UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

July 24, 2006

SL GREEN REALTY CORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MARYLAND

(STATE OF INCORPORATION)

 

 

 

(212) 594-2700

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Item 2.02.              Results of Operations and Financial Condition

Following the issuance of a press release on July 24, 2006 announcing the Company’s results for the second quarter ended June 30, 2006, the Company intends to make available supplemental information regarding the Company’s operations that is too voluminous for a press release.  The Company is attaching the press release as Exhibit 99.1 and the supplemental package as Exhibit 99.2 to this Current Report on Form 8-K.

The information (including exhibits 99.1 and 99.2) being furnished pursuant to this “Item 2.02 Results of Operations and Financial Condition” shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing.

Item 7.01.              Regulation FD Disclosure

As discussed in Item 2.02 above, on July 24, 2006, the Company issued a press release announcing its results for the second quarter ended June 30, 2006.

The information being furnished pursuant to this “Item 7.01 Regulation FD Disclosure” shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing.  This information will not be deemed an admission as to the materiality of such information that is required to be disclosed solely by Regulation FD.

Item 9.01.              Financial Statements and Exhibits

(c)           Exhibits

99.1                           Press Release regarding second quarter earnings.

99.2                           Supplemental package.

NON-GAAP Supplemental Financial Measures

Funds from Operations (FFO)

FFO is a widely recognized measure of REIT performance.  We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.  The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002 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.  We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITS, particularly those that own and operate commercial office properties.  We also use FFO as one of several criteria to determine performance-based bonuses for members of our senior management.  FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time.  Historically, however, real estate values have risen or fallen with market conditions.  Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year,

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reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs, providing perspective not immediately apparent from net income.  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 our financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

Funds Available for Distribution (FAD)

FAD is a non-GAAP financial measure that is not intended to represent cash flow for the period and is not indicative of cash flow provided by operating activities as determined in accordance with GAAP.  FAD is presented solely as a supplemental disclosure with respect to liquidity because the Company believes it provides useful information regarding the Company’s ability to fund its dividends.  Because all companies do not calculate FAD the same way, the presentation of FAD may not be comparable to similarly titled measures of other companies.   FAD does not represent cash flow from operating, investing and finance 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 our financial performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP), or as a measure of our liquidity.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

The Company presents earnings before interest, taxes, depreciation and amortization (EBITDA) because the Company believes that EBITDA, along with cash flow from operating activities, investing activities and financing activities, provides investors with an additional indicator of the Company’s ability to incur and service debt.  EBITDA should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP), or as a measure of our liquidity.

Same-Store Net Operating Income

The Company presents same-store net operating income on a cash and GAAP basis because the Company believes that it provides investors with useful information regarding the operating performance of properties that are comparable for the periods presented.  For properties owned since January 1, 2005, the Company determines net operating income by subtracting property operating expenses and ground rent from recurring rental and tenant reimbursement revenues.  Same-store net operating income is not an alternative to net income (determined in accordance with GAAP) and same-store performance should not be considered an alternative to GAAP net income performance.

Debt to Market Capitalization Ratio

The Company presents the ratio of debt to market capitalization as a measure of the Company’s leverage position relative to the Company’s estimated market value.  The Company’s estimated market value is based upon the quarter-end trading price of the Company’s common stock multiplied by all common shares and operating partnership units outstanding plus the face value of the Company’s preferred equity. This ratio is presented on a consolidated basis and a combined basis.  The combined debt to market capitalization includes the Company’s pro-rata share of off-balance sheet (unconsolidated) joint venture debt.  The Company believes this ratio may provide investors with another measure of the Company’s current leverage position.  The debt to market capitalization ratio should be used as one measure of the Company’s leverage position, and this measure is commonly used in the REIT sector; however, this may not be comparable to other REITs that do not compute in the same manner.  The debt to market capitalization ratio does not represent the Company’s borrowing capacity and should not be considered an alternative measure to the Company’s current lending arrangements.

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Coverage Ratios

The Company presents fixed charge and interest coverage ratios to provide a measure of the Company’s financial flexibility to service current debt amortization, interest expense and ground rent from current cash net operating income.  These coverage ratios are provided on both a consolidated and combined basis.  The combined coverage ratios include the Company’s pro-rata share of off-balance sheet (unconsolidated) joint venture fixed charges and cash net operating income.  These coverage ratios represent a common measure of the Company’s ability to service fixed cash payments; however, these ratios are not used as an alternative to cash flow from operating, financing and investing activities (determined in accordance with GAAP).

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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.

 

Date:  July 25, 2006

 

5

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

CONTACT
Gregory F. Hughes
Chief Financial Officer
(212) 594-2700
or
Heidi Gillette
Investor Relations
(212) 216-1601

SL GREEN REALTY CORP. REPORTS
SECOND QUARTER FFO OF $1.22 PER SHARE

Second Quarter Highlights

·                  Increased second quarter FFO to $1.22 per share (diluted) from $1.02 during the second quarter of 2005, an increase of 19.6%.

·                  Closed on the previously announced transaction involving 609 Fifth Avenue, which valued the property at approximately $182.0 million.

·                  Signed 57 office leases totaling 427,862 square feet during the second quarter.

·                  Finished the quarter at 95.9% occupancy, up from 95.2% at the end of the first quarter.

·                  Increased average office starting rents by 10.3% over previously fully escalated rents reflecting continued growth in rents for office leases signed during the second quarter.

·                  Recognized combined same-store GAAP NOI growth of 5.3% during the second quarter.

·                  Recapitalized 55 Corporate Drive, NJ increasing our ownership interest from 10% to 50%.  The property was originally acquired in May 2005 for $125.0 million and was valued at $236.0 million in connection with the recapitalization in June 2006.

