Document
 
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, 2018
OR
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.)
Commission File Number: 33-167793-02 (SL Green Operating Partnership, L.P.)
______________________________________________________________________
SL GREEN REALTY CORP.
SL GREEN OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
______________________________________________________________________
SL Green Realty Corp.
Maryland
13-3956755
SL Green Operating Partnership, L.P.
Delaware
13-3960938
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
420 Lexington Avenue, New York, NY 10170
(Address of principal executive offices—Zip Code)

(212) 594-2700
(Registrant's 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. 
SL Green Realty Corp.    Yes x    No o            SL Green Operating Partnership, L.P.    Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
SL Green Realty Corp.     Yes x    No o            SL Green Operating Partnership, L.P.    Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
SL Green Realty Corp.
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
 (Do not check if a smaller reporting company)
 
Smaller Reporting Company
o
 
Emerging Growth Company
o
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
SL Green Operating Partnership, L.P.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
x
 (Do not check if a smaller reporting company)
 
Smaller Reporting Company
o
 
Emerging Growth Company
o
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
SL Green Realty Corp.    Yes o    No x            SL Green Operating Partnership, L.P.    Yes o    No x
As of May 9, 2018, 88,422,771 shares of SL Green Realty Corp.'s common stock, par value $0.01 per share, were outstanding. As of May 9, 2018, 1,468,438 common units of limited partnership interest of SL Green Operating Partnership, L.P. were held by non-affiliates. There is no established trading market for such units.
 




EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2018 of SL Green Realty Corp. and SL Green Operating Partnership, L.P. Unless stated otherwise or the context otherwise requires, references to "SL Green Realty Corp.," the "Company" or "SL Green" mean SL Green Realty Corp. and its consolidated subsidiaries; and references to "SL Green Operating Partnership, L.P.," the "Operating Partnership" or "SLGOP" mean SL Green Operating Partnership, L.P. and its consolidated subsidiaries. The terms "we," "our" and "us" mean the Company and all the entities owned or controlled by the Company, including the Operating Partnership.
The Company is a Maryland corporation which operates as a self-administered and self-managed real estate investment trust, or REIT, and is the sole managing general partner of the Operating Partnership. As a general partner of the Operating Partnership, the Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.
As of March 31, 2018 the Company owns 94.98% of the outstanding general and limited partnership interest in the Operating Partnership. The Company also owns 9,200,000 Series I Preferred Units of the Operating Partnership. As of March 31, 2018, noncontrolling investors held, in aggregate, a 5.02% limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership.
The Company and the Operating Partnership are managed and operated as one entity. The financial results of the Operating Partnership are consolidated into the financial statements of the Company. The Company has no significant assets other than its investment in the Operating Partnership. Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership. Therefore, the assets and liabilities of the Company and the Operating Partnership are substantially the same.
Noncontrolling interests in the Operating Partnership, stockholders' equity of the Company and partners' capital of the Operating Partnership are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership not owned by the Company are accounted as noncontrolling interests, within mezzanine equity, in the Company's and the Operating Partnership's consolidated financial statements.
We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
Combined reports eliminate duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Company and the Operating Partnership; and
Combined reports create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Note 11, Noncontrolling Interests on the Company’s Consolidated Financial Statements;
Note 12, Stockholders' Equity of the Company;
Note 13, Partners' Capital of the Operating Partnership.
This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership, respectively, in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Company, in both their capacity as the principal executive officer and principal financial officer of the Company and the principal executive officer and principal financial officer of the general partner of the Operating Partnership, have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended.



SL GREEN REALTY CORP. AND SL GREEN OPERATING PARTNERSHIP, L.P.
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS
 
 
 
 
FINANCIAL STATEMENTS OF SL GREEN REALTY CORP.
 
 
Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017
 
Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (unaudited)
 
Consolidated Statement of Equity for the three months ended March 31, 2018 (unaudited)
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
FINANCIAL STATEMENTS OF SL GREEN OPERATING PARTNERSHIP, L.P.
 
 
Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017
 
Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (unaudited)
 
Consolidated Statement of Capital for the three months ended March 31, 2018 (unaudited)
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)
 
Notes to Consolidated Financial Statements (unaudited)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Controls and Procedures (SL Green Realty Corp. and SL Green Operating Partnership, L.P.)
PART II.
OTHER INFORMATION
 
Legal Proceedings
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Other Information
Exhibits
 
Signatures


Table of Contents


PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SL Green Realty Corp.
Consolidated Balance Sheets
(in thousands)
 
March 31, 2018
 
December 31, 2017
 
(unaudited)
 
 
Assets
 
 
 
Commercial real estate properties, at cost:
 
 
 
Land and land interests 
$
2,098,406

 
$
2,357,051

Building and improvements 
5,206,982

 
6,351,012

Building leasehold and improvements 
1,420,346

 
1,450,614

Properties under capital lease 
47,445

 
47,445

 
8,773,179

 
10,206,122

Less: accumulated depreciation 
(1,944,629
)
 
(2,300,116
)
 
6,828,550

 
7,906,006

Assets held for sale
67,819

 
338,354

Cash and cash equivalents
288,808

 
127,888

Restricted cash
89,457

 
122,138

Investments in marketable securities
28,252

 
28,579

Tenant and other receivables, net of allowance of $18,363 and $18,637 in 2018 and 2017, respectively
49,552

 
57,644

Related party receivables
31,305

 
23,039

Deferred rents receivable, net of allowance of $16,897and $17,207 in 2018 and 2017, respectively
320,547

 
365,337

Debt and preferred equity investments, net of discounts and deferred origination fees of $24,998 and $25,507 in 2018 and 2017, respectively
2,085,871

 
2,114,041

Investments in unconsolidated joint ventures
3,034,596

 
2,362,989

Deferred costs, net
195,557

 
226,201

Other assets
360,556

 
310,688

Total assets (1)
$
13,380,870

 
$
13,982,904

Liabilities
 
 
 
Mortgages and other loans payable, net
$
2,433,994

 
$
2,837,282

Revolving credit facility, net

 
30,336

Unsecured term loan, net
1,491,922

 
1,491,575

Unsecured notes, net
1,396,320

 
1,395,939

Accrued interest payable
36,808

 
38,142

Other liabilities
103,654

 
188,005

Accounts payable and accrued expenses
131,797

 
137,142

Deferred revenue
177,896

 
208,119

Capital lease obligations 
43,029

 
42,843

Deferred land leases payable
3,403

 
3,239

Dividend and distributions payable
82,337

 
85,138

Security deposits
64,647

 
67,927

Liabilities related to assets held for sale
42

 
4,074

Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities
100,000

 
100,000

Total liabilities (1)
6,065,849

 
6,629,761


4

Table of Contents

SL Green Realty Corp.
Consolidated Balance Sheets
(in thousands, except per share data)

