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 June 30, 2018
 
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: 033-84580 
_________________________________________________________ 
RECKSON OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
_________________________________________________________  
Delaware
11-3233647
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
420 Lexington Avenue, New York, New York 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.  YES x     NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). 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 emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 Exchange Act).  YES o  NO x
 
As of August 13, 2018, no common units of limited partnership interest of the Registrant were held by non-affiliates of the Registrant.  There is no established trading market for such units.
 



Reckson Operating Partnership, L.P.
TABLE OF CONTENTS

 
Item 1.
Financial Statements
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017
 
Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited)
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (unaudited)
 
Consolidated Statement of Capital for the six months ended June 30, 2018 (unaudited)
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)
 
Notes to Consolidated Financial Statements (unaudited)
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
Signatures


1

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)
 
June 30, 2018
 
December 31, 2017
 
(unaudited)
 
 
Assets
 
 
 
Commercial real estate properties, at cost:
 
 
 
Land and land interests
$
1,274,981

 
$
1,704,142

Building and improvements
3,172,505

 
4,251,610

Building leasehold and improvements
1,073,703

 
1,073,703

 
5,521,189

 
7,029,455

Less: accumulated depreciation
(1,246,512
)
 
(1,492,603
)
 
4,274,677

 
5,536,852

Assets held for sale
54,694

 
67,228

Cash and cash equivalents
36,069

 
36,013

Restricted cash
36,658

 
41,117

Tenant and other receivables, net of allowance of $7,209 and $7,237 in 2018 and 2017, respectively
23,010

 
31,006

Deferred rents receivable, net of allowance of $9,834 and $11,189 in 2018 and 2017, respectively
183,972

 
233,300

Debt and preferred equity investments, net of discounts and deferred origination fees of $23,216 and $25,507 in 2018 and 2017, respectively
2,168,515

 
2,114,041

Investments in unconsolidated joint ventures
513,889

 
130,217

Deferred costs, net of accumulated amortization of $77,824 and $77,176 in 2018 and 2017, respectively
73,539

 
106,136

Other assets
216,152

 
245,598

Total assets(1)
$
7,581,175

 
$
8,541,508

Liabilities
 
 
 
Mortgages and other loans payable, net
$
543,907

 
$
829,648

Unsecured notes, net
901,301

 
901,067

Accrued interest payable
12,857

 
14,999

Other liabilities
69,278

 
92,514

Accounts payable and accrued expenses
56,118

 
60,819

Related party payables
23,808

 
23,808

Deferred revenue
18,608

 
134,650

Deferred land leases payable
1,935

 
1,888

Dividends payable
807

 
807

Security deposits
38,280

 
39,085

Liabilities related to assets held for sale
42

 
42

Total liabilities(1)
1,666,941

 
2,099,327

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)


 
June 30, 2018
 
December 31, 2017
 
(unaudited)
 
 
Commitments and contingencies

 

Preferred units
109,161

 
109,161

 
 
 
 
Capital
 
 
 
General partner capital
5,780,209

 
6,012,134

Limited partner capital

 

Accumulated other comprehensive loss

 
(1,259
)
Total ROP partner's capital
5,780,209

 
6,010,875

Noncontrolling interests in other partnerships
24,864

 
322,145

Total capital
5,805,073

 
6,333,020

Total liabilities and capital
$
7,581,175

 
$
8,541,508

 
 
 
 
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: $45.1 million and $268.6 million of land, $0.2 billion and $1.3 billion of building and improvements, $19.0 million and $319.1 million of accumulated depreciation, $623.3 million and $143.9 million of other assets included in other line items, $0.0 million and $495.0 million of real estate debt, net, $0.0 million and $2.1 million of accrued interest payable, and $10.1 million and $48.8 million of other liabilities included in other line items as of June 30, 2018 and December 31, 2017, respectively.


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

3

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statements of Operations
(unaudited, in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,

 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
 
Rental revenue, net
 
$
135,623

 
$
167,058

 
$
273,120

 
$
335,030

Escalation and reimbursement
 
19,368

 
22,897

 
39,908

 
47,442

Investment income
 
49,466

 
60,424

 
93,962

 
100,978

Other income
 
6,591

 
1,433

 
10,287

 
717

Total revenues
 
211,048

 
251,812


417,277

 
484,167

Expenses
 
 
 
 
 
 
 
 
Operating expenses, including related party expenses of $6,176 and $12,157 in 2018, and $6,649 and $13,178 in 2017, respectively.
 
32,513

 
38,765

 
67,363

 
80,490

Real estate taxes
 
32,146

 
38,826

 
64,545

 
77,622

Ground rent
 
5,286

 
5,235

 
10,309

 
10,470

Interest expense, net of interest income
 
17,171

 
32,108

 
32,360

 
61,575

Amortization of deferred financing costs
 
1,501

 
2,039

 
3,056

 
4,126

Depreciation and amortization
 
41,284

 
50,773

 
83,296

 
102,557

Transaction related costs
 
281

 
2

 
281

 
2

Marketing, general and administrative
 
152

 
117

 
274

 
229

Total expenses
 
130,334

 
167,865

 
261,484

 
337,071

Income before equity in net income from unconsolidated joint ventures, equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate, purchase price and other fair value adjustments, (loss) gain on sale of real estate, and depreciable real estate reserves
 
80,714

 
83,947

 
155,793

 
147,096

Equity in net income from unconsolidated joint ventures
 
1,252

 
3,180

 
3,999

 
7,435

Equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate
 
270

 

 
(363
)
 
3

Purchase price and other fair value adjustments
 




54,860



(Loss) gain on sale of real estate
 
(14,863
)
 
4,933

 
(14,863
)
 
4,933

Depreciable real estate reserves
 

 
(29,063
)
 

 
(85,328
)
Net income
 
67,373

 
62,997

 
199,426

 
74,139

Net (income) loss attributable to noncontrolling interests in other partnerships
 
(212
)
 
18,134

 
(504
)
 
18,120

Preferred units distributions
 
(955
)
 
(955
)
 
(1,910
)
 
(1,908
)
Net income attributable to ROP common unitholder
 
$
66,206

 
$
80,176

 
$
197,012

 
$
90,351



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

4

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to ROP common unitholder
$
66,206

 
$
80,176

 
$
197,012

 
$
90,351

Other comprehensive income:
 
 
 
 
 
 
 
Change in net unrealized gain on derivative instruments

 
90

 

