UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 1-13199
SL GREEN REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland |
|
13-3956775 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
420 Lexington Avenue, New York, New York 10170
(Address of principal executive offices) (Zip Code)
(212) 594-2700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý |
Accelerated filer ¨ |
Non-accelerated filer ¨ |
Smaller Reporting Company ¨ |
|
|
|
|
|
(Do not check if a smaller reporting company) |
The number of shares outstanding of the registrants common stock, $0.01 par value, was 58,370,427 as of April 30, 2008.
SL GREEN REALTY CORP.
INDEX
2
PART I. |
|
ITEM 1. |
SL Green Realty Corp.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
|
|
March 31, |
|
|
December 31, |
|
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Commercial real estate properties, at cost: |
|
|
|
|
|
|
|
Land and land interests |
|
$ |
1,454,060 |
|
$ |
1,436,569 |
|
Building and improvements |
|
5,994,846 |
|
|
5,924,626 |
|
|
Building leasehold and improvements |
|
1,249,121 |
|
|
1,249,093 |
|
|
Property under capital lease |
|
12,208 |
|
|
12,208 |
|
|
|
|
8,710,235 |
|
|
8,622,496 |
|
|
Less: accumulated depreciation |
|
(432,567 |
) |
|
(381,510 |
) |
|
|
|
8,277,668 |
|
|
8,240,986 |
|
|
Assets held for sale |
|
|
|
|
41,568 |
|
|
Cash and cash equivalents |
|
46,793 |
|
|
45,964 |
|
|
Restricted cash |
|
144,127 |
|
|
105,475 |
|
|
Tenant and other receivables, net of allowance of $14,088 and $13,932 in 2008 and 2007, respectively |
|
45,594 |
|
|
49,015 |
|
|
Related party receivables |
|
12,448 |
|
|
13,082 |
|
|
Deferred rents receivable, net of allowance of $12,863 and $13,400 in 2008 and 2007, respectively |
|
150,087 |
|
|
136,595 |
|
|
Structured finance investments, net of discount of $28,716 and $30,783 in 2008 and 2007, respectively |
|
776,488 |
|
|
805,215 |
|
|
Investments in unconsolidated joint ventures |
|
1,431,162 |
|
|
1,438,123 |
|
|
Deferred costs, net |
|
137,079 |
|
|
134,354 |
|
|
Other assets |
|
427,588 |
|
|
419,701 |
|
|
Total assets |
|
$ |
11,449,034 |
|
$ |
11,430,078 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
2,867,593 |
|
$ |
2,844,644 |
|
Revolving credit facility |
|
720,500 |
|
|
708,500 |
|
|
Term loan and unsecured notes |
|
2,070,127 |
|
|
2,069,938 |
|
|
Accrued interest payable and other liabilities |
|
39,695 |
|
|
45,194 |
|
|
Accounts payable and accrued expenses |
|
135,083 |
|
|
180,898 |
|
|
Deferred revenue/gain |
|
808,262 |
|
|
819,022 |
|
|
Capitalized lease obligation |
|
16,581 |
|
|
16,542 |
|
|
Deferred land leases payable |
|
17,378 |
|
|
16,960 |
|
|
Dividend and distributions payable |
|
51,823 |
|
|
52,077 |
|
|
Security deposits |
|
34,067 |
|
|
35,021 |
|
|
Junior subordinate deferrable interest debentures held by trusts that issued trust preferred securities |
|
100,000 |
|
|
100,000 |
|
|
Total liabilities |
|
6,861,109 |
|
|
6,888,796 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in operating partnership |
|
85,201 |
|
|
82,007 |
|
|
Minority interests in other partnerships |
|
636,966 |
|
|
632,400 |
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
Series C preferred stock, $0.01 par value, $25.00 liquidation preference, 6,300 issued and outstanding at March 31, 2008 and December 31, 2007, respectively |
|
151,981 |
|
|
151,981 |
|
|
Series D preferred stock, $0.01 par value, $25.00 liquidation preference, 4,000 issued and outstanding at March 31, 2008 and December 31, 2007, respectively |
|
96,321 |
|
|
96,321 |
|
|
Common stock, $0.01 par value 160,000 shares authorized and 60,191 and 60,071 issued and outstanding at March 31, 2008 and December 31, 2007, respectively (including 1,907 and 1,312 treasury shares at March 31, 2008 and December 31, 2007, respectively) |
|
602 |
|
|
601 |
|
|
Additional paid-in-capital |
|
2,943,610 |
|
|
2,931,887 |
|
|
Treasury stock at cost |
|
(200,630 |
) |
|
(150,719 |
) |
|
Accumulated other comprehensive income |
|
2,143 |
|
|
4,943 |
|
|
Retained earnings |
|
871,731 |
|
|
791,861 |
|
|
Total stockholders equity |
|
3,865,758 |
|
|
3,826,875 |
|
|
Total liabilities and stockholders equity |
|
$ |
11,449,034 |
|
$ |
11,430,078 |
|
The accompanying notes are an integral part of these financial statements.
3
SL Green Realty Corp.
Condensed Consolidated Statements of Income
(Unaudited, and amounts in thousands, except per share data)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
Revenues |
|
|
|
|
|
||
Rental revenue, net |
$ |
|
201,395 |
$ |
|
147,136 |
|
Escalation and reimbursement |
|
31,124 |
|
27,195 |
|
||
Preferred equity and investment income |
|
21,306 |
|
21,709 |
|
||
Other income |
|
18,442 |
|
89,878 |
|
||
Total revenues |
|
272,267 |
|
285,918 |
|
||
Expenses |
|
|
|
|
|
||
Operating expenses (including approximately $3,571 (2008) and $3,017 (2007) paid to affiliates) |
|
54,050 |
|
46,464 |
|
||
Real estate taxes |
|
33,828 |
|
29,613 |
|
||
Ground rent |
|
8,249 |
|
7,265 |
|
||
Interest |
|
78,518 |
|
57,591 |
|
||
Amortization of deferred financing costs |
|
2,046 |
|
3,301 |
|
||
Depreciation and amortization |
|
55,448 |
|
36,060 |
|
||
Marketing, general and administrative |
|
27,982 |
|
34,247 |
|
||
Total expenses |
|
260,121 |
|
214,541 |
|
||
Income from continuing operations before equity in net income of unconsolidated joint ventures, minority interest and discontinued operations |
|
12,146 |
|
71,377 |
|
||
Equity in net income from unconsolidated joint ventures |
|
19,425 |
|
9,354 |
|
||
Income from continuing operations before gain on sale, minority interest and discontinued operations |
|
31,571 |
|
80,731 |
|
||
Equity in net gain on sale of interest in unconsolidated joint ventures/ real estate |
|
|
|
78,738 |
|
||
Minority interest in other partnerships |
|
(5,979 |
) |
(3,922) |
|
||
Minority interest in operating partnership attributable to continuing operations |
|
(794 |
) |
(6,732) |
|
||
Income from continuing operations |
|
24,798 |
|
148,815 |
|
||
Net income from discontinued operations, net of minority interest |
|
70 |
|
3,581 |
|
||
Gain on sale of discontinued operations, net of minority interest |
|
105,992 |
|
|
|
||
Net income |
|
130,860 |
|
152,396 |
|
||
Preferred stock dividends |
|
(4,969 |
) |
(4,969) |
|
||
Net income available to common stockholders |
$ |
|
125,891 |
$ |
|
147,427 |
|
|
|
|
|
|
|
||
Basic earnings per share: |
|
|
|
|
|
||
Net income from continuing operations before gain on sale and discontinued operations |
$ |
|
0.34 |
$ |
|
1.19 |
|
Net income from discontinued operations, net of minority interest |
|
|
|
0.06 |
|
||
Gain on sale of discontinued operations, net of minority interest |
|
1.81 |
|
|
|
||
Gain on sale of unconsolidated joint ventures/ real estate |
|
|
|
1.35 |
|
||
Net income available to common stockholders |
$ |
|
2.15 |
$ |
|
2.60 |
|
|
|
|
|
|
|
||
Diluted earnings per share: |
|
|
|
|
|
||
Net income from continuing operations before gain on sale and discontinued operations |
$ |
|
0.34 |
$ |
|
1.18 |
|
Net income from discontinued operations, net of minority interest |
|
|
|
0.06 |
|
||
Gain on sale of discontinued operations, net of minority interest |
|
1.80 |
|
|
|
||
Gain on sale of unconsolidated joint ventures/ real estate |
|
|
|
1.29 |
|
||
Net income available to common stockholders |
$ |
|
2.14 |
$ |
|
2.53 |
|
|
|
|
|
|
|
||
Dividends per share |
$ |
|
0.7875 |
$ |
|
0.70 |
|
Basic weighted average common shares outstanding |
|
58,482 |
|
56,649 |
|
||
Diluted weighted average common shares and common share equivalents outstanding |
|
61,221 |
|
60,930 |
|
The accompanying notes are an integral part of these financial statements.
4
SL Green Realty Corp.
