Edgar Filing: SL GREEN REALTY CORP

form8k.htm

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):

April 26, 2012 (April 25, 2012)

SL GREEN REALTY CORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MARYLAND

(STATE OF INCORPORATION)

1-13199		13-3956775
(COMMISSIONFILENUMBER)		(IRSEMPLOYERID.NUMBER)

420LexingtonAvenue		10170
NewYork,NewYork		(ZIPCODE)

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(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:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01. Other Events.

Summary

On April 25, 2012, SL Green Realty Corp. (the “Company”) reported funds from operations, or FFO, of $99.3 million, or $1.10 per diluted share, for the quarter ended March 31, 2012, compared to $142.8 million, or $1.75 per diluted share, for the same quarter in 2011. The comparable results reflect the issuance of $660.5 million of common equity since the first quarter of 2011 as well as a one-time gain recognized in the first quarter of 2011 on the sale of interests in the mezzanine debt at 280 Park Avenue.

Net income attributable to common stockholders totaled $25.3 million, or $0.29 per diluted share, for the quarter ended March 31, 2012, compared to $80.9 million, or $1.01 per diluted share, for the same quarter in 2011.

Operating and Leasing Activity

For the first quarter of 2012, the Company reported revenues and operating income of $339.2 million and $182.1 million, respectively, compared to $329.2 million and $209.9 million, respectively, for the same period in 2011.

Same-store cash NOI on a combined basis increased by 6.2 percent to $172.0 million for 2012, after giving consideration to 1515 Broadway and 521 Fifth Avenue as consolidated properties, as compared to 2011. Consolidated property cash NOI increased by 6.4 percent to $145.7 million and unconsolidated joint venture property cash NOI increased 4.9 percent to $26.3 million.

Same-store GAAP NOI on a combined basis increased by 0.8 percent to $197.5 million for 2012, after giving consideration to 1515 Broadway and 521 Fifth Avenue as consolidated properties, as compared to 2011. Consolidated property GAAP NOI decreased by 0.6 percent to $167.4 million and unconsolidated joint venture property GAAP NOI increased 9.9 percent to $30.1 million.

Occupancy for the Company’s stabilized, same-store Manhattan portfolio at March 31, 2012 was 93.4 percent as compared to 93.1 percent at March 31, 2011. During the quarter, the Company signed 64 office leases in its Manhattan portfolio totaling 674,983 square feet. Twenty one leases totaling 157,433 square feet represented office leases that replaced previous vacancy, and 43 office leases comprising 517,550 square feet had average starting rents of $69.71 per rentable square foot, representing a 32.3 percent increase over the previously fully escalated rents on the same office spaces, which was largely driven by the 361,044 square foot lease with Random House, Inc. at 1745 Broadway. The average lease term on the Manhattan office leases signed in the first quarter was 6.3 years and average tenant concessions were 1.1 months of free rent with a tenant improvement allowance of $17.87 per rentable square foot. Of the 734,218 square feet of office leases which commenced during the first quarter, 194,731 square feet represented office leases that replaced previous vacancy, and 539,487 square feet represented office leases that had average starting rents of $69.81 per rentable square foot, representing a 31.4 percent increase over the previously fully escalated rents on the same office spaces.

Occupancy for the Company’s Suburban portfolio was 86.4 percent at March 31, 2012, as compared to 86.3 percent at March 31, 2011. Excluding the One Court Square office property, which is in contract for sale, the Company’s Suburban portfolio occupancy would be 82.9 percent at March 31, 2012, as compared to 82.7 percent at March 31, 2011.

During the quarter, the Company signed 32 office leases in the Suburban portfolio totaling 128,236 square feet. Nine leases totaling 22,577 square feet represented office leases that replaced previous vacancy, and 23 office leases comprising 105,659 square feet had average starting rents of $33.72 per rentable square foot, representing a 4.6 percent decrease over the previously fully escalated rents on the same office spaces. The average lease term on the Suburban office leases signed in the first quarter was 3.1 years and average tenant concessions were 1.1 months of free rent with a tenant improvement allowance of $5.33 per rentable square foot. Of the 145,978 square feet of office leases which commenced during the first quarter, 39,641 square feet represented office leases that replaced previous vacancy, and 106,337 square feet represented office leases that had average starting rents of $33.74 per rentable square foot, representing a 4.6 percent decrease over the previously fully escalated rents on the same office spaces.