 
180

Comprehensive income attributable to ROP common unitholder
$
66,206

 
$
80,266


$
197,012


$
90,531



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

5

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statement of Capital
(unaudited, in thousands)
  
General
Partner's
Capital
Class A
Common
Units
 
Limited Partner's Capital
 
Noncontrolling
Interests
In Other
Partnerships
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Capital
Balance at December 31, 2017
$
6,012,134

 
$

 
$
322,145

 
$
(1,259
)
 
$
6,333,020

Contributions
1,113,642

 

 

 
1,259

 
1,114,901

Distributions
(1,542,579
)
 

 
(645
)
 

 
(1,543,224
)
Deconsolidation of partially owned entity

 

 
(297,140
)
 

 
(297,140
)
Net income
197,012

 

 
504

 

 
197,516

Balance at June 30, 2018
$
5,780,209

 
$

 
$
24,864

 
$

 
$
5,805,073



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


6

Table of Contents
Reckson Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)

 
Six Months Ended June 30,
 
2018
 
2017
Operating Activities
 
 
 
Net income
$
199,426

 
$
74,139

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
86,352

 
106,683

Equity in net income from unconsolidated joint ventures
(3,999
)
 
(7,435
)
Distributions of cumulative earnings from unconsolidated joint ventures
3,706

 
9,479

Equity in net gain (loss) on sale of interest in unconsolidated joint venture interest/real estate
363

 
(3
)
Purchase price and other fair value adjustments
(54,860
)
 

Loss (gain) on sale of real estate
14,863

 
(4,933
)
Depreciable real estate reserves

 
85,328

Deferred rents receivable
2,272

 
(6,446
)
Other non-cash adjustments
(20,774
)
 
(24,586
)
Changes in operating assets and liabilities:
 
 
 
Tenant and other receivables
(2,514
)
 
2,949

Deferred lease costs
(5,511
)
 
(6,713
)
Other assets
(3,409
)
 
(18,061
)
Accounts payable, accrued expenses, other liabilities and security deposits
9,240

 
1,985

Deferred revenue and land leases payable
(2,974
)
 
(4,508
)
Net cash provided by operating activities
222,181

 
207,878

Investing Activities
 
 
 
Acquisitions of real estate properties
226

 

Additions to land, buildings and improvements
(56,790
)
 
(51,777
)
Capital improvements/acquisition deposits/deferred purchase price
1,500

 

Investments in unconsolidated joint ventures
(18,070
)
 
(84
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
104,071

 
48,616

Net proceeds from disposition of real estate/joint venture interest
156,163

 
58,248

Other investments
(23,166
)
 
28,459

Origination of debt and preferred equity investments
(603,575
)
 
(854,577
)
Repayments or redemption of debt and preferred equity investments
310,813

 
633,140

Net cash provided by investing activities
(128,828
)
 
(137,975
)
Financing Activities
 
 
 
Proceeds from mortgages and other loans payable
$
209,191

 
$
250,000

Proceeds from revolving credit facility and senior unsecured notes

 
1,072,800

Repayments of revolving credit facility and senior unsecured notes

 
(872,800
)
Distributions to noncontrolling interests in other partnerships
(645
)
 
(221
)
Contributions from common unitholder
981,135

 
1,775,488

Distributions to common and preferred unitholders
(1,286,336
)
 
(2,272,349
)
Other obligations related to loan participations

 
10,000

Deferred loan costs and capitalized lease obligation
(1,101
)
 
(4,314
)
Net cash used in financing activities
(97,756
)
 
(41,396
)
Net (decrease) increase in cash, cash equivalents, and restricted cash
(4,403
)
 
28,507

Cash, cash equivalents, and restricted cash at beginning of year
77,130

 
103,419

Cash, cash equivalents, and restricted cash at end of period
$
72,727

 
$
131,926

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
 
 
Tenant improvements and capital expenditures payable
$
9,400

 
$
4,986

Transfer of assets related to assets held for sale

 
173,918

Transfer of liabilities related to assets held for sale

 
149

Removal of fully depreciated commercial real estate properties
11,540

 
202

Contributions from common unitholder
132,507

 
138,304

Distributions to common unitholder
258,153

 

Deconsolidation of a subsidiary
280,718

 
3,520

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.
 
Six Months Ended June 30,
 
2018
 
2017
Cash and cash equivalents
$
36,069

 
$
50,978

Restricted cash
36,658

 
80,948

Total cash, cash equivalents, and restricted cash
$
72,727

 
$
131,926



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

7

Table of Contents

Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements
June 30, 2018
(unaudited)
1. Organization and Basis of Presentation
Reckson Operating Partnership, L.P., or ROP, commenced operations on June 2, 1995. The sole general partner of ROP is Wyoming Acquisition GP LLC., or WAGP, a wholly-owned subsidiary of SL Green Operating Partnership, L.P., or the Operating Partnership. The sole limited partner of ROP is the Operating Partnership. The Operating Partnership is 94.80% owned by SL Green Realty Corp., or SL Green, as of June 30, 2018. SL Green is a self-administered and self-managed real estate investment trust, and is the sole managing general partner of the Operating Partnership. Unless the context requires otherwise, all references to "we," "our," "us" and the "Company" means ROP and all entities owned or controlled by ROP.
We are engaged in the acquisition, ownership, management and operation of commercial and residential real estate properties, principally office properties, and also own land for future development in the New York metropolitan area.
As of June 30, 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:
Location
 
Type
 
Number of
Properties
 
Approximate Square Feet (unaudited)
 
Weighted Average
Occupancy
(1) (unaudited)
Commercial:
 
 
 
 
 
 
 
 
Manhattan
 
Office(2)(3)
 
15

 
8,303,245

 
96.0
%
 
 
Retail(4)(5)
 
5

 
364,816

 
97.6
%
 
 
Development/Redevelopment
 
1

 
160,000

 
3.0
%
 
 
Fee Interest
 

 

 
%
 
 
 
 
21

 
8,828,061

 
94.4
%
Suburban
 
Office(6)
 
12

 
1,972,400

 
86.0
%
 
 
Retail
 
1

 
52,000

 
100.0
%
 
 
 
 
13

 
2,024,400

 
86.4
%
Total commercial properties
 
 
 
34

 
10,852,461

 
92.9
%
Residential:
 
 
 
 
 
 
 
 
Manhattan
 
Residential(4)
 

 
222,855

 
95.5
%
Total portfolio
 
 
 
34

 
11,075,316

 
92.9
%
(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)
Includes one unconsolidated joint venture property at 919 Third Avenue comprised of approximately 1,454,000 square feet.
(3)
Includes one unconsolidated TIC interest at 2 Herald Square, which is under contract for sale as of June 30, 2018.
(4)
As of June 30, 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.
(5)
Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet.
(6)
Includes the properties at 1-6 International Drive in Rye Brook, New York which are classified as held for sale at June 30, 2018.

