SL Green ’02 (0.46) NAREIT Equity ’02 ’01 S&P 500 ’01 ’00 ’00 ’99 ’99 ’98 ’98 Source: Bloomberg
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2002 ANNUAL R EPORT FINANCIAL HIGHLIGHTS Year Ended December 31, 2002 2001 %Change (In thousands, except per share and rentable area data) Total Revenue $ 246,155 $ 249,683 (1.4) Funds from Operations (FFO) $ 125,429 $ 103,614 21.1 Funds from Operations Per Share (diluted) $3.32 $3.00 10.7 Total Market Capitalization $2,102,866 $1,835,500 14.6 Net Rentable Area (including joint ventures)* 11,533,000 10,035,800 14.9 Annual Dividend (per common share) $1.79 $1.61 11.7 Book Equity $ 783,085 $ 770,569 1.6 * in square feet Total Market Capitalization Annualized Total Return FFO Per Share (Diluted) (in billions of dollars) Since IPO 1998–2002 (percent) (in dollars) 2.1 14.35 3.32 3.00 1.8 2.67 1.4 2.29 1.2 5.05 1.94 0.9 SL Green ’02 (0.46) NAREIT Equity ’02 ’01 S&P 500 ’01 ’00 ’00 ’99 ’99 ’98 ’98 Source: Bloomberg Cover: 1515 Broadway Inset upper left: Graybar Building Inset lower right: The News Building ONE OCCUPANCY 100% 95% 90% 85% 80% ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 SLG Same-Store Portfolio (1) Class A Midtown Markets Class B Midtown Markets Source: RELocate/Cushman & Wakefield (1) Properties owned and managed by SL Green at least 24 months COMPANY PROFILE L Green Realty Corp. went public on August 20, 1997 to continue the commercial real estate business of S.L. Green SProperties Inc. founded in 1980. The Company owns and operates a premier portfolio of commercial office buildings pri- marily in Midtown Manhattan, the largest and most resilient office market in the country. SL Green has established a consistent track record of producing industry-leading returns while creating long-term value for its shareholders. Today, in the spring of 2003, SL Green owns 25 office buildings encompassing 12.3 million square feet primarily located on the avenues and major cross streets of Midtown Manhattan. The Company delivers real value to tenants by offering the ameni- ties, quality and service of modern office buildings at affordable rents. This has enabled the Company to outperform the local office market in every business cycle and to become the landlord of choice in New York. Looking forward, SL Green Realty Corp. plans to continue to capitalize on its franchise through three established business lines: investment in long-term core properties, investment in opportunistic assets, and structured finance investments. This three-legged investment strategy will allow SL Green to balance the components of its portfolio to take advantage of each stage in the business cycle, thereby positioning the Company to outperform in the future. SL Green is the only fully integrated, self-managed, self-administered Real Estate Investment Trust (REIT) exclusively focused on owning and operating office buildings in Manhattan. SL Green is a pure play for investors to own a piece of New York. P AGE THEN AND NOW At IPO Through August March 1997 2003 Number of 9Properties 25 Total 2,219,000 Square Feet 12,335,000 Average 247,000 Property Size 535,000 Average Tenant Size 7,900 Square Feet 12,800 Number 264 of Tenants 960 Avenue 5Properties 23 Avenue 1,492,000 Square Footage 11,946,000 P AGE TO OUR SHAREHOLDERS: Seated (left to right): Stephen L. Green Chairman of the Board and Chief Executive Officer Marc Holliday President Standing (left to right): Michael W. Reid Chief Operating Officer Gerard T. Nocera Executive Vice President s I write this letter, two very different emotions come over me. When I look with the clarity of Director of Real Estate Operations A hindsight at 2002, I am satisfied with SL Green’s ability to once again produce double- Thomas E. Wirth Chief Financial Officer digit earnings growth. When I look at the uncertain times that still face us, I am troubled by the global instability clouding our economic landscape. Our city and our country face a set of challenges that are without historical precedent. The economy has shown a strong resistance to the stimulus from the initial tax cuts of the Bush Administration and the rate cuts of the Federal Reserve. Fears of inflation have been replaced by concerns about deflation. Business is burdened by overcapacity and consumer confidence indices are in retreat. Our pre-eminent position as leader of our global economy is uncertain, as a political backlash over Iraq and a confrontation with the United Nations becomes a real possibility. We started 2002 leading a unified coalition through Afghanistan and uprooting a source of world terrorism. Fourteen months later, we are in conflict with national leaders in the Middle East, Far East and throughout the world. The reality of war and the fear of reprisals seem to have put a halt to almost all economic activity. TWO OUTPERFORMING