·                  Recognized approximately $4.9 million to date ($0.10 per share) of fees, promote and other income resulting from the recapitalization and resolution of our investments with The Gale Companies.

·                  Refinanced 521 Fifth Avenue with a $140.0 million mortgage at LIBOR plus 100 basis points, a 62.5 basis point reduction in spread.

·                  Invested $15.3 million for a 50% ownership interest in a joint venture with Mack-Cali Realty Corporation which acquired interests in seven class A office properties valued at approximately $127.5 million and encompassing approximately 900,000 square feet.

·                  Originated $44.2 million of structured finance investments with an initial yield of 9.74%.

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·                  Invested $20.1 million in Gramercy Capital Corp., or Gramercy (NYSE: GKK), in connection with its approximately $80.0 million common stock offering in May 2006.

·                  Received $8.2 million in dividends and fees from our investment in, and management arrangements with, Gramercy, including a $1.6 million incentive fee earned during the quarter.

·                  Issued 2.5 million shares of common stock in July 2006 raising net proceeds of approximately $269.1 million.

Summary

New York, NY, July 24, 2006 - SL Green Realty Corp. (NYSE:  SLG) today reported funds from operations available to common stockholders, or FFO, of $57.2 million, or $1.22 per share, for the second quarter ended June 30, 2006, a 19.6% increase over the same quarter in 2005.  The Company also reported FFO of $2.30 per share for the six months ended June 30, 2006, a 14.4% increase over the same period in 2005, which was $2.01 per share.

Net income available to common stockholders totaled $29.1 million, or $0.65 per share for the second quarter and $52.8 million, or $1.19 per share for the six months ended June 30, 2006, a decrease of $27.4 million and $26.6 million over the respective periods in 2005.  2005 results include a  gain on sale of 1414 Avenue of the Americas ($0.79 per share)

All per share amounts are presented on a diluted basis.

 

Operating and Leasing Activity

For the second quarter of 2006, the Company reported revenues and EBITDA of $132.8 million and $76.9 million, respectively, increases of $30.7 million (or 30.1%) and $14.7 million (or 23.7%), respectively, over the same period in 2005, largely due to strong leasing activity at 625 Madison Avenue and 420 Lexington Avenue as well as the acquisitions in 2005 and 2006, including 28 West 44th Street (February 2005), an additional interest in 19 West 44th Street (June 2005) and 521 Fifth Avenue (March 2006).  Same-store GAAP NOI on a combined basis increased by 5.3% for the second quarter when compared to the same quarter in 2005, with the wholly-owned properties increasing 7.9% to $47.0 million during the second quarter and the joint venture properties increasing by 0.5% to $24.1 million.

Average starting office rents of $46.40 per rentable square foot for the second quarter represented a 10.3% increase over the previously fully escalated rents.

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Occupancy for the portfolio increased from 95.2% at March 31, 2006 to 95.9% at June 30, 2006.  During the quarter, the Company signed 60 leases totaling 437,864 square feet, with 57 leases and 427,862 square feet representing office leases.

Significant leasing activities during the second quarter included:

-                    Renewal with Morgan Stanley and Co., Inc. for approximately 46,300 square feet at 1221 Avenue of the Americas.

-                    New lease with Cardinia Real Estate LLC for approximately 54,149 square feet at 485 Lexington Avenue.

-                    New lease with Network Appliance for approximately 36,223 square feet at 100 Park Avenue.

-                    Commencement of lease with Polo Ralph Lauren for approximately 72,500 square feet at 625 Madison Avenue.

Real Estate Investment Activity

During the second quarter of 2006, the Company announced new investments totaling approximately $545.5 million.

Investment activity announced during the second quarter included:

-                    In June 2006, the Company acquired an additional 40% ownership interest in the venture that owns 55 Corporate Drive, N.J., increasing our ownership interest to 50%.  This interest is held as a tenant-in-common interest.  Subsequent to this acquisition, which valued the property at $236.0 million, the property was refinanced.  The mortgage was repaid and replaced by a $190.0 million, ten-year interest-only mortgage with a fixed stated interest rate of 5.75%.  The property is net-leased to a single tenant until 2015.

-                    On June 30, 2006, the Company completed the investment in the previously announced transaction involving 609 Fifth Avenue — a mixed-use property that includes New York City’s American Girl Store and approximately 100,000 square feet of Class A office space — in a transaction that valued the property at approximately $182.0 million. The Company issued approximately 64 million preferred units in SL Green Operating Partnership, L.P., valued at $1.00 per unit, to subsidiaries of 609 Partners, LLC, the partnership that indirectly holds the property, and acquired all of its common partnership interests. The property remains subject to a $102.0 million mortgage loan held by Morgan Stanley Mortgage Capital, Inc. The mortgage has a fixed annual interest rate of 5.85% and will mature in October 2013.

-                    In May 2006, the Company entered into a joint venture with Mack-Cali Realty Corporation.  The joint venture, in which the Company has a 50% ownership interest, acquired interests in seven class A office properties, valued at approximately $127.5 million from entities affiliated with The Gale Company in which entities the Company had a preferred equity investment.  The properties, which encompass approximately 900,000 square feet, are subject to $102.5 million of mortgage loans at an effective interest rate of approximately 7.57%.

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Financing and Capital Activity

In July 2006, the Company sold 2,500,000 shares of its common stock for net proceeds, after deducting underwriting discounts, commissions and transaction expenses, of approximately $269.1 million.  Lehman Brothers acted as sole underwriter for this offering, and was also granted a 30-day option to purchase up to an additional 250,000 shares solely to cover over-allotments.