 
March 31, 2018
 
December 31, 2017
 
(unaudited)
 
 
Commitments and contingencies

 

Noncontrolling interests in Operating Partnership
475,807

 
461,954

Preferred units
301,585

 
301,735

 
 
 
 
Equity
 
 
 
SL Green stockholders' equity:
 
 
 
Series I Preferred Stock, $0.01 par value, $25.00 liquidation preference, 9,200 issued and outstanding at both March 31, 2018 and December 31, 2017
221,932

 
221,932

Common stock, $0.01 par value, 160,000 shares authorized and 90,190 and 93,858 issued and outstanding at March 31, 2018 and December 31, 2017, respectively (including 1,055 shares held in treasury at March 31, 2018 and December 31, 2017)
902

 
939

Additional paid-in-capital
4,776,594

 
4,968,338

Treasury stock at cost
(124,049
)
 
(124,049
)
Accumulated other comprehensive income
28,573

 
18,604

Retained earnings
1,583,833

 
1,139,329

Total SL Green stockholders' equity
6,487,785

 
6,225,093

Noncontrolling interests in other partnerships
49,844

 
364,361

Total equity
6,537,629

 
6,589,454

Total liabilities and equity
$
13,380,870

 
$
13,982,904

 
 
 
 
(1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $174.8 million and $398.0 million of land, $0.3 billion and $1.4 billion of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $47.4 million and $47.4 million of properties under capital lease, $29.8 million and $330.9 million of accumulated depreciation, $706.0 million and $221.0 million of other assets included in other line items, $134.4 million and $628.9 million of real estate debt, net, $0.4 million and $2.5 million of accrued interest payable, $43.0 million and $42.8 million of capital lease obligations, and $17.7 million and $56.8 million of other liabilities included in other line items as of March 31, 2018 and December 31, 2017, respectively.


The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

SL Green Realty Corp.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)


 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenues
 
 
 
 
Rental revenue, net
 
$
215,369

 
$
281,329

Escalation and reimbursement
 
26,399

 
44,192

Investment income
 
45,290

 
40,299

Other income
 
14,637

 
11,561

Total revenues
 
301,695

 
377,381

Expenses
 

 
 
Operating expenses, including related party expenses of $3,834 in 2018 and $4,173 in 2017.
 
59,782

 
74,506

Real estate taxes
 
45,661

 
61,068

Ground rent
 
8,308

 
8,308

Interest expense, net of interest income
 
47,916

 
65,622

Amortization of deferred financing costs
 
3,537

 
4,761

Depreciation and amortization
 
69,388

 
94,134

Transaction related costs
 
162

 
133

Marketing, general and administrative
 
23,528

 
24,143

Total expenses
 
258,282

 
332,675

Income before equity in net income from unconsolidated joint ventures, equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate, purchase price and other fair value adjustments
gain on sale of real estate, net, depreciable real estate reserves, and gain on sale of investment in marketable securities
 
43,413

 
44,706

Equity in net income from unconsolidated joint ventures
 
4,036

 
6,614

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(6,440
)
 
2,047

Purchase price and other fair value adjustments
 
49,293

 

Gain on sale of real estate, net
 
23,521

 
567

Depreciable real estate reserves
 

 
(56,272
)
Gain on sale of investment in marketable securities
 

 
3,262

Net income
 
113,823

 
924

Net (income) loss attributable to noncontrolling interests:
 
 
 
 
Noncontrolling interests in the Operating Partnership

(5,272
)
 
(476
)
Noncontrolling interests in other partnerships

(198
)
 
17,491

Preferred units distributions

(2,849
)
 
(2,850
)
Net income attributable to SL Green
 
105,504

 
15,089

Perpetual preferred stock dividends
 
(3,738
)
 
(3,738
)
Net income attributable to SL Green common stockholders
 
$
101,766

 
$
11,351

 
 
 
 
 

6

Table of Contents

SL Green Realty Corp.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)


 
 
Three Months Ended March 31,
 
 
2018
 
2017
Amounts attributable to SL Green common stockholders:
 
 
 
 
Income before depreciable real estate reserves and gains on sale and fair value adjustments
 
$
38,657

 
$
62,660

Purchase price and other fair value adjustments
 
46,868

 

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(6,123
)
 
1,957

Gain on sale of real estate, net
 
22,364

 
542

Depreciable real estate reserves
 

 
(53,808
)
Net income attributable to SL Green common stockholders
 
$
101,766

 
$
11,351

Basic earnings per share:
 
 
 
 
Income before depreciable real estate reserves and gains on sale and fair value adjustments
 
$
0.43

 
$
0.62

Purchase price and other fair value adjustments
 
0.52

 

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(0.07
)
 
0.02

Gain on sale of real estate, net
 
0.24

 
0.01

Depreciable real estate reserves
 

 
(0.54
)
Net income attributable to SL Green common stockholders
 
$
1.12


$
0.11

Diluted earnings per share:
 
 
 
 
Income before depreciable real estate reserves and gains on sale and fair value adjustments
 
$
0.43

 
$
0.62

Purchase price and other fair value adjustments
 
0.52

 

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(0.07
)
 
0.02

Gain on sale of real estate, net
 
0.24

 
0.01

Depreciable real estate reserves
 

 
(0.54
)
Net income attributable to SL Green common stockholders
 
$
1.12

 
$
0.11

 
 
 
 
 
Dividends per share
 
$
0.8125

 
$
0.775

Basic weighted average common shares outstanding
 
90,520

 
100,643

Diluted weighted average common shares and common share equivalents outstanding
 
95,256

 
105,554



The accompanying notes are an integral part of these consolidated financial statements.

7

Table of Contents


SL Green Realty Corp.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)

 
 
Three Months Ended March 31,
 
 
2018
 
2017
Net income

$
113,823

 
$
924

Other comprehensive income (loss):


 
 
Change in net unrealized gain (loss) on derivative instruments, including SL Green's share of joint venture net unrealized gain (loss) on derivative instruments

10,913

 
(1,075
)
Change in unrealized gain on marketable securities

(325
)
 
(4,750
)
Other comprehensive income (loss)

10,588

 
(5,825
)
Comprehensive income (loss)

124,411

 
(4,901
)
Net (income) loss attributable to noncontrolling interests and preferred units distributions

(8,319
)
 
17,491

Other comprehensive (loss) income attributable to noncontrolling interests

(619
)
 
199

Comprehensive income attributable to SL Green

$
115,473

 
$
12,789



The accompanying notes are an integral part of these consolidated financial statements.