As of June 30, 2018, we held debt and preferred equity investments with a book value of $2.2 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.

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

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 at June 30, 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. 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.
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.
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 $1.8 million and $4.2 million of rental revenue for the three and six months ended June 30, 2018, respectively, and $4.2 million and $8.4 million for the three and six months ended June 30, 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.

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 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 June 30, 2018 and December 31, 2017 (in thousands):
 
June 30, 2018
 
December 31, 2017
Identified intangible assets (included in other assets):
 
 
 
Gross amount
$
213,421

 
$
276,163

Accumulated amortization
(198,189
)
 
(236,737
)
Net(1)
$
15,232

 
$
39,426

Identified intangible liabilities (included in deferred revenue):
 
 
 
Gross amount
$
230,275

 
$
496,438

Accumulated amortization
(212,998
)
 
(366,091
)
Net(1)
$
17,277

 
$
130,347

(1)
As of June 30, 2018 and December 31, 2017, $0.1 million and $0.1 million, respectively and $0.1 million and $0.1 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 12, "Fair Value Measurements."
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 June 30, 2018.
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 and six months ended June 30, 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
ROP is a disregarded entity of SL Green Operating Partnership, L.P. for federal income tax purposes, and, as a result, all income and losses of ROP are considered income and losses of SL Green Operating Partnership, L. P. No provision has been made for income taxes in the consolidated financial statements since such taxes, if any, are the responsibility of the individual partners of SL Green Operating Partnership, L.P.

10

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

Shares Contributed by Parent Company
We present shares of SL Green common stock as a contra-equity account within general partner capital in our consolidated 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.
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. No 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 June 30, 2018. For the three months ended June 30, 2018, 16.0%, 10.5%, 8.5%, 8.3%, 8.1%, 7.2%, 7.1%, 6.8% and 5.5% of our annualized cash rent was attributable to 1185 Avenue of the Americas, 625 Madison Avenue, 919 Third Avenue, 750 Third Avenue, 810 Seventh Avenue, 555 West 57th Street, 125 Park Avenue, 1350 Avenue of the Americas, and 711 Third Avenue, respectively. Annualized cash rent for all other 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 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

11

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

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, and in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. This 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 leases. The accounting applied by a lessor, inclusive of the effect of a practical expedient offered in ASU No. 2018-11 that allows lessors to not separate non-lease components from the related lease components under certain conditions, which the Company expects most of its leases to qualify for and to adopt, is largely unchanged from that applied under the previous standard. However, the Company will apply this guidance to the 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. This 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 adoption had no impact on the consolidated financial statements as the Company had no open contracts based on ASC 360-20 as of December 31, 2017.
3. Property Acquisitions
During the six months ended June 30, 2018, we did not acquire any properties from a third party.
4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
As of June 30, 2018, 1-6 International Drive was classified as held for sale. We closed on the sale of 1-6 International Drive in July 2018.

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

Property Dispositions
The following table summarizes the properties sold during the six months ended June 30, 2018:
Property
 
Disposition Date
 
Property Type
 
Approximate Square Feet
 
Sales Price(1)
(in millions)
 
Gain (loss)(2)
(in millions)
115-117 Stevens Avenue
 
May 2018
 
Fee Interest
 
178,000

 
$
12.0

 
$
(0.7
)
635 Madison Avenue
 
June 2018
 
Fee Interest
 
176,530

 
153.0

 
(14.1
)
(1)
Sales price represents the gross sales price for a property or the gross asset valuation for interests in a property.
(2)
Gain (loss) on sale amounts do not include adjustments for expenses recorded in subsequent periods.
5. Debt and Preferred Equity Investments
Below is a summary of the activity relating to our debt and preferred equity investments for the six months ended June 30, 2018 and the twelve months ended December 31, 2017 (in thousands):
 
June 30, 2018
 
December 31, 2017
Balance at beginning of period (1)
$
2,114,041

 
$
1,640,412

Debt investment originations/accretion (2)
611,686

 
1,142,591

Preferred equity investment originations/accretion (2)
4,177

 
144,456

Redemptions/sales/syndications/amortization (3)
(561,389
)
 
(813,418
)
Balance at end of period (1)
$
2,168,515

 
$
2,114,041

(1)
Net of unamortized fees, discounts, and premiums.
(2)
Accretion includes amortization of fees and discounts and paid-in-kind investment income.
(3)
Certain participations in debt investments that were sold or syndicated did not meet the conditions for sale accounting are included in other assets and other liabilities on the consolidated balance sheets.
Debt Investments
As of June 30, 2018 and December 31, 2017, we held the following debt investments with an aggregate weighted average current yield of 9.06% at June 30, 2018 (in thousands):
Loan Type
 
June 30, 2018
Future Funding
Obligations
 
June 30, 2018 Senior
Financing
 
June 30, 2018
Carrying Value
(1)
 
December 31, 2017
Carrying Value (1)
 
Maturity
Date (2)
Fixed Rate Investments:
 
 
 
 
 
 
 
 
 
 
Mortgage Loan(3)(4)
 
$

 
$

 
$
26,394

 
$
26,366

 
February 2019
Mortgage Loan
 

 

 
164

 
239

 
August 2019
Mezzanine Loan(5a)
 

 
1,160,000

 
208,506

 
204,005

 
March 2020
Mezzanine Loan
 

 
15,000

 
3,500

 
3,500

 
September 2021
Mezzanine Loan
 

 
147,000

 
24,922

 
24,913

 
April 2022
Mezzanine Loan
 

 
280,000

 
35,564

 
34,600

 
August 2022
Mezzanine Loan(6)
 

 
86,201

 
12,702

 
12,699

 
November 2023
Mezzanine Loan(5b)
 

 
115,000

 
12,936

 
12,932

 
June 2024
Mezzanine Loan
 

 
95,000

 
30,000

 
30,000

 
January 2025
Mezzanine Loan
 

 
340,000

 
15,000

 
15,000

 
November 2026
Mezzanine Loan
 

 
1,657,500

 
55,250

 
55,250

 
June 2027
Mortgage/Jr. Mortgage Loan(7)
 

