494 133,470 111,253
Expenses:
Operating expenses 14,081 13,443 29,907 26,633
Ground rent 3,159 3,159 6,318 6,342
Interest 13,171 10,053 27,068 19,545
Depreciation
and amortization 9,189 8,403 18,909 16,219
Real estate taxes 7,958 7,053 16,138 14,388
Marketing, general
and administrative 3,668 3,190 7,215 5,978
Total expenses 51,226 45,301 105,555 89,105
Income before
minority interests,
preferred stock
dividends,
gain on sales,
extraordinary item,
equity in affiliates
and unconsolidated
joint ventures 15,250 11,193 27,915 22,148
Equity in net
income (loss)
from affiliates (658) 369 (927) 539
Equity in net income
from unconsolidated
joint ventures 1,756 782 3,269 1,623
Minority interests (1,405) (1,316) (2,486) (3,467)
Extraordinary loss,
net of minority
interest -- (430) (98) (430)
Gain on sale of
rental properties 3,002 4,797 4,516 19,022
Cumulative effect
of accounting
change -- -- (532) --
Preferred stock
dividends and
accretion (2,415) (2,407) (4,829) (4,814)
Net income available
to common
shareholders $15,530 $12,988 $26,828 $34,621
Net income per
share (Basic) $0.63 $0.53 $1.09 $1.43
Net income per
share (Diluted) $0.60 $0.53 $1.06 $1.36
Funds From
Operations (FFO)
FFO per
share (Basic) $0.87 $0.69 $1.65 $1.33
FFO per
share (Diluted) $0.80 $0.65 $1.53 $1.27
FFO Calculation:
Income before
minority interests,
preferred stock
dividends,
extraordinary loss
and cumulative
effect adjustment $16,348 $12,344 $30,257 $24,310
Less:
Preferred stock
dividend (2,300) (2,300) (4,600) (4,600)
Add:
Joint venture
FFO adjustment 1,358 917 2,354 1,626
Depreciation and
amortization 9,189 8,403 18,909 16,219
Amortization of
deferred financing
costs and
depreciation of
non-real
estate assets (1,157) (1,040) (2,312) (2,063)
FFO - BASIC 23,438 18,324 44,608 35,492
Add: Preferred
stock dividends 2,300 2,300 4,600 4,600
FFO - DILUTED $25,738 20,624 49,208 $40,092
Basic ownership
interests
Weighted average
REIT common shares 24,706 24,309 24,706 24,265
Weighted average
partnership units
held by
minority interest 2,295 2,391 2,289 2,404
Basic weighted
average shares
and units
outstanding 27,001 26,700 26,995 26,669
Diluted ownership
interest
Weighted average
REIT common and
common share
equivalent shares 25,189 24,654 25,182 24,525
Weighted average
partnership units
held by minority
interests 2,295 2,391 2,289 2,404
Common share
equivalents for
preferred stock 4,699 4,699 4,699 4,699
Diluted weighted
average equivalent
shares and units
outstanding 32,183 31,744 32,170 31,628
SL Green Realty Corp.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
June 30, December 31
2001 2000
Assets (unaudited)
Commercial real
estate properties,
at cost:
Land and land interests $140,657 $125,572
Buildings and
improvements 683,889 618,637
Building leasehold 141,670 139,393
Property under capital
lease 12,208 12,208
978,424 895,810
Less accumulated
depreciation (86,585) (78,432)
891,839 817,378
Properties
held for sale -- 10,895
Cash and cash
equivalents 43,742 10,793
Restricted
cash 37,516 86,823
Tenant receivables,
net $3,049 and $1,723
reserve in 2001
and 2000,
respectively 7,008 7,580
Related party
receivables 955 917
Deferred rents
receivable net of
provision for doubtful
accounts of
$5,441 and
$4,860 in 2001
and 2000,
respectively 49,354 45,816
Investment in
and advances to
affiliates 7,932 6,373
Investment in
unconsolidated
joint ventures 124,495 65,031
Mortgage loans and
preferred investments 97,832 51,293
Deferred costs, net 37,446 40,113
Other assets 21,546 18,142
Total assets $1,319,665 $1,161,154
Liabilities and
Stockholders' Equity
Mortgage notes payable $325,411 $414,342
Revolving credit
facility 283,238 46,374
Accrued interest payable 2,533 2,349
Accounts payable
and accrued expenses 20,922 24,818
Deferred revenue 1,587 1,112
Deferred
compensation awards 1,838 2,833
Derivative
instruments--fair
value 2,383 --
Capitalized lease
obligations 15,437 15,303
Deferred land
lease payable 13,866 13,158
Dividend and
distributions payable 12,796 12,678
Security deposits 20,776 19,014
Total liabilities 700,787 551,981
Minority interests 43,546 43,326
8%Preferred Income
Equity Redeemable
Stock $0.01 par value,
$25.00 mandatory
liquidation preference
25,000 shares
authorized, 4,600
outstanding in 2001
and 2000 111,002 110,774
Stockholders' Equity
Common stock, $.01
par value 100,000
shares authorized,
24,859 and 24,516
issued and
outstanding in 2001
and 2000, respectively 249 246
Additional paid - in
capital 436,262 428,698
Deferred compensation
plan (9,072) (5,037)
Accumulated other
comprehensive loss (1,896) --
Retained
earnings 38,787 31,166
Total stockholders' equity 464,330 455,073
Total liabilities and
stockholders' equity $1,319,665 $1,161,154
SL GREEN REALTY CORP.
SELECTED OPERATING DATA-UNAUDITED
June 30, 2001 June 30, 2000
Operating Data:
Net rentable area at
end of period
(in 000's)(1) 10,106 9,131
Portfolio occupancy
percentage at end
of period 98% 98%
Same Store occupancy
percentage at end
of period 99% 98%
Number of properties
in operation 25 23
(1) Includes wholly-owned and majority and minority owned properties.