Condensed Consolidated Statement of Stockholders Equity
(Unaudited, and amounts in thousands, except per share data)
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Series C |
|
Series D |
|
Shares |
|
|
Par |
|
Additional |
|
Treasury |
|
|
Accumulated |
|
Retained |
|
Total |
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
$ |
151,981 |
$ |
96,321 |
|
58,759 |
$ |
601 |
$ |
2,931,887 |
$ |
(150,719) |
|
$ |
4,943 |
$ |
791,861 |
$ |
3,826,875 |
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,860 |
|
130,860 |
$ |
130,860 |
|
|
Net unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,800) |
|
|
|
(2,800) |
|
(2,800) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SL Greens share of joint venture net unrealized loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,384) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,969) |
|
(4,969) |
|
|
|
|
Redemption of units and DRIP proceeds |
|
|
|
|
|
1 |
|
|
|
80 |
|
|
|
|
|
|
|
|
80 |
|
|
|
|
Deferred compensation plan & stock award, net |
|
|
|
|
|
104 |
|
1 |
|
340 |
|
|
|
|
|
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation plan |
|
|
|
|
|
|
|
|
|
10,786 |
|
|
|
|
|
|
|
|
10,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised |
|
|
|
|
|
14 |
|
|
|
517 |
|
|
|
|
|
|
|
|
517 |
|
|
|
|
Treasury stock-at cost |
|
|
|
|
|
(594) |
|
|
|
|
|
(49,911) |
|
|
|
|
|
|
(49,911) |
|
|
|
|
Cash distribution declared ($0.78785 per common share of which none represented a return of capital for federal income tax purposes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,021) |
|
(46,021) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
$ |
151,981 |
$ |
96,321 |
|
58,284 |
$ |
602 |
$ |
2,943,610 |
$ |
(200,630) |
|
$ |
2,143 |
$ |
871,731 |
$ |
3,865,758 |
$ |
122,676 |
|
|
The accompanying notes are an integral part of these financial statements.
5
SL Green Realty Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited, and amounts in thousands, except per share data)
|
|
Three Months |
|
|||
|
|
Ended March 31, |
|
|||
|
|
|
2008 |
|
2007 |
|
Operating Activities |
|
|
|
|
|
|
Net income |
$ |
|
130,860 |
$ |
152,396 |
|
Adjustment to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
57,494 |
|
42,011 |
|
Gain on sale of discontinued operations |
|
|
(110,232 |
) |
|
|
Equity in net income from unconsolidated joint ventures |
|
|
(19,425 |
) |
(9,354 |
) |
Equity in net gain on sale of unconsolidated joint ventures |
|
|
|
|
(78,738 |
) |
Distributions of cumulative earnings from unconsolidated joint ventures/ real estate |
|
|
26,410 |
|
9,995 |
|
Minority interests |
|
|
11,016 |
|
10,823 |
|
Deferred rents receivable |
|
|
(12,955 |
) |
(8,156 |
) |
Other non-cash adjustments |
|
|
1,448 |
|
12,595 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Restricted cash operations |
|
|
5,676 |
|
(19,469 |
) |
Tenant and other receivables |
|
|
3,265 |
|
(19,592 |
) |
Related party receivables |
|
|
634 |
|
(7,743 |
) |
Deferred lease costs |
|
|
(6,221 |
) |
(3,884 |
) |
Other assets |
|
|
(21,604 |
) |
(12,237 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(51,668 |
) |
66,082 |
|
Deferred revenue and land lease payable |
|
|
5,679 |
|
518 |
|
Net cash provided by operating activities |
|
|
20,377 |
|
135,247 |
|
Investing Activities |
|
|
|
|
|
|
Acquisitions of real estate property |
|
|
(32,351 |
) |
(3,700,692 |
) |
Proceeds from Asset Sale |
|
|
|
|
1,964,914 |
|
Additions to land, buildings and improvements |
|
|
(24,250 |
) |
(24,251 |
) |
Escrowed cash capital improvements/acquisition deposits |
|
|
(44,328 |
) |
143,518 |
|
Investments in unconsolidated joint ventures |
|
|
(11,662 |
) |
(77,570 |
) |
Distributions in excess of cumulative earnings from unconsolidated joint ventures |
|
|
12,741 |
|
43,150 |
|
Net proceeds from disposition of real estate/ partial interest in property |
|
|
152,933 |
|
58,421 |
|
Other investments |
|
|
(14,956 |
) |
(71,265 |
) |
Structured finance and other investments net of repayments/participations |
|
|
3,765 |
|
(243,015 |
) |
Net cash provided by (used in) investing activities |
|
|
41,892 |
|
(1,906,790 |
) |
Financing Activities |
|
|
|
|
|
|
Proceeds from mortgage notes payable |
|
|
30,061 |
|
788,870 |
|
Repayments of mortgage notes payable |
|
|
(7,113 |
) |
(15,952 |
) |
Proceeds from revolving credit facility, term loan and unsecured notes |
|
|
212,000 |
|
1,619,006 |
|
Repayments of revolving credit facility and term loan |
|
|
(200,000 |
) |
(708,000 |
) |
Proceeds from stock options exercised |
|
|
598 |
|
8,724 |
|
Purchases of Treasury Stock |
|
|
(49,911 |
) |
|
|
Minority interest in other partnerships |
|
|
5,141 |
|
522,798 |
|
Dividends and distributions paid |
|
|
(50,990 |
) |
(39,676 |
) |
Deferred loan costs and capitalized lease obligation |
|
|
(1,226 |
) |
(21,677 |
) |
Net cash (used in) provided by financing activities |
|
|
(61,440 |
) |
2,154,093 |
|
Net increase in cash and cash equivalents |
|
|
829 |
|
382,550 |
|
Cash and cash equivalents at beginning of period |
|
|
45,964 |
|
117,178 |
|
Cash and cash equivalents at end of period |
$ |
|
46,793 |
$ |
499,728 |
|
The accompanying notes are an integral part of these financial statements.
6
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
1. Organization and Basis of Presentation
SL Green Realty Corp., also referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., or the operating partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The operating partnership received a contribution of interest in the real estate properties, as well as 95% of the economic interest in the management, leasing and construction companies which are referred to as the Service Corporation. The Company has qualified, and expects to qualify in the current fiscal year, as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, and operates as a self-administered, self-managed REIT. A REIT is a legal entity that holds real estate interests and, through payments of dividends to stockholders, is permitted to reduce or avoid the payment of Federal income taxes at the corporate level. Unless the context requires otherwise, all references to we, our and us means the Company and all entities owned or controlled by the Company, including the operating partnership.
Substantially all of our assets are held by, and our operations are conducted through, the operating partnership. The Company is the sole managing general partner of the operating partnership. As of March 31, 2008, minority investors held, in the aggregate, a 3.86% limited partnership interest in the operating partnership.
On January 25, 2007, we completed the acquisition, or the Reckson Merger, of all of the outstanding shares of common stock of Reckson Associates Realty Corp., or Reckson, pursuant to the terms of the Agreement and Plan of Merger, dated as of August 3, 2006, as amended, the Merger Agreement, among SL Green, Wyoming Acquisition Corp., or Wyoming, Wyoming Acquisition GP LLC, Wyoming Acquisition Partnership LP, Reckson and Reckson Operating Partnership, L.P., or ROP. Pursuant to the terms of the Merger Agreement, each of the issued and outstanding shares of common stock of Reckson were converted into (i) $31.68 in cash, (ii) 0.10387 of a share of the common stock, par value $0.01 per share, of SL Green and (iii) a prorated dividend in an amount equal to approximately $0.0977 in cash. We also assumed an aggregate of approximately $226.3 million of Reckson mortgage debt, approximately $287.5 million of Reckson convertible public debt and approximately $967.8 million of Reckson public unsecured notes. ROP is a subsidiary of our operating partnership.
On January 25, 2007, we completed the sale, or Asset Sale, of certain assets of ROP to an asset purchasing venture led by certain of Recksons former executive management, or the Buyer, for a total consideration of approximately $2.0 billion. SL Green caused ROP to transfer the following assets to the Buyer in the Asset Sale: (1) certain real property assets and/or entities owning such real property assets, in either case, of ROP and 100% of certain loans secured by real property, all of which are located in Long Island, New York; (2) certain real property assets and/or entities owning such real property assets, in either case, of ROP located in White Plains and Harrison, New York; (3) all of the real property assets and/or entities owning 100% of the interests in such real property assets, in either case, of ROP located in New Jersey; (4) the entity owning a 25% interest in Reckson Australia Operating Company LLC, Recksons Australian management company (including its Australian licensed responsible entity), and other related entities, and ROP and ROP subsidiaries rights to and interests in, all related contracts and assets, including, without limitation, property management and leasing, construction services and asset management contracts and services contracts; (5) the direct or indirect interest of Reckson in Reckson Asset Partners, LLC, an affiliate of RSVP and all of ROPs rights in and to certain loans made by ROP to Frontline Capital Group, the bankrupt parent of RSVP, and other related entities, which were purchased by a 50/50 joint venture comprised of the buyer and an affiliate of SL Green; (6) a 50% participation interest in certain loans made by a subsidiary of ROP that are secured by four real property assets located in Long Island, New York; and (7) 100% of certain loans secured by real property located in White Plains and New Rochelle, New York.
