May
29, 2009
VIA U.S. MAIL AND
EDGAR
Securities
and Exchange Commission
Division
of Corporation Finance
100
F Street, N.E.
Washington,
D.C. 20549
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Attn:
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Mr.
Daniel L. Gordon
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Branch
Chief
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Re:
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SL
Green Realty Corp.
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Form
10-K for the year ended December 31, 2008
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Filed
February 27, 2009
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File
No. 001-13199
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Dear
Mr. Gordon:
Set
forth below are responses to the comments of the staff (the "Staff") of the
Securities and Exchange Commission (the "SEC") contained in
your letter dated May 14, 2009 (the "Comment Letter")
relating to the Annual Report on Form 10-K for the year ended December 31, 2008
(the "Form
10-K") filed by SL Green Realty Corp. (the "Registrant") on
February 27, 2009, as amended, and the proxy statement filed by the Registrant
on April 30, 2009 (the "Proxy
Statement"). The headings and numbered paragraphs of this
letter correspond to the headings and numbered paragraphs contained in the
Comment Letter, and to facilitate your review, we have reproduced the text of
the Staff's comments in italics below.
Form 10-K for the year ended
December 31, 2008
Liquidity and Capital
Resources, page 53
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1.
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Please revise your discussion
of liquidity and capital resources in future filings to provide a
summarized, quantitative discussion of your short and long-term liquidity
needs, along with a discussion of how you plan [to] address those
needs. While this information appears to be available
throughout your filing, it would be beneficial to a reader of the
financial statements to be able to access this critical information in
summarized form in one location. Additionally, within this
discussion, address the needs of your unconsolidated joint ventures as a
whole, the financial condition of any significant joint venture partners,
and how you will address the liquidity needs of these joint ventures if
your JV partners are unable to provide additional required
liquidity.
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420
Lexington Avenue ▪ New York, NY 10170 ▪ (212) 594-2700 ▪ Fax (212)
216-1790
Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
2
We
will revise our disclosure surrounding our liquidity and capital resources in
future filings to be consistent with the presentation included in the response
below, which is provided as of and for the period ended December 31,
2008.
Liquidity
and Capital Resources
We
are currently experiencing a global economic downturn and credit crunch. As a
result, many financial industry participants, including commercial real estate
owners, operators, investors and lenders, continue to find it extremely
difficult to obtain cost-effective debt capital to finance new investment
activity or to refinance maturing debt. In the few instances in which debt is
available, it is at a cost much higher than in the recent past.
We
currently expect that our principal sources of working capital and funds for
acquisition and redevelopment of properties, tenant improvements and leasing
costs and for structured finance investments during the next twelve months and
beyond will include:
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(1)
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cash
flow from operations;
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(2)
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cash
on hand;
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(3)
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borrowings
under our 2007 revolving credit facility;
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(4)
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other
forms of secured or unsecured financings;
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(5)
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net
proceeds from divestitures of properties and redemptions, participations
and dispositions of structured finance investments; and
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(6)
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proceeds
from issuances of common or preferred equity or debt by us or our
operating partnership (including issuances of limited partnership units in
the operating partnership and trust preferred
securities).
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Cash
flow from operations is primarily dependent upon the occupancy level of our
portfolio, the net effective rental rates achieved on our leases, the
collectability of rent and operating escalations and recoveries from our tenants
and the level of operating and other costs. Additionally, we believe
that our joint venture investment programs will continue to serve as a source of
capital.
Our
combined aggregate principal maturities of our property mortgages, corporate
obligations and our share of joint venture debt, including as-of-right extension
options, as of December 31, 2008 are as follows (in thousands):
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2009
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2010
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2011
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2012
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2013
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Thereafter
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Total
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Property
Mortgages
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$
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28,124
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$
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134,252
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$
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266,223
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$
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159,538
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$
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451,272
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$
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1,551,948
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$
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2,591,357
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Corporate
obligations
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200,000
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---
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150,000
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1,389,067
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---
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1,285,949
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3,025,016
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Joint
venture debt
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55,265
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459,944
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171,285
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34,192
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1,677
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1,211,270
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1,933,633
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Total
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$
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283,389
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$
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594,196
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$
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587,508
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$
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1,582,797
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$
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452,949
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$
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4,049,167
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$
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7,550,006
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Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
3
As
of December 31, 2008, we had approximately $726.9 million of cash on hand. In
December 2008, we reduced the dividend on our common stock from an annualized
rate of $3.15 per share to $1.50 per share, and may reduce it further in the
future. In addition, we expect to generate positive cash flow from operations
for the foreseeable future. We also have the ability to access private and
public debt and equity capital when the opportunity presents itself. Management
currently believes that these sources of liquidity, along with potential
refinancing opportunities for secured debt and continued repurchases of our
senior unsecured notes at discounted prices, will allow us to satisfy our debt
obligations, as described above, upon maturity, if not before.