8

Table of Contents

SL Green Realty Corp.
Consolidated Statement of Equity
(unaudited, in thousands, except per share data)


 
SL Green Realty Corp. Stockholders
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 


 
 
Series I
Preferred
Stock
 
Shares
 
Par
Value
 
Additional
Paid-
In-Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive Income
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2017
 
$
221,932

 
92,803

 
$
939

 
$
4,968,338

 
$
(124,049
)
 
$
18,604

 
$
1,139,329

 
$
364,361

 
$
6,589,454

Cumulative adjustment upon adoption of ASC 610-20
 
 
 
 
 
 
 
 
 
 
 
 
 
570,524

 
 
 
570,524

Balance at January 1, 2018
 
$
221,932

 
92,803

 
$
939

 
$
4,968,338

 
$
(124,049
)
 
$
18,604

 
$
1,709,853

 
$
364,361

 
$
7,159,978

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
105,504

 
198

 
105,702

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
9,969

 
 
 
 
 
9,969

Preferred dividends
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,738
)
 
 
 
(3,738
)
DRSPP proceeds
 
 
 
1

 
 
 
42

 
 
 
 
 
 
 
 
 
42

Reallocation of noncontrolling interest in the Operating Partnership
 
 
 
 
 
 
 
 
 
 
 
 
 
3,645

 
 
 
3,645

Deferred compensation plan and stock awards, net of forfeitures and tax withholdings
 
 
 
(19
)
 
 
 
3,102

 
 
 
 
 
 
 
 
 
3,102

Repurchases of common stock
 
 
 
(3,654
)
 
(37
)
 
(195,617
)
 
 
 
 
 
(159,090
)
 
 
 
(354,744
)
Proceeds from stock options exercised
 
 
 
4

 
 
 
729

 
 
 
 
 
 
 
 
 
729

Contributions to consolidated joint venture interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
157

 
157

Deconsolidation of partially owned entity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(314,596
)
 
(314,596
)
Cash distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(276
)
 
(276
)
Cash distributions declared ($0.8125 per common share, none of which represented a return of capital for federal income tax purposes)
 
 
 
 
 
 
 
 
 
 
 
 
 
(72,341
)
 
 
 
(72,341
)
Balance at March 31, 2018
 
$
221,932

 
89,135

 
$
902

 
$
4,776,594

 
$
(124,049
)
 
$
28,573

 
$
1,583,833

 
$
49,844

 
$
6,537,629



The accompanying notes are an integral part of these consolidated financial statements.

9

Table of Contents

SL Green Realty Corp.
Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)


 
Three Months Ended March 31,
 
2018
 
2017
Operating Activities
 
 
 
Net income
$
113,823

 
$
924

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
72,925

 
98,895

Equity in net income from unconsolidated joint ventures
(4,036
)
 
(6,614
)
Distributions of cumulative earnings from unconsolidated joint ventures
7,510

 
5,468

Equity in net loss (gain) on sale of interest in unconsolidated joint venture interest/real estate
6,440

 
(2,047
)
Purchase price and other fair value adjustments
(49,293
)
 

Depreciable real estate reserves

 
56,272

Gain on sale of real estate, net
(23,521
)
 
(567
)
Gain on sale of investments in marketable securities

 
(3,262
)
Deferred rents receivable
(3,120
)
 
(11,722
)
Other non-cash adjustments
12,155

 
23,245

Changes in operating assets and liabilities:

 
 
Tenant and other receivables
(1,847
)
 
1,272

Related party receivables
(4,567
)
 
(3,211
)
Deferred lease costs
(7,679
)
 
(9,421
)
Other assets
(47,826
)
 
(45,356
)
Accounts payable, accrued expenses, other liabilities and security deposits
18,890

 
(16,327
)
Deferred revenue and land leases payable
4,692

 
25,600

Net cash provided by operating activities
94,546


113,149

Investing Activities
 
 
 
Acquisitions of real estate property
(1,276
)
 

Additions to land, buildings and improvements
(51,631
)
 
(101,090
)
Acquisition deposits and deferred purchase price
(3,020
)
 

Investments in unconsolidated joint ventures
(51,158
)
 
(8,000
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
142,694

 
37,811

Net proceeds from disposition of real estate/joint venture interest
409,867

 
3,000

Proceeds from sale or redemption of marketable securities

 
54,363

Other investments
(21,687
)
 
21,721

Origination of debt and preferred equity investments
(229,428
)
 
(402,453
)
Repayments or redemption of debt and preferred equity investments
261,641

 
411,969

Net cash provided by investing activities
456,002

 
17,321


10

Table of Contents

SL Green Realty Corp.
Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)

 
Three Months Ended March 31,
 
2018
 
2017
Financing Activities
 
 
 
Proceeds from mortgages and other loans payable
$
99,115

 
$
778,445

Repayments of mortgages and other loans payable
(9,406
)
 
(680,572
)
Proceeds from revolving credit facility and senior unsecured notes
455,000

 
277,800

Repayments of revolving credit facility and senior unsecured notes
(495,000
)
 
(277,800
)
Proceeds from stock options exercised and DRIP issuance
771

 
8,808

Repurchase of common stock
(382,679
)
 
(102
)
Redemption of preferred stock
(150
)
 

Distributions to noncontrolling interests in other partnerships
(276
)
 
(469
)
Contributions from noncontrolling interests in other partnerships
157

 
31,947

Distributions to noncontrolling interests in the Operating Partnership
(3,841
)
 
(3,537
)
Dividends paid on common and preferred stock
(81,729
)
 
(84,179
)
Tax withholdings related to restricted share awards
(3,842
)
 
(3,816
)
Deferred loan costs and capitalized lease obligation
(429
)
 
(7,712
)
Net cash (used in) provided by financing activities
(422,309
)
 
38,813

Net increase in cash, cash equivalents, and restricted cash
128,239

 
169,283

Cash, cash equivalents, and restricted cash at beginning of year
250,026

 
369,967

Cash, cash equivalents, and restricted cash at end of period
$
378,265

 
$
539,250

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
 
 
Issuance of units in the Operating Partnership
$
15,448

 
$
18,240

Redemption of units in the Operating Partnership for stock

 
13,112

Derivative instruments at fair value
6,937

 
4,734

Tenant improvements and capital expenditures payable
15,952

 
7,087

Fair value adjustment to noncontrolling interest in Operating Partnership
3,645

 
15,548

Deconsolidation of subsidiaries
298,403

 

Transfer of assets related to assets held for sale

 
54,694

Transfer of liabilities related to assets held for sale

 
43

Deferred leasing payable
1,203

 
1,455

Removal of fully depreciated commercial real estate properties
106,142

 
2,043

Share repurchase payable
27,935

 


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
 
Three Months Ended March 31,
 
2018
 
2017
Cash and cash equivalents
$
288,808

 
$
468,035

Restricted cash
89,457

 
71,215

Total cash, cash equivalents, and restricted cash
$
378,265

 
$
539,250

The accompanying notes are an integral part of these consolidated financial statements.