As of March 31, 2008, we owned the following interests in commercial office properties in the New York Metro area, primarily in midtown Manhattan, a borough of New York City, or Manhattan. Our investments in the New York Metro area also include investments in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban assets:
Location |
|
Ownership |
|
Number of |
|
Square Feet |
|
Weighted Average |
|
Manhattan |
|
Consolidated properties |
|
22 |
|
14,290,200 |
|
97.4% |
|
|
|
Unconsolidated properties |
|
9 |
|
10,099,000 |
|
94.8% |
|
|
|
|
|
|
|
|
|
|
|
Suburban |
|
Consolidated properties |
|
30 |
|
4,925,800 |
|
90.3% |
|
|
|
Unconsolidated properties |
|
6 |
|
2,941,700 |
|
94.6% |
|
|
|
|
|
67 |
|
32,256,700 |
|
95.1% |
|
|
(1) |
The weighted average occupancy represents the total leased square feet divided by total available rentable square feet. |
7
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
We also own investments in nine retail properties encompassing approximately 400,212 square feet, one development property encompassing approximately 85,000 square feet and two land interests. In addition, we manage three office properties owned by third parties and affiliated companies encompassing approximately 1.0 million rentable square feet.
As of March 31, 2008, we also owned approximately 22% of the outstanding common stock of Gramercy Capital Corp. (NYSE: GKK), or Gramercy, as well as 65.83 units, or 65.83%, of the Class B limited partner interest in Gramercys operating partnership. See Note 6.
Partnership Agreement
In accordance with the partnership agreement of the operating partnership, or the operating partnership agreement, we allocate all distributions and profits and losses in proportion to the percentage ownership interests of the respective partners. As the managing general partner of the operating partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the operating partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to avoid any Federal income or excise tax at the Company level. Under the operating partnership agreement each limited partner will have the right to redeem units of limited partnership interest for cash, or if we so elect, shares of our common stock on a one-for-one basis. In addition, we are prohibited from selling 673 First Avenue before August 2009, under certain circumstances.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The 2008 operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. These financial statements should be read in conjunction with the financial statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2007.
The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us or entities which are variable interest entities in which we are the primary beneficiary under the Financial Accounting Standards Board, or FASB, Interpretation No. 46R, or FIN 46R, Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51. See Note 5, Note 6 and Note 7. Entities which we do not control and entities which are variable interest entities, but where we are not the primary beneficiary are accounted for under the equity method. We consolidate variable interest entities in which we are determined to be the primary beneficiary. The interest that we do not own is included in Minority Interests in Other Partnerships on the balance sheet. All significant intercompany balances and transactions have been eliminated.
In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, or EITF 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, which provides guidance in determining whether a general partner controls a limited partnership. EITF 04-5 states that the general partner in a limited partnership is presumed to control that limited partnership. The presumption may be overcome if the limited partners have either (1) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (2) substantive participating rights, which provide the limited partners with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnerships business and thereby preclude the general partner from exercising unilateral control over the partnership.
We consolidate our investment in 919 Third Avenue as we own a 51% controlling interest.
If we retain an interest in the buyer and provide certain guarantees we account for such transaction as a profit-sharing arrangement. For transactions treated as profit-sharing arrangements, we record a profit-sharing obligation for the amount of equity contributed by the other partner and continue to keep the property and related accounts recorded on our books. Any debt assumed by the buyer would continue to be recorded on our books. The results of operations of the property, net of expenses other than depreciation (net operating
8
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
income), are allocated to the other partner for its percentage interest and reflected as co-venture expense in our consolidated financial statements. In future periods, a sale is recorded and profit is recognized when the remaining maximum exposure to loss is reduced below the amount of gain deferred.
Investment in Commercial Real Estate Properties
In accordance with SFAS No. 141, Business Combinations, we allocate the purchase price of real estate to land and building and, if determined to be material, intangibles, such as the value of above-, below- and at-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building and other intangible assets over their estimated useful lives, which generally range from three to 40 years and from one to 14 years, respectively. The values of the above- and below-market leases are amortized and recorded as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income over the remaining term of the associated lease, which range from one to 14 years. The value associated with in-place leases are amortized over the expected term of the associated lease, which includes an estimated probability of the lease renewal, and its estimated term, which range from one to 14 years. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.
As a result of our evaluations, under SFAS No. 141, of acquisitions made, we recognized an increase of approximately $5.8 million and $0.6 million in rental revenue for the three months ended March 31, 2008 and 2007, respectively, for the amortization of aggregate below-market rents in excess of above-market leases and a reduction in lease origination costs, resulting from the allocation of the purchase price of the applicable properties. We recognized a reduction in interest expense for the amortization of the above-market rate mortgage of approximately $1.7 million and $1.1 million for the three months ended March 31, 2008 and 2007, respectively.
The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases). Amounts in thousands:
|
|
March 31, |
|
|
December 31, |
|
Identified intangible assets (included in other assets): |
|
|
|
|
|
|
Gross amount |
$ |
236,594 |
|
$ |
236,594 |
|
Accumulated amortization |
|
(20,230 |
) |
|
(9,970) |
|
Net |
$ |
216,364 |
|
$ |
226,624 |
|
|
|
|
|
|
|
|
Identified intangible liabilities (included in deferred revenue): |
|
|
|
|
|
|
Gross amount |
$ |
480,770 |
|
$ |
480,770 |
|
Accumulated amortization |
|
(36,292 |
) |
|
(20,271) |
|
Net |
$ |
444,478 |
|
$ |
460,499 |
|
Income Taxes
We are taxed as a REIT under Section 856(c) of the Code. As a REIT, we generally are not subject to Federal income tax. To maintain our qualification as a REIT, we must distribute at least 90% of our REIT taxable income to our stockholders and meet certain other requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income tax on our taxable income at regular corporate rates. We may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on our undistributed taxable income.
Pursuant to amendments to the Code that became effective January 1, 2001, we have elected, and may in the future, elect to treat certain of our existing or newly created corporate subsidiaries as taxable REIT subsidiaries, or a TRS. In general, a TRS of ours may perform non-customary services for our tenants, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business. Our TRSs generate income, resulting in Federal income tax liability for these entities. Our TRSs recorded approximately $1.2 million and $0.9 million in Federal, state and local tax expense during the three months ended March 2008 and 2007, respectively, of which $0.4 million and $0.6 million, respectively, had been paid.
9
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. The adoption of FIN 48 on January 1, 2007 had no impact on our consolidated financial statements.
Stock-Based Employee Compensation Plans
We have a stock-based employee compensation plan, described more fully in Note 13. We account for this plan under SFAS No. 123-R Shared Based Payment, revised, or SFAS No. 123-R. We adopted SFAS No. 123, Accounting from Stock-Based Compensation on January 1, 2003, prior to which we applied Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to Employees.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our plan has characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.
Compensation cost for stock options, if any, is recognized ratably over the vesting period of the award. Our policy is to grant options with an exercise price equal to the quoted closing market price of our stock on the grant date. Awards of stock or restricted stock are expensed as compensation on a current basis over the benefit period.
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants during the three months ended March 31, 2008 and 2007.
|
|
2008 |
|
2007 |
|
Dividend yield |
|
3.37% |
|
2.1% |
|
Expected life of option |
|
5 years |
|
5 years |
|
Risk-free interest rate |
|
4.04% |
|
4.61% |
|
Expected stock price volatility |
|
22.31% |
|
21.48% |
|
Earnings Per Share
We present both basic and diluted earnings per share, or EPS. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount. This also includes units of limited partnership interest.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, structured finance investments and accounts receivable. We place our cash investments in excess of insured amounts with high quality financial institutions. The collateral securing our structured finance investments is primarily located in the New York Metro area. (See Note 5). We perform ongoing credit evaluations of our tenants and require certain tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the total value of a tenants lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost rent and the costs associated with re-tenanting the space. Although the properties in our real estate portfolio are primarily located in Manhattan, we also have properties located in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey. The tenants located in our buildings operate in various industries. Other than one tenant who accounts for approximately 9.6% of our annualized rent, no other tenant in
10
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
our portfolio accounts for more than 5.9% of our annualized rent, including our share of joint venture annualized rent, at March 31, 2008. Approximately 7%, 7%, 6%, 6%, 6% and 6% of our annualized rent, including our share of joint venture annualized rent, was attributable to 1221 Avenue of the Americas, 1515 Broadway, 420 Lexington Avenue, 1185 Avenue of the Americas, One Madison Avenue and 388-390 Greenwich Street, respectively, for the quarter ended March 31, 2008. One borrower accounted for more than 10.0% of the revenue earned on structured finance investments during the three months ended March 31, 2008.
Reclassification
Certain prior year balances have been reclassified to conform with the current year presentation in order to comply with SFAS No. 144 for discontinued operations presentation.
New Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. The adoption of this standard on January 1, 2008 did not have a material effect on our consolidated financial statements. In February 2008, the FASB delayed the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities to fiscal year beginning after November 15, 2008.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 allows entities to voluntarily choose, at specified election dates, to measure many financial assets (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value (the fair value option). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, the statement specifies that all subsequent changes in fair value for that instrument shall be reported in earnings (or another performance indicator for entities such as not-for profit organizations that do not report earnings). Upon initial adoption, SFAS No. 159 provides entities with a one-time chance to elect the fair value option for existing eligible items. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. We did not make the election to measure financial assets at fair value and therefore, adoption of this standard did not have an effect on the financial statements.
In March 2008, the FASB issued SFAS No. 161, or SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires entities to provide greater transparency about (a) how and why and entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, results of operations, and cash flows. SFAS No. 161 is effective on January 1, 2009. We do not expect this statement to have a material impact on our financial statements.