In April 2006, the Company refinanced the $140.0 million loan on 521 Fifth Avenue with a new $140.0 million five-year loan that bears interest at LIBOR plus 100 basis points. The previous loan bore interest at LIBOR plus 162.5 basis points.

Structured Finance Activity

The Company’s structured finance investments totaled $334.0 million on June 30, 2006, a decrease of $132.2 million over the balance at March 31, 2006. The structured finance investments currently have a weighted average maturity of 7.7 years.  The weighted average yield for the quarter ended June 30, 2006 was 10.31%, consistent with the yield for the quarter ended March 31, 2006.

During the second quarter 2006, the Company originated $44.2 million of structured finance investments with an initial yield of 9.74%. This includes an investment in a New York City commercial office property, which Gramercy elected not to make.  In addition, the Company received redemptions totaling approximately $176.5 million that were yielding 10.97%.

In May 2006, Mack-Cali Realty Corporation acquired The Gale Company’s interests in the New Jersey properties constituting the Bellmeade portfolio, which interests are in substantially all of the entities in which the Company had a preferred equity investment. This transaction, as well as other redemptions during the quarter, resulted in the recognition of approximately $4.9 million ($0.10 per share) of fee and promote income.

Investment In Gramercy Capital Corp.

In May 2006, we purchased 750,000 shares of common stock of Gramercy for approximately $20.1 million in connection with its approximately $80.0 million common stock offering.  At June 30, 2006, the book value of the Company’s investment in Gramercy totaled $116.8 million. Fees earned from various arrangements between the Company and Gramercy totaled approximately $5.4 million for the quarter ended June 30, 2006, including an incentive fee of $1.6 million earned as a result of Gramercy’s FFO exceeding the 9.5% annual return on equity performance threshold.  For the six months ended June 30, 2006, the Company earned $10.2 million in fees from Gramercy.  The Company’s share of FFO generated from its investment in Gramercy totaled approximately $3.7 million and $6.9 million for the three and six months ended June 30, 2006, respectively, compared to $2.2 million and $3.3 million for the same periods in the prior year.

The Company’s marketing, general and administrative, or MG&A, expenses include the consolidation of the expenses of its subsidiary GKK Manager LLC, the entity which manages and advises Gramercy.  For the quarter ended June 30, 2006, the Company’s MG&A includes approximately $2.6 million of costs associated with Gramercy.

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Dividends

During the second quarter of 2006, the Company declared quarterly dividends on its outstanding common and preferred stock as follows:

-                    $0.60 per share of common stock. Dividends were paid on July 14, 2006 to stockholders of record on the close of business on June 30, 2006.

-                    $0.4766 and $0.4922 per share on the Company’s Series C and D Preferred Stock, respectively, for the period April 15, 2006 through and including July 14, 2006. Distributions were made on July 14, 2006 to stockholders of record on the close of business on June 30, 2006. Distributions reflect regular quarterly distributions, which are the equivalent of an annualized distribution of $1.90625 and $1.96875, respectively.

Conference Call and Audio Webcast

The Company’s executive management team, led by Marc Holliday, President and Chief Executive Officer, will host a conference call and audio web cast on Tuesday, July 25, 2006 at 2:00 p.m. ET to discuss second quarter financial results.

The conference call may be accessed by dialing (866) 761-0748 Domestic or (617) 614-2706 International. No pass code is required. The live conference will be simultaneously broadcast in a listen-only mode on the Company’s web site at www.slgreen.com. The Supplemental Package outlining second quarter 2006 financial results will be available prior to the quarterly conference call on the Company’s web site.

A replay of the call will be available through Tuesday, August 1, 2006 by dialing (888) 286-8010 Domestic or (617) 801-6888 International, using pass code 38212898.

Supplemental Information

The Supplemental Package outlining second quarter 2006 financial results will be available prior to the quarterly conference call on the Company’s website.

Company Profile

SL Green Realty Corp. is a self-administered and self-managed real estate investment trust, or REIT, that predominantly acquires, owns, repositions and manages a portfolio of Manhattan office properties. The Company is the only publicly held REIT that specializes exclusively in this niche.  As of June 30, 2006, the Company owned 30 office properties totaling 18.8 million square feet. The Company’s retail space ownership totals 219,300 square feet at seven properties.

To be added to the Company’s distribution list or to obtain the latest news releases and other Company information, please visit our website at www.slgreen.com or contact Investor Relations at 212-216-1601.

Disclaimers

Non-GAAP Financial Measures

During the quarterly conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A reconciliation of each non-GAAP

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 financial measure and the comparable GAAP financial measure (net income) can be found on pages 7 and 9 of this release and in the Company’s Supplemental Package.

Forward-looking Information

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 real estate markets in New York, competitive market conditions, unanticipated administrative costs, timing of leasing income, general and local economic conditions, interest rates, capital market conditions, tenant bankruptcies and defaults, the availability and cost of comprehensive insurance, including coverage for terrorist acts, and other factors, which are beyond the Company’s control. We undertake no obligation to publicly update or revise any of the forward-looking information. For further information, please refer to the Company’s filing with the Securities and Exchange Commission.