11

Table of Contents
SL Green Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)


 
 
March 31, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Assets
 
 
 
 
Commercial real estate properties, at cost:
 
 
 
 
Land and land interests 
 
$
2,098,406

 
$
2,357,051

Building and improvements 
 
5,206,982

 
6,351,012

Building leasehold and improvements 
 
1,420,346

 
1,450,614

Properties under capital lease 
 
47,445

 
47,445

 
 
8,773,179

 
10,206,122

Less: accumulated depreciation 
 
(1,944,629
)
 
(2,300,116
)
 
 
6,828,550

 
7,906,006

Assets held for sale
 
67,819

 
338,354

Cash and cash equivalents
 
288,808

 
127,888

Restricted cash
 
89,457

 
122,138

Investments in marketable securities
 
28,252

 
28,579

Tenant and other receivables, net of allowance of $18,363 and $18,637 in 2018 and 2017, respectively
 
49,552

 
57,644

Related party receivables
 
31,305

 
23,039

Deferred rents receivable, net of allowance of $16,897and $17,207 in 2018 and 2017, respectively
 
320,547

 
365,337

Debt and preferred equity investments, net of discounts and deferred origination fees of $24,998 and $25,507 in 2018 and 2017, respectively
 
2,085,871

 
2,114,041

Investments in unconsolidated joint ventures
 
3,034,596

 
2,362,989

Deferred costs, net
 
195,557

 
226,201

Other assets
 
360,556

 
310,688

Total assets (1)
 
$
13,380,870

 
$
13,982,904

Liabilities
 
 
 
 
Mortgages and other loans payable, net
 
$
2,433,994

 
$
2,837,282

Revolving credit facility, net
 

 
30,336

Unsecured term loan, net
 
1,491,922

 
1,491,575

Unsecured notes, net
 
1,396,320

 
1,395,939

Accrued interest payable
 
36,808

 
38,142

Other liabilities
 
103,654

 
188,005

Accounts payable and accrued expenses
 
131,797

 
137,142

Deferred revenue
 
177,896

 
208,119

Capital lease obligations 
 
43,029

 
42,843

Deferred land leases payable
 
3,403

 
3,239

Dividend and distributions payable
 
82,337

 
85,138

Security deposits
 
64,647

 
67,927

Liabilities related to assets held for sale
 
42

 
4,074

Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities
 
100,000

 
100,000

Total liabilities (1)
 
6,065,849

 
6,629,761

Commitments and contingencies
 

 

Limited partner interests in SLGOP (4,715 and 4,453 limited partner common units outstanding at March 31, 2018 and December 31, 2017, respectively)
 
475,807

 
461,954

Preferred units
 
301,585

 
301,735


12

Table of Contents
SL Green Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)


 
 
March 31, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Capital
 
 
 
 
SLGOP partners' capital:
 
 
 
 
Series I Preferred Units, $25.00 liquidation preference, 9,200 issued and outstanding at both March 31, 2018 and December 31, 2017
 
221,932

 
221,932

SL Green partners' capital (939 and 973 general partner common units and 88,196 and 91,831 limited partner common units outstanding at March 31, 2018 and December 31, 2017, respectively)
 
6,237,280

 
5,984,557

Accumulated other comprehensive income
 
28,573

 
18,604

Total SLGOP partners' capital
 
6,487,785

 
6,225,093

Noncontrolling interests in other partnerships
 
49,844

 
364,361

Total capital
 
6,537,629

 
6,589,454

Total liabilities and capital
 
$
13,380,870

 
$
13,982,904

 
 
 
 
 
(1) The Operating Partnership's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $174.8 million and $398.0 million of land, $0.3 billion and $1.4 billion of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $47.4 million and $47.4 million of properties under capital lease, $29.8 million and $330.9 million of accumulated depreciation, $706.0 million and $221.0 million of other assets included in other line items, $134.4 million and $628.9 million of real estate debt, net, $0.4 million and $2.5 million of accrued interest payable, $43.0 million and $42.8 million of capital lease obligations, and $17.7 million and $56.8 million of other liabilities included in other line items as of March 31, 2018 and December 31, 2017, respectively.


The accompanying notes are an integral part of these consolidated financial statements.

13

Table of Contents

SL Green Operating Partnership, L.P.
Consolidated Statements of Operations
(unaudited, in thousands, except per unit data)



 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenues
 
 
 
 
Rental revenue, net
 
$
215,369

 
$
281,329

Escalation and reimbursement
 
26,399

 
44,192

Investment income
 
45,290

 
40,299

Other income
 
14,637

 
11,561

Total revenues
 
301,695

 
377,381

Expenses
 

 
 
Operating expenses, including related party expenses of $3,834 in 2018 and $4,173 in 2017.
 
59,782

 
74,506

Real estate taxes
 
45,661

 
61,068

Ground rent
 
8,308

 
8,308

Interest expense, net of interest income
 
47,916

 
65,622

Amortization of deferred financing costs
 
3,537

 
4,761

Depreciation and amortization
 
69,388

 
94,134

Transaction related costs
 
162

 
133

Marketing, general and administrative
 
23,528

 
24,143

Total expenses
 
258,282

 
332,675

Income before equity in net income from unconsolidated joint ventures, equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate, purchase price and other fair value adjustments
gain on sale of real estate, net, depreciable real estate reserves, and gain on sale of investment in marketable securities
 
43,413

 
44,706

Equity in net income from unconsolidated joint ventures
 
4,036

 
6,614

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(6,440
)
 
2,047

Purchase price and other fair value adjustments
 
49,293

 

Gain on sale of real estate, net
 
23,521

 
567

Depreciable real estate reserves
 

 
(56,272
)
Gain on sale of investment in marketable securities
 

 
3,262

Net income
 
113,823

 
924

Net (income) loss attributable to noncontrolling interests:
 
 
 
 
Noncontrolling interests in other partnerships
 
(198
)
 
17,491

Preferred units distributions
 
(2,849
)
 
(2,850
)
Net income attributable to SLGOP
 
110,776

 
15,565

Perpetual preferred unit distributions
 
(3,738
)
 