3. Property Acquisitions
In February 2008, we, through our joint venture with Jeff Sutton, acquired the properties located at 182 Broadway and 63 Nassau Street for approximately $30.0 million in the aggregate. These properties are located adjacent to 180 Broadway which we acquired in August 2007. As part of the acquisition we also closed on a $31.0 million loan which bears interest at 225 basis points over the 30-day LIBOR. The loan has a three-year term and two one-year extensions. We drew down $21.1 million at the closing to pay the balance of the acquisition costs.
11
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
Pro Forma
The following table (in thousands, except per share amounts) summarizes, on an unaudited pro forma basis, our combined results of operations for the three months ended March 31, 2007 as though the Reckson Merger and the acquisition of the 45% interest in One Madison Avenue were completed on January 1, 2007. The supplemental pro forma operating data is not necessarily indicative of what the actual results of operations would have been assuming the transactions had been completed as set forth above, nor do they purport to represent our results of operations for future periods.
|
|
|
|
2007 |
|
Pro forma revenues |
|
|
$ |
334,308 |
|
Pro forma net income |
|
|
$ |
142,050 |
|
Pro forma earnings per common share-basic |
|
|
$ |
2.40 |
|
Pro forma earnings per common share and common share equivalents-diluted |
|
|
$ |
2.34 |
|
Pro forma common shares-basic |
|
|
|
59,067 |
|
Pro forma common share and common share equivalents-diluted |
|
|
|
63,347 |
|
4. Property Dispositions and Assets Held for Sale
In January 2008, we sold the fee interest in 440 Ninth Avenue for approximately $160.0 million, excluding closing costs. The property is approximately 339,000 square feet. We recognized a gain on sale of approximately $106.0 million.
At March 31, 2008, discontinued operations included the results of operations of real estate assets sold prior to that date. This included 110 East 42nd Street, which was sold in June 2007, 292 Madison Avenue, which was sold in August 2007, 470 Park Avenue South, which was sold in November 2007 and 440 Ninth Avenue, which was sold in January 2008.
The following table summarizes income from discontinued operations (net of minority interest) and the related realized gain on sale of discontinued operations (net of minority interest) for the three months ended March 31, 2008 and 2007 (in thousands).
|
|
|
Three Months Ended |
|
|||
|
|
|
March 31, |
|
|||
|
|
|
2008 |
|
|
2007 |
|
Revenues |
|
|
|
|
|
|
|
Rental revenue |
|
$ |
796 |
|
$ |
12,257 |
|
Escalation and reimbursement revenues |
|
|
(249 |
) |
|
2,499 |
|
Other income |
|
|
1 |
|
|
48 |
|
Total revenues |
|
|
548 |
|
|
14,804 |
|
Operating expense |
|
|
319 |
|
|
4,945 |
|
Real estate taxes |
|
|
156 |
|
|
2,223 |
|
Ground rent |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
1,326 |
|
Depreciation and amortization |
|
|
|
|
|
2,560 |
|
Total expenses |
|
|
475 |
|
|
11,054 |
|
Income from discontinued operations |
|
|
73 |
|
|
3,750 |
|
Gain on disposition of discontinued operations |
|
|
110,232 |
|
|
|
|
Minority interest in operating partnership |
|
|
(4,243 |
) |
|
(169 |
) |
Income from discontinued operations, net of minority interest |
|
$ |
106,062 |
|
$ |
3,581 |
|
12
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
5. Structured Finance Investments
During the three months ended March 31, 2008 and 2007, we originated approximately none and $311.4 million in structured finance and preferred equity investments (net of discount), respectively. In addition, in 2007 we assumed approximately $136.9 million of structured finance investments as part of the Reckson Merger. There were approximately $32.1 million and $205.0 million in repayments and participations during those periods, respectively.
Preferred equity and investment income consists of the following (in thousands):
|
|
Three Months Ended |
|
|||
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
Preferred Equity and Investment income |
$ |
19,148 |
|
$ |
19,299 |
|
Interest income |
|
2,158 |
|
|
2,410 |
|
|
|
|
|
|
|
|
Total |
$ |
21,306 |
|
$ |
21,709 |
|
As of March 31, 2008 and December 31, 2007, we held the following structured finance investments, excluding preferred equity investments, with an aggregate weighted average current yield of approximately 10.1% (in thousands):
Loan |
|
Gross |
|
Senior |
|
2008 |
|
2007 |
|
Initial |
|
Mezzanine Loan (1) |
$ |
3,500 |
$ |
15,000 |
$ |
3,500 |
$ |
3,500 |
|
September 2021 |
|
Mezzanine Loan (1) (2) |
|
85,000 |
|
225,000 |
|
93,093 |
|
92,286 |
|
December 2020 |
|
Mezzanine Loan (1) (6) |
|
28,500 |
|
|
|
|
|
28,500 |
|
August 2008 |
|
Mezzanine Loan (1) |
|
60,000 |
|
205,000 |
|
58,215 |
|
58,173 |
|
February 2016 |
|
Mezzanine Loan (1) |
|
25,000 |
|
200,000 |
|
25,000 |
|
25,000 |
|
May 2016 |
|
Mezzanine Loan (1) |
|
35,000 |
|
165,000 |
|
38,232 |
|
38,201 |
|
October 2016 |
|
Mezzanine Loan (1) (3) |
|
75,000 |
|
4,200,000 |
|
65,013 |
|
64,822 |
|
December 2016 |
|
Mezzanine Loan (1) |
|
15,000 |
|
|
|
15,000 |
|
15,000 |
|
February 2010 |
|
Mezzanine Loan (3) |
|
9,815 |
|
30,000 |
|
9,890 |
|
9,815 |
|
February 2009 |
|
Mezzanine Loan (1) (2) (4) |
|
25,000 |
|
314,830 |
|
27,742 |
|
27,742 |
|
November 2009 |
|
Mezzanine Loan |
|
16,000 |
|
90,000 |
|
15,651 |
|
15,645 |
|
August 2017 |
|
Mezzanine Loan (3) |
|
12,500 |
|
210,000 |
|
39,270 |
|
38,986 |
|
August 2008 |
|
Mezzanine Loan (3)(7) |
|
12,500 |
|
357,616 |
|
11,250 |
|
12,500 |
|
September 2009 |
|
Mezzanine Loan (1) |
|
1,000 |
|
|
|
1,000 |
|
1,000 |
|
January 2010 |
|
Mezzanine Loan |
|
500 |
|
|
|
500 |
|
500 |
|
December 2009 |
|
Mezzanine Loan (1)(8) |
|
14,189 |
|
15,661 |
|
9,938 |
|
9,938 |
|
April 2008 |
|
Mezzanine Loan (1)(2) |
|
67,000 |
|
1,139,000 |
|
69,805 |
|
67,903 |
|
March 2017 |
|
Mezzanine Loan (3) |
|
23,145 |
|
365,000 |
|
23,573 |
|
23,145 |
|
July 2009 |
|
Mezzanine Loan (3) |
|
44,733 |
|
1,060,000 |
|
45,473 |
|
44,733 |
|
August 2009 |
|
Mezzanine Loan (3) |
|
22,644 |
|
7,316,674 |
|
22,925 |
|
22,644 |
|
June 2009 |
|
Junior Participation (1) |
|
37,500 |
|
477,500 |
|
37,500 |
|
37,500 |
|
January 2014 |
|
Junior Participation (1) (5) |
|
4,000 |
|
44,000 |
|
3,877 |
|
3,884 |
|
August 2010 |
|
Junior Participation (1) |
|
11,000 |
|
53,000 |
|
11,000 |
|
11,000 |
|
November 2009 |
|
Junior Participation (1) (5) |
|
21,000 |
|
115,000 |
|
20,855 |
|
21,000 |
|
November 2009 |
|
Junior Participation |
|
12,000 |
|
73,000 |
|
12,000 |
|
12,000 |
|
June 2008 |
|
Junior Participation |
|
9,948 |
|
45,936 |
|
6,864 |
|
6,864 |
|
December 2010 |
|
|
$ |
671,474 |
$ |
16,717,217 |
$ |
667,166 |
$ |
692,281 |
|
|
|
(1) |
This is a fixed rate loan. |
(2) |
The difference between the pay and accrual rates is included as an addition to the principal balance outstanding. |
(3) |
Gramercy holds a pari passu interest in this asset. |
(4) |
This loan has been in default since December 2007. We are pursuing our remedies and expect to recover the full value of our investment. |
(5) |
This is an amortizing loan. |
(6) |
We took title to the underlying property in January 2008. |
(7) |
We recorded a loan loss reserve of $1.25 million against this loan. |
(8) |
We are in discussions with the borrower to settle the loan. |
13
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
Preferred Equity Investments
As of March 31, 2008 and December 31, 2007, we held the following preferred equity investments, with an aggregate weighted average current yield of approximately 10.6% (in thousands):
Type |
|
Gross |
|
Senior |
|
2008 |
|
2007 |
|
Initial |
|
Preferred equity (1) |
$ |
75,000 |
$ |
69,724 |
$ |
82 |
$ |
3,694 |
|
July 2014 |
|
Preferred equity (1) |
|
15,000 |
|
2,350,000 |
|
15,000 |
|
15,000 |
|
February 2015 |
|
Preferred equity (1) (2) |
|
51,000 |
|
224,000 |
|
51,000 |
|
51,000 |
|
February 2014 |
|
Preferred equity (1) |
|
7,000 |
|
75,000 |
|
7,000 |
|
7,000 |
|
August 2015 |
|
Preferred equity |
|
34,120 |
|
190,300 |
|
29,240 |
|
29,240 |
|
March 2010 |
|
Preferred equity (1) |
|
7,000 |
|
|
|
7,000 |
|
7,000 |
|
June 2009 |
|
|
$ |
189,120 |
$ |
2,909,024 |
$ |
109,322 |
$ |
112,934 |
|
|
|
(1) This is a fixed rate investment. |
(2) Gramercy holds a mezzanine loan on the underlying asset. |
At March 31, 2008 and December 31, 2007, all structured finance investments, other than as noted above, were performing in accordance with the terms of the loan agreements.