We
also have investments in several real estate joint ventures with various
partners who we consider to be financially stable and who have the ability to
fund a capital call when needed. Most of our joint
ventures are financed with non-recourse debt. We believe that property level
cash flows along with unfunded committed indebtedness and proceeds from the
refinancing of outstanding secured indebtedness will be sufficient to fund the
capital needs of our joint venture properties.
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2.
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In addition, please provide
disclosures regarding Citigroup's recent financial problems and their
potential impact on your liquidity and future
operations.
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The
Registrant continuously monitors the financial condition of our largest tenant,
Citigroup, including, but not limited to, by means of regular meetings with
senior executives of Citigroup to discuss its capital position, operations,
employee base, tenancy and overall real estate operations. Until such
time as we believe that Citigroup's financial problems have been mitigated, we
will provide the following disclosure in our future filings.
We
continue to monitor closely the financial viability of our largest tenant,
Citigroup, which accounts for approximately 9.4% of our annualized rent, paying
particular attention to the potentially negative effects of its capital position
and reductions in its headcount on its tenancy in our
portfolio. During 2008, Citigroup benefited from substantial U.S.
government financial investment, as noted in its Annual Report on Form 10-K for
the twelve months ended December 31, 2008. This included (i) raising
an aggregate $45 billion in capital through the sale of Citigroup non-voting
perpetual, cumulative preferred stock and warrants to purchase common stock
issued to the U.S. Department of the Treasury, (ii) entering into a loss-sharing
agreement with various U.S. government entities covering $301 billion of
Citigroup assets, and (iii) issuing $5.75 billion of senior unsecured debt
guaranteed by the Federal Deposit Insurance Corporation. In 2009,
Citigroup announced an exchange offer of its common stock for up to a total of
$27.5 billion of its existing preferred securities and trust preferred
securities and subsequently expanded the exchange offer by $5.5 billion to a
total of $33 billion. The U.S. government will also participate in
the exchange offer in an amount equal to the participation of all other
investors, up to a maximum of $25 billion of the Citigroup preferred stock held
by it. All remaining preferred stock held by the U.S. government that is not
converted to common stock in the exchange offer will be
Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
4
exchanged
for newly issued 8% trust preferred securities. This transaction could
materially increase the Tier 1 capital of Citigroup from $22.1 billion at March
31, 2009 to as much as $86.2 billion.
We
believe that these actions by Citigroup and the U.S. government have served to
bolster Citigroup's viability as a tenant and significantly mitigated its short
term capital needs. In addition, while Citigroup has reduced its
overall employee base, it has begun to relocate personnel from other New York
City properties not owned by us into the two properties where we have the
largest exposure to Citigroup, 388-390 Greenwich Street and One Court
Square. Both of these properties are held in joint ventures, however,
thereby reducing our exposure to Citigroup from what it would have been had we
been the sole owner of these properties. These actions help assure us that
Citigroup will continue to be a meaningful contributor to our operating cash
flow in the future.
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3.
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In your response for the above
two comments please include your proposed disclosures, relating to your
liquidity section, that will be included in future
filings.
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We
will include disclosures similar to those presented in Responses 1 and 2
above.
Consolidated Statements of
Income, page 74
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4.
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Please tell us how you
determined it was appropriate to exclude the write down of your equity
method investment in Gramercy from Income from continuing operations
before gain on sale, minority interest and discontinued
operations. It appears that the write down should be recorded
above this subtotal, along with equity in net income from unconsolidated
joint ventures.
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At
December 31, 2008, management determined that it was appropriate to write our
common equity investment in Gramercy Capital Corp. (NYSE: GKK), or Gramercy,
down to its market value of approximately $8.0 million because the investment
was determined to be other than temporarily impaired. This investment
was accounted for under the equity method and classified as an investment in
unconsolidated joint ventures on our balance sheet. As a result of
the other than temporary impairment, we recorded a one-time write-down of
approximately $147.5 million during the three month period ended December 31,
2008. Accordingly, management concluded that the write-down should be
included in income from continuing operations. However, we believe the
write-down was unusual and akin to the sale of an equity investment at a loss,
and not part of our equity in net income from our joint
ventures. Accordingly, we believe it is more transparent to the
reader of these financial statements to include the write down as a separate
line item in the income statement in the same manner as gains and losses on the
sales of other equity investments and gains or losses on the early
extinguishment of debt.
Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
5
Form
10-K/A for the period ended December 31, 2008, filed April 28, 2009
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5.
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We note from your filing that
you have determined Rock-Green, Inc. to be a significant subsidiary under
Rule 1-02(w) of Regulation S-X, yet it does not appear there are any
disclosures related to Rock-Green, Inc. within your Form
10-K. Please tell us how you determined this joint venture was
a significant subsidiary, and include detailed information related to this
joint venture in future filings, or tell us where the disclosures are
included.
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We
note that pursuant to Rule 1-02(w) of Regulation S-X, a significant
subsidiary generally includes a subsidiary where the registrant's and its other
subsidiaries' (i) investments in and advances to the subsidiary exceed 10
percent of the total assets of the registrant and its subsidiaries; (ii) proportionate share of the total assets of the subsidiary exceeds 10
percent of the total assets of the registrant and its subsidiaries; or
(iii) equity in the income from continuing operations before
income taxes, extraordinary items and cumulative effect of a change in
accounting principle of the subsidiary exclusive of amounts attributable to any
noncontrolling interests exceeds 10 percent of such income of the registrant and
its subsidiaries. Rock-Green, Inc. was deemed to be a significant subsidiary of
the Registrant in 2008 based on the net income test. In 2007,
Rock-Green did not satisfy any test for determination of a significant
subsidiary, and it is not expected to satisfy any such test in 2009 or future
periods. In 2008, solely due to the write down of our equity
investment in Gramercy, which was included in income from continuing operations
as a loss on equity investment in marketable securities (see response 4 above),
our income from continuing operations was reduced to a level at which the equity
in net income contribution from Rock-Green exceeded 10%. In
accordance with Rule 4-08(g) of Regulation S-X we have included disclosures in
our financial statements for Rock-Green and all of our unconsolidated joint
ventures on an aggregated basis. Rule 4-08(g) requires summarized
financial statement disclosures as described in Rule 1-02 (bb) (i) and (ii) of
Regulation S-X. The required disclosures, which include Rock-Green, are included
in Note 6 to the financial statements. Ownership information and property
leverage are also disclosed in Note 6 to the financial
statements.
Proxy Statement filed April
30, 2009
Executive Compensation, page
18
How We Determine Executive
Compensation, page 19
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6.
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Please refer to Release
33-8732A, Section II.B.1. As noted therein, the Compensation
Discussion and Analysis should be sufficiently precise to identify
material differences in compensation policies with respect to individual
executive officers. In future filings, please explain the
reasons for the differences in the amounts of compensation awarded to the
named executive officers. For example, we note that Mr. Green
received an increase in cash bonuses of 6% while the cash bonuses awarded
to other officers decreased
by
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Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
6
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37%. We
also note that there is a significant difference is actual cash and stock
bonuses awarded to each officer. Please see Item 402(b)
(2)(vii) of Regulation S-K.
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We
confirm that in future filings we will explain the reasons for the differences
in the amounts of compensation awarded to individual named executive
officers. In this regard, we note that any differences in
compensation awarded to our named executive officers generally are a function of
the executive's position and authority, as well as the Compensation Committee's
subjective evaluation of the executive's relative value and contribution toward
the Company's achievement of its various operational and financial
objectives.
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7.
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We note that you have set your
policies by looking at the policies of RiskMetrics Group and other
governance groups. Please identify the other
groups. Please see Item 402(b) of Regulation
S-K.
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We
note that you review compensation paid to executive officers of your peer
group. To the extent you awarded compensation to an executive officer
that was above or below the median of those in your peer group, please identify
the officer and tell us why you awarded compensation to the officer at a level
that was above or below the median.
In
addition to RiskMetrics Group, our Compensation Committee reviewed the policies
of Glass Lewis & Co. and Egan-Jones Proxy Services.
Peer
group information is not utilized by our Compensation Committee in a mechanistic
or formulaic manner. As noted on page 20 of the Proxy Statement,
"peer groups are used only as a point of reference; our Compensation Committee
does not specifically target a percentile or range of percentiles when
determining executive compensation." As a result, while the
compensation awarded to each of Marc Holliday, Andrew Mathias and Gregory F.
Hughes for 2008 was above the 2008 median of those in our peer group and the
compensation awarded to each of Stephen L. Green and Andrew S. Levine for 2008
was below the 2008 median of those in our peer group, such relationships are not
due to any determination by the Compensation Committee to target compensation in
any particular relationship to the peer group. Thus, we are unable to
explain why the compensation awarded to our named executive officers for 2008
bore a particular relationship to the median of the peer group. In
future filings, we will indicate how our executives were paid in relation to
their peer group and if, contrary to our current practice, our Compensation
Committee targets compensation in terms of a particular relationship to the
median of the peer group, we also will indicate why our executives were awarded
compensation at a level that was above or below such median.