(3,738
)
Net income attributable to SLGOP common unitholders
 
$
107,038

 
$
11,827


14

Table of Contents

SL Green Operating Partnership, L.P.
Consolidated Statements of Operations
(unaudited, in thousands, except per unit data)


 
 
Three Months Ended March 31,
 
 
2018
 
2017
Amounts attributable to SLGOP common unitholders:
 
 
 
 
Income before depreciable real estate reserves and gains on sale and fair value adjustments

$
40,664


$
65,485

Purchase price and other fair value adjustments
 
49,293

 

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(6,440
)
 
2,047

Gain on sale of real estate, net
 
23,521

 
567

Depreciable real estate reserves
 

 
(56,272
)
Net income attributable to SLGOP common unitholders
 
$
107,038

 
$
11,827

Basic earnings per unit:
 
 
 
 
Income before depreciable real estate reserves and gains on sale and fair value adjustments
 
$
0.43

 
$
0.62

Purchase price and other fair value adjustments
 
0.52

 

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(0.07
)
 
0.02

Gain on sale of real estate, net
 
0.24

 
0.01

Depreciable real estate reserves
 

 
(0.54
)
Net income attributable to SLGOP common unitholders

$
1.12


$
0.11

Diluted earnings per unit:
 
 
 
 
Income before depreciable real estate reserves and gains on sale and fair value adjustments
 
$
0.43

 
$
0.62

Purchase price and other fair value adjustments
 
0.52

 

Equity in net (loss) gain on sale of interest in unconsolidated joint venture/real estate
 
(0.07
)
 
0.02

Gain on sale of real estate, net
 
0.24

 
0.01

Depreciable real estate reserves
 

 
(0.54
)
Net income attributable to SLGOP common unitholders
 
$
1.12

 
$
0.11

 
 
 
 
 
Dividends per unit
 
$
0.8125

 
$
0.775

Basic weighted average common units outstanding
 
95,203

 
105,250

Diluted weighted average common units and common unit equivalents outstanding
 
95,256

 
105,554



The accompanying notes are an integral part of these consolidated financial statements.


15

Table of Contents


SL Green Operating Partnership, L.P.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)

 
 
Three Months Ended March 31,
 
 
2018

2017
Net income
 
$
113,823

 
$
924

Other comprehensive income (loss):
 
 
 
 
Change in net unrealized gain on derivative instruments, including SLGOP's share of joint venture net unrealized gain on derivative instruments
 
10,913

 
(1,075
)
Change in unrealized gain on marketable securities
 
(325
)
 
(4,750
)
Other comprehensive income (loss)
 
10,588

 
(5,825
)
Comprehensive income (loss)
 
124,411

 
(4,901
)
Net (loss) income attributable to noncontrolling interests
 
(198
)
 
17,491

Other comprehensive (loss) income attributable to noncontrolling interests
 
(619
)
 
199

Comprehensive income attributable to SLGOP
 
$
123,594

 
$
12,789



The accompanying notes are an integral part of these consolidated financial statements.


16

Table of Contents

SL Green Operating Partnership, L.P.
Consolidated Statement of Capital
(unaudited, in thousands, except per unit data)



 
 
SL Green Operating Partnership Unitholders
 
 
 
 
 
 
 
 
Partners' Interest
 
 
 
 
 
 
 
 
Series I
Preferred
Units
 
Common
Units
 
Common
Unitholders
 
Accumulated
Other
Comprehensive Income
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2017
 
$
221,932

 
92,803

 
$
5,984,557

 
$
18,604

 
$
364,361

 
$
6,589,454

Cumulative adjustment upon adoption of ASC 610-20
 
 
 
 
 
570,524

 
 
 
 
 
570,524

Balance at January 1, 2018
 
$
221,932

 
92,803

 
$
6,555,081

 
$
18,604

 
$
364,361

 
$
7,159,978

Net income
 
 
 
 
 
105,504

 
 
 
198

 
105,702

Other comprehensive income
 
 
 
 
 
 
 
9,969

 


 
9,969

Preferred distributions
 
 
 
 
 
(3,738
)
 
 
 
 
 
(3,738
)
DRSPP proceeds
 
 
 
1

 
42

 
 
 
 
 
42

Reallocation of noncontrolling interests in the operating partnership
 
 
 
 
 
3,645

 
 
 
 
 
3,645

Deferred compensation plan and stock awards, net of forfeitures and tax withholdings
 
 
 
(19
)
 
3,102

 
 
 
 
 
3,102

Repurchases of common stock
 
 
 
(3,654
)
 
(354,744
)
 
 
 
 
 
(354,744
)
Contribution to consolidated joint venture interests
 
 
 
 
 
 
 
 
 
157

 
157

Deconsolidation of partially owned entity
 
 
 
 
 
 
 
 
 
(314,596
)
 
(314,596
)
Contributions - proceeds from stock options exercised
 
 
 
4

 
729

 
 
 
 
 
729

Cash distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
(276
)
 
(276
)
Cash distributions declared ($0.8125 per common unit, none of which represented a return of capital for federal income tax purposes)
 
 
 
 
 
(72,341
)
 
 
 
 
 
(72,341
)
Balance at March 31, 2018
 
$
221,932

 
89,135

 
$
6,237,280

 
$
28,573

 
$
49,844

 
$
6,537,629

   

The accompanying notes are an integral part of these consolidated financial statements.


17

Table of Contents

SL Green Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)



 
Three Months Ended March 31,
 
2018

2017
Operating Activities
 
 
 
Net income
$
113,823

 
$
924

Adjustments to reconcile net income to net cash provided by operating activities:

 
 
Depreciation and amortization
72,925

 
98,895

Equity in net income from unconsolidated joint ventures
(4,036
)
 
(6,614
)
Distributions of cumulative earnings from unconsolidated joint ventures
7,510

 
5,468

Equity in net loss (gain) on sale of interest in unconsolidated joint venture interest/real estate
6,440

 
(2,047
)
Purchase price and other fair value adjustments
(49,293
)
 

Depreciable real estate reserves

 
56,272

Gain on sale of real estate, net
(23,521
)
 
(567
)
Gain on sale of investments in marketable securities

 
(3,262
)
Deferred rents receivable
(3,120
)
 
(11,722
)
Other non-cash adjustments
12,155

 
23,245

Changes in operating assets and liabilities:

 
 
Tenant and other receivables
(1,847
)
 
1,272

Related party receivables
(4,567
)
 
(3,211
)
Deferred lease costs
(7,679
)
 
(9,421
)
Other assets
(47,826
)
 
(45,356
)
Accounts payable, accrued expenses, other liabilities and security deposits
18,890

 
(16,327
)
Deferred revenue and land leases payable
4,692

 
25,600

Net cash provided by operating activities
94,546

 
113,149

Investing Activities

 
 