 

 

 
250,464

 
 
Total fixed rate
 
$

 
$
3,895,701

 
$
424,938

 
$
669,968

 
 
Floating Rate Investments:
 


 

 

 

 
 
Mezzanine Loan
 

 
20,523

 
10,970

 
10,934

 
August 2018
Mortgage/Mezzanine Loan(8)
 

 

 
19,990

 
19,940

 
August 2018
Mezzanine Loan(9)
 

 
65,000

 
14,992

 
14,955

 
August 2018

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

Loan Type
 
June 30, 2018
Future Funding
Obligations
 
June 30, 2018 Senior
Financing
 
June 30, 2018
Carrying Value
(1)
 
December 31, 2017
Carrying Value (1)
 
Maturity
Date (2)
Mortgage/Mezzanine Loan
 

 

 
16,992

 
16,969

 
September 2018
Mezzanine Loan(10)
 

 
37,500

 
14,961

 
14,855

 
September 2018
Mezzanine Loan
 
2,325

 
45,025

 
35,072

 
34,879

 
October 2018
Mezzanine Loan(5c)
 

 
150,000

 
15,347

 
15,381

 
December 2018
Mezzanine Loan(5d)
 

 

 
14,836

 
14,869

 
December 2018
Mezzanine Loan
 

 
33,000

 
26,967

 
26,927

 
December 2018
Mezzanine Loan
 

 
175,000

 
59,873

 
59,723

 
December 2018
Mezzanine Loan(11)
 

 
45,000

 
12,211

 
12,174

 
January 2019
Mezzanine Loan
 
4,000

 
29,291

 
9,980

 
8,550

 
January 2019
Mezzanine Loan(5e)(12)
 
795

 

 
15,150

 
15,148

 
March 2019
Mezzanine Loan
 

 
38,000

 
21,964

 
21,939

 
March 2019
Mezzanine Loan(13)
 

 
40,000

 
19,958

 
19,982

 
April 2019
Mezzanine Loan(13)
 

 
61,130

 
21,718

 
34,947

 
April 2019
Mezzanine Loan
 

 
175,000

 
37,355

 
37,250

 
April 2019
Mezzanine Loan
 

 
265,000

 
24,895

 
24,830

 
April 2019
Mortgage/Jr. Mortgage Participation Loan
 
20,065

 
220,572

 
79,551

 
71,832

 
August 2019
Mezzanine Loan(10)
 
2,034

 
189,829

 
37,884

 
37,851

 
September 2019
Mortgage/Mezzanine Loan
 
20,560

 

 
168,369

 
143,919

 
September 2019
Mezzanine Loan
 

 
350,000

 
34,810

 
34,737

 
October 2019
Mortgage/Mezzanine Loan
 
1,306

 

 
46,168

 

 
December 2019
Mortgage/Mezzanine Loan
 
17,627

 

 
51,981

 
43,845

 
January 2020
Mezzanine Loan
 
1,123

 
571,863

 
78,462

 
75,834

 
January 2020
Mortgage Loan
 
14,786

 

 
84,783

 

 
February 2020
Mezzanine Loan
 
3,878

 
306,711

 
50,669

 

 
March 2020
Mortgage/Mezzanine Loan
 
45,019

 

 
333,290

 

 
April 2020
Mezzanine Loan
 
6,386

 
35,912

 
11,829

 
11,259

 
July 2020
Mezzanine Loan
 
44,088

 
340,558

 
83,065

 
75,428

 
November 2020
Mortgage and Mezzanine Loan
 
38,200

 

 
93,498

 
88,989

 
December 2020
Mortgage and Mezzanine Loan
 

 

 
35,207

 
35,152

 
December 2020
Jr. Mortgage Participation/Mezzanine Loan
 

 
60,000

 
15,648

 
15,635

 
July 2021
Mortgage/Mezzanine Loan (14)
 

 

 

 
162,553

 
 
Mortgage/Mezzanine Loan (14)
 

 

 

 
74,755

 
 
Mortgage/Mezzanine Loan (15)
 

 

 

 
23,609

 
 
Total floating rate
 
$
222,192

 
$
3,254,914

 
$
1,598,445

 
$
1,299,650

 
 
Total
 
$
222,192

 
$
7,150,615

 
$
2,023,383

 
$
1,969,618

 
 
(1)
Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees.
(2)
Represents contractual maturity, excluding any unexercised extension options.
(3)
In September 2014, we acquired a $26.4 million mortgage loan at a $0.2 million discount and a $5.7 million junior mortgage participation at a $5.7 million discount. The junior mortgage participation has been a nonperforming loan since acquisition, is currently on non-accrual status and has no carrying value.
(4)
This loan was repaid in August 2018.
(5)
Carrying value is net of the following amounts that were sold or syndicated, which are included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting: (a) $1.3 million, (b) $12.0 million, (c) $14.6 million, (d) $14.1 million, and (e) $5.1 million.
(6)
The loan's June interest payment was outstanding at June 30, 2018 and was subsequently received in July 2018. The loan was evaluated in accordance with our loan review procedures and the Company concluded that the fair value of the collateral exceeded the carrying amount of the loan.

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

(7)
These loans were distributed to SL Green in March 2018.
(8)
This loan was extended in August 2018.
(9)
This loan was extended in July 2018.
(10)
This loan was repaid in July 2018.
(11)
In July 2018, the Company accepted an assignment of the property in-lieu of repayment of the loan, and marked the assets received and liabilities assumed to fair value, which exceeded the carrying value of the loan.
(12)
This loan was extended in March 2018.
(13)
This loan was extended in April 2018.
(14)
This loan was repaid in February 2018.
(15)
This loan was sold in May 2018.
Preferred Equity Investments
As of June 30, 2018 and December 31, 2017, we held the following preferred equity investments with an aggregate weighted average current yield of 5.73% at June 30, 2018 (in thousands):
Type
 
June 30, 2018
Future Funding
Obligations
 
June 30, 2018 Senior
Financing
 
June 30, 2018
Carrying Value
(1)
 
December 31, 2017
Carrying Value
(1)
 
Maturity
Date
(2)
Preferred Equity
 
$

 
$
272,000

 
$
145,132

 
$
144,423

 
April 2021
Total
 
$

 
$
272,000

 
$
145,132

 
$
144,423

 
 