6. Investment in Unconsolidated Joint Ventures
We have investments in several real estate joint ventures with various partners, including The Rockefeller Group International Inc., or RGII, The City Investment Fund, or CIF, SITQ Immobilier, a subsidiary of Caisse de depot et placement du Quebec, or SITQ, a fund managed by JP Morgan Investment Management, or JP Morgan, Prudential Real Estate Investors, or Prudential, Onyx Equities, or Onyx, The Witkoff Group, or Witkoff, Credit Suisse Securities (USA) LLC, or Credit Suisse, Mack-Cali Realty Corporation, or Mack-Cali, Jeff Sutton, or Sutton, and Gramercy, as well as private investors. As we do not control these joint ventures, we account for them under the equity method of accounting.
We assess the accounting treatment for each joint venture on a stand-alone basis. This includes a review of each joint venture or partnership LLC agreement to determine which party has what rights and whether those rights are protective or participating under EITF 04-5 and EITF 96-16. In situations where our minority partner approves the annual budget, receives a detailed monthly reporting package from us, meets with us on a quarterly basis to review the results of the joint venture, reviews and approves the joint ventures tax return before filing, and approves all leases that cover more than a nominal amount of space relative to the total rentable space at each property we do not consolidate the joint venture as we consider these to be substantive participation rights. Our joint venture agreements also contain certain protective rights such as the requirement of partner approval to sell, finance or refinance the property and the payment of capital expenditures and operating expenditures outside of the approved budget or operating plan.
14
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
The table below provides general information on each joint venture as of March 31, 2008 (in thousands):
|
|
|
|
Ownership |
|
Economic |
|
Square |
|
|
|
Acquisition |
|
|||||||
Property |
|
|
|
Partner |
|
|
Interest |
|
|
Interest |
|
|
Feet |
|
|
Acquired |
|
|
Price (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1221 Avenue of the Americas (2) |
|
RGII |
|
45.00% |
|
45.00% |
|
2,550 |
|
12/03 |
$ |
1,000,000 |
|
|||||||
1250 Broadway (3) |
|
SITQ |
|
55.00% |
|
66.18% |
|
670 |
|
08/99 |
$ |
121,500 |
|
|||||||
1515 Broadway (4) |
|
SITQ |
|
55.00% |
|
68.45% |
|
1,750 |
|
05/02 |
$ |
483,500 |
|
|||||||
100 Park Avenue |
|
Prudential |
|
49.90% |
|
49.90% |
|
834 |
|
02/00 |
$ |
95,800 |
|
|||||||
379 West Broadway |
|
Sutton |
|
45.00% |
|
45.00% |
|
62 |
|
12/05 |
$ |
19,750 |
|
|||||||
Mack-Green joint venture |
|
Mack-Cali |
|
48.00% |
|
48.00% |
|
900 |
|
05/06 |
$ |
127,500 |
|
|||||||
21-25 West 34th Street (5) |
|
Sutton |
|
50.00% |
|
50.00% |
|
30 |
|
07/05 |
$ |
22,400 |
|
|||||||
800 Third Avenue (6) |
|
Private Investors |
|
47.34% |
|
47.34% |
|
526 |
|
12/06 |
$ |
285,000 |
|
|||||||
521 Fifth Avenue |
|
CIF |
|
50.10% |
|
50.10% |
|
460 |
|
12/06 |
$ |
240,000 |
|
|||||||
One Court Square |
|
JP Morgan |
|
30.00% |
|
30.00% |
|
1,402 |
|
01/07 |
$ |
533,500 |
|
|||||||
1604-1610 Broadway (7) |
|
Onyx/Sutton |
|
45.00% |
|
63.00% |
|
30 |
|
11/05 |
$ |
4,400 |
|
|||||||
1745 Broadway (8) |
|
Witkoff/SITQ |
|
32.26% |
|
32.26% |
|
674 |
|
04/07 |
$ |
520,000 |
|
|||||||
1 and 2 Jericho Plaza |
|
Onyx/Credit Suisse |
|
20.26% |
|
20.26% |
|
640 |
|
04/07 |
$ |
210,000 |
|
|||||||
2 Herald Square (9) |
|
Gramercy |
|
55.00% |
|
55.00% |
|
354 |
|
04/07 |
$ |
225,000 |
|
|||||||
885 Third Avenue (10) |
|
Gramercy |
|
55.00% |
|
55.00% |
|
607 |
|
07/07 |
$ |
317,000 |
|
|||||||
16 Court Street |
|
CIF |
|
35.00% |
|
35.00% |
|
318 |
|
07/07 |
$ |
107,500 |
|
|||||||
The Meadows |
|
Onyx |
|
25.00% |
|
25.00% |
|
582 |
|
09/07 |
$ |
111,500 |
|
|||||||
388 and 390 Greenwich Street (11) |
|
SITQ |
|
50.60% |
|
50.60% |
|
2,600 |
|
12/07 |
$ |
1,575,000 |
|
|||||||
(1) |
Acquisition price represents the actual or implied purchase price for the joint venture. |
(2) |
We acquired our interest from The McGraw-Hill Companies, or MHC. MHC is a tenant at the property and accounted for approximately 15.8% of the propertys annualized rent at March 31, 2008. We do not manage this joint venture. |
(3) |
As a result of exceeding the performance thresholds set forth in our joint venture agreement with SITQ, our economic stake in the property was increased to 66.175% in August 2006. See Note 19. |
(4) |
Under a tax protection agreement established to protect the limited partners of the partnership that transferred 1515 Broadway to the joint venture, the joint venture has agreed not to adversely affect the limited partners tax positions before December 2011. One tenant, whose leases end between 2008 and 2015, represents approximately 85.7% of this joint ventures annualized rent at March 31, 2008. |
(5) |
Effective November 2006, we deconsolidated this investment. As a result of the recapitalization of the property, we were no longer the primary beneficiary under FIN 46(R). Both partners had the same amount of equity at risk and neither partner controlled the joint venture. |
(6) |
We invested approximately $109.5 million in this asset through the origination of a loan secured by up to 47% of the interests in the propertys ownership, with an option to convert the loan to an equity interest. Certain existing members have the right to re-acquire approximately 4% of the propertys equity. |
(7) |
Effective April 1, 2007, we deconsolidated this investment. As a result of the recapitalization of the property, we were no longer the primary beneficiary under FIN 46(R). Both partners had the same amount of equity at risk and neither partner controlled the joint venture. |
(8) |
We have the ability to syndicate our interest down to 14.79%. |
(9) |
We, along with Gramercy, together as tenants-in-common, acquired a fee interest in 2 Herald Square. The fee interest is subject to a long-term operating lease. |
(10) |
We, along with Gramercy, together as tenants-in-common, acquired a fee and leasehold interest in 885 Third Avenue. The fee and leasehold interests are subject to a long-term operating lease. |
(11) |
The property is subject to a 13-year triple-net lease arrangement with a single tenant. |
15
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
We finance our joint ventures with non-recourse debt. The first mortgage notes payable collateralized by the respective joint venture properties and assignment of leases at March 31, 2008 and December 31, 2007, respectively, are as follows (in thousands):
|
|
Maturity |
|
Interest |
|
|
|
|
|
|
Property |
|
date |
|
rate (1) |
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
1221 Avenue of the Americas (2) |
|
12/2010 |
|
4.66 |
% |
$ |
170,000 |
$ |
170,000 |
|
1250 Broadway (3) |
|
08/2008 |
|
4.49 |
% |
$ |
115,000 |
$ |
115,000 |
|
1515 Broadway (4) |
|
11/2008 |
|
4.30 |
% |
$ |
625,000 |
$ |
625,000 |
|
100 Park Avenue |
|
11/2015 |
|
6.52 |
% |
$ |
175,000 |
$ |
175,000 |
|
379 West Broadway |
|
01/2010 |
|
6.73 |
% |
$ |
20,750 |
$ |
20,750 |
|
Mack-Green joint venture (5) |
|
08/2014 |
|
6.15 |
% |
$ |
102,302 |
$ |
102,385 |
|
21-25 West 34th Street |
|
12/2016 |
|
5.75 |
% |
$ |
100,000 |
$ |
100,000 |
|
800 Third Avenue |
|
07/2017 |
|
6.00 |
% |
$ |
20,910 |
$ |
20,910 |
|
521 Fifth Avenue |
|
04/2011 |
|
4.79 |
% |
$ |
140,000 |
$ |
140,000 |
|
One Court Square |
|
12/2010 |
|
4.91 |
% |
$ |
315,000 |
$ |
315,000 |
|
2 Herald Square |
|
04/2017 |
|
5.36 |
% |
$ |
191,250 |
$ |
191,250 |
|
1604-1610 Broadway |
|
03/2012 |
|
5.66 |
% |
$ |
27,000 |
$ |
27,000 |
|
1745 Broadway |
|
01/2017 |
|
5.68 |
% |
$ |
340,000 |
$ |
340,000 |
|
1 and 2 Jericho Plaza |
|
03/2017 |
|
5.65 |
% |
$ |
163,750 |
$ |
163,750 |
|
885 Third Avenue |
|
07/2017 |
|
6.26 |
% |
$ |
267,650 |
$ |
267,650 |
|
The Meadows |
|
09/2012 |
|
5.33 |
% |
$ |
81,454 |
$ |
81,265 |
|
388 and 390 Greenwich Street |
|
12/2017 |
|
5.19 |
% |
$ |
560,000 |
$ |
560,000 |
|
16 Court Street |
|
10/2010 |
|
5.36 |
% |
$ |
81,920 |
$ |
81,629 |
|
(1) |
Interest rate represents the effective all-in weighted average interest rate for the quarter ended March 31, 2008. |
(2) |
This loan has an interest rate based on the 30-day LIBOR plus 75 basis points. $65.0 million of this loan has been hedged through December 2010. The hedge fixed the LIBOR rate at 4.8%. |
(3) |
The interest only loan carried an interest rate of 120 basis points over the 30-day LIBOR, but was reduced to 80 basis points over the 30-day LIBOR in December 2006. The loan is subject to one one-year as-of-right renewal extension. The joint venture extended this loan for one year. |
(4) |
The interest only loan carries an interest rate of 90 basis points over the 30-day LIBOR. The mortgage is subject to two one-year as-of-right renewal options. The joint venture extended this loan for one year. |
(5) |
Comprised of $91.2 million variable rate debt that matures in May 2008 and $11.1 million fixed rate debt that matures in August 2014. Gramercy provided the variable rate debt. |
We act as the operating partner and day-to-day manager for all our joint ventures, except for 1221 Avenue of the Americas, Mack-Green, 800 Third Avenue, 1 and 2 Jericho Plaza and The Meadows. We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to our joint ventures. We earned approximately $4.7 million and $3.0 million from these services for the three months ended March 31, 2008, and 2007, respectively. In addition, we have the ability to earn incentive fees based on the ultimate financial performance of certain of the joint venture properties.