Acquisitions of real estate property
(1,276
)
 

Additions to land, buildings and improvements
(51,631
)
 
(101,090
)
Acquisition deposits and deferred purchase price
(3,020
)
 

Investments in unconsolidated joint ventures
(51,158
)
 
(8,000
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
142,694

 
37,811

Net proceeds from disposition of real estate/joint venture interest
409,867

 
3,000

Proceeds from sale or redemption of marketable securities

 
54,363

Other investments
(21,687
)
 
21,721

Origination of debt and preferred equity investments
(229,428
)
 
(402,453
)
Repayments or redemption of debt and preferred equity investments
261,641

 
411,969

Net cash provided by investing activities
456,002

 
17,321

 
 
 
 

18

Table of Contents

SL Green Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)


 
Three Months Ended March 31,
 
2018

2017
Financing Activities
 
 
 
Proceeds from mortgages and other loans payable
$
99,115

 
$
778,445

Repayments of mortgages and other loans payable
(9,406
)
 
(680,572
)
Proceeds from revolving credit facility and senior unsecured notes
455,000

 
277,800

Repayments of revolving credit facility and senior unsecured notes
(495,000
)
 
(277,800
)
Proceeds from stock options exercised and DRIP issuance
771

 
8,808

Repurchase of common stock
(382,679
)
 
(102
)
Redemption of preferred stock
(150
)
 

Distributions to noncontrolling interests in other partnerships
(276
)
 
(469
)
Contributions from noncontrolling interests in other partnerships
157

 
31,947

Distributions paid on common and preferred units
(85,570
)
 
(87,716
)
Tax withholdings related to restricted share awards
(3,842
)

(3,816
)
Deferred loan costs and capitalized lease obligation
(429
)
 
(7,712
)
Net cash (used in) provided by financing activities
(422,309
)
 
38,813

Net increase in cash, cash equivalents, and restricted cash
128,239

 
169,283

Cash, cash equivalents, and restricted cash at beginning of year
250,026

 
369,967

Cash, cash equivalents, and restricted cash at end of period
$
378,265

 
$
539,250

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
 
 
Issuance of units in the Operating Partnership
$
15,448

 
$
18,240

Redemption of units in the Operating Partnership for stock

 
13,112

Derivative instruments at fair value
6,937

 
4,734

Tenant improvements and capital expenditures payable
15,952

 
7,087

Fair value adjustment to noncontrolling interest in Operating Partnership
3,645

 
15,548

Deconsolidation of subsidiaries
298,403

 

Transfer of assets related to assets held for sale

 
54,694

Transfer of liabilities related to assets held for sale

 
43

Deferred leasing payable
1,203

 
1,455

Removal of fully depreciated commercial real estate properties
106,142

 
2,043

Share repurchase payable
27,935

 


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
 
Three Months Ended March 31,
 
2018
 
2017
Cash and cash equivalents
$
288,808

 
$
468,035

Restricted cash
89,457

 
71,215

Total cash, cash equivalents, and restricted cash
$
378,265

 
$
539,250

    





The accompanying notes are an integral part of these consolidated financial statements.

19

Table of Contents


SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements
March 31, 2018
(unaudited)

1. Organization and Basis of Presentation
SL Green Realty Corp., which is referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP 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. All of the management, leasing and construction services that are provided to the properties that are wholly-owned by us and that are provided to certain joint ventures are conducted through SL Green Management LLC which is 100% owned by the Operating Partnership. 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 minimize 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 all of our operations are conducted through, the Operating Partnership. The Company is the sole managing general partner of the Operating Partnership. As of March 31, 2018, noncontrolling investors held, in the aggregate, a 5.02% limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership. The Operating Partnership is considered a variable interest entity, or VIE, in which we are the primary beneficiary. See Note 11, "Noncontrolling Interests on the Company's Consolidated Financial Statements".
Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P., or ROP, are wholly-owned subsidiaries of SL Green Realty Corp.
As of March 31, 2018, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties:

20

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

  
 

 
Consolidated
 
Unconsolidated
 
Total
 

Location
 
Property
Type
 
Number of Properties

Approximate Square Feet (unaudited)
 
Number of Properties
 
Approximate Square Feet (unaudited)
 
Number of Properties
 
Approximate Square Feet (unaudited)
 
Weighted Average Occupancy(1) (unaudited)
Commercial:
 



 

 

 

 

 

Manhattan
 
Office
 
20


12,387,091

 
11

 
12,165,164

 
31

 
24,552,255

 
94.2
%

 
Retail
 
4

(2)
302,583

 
9

 
347,970

 
13

 
650,553

 
94.2
%

 
Development/Redevelopment
 
8


318,985

 
3

 
416,214

 
11

 
735,199

 
44.4
%

 
Fee Interest
 
1


176,530

 
1

 

 
2

 
176,530

 
100.0
%

 

 
33


13,185,189

 
24

 
12,929,348

 
57

 
26,114,537

 
92.8
%
Suburban
 
Office
 
20

(3)
3,013,200

 
2

 
640,000

 
22

 
3,653,200

 
83.1
%

 
Retail
 
1


52,000

 

 

 
1

 
52,000

 
100.0
%

 
Development/Redevelopment
 
1


1,000

 
1

 

 
2

 
1,000

 
%

 

 
22


3,066,200

 
3

 
640,000

 
25

 
3,706,200

 
83.3
%
Total commercial properties
 
55


16,251,389

 
27

 
13,569,348

 
82

 
29,820,737

 
91.6
%
Residential:
 

 



 

 

 

 

 

Manhattan
 
Residential
 
3

(2)
472,105

 
10

 
2,156,751

 
13

 
2,628,856

 
88.9
%
Suburban
 
Residential
 



 

 

 

 

 
%
Total residential properties
 
3


472,105

 
10

 
2,156,751

 
13

 
2,628,856

 
88.9
%
Total portfolio
 
58


16,723,494

 
37

 
15,726,099

 
95

 
32,449,593

 
91.4
%
   
(1)
The weighted average occupancy for commercial properties represents the total occupied square feet divided by total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by total available units.
(2)
As of March 31, 2018, we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet (unaudited) of retail space and approximately 222,855 square feet (unaudited) of residential space. For the purpose of this report, we have included this building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.
(3)
Includes the properties at 115-117 Stevens Avenue in Valhalla, New York, and 1-6 International Drive in Rye Brook, New York which are classified as held for sale at March 31, 2018.
As of March 31, 2018, we also managed an approximately 336,000 square foot (unaudited) office building owned by a third party and held debt and preferred equity investments with a book value of $2.1 billion, including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in balance sheet line items other than the Debt and Preferred Equity Investments line item.
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 of 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 minimize any Federal income or excise tax at the Company level. Under the Operating Partnership Agreement, each limited partner has the right to redeem units of limited partnership interests for cash, or if we so elect, shares of SL Green's common stock on a one-for-one basis.
Basis of Quarterly Presentation
The accompanying unaudited 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 the fair presentation of the financial position of the Company and the Operating Partnership at March 31, 2018 and the results of operations for the periods presented have been included. The operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