 

6

SL GREEN REALTY CORP.
STATEMENTS OF OPERATIONS-UNAUDITED
(Amounts in thousands, except per share data)

		Three Months Ended June 30,						Six Months Ended June 30,
		2006			2005			2006			2005
Revenue:
Rental revenue, net		$	87,746		$	70,974		$	170,671		$	138,397
Escalations & reimbursement revenues		16,258			13,017			31,281			24,079
Preferred equity and investment income		17,305			11,925			30,784			23,071
Other income		11,475			6,140			21,375			12,908
Total revenues		132,784			102,056			254,111			198,455
Equity in net income from unconsolidated joint ventures		10,596			13,334			20,564			25,393
Expenses:
Operating expenses		29,258			22,729			58,738			45,312
Ground rent		4,921			4,825			9,842			9,253
Real estate taxes		19,090			15,111			37,513			28,915
Marketing, general and administrative		13,257			10,594			26,243			18,832
Total expenses		66,526			53,259			132,336			102,312
Earnings Before Interest, Depreciation and Amortization (EBITDA)		76,854			62,131			142,339			121,536
Interest expense		22,901			19,479			41,751			36,674
Amortization of deferred financing costs		1,242			907			1,956			1,700
Depreciation and amortization		17,938			14,430			34,204			28,016
Net income from Continuing Operations		34,773			27,315			64,428			55,146
Income from Discontinued Operations, net of minority interests		1,786			1,561			2,901			3,114
Gain on sale of Discontinued Operations, net of minority interests		—-			33,864			—-			33,846
Minority interests		(2,530		)	(1,301		)	(4,599		)	(2,789		)
Preferred stock dividends		(4,969		)	(4,969		)	(9,938		)	(9,938		)
Net income available to common shareholders		$	29,060		$	56,470		$	52,792		$	79,379
Net income per share (Basic)		$	0.67		$	1.35		$	1.23		$	1.91
Net income per share (Diluted)		$	0.65		$	1.31		$	1.19		$	1.85
Funds From Operations (FFO)
FFO per share (Basic)		$	1.26		$	1.05		$	2.37		$	2.06
FFO per share (Diluted)		$	1.22		$	1.02		$	2.30		$	2.01
FFO Calculation:
Net income from continuing operations		$	34,773		$	27,315		$	64,428		$	55,146
Add:
Depreciation and amortization		17,938			14,430			34,204			28,016
FFO from Discontinued Operations		2,079			2,134			3,773			4,346
FFO adjustment for Joint Ventures		7,613			7,651			15,593			13,733
Less:
Dividend on perpetual preferred stock		(4,969		)	(4,969		)	(9,938		)	(9,938		)
Depreciation of non-real estate assets		(240		)	(189		)	(508		)	(370		)
FFO before minority interests — BASIC and DILUTED		$	57,194		$	46,372		$	107,552		$	90,933
Basic ownership interest
Weighted average REIT common shares for net income per share		43,191			41,790			43,026			41,547
Weighted average partnership units held by minority interests		2,230			2,513			2,270			2,522
Basic weighted average shares and units outstanding for FFO per share		45,421			44,303			45,296			44,069
Diluted ownership interest
Weighted average REIT common share and common share equivalents		44,671			42,992			44,505			42,791
Weighted average partnership units held by minority interests		2,230			2,513			2,270			2,522
Diluted weighted average shares and units outstanding		46,901			45,505			46,775			45,313

 

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SL GREEN REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)

		June 30, 2006			December 31, 2005
		(Unaudited)
Assets
Commercial real estate properties, at cost:
Land and land interests		$	302,821		$	288,239
Buildings and improvements		1,477,106			1,440,584
Building leasehold and improvements		703,843			481,891
Property under capital lease		12,208			12,208
		2,495,978			2,222,922
Less accumulated depreciation		(236,727		)	(219,295		)
		2,259,251			2,003,627
Assets held for sale		170,173			—-
Cash and cash equivalents		14,184			24,104
Restricted cash		61,663			60,750
Tenant and other receivables, net of allowance of $12,682 and $9,681 in 2006 and 2005, respectively		27,115			23,722
Related party receivables		8,330			7,707
Deferred rents receivable, net of allowance of $9,570 and $8,698 in 2006 and 2005, respectively		81,561			75,294
Structured finance investments, net of discount of $3,514 and $1,537 in 2006 and 2005, respectively		333,989			400,076
Investments in unconsolidated joint ventures		571,418			543,189
Deferred costs, net		73,747			79,428
Other assets		90,521			91,880
Total assets		$	3,691,952		$	3,309,777
Liabilities and Stockholders’ Equity
Mortgage notes payable		1,078,999			$	885,252
Revolving credit facility		54,645			32,000
Term loans		525,000			525,000
Derivative instruments at fair value		—-			—-
Accrued interest		7,991			7,711
Accounts payable and accrued expenses		84,977			87,390
Deferred revenue/gain		49,045			25,691
Capitalized lease obligation		16,325			16,260
Deferred land lease payable		16,625			16,312
Dividend and distributions payable		31,725			31,103
Security deposits		30,075			24,556
Liabilities related to assets held for sale		95,379			—-
Junior subordinate deferrable interest debentures held by trusts that issued trust preferred securities		100,000			100,000
Total liabilities		2,090,786			1,751,275
Commitments and contingencies		—			—
Minority interest in other partnerships		37,164			25,012
Minority interest in operating partnership		67,498			74,049
Stockholders’ Equity
7.625% Series C perpetual preferred shares, $0.01 per value, $25.00 liquidation preference, 6,300 issued and outstanding at June 30, 2006 and December 31, 2005, respectively		151,981			151,981
7.875% Series D perpetual preferred shares, $0.01 per value, $25.00 liquidation preference, 4,000 issued and outstanding at June 30, 2006 and December 31, 2005, respectively		96,321			96,321
Common stock, $0.01 par value 100,000 shares authorized, 43,226 and 42,456 issued and outstanding at June 30, 2006 and December 31, 2005, respectively		432			425
Additional paid - in capital		991,241			959,858
Accumulated other comprehensive income		20,009			15,316
Retained earnings		236,520			235,540
Total stockholders’ equity		1,496,504			1,459,441
Total liabilities and stockholders’ equity		$	3,691,952		$	3,309,777

 

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SL GREEN REALTY CORP.
SELECTED OPERATING DATA-UNAUDITED

		June 30,
		2006			2005
Operating Data:(1)
Net rentable area at end of period (in 000’s)		18,780			18,425
Portfolio percentage leased at end of period		95.8		%	95.9		%
Same-Store percentage leased at end of period		96.9		%	96.5		%
Number of properties in operation		30			29
Office square feet leased during quarter (rentable)		427,862			386,134
Average mark-to-market percentage-office		10.3		%	1.7		%
Average starting cash rent per rentable square foot-office		$	46.40		$	43.49

(1)             Includes wholly owned and joint venture properties.