Gramercy Capital Corp.
In April 2004, we formed Gramercy as a commercial real estate specialty finance company that focuses on the direct origination and acquisition of whole loans, subordinate interests in whole loans, mezzanine loans, preferred equity and net lease investments involving commercial properties throughout the United States. Gramercy also established a real estate securities business that focuses on the acquisition, trading and financing of commercial mortgage backed securities and other real estate related securities. Gramercy qualified as a REIT for federal income tax purposes and expects to qualify for its current fiscal year. During the term of the origination agreement between Gramercy and us, we have the right to purchase up to 25% of the shares in any future offering of Gramercys common stock in order to maintain our percentage ownership interest in Gramercy. At March 31, 2008, we held 7,624,583 shares, or approximately 22% of Gramercys common stock representing a total investment at book value of approximately $158.5 million. The market value of our investment in Gramercy was approximately $159.6 million at March 31, 2008. See Note 19.
Gramercy is a variable interest entity, but we are not the primary beneficiary. Due to the significant influence we have over Gramercy, we account for our investment under the equity method of accounting.
16
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
In connection with Gramercys initial public offering, GKK Manager LLC, or the Manager, an affiliate of ours, entered into a management agreement with Gramercy, which provided for an initial term through December 2007, with automatic one-year extension options and certain termination rights. In April 2006, we and Gramercy entered into an amended and restated management agreement, and Gramercys board of directors approved, among other things, an extension of the management agreement through December 2009. The management agreement was further modified in September 2007. Gramercy pays the Manager an annual management fee equal to 1.75% of their gross stockholders equity (as defined in the amended and restated management agreement), inclusive of trust preferred securities issued by Gramercy or its affiliates. In addition, Gramercy also pays the Manager a collateral management fee (as defined in the amended management agreement). In connection with any and all collateralized debt obligations, or CDOs, except for the 2005 CDO, or other securitization vehicles formed, owned or controlled, directly or indirectly, by Gramercy, which provides for a collateral manager to be retained, the Manager with respect to such CDOs and other securitization vehicles, receives management, service and similar fees equal to (i) 0.25% per annum of the principal amount outstanding of bonds issued by a managed transitional CDO that are owned by third-party investors unaffiliated with Gramercy or the Manager, which CDO is structured to own loans secured by transitional properties, (ii) 0.15% per annum of the book value of the principal amount outstanding of bonds issued by a managed non-transitional CDO that are owned by third-party investors unaffiliated with Gramercy or the Manager, which CDO is structured to own loans secured by non-transitional properties, (iii) 0.10% per annum of the principal amount outstanding of bonds issued by a static CDO that are owned by third party investors unaffiliated with Gramercy or the Manager, which CDO is structured to own non-investment grade bonds, and (iv) 0.05% per annum of the principal amount outstanding of bonds issued by a static CDO that are owned by third-party investors unaffiliated with Gramercy or the Manager, which CDO is structured to own investment grade bonds. For the purposes of the management agreement, a managed transitional CDO means a CDO that is actively managed, has a reinvestment period and is structured to own debt collateral secured primarily by non-stabilized real estate assets that are expected to experience substantial net operating income growth, and a managed non-transitional CDO means a CDO that is actively managed, has a reinvestment period and is structured to own debt collateral secured primarily by stabilized real estate assets that are not expected to experience substantial net operating income growth. Both managed transitional and managed non-transitional CDOs may at any given time during the reinvestment period of the respective vehicles invest in and own non-debt collateral (in limited quantity) as defined by the respective indentures. In connection with the closing of Gramercys first CDO in July 2005, Gramercy entered into a collateral management agreement with the Manager. Pursuant to the collateral management agreement, the Manager has agreed to provide certain advisory and administrative services in relation to the collateral debt securities and other eligible investments securing the CDO notes. The collateral management agreement provides for a senior collateral management fee, payable quarterly in accordance with the priority of payments as set forth in the indenture, equal to 0.15% per annum of the net outstanding portfolio balance, and a subordinate collateral management fee, payable quarterly in accordance with the priority of payments as set forth in the indenture, equal to 0.25% per annum of the net outstanding portfolio balance. Net outstanding portfolio balance is the sum of the (i) aggregate principal balance of the collateral debt securities, excluding defaulted securities, (ii) aggregate principal balance of all principal proceeds held as cash and eligible investments in certain accounts, and (iii) with respect to the defaulted securities, the calculation amount of such defaulted securities. As compensation for the performance of its obligations as collateral manager under the first CDO, Gramercys board of directors has allocated to the Manager the subordinate collateral management fee paid on securities not held by Gramercy. The senior collateral management fee and balance of the subordinate collateral management fee is allocated to Gramercy. For the three months ended March 31, 2008 and 2007 we received an aggregate of approximately $4.2 million and $2.7 million, respectively, in fees under the management agreement and $1.3 million and $1.1 million under the collateral management agreement.
To provide an incentive for the Manager to enhance the value of Gramercys common stock, we, along with the other holders of Class B limited partnership interests in Gramercys operating partnership, are entitled to an incentive return payable through the Class B limited partner interests in Gramercys operating partnership, equal to 25% of the amount by which funds from operations (as defined in Gramercys amended and restated partnership agreement) plus certain accounting gains exceed the product of the weighted average stockholders equity of Gramercy multiplied by 9.5% (divided by 4 to adjust for quarterly calculations). We will record any distributions on the Class B limited partner interests as incentive distribution income in the period when earned and when receipt of such amounts have become probable and reasonably estimable in accordance with Gramercys amended and restated partnership agreement as if such agreement had been terminated on that date. We earned approximately $2.5 million and $2.8 million under this agreement for the three months ended March 31, 2008 and 2007 respectively. Due to the control we have over the Manager, we consolidate the accounts of the Manager into ours.
17
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
In May 2005, our Compensation Committee approved long-term incentive performance awards pursuant to which certain of our officers and employees, including some of whom are our senior executive officers, were awarded a portion of the interests previously held by us in the Manager as well as in the Class B limited partner interests in Gramercys operating partnership. The vesting of these awards is dependent upon, among other things, tenure of employment and the performance of our investment in Gramercy. We recorded compensation expense of approximately $0.8 million and $0.7 million for the three months ended March 31, 2008 and 2007 respectively, related to these awards. After giving effect to these awards, we own 65.83 units, or 65.83%, of the Class B limited partner interests and 65.83% of the Manager. The officers and employees who received these awards own 15.75 units, or 15.75%, of the Class B limited partner interests and 15.75% of the Manager. See Note 19.