Significant leases that were signed during the first quarter included:

·	Early renewal on 361,044 square feet with Random House, Inc. for 5 years at 1745 Broadway bringing the total remaining lease term to 10 years;

·	New lease on 30,653 square feet with Jazz at Lincoln Center, Inc. for 15.8 years at 3 Columbus Circle;

·	Early renewal on 23,230 square feet with FTI Consulting, Inc. for 9 years at 750 Third Avenue;

·	New lease on 22,363 square feet with Titan Outdoor LLC for 10.5 years at 100 Park Avenue; and

·	Early renewal on 26,065 square feet with State Bank of Long Island for 1.5 years at Jericho Plaza, Long Island.

Marketing, general and administrative, or MG&A, expenses for the quarter ended March 31, 2012 were $20.2 million, or 5.2 percent of total revenues including the Company’s share of joint venture revenue compared to $20.0 million, or 5.2 percent for the quarter ended March 31, 2011.

Real Estate Investment Activity

In February 2012, the Company acquired the 390,000 square-foot office building located at 10 East 53rd Street through a joint venture with CPPIB for $252.5 million, or $647 per square foot.

In January 2012, the Company, along with its joint venture partner Jeff Sutton, acquired 724 Fifth Avenue for $223.0 million. The anchor tenant in this 65,010 square foot property is Prada.

In January 2012, the Company, along with its joint venture partner Stonehenge Partners, acquired five retail and two multifamily properties in Manhattan for total consideration of $193.1 million.

In February 2012, the Company sold the leased fee interest at 292 Madison Avenue for $85.0 million. The transaction included assumption by the purchaser of $59.1 million of existing debt. The Company recognized a gain on the sale of $6.6 million.

In February 2012, the Company, along with its joint venture partner, Jeff Sutton, sold its two retail condominium units at 141 Fifth Avenue for $46.0 million. The transaction included the assumption by the purchaser of $25.0 million of existing debt. The Company recognized a gain on the sale of $7.3 million.

In March 2012, the Company, along with its joint venture partner, entered into an agreement to sell 379 West Broadway for $48.5 million, inclusive of the fee position.

In April 2012, the Company, along with its joint venture partner, modified the agreement to sell One Court Square to provide the purchaser an extension of the closing date in exchange for an increase in the gross sale price to $478.1 million. The transaction, which includes the assumption by the purchaser of $315.0 million of existing debt, is expected to close in the second quarter.

Debt and Preferred Equity Investment Activity

The Company’s debt and preferred equity investment portfolio totaled $1.0 billion at March 31, 2012. During the first quarter, the Company purchased and originated new debt and preferred equity investments totaling $70.5 million, all of which are directly collateralized by New York City commercial office properties, and received $57.6 million of principal reductions from investments that were sold or repaid. The debt and preferred equity investment portfolio had a weighted average maturity of 3.1 years as of March 31, 2012 and had a weighted average yield for the quarter ended March 31, 2012 of 9.0 percent, exclusive of loans with a net carrying value of $25.2 million, which are on non-accrual status.

Financing and Capital Activity

In the first quarter of 2012, the Company sold 2.9 million shares of common stock for aggregate gross proceeds of $225.0 million ($222.6 million of net proceeds after related expenses). In 2012 to date, the Company sold 3.7 million shares of common stock for gross proceeds of $281.8 million ($278.5 million of net proceeds after related expenses). The Company’s existing ATM plan has $68.2 million of remaining sales capacity.

In March 2012, the Company repaid approximately $102.2 million of its 3.0% exchangeable senior notes due 2027 pursuant to the holders’ scheduled put option. Approximately $18.0 million of these notes remain outstanding.

In January 2012, the Company, along with its joint venture partner Stonehenge Partners, closed on two 7-year mortgage financings totaling $100.0 million in connection with the acquisition of two residential properties. These mortgages bear a fixed interest rate of 4.125%. In addition, the retail property located at 762 Madison Avenue, which was also acquired by the joint venture, was partially financed with a 5-year, $8.5 million mortgage loan which bears a fixed interest rate of 3.75%.

In February 2012, the Company, along with its joint venture partner Jeff Sutton, closed on a 5-year $120.0 million mortgage in connection with the acquisition of 724 Madison Avenue. The mortgage bears interest at 235 basis points over the 30-day LIBOR.

In February 2012, the Company, along with its joint venture partner, CPPIB, closed on a 5-year $125.0 million mortgage in connection with the acquisition of 10 East 53rd Street. The mortgage bears interest at 250 basis points over the 30-day LIBOR.

Dividends

During the first quarter of 2012, the Company declared quarterly dividends on its outstanding common and preferred stock as follows:

·	$0.25 per share of common stock, which was paid on April 13, 2012 to stockholders of record on the close of business on March 30, 2012; and

$0.4766 and $0.4922 per share on the Company’s Series C and D Preferred Stock, respectively, for the period January 15, 2012 through and including April 14, 2012, which were paid on April 13, 2012 to stockholders of record on the close of business on March 30, 2012, and reflect regular quarterly dividends which are the equivalent of annualized dividends of $1.9064 and $1.9688, respectively.