 

SL GREEN REALTY CORP.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES*
(Amounts in thousands, except per share data)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2006			2005			2006			2005
Earnings before interest, depreciation and amortization (EBITDA):		76,854			$	62,131		$	142,339		$	121,536
Add:
Marketing, general & administrative expense		13,257			10,594			26,243			18,832
Operating income from discontinued operations		2,079			2,151			3,773			4,535
Less:
Non-building revenue		(26,484		)	(15,658		)	(45,385		)	(29,881		)
Equity in net income from joint ventures		(10,596		)	(13,334		)	(20,564		)	(25,393		)
GAAP net operating income (GAAP NOI)		55,110			45,884			106,406			89,629
Less:
GAAP NOI from other properties/affiliates		(8,131		)	(2,363		)	(13,628		)	(3,954		)
Same-Store GAAP NOI		$	46,979		$	43,521		$	92,778		$	85,675

*                    See page 7 for a reconciliation of FFO and EBITDA to net income.

 

9

 

EXHIBIT 99.2

SL Green Realty Corp.
Second Quarter 2006
Supplemental Data
June 30, 2006

 

 

 

 

 

 

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SL Green Realty Corp. is a fully integrated, self-administered and self-managed Real Estate Investment Trust, or REIT, that primarily acquires, owns, manages, leases and repositions office properties in emerging, high-growth submarkets of Manhattan.

·                  SL Green’s common stock is listed on the New York Stock Exchange, and trades under the symbol SLG.

·                  SL Green maintains an internet site at www.slgreen.com at which most key investor relations data pertaining to dividend declaration, payout, current and historic share price, etc. can be found.  Such information is not reiterated in this supplemental financial package.  This supplemental financial package is available through the Company’s internet site.

·                  This data is presented to supplement audited and unaudited regulatory filings of the Company and should be read in conjunction with those filings.  The financial data herein is unaudited and is provided from the prospective of timeliness to assist readers of quarterly and annual financial filings.  As such, data otherwise contained in future regulatory filings covering the same period may be restated from the data presented herein.

Questions pertaining to the information contained herein should be referred to Investor Relations at investor.relations@slgreen.com or at 212-216-1601.

This report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, included in this report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), expansion and other development trends of the real estate industry, business strategies, expansion and growth of the Company’s operations and other such matters are forward-looking statements.  These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate.  Such statements are subject to a number of assumptions, risks and uncertainties, general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in laws or regulations and other factors, many of which are beyond the control of the Company.  Any such statements are not guarantees of future performance and actual results or developments may differ materially from those anticipated in the forward-looking statements.

The following discussion related to the consolidated financial statements of the Company should be read in conjunction with the financial statements for the quarter ended June 30, 2006 that will subsequently be released on Form 10-Q to be filed on or before August 9, 2006.

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TABLE OF CONTENTS

 

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CORPORATE PROFILE

 

SL Green Realty Corp. (the “Company”) was formed on August 20, 1997 to continue the commercial real estate business of S.L. Green Properties Inc. founded in 1980 by Stephen L. Green, our current Chairman.  For more than 25 years SL Green has been engaged in the business of owning, managing, leasing, acquiring and repositioning office properties in Manhattan.  The Company’s investment focus is to create value through the acquisition, redevelopment and repositioning of Manhattan office properties and releasing and managing these properties for maximum cash flow.

Looking forward, SL Green Realty Corp. will continue its opportunistic investment philosophy through three established business lines:  investment in long-term core properties, investment in opportunistic assets and structured finance investments.  With the formation of Gramercy Capital Corp., or Gramercy, (NYSE: GKK) in 2004, there will be a reduced focus on direct structured finance investments by the Company.  This three-legged investment strategy will allow SL Green to balance the components of its portfolio to take advantage of each stage in the business cycle.

Today, the Company is the only fully integrated, self-managed, self-administered Real Estate Investment Trust, or REIT, exclusively focused on owning and operating office buildings in Manhattan. SL Green is a pure play for investors to own a piece of New York.

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FINANCIAL RESULTS

Funds From Operations, or FFO, available to common stockholders totaled $57.2 million, or $1.22 per share for the second quarter ended June 30, 2006, a 19.6% increase over the same quarter in 2005 when FFO totaled $46.4 million, or $1.02 per share.

Net income available for common stockholders totaled $29.1 million, or $0.65 per share (diluted) for the second quarter ended June 30, 2006. Net income available to common stockholders totaled $56.5 million, or $1.31 per share in the same quarter in 2005.  2005 results include a gain on sale of 1414 Avenue of the Americas ($0.79 per share)

Funds available for distribution, or FAD, for the second quarter 2006 increased to $0.94 per share (diluted) versus $0.69 per share (diluted) in the prior year, a 36.2% increase.

The Company’s dividend payout ratio was 49.2% of FFO and 63.9% of FAD before second cycle leasing costs.

All per share amounts are presented on a diluted basis.