(1)
Carrying value is net of deferred origination fees.
(2)
Represents contractual maturity, excluding any unexercised extension options.
At June 30, 2018, all debt and preferred equity investments were performing in accordance with the terms of the relevant investments, with the exception of a junior mortgage participation acquired in September 2014, which was acquired for zero and has a carrying value of zero, as discussed in subnote 3 of the Debt Investments table above, and a mezzanine loan for which the June 2018 interest payment was outstanding as of June 30, 2018 and was subsequently received in July 2018, as discussed in subnote 6 of the Debt Investments table above.
At December 31, 2017, all debt and preferred equity investments were performing in accordance with the terms of the relevant investments with the exception of a junior mortgage participation acquired in September 2014, which was acquired for zero and has a carrying value of zero, as discussed in subnote 3 of the Debt Investments table above, and our investment in 2 Herald Square, which was purchased in maturity default and was subsequently distributed to SL Green in the first quarter of 2018. In May 2018, SL Green was the successful bidder for the leasehold interest at the foreclosure of the asset and assigned the Company a 49.0% tenancy in common interest in the leasehold interest.
We have determined that we have one portfolio segment of financing receivables at June 30, 2018 and December 31, 2017 comprising commercial real estate which is primarily recorded in debt and preferred equity investments. Included in other assets is an additional amount of financing receivables totaling $117.9 million and $93.4 million at June 30, 2018 and December 31, 2017, respectively. No financing receivables were 90 days past due at June 30, 2018.
6. Investments in Unconsolidated Joint Ventures
We have investments in several real estate joint ventures with various partners. As of June 30, 2018 and December 31, 2017, none of our investments in unconsolidated joint ventures were VIEs. All of the investments below are voting interest entities. As we do not control the joint ventures listed below, we account for them under the equity method of accounting.
The table below provides general information on each of our joint ventures as of June 30, 2018:
Property
Partner
Ownership
Interest(1)
Economic
Interest(1)
Unaudited Approximate Square Feet
Acquisition Date(2)
Acquisition
Price(2)
(in thousands)
919 Third Avenue(3)
New York State Teacher's Retirement System
51.00%
51.00%
1,454,000

January 2007
$
1,256,727

131-137 Spring Street
Invesco Real Estate
20.00%
20.00%
68,342

August 2015
277,750

Mezzanine Loan(4)
Private Investors
33.33%
33.33%

May 2017
15,000

2 Herald Square(5)
(5) 
49.00%
49.00%
369,000

May 2018
266,000

(1)
Ownership interest and economic interest represent the Company's interests in the joint venture as of June 30, 2018. Changes in ownership or economic interests within the current year are disclosed in the notes below.

15

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

(2)
Acquisition date and price represent the date on which the Company initially acquired an interest in the joint venture and the actual or implied gross purchase price for the joint venture on that date. Acquisition date and price are not adjusted for subsequent acquisitions or dispositions of interest.
(3)
In January 2018, the partnership agreement for our investment was modified resulting in the Company no longer having a controlling interest in this investment. As a result the investment was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $54.9 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles of the property.
(4)
In May 2017, the Company contributed a mezzanine loan secured by a commercial property in midtown Manhattan to a joint venture and retained a 33.33% interest in the venture. The carrying value is net of $10.0 million that was sold, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting. The loan was repaid in August 2018.
(5)
In May 2018, SL Green assigned the Company a 49.0% tenancy-in-common interest in the leasehold interest in 2 Herald Square and entered into an agreement to sell this investment. Consolidation of this investment is not required as such interest does not qualify as a VIE and does not meet the control requirement for consolidation. Accordingly, we account for this investment using the equity method of accounting. We use the equity method of accounting because the shared decision-making involved in a tenancy-in-common interest investment provides us with significant influence on the operating and financial decisions of this investment.
Acquisition, Development and Construction Arrangements
Based on the characteristics of the following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50%, we have accounted for these debt and preferred equity investments under the equity method. As of June 30, 2018 and December 31, 2017, the carrying value for acquisition, development and construction arrangements were as follows (in thousands):
Loan Type
 
June 30, 2018
 
December 31, 2017
 
Maturity Date
Mezzanine Loan(1)
 
$
28,105

 
$
26,716

 
July 2036
Mezzanine Loan and Preferred Equity(2)
 

 
100,000

 
 
 
 
$
28,105

 
$
126,716

 
 
(1)
The Company was redeemed on this investment in July 2018.
(2)
The mezzanine loan was repaid and the preferred equity interest was redeemed in March 2018.

Sale of Joint Venture Interests or Properties
We did not sell any joint venture interests or properties during the six months ended June 30, 2018.
Joint Venture Mortgages and Other Loans Payable
We generally finance our joint ventures with non-recourse debt. In certain cases we have provided guarantees or master leases for tenant space, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The first mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at June 30, 2018 and December 31, 2017, respectively, are as follows (amounts in thousands):
Property
 
Economic Interest (1)
 
Maturity Date
 
Interest
Rate (2)
 
June 30, 2018
 
December 31, 2017
Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
 
 
919 Third Avenue
 
51.00
%
 
June 2023
 
 
5.12
%
 
$
500,000

 
$

Floating Rate Debt:
 
 
 
 
 
 
 
 
 
 
 
131-137 Spring Street
 
20.00
%
 
August 2020
 
L+
1.55
%
 
$
141,000

 
$
141,000

Total joint venture mortgages and other loans payable
 
 
 
 
$
641,000

 
$
141,000

Deferred financing costs, net
 
 
 
 
 
 
 
 
(2,308
)
 
(2,862
)
Total joint venture mortgages and other loans payable, net
 
 
 
 
$
638,692

 
$
138,138

(1)
Economic interest represents the Company's interests in the joint venture as of June 30, 2018. Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures table above.
(2)
Interest rates as of June 30, 2018. Floating rate debt is presented with the stated interest rate spread over 30-day LIBOR, unless otherwise specified.