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, and subsequently amended, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring, sales of properties and real estate related impairment charges, 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, 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.

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, 2011 and still owned in the same manner at the end of the current quarter, the Company determines GAAP net operating income by subtracting property operating expenses and ground rent from recurring rental and tenant reimbursement revenues. Cash net operating income (Cash NOI) is derived by deducting straight line and free rent from, and adding tenant credit loss allowance to, GAAP net operating income. 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.

SL GREEN REALTY CORP.

CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(Amounts in thousands, except per share data)

	Three Months Ended March 31,
	2012			2011
Revenue:
Rental revenue, net	$	260,814		$	227,020
Escalations and reimbursement revenues		41,663			30,275
Preferred equity and investment income		26,338			64,678
Other income		10,377			7,248
Total revenues		339,192			329,221

Equity in net (loss) income from unconsolidated joint ventures		(1,560	)		8,206
Gain (loss) on early extinguishment of debt		—			—

Expenses:
Operating expenses		73,269			60,298
Real estate taxes		51,498			40,067
Ground rent		8,806			7,834
Loan loss and other investment reserves, net of recoveries		564			(3,150	)
Transaction related costs		1,151			2,434
Marketing, general and administrative		20,196			20,021
Total expenses		155,484			127,504

Operating Income		182,148			209,923

Interest expense, net of interest income		80,137			64,266
Amortization of deferred financing costs		3,580			3,800
Depreciation and amortization		77,083			63,497
Loss on investment in marketable securities		—			127
Net income from continuing operations		21,348			78,233
Net (loss) income from discontinued operations		(78	)		1,873
Gain on sale of discontinued operations		6,627			—
Equity in net gain on sale of joint venture interest/real estate		7,260			—
Purchase price fair value adjustment		—			13,788
Depreciable real estate reserves		—			—
Net income		35,157			93,894
Net income attributable to noncontrolling interests		(1,959	)		(5,462	)
Net income attributable to SL Green Realty Corp.		33,198			88,432
Preferred stock dividends		(397	)		---
Dividends on perpetual preferred shares		(7,545	)		(7,545	)
Net income attributable to common stockholders	$	25,256		$	80,887
Earnings Per Share (EPS)
Net income per share (Basic)	$	0.29		$	1.02
Net income per share (Diluted)	$	0.29		$	1.01

Funds From Operations (FFO)
FFO per share (Basic)	$	1.11		$	1.76
FFO per share (Diluted)	$	1.10		$	1.75

Basic ownership interest
Weighted average REIT common shares for net income per share		86,744			79,401
Weighted average partnership units held by noncontrolling interests		3,048			1,805
Basic weighted average shares and units outstanding for FFO per share		89,792			81,206

Diluted ownership interest
Weighted average REIT common share and common share equivalents		87,125			79,838
Weighted average partnership units held by noncontrolling interests		3,048			1,805
Diluted weighted average shares and units outstanding		90,173			81,643

SL GREEN REALTY CORP.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

	March 31, 2012			December 31, 2011
Assets	(Unaudited)
Commercial real estate properties, at cost:
Land and land interests	$	2,816,831		$	2,684,626
Buildings and improvements		7,191,889			7,147,527
Building leasehold and improvements		1,317,492			1,302,790
Property under capital lease		12,208			12,208
		11,338,420			11,147,151
Less accumulated depreciation		(1,202,507	)		(1,136,603	)
		10,135,913			10,010,548
Assets held for sale		—			76,562
Cash and cash equivalents		133,665			138,192
Restricted cash		98,563			86,584
Investment in marketable securities		25,689			25,323
Tenant and other receivables, net of allowance of $19,605 and $16,772 in 2012 and 2011, respectively		29,020			32,107
Related party receivables		7,665			4,001
Deferred rents receivable, net of allowance of $30,611 and $29,156 in 2012 and 2011, respectively		300,419			281,974
Debt and preferred equity investments, net of discount of $23,784 and $24,996 and allowance of $41,050 and $50,175 in 2012 and 2011, respectively		999,573			985,942
Investments in and advances to unconsolidated joint ventures		1,022,931			893,933
Deferred costs, net		211,728			210,786
Other assets		796,547			737,900
Total assets	$	13,761,713		$	13,483,852