What our Compensation
Program is Designed to Reward, page 21
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8.
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For each executive officer,
please disclose the individual performance goals that are applicable to
each named executive officer when determining their bonus payments and how
they compared to actual results. Refer to Item 402(b)(2)(vii)
of Regulation S-K.
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Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
7
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As
noted on page 22 of the Proxy Statement, "the Compensation Committee does
not set specific fixed targets that entitle the named executive officers
to formulaic bonuses." However, "the named executive officers
are made aware, at the beginning of the year, of the business objectives
and goals the Committee will consider when evaluating corporate and
individual performance and determining annual incentive
awards." These performance criteria are listed on page 22 of
the Proxy Statement. There were no individual performance
targets or goals for any of our named executive officers for
2008. In future filings, we will either confirm that no
individual performance targets or goals existed for any of our named
executive officers, or, if such targets or goals did exist, we will
describe them.
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Long-Term Equity Incentives,
page 23
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9.
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We note that the
Outperformance awards may be accelerated upon achieving performance levels
that trigger acceleration provisions. Please disclose the
performance levels that would trigger
acceleration.
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As
of December 31, 2008, none of the outstanding awards under our Outperformance
Plans are subject to acceleration. Awards under our Outperformance
Plans are keyed to total return to stockholders, or TRS. As we state
on page 23 of the Proxy Statement, the goals relating to TRS have been attained
under our 2003 and 2005 Outperformance Plans, and as we state on page 18 of the
Proxy Statement, our named executive officers' interests in the 2006
Outperformance Plan have been cancelled.
Circumstances
that would give rise to acceleration under the 2005 Outperformance Plan were
described on page 55 of the proxy statement relating to our 2007 annual meeting,
as follows:
Participants
in our 2005 Outperformance Plan were to share in a "performance pool" if our
total return to stockholders for the period from December 1, 2005 through
November 30, 2008 exceeded a cumulative total return to stockholders of 30%
during the measurement period over a base share price of $68.51 per share. The
size of the pool was to be 10% of the outperformance amount in excess of the 30%
benchmark, subject to a maximum dilution cap equal to the lesser of 3% of our
outstanding shares and units of limited partnership interest as of December 1,
2005 or $50.0 million. In the event the potential performance pool reached this
dilution cap before November 30, 2008 and remained at that level or higher for
30 consecutive days, the performance period was to end early and the pool was to
be formed on the last day of such 30-day period.
As
described on page 24 of the Proxy Statement and page 55 of the proxy statement
relating to our 2007 annual meeting, in June 2006, our Compensation Committee
determined that under the terms of the 2005 Outperformance Plan, the
performance
Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
8
period
had accelerated because the Company had achieved the total return to stockholder
thresholds set forth in the plan.
If,
in the future, awards that have the potential for acceleration are granted, we
will disclose the criteria for such acceleration.
Comparison of 2008 and 2007
Total Direct Compensation, page 27
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10.
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We note that you did not
include the value of perquisites in the table on page
28. Please explain why these amounts were omitted from the
table and, in future filings, please include these
amounts. Also, revise the summary compensation table to include
a footnote to the table that identifies and quantifies perquisites and
personal benefits as required under Item 402(c)(ix)(A) and Instruction 4
of Regulation S-K. Please tell us how you intend to
comply.
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Generally,
perquisites were not included in the table on page 28 because our Compensation
Committee does not view perquisites, such as an automobile allowance, as a
component of "Total Direct Compensation." However, the amount of the
tax gross-up on the vesting of stock awards was specifically included in
arriving at "Total Direct Compensation" because, as indicated in
footnote 1 to the table, that gross-up is taken into account in determining the
value of stock bonuses. The table on page 28 is included as part of
our Compensation Discussion and Analysis, and is supplemental to the Summary
Compensation Table required by Item 402 of Regulation S-K. The
Summary Compensation Table appears on page 32 of the Proxy Statement, and
footnote 4 to the Summary Compensation Table identifies and quantifies
perquisites and personal benefits (including tax gross-ups) as required under
Item 402(c)(ix)(A) and Instruction 4 of Regulation S-K. In future
filings where a table of the type set forth on page 28 is used, we will clarify
that while "Total Direct Compensation" includes tax gross-ups (if any), it does
not include other perquisites.
LTIP Units, page
29
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11.
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Please tell us what you mean
by the phrase "book-up event." Please include this disclosure
in future filings.
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We
will include a definition of "book-up event," similar to the following, in our
future filings: Under the terms of our operating partnership
agreement and applicable federal tax regulations, a book-up event generally
includes: (i) the acquisition of an additional interest in our
operating partnership by any new or existing partner in exchange for more than a
de minimis capital contribution,
including our acquisition of units in connection with the issuance of shares of
stock; (ii) the distribution by our operating partnership to a partner of
more than a de minimis amount of
property as consideration for an interest in our operating partnership,
including redemptions of common units for cash by our operating partnership and
redemptions of units in connection with repurchases of common stock for cash by
us; and (iii) the liquidation of our operating partnership.
Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
9
Gramercy Capital Corp.
Equity Awards, page 30
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12.
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We note that compensation was
paid to your executive officers by Gramercy. It is not clear
that these amounts have been included in your summary compensation
table. Please confirm that these amounts are included in
accordance with Item 402(a)(2). If not, please provide this
disclosure in future filings and tell us how you intend to comply or tell
us why you believe this is not
applicable.
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Gramercy
Capital Corp. is not a subsidiary of the Registrant, and therefore any awards by
Gramercy to individuals who are also our executive officers are appropriately
reflected in Gramercy's proxy statement, as we note on page 30 of the Proxy
Statement. In this regard, we note that our interest in Gramercy has
never exceeded 25% of the outstanding common stock of Gramercy, and as of
December 31, 2008 was approximately 12.5%, and that the members of Gramercy's
Compensation Committee are independent of the Registrant.
Potential Payments upon
Termination or Change-in-Control, page 36
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13.
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We note your disclosure that
the types of events constituting Cause, Good Reason, disability and a
Change-in-Control differ for each officer. Please tell us, and
disclose in future filings, the definitions of these events for each
executive officer.
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The
definitions of the events constituting Cause, Good Reason, disability and
Change-in-Control differ only in immaterial ways among our named executive
officers. We believe that any attempt to include individualized
definitions in future proxy statements will not add to our stockholders'
understanding of these arrangements. Moreover, we note that each
employment agreement with our named executive officers has been publicly
filed.
In
future filings, we will include a generalized summary of these definitions
applicable to all of our named executive officers, which will be substantially
similar to the summary below.
A
change in control
generally occurs when: (A) any person or entity (together with their affiliates
or associates) either directly or indirectly becomes the owner of securities of
the Company representing 25% or more of our outstanding shares, or has the power
to vote these shares (in either case other than as a result of a purchase
directly from the Company); (B) the Company's board of directors does not have a
majority of members who were either directors of the Company at the beginning of
any 24 month period or who were approved by a majority of such directors; or (C)
our stockholders approve any of the following: (i) a consolidation or merger
following the consummation of which our stockholders would own less than 50% of
the voting securities of the resulting entity, (ii) a sale or other transfer of
substantially all of the Company's assets where our stockholders own less than
50% of the resulting entity, or (iii) our liquidation or
dissolution.
Mr.
Daniel L. Gordon
Securities
and Exchange Commission
May
29, 2009
Page
10
Disability generally means
incapacity due to physical or mental illness that results in the executive being
incapable of performing his duties on a full time basis for a specified
period.
Cause generally means an
executive's (A) engaging in conduct which is a felony; (B) material breach of
restrictive covenants; (C) willful misconduct of a material nature or gross
negligence with regard to the Company; (D) material fraud with regard to the
Company; or (E) failure to competently perform his duties (it being understood
that, for this purpose, the manner and level of the executive's performance
shall not be determined based on our financial performance).
Good Reason generally means
the occurrence of one of the following events: (A) a material change
in duties, responsibilities, status or positions, (B) a failure by us to pay
compensation when due, which is not promptly cured, (C) a material breach by us
of any provision of the agreement, which is not promptly cured, (D) a
requirement that the executive relocate outside of the New York City
metropolitan area, or (E) a material reduction in compensation. In
addition, any termination within a reasonable time (generally 18 months)
following a change in control will be deemed to constitute good
reason.
* * * *
In
accordance with your request, the Registrant hereby acknowledges
that:
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the
Registrant is responsible for the adequacy and accuracy of the disclosure
in the Form 10-K and Proxy
Statement;
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·
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Staff
comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the Form
10-K or Proxy Statement; and
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·
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the
Registrant may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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* * *
If
you have any questions with respect to the foregoing, please contact me at (212)
216-1678 or Andrew Levine, Esq., our General Counsel, at (212)
216-1615.
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Very
truly yours,
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SL
GREEN REALTY CORP.
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By:
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/s/
Gregory F. Hughes
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Gregory
F. Hughes
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Chief
Financial Officer
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