CONSOLIDATED RESULTS

Total quarterly revenues increased 30.1% in the second quarter to $132.8 million compared to $102.1 million in the prior year.  The $30.7 million growth in revenue resulted primarily from the following items:

·                  $9.2 million increase from 2006 and 2005 acquisitions,

·                  $10.4 million increase from same-store properties, including $0.3 million relating to assets held for sale reflected in discontinued operations,

·                  $6.0 million increase in other revenue, which was primarily due to fees earned from Gramercy ($3.3 million), and

·                  $5.4 million increase in preferred equity and investment income.

The Company’s earnings before interest, taxes, depreciation and amortization, or EBITDA, increased by $14.7 million (23.7%) to $76.9 million.  The following items drove EBITDA improvements:

·                  $6.0 million increase from 2006 and 2005 acquisitions.

·                  $3.4 million increase from same-store properties.

·                  $5.4 million increase in preferred equity and investment income.  The weighted-average structured finance investment balance for the quarter decreased to $409.7 million from $413.6 million in the prior year.  The weighted-average yield for the quarter was 10.3% compared to 10.3% in the prior year.

·                  $2.7 million decrease from reductions in equity in net income from unconsolidated joint ventures primarily due to our investments at 1515 Broadway ($3.2 million), 1250 Broadway ($0.4 million) and 180 Madison Avenue ($0.4 million).  This was partially offset by increases at Gramercy ($1.3 million).

·                  $3.1 million decrease from higher MG&A expense.  This is primarily due to higher compensation costs at GKK

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Manager LLC, which is consolidated into the accounts of SL Green.

·                  $5.7 million increase in non-real estate revenues net of expenses, primarily due to fee income from Gramercy ($3.3 million).

FFO before minority interests improved $10.8 million primarily as a result of:

·                  $14.7 million increase in EBITDA,

·                  $0.1 million decrease in FFO from unconsolidated joint ventures, discontinued operations and non-real estate depreciation, and

·                  $3.8 million decrease from higher interest expense.

SAME-STORE RESULTS

Consolidated Properties

Same-store second quarter 2006 GAAP NOI increased $3.5 million (8.0%) to $47.0 million compared to the prior year.  Operating margins after ground rent increased from 49.05% to 49.57%.

The $3.5 million increase in GAAP NOI was primarily due to:

·                  $4.4 million (5.9%) increase in rental revenue primarily due to improved leasing,

·                  $2.0 million (15.2%) increase in escalation and reimbursement revenue primarily due to operating expense and real estate tax recoveries,

·                  $0.1 million (24.3%) decrease in other income,

·                  $2.2 million (9.9%) increase in operating expenses, primarily driven by increases in payroll, utilities and insurance costs, and

·                  $0.6 million (3.8%) increase in real estate taxes.

Joint Venture Properties

Joint Venture properties second quarter 2006 GAAP NOI increased $0.1 million (0.5%) to $24.1 million compared to the prior year.  Operating margins after ground rent decreased from 58.76% to 55.86%.

The $0.1 million increase in GAAP NOI was primarily due to:

·                  $0.3 million (1.0%) increase in rental revenue primarily due to improved leasing,

·                  $1.8 million (25.8%) increase in escalation and reimbursement revenue primarily due to electric reimbursements and real estate tax and operating expense recoveries,

·                  $0.4 million (6083.3%) increase in other income,

·                  $0.6 million (8.2%) increase in real estate taxes, and

·                  $1.7 million (18.9%) increase in operating expenses primarily driven by increases in utilities and insurance.

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STRUCTURED FINANCE ACTIVITY

As of June 30, 2006, our structured finance and preferred equity investments totaled $334.0 million.  The weighted average balance outstanding for the second quarter of 2006 was $409.7 million.  During the second quarter of 2006 the weighted average yield was 10.31%.

During the second quarter 2006, the Company originated $44.2 million of structured finance investments with an initial yield of 9.74%. This includes an investment in a New York City commercial office property, which Gramercy elected not to make.  In addition, the Company received redemptions totaling approximately $176.5 million that were yielding 10.97%.

In May 2006, Mack-Cali Realty Corporation acquired The Gale Company’s interests in the New Jersey properties constituting the Bellmeade portfolio, which interests are in substantially all of the entities in which the Company had a preferred equity investment. This transaction resulted in the recognition of approximately $4.9 million ($0.10 per share) of fees, promote and other income.

QUARTERLY LEASING HIGHLIGHTS

Vacancy at March 31, 2006 was 892,254 useable square feet net of holdover tenants.  During the quarter, 199,982 additional useable office, retail and storage square feet became available at an average escalated cash rent of $44.27 per rentable square foot.  The Company added 1,841 of available usable square feet in connection with the closing of the 609 Fifth Avenue transaction.  Space available to lease during the quarter totaled 1,094,077 useable square feet, or 5.8% of the total portfolio.

During the second quarter, 57 office leases, including early renewals, were signed totaling 427,862 rentable square feet.  New cash rents averaged $46.40 per rentable square foot.  Replacement rents were 10.3% higher than rents on previously occupied space, which had fully escalated cash rents averaging $42.08 per rentable square foot.  The average lease term was 6.9 years and average tenant concessions were 2.5 months of free rent with a tenant improvement allowance of $24.89 per rentable square foot.

The Company also signed 3 retail and storage leases, including early renewals, for 10,002 rentable square feet.  The average lease term was 10 years and the average tenant concessions were 2.8 months of free rent with a tenant improvement allowance of $9.77 per rentable square foot.