21

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

These financial statements should be read in conjunction with the financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2017 of the Company and the Operating Partnership.
The consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements as of 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.
Subsequent Events
In May 2018, the Company was the successful bidder for the leasehold interest at 2 Herald Square, at the foreclosure of the asset. The Company had purchased notes receivable secured by 2 Herald Square in April and May 2017. The loans were in maturity default at the time of acquisition and subsequently put on non-accrual in August 2017. No impairment had been recorded as the Company believed that the fair value of the property exceeded the carrying amount of the loans. The Company also reached an agreement to joint venture the asset with an Israeli-based institutional investor, subsequent to closing on the acquisition.
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. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method. See Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures." All significant intercompany balances and transactions have been eliminated.
We consolidate a variable interest entity, or VIE, in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.
Investment in Commercial Real Estate Properties
We allocate the purchase price of real estate to land and building (inclusive of tenant improvements) and, if determined to be material, intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building (inclusive of tenant improvements) over their estimated useful lives, which generally range from three to 40 years. We amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease, which generally range from one to 14 years, and record it as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income. We amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease, which generally ranges 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. To the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material, we amortize such below-market lease value into rental income over the renewal period.
On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be other than temporarily impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property. We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell.
We recognized $2.4 million and $4.8 million of rental revenue for the three months ended March 31, 2018 and 2017 respectively, for the amortization of aggregate below-market leases 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. For the three months ended March 31, 2018 and 2017, we recognized as a reduction to interest expense the amortization of above-market rate mortgages of $0.0 million and $0.7 million, respectively.

22

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) as of March 31, 2018 and December 31, 2017 (in thousands):
 
March 31, 2018
 
December 31, 2017
Identified intangible assets (included in other assets):
 
 
 
Gross amount
$
282,288

 
$
325,880

Accumulated amortization
(241,043
)
 
(277,038
)
Net(1)
$
41,245

 
$
48,842

Identified intangible liabilities (included in deferred revenue):
 
 
 
Gross amount
$
359,469

 
$
540,283

Accumulated amortization
(256,685
)
 
(402,583
)
Net(1)
$
102,784

 
$
137,700


(1)
As of March 31, 2018 and December 31, 2017, $0.1 million and $13.9 million, respectively and $0.1 million and $4.1 million, respectively, of net intangible assets and net intangible liabilities, were reclassified to assets held for sale and liabilities related to assets held for sale.
Fair Value Measurements
See Note 16, "Fair Value Measurements."
Investment in Marketable Securities
At acquisition, we designate a debt security as held-to-maturity, available-for-sale, or trading. As of March 31, 2018, we did not have any debt securities designated as held-to-maturity or trading. We account for our available-for-sale debt securities at fair value pursuant to Accounting Standards Codification, or ASC, 820-10, with the net unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. Any unrealized losses that are determined to be other-than-temporary are recognized in earnings up to their credit component.
The Company adopted ASU 2016-01 effective January 1, 2018 which required entities to measure investments in equity securities at fair value and recognize any changes in fair value in net income. Upon adoption we did not hold investments in equity securities and therefore did not record a cumulative-effect adjustment. We did not hold investments in equity securities as of March 31, 2018.
The cost of bonds and marketable securities sold is determined using the specific identification method.
At March 31, 2018 and December 31, 2017, we held the following marketable securities (in thousands):
 
March 31, 2018
 
December 31, 2017
Commercial mortgage-backed securities
$
28,252

 
$
28,579

Total marketable securities available-for-sale
$
28,252

 
$
28,579

The cost basis of the commercial mortgage-backed securities was $27.5 million at both March 31, 2018 and December 31, 2017. These securities mature at various times through 2035. We held no equity marketable securities as of March 31, 2018 and December 31, 2017.
During the three months ended March 31, 2018, we did not dispose of any marketable securities. During the three months ended March 31, 2017, we disposed of marketable securities for aggregate net proceeds of $54.4 million and realized a gain of $3.3 million, which is included in gain on sale of investment in marketable securities on the consolidated statements of operations.
Investments in Unconsolidated Joint Ventures
We assess our investments in unconsolidated joint ventures for recoverability and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at March 31, 2018.

23

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

Reserve for Possible Credit Losses
The reserve for possible credit losses in connection with debt and preferred equity investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality. Other factors considered include geographic trends, product diversification, the size of the portfolio and current economic conditions. Based upon these factors, we establish a provision for possible credit loss on each individual investment. When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired.
Where impairment is indicated on an investment that is held to maturity, a valuation allowance is measured based upon the excess of the recorded investment amount over the fair value of the collateral. Any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense. We continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly. There were no loan reserves recorded during the three months ended March 31, 2018 and 2017.
Debt and preferred equity investments held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment.
Income Taxes
SL Green is taxed as a REIT under Section 856(c) of the Code. As a REIT, SL Green generally is not subject to Federal income tax. To maintain its qualification as a REIT, SL Green must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If SL Green fails to qualify as a REIT in any taxable year, SL Green will be subject to Federal income tax on its taxable income at regular corporate rates. SL Green may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on its undistributed taxable income.
The Operating Partnership is a partnership and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective income tax returns. The only provision for income taxes included in the consolidated statements of operations relates to the Operating Partnership’s consolidated taxable REIT subsidiaries. The Operating Partnership may also be subject to certain state, local and franchise taxes.
Pursuant to amendments to the Code that became effective January 1, 2001, we have elected, and may elect in the future, to treat certain of our existing or newly created corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, TRSs may perform non-customary services for the tenants of the Company, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business. The TRSs generate income, resulting in Federal and state income tax liability for these entities.
During the three months ended March 31, 2018, we recorded Federal, state and local tax provisions of $0.5 million.
We follow 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 is more-likely-than-not to 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. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited.
On December 22, 2017, the Tax Cuts and Jobs Act (the ‘‘Tax Act’’) was signed into law and makes substantial changes to the Code. Many of the provisions of the Tax Act will require guidance through the issuance of Treasury regulations in order to assess their effect. The Tax Act has not had a material impact on our financial statements.
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.