Liabilities
Mortgages and other loans payable	$	4,409,715		$	4,314,741
Revolving credit facility		400,000			350,000
Senior unsecured notes		1,171,331			1,270,656
Accrued interest and other liabilities		116,498			126,135
Accounts payable and accrued expenses		137,500			142,428
Deferred revenue/gain		373,573			357,193
Capitalized lease obligation		17,130			17,112
Deferred land lease payable		18,608			18,495
Dividend and distributions payable		29,652			28,398
Security deposits		47,996			46,367
Liabilities related to assets held for sale		—			61,988
Junior subordinate deferrable interest debentures held by trusts that issued trust preferred securities		100,000			100,000
Total liabilities		6,822,003			6,833,513

Commitments and contingencies		—			—
Noncontrolling interests in the operating partnership		237,763			195,030
Series G preferred units, $0.01 par value, $25.00 liquidation preference, 1,902 issued and outstanding at March 31, 2012		47,550			—
Series H preferred units, $0.01 par value, $25.00 liquidation preference, 80 issued and outstanding at March 31, 2012 and December 31, 2011, respectively		2,000			2,000

Equity
SL Green Realty Corp. stockholders’ equity
7.625% Series C perpetual preferred shares, $0.01 par value, $25.00 liquidation preference, 11,700 issued and outstanding at both March 31, 2012 and December 31, 2011, respectively		274,022			274,022
7.875% Series D perpetual preferred shares, $0.01 par value, $25.00 liquidation preference, 4,000 issued and outstanding at both March 31, 2012 and December 31, 2011, respectively		96,321			96,321
Common stock, $0.01 par value 160,000 shares authorized, 92,460 and 89,210 issued and outstanding at March 31, 2012 and 2011, respectively (inclusive of 3,605 and 3,427 shares held in Treasury at March 31, 2012 and December 31, 2011, respectively)		925			892
Additional paid-in capital		4,469,777			4,236,959
Treasury stock-at cost		(319,866	)		(308,708	)
Accumulated other comprehensive loss		(24,376	)		(28,445	)
Retained earnings		1,665,547			1,704,506
Total SL Green Realty Corp. stockholders’ equity		6,162,350			5,975,547
Noncontrolling interests in other partnerships		490,047			477,762
Total equity		6,652,397			6,453,309
Total liabilities and equity	$	13,761,713		$	13,483,852

SL GREEN REALTY CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share data)

	Three Months Ended March 31,
	2012		2011
FFO Reconciliation:
Net income attributable to common stockholders	$	25,256	$	80,887
Add:
Depreciation and amortization		77,083		63,497
Discontinued operations depreciation adjustments		—		676
Joint venture depreciation and noncontrolling interest adjustments		9,141		6,234
Net income attributable to noncontrolling interests		1,959		5,462
Depreciable real estate reserves		—		—
Less:
Gain on sale of discontinued operations		6,627		—
Equity in net gain on sale of joint venture interest		7,260		—
Purchase price fair value adjustment		—		13,788
Depreciation on non-rental real estate assets		267		213
Funds from Operations		99,285		142,755
Transaction related costs(1)		1,312		2,434
Funds from Operations before transaction related costs	$	100,597	$	145,189

(1)	Includes the Company’s share of joint venture transaction related costs.

	Three Months Ended March 31,
	2012			2011

Operating Income:	$	182,148		$	209,923
Add:
Marketing, general & administrative expense		20,196			20,021
Net operating income from discontinued operations		519			4,202
Loan loss and other investment reserves, net of recoveries		564			(3,150	)
Transaction related costs		1,151			2,434
Less:
Non-building revenue		30,890			65,402
(Gain) loss on early extinguishment of debt		—			—
Equity in net (loss) income from joint ventures		(1,560	)		8,206
GAAP net operating income (GAAP NOI)		175,248			159,822

Less:
Net operating income from discontinued operations		519			4,202
GAAP NOI from other properties/affiliates		7,316			(12,860	)
Same-Store GAAP NOI	$	167,413		$	168,480

Add:
Ground lease straight-line adjustment		285			340
Less:
Straight-line and free rent		17,261			24,590
Rental income – FAS 141		4,729			7,345
Same-store cash NOI	$	145,708		$	136,885

SL GREEN REALTY CORP.

SELECTED OPERATING DATA-UNAUDITED

	March 31,
	2012			2011
Manhattan Operating Data: (1)
Net rentable area at end of period (in 000’s)		23,757			22,324
Portfolio percentage leased at end of period
Same-Store percentage leased at end of period		93.4	%		93.1	%
Number of properties in operation		33			30

Office square feet where leases commenced during quarter (rentable)		734,218			703,023
Average mark-to-market percentage-office		31.4	%		0.9	%
Average starting cash rent per rentable square foot-office	$	69.81		$	48.20

____________

(1) Includes wholly owned and joint venture properties.

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.

	SL GREEN REALTY CORP.



	/s/ James Mead
	James Mead
	Chief Financial Officer

Date: April 26, 2012