REAL ESTATE ACTIVITY

Real estate investment transactions entered into during the second quarter totaled approximately $545.5 million and included:

-                    In June 2006, the Company acquired an additional 40% ownership interest in the venture that owns 55 Corporate Drive, N.J., increasing our ownership interest to 50%.  This interest is held as a tenant-in-common

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interest.  Subsequent to this acquisition, which valued the property at $236.0 million, the property was refinanced.  The mortgage was repaid and replaced by a $190.0 million, ten-year interest-only mortgage with a fixed stated interest rate of 5.75%.  The property is net-leased to a single tenant until 2015.

-                    On June 30, 2006, the Company completed the investment in the previously announced transaction involving 609 Fifth Avenue — a mixed-use property that includes New York City’s American Girl Store and approximately 100,000 square feet of Class A office space — in a transaction that valued the property at approximately $182.0 million. The Company issued approximately 64 million preferred units in SL Green Operating Partnership, L.P., valued at $1.00 per unit, to subsidiaries of 609 Partners, LLC, the partnership that indirectly holds the property, and acquired all of its common partnership interests. The property remains subject to a $102.0 million mortgage loan held by Morgan Stanley Mortgage Capital, Inc. The mortgage has a fixed annual interest rate of 5.85% and will mature in October 2013.

-                    In May 2006, the Company entered into a joint venture with Mack-Cali Realty Corporation.  The joint venture, in which the Company has a 50% ownership interest, acquired interests in seven class A office properties, valued at approximately $127.5 million from entities affiliated with The Gale Company in which the Company had a preferred equity investment.  The properties, which encompass approximately 900,000 square feet, are subject to $102.5 million of mortgage loans at an effective interest rate of approximately 7.57%.

Investment In Gramercy Capital Corp.

In May 2006, we purchased 750,000 shares of common stock of Gramercy for approximately $20.1 million in connection with its approximately $80.0 million common stock offering.  At June 30, 2006, the book value of the Company’s investment in Gramercy totaled $116.8 million. Fees earned from various arrangements between the Company and Gramercy totaled approximately $5.4 million for the quarter ended June 30, 2006, including an incentive fee of $1.6 million earned as a result of Gramercy’s FFO exceeding the 9.5% annual return on equity performance threshold.  For the six months ended June 30, 2006, the Company earned $10.2 million in fees from Gramercy.  The Company’s share of FFO generated from its investment in Gramercy totaled approximately $3.7 million and $6.9 million for the three and six months ended June 30, 2006, respectively, compared to $2.2 million and $3.3 million for the same periods in the prior year.

The Company’s marketing, general and administrative, or MG&A, expenses include the consolidation of the expenses of its subsidiary GKK Manager LLC, the entity which manages and advises Gramercy.  For the quarter ended June 30, 2006,

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the Company’s MG&A includes approximately $2.6 million of costs associated with Gramercy.

FINANCING/CAPITAL ACTIVITY

In July 2006, the Company sold 2,500,000 shares of its common stock for net proceeds, after deducting underwriting discounts, commissions and transaction expenses, of approximately $269.1 million.  Lehman Brothers acted as sole underwriter for this offering, and was also granted a 30-day option to purchase up to an additional 250,000 shares solely to cover over-allotments.

In April 2006, the Company refinanced the $140.0 million loan on 521 Fifth Avenue with a new $140.0 million five-year loan that bears interest at LIBOR plus 100 basis points. The previous loan bore interest at LIBOR plus 162.5 basis points.

Dividends

On June 14, 2006, the Company declared a dividend of $0.60 per common share for the second quarter 2006.  The dividend was payable July 14, 2006 to stockholders of record on the close of business on June 30, 2006.  This distribution reflects the regular quarterly dividend, which is the equivalent of an annualized distribution of $2.40 per common share.

On June 14, 2006, the Company also approved a distribution on it’s Series C preferred stock for the period April 15, 2006 through and including July 14, 2006, of $0.4766 per share, payable July 14, 2006 to stockholders of record on the close of business on June 30, 2006. The distribution reflects the regular quarterly distribution, which is the equivalent of an annualized distribution of $1.90625 per Series C preferred stock.

On June 14, 2006, the Company also approved a distribution on it’s Series D preferred stock for the period April 15, 2006 through and including July 14, 2006, of $0.4922 per share, payable July 14, 2006 to stockholders of record on the close of business on June 30, 2006. The distribution reflects the regular quarterly distribution, which is the equivalent of an annualized distribution of $1.96875 per Series D preferred stock.

OTHER

Effective July 1, 2006, the consolidated Same-Store Properties will no longer include 286 Madison Avenue, 290 Madison Avenue and 1140 Avenue of the Americas.

 

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SL Green Realty Corp.
Key Financial Data
June 30, 2006
(Dollars in Thousands Except Per Share and Sq. Ft.)

 