THROUGH THE BUSINESS CYCLE Throughout these particularly challenging times, SL Green continues to outperform our local and national competitors. In the face of rising vacancies and falling rents, we have shown the resourceful- ness to sustain our industry-leading earnings momentum while at the same time laying the foundations for the future. We have assembled one of the finest management teams in the REIT industry. We have devised a balanced investment, operating and capital strategy. We have created a unique franchise in the value sector of the deep and resilient New York City office market. Looking forward, we are in a great position to continue to outperform throughout this protracted business cycle. A STRONG YEAR IN A WEAK ECONOMY We are particularly proud of our achievements in 2002. In the face of a persistent economic downturn, we posted very strong earnings performance, achieving FFO per share of $3.32 (diluted), an 11% increase over the prior year. This made 2002 the fifth straight year SL Green has achieved double-digit earnings growth. In another key measure of performance, operating earnings per share increased by 17.5%. Most importantly to you, our shareholders, in a year when all the major equity indexes continued to witness sharp declines, we posted a total return of 9.7%. Finally, with many companies under pressure to reduce their dividends, we increased our annual dividend by 5.1% to $1.86 per share in the fourth quarter of the year. Our year started with the announcement of a signature transaction, 1515 Broadway, and closed with the exciting announcement of our purchase of The News Building. These acquisitions showed our contin- ued ability to purchase beachfront properties with strong credit and leasing profiles in privately nego- tiated transactions. We continued our history of using our currency and demonstrated intellectual capital to satisfy the often complex goals of the sellers and in both cases, current partners. Most impor- tantly, we bought these properties for approximately $263 a square foot in a market environment of heated auctions and record prices. While these transactions should create significant value for our shareholders for years to come, the real story of our year was our ability to stay leased. Against a backdrop where Midtown occupancy rates dropped nearly 300 basis points to 89%, we began and ended the year at approximately 97%. These leasing statistics are a testament to the strength of our franchise and the experience and dedication of our leasing and management team, led by Gerry Nocera. THREE FIVE YEARS OF SUCCESS As our track record shows, 2002 was no accident. We have posted consistent industry-leading performance since we first went public in 1997. Since that time, we have delivered average annual FFO growth of 14.4%. More importantly, we have generated an annualized total rate of return of 14.3% since our IPO at a time when the overall markets have been down and the NAREIT equity index has been up approximately 5.1%. We are proud of our consistent history of outperformance and our reputation of exceeding investors’ expectations. At the end of the day, however, our most important accomplishment during our years as a public company has been our ability to assemble a premier portfolio of major office buildings in Midtown Manhattan. We have grown from 2.2 million square feet to 12.3 million square feet. We have sold small, side street properties and bought major avenue properties. We have renovated and upgraded our build- ings and significantly improved our tenant credit quality. We strongly believe each of our shareholders owns a piece of some of the most valuable real estate in the world. All of this growth would not have been possible without our firm commitment to financial discipline. We treat our equity as a scarce resource, returning to the common equity markets only once in the past four years. We consistently look to diversify our funding sources. We rigorously pursue the most effi- cient sources of capital. We preserve ample liquidity at all times. We carefully match our short and long- term liabilities to the highly specific profiles of our assets. Throughout, we always keep in mind that the stewardship of our balance sheet is as important as our ability to create a premier real estate portfolio. CAPITALIZING ON OUR FRANCHISE Central to our success over our first five years, as it will be in the future, is our ability to capitalize in multiple ways on our unique franchise in the New York City marketplace. Our three basic business lines give us diverse sources of income and act as a hedge against the fluctuations of the business cycle. Our primary business is to own and operate a premier portfolio of major office buildings in what we regard as the best office market in the world, Midtown Manhattan.