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.