		As of or for the three months ended
		6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Earnings Per Share
Net income available to common shareholders - diluted		$	0.65		$	0.54		$	0.48		$	0.87		$	1.31
Funds from operations available to common shareholders - diluted		$	1.22		$	1.08		$	1.02		$	1.13		$	1.02
Funds available for distribution to common shareholders - diluted		$	0.94		$	0.80		$	0.67		$	0.83		$	0.69
Common Share Price & Dividends
At the end of the period		$	109.47		$	101.50		$	76.39		$	68.18		$	64.50
High during period		$	109.47		$	103.09		$	77.14		$	70.10		$	66.05
Low during period		$	95.31		$	77.70		$	63.80		$	64.76		$	55.38
Common dividends per share		$	0.60		$	0.60		$	0.60		$	0.54		$	0.54
FFO Payout Ratio		49.20		%	55.53		%	58.65		%	47.70		%	52.99		%
FAD Payout Ratio		63.91		%	75.40		%	89.03		%	64.78		%	78.57		%
Common Shares & Units
Common shares outstanding		43,226			43,133			42,456			41,942			41,830
Units outstanding		2,219			2,263			2,427			2,502			2,512
Total shares and units outstanding		45,445			45,396			44,883			44,444			44,342
Weighted average common shares and units outstanding - basic		45,421			45,169			44,596			44,426			44,303
Weighted average common shares and units outstanding - diluted		46,901			46,608			45,820			45,674			45,505
Market Capitalization
Market value of common equity		$	4,974,864		$	4,607,694		$	3,428,612		$	3,030,192		$	2,860,059
Liquidation value of preferred equity		257,500			257,500			257,500			257,500			257,500
Consolidated debt		1,853,644			1,693,907			1,542,252			1,626,640			1,493,753
Consolidated market capitalization		$	7,086,008		$	6,559,101		$	5,228,364		$	4,914,332		$	4,611,312
SLG portion JV debt		1,179,332			1,111,160			1,040,265			911,959			928,334
Combined market capitalization		$	8,265,340		$	7,670,261		$	6,268,629		$	5,826,291		$	5,539,646
Consolidated debt to market capitalization		26.16		%	25.83		%	29.50		%	33.10		%	32.39		%
Combined debt to market capitalization		36.70		%	36.57		%	41.20		%	43.57		%	43.72		%
Consolidated debt service coverage		3.63			3.55			3.53			3.70			3.54
Consolidated fixed charge coverage		2.59			2.45			2.39			2.55			2.40
Combined fixed charge coverage		2.03			1.95			1.93			2.07			2.03
Portfolio Statistics
Directly owned office buildings		23			22			21			21			21
Joint venture office buildings		7			7			7			7			8
		30			29			28			28			29
Directly owned square footage		9,965,000			9,805,000			9,345,000			9,345,000			9,345,000
Joint venture square footage		8,814,900			8,814,900			8,814,900			8,814,900			9,079,900
		18,779,900			18,619,900			18,159,900			18,159,900			18,424,900
Quarter end occupancy-portfolio		95.9		%	95.2		%	96.7		%	96.0		%	95.9		%
Quarter end occupancy- same store - wholly owned		96.8		%	96.1		%	96.0		%	94.9		%	95.3		%
Quarter end occupancy- same store - combined (wholly owned + joint venture)		96.9		%	96.3		%	96.5		%	96.0		%	96.5		%

 

Supplemental Package Information

Second Quarter 2006

 

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		As of or for the three months ended
		6/30/2006			3/31/2006			12/31/05			9/30/2005			6/30/2005
Selected Balance Sheet Data
Real estate assets before depreciation		$	2,634,724		$	2,343,714		$	2,222,922		$	2,183,267		$	2,049,820
Investments in unconsolidated joint ventures		$	571,418		$	533,145		$	543,189		$	659,860		$	638,336
Structured finance investments		$	333,989		$	466,173		$	400,076		$	400,049		$	396,862
Total Assets		$	3,691,952		$	3,482,532		$	3,309,777		$	3,352,330		$	3,154,845
Fixed rate & hedged debt		$	1,419,065		$	1,254,116		$	1,255,141		$	1,256,095		$	1,256,978
Variable rate debt		339,579			439,791			287,111			370,545			236,775
Total consolidated debt		$	1,758,644		$	1,693,907		$	1,542,252		$	1,626,640		$	1,493,753
Total Liabilities		$	2,090,786		$	1,893,838		$	1,751,275		$	1,821,699		$	1,668,824
Fixed rate & hedged debt-including SLG portion of JV debt		$	1,958,896		$	1,768,857		$	1,741,225		$	1,732,776		$	1,756,389
Variable rate debt - including SLG portion of JV debt		979,080			1,036,210			841,292			805,823			665,698
Total combined debt		$	2,937,976		$	2,805,067		$	2,582,517		$	2,538,599		$	2,422,087
Selected Operating Data
Property operating revenues		$	104,004		$	97,948		$	90,531		$	88,049		$	83,991
Property operating expenses		53,269			52,824			46,583			46,686			42,665
Property operating NOI		$	50,735		$	45,124		$	43,948		$	41,363		$	41,326
NOI from discontinued operations		2,079			1,694			2,601			2,055			2,151
Total property operating NOI		$	52,814		$	46,818		$	46,549		$	43,418		$	43,477
SLG share of Property NOI from JVs		$	33,834		$	32,130		$	31,595		$	32,770		$	29,813
SLG share of FFO from Gramercy Capital		$	3,694		$	3,168		$	3,205		$	2,610		$	2,164
Structured finance income		$	17,305		$	13,479		$	11,266		$	10,652		$	11,925
Other income		$	11,475		$	9,900		$	8,337		$	16,897		$	6,140
Marketing general & administrative expenses		$	13,257		$	12,986		$	11,965		$	13,418		$	10,594
Consolidated interest		$	22,901		$	18,850		$	20,100		$	20,580		$	19,479
Combined interest		$	40,088		$	34,428		$	34,642		$	33,487		$	29,930
Preferred Dividend		$	4,969		$	4,969		$	4,969		$	4,969		$	4,969
Office Leasing Statistics
Total office leases signed		57			65			55			58			71
Total office square footage leased		427,862			539,399			963,087			341,458			386,134
Average rent psf		$	46.40		$	37.74		$	46.89		$	43.79		$	43.49
Escalated rents psf		$	42.08		$	32.33		$	38.99		$	41.68		$	42.75
Percentage of rent over escalated		10.3		%	16.7		%	20.3		%	5.1		%	1.7		%
Tenant concession packages psf		$	24.89		$	12.91		$	39.57		$	30.74		$	14.65
Free rent months		2.5			2.1			6.2			2.7			2.3

 

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