Gramercy is obligated to reimburse the Manager for its costs incurred under an asset servicing agreement and an outsourcing agreement between the Manager and us. The asset servicing agreement, which was amended and restated in April 2006, provides for an annual fee payable to us of 0.05% of the book value of all Gramercys credit tenant lease assets and non-investment grade bonds and 0.15% of the book value of all other Gramercy assets. We may reduce the asset-servicing fee for fees that Gramercy pays directly to outside servicers. The outsourcing agreement currently provides for a fee of $1.38 million per year, increasing 3% annually over the prior year. For the three months ended March 31, 2008 and 2007 the Manager received an aggregate of approximately $1.3 million and $1.1 million, respectively, under the outsourcing and asset servicing agreements.
All fees earned from Gramercy are included in other income in the Consolidated Statements of Income.
Effective May 1, 2005, Gramercy entered into a lease agreement with an affiliate of ours, for their corporate offices at 420 Lexington Avenue, New York, NY. The lease is for approximately five thousand square feet with an option to lease an additional approximately two thousand square feet and carries a term of ten years with rents of approximately $249,000 per annum for year one rising to $315,000 per annum in year ten.
Gramercy holds tenancy-in-common interests along with us in 55 Corporate Drive, NJ, 2 Herald Square and 885 Third Avenue. See Note 5 for information on our structured finance investments in which Gramercy also holds an interest.
In April 2008, Gramercy completed the acquisition of American Financial Realty Trust, or AFR, in a transaction with a total value of approximately $3.3 billion. In addition, Gramercy assumed an aggregate of approximately $1.3 billion of AFR secured debt. This transaction is not reflected in the financial statements below.
The condensed combined balance sheets for the unconsolidated joint ventures, including Gramercy, at March 31, 2008 and December 31, 2007, are as follows (in thousands):
|
|
|
|
March 31, |
|
December 31, |
|
Assets |
|
|
|
|
|
|
|
Commercial real estate property, net |
|
|
$ |
6,266,677 |
$ |
6,300,666 |
|
Structured finance investments |
|
|
|
3,194,654 |
|
3,211,099 |
|
Other assets |
|
|
|
1,167,997 |
|
1,203,259 |
|
Total assets |
|
|
|
$10,629,328 |
$ |
10,715,024 |
|
Liabilities and members equity |
|
|
|
|
|
|
|
Mortgages payable |
|
|
$ |
3,650,610 |
$ |
3,650,213 |
|
Other loans |
|
|
|
3,088,477 |
|
3,085,342 |
|
Other liabilities |
|
|
|
431,945 |
|
453,228 |
|
Members equity |
|
|
|
3,458,296 |
|
3,526,241 |
|
Total liabilities and members equity |
|
|
$ |
10,629,328 |
$ |
10,715,024 |
|
Companys net investment in unconsolidated joint ventures |
|
|
$ |
1,431,116 |
$ |
1,438,123 |
|
18
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
The condensed combined statements of operations for the unconsolidated joint ventures, including Gramercy from acquisition date through March 31, 2008 and 2007 are as follows (in thousands):
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
Total revenues |
$ |
|
255,032 |
$ |
|
191,123 |
|
Operating expenses |
|
54,190 |
|
42,161 |
|
||
Real estate taxes |
|
20,130 |
|
20,197 |
|
||
Interest |
|
95,142 |
|
76,359 |
|
||
Depreciation and amortization |
|
35,770 |
|
22,825 |
|
||
Total expenses |
|
205,232 |
|
161,542 |
|
||
Net income before gain on sale |
$ |
|
49,800 |
$ |
|
29,581 |
|
Companys equity in net income of unconsolidated joint ventures |
$ |
|
19,425 |
$ |
|
9,354 |
|
7. Investment in and Advances to Affiliates
Service Corporation
Income from management, leasing and construction contracts from third parties and joint venture properties is realized by the Service Corporation. In order to maintain our qualification as a REIT, we, through our operating partnership, own 100% of the non-voting common stock (representing 95% of the total equity) of the Service Corporation our operating partnership receives substantially all of the cash flow from the Service Corporations operations through dividends on its equity interest. All of the voting common stock of the Service Corporation (representing 5% of the total equity) is held by our affiliate. This controlling interest gives the affiliate the power to elect all directors of the Service Corporation. Effective July 1, 2003, we consolidated the operations of the Service Corporation because it is considered to be a variable interest entity under FIN 46 and we are the primary beneficiary. For the three months ended March 31, 2008 and 2007, the Service Corporation earned approximately $3.7 million and $3.5 million of revenue and incurred approximately $2.8 million and $2.6 million in expenses, respectively. Effective January 1, 2001, the Service Corporation elected to be treated as a TRS.
All of the management, leasing and construction services with respect to the properties wholly-owned by us are conducted through SL Green Management LLC which is 100% owned by our Operating Partnership.
eEmerge
In May 2000, our operating partnership formed eEmerge, Inc., a Delaware corporation, or eEmerge. eEmerge is a separately managed, self-funded company that provides fully-wired and furnished office space, services and support to businesses.
In March 2002, we acquired all the voting common stock of eEmerge Inc. As a result, we control all the common stock of eEmerge. Effective with the quarter ended March 31, 2002, we consolidated the operations of eEmerge. Effective January 1, 2001, eEmerge elected to be taxed as a TRS.
In June 2000, eEmerge and Eureka Broadband Corporation, or Eureka, formed eEmerge.NYC LLC, a Delaware limited liability company, or ENYC, whereby eEmerge has a 95% interest and Eureka has a 5% interest in ENYC. During the third quarter of 2006, ENYC acquired the interest held by Eureka. As a result, eEmerge owns 100% of ENYC. ENYC operates a 71,700 square foot fractional office suites business. ENYC entered into a 10-year lease with our Operating Partnership for its 50,200 square foot premises, which is located at 440 Ninth Avenue, Manhattan. ENYC entered into another 10-year lease with our operating partnership for its 21,500 square foot premises at 28 West 44Pth(P) Street, Manhattan. Allocations of net profits, net losses and distributions are made in accordance with the Limited Liability Company Agreement of ENYC. Effective with the quarter ended March 31, 2002, we consolidated the operations of ENYC.
19
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
8. Deferred Costs
Deferred costs at March 31, 2008 and December 31, 2007 consisted of the following (in thousands):
|
|
2008 |
|
2007 |
|
||
Deferred financing |
$ |
|
67,924 |
$ |
|
66,659 |
|
Deferred leasing |
|
139,686 |
|
133,512 |
|
||
|
$ |
|
207,610 |
$ |
|
200,171 |
|
Less accumulated amortization |
|
(70,531 |
) |
(65,817 |
) |
||
|
$ |
|
137,079 |
$ |
|
134,354 |
|
9. Mortgage Notes Payable
The first mortgage notes payable collateralized by the respective properties and assignment of leases at March 31, 2008 and December 31, 2007, respectively, were as follows (in thousands):
Property |
|
Maturity |
|
Interest |
|
2008 |
|
2007 |
|
|||
711 Third Avenue (1) |
|
06/2015 |
|
4.99 |
% |
$ |
|
120,000 |
$ |
|
120,000 |
|
420 Lexington Avenue (1) |
|
11/2010 |
|
8.44 |
% |
112,032 |
|
112,694 |
|
|||
673 First Avenue (1) |
|
02/2013 |
|
5.67 |
% |
32,939 |
|
33,115 |
|
|||
220 East 42nd Street (1) |
|
12/2013 |
|
5.24 |
% |
205,547 |
|
206,466 |
|
|||
625 Madison Avenue (1) |
|
11/2015 |
|
6.27 |
% |
99,240 |
|
99,775 |
|
|||
55 Corporate Drive (1) |
|
12/2015 |
|
5.75 |
% |
95,000 |
|
95,000 |
|
|||
609 Fifth Avenue (1) |
|
10/2013 |
|
5.85 |
% |
100,272 |
|
100,591 |
|
|||
609 Partners, LLC (1) |
|
07/2014 |
|
5.00 |
% |
63,891 |
|
63,891 |
|
|||
485 Lexington Avenue (1) |
|
02/2017 |
|
5.61 |
% |
450,000 |
|
450,000 |
|
|||
120 West 45th Street (1) |
|
02/2017 |
|
6.12 |
% |
170,000 |
|
170,000 |
|
|||
919 Third Avenue (1) (3) |
|
07/2018 |
|
6.87 |
% |
231,048 |
|
231,680 |
|
|||
300 Main Street (1) |
|
02/2017 |
|
5.75 |
% |
11,500 |
|
11,500 |
|
|||
399 Knollwood Rd (1) |
|
03/2014 |
|
5.75 |
% |
18,950 |
|
19,024 |
|
|||
500 West Putnam (1) |
|
01/2016 |
|
5.52 |
% |
25,000 |
|
25,000 |
|
|||
141 Fifth Avenue (1) (4) |
|
06/2017 |
|
5.70 |
% |
25,000 |
|
25,000 |
|
|||
One Madison Avenue (1) (5) |
|
05/2020 |
|
5.91 |
% |
670,874 |
|
673,470 |
|
|||
Total fixed rate debt |
|
|
|
|
|
2,431,293 |
|
2,437,206 |
|
|||
1551/1555 Broadway (1) |
|
10/2009 |
|
5.17 |
% |
94,700 |
|
86,938 |
|
|||
717 Fifth Avenue (1) (6) |
|
09/2008 |
|
5.00 |
% |
192,500 |
|
192,500 |
|
|||
180/182 Broadway (1) (7) |
|
02/2011 |
|
5.37 |
% |
21,100 |
|
|
|
|||
Landmark Square (1) |
|
02/2009 |
|
5.25 |
% |
128,000 |
|
128,000 |
|
|||
Total floating rate debt |
|
|
|
|
|
436,300 |
|
407,438 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Total mortgage notes payable |
|
|
|
|
$ |
|
2,867,593 |
$ |
|
2,844,644 |
|
|
(1) |
Held in bankruptcy remote special purpose entity. |
(2) |
Effective interest rate for the quarter ended March 31, 2008. |
(3) |
We own a 51% controlling interest in the joint venture that is the borrower on this loan. This loan is non-recourse to us. |
(4) |
We own a 50% controlling
interest in the joint venture that is the borrower on this loan. This loan is
non-recourse to us. This loan was refinanced |
(5) |
From April 2005 until August 2007, we held a 55%
partnership interest in the joint venture that owned this property. We now
own 100% of |
(6) |
We hold a 92.25% ownership interest in this consolidated joint venture property. |
(7) |
We own a 50% controlling interest in the joint venture that is the borrower on this loan. This loan is non-recourse to us. |
At March 31, 2008 and December 31, 2007 the gross book value of the properties collateralizing the mortgage notes was approximately $4.8 billion and $4.7 billion, respectively.