24

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, debt and preferred equity investments and accounts receivable. We place our cash investments with high quality financial institutions. The collateral securing our debt and preferred equity investments is located in the New York metropolitan area. See Note 5, "Debt and Preferred Equity Investments."
We perform ongoing credit evaluations of our tenants and require most 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 tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost revenue and the costs associated with re-tenanting a space. The properties in our real estate portfolio are located in the New York metropolitan area. The tenants located in our buildings operate in various industries. Other than one tenant, Credit Suisse Securities (USA), Inc., who accounts for 8.2% of our share of annualized cash rent, no other tenant in our portfolio accounted for more than 5.0% of our share of annualized cash rent, including our share of joint venture annualized rent, at March 31, 2018. For the three months ended March 31, 2018, 7.3%, 7.3%, 6.3%, 5.8% and 5.7% of our annualized cash rent was attributable to 11 Madison Avenue, 1185 Avenue of the Americas, 420 Lexington Avenue, 1515 Broadway, and One Madison Avenue respectively. Annualized cash rent for all other consolidated properties was below 5.0%.
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
Accounting Standards Updates
In February 2018, the FASB issued Accounting Standard Update (ASU) No. 2018-03, Technical Corrections and Improvements to Financial Instruments- Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. These amendments provide additional guidance related to equity securities without a readily determinable fair value, forward contracts and options purchased on those equity securities and fair value option liabilities. The guidance will be effective for the Company in the interim period beginning after June 15, 2018. The Company has not yet adopted this new guidance and does not expect it to have a material impact on the Company’s consolidated financial statements when the new standard is implemented.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The amendments in the new standard will permit more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments. The standard will also enhance the presentation of hedge results in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company has not yet adopted the guidance, and does not expect a material impact on the Company’s consolidated financial statements when the new standard is implemented.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. The guidance clarifies the changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in Topic 718. The Company adopted the guidance on January 1, 2018 and it had no impact on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. As a result, entities will no longer present transfers between these items on the statement of cash flows. The Company adopted the guidance on January 1, 2018 and has included the changes in restricted cash when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted after December 15, 2018. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the previous standard. Depending on the lease classification, lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating

25

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

leases. The accounting applied by a lessor is largely unchanged from that applied under the previous standard. However, the presentation and disclosure in the financial statements of non-lease components such as charges to tenants for a building’s operating expenses has been updated. In January 2018, the FASB issued an exposure draft, Leases (Topic 842) Targeted Improvements, which would provide lessors with a practical expedient to not separate non-lease components from the related lease component under certain conditions. At the March 2018 Board meeting, the Board approved an amendment to the practical expedient. We anticipate the majority of our leases would qualify for the amended practical expedient. We expect this amended guidance to be finalized in 2018 and, as a result, we would adopt the practical expedient. Another impact is the measurement and presentation of ground leases under which the Company is lessee. The Company is required to record a liability for the obligation to make payments under the lease and an asset for the right to use the underlying asset during the lease term and will also apply the new expense recognition requirements given the lease classification. The Company is currently quantifying these impacts. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company expects to adopt this guidance January 1, 2019 and will apply the modified retrospective approach.
In January 2016, the FASB issued ASU 2016-01 (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value through earnings, to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income, use the exit price notion when measuring an instrument’s fair value for disclosure and to separately present financial assets and liabilities by measurement category and form of instrument on the balance sheet or in the notes to the financial statements. The Company adopted the guidance effective January 1, 2018, and it had no impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued a new comprehensive revenue recognition guidance which requires us to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services (ASU 2014-09). The FASB also issued implementation guidance in March 2016, April 2016 and May 2016 - ASU’s 2016-08, 2016-10 and 2016-12, respectively. The Company adopted this guidance on January 1, 2018. Since the Company’s revenue is related to leasing activities, the adoption of this guidance did not have a material impact on the consolidated financial statements. The new guidance is applicable to service contracts with joint ventures for which the Company earns property management fees, leasing commissions and development and construction fees. The adoption of this new guidance did not change the accounting for these fees as the pattern of recognition of revenue does not change with the new guidance. We will continue to recognize revenue over time on these contracts because the customer simultaneously receives and consumes the benefits provided by our performance.
In February 2017, the FASB issued ASU No. 2017-05 to clarify the scope of asset derecognition guidance in Subtopic 610-20, which also provided guidance on accounting for partial sales of nonfinancial assets.  Subtopic 610-20 was issued in May 2014 as part of ASU 2014-09.  The Company adopted this guidance on January 1, 2018, and applied the modified retrospective approach. The Company elected to adopt the practical expedient under ASC 606, Revenue from Contracts with Customers, which allows an entity to apply the guidance only to contracts with non-customers that are open based on ASU 360-20, Real Estate Sales, (i.e. failed sales) as of the adoption date.   The Company had one open contract in 2017 with a non-customer that was evaluated under ASC 610-20.  The Company entered into an agreement to sell a portion of their interest in an entity that held a controlling interest in the property at 1515 Broadway.  Upon execution of the agreement in 2017, the transaction was evaluated under ASC 360-20, Real Estate Sales, and did not meet the criteria for sale accounting.  Upon adoption of ASC 606, this contract met the criteria for sale accounting under ASC 610-20. Through the sale, the Company no longer retains a controlling interest, as defined in ASC 810, Consolidation, and the impact of this adjustment is a gain of $0.6 billion from the sale of the partial interest and related step-up in basis to fair value of the non-controlling interest retained. This was recorded in the first quarter of 2018 as an adjustment to beginning retained earnings.
3. Property Acquisitions
During the three months ended March 31, 2018, we did not acquire any properties from a third party.
4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
During the three months ended March 31, 2018, we entered into agreements to sell the properties at 1-6 International Drive in Rye Brook, NY for a sale price of $55.0 million and the properties at 115-117 Stevens Avenue in Valhalla, New York, for a sales price of $12.0 million. We closed on the sale of 115-117 Stevens Avenue in May 2018.
As of March 31, 2018, 1-6 International Drive and 115-117 Stevens Avenue were classified as held for sale.

26

Table of Contents
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
March 31, 2018
(unaudited)

In May 2018, we reached an agreement to sell the fee interest at 635 Madison Avenue for a sales price of $151 million. We expect to record a $14 million charge in connection with the sale, which will be included in depreciable real estate reserves. The transaction, subject to certain closing conditions, is expected to be completed during the third quarter of 2018.
Property Dispositions
The following table summarizes the properties sold during the three months ended March 31, 2018:
Property
 
Disposition Date
 
Property Type
 
Approximate Square Feet
 
Sales Price(1)
(in millions)
 
Gain
(in millions)
600 Lexington Avenue(2)