16

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

The combined balance sheets for the unconsolidated joint ventures, at June 30, 2018 and December 31, 2017 are as follows (in thousands):
 
June 30, 2018
 
December 31, 2017
Assets (1)
 
 
 
Commercial real estate property, net
$
1,851,576

 
$
273,116

Debt and preferred equity investments, net
43,105

 
141,716

Other assets
502,804

 
15,735

Total assets
$
2,397,485

 
$
430,567

Liabilities and members' equity (1)
 
 
 
Mortgages and other loans payable, net
$
638,692

 
$
138,138

Other liabilities
627,992

 
18,908

Members' equity
1,130,801

 
273,521

Total liabilities and members' equity
$
2,397,485

 
$
430,567

Company's investments in unconsolidated joint ventures
$
513,889

 
$
130,217

(1)
The combined assets, liabilities and equity for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018.
The combined statements of operations for the unconsolidated joint ventures for the three and six months ended June 30, 2018 and 2017, are as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total revenues
$
34,115

 
$
8,347

 
$
70,362

 
$
19,594

Operating expenses
5,566

 
243

 
12,266

 
454

Real estate taxes
6,748

 
318

 
13,496

 
632

Interest expense, net of interest income
6,990

 
909

 
13,797

 
1,734

Amortization of deferred financing costs
277

 
277

 
554

 
554

Depreciation and amortization
12,607

 
2,101

 
25,094

 
4,202

Total expenses
$
32,188

 
$
3,848

 
$
65,207

 
$
7,576

Net income (1)
$
1,927

 
$
4,499

 
$
5,155

 
$
12,018

Company's equity in net income from unconsolidated joint ventures (1)
$
1,252

 
$
3,180

 
$
3,999

 
$
7,435

(1)
The combined statements of operation and the Company's equity in net income for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018.

17

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

7. Mortgages and Other Loans Payable
The first mortgages and other loans payable collateralized by the respective properties and assignment of leases or debt investments at June 30, 2018 and December 31, 2017, respectively, were as follows (amounts in thousands):
Property
 
Maturity Date
 
Interest Rate (1)
 
June 30, 2018
 
December 31, 2017
Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
315 West 33rd Street
 
February 2027
 
 
4.24
%
 
$
250,000

 
$
250,000

919 Third Avenue (2)
 
 
 
 
 
 

 
500,000

Floating Rate Debt:
 
 
 
 
 
 
 
 
 
2017 Master Repurchase Agreement (3)
 
June 2019
 
L+
2.34
%
 
$
300,000

 
$
90,809

Total mortgages and other loans payable
 
 
 
 
 
 
$
550,000

 
$
840,809

Deferred financing costs, net of amortization
 
 
 
 
 
 
(6,093
)
 
(11,161
)
Total mortgages and other loans payable, net
 
 
 
 
 

 
$
543,907

 
$
829,648

(1)
Interest rate as of June 30, 2018. Floating rate debt is presented with the stated interest rate spread over 30-day LIBOR, unless otherwise specified.
(2)
Our investment in the property was deconsolidated as of January 1, 2018. See Note 6, "Investments in Unconsolidated Joint Ventures".
(3)
In June 2018, we exercised a 12-month extension option.
At June 30, 2018 and December 31, 2017, the gross book value of the properties and debt and preferred equity investments collateralizing the mortgages and other loans payable, not including assets held for sale, was approximately $1.0 billion and $1.9 billion, respectively.
Master Repurchase Agreements
The Company has entered into two Master Repurchase Agreements, or MRAs, known as the 2016 MRA and 2017 MRA, which provide us with the ability to sell certain debt investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facilities permit valuation adjustments based on capital markets activity, and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to recollateralize the facility with additional assets from our portfolio of debt investments and our ability to satisfy margin calls with cash or cash equivalents.
In June 2017, we entered into the 2017 MRA, with a maximum facility capacity of $300.0 million. In April 2018, we increased the maximum facility capacity to $400.0 million. The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate and has an initial one year term, with two one year extension options. In June 2018, we exercised a one year extension option. At June 30, 2018, the facility had an outstanding balance of $299.2 million, net of deferred financing costs.
In July 2016, we entered into a restated 2016 MRA, with a maximum facility capacity of $300.0 million. In June 2018, we terminated the restated 2016 MRA. The facility bore interest ranging from 225 and 400 basis points over 30-day LIBOR depending on the pledged collateral and had an initial two-year term, with a one year extension option. Since December 6, 2015, we had been required to pay monthly in arrears a 25 basis point fee on the excess of $150.0 million over the average daily balance during the period when the average daily balance was less than $150.0 million.

18

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

8. Corporate Indebtedness
2017 Credit Facility
In November 2017, the Company, SL Green and the Operating Partnership entered into an amendment to the credit facility, referred to as the 2017 credit facility, that was originally entered into in November 2012, or the 2012 credit facility. The amendment resulted in the Company no longer being a borrower, and instead is providing a guarantee of the facility. The 2012 credit facility had a carrying value of $1.2 billion, net of deferred financing costs, as of the amendment date and was removed from our consolidated balance sheet and shown as a non-cash capital contribution. SL Green and the Operating Partnership remain borrowers jointly and severally obligated under the 2017 credit facility. As of June 30, 2018, the 2017 credit facility consisted of a $1.5 billion revolving credit facility, a $1.3 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of March 31, 2022, March 31, 2023, and November 21, 2024, respectively. The revolving credit facility has two six-month as-of-right extension options to March 31, 2023. SL Green and the Operating Partnership also have an option, subject to customary conditions, to increase the capacity of the credit facility to $4.5 billion at any time prior to the maturity dates for the revolving credit facility and term loans without the consent of existing lenders, by obtaining additional commitments from the existing lenders and other financial institutions.
As of June 30, 2018, SL Green and the Operating Partnership had $11.8 million of outstanding letters of credit, $360.0 million drawn under the revolving credit facility and $1.5 billion outstanding under the term loan facilities, with total undrawn capacity of $1.1 billion under the 2017 credit facility. At June 30, 2018 and December 31, 2017, the revolving credit facility had a carrying value of $351.3 million and $30.3 million, respectively, net of deferred financing costs. At June 30, 2018 and December 31, 2017, the term loan facilities had a carrying value of $1.5 billion and $1.5 billion, respectively, net of deferred financing costs.
The 2017 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
Senior Unsecured Notes
The following table sets forth our senior unsecured notes and other related disclosures as of June 30, 2018 and December 31, 2017, respectively, by scheduled maturity date (amounts in thousands):
Issuance
 
June 30,
2018
Unpaid
Principal
Balance
 
June 30,
2018
Accreted
Balance
 
December 31,
2017
Accreted
Balance
 
Coupon
Rate
(1)
 
Initial
Term
(in Years)
 
Maturity Date
August 5, 2011 (2)
 
$
250,000

 
$
249,991

 
$
249,953

 
5.00
%
 
7
 
August 2018
March 16, 2010 (2)
 