For the three months ended March 31, 2008 and 2007, we incurred approximately $80.6 million and $60.9 million of interest expense, respectively, excluding interest which was capitalized of approximately $1.5 million and $3.9 million, respectively.
20
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
10. Corporate Indebtedness
2005 Unsecured Revolving Credit Facility
We have a $1.5 billion unsecured revolving credit facility, or the 2005 unsecured revolving credit facility. The 2005 unsecured revolving credit facility bears interest at a spread ranging from 70 basis points to 110 basis points over LIBOR, based on our leverage ratio. This facility matures in June 2011 and has a one-year extension option. The 2005 unsecured revolving credit facility also requires a 12.5 to 20 basis point fee on the unused balance payable annually in arrears. The 2005 unsecured revolving credit facility had a balance of $720.5 million and carried a spread over LIBOR of 90 basis points at March 31, 2008. Availability under the 2005 unsecured revolving credit facility was further reduced by the issuance of approximately $38.1 million in letters of credit. The effective all-in interest rate on the 2005 unsecured revolving credit facility was 4.79% for the three months ended March 31, 2008. The 2005 unsecured revolving credit facility includes certain restrictions and covenants (see restrictive covenants below).
Term Loans
We had a $325.0 million unsecured term loan, which was scheduled to mature in August 2009. This term loan bore interest at a spread ranging from 110 basis points to 140 basis points over LIBOR, based on our leverage ratio. This unsecured term loan was repaid and terminated in March 2007.
We had a $200.0 million five-year non-recourse term loan secured by a pledge of our ownership interest in 1221 Avenue of the Americas. This term loan had a floating rate of 125 basis points over the current LIBOR rate and was scheduled to mature in May 2010. The secured term loan was repaid and terminated in June 2007.
In January 2007, we closed on a $500.0 million unsecured bridge loan, which was scheduled to mature in January 2010. This term loan bore interest at a spread ranging from 85 basis points to 125 basis points over LIBOR, based on our leverage ratio. This unsecured bridge loan was repaid and terminated in June 2007.
In December 2007, we closed on a $276.7 million ten-year term loan which carries an effective fixed interest rate of 5.19%. This loan is secured by our interest in 388 and 390 Greenwich Street. This secured term loan matures in December 2017.
Senior Unsecured Notes
In March 2007, we issued $750.0 million of 3.00% exchangeable senior notes which are due in 2027. The notes were offered in accordance with Rule 144A under the Securities Act of 1933, as amended. The notes will pay interest semi-annually at a rate of 3.00% per annum and mature on March 30, 2027. Interest on these notes is payable semi-annually on March 30 and September 30. The notes will have an initial exchange rate representing an exchange price that is at a 25.0% premium to the last reported sale price of our common stock on March 20, 2007, or $173.30. The initial exchange rate is subject to adjustment under certain circumstances. The notes will be senior unsecured obligations of our operating partnership and will be exchangeable upon the occurrence of specified events, and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of our common stock, if any, at our option. The notes will be Redeemable, at our option on, and after April 15, 2012. We may be required to repurchase the notes on March 30, 2012, 2017 and 2022, and upon the occurrence of certain designated events. The net proceeds from the offering were approximately $736.0 million, after deducting estimated fees and expenses. The proceeds of the offering were used to repay certain of our existing indebtedness, make investments in additional properties, and make open market purchases of our common stock and for general corporate purposes.
21
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
The following table sets forth our senior unsecured notes and other related disclosures by scheduled maturity date (in thousands):
Issuance |
|
Face Amount |
|
Coupon Rate(3) |
|
Term |
|
Maturity |
|
March 26, 1999 (1) |
$ |
200,000 |
|
7.75 |
% |
10 |
|
March 15, 2009 |
|
January 22, 2004 (1) |
|
150,000 |
|
5.15 |
% |
7 |
|
January 15, 2011 |
|
August 13, 2004 (1) |
|
150,000 |
|
5.875 |
% |
10 |
|
August 15, 2014 |
|
March 31, 2006 (1) |
|
275,000 |
|
6.00 |
% |
10 |
|
March 31, 2016 |
|
June 27, 2005 (1) (2) |
|
287,500 |
|
4.00 |
% |
20 |
|
June 15, 2025 |
|
March 26, 2007 |
|
750,000 |
|
3.00 |
% |
20 |
|
March 30, 2027 |
|
|
|
1,812,500 |
|
|
|
|
|
|
|
Net discount |
|
(19,023 |
) |
|
|
|
|
|
|
|
$ |
1,793,477 |
|
|
|
|
|
|
|
(1) |
Assumed as part of the Reckson Merger. |
(2) |
Exchangeable senior debentures which are callable after June 17, 2010 at 100% of par. In addition, the debentures can be put to us, at the option of the holder at par plus accrued and unpaid interest, on June 15, 2010, 2015 and 2020 and upon the occurrence of certain change of control transactions. As a result of the Reckson Merger, the adjusted exchange rate for the debentures is 7.7461 shares of our common stock per $1,000 of principal amount of debentures and the adjusted reference dividend for the debentures is $1.3491. |
(3) |
Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates. |
On April 27, 2007, the $50.0 million, 6.0% unsecured notes scheduled to mature in June 2007 and the $150.0 million, 7.20% unsecured notes scheduled to mature in August 2007, assumed as part of the Reckson Merger, were redeemed.
Restrictive Covenants
The terms of the 2005 unsecured revolving credit facility and unsecured bonds include certain restrictions and covenants which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of assets, and which require compliance with financial ratios relating to the minimum amount of tangible net worth, the minimum amount of debt service coverage and fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property debt service coverage and certain investment limitations. The dividend restriction referred to above provides that, except to enable us to continue to qualify as a REIT for Federal Income Tax purposes, we will not during any four consecutive fiscal quarters make distributions with respect to common stock or other equity interests in an aggregate amount in excess of 90% of funds from operations for such period, subject to certain other adjustments. As of March 31, 2008 and December 31, 2007, we were in compliance with all such covenants.
In June 2005, we issued $100.0 million in unsecured floating rate trust preferred securities through a newly formed trust, SL Green Capital Trust I, or the Trust, which is a wholly-owned subsidiary of our operating partnership. The securities mature in 2035 and bear interest at a fixed rate of 5.61% for the first ten years ending July 2015, a period of up to eight consecutive quarters if our operating partnership exercises its right to defer such payments. The trust preferred securities are redeemable, at the option of our operating partnership, in whole or in part, with no prepayment premium any time after July 2010. We do not consolidate the Trust even though it is a variable interest entity under FIN46 as we are not the primary beneficiary. Because the Trust is not consolidated, we have recorded the debt and the related payments are classified as interest expense.
22
SL Green Realty Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2008
Principal Maturities
Combined aggregate principal maturities of mortgages and notes payable, 2005 unsecured revolving credit facility, secured term loan, trust preferred securities, unsecured notes and our share of joint venture debt as of March 31, 2008, excluding extension options, were as follows (in thousands):
|
|
Scheduled |
|
Principal |
|
Revolving |
|
Trust |
|
Term Loan |
|
Total |
|
Joint |
|
|||||||
2008 |
$ |
|
18,973 |
$ |
|
287,199 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
306,172 |
$ |
|
451,156 |
|
2009 |
|
26,750 |
|
128,000 |
|
|
|
|
|
200,000 |
|
354,750 |
|
438 |
|
|||||||
2010 |
|
28,089 |
|
104,691 |
|
|
|
|
|
|
|
132,780 |
|
115,264 |
|
|||||||
2011 |
|
26,805 |
|
237,756 |
|
720,500 |
|
|
|
150,000 |
|
1,135,061 |
|
72,062 |
|
|||||||
2012 |
|
29,846 |
|
|
|
|
|
|
|
|
|
29,846 |
|
33,424 |
|
|||||||
Thereafter |
|
218,954 |
|
1,760,530 |
|
|
|
100,000 |
|
1,720,127 |
|
3,799,611 |
|
921,011 |
|
|||||||
|
$ |
|
349,417 |
$ |
|
2,518,176 |
$ |
|
720,500 |
$ |
&n |