SL Green Realty Corp. (NYSE:SLG) reported a 1% increase in operating results for the three months ended September 30, 2003. During this period, funds from operations (FFO) before minority interests totaled $31.8 million, or $0.87 per share (diluted), compared to $30.3 million, or $0.86 per share (diluted), for the same quarter in 2002.

For the nine months ended September 30, 2003, operating results improved 6% as FFO before minority interest totaled $93.6 million, or $2.59 per share (diluted), compared to $85.6 million, or $2.45 per share (diluted), for the same period in 2002. The increase is primarily attributable to the acquisitions of 220 East 42nd Street and condominium interests in 125 Broad Street in the first quarter of 2003.

Net income available to common shareholders for the third quarter of 2003 totaled $19.4 million, or $0.59 per share (diluted), a 9% increase as compared to the same quarter in 2002 when net income totaled $17.0 million, or $0.54 per share (diluted). The increase in net income is primarily due to the $3.7 million ($0.10 per share) gain from the sale of 1370 Broadway, partially offset by increased depreciation expense from the first quarter 2003 acquisitions of 220 East 42nd Street and condominium interests in 125 Broad Street.

Net income available to common shareholders for the nine months ended September 30, 2003 totaled $68.9 million, or $2.09 per share (diluted), an increase of 35% as compared to the same period in 2002 when net income totaled $47.9 million, or $1.55 per share (diluted). The increase is primarily due to $21.3 million in gains on the sales of 50 West 23rd Street and 1370 Broadway.

The Company's third quarter weighted average diluted shares outstanding increased 1.4 million, or 4%, to 39.2 million in 2003 from 37.8 million in 2002. The increase is primarily attributable to (i) the issuance of units of limited partnership interests in the Company's operating partnership in connection with the acquisitions of 220 East 42nd Street and condominium interests in 125 Broad Street in the first quarter of 2003, (ii) employee stock grants and stock option redemptions and (iii) additional dilution from outstanding stock options.

First Potomac Realty Trust (NYSE: FPO), a real estate investment trust that acquires and operates industrial and flex properties in the Washington, D.C. metropolitan area and other major markets in Virginia and Maryland, reported results for the first quarter ended March 31, 2004, the Company's first complete quarter of operations subsequent to its initial public offering, which closed on October 28, 2003.

The net loss for the Company for the first quarter of 2004 was $0.2 million compared with a net loss of $0.9 million for the First Potomac Predecessor for the first quarter of 2003. First quarter 2004 results include a non-cash charge of $0.2 million, or $0.02 per diluted share, for the write-off of deferred financing costs associated with the restructuring of a mortgage loan as discussed in more detail below. For the three months ended March 31, 2004, the Company's funds from operations were $2.4 million, or $0.24 per diluted share (after the charge related to the write-off of deferred financing costs of $0.02 per diluted share).

The Company's pre-IPO portfolio was 94% leased as of March 31, 2004, and the Company's entire portfolio, including the four assets that it acquired in the fourth quarter of 2003, was 90% leased. A breakout of the Company's assets as well as additional information regarding the Company's results of operations can be found in the Company's First Quarter 2004 Supplemental Financial Report, which is posted on the Company's website (www.first-potomac.com).

Douglas J. Donatelli, chief executive officer of First Potomac Realty Trust stated, "The completion of our first full quarter of operations as a public company represents another early step in the execution of our business plan to focus on industrial and flex properties in the economically strong southern Mid-Atlantic region. Our properties performed well, producing a 4.0% increase in same-property NOI. We completed approximately 175,000 square feet of leasing in the quarter with a 93% tenant retention rate and average rental rate increases of 18% for new leases and 4% for renewal leases. Leasing activity at our properties is strong as our markets continue to benefit from the improvement in the economy as well as increased spending and investment by the U.S. Government and government contractors.

"While we did not complete any new acquisitions during the first quarter, we announced the acquisition of Herndon Corporate Center for $20.5 million just after the quarter ended and expect to reach our post-IPO goal of $150 million in acquisitions by mid year. We capped the quarter with the declaration of a $0.20 per share dividend."

Acquisitions

Herndon Corporate Center - On April 27, 2004, the Company acquired Herndon Corporate Center, a 127,353-square-foot, single-story flex property in Herndon, Virginia, for $20.5 million. The acquisition was financed with the Company's available cash, borrowings under the Company's revolving line of credit and the assumption of a $9.1 million, fixed-rate first mortgage loan. The property is currently 100% leased to 14 tenants, with the U.S. Government being the largest tenant, occupying 23% of the space. Based upon leases in place, Herndon Corporate Center is expected to generate first year net operating income of $1.9 million, representing a 9.3% return on the purchase price.

Lease vs buy: The options

"There is no best way to add equipment...Each situation is different and there are several solutions to get you the equipment you need for an acceptable price and term."

Leasing is not a new device for financing equipment. It actually is an evolutionary and unique product of money lending, with some historians tracing it back to the founding of the Empire of Babylonia. Formalized leasing seems to have begun shortly after World War II when it became a popular means of financing equipment over the life of "cost-plus" contracts. It was in the early 1900s that railcar leasing began between third party owners, shippers and railroads. Today, both shippers and railroads have access to rail equipment through the "use," rather than ownership, of over 500,000 railcars covered by various types of leases. * Leasing basics. While leasing is an easy to understand process, it makes sense to review the basics before talking about some of the new transactions that are taking place in the industry. The user first must determine the car types and how many cars are needed. Then the lease versus buy decision is made, taking into consideration the cost of funds available, lead times for new cars, staffing requirements, and other issues. Once the decision is made to lease, usually to avoid the major capital outlay a purchase demands, plus other considerations like accounting and maintenance associated with ownership, then the userlessee has to determine the period of time it will need the equipment and who will manage it.

Perhaps just as important as identifying your company's internal needs and comparing the various types of leases available, it is critical to evaluate and compare the leasing firms providing equipment. Today there are six sizeable leasing companies, each with a tendency to specialize in certain types of cars such as covered hoppers, tank cars or boxcars.

Meet the people and view their systems. Talk with some of their major customers, including a company similar in size to yours. While competitive rates are important, evaluate how attentive they are to your needs and concerns. In periods of tight car supply, as we are experiencing now, it's wise to lease from more than one firm. The competition and different fleet sizes can work to your advantage. However, always be sure the company you do business with is of sufficient size and depth, and that it can provide the value added services to meet your needs. * Match the lease to your needs. When shippers and railroads purchase cars it's generally for long-term, clearly defined needs. These owned cars become their "core" fleet and are considered recession-proof. Over and above that they will lease to meet surge factors, or because of a short term increase in demand. When negotiating the lease term, the lessee should negotiate for flexibility in the lease term to cover down cycles or new equipment opportunities or other changes in the supply side of the market.

When determining what type of lease to enter into, whether it be full service, net, etc., many factors should be considered. One is whether or not the shipper wants to pay for the railcars' maintenance. If the shipper determines that there will be low maintenance costs, because perhaps the leased equipment is new, it may be a good situation for a net lease, where the shipper is responsible for maintenance costs, and in return gets a lower lease rate from the owner. The rate is generally lower as the owner does not have to include the cost of maintenance in the lease rate. The trick here is knowing or predicting maintenance costs. Maintenance is a function of actual wear and tear on the car, plus the unknown of what AAR (Association of American Railroads) maintenance might be. AAR is a category of maintenance that includes any work the railroad that has the equipment on it deems necessary to keep the car in safe operating condition. The railroad determines the maintenance necessary, and the lessee has no say about it; he just gets the bill. Needless to say, it's a tough cost to plan for.

That's generally why 60% to 70% of all leased cars are on full service leases. This lease arrangement calls for the owner to pay for all maintenance, scheduled and AAR. Full service leases give the lessee full use of the car, but the owner covers all maintenance, tax and insurance costs. In this type of lease, the lessee receives one montly invoice from the lessor, and then approximately approximately three months later will begin to receive offsetting mileage credits from the lessor for loaded miles traveled on a railroad. These credits have been paid to the owner by the using railroads.

Paper Cutters, of Greenville, S.C., is a small manufacturer with a big reach. The company ships paperboard package lining directly to customers in states east of the Mississippi. Annual sales are $10 million to $12 million. In an attempt to operate more efficiently, the company since 1992 has leased six Kenworth T800 tractor cabs, five of them with sleepers, from PacLease, based in Bellevue, Wash.

"We weren't prepared to put in a program of our own where we could maintain that many trucks," says Randy Mathena, who started Paper Cutters in 1981. "The bottom line is that we are probably operating more efficiently now than before, when we owned our trucks."

Under the terms of the full-service lease, PacLease handles repair and maintenance of Paper Cutters' vehicles. The leasing company also relieves the manufacturer of substantial paperwork.

According to Mathena, the administrative burden of managing a fleet was a factor in Paper Cutters' decision to lease

A significant number of companies like Paper Cutters find it convenient to lease the cars and trucks they use to do business. In a 1992 survey, the National Association of Fleet Administrators, in Iselin, N.J., found that 63 percent of cars, vans, and light-, medium-, and heavy-duty trucks in fleets of 200 vehicles or less were leased. For fleets of 201 to 400 vehicles, the figure was 78 percent.

"The high cost of transportation and the need to be competitive are important factors in the popularity of leasing," says Dick Cromwell, vice president of marketing for Idealease, a Barrington, Ill., truck leasing and rental firm. "Companies are not only trimming work forces but also expenses to regain profitability. They are focusing on what they do best and contracting out those ancillary services others can take over for them."

Businesses report several advantages to leasing their fleets. Doing so allows a company to use capital more efficiently, deduct lease payments, and avoid the paperwork inherent in buying and owning a vehicle. Another advantage for some lessees is the availability of nationwide maintenance services, where drivers use charge cards for vehicle-related expenses. The fleet manager pays one bill, minimizing expense-account paperwork.

A growing number of companies that lease midsize and large trucks are opting for full-service leases, where the lessor handles maintenance and repairs, as well as administrative tasks such as licensing and tax reports. A study done for the Truck Renting and Leasing Association, based in Washington, D.C., found that last year about three-fourths of leases for midsize and larger trucks were full-service, up from just over haft in 1991. Full-service leases usually mean fewer costly breakdowns, lower repair bills, reduced parts inventories, and elimination of the need for a company repair shop. Also, annual operating costs can be forecast, capital can be used more efficiently, environmental compliance on matters such as waste disposal can be handled by the lessor, and the fleets can be more up-to-date.

Griffith Micro Science, Inc., a Burr Ridge, Ill., company that sterilizes surgical instruments for hospitals and clinics, leases 15 passenger cars and minivans, along with two midsize trucks, through USL Capital Fleet Services,

in San Mateo, Calif. Most of the vehicles are used by a nationwide staff of salespeople who call on the hospitals, clinics, and other customers.

"We are getting good cost per mile and helpful fleet-analysis information, plus good advice on options to consider for the best resale and safety," says Dick Rediehs, Griffith Micro Science's director of finance and administration. "For the size of the fleet we have, full-service maintenance from USL Capital is better than trying to employ someone full time to administer it."

How long should a company lease a vehicle? Opinions vary on replacement cycles. Some fleet managers are stretching the number of months and miles as a money-saving measure, while others are staying with the lease terms they have used for years.

Rediehs of Griffith Micro Science leases vehicles for three years or 72,000 miles, up from the company's previous limits of two years or 50,000 miles.

"I don't see a big change in the cost from 50,000 to 72,000 miles," he says. "I always felt the cars had a useful life beyond the 50,000 miles. With the new replacement policy, we have had no squawks from the drivers of the cars."

General Motors' decision this month to offer discounted four-year leases on nearly all its vehicles could push industrywide leasing to above 15 percent of sales this year.

That's higher than last year, but well short of the 20 percent to 25 percent seen in the late 1990s.

But buyers should beware: While leasing can provide lower monthly payments than a loan, many consumers are better off buying a car with today's discounted finance rates.

For one thing, at the end of the loan, you'll own the car. At the end of the lease, you'll own nothing.

And getting out of a lease -- because a job loss makes meeting the payments difficult or an unexpected baby makes a sports car impractical -- can be tough. You'll likely pay a stiff fee, if the leasing company will let you out at all.

That was the problem Molly Fannin, 26, of Garfield, N.J., faced. A veteran of two earlier leases, Fannin found herself last summer already beyond the 36,000-mile limit on her Volkswagen Jetta a little more than two years into her three-year lease.

Fortunately for Fannin, Volkswagen bailed her out. Afraid that quality problems had irked too many customers, VW offered Fannin and thousands of other lease holders an early exit with no mileage penalties if they bought or leased another VW, something she was not planning to do.

"It was a good deal for me because of my mileage overrun, and saved me a lot," says Fannin, who now leases a VW GTI. Fannin, who put no money down on the GTI, has a monthly payment of $342. Had she bought the car with no money down, the monthly payment would have been $591 for a three-year loan at 1.9 percent interest or $370 for a five-year loan at 2.9 percent.

She got the lower monthly payment with no money down, but after three years, she won't have the car anymore. If she could have put 10 percent down on the new car, after six or seven years her annual cost of ownership would be far less than the lease.

And she has to watch her mileage again, something she vows to do. "It's going to be tough, but I don't want to be in that crunch again," she says.

"There are people who like the lower monthly payments that come with leasing," says Paul Ballew, head of sales analysis for GM. "And people who like the lifestyle of changing vehicles every three years without worrying about how much the trade-in is worth."

Cheap leases also are an option for customers who can't afford a big monthly payment for their dream car. Ballew says GM already is seeing more customers opting for full-size pickups and sport-utility vehicles with this month's new leases.

Enron repercussions may be slowing commercial leasing volume as firms scramble to restate earnings, which may be forestalling them from signing leases.

Leasing volume is already ebbing, so this wariness could be hindering landlords' efforts at leasing space.

Trinity Real Estate's director of commercial leasing Stephen Heyman believes that few large firms are willing to make commitments that they don't have to make at this time.

"No one knows where the fickle finger might point next, and there is no confidence in the immediate viability of firms," said Heyman during a recent panel discussion.

Given the cost of leasing Manhattan office space, the decision to sign a lease can only be made with adequate--and accurate--financial information. It's conceivable that a firm might sign a lease on the basis of faulty bookkeeping, and subsequently find themselves unable to pay the rent. Whether or not these firms are indeed credit-worthy may be a moot point: Their financial confidence has been undermined.

Or is it the other way around, as some in the industry believe that landlords are now forced to scrutinize would-be tenants? For landlords who suffered at the hands of failing dot-coms in 2001, caution may be the order of the day.
Many landlords got slammed with these dot-coms. Now they have to worry about this, since some tenants may not even know that they can't afford a lease," said David Workman, executive managing director at Brown Harris Stevens' commercial services division.

Yet many landlords are anxious to rent their space, so haste may convince them to overlook these issues in favor of securing rent.

"Landlords really can't be that picky, can they? They may require bigger security deposits now, but I don't think that Enron is screening out viable tenants," said Ruth Colp-Haber, a broker from Wharton Properties.

Purchasing new packaging equipment can take a big chunk out of your capital budget. Like it or not, the modern state of packaging dictates that you keep up with technological advances in equipment. Frequent improvements in machinery reflect today's incessant product and packaging changes, as well as the persistent need to raise productivity and line speeds.

That doesn't mean you can't tweak old machinery to keep up--you can. But inevitable equipment obsolescence or breakdowns are somewhere on the horizon and eventually you'll have to buy a new machine. It's in the financing arena that battle lines are likely to be drawn--a conflict nearly Shakespearean in scope.

To lease or not to lease? That is the question (with apologies to Hamlet)--especially when it comes to procuring new packaging equipment. Maybe your company is large enough--profitable enough--to be able to afford buying a new piece of equipment outright.

But maybe you've overshot your capital budget allotment and can't spare the hard cash for a machine that you desperately need. Or maybe you're a start-up or a "mom-and-pop" operation and you need a new filler, bagger or cartoner to boost your packaging line but budget constraints simply make cutting a check out of the question.

But there are also times when leasing isn't the best choice. There are depreciation tax benefits available if you buy equipment, including modified accelerated cost recovery (MACRS) deductions, which account for machinery depreciation over an eight to 11 year period.

According to Greg Williams, CEO of American Packaging Capital--a company that specializes in leasing packaging equipment and has recently been appointed the official equipment finance partner by the Packaging Machinery Manufacturers Institute (PMMI)--if there's a lot of capital available, buying equipment is probably the way to go. If you don't spend an allotted amount of capital during the course of a fiscal year, you won't get it next year.

Explains Williams, "The assumption is, if the company is growing, if the economy is doing well and there's money--you need to spend it because, if you don't, it'll go somewhere else. So the impetus is to buy that piece of packaging machinery now while there's a chance. Use it or lose it, in other words. Plus there are psychological reasons to obtaining a pink slip. Ownership sometimes factors in more so than equipment obsolescence."

When a business buys equipment, it capitalizes it on its balance sheet by showing the equipment as an asset. And the company must also include a corresponding liability to account for any loans used to finance the transaction. The cost of the capitalized equipment must be amortized over its economic life and depreciation expense will appear on the company's income statement. The depreciation and interest expenses represent the financial statement cost of purchasing and financing the equipment.

But packages change, technologies change and, therefore, equipment must change--sometimes before the depreciation period is up--which makes leasing an attractive alternative.