250,000

 
250,000

 
250,000

 
7.75
%
 
10
 
March 2020
November 15, 2012 (3)
 
300,000

 
304,673

 
305,163

 
4.50
%
 
10
 
December 2022
December 17, 2015 (2)
 
100,000

 
100,000

 
100,000

 
4.27
%
 
10
 
December 2025
 
 
$
900,000

 
$
904,664

 
$
905,116

 
 
 
 
 
 
Deferred financing costs, net
 
 
 
(3,363
)
 
(4,049
)
 
 
 
 
 
 
 
 
$
900,000

 
$
901,301

 
$
901,067

 
 
 
 
 
 
(1)
Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates.
(2)
Issued by SL Green, the Operating Partnership and ROP, as co-obligors.
(3)
In October 2017, SL Green, the Operating Partnership, and ROP, as co-obligors, issued an additional $100.0 million of 4.50% senior unsecured notes due December 2022. The notes were priced at 105.334%.
We provide a guaranty of the Operating Partnership's obligations under its 3.25% Senior Notes due 2022, which were issued in October 2017 and will mature in October 2022. As of June 30, 2018, the 3.25% Senior Notes due 2022 had a carrying value of $499.5 million.
We also provide a guaranty of the Operating Partnership's obligations under its $350.0 million Senior Notes due 2021, which were issued in August 2018. The notes bear interest at a floating rate, reset quarterly, equal to three-month LIBOR plus 98 basis points. The notes will mature in August 2021 and can be redeemed at par beginning in August 2019.
Restrictive Covenants

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

The terms of the 2017 credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, SL Green's ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that SL Green will not during any time when a default is continuing, make distributions with respect to SL Green's common stock or other equity interests, except to enable SL Green to continue to qualify as a REIT for Federal income tax purposes. As of June 30, 2018 and December 31, 2017, we were in compliance with all such covenants.
Principal Maturities
Combined aggregate principal maturities of mortgages and other loans payable, and senior unsecured notes as of June 30, 2018, including as-of-right extension options and put options, were as follows (in thousands):
 
Scheduled
Amortization
 
Principal
 
Senior Unsecured Notes
 
Total
Remaining 2018
$

 
$

 
$
250,000

 
$
250,000

2019

 

 

 

2020

 
300,000

 
250,000

 
550,000

2021

 

 

 

2022

 

 
300,000

 
300,000

Thereafter

 
250,000

 
100,000

 
350,000

 
$

 
$
550,000

 
$
900,000

 
$
1,450,000

Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Interest expense before capitalized interest
$
18,678

 
$
32,231

 
$
34,677

 
$
62,082

Interest capitalized
(1,506
)
 
(122
)
 
(2,314
)
 
(502
)
Interest income
(1
)
 
(1
)
 
(3
)
 
(5
)
Interest expense, net
$
17,171

 
$
32,108

 
$
32,360

 
$
61,575

9. Related Party Transactions
Cleaning/ Security/ Messenger and Restoration Services
Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements.
Income earned from the profit participation, which is included in other income on the consolidated statements of operations, was $0.9 million and $1.7 million for the three and six months ended June 30, 2018, respectively, and was $0.9 million and $1.7 million for the three and six months ended June 30, 2017, respectively.
We also recorded expenses, inclusive of capitalized expenses, of $2.4 million and $4.6 million for the three and six months ended June 30, 2018, respectively, for these services (excluding services provided directly to tenants), and $2.4 million and $4.4 million for the three and six months ended June 30, 2017, respectively.

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Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

Allocated Expenses from SL Green
Property operating expenses include an allocation of salary and other operating costs from SL Green based on square footage of the related properties. Such amount was approximately $2.8 million and $5.6 million for the three and six months ended June 30, 2018, respectively. The amount was $3.0 million and $6.2 million for the three and six months ended June 30, 2017, respectively.
Insurance
We obtained insurance coverage through an insurance program administered by SL Green. In connection with this program, we incurred insurance expense of approximately $1.1 million and $2.2 million for the three and six months ended June 30, 2018, respectively. We incurred insurance expense of approximately $1.4 million and $2.8 million for the three and six months ended June 30, 2017, respectively.
Related Party Payable to SL Green
On August 22, 2016, we issued a promissory note to our parent company in the amount of $23.8 million which bears interest at an annual rate of 6.0%, compounded quarterly, and matures on August 22, 2018.
10. Preferred Units
Through a consolidated subsidiary, we have authorized up to 109,161 3.50% Series A Preferred Units of limited partnership interest, or the Subsidiary Series A Preferred Units, with a liquidation preference of $1,000.00 per unit. In August 2015, the Company issued 109,161 Subsidiary Series A Preferred Units in conjunction with an acquisition. The Subsidiary Series A Preferred unitholders receive annual dividends of $35.00 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Subsidiary Series A Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible on a one-for-one basis, into the Series B Preferred Units of limited partnership interest, or the Subsidiary Series B Preferred Units. The Subsidiary Series B Preferred Units can be converted at any time, at the option of the unitholder, into a number of common stock equal to 6.71348 shares of SL Green common stock for each Subsidiary Series B Preferred Unit. As of June 30, 2018, no Subsidiary Series B Preferred Units have been issued.
ASC 815 Derivatives and Hedging requires bifurcation of certain embedded derivative instruments, such as conversion features in convertible equity instruments, and their measurement at fair value for accounting purposes. The conversion feature embedded in the Subsidiary Series A Preferred Units was evaluated, and it was determined that the conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. The derivative is reported as a derivative liability in accrued interest and other liabilities on the accompanying consolidated balance sheet and is adjusted to its fair value at each reporting date, with a corresponding adjustment to interest expense, net of interest income. The embedded derivative for the Subsidiary Series A Preferred Units was initially recorded at a fair value of zero on July 22, 2015, the date of issuance. At June 30, 2018, the carrying amount of the derivative remained at zero.
11. Partners' Capital
Since consummation of the Merger on January 25, 2007, the Operating Partnership has owned all the economic interests in us either by direct ownership or by indirect ownership through our general partner, which is its wholly-owned subsidiary.
Intercompany transactions between SL Green and us are generally recorded as contributions and distributions.
12. Fair Value Measurements
We are required to disclose fair value information with regard to our financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practical to estimate fair value. The FASB guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. We measure and/or disclose the estimated fair value of financial assets and liabilities based on a hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date; Level 2 - inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 - unobservable inputs for the asset or liability that are used when little or no market data is available. We follow this hierarchy for our assets and liabilities measured at fair value on a recurring and nonrecurring basis. In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. Our assessment of the significance of the particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

21

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

We determine other than temporary impairment in real estate investments and debt and preferred equity investments, including intangibles primarily utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs.
In January 2018, the partnership agreement for our investment in 919 Third Avenue was modified resulting in the Company no longer having a controlling interest in this investment. As a result the investment was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $54.9 million fair value adjustment in the consolidated statement of operations. This fair value was determined using a third party valuation which primarily utilized cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs.
The fair value of derivative instruments is based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well-recognized financial principles and reasonable estimates about relevant future market conditions, which are classified as Level 2 inputs.
The financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, debt and preferred equity investments, mortgages and other loans payable and other secured and unsecured debt. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses reported in our consolidated balance sheets approximates fair value due to the short term nature of these instruments. The fair value of debt and preferred equity investments, which is classified as Level 3, is estimated by discounting the future cash flows using current interest rates at which similar loans with the same maturities would be made to borrowers with similar credit ratings. The fair value of borrowings, which is classified as Level 3, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates, which is provided by a third-party specialist.
The following table provides the carrying value and fair value of these financial instruments as of June 30, 2018 and December 31, 2017 (in thousands):
 
June 30, 2018
 
December 31, 2017
 
Carrying Value (1)
 
Fair Value
 
Carrying Value (1)
 
Fair Value
 
 
 
 
 
 
 
 
Debt and preferred equity investments
$
2,168,515

 
(2) 
 
$
2,114,041

 
(2) 
 
 
 
 
 
 
 
 
Fixed rate debt
$
1,154,664

 
$
1,164,249

 
$
1,655,116

 
$
1,715,501

Variable rate debt  
300,000

 
308,739

 
90,809

 
92,087

 
$
1,454,664

 
$
1,472,988

 
$
1,745,925

 
$
1,807,588

(1)
Amounts exclude net deferred financing costs.
(2)
At June 30, 2018, debt and preferred equity investments had an estimated fair value ranging between $2.2 billion and $2.4 billion. At December 31, 2017, debt and preferred equity investments had an estimated fair value ranging between $2.1 billion and $2.3 billion.
Disclosure about fair value of financial instruments was based on pertinent information available to us as of June 30, 2018 and December 31, 2017. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
13. Financial Instruments: Derivatives and Hedging
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collar and floors, to manage, or hedge interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedge asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all

22

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

of our designated derivative instruments are effective hedging instruments. As of June 30, 2018, the Company had not designated any interest rate swap agreements on any debt investment.
Gains and losses on terminated hedges are included in accumulated other comprehensive income, and are recognized into earnings over the term of the related senior unsecured notes. As of June 30, 2018 and December 31, 2017, the deferred net losses from these terminated hedges, which are included in accumulated other comprehensive income relating to net unrealized loss on derivative instruments, was approximately zero and $1.3 million, respectively.
The following table presents the effect of our derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the three months ended June 30, 2018 and 2017, respectively (in thousands):
 
 
Amount of Loss
Recognized in
Other Comprehensive
Loss
(Effective Portion)
 
Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
 
Amount of Loss
 Reclassified from
Accumulated Other
Comprehensive Loss  into Income
(Effective Portion)
 
Location of Gain Recognized in Income on Derivative
 
Amount of Gain
Recognized into Income
(Ineffective Portion)
 
 
Three Months Ended June 30,
 
 
Three Months Ended June 30,
 
 
Three Months Ended June 30,
Derivative
 
2018
 
2017
 
 
2018
 
2017
 
 
2018
 
2017
Interest Rate Swap
 
$

 
$

 
Interest expense
 
$

 
$
90

 
Interest expense
 
$

 
$

The following table presents the effect of our derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the six months ended June 30, 2018 and 2017, respectively (in thousands):
 
 
Amount of Loss
Recognized in
Other Comprehensive
Loss
(Effective Portion)
 
Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
 
Amount of Loss
 Reclassified from
Accumulated Other
Comprehensive Loss  into Income
(Effective Portion)
 
Location of Gain Recognized in Income on Derivative
 
Amount of Gain
Recognized into Income
(Ineffective Portion)
 
 
Six Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
Six Months Ended June 30,
Derivative
 
2018
 
2017
 
 
2018
 
2017
 
 
2018
 
2017
Interest Rate Swap
 
$

 
$

 
Interest expense
 
$

 
$
180

 
Interest expense
 
$

 
$

14. Commitments and Contingencies
Legal Proceedings
As of June 30, 2018, we were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio which if adversely determined could have a material adverse impact on us.
Environmental Matters
Our management believes that the properties are in compliance in all material respects with applicable Federal, state and local ordinances and regulations regarding environmental issues. Management is not aware of any environmental liability that it believes would have a materially adverse impact on our financial position, results of operations or cash flows. Management is unaware of any instances in which it would incur significant environmental cost if any of our properties were sold.

23

Table of Contents
Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2018
(unaudited)

Capital and Ground Leases Arrangements
The following is a schedule of future minimum lease payments under non-cancellable operating leases with initial terms in excess of one year as of June 30, 2018 (in thousands):
 
 
Non-cancellable
operating leases
Remaining 2018
 
$
9,868

2019
 
19,736

2020
 
19,736

2021
 
19,886

2022
 
17,730

2023
 
15,424

Thereafter
 
237,011

Total minimum lease payments
 
$
339,391

15. Segment Information
The Company has two reportable segments, real estate and debt and preferred equity investments. We evaluate real estate performance and allocate resources based on earnings contribution to income from continuing operations.
The primary sources of revenue are generated from tenant rents and escalations and reimbursement revenue. Real estate property operating expenses consist primarily of security, maintenance, utility costs, insurance, real estate taxes and ground rent expense (at certain applicable properties). See Note 5, "Debt and Preferred Equity Investments," for additional details on our debt and preferred equity investments.
Selected consolidated results of operations for the three and six months ended June 30, 2018 and 2017, and selected asset information as of June 30, 2018 and December 31, 2017, regarding our operating segments are as follows (in thousands):
 
 
Real Estate
Segment
 
Debt and Preferred
Equity
Segment
 
Total
Company
Total revenues:
 
 
 
 
 
 
Three months ended:
 
 
 
 
 
 
June 30, 2018
 
$
161,582

 
$
49,466

 
$
211,048

June 30, 2017
 
191,388

 
60,424

 
251,812

Six months ended: