(3) | In May 2014, we acquired Ivanhoe Cambridge, Inc.'s 49.65% economic interest in this property, thereby consolidating full ownership of the property. The transaction valued the consolidated interests at $1.585 billion. Simultaneous with the closing, we refinanced the previous mortgage with a $1.45 billion mortgage. We also assumed the existing derivative instruments, which swapped $504.0 million of the mortgage to fixed rate (in October 2014, we entered into multiple swap agreements to hedge our interest rate exposure on an additional $500.0 million portion of this mortgage. See Note 8, "Mortgages and Other Loans Payable" for further details). We recognized a purchase price fair value adjustment of $71.4 million upon closing of this transaction. This property, which we initially acquired in December 2007, was previously accounted for as an investment in unconsolidated joint ventures. We are currently in the process of analyzing the purchase price allocation and, as such, we have not allocated any value to intangible assets.In November 2013, we acquired a mixed-use residential and commercial property located at 315 West 33rd Street, New York, New York for $386.8 million. Based on our preliminary analysis of the purchase price, we allocated $116.0 million and $270.8 million to land and building, respectively. During the three months ended March 31, 2014, we finalized the purchase price allocation based on a third party appraisal and additional facts and circumstances that existed at the acquisition date and reclassified $33.2 million and $7.8 million to values for above-market and in-place leases and below-market leases, respectively. These adjustments did not have a material impact to our consolidated statement of income for the nine months ended September 30, 2014.
Pro Forma
The following table summarizes, on an unaudited pro forma basis, the results of operations of 388-390 Greenwich Street, which are included in the consolidated statement of income, and our consolidated results of operations for the three and nine months ended September 30, 2014 and 2013 as though the acquisition of our joint venture partner's interest in 388-390 Greenwich Street was completed on January 1, 2013. The supplemental pro forma data is not necessarily indicative of what the actual results of operations would have been assuming the transactions had been completed as set forth above, nor do they purport to represent our results of operations for future periods.
| | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (In thousands, except per share amounts) | | 2014 | | 2013 | | 2014 | | 2013 | Actual revenues since acquisition | | $ | 28,481 |
| | | | $ | 43,378 |
| | | Actual net income since acquisition | | 9,213 |
| | | | 86,057 |
| | | Pro forma revenues | | 390,393 |
| | 366,235 |
| | 1,175,593 |
| | 1,102,973 |
| Pro forma income from continuing operations | | 40,576 |
| | 27,361 |
| | 255,713 |
| | 149,764 |
| Pro forma basic earnings per share | | 0.68 |
| | 0.44 |
| | 4.02 |
| | 1.52 |
| Pro forma diluted earnings per share | | 0.68 |
| | 0.44 |
| | 4.00 |
| | 1.52 |
| Pro forma basic earnings per unit | | 0.68 |
| | 0.44 |
| | 4.02 |
| | 1.52 |
| Pro forma diluted earnings per unit | | 0.68 |
| | 0.44 |
| | 4.00 |
| | 1.52 |
|
| | (1) | The pro forma income from continuing operations for the three and nine months ended September 30, 2014 and 2013 includes the effect of the new financing necessary to complete the acquisition and the preliminary allocation of purchase price in connection with the changes in depreciation and amortization. In addition, the pro forma income from continuing operations for the nine months ended September 30, 2013 was adjusted to include the purchase price fair |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
For business combinations achieved in stages, the acquisition-date fair value adjustment, as thoughof our equity interest in a property immediately before the acquisition was completeddate is determined based on January 1, 2013.estimated cash flow projections that utilize available market information and discount and capitalization rates that we deem appropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The pro forma income from continuing operations foracquisition-date fair value of the three and nine months ended September 30, 2014 excludes thisequity interest in 388-390 Greenwich Street immediately before the acquisition date as well as the purchase price fair value, adjustment.as determined in accordance with the methodology set out in the prior sentence, is as follows (in thousands): | | | | | | | | 388-390 Greenwich Street | Contract purchase price | | $ | 1,585,000 |
| Net consideration funded by us at closing, excluding consideration financed by debt | | (208,614 | ) | Debt assumed | | (1,162,379 | ) | Fair value of retained equity interest | | 214,007 |
| Equity and/or debt investment held | | (148,025 | ) | Other(1) | | 5,464 |
| Purchase price fair value adjustment | | $ | 71,446 |
|
| | (1) | Includes the acceleration of a deferred leasing commission from the joint venture to the Company. |
4. Properties Held for Sale and DispositionsProperty Disposition In September 2014,Properties Held for Sale
During the second quarter of 2015, we along with our joint venture partner, entered into an agreementtwo separate agreements to sell the property located at 180 Maiden Lane120 West 45th Street for $470.0$365.0 million and an 80% interest in 131-137 Spring Street based on a gross asset valuation of $277.8 million. This transaction is expectedIn August, we closed on the sale of an interest in 131-137 Spring Street and expect to close duringon 120 West 45th Street in the fourth quartersecond half of 2014,2015, subject to the satisfaction of customary closing conditions. In June 2014, we entered into a contract to sell our leased fee interest in 2 Herald Square for $365.0 million. This transaction is expected to closeProperty Disposition
The following table summarizes the property sold during the fourth quartersix months ended June 30, 2015: | | | | | | | | | | | | | | | | | Property | | Disposition Date | | Property Type | | Approximate Usable Square Feet | | Sales Price (in millions) | | Gain on Sale(1) (in millions) | 180 Maiden Lane | | January 2015 | | Office | | 1,090,000 |
| | $ | 470.0 |
| | $ | 17.0 |
|
| | (1) | The gain on sale for 180 Maiden Lane is net of a $0.8 million employee compensation award accrued in connection with the realization of this investment gain as a bonus to certain employees that were instrumental in realizing the gain on sale. Additionally, amounts do not include adjustments for expense recorded in subsequent periods. |
Discontinued Operations The Company adopted ASU 2014-08 effective January 1, 2015. As a result, the Company classified 120 West 45th Street and 131-137 Spring Street as held for sale as of 2014, subject toJune 30, 2015 and included the satisfactionresults of customary closing conditions. In July 2014, we sold our fee interest and development rightsoperations in 985-987 Third Avenuecontinuing operations for $68.7 million and recognized a gain on sale of $29.8 million. The sale was made in conjunction with the sale of an adjacent parcel, which we did not own.
In May 2014, we sold our leasehold interest in 673 First Avenue for $145.0 million and recognized a gain on sale of $117.6 million.
all periods presented. Discontinued operations included the results of operations of real estate assets under contractsold or soldheld for sale prior to September 30, 2014.January 1, 2015. This included 180 Maiden Lane, and 2 Herald Square, which were bothwas held for sale at September 30,December 31, 2014, and sold in January 2015, and 2 Herald Square, 985-987 Third Avenue and 673 First Avenue, which were sold in July 2014 and May 2014, respectively, and 44 West 55th Street, 333 West 34th Street and 300 Main Street, which were sold in February, August, and September of 2013, respectively. The following table summarizes net income from discontinued operations for the three and nine months ended September 30, 2014 and 2013 (in thousands):
| | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2014 | | 2013 | | 2014 | | 2013 | Revenues | | | | | | | | | Rental revenue, net | | $ | 9,504 |
| | $ | 23,606 |
| | $ | 44,676 |
| | $ | 73,738 |
| Escalation and reimbursement revenues | | (194 | ) | | 3,748 |
| | 4,413 |
| | 11,459 |
| Other income | | — |
| | 9 |
| | 21 |
| | 523 |
| Total revenues | | 9,310 |
| | 27,363 |
| | 49,110 |
| | 85,720 |
| Operating expenses | | 773 |
| | 5,149 |
| | 7,101 |
| | 16,624 |
| Real estate taxes | | 787 |
| | 4,170 |
| | 6,618 |
| | 12,533 |
| Ground rent | | — |
| | 2,196 |
| | 3,001 |
| | 5,778 |
| Interest expense, net of interest income | | 2,874 |
| | 4,877 |
| | 10,983 |
| | 15,019 |
| Amortization of deferred financing costs | | 48 |
| | 210 |
| | 369 |
| | 630 |
| Depreciable real estate reserves | | — |
| | — |
| | — |
| | 2,150 |
| Depreciation and amortization | | 678 |
| | 3,311 |
| | 5,434 |
| | 13,133 |
| Transaction related costs, net of recoveries | | 115 |
|
| 15 |
|
| 155 |
|
| 2 |
| Total expenses | | 5,275 |
| | 19,928 |
| | 33,661 |
| | 65,869 |
| Net income from discontinued operations | | $ | 4,035 |
| | $ | 7,435 |
| | $ | 15,449 |
| | $ | 19,851 |
|
5. Debt and Preferred Equity Investments
During the nine months ended September 30, 2014 and 2013, our debt and preferred equity investments, net of discounts and deferred origination fees, increased $476.6 million and $497.4 million, respectively, due to originations, purchases, accretion of reserves, discounts and paid-in-kind interest. We recorded repayments, participations and sales of $348.5 million and $530.2 millionduring the nine months ended September 30, 2014 and 2013, respectively, which offset the increases in debt and preferred equity investments.2014.
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
The following table summarizes net income from discontinued operations for the three and six months ended June 30, 2015 and 2014, respectively (in thousands): | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | 2015 | | 2014 | | 2015 | | 2014 | Revenues | | | | | | | | Rental revenue | $ | — |
| | $ | 13,993 |
| | $ | 236 |
| | $ | 35,172 |
| Escalation and reimbursement revenues | — |
| | 1,211 |
| | (127 | ) | | 4,609 |
| Other income | — |
| | 17 |
| | — |
| | 20 |
| Total revenues | — |
| | 15,221 |
| | 109 |
| | 39,801 |
| Operating expenses | — |
| | 1,868 |
| | (631 | ) | | 6,329 |
| Real estate taxes | — |
| | 1,846 |
| | 250 |
| | 5,831 |
| Ground rent | — |
| | 805 |
| | — |
| | 3,001 |
| Transaction related costs | — |
| | 40 |
| | (49 | ) | | 40 |
| Interest expense, net of interest income | — |
| | 3,448 |
| | 109 |
| | 8,109 |
| Amortization of deferred financing costs | — |
| | 110 |
| | 3 |
| | 321 |
| Depreciation and amortization | — |
| | 1,459 |
| | — |
| | 4,756 |
| Total expenses | — |
| | 9,576 |
| | (318 | ) | | 28,387 |
| Net income from discontinued operations | $ | — |
| | $ | 5,645 |
| | $ | 427 |
| | $ | 11,414 |
|
5. Debt and Preferred Equity Investments During the six months ended June 30, 2015 and 2014, our debt and preferred equity investments, net of discounts and deferred origination fees, increased $386.2 million and $303.4 million, respectively, due to originations, purchases, advances under future funding obligations, discount amortization, and paid-in-kind interest, net of premium amortization. We recorded repayments, participations and sales of $109.8 million and $60.4 million during the six months ended June 30, 2015 and 2014, respectively, which offset the increases in debt and preferred equity investments. Debt Investments As of SeptemberJune 30, 20142015 and December 31, 2013,2014, we held the following debt investments with an aggregate weighted average current yield of 10.72%10.15% at SeptemberJune 30, 20142015 (in thousands): | | Loan Type | | September 30, 2014 Funding Obligations | | September 30, 2014 Senior Financing | | September 30, 2014 Carrying Value(1) | | December 31, 2013 Carrying Value(1) | | Initial Maturity Date | | June 30, 2015 Future Funding Obligations | | June 30, 2015 Senior Financing | | June 30, 2015 Carrying Value (1) | | December 31, 2014 Carrying Value (1) | | Initial Maturity Date | Fixed Rate Investments: | | | | | | | | | | | | | | | | | | | | | Jr. Mortgage Participation | | $ | — |
| | $ | 398,500 |
| | $ | 11,913 |
| | $ | 11,856 |
| | March 2015 | | Jr. Mortgage Participation /Mezzanine Loan | | | $ | — |
| | $ | 205,000 |
| | $ | 71,909 |
| | $ | 70,688 |
| | February 2016 | Jr. Mortgage Participation/Mezzanine Loan(3) | | — |
| | 205,000 |
| | 70,080 |
| | 68,319 |
| | February 2016 | | — |
| | — |
| | 46,136 |
| | 45,611 |
| | Various(2) | Jr. Mortgage Participation/Mezzanine Loan | | — |
| | 164,744 |
| | 45,355 |
| | 44,742 |
| | May 2016 | | Mezzanine Loan | | — |
| | 177,000 |
| | 14,298 |
| | 15,012 |
| | May 2016 | | Jr. Mortgage Participation | | — |
| | 133,000 |
| | 49,000 |
| | 49,000 |
| | June 2016 | | — |
| | 133,000 |
| | 49,000 |
| | 49,000 |
| | June 2016 | Mezzanine Loan | | — |
| | 165,000 |
| | 71,592 |
| | 71,312 |
| | November 2016 | | — |
| | 165,000 |
| | 71,962 |
| | 71,656 |
| | November 2016 | Jr. Mortgage Participation/Mezzanine Loan(2) | | — |
| | 1,109,000 |
| | 97,101 |
| | 26,884 |
| | March 2017 | | Other(2) | | — |
| | — |
| | 65,674 |
| | 54,099 |
| | March 2017 | | Jr. Mortgage Participation/Mezzanine Loan | | | — |
| | 1,109,000 |
| | 102,646 |
| | 98,934 |
| | March 2017 | Mezzanine Loan(3) | | 19,555 |
| | 521,750 |
| | 21,456 |
| | 20,954 |
| | June 2017 | | — |
| | — |
| | 65,969 |
| | 65,770 |
| | March 2017 | Mezzanine Loan(4) | | | 5,663 |
| | 502,100 |
| | 35,409 |
| | 24,608 |
| | June 2017 | Mezzanine Loan | | — |
| | 539,000 |
| | 50,412 |
| | — |
| | July 2018 | | — |
| | 539,000 |
| | 49,643 |
| | 49,629 |
| | July 2018 | Mortgage Loan(4) | | — |
| | — |
| | 26,196 |
| | — |
| | February 2019 | | Mortgage Loan(5) | | | — |
| | — |
| | 26,235 |
| | 26,209 |
| | February 2019 | Mortgage Loan | | — |
| | — |
| | 667 |
| | — |
| | August 2019 | | — |
| | — |
| | 576 |
| | 637 |
| | August 2019 | Mezzanine Loan | | — |
| | 15,000 |
| | 3,500 |
| | 3,500 |
| | September 2021 | | Mezzanine Loan(5) | | — |
| | 90,000 |
| | 19,929 |
| | 19,926 |
| | November 2023 | | Total fixed rate | | $ | 19,555 |
| | $ | 3,517,994 |
| | $ | 547,173 |
| | $ | 385,604 |
| | | | Floating Rate Investments: | | | | | | | | | | | Mezzanine Loan | | 15,309 |
| | 50,000 |
| | 29,650 |
| | — |
| | April 2015 | | Mortgage/Mezzanine Loan | | — |
| | — |
| | 109,252 |
| | — |
| | June 2015 | | Mezzanine Loan | | — |
| | 110,000 |
| | 49,482 |
| | 49,110 |
| | September 2015 | | Mezzanine Loan | | 8,262 |
| | 110,295 |
| | 41,675 |
| | 27,662 |
| | December 2015 | | Mezzanine Loan | | — |
| | 775,000 |
| | 73,602 |
| | 72,823 |
| | March 2016 | | Mezzanine Loan(6) | | — |
| | 160,000 |
| | 22,561 |
| | 22,526 |
| | June 2016 | | Mezzanine Loan | | — |
| | 115,000 |
| | 24,909 |
| | 25,590 |
| | July 2016 | | Mezzanine Loan | | 8,448 |
| | 172,105 |
| | 28,855 |
| | 25,725 |
| | November 2016 | | Mezzanine Loan | | 333 |
| | 33,833 |
| | 11,825 |
| | 11,798 |
| | December 2016 | | Mortgage/Mezzanine Loan | | 3,130 |
| | 109,351 |
| | 38,186 |
| | — |
| | July 2017 | | Mortgage/Mezzanine Loan | | — |
| | — |
| | 22,786 |
| | — |
| | July 2017 | | Mortgage/Mezzanine Loan | | — |
| | — |
| | 16,835 |
| | — |
| | September 2017 | | Jr. Mortgage Participation/Mezzanine Loan | | — |
| | 55,000 |
| | 20,538 |
| | 20,553 |
| | July 2018 | | Mortgage/Mezzanine Loan | | — |
| | — |
| | 17,996 |
| | — |
| | February 2019 | | Mezzanine Loan | | — |
| | 38,000 |
| | 21,798 |
| | — |
| | March 2019 | | Mortgage Loan(7) | | — |
| | — |
| | — |
| | 30,000 |
| | | Jr. Mortgage Participation(8) | | — |
| | — |
| | — |
| | 24,046 |
| | |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
| | | | | | | | | | | | | | | | | | | | Loan Type | | September 30, 2014 Funding Obligations | | September 30, 2014 Senior Financing | | September 30, 2014 Carrying Value(1) | | December 31, 2013 Carrying Value(1) | | Initial Maturity Date | Jr. Mortgage Participation/Mezzanine Loan(8) | | — |
| | — |
| | — |
| | 131,724 |
| | | Mezzanine Loan(9) | | — |
| | — |
| | — |
| | 59,892 |
| | | Jr. Mortgage Participation(9) | | — |
| | — |
| | — |
| | 10,873 |
| | | Mezzanine Loan(9) | | — |
| | — |
| | — |
| | 38,549 |
| | | Total floating rate | | $ | 35,482 |
| | $ | 1,728,584 |
| | $ | 529,950 |
| | $ | 550,871 |
| | | Total | | $ | 55,037 |
| | $ | 5,246,578 |
| | 1,077,123 |
| | 936,475 |
| | | Loan loss reserve | | | | | | — |
| | (1,000 | ) | | | Total | | | |
|
| | $ | 1,077,123 |
| | $ | 935,475 |
| | |
| | | | | | | | | | | | | | | | | | | | Loan Type | | June 30, 2015 Future Funding Obligations | | June 30, 2015 Senior Financing | | June 30, 2015 Carrying Value (1) | | December 31, 2014 Carrying Value (1) | | Initial Maturity Date | Mezzanine Loan | | — |
| | 15,000 |
| | 3,500 |
| | 3,500 |
| | September 2021 | Mezzanine Loan(6) | | — |
| | 90,000 |
| | 19,933 |
| | 19,930 |
| | November 2023 | Mezzanine Loan | | — |
| | 95,000 |
| | 30,000 |
| | 30,000 |
| | January 2025 | Mezzanine Loan(7) | | — |
| | — |
| | — |
| | 14,068 |
| |
| Jr. Mortgage Participation(8) | | — |
| | — |
| | — |
| | 11,934 |
| |
| Total fixed rate | | $ | 5,663 |
| | $ | 2,853,100 |
| | $ | 572,918 |
| | $ | 582,174 |
| | | Floating Rate Investments: | | | | | | | | | | | Mezzanine Loan | | — |
| | 110,000 |
| | 49,882 |
| | 49,614 |
| | September 2015 | Mezzanine Loan | | — |
| | 775,000 |
| | 74,014 |
| | 73,402 |
| | March 2016 | Mortgage/Mezzanine Loan | | 18,906 |
| | — |
| | 77,447 |
| | — |
| | April 2016 | Mortgage/Mezzanine Loan(9) | | — |
| | — |
| | 109,910 |
| | 109,527 |
| | June 2016 | Mezzanine Loan(10) | | — |
| | 160,000 |
| | 22,599 |
| | 22,573 |
| | June 2016 | Mezzanine Loan | | — |
| | 115,000 |
| | 24,913 |
| | 24,910 |
| | July 2016 | Mezzanine Loan | | 11,364 |
| | 296,966 |
| | 62,615 |
| | — |
| | November 2016 | Mezzanine Loan | | — |
| | 360,000 |
| | 99,269 |
| | 99,023 |
| | November 2016 | Mezzanine Loan(11) | | 15,009 |
| | 123,343 |
| | 46,050 |
| | 42,750 |
| | December 2016 | Mezzanine Loan | | 553 |
| | 38,423 |
| | 13,434 |
| | 11,835 |
| | December 2016 | Mortgage/Mezzanine Loan(12) | | 72,842 |
| | — |
| | 117,999 |
| | — |
| | January 2017 | Mezzanine Loan | | 8,466 |
| | 92,705 |
| | 21,306 |
| | 20,651 |
| | January 2017 | Jr. Mortgage Participation/Mezzanine Loan | | 2,101 |
| | 114,497 |
| | 39,383 |
| | 38,524 |
| | July 2017 | Mortgage/Mezzanine Loan | | — |
| | — |
| | 22,840 |
| | 22,803 |
| | July 2017 | Mortgage/Mezzanine Loan | | — |
| | — |
| | 16,874 |
| | 16,848 |
| | September 2017 | Mezzanine Loan | | — |
| | 60,000 |
| | 14,880 |
| | 14,859 |
| | November 2017 | Mortgage/Mezzanine Loan(13) | | 795 |
| | — |
| | 14,892 |
| | 14,845 |
| | December 2017 | Jr. Mortgage Participation | | — |
| | 40,000 |
| | 19,815 |
| | — |
| | April 2018 | Mezzanine Loan | | — |
| | 350,000 |
| | 34,671 |
| | — |
| | April 2018 | Jr. Mortgage Participation/Mezzanine Loan | | — |
| | 55,000 |
| | 20,522 |
| | 20,533 |
| | July 2018 | Mortgage/Mezzanine Loan | | — |
| | — |
| | 18,237 |
| | 18,083 |
| | February 2019 | Mezzanine Loan | | — |
| | 38,000 |
| | 21,825 |
| | 21,807 |
| | March 2019 | Mezzanine Loan(14) | | — |
| | — |
| | — |
| | 33,726 |
| |
| Mezzanine Loan(14) | | — |
| | — |
| | — |
| | 37,322 |
| |
| Total floating rate | | $ | 130,036 |
| | $ | 2,728,934 |
| | $ | 943,377 |
| | $ | 693,635 |
| | | Total | | $ | 135,699 |
| | $ | 5,582,034 |
| | $ | 1,516,295 |
| | $ | 1,275,809 |
| | |
| | (1) | Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees. |
| | (2) | DuringThe $22.9 million junior mortgage participation was sold in July 2015 and the three months ended March 31, 2014, we recognized $10.1 million of previously unaccrued interest income as deemed collectible as a result of the subsequent sale of the property, which closed in June 2014. In connection with the sale of the underlying property, our existing $66.7$23.2 million mezzanine loan was defeased and is now shown separately, as it is collateralized by defeasance securities. The buyer assumed our $30.0 million participating interest on the mortgage and we acquired a $67.3 million participating interest on the mezzanine loan.matures in May 2016. |
| | (3) | These loans are collateralized by defeasance securities. |
| | (4) | Carrying value is net of $41.3 million that was participated out, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfer not meeting the conditions for sale accounting. |
| | (4)(5) | 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 was a nonperforming loan at acquisition and is currently on a non-accrual status. |
| | (5)(6) | Carrying value is net of $5.0 million that was participated out, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfer not meeting the conditions for sale accounting. |
| | (6)(7) | This loan was repaid in February 2015. |
| | (8) | This loan was repaid in March 2015. |
| | (9) | In May 2015, the maturity date was extended to June 2016. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
| | (10) | Carrying value is net of $7.4 million that was participated out, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfer not meeting the conditions for sale accounting. |
| | (7)(11) | This loanIn February 2015, the maturity date was repaid in May 2014.extended to December 2016. |
| | (8)(12) | This loanCarrying value is net of $25.0 million that was repaidparticipated out, which is included in July 2014.other assets and other liabilities on the consolidated balance sheets as a result of the transfer not meeting the conditions for sale accounting. |
| | (9)(13) | This loanCarrying value is net of $5.1 million that was participated out, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfer not meeting the conditions for sale accounting. |
| | (14) | These loans were repaid in August 2014.April 2015. |
Preferred Equity Investments As of SeptemberJune 30, 20142015 and December 31, 2013,2014, we held the following preferred equity investments with an aggregate weighted average current yield of 9.76%10.18% at SeptemberJune 30, 20142015 (in thousands): | | Type | | September 30, 2014 Senior Financing | | September 30, 2014 Carrying Value (1) | | December 31, 2013 Carrying Value (1) | | Initial Mandatory Redemption | | June 30, 2015 Future Funding Obligations | | June 30, 2015 Senior Financing | | June 30, 2015 Carrying Value (1) | | December 31, 2014 Carrying Value (1) | | Initial Mandatory Redemption | Preferred equity(2)(3) | | $ | 550,000 |
| | $ | 121,158 |
| | $ | 115,198 |
| | July 2015 | | $ | — |
| | $ | 550,000 |
| | $ | 126,817 |
| | $ | 123,041 |
| | July 2015 | Preferred equity(2)(4) | | 926,260 |
| | 224,720 |
| | 218,330 |
| | July 2016 | | — |
| | 70,000 |
| | 9,960 |
| | 9,954 |
| | March 2018 | Preferred equity | | 70,000 |
| | 9,950 |
| | 9,940 |
| | November 2017 | | 5,580 |
| | 60,795 |
| | 32,162 |
| | — |
| | November 2018 | Preferred equity(3) | | — |
| | — |
| | 25,896 |
| |
| | | | $ | 1,546,260 |
| | $ | 355,828 |
| | $ | 369,364 |
| | | | $ | 5,580 |
| | $ | 680,795 |
| | $ | 168,939 |
| | $ | 132,995 |
| | |
| | (1) | Carrying value is net of discounts and deferred origination fees. |
| | (2) | The difference between the pay and accrual rates is included as an addition to the principal balance outstanding. |
| | (3) | This preferred equity investment was redeemed in April 2014.July 2015. |
| | (4) | In March 2015, the redemption date was extended to March 2018. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
SeptemberAt June 30, 2014
(unaudited)
The following table is a rollforward of our total loan loss reserves at September 30, 20142015 and December 31, 2013 (in thousands):
| | | | | | | | | | September 30, 2014 | | December 31, 2013 | Balance at beginning of year | $ | 1,000 |
| | $ | 7,000 |
| Expensed | — |
| | — |
| Recoveries | — |
| | — |
| Charge-offs and reclassifications | (1,000 | ) | | (6,000 | ) | Balance at end of period | $ | — |
| | $ | 1,000 |
|
At September 30, 2014, and December 31, 2013, all debt and preferred equity investments were performing in accordance with the terms of the relevant investments, except forwith the nonperforming loanexception of a junior mortgage participation acquired in September 2014, as noted in the debt investments table above.which has a carrying value of zero.
We have determined that we have one portfolio segment of financing receivables at SeptemberJune 30, 20142015 and December 31, 20132014 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 $132.6$111.5 million and $172.8$133.5 million at SeptemberJune 30, 20142015 and December 31, 2013,2014, respectively. No financing receivables were 90 days past due at SeptemberJune 30, 2014.2015. 6. Investments in Unconsolidated Joint Ventures We have investments in several real estate joint ventures with various partners, including Ivanhoe Cambridge, Inc., formerly SITQ Immobilier, a subsidiarypartners. As of Caisse de depot et placement du Quebec, SITQ, Canada Pension Plan Investment Board, or CPPIB, Prudential Real Estate Investors, or Prudential, Onyx Equities, or Onyx, The Witkoff Group, or Witkoff, Credit Suisse Securities (USA) LLC, or Credit Suisse, Jeff Sutton, or Sutton, Harel InsuranceJune 30, 2015 and Finance, or Harel, Louis Cappelli, or Cappelli, The Moinian Group, or Moinian, Vornado Realty Trust (NYSE: VNO), or Vornado, Plaza Global Real Estate Partners LP, or Plaza, Lehman Bros., as well as private investors. All the investments below are voting interest entities, except forDecember 31, 2014, 650 Fifth Avenue, 33 Beekman, and 3 Columbus Circle which arewere VIEs in which we are not the primary beneficiary as of September 30, 2014 and December 31, 2013. Prior to the acquisition of our joint venture partner's interest in May 2014, 388-390 Greenwich was also a VIE. Prior to the sale of the property in September 2014, 180-182 Broadway was a VIE.beneficiary. Our net equity investment in these VIEs was $174.4$98.3 million and $310.7$146.2 million at SeptemberJune 30, 20142015 and December 31, 2013,2014, respectively. All other 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, 2015: | | | | | | | | | | | Property | Partner | Ownership Interest | Economic Interest | Approximate Square Feet | Acquisition Date | Acquisition Price(1) (in thousands) | 100 Park Avenue | Prudential Real Estate Investors | 49.90% | 49.90% | 834,000 |
| January 2000 | $ | 95,800 |
| 717 Fifth Avenue | Jeff Sutton/Private Investor | 10.92% | 10.92% | 119,500 |
| September 2006 | 251,900 |
| 800 Third Avenue(2) | Private Investors | 60.52% | 60.52% | 526,000 |
| December 2006 | 285,000 |
| 1745 Broadway | Ivanhoe Cambridge, Inc. | 56.88% | 56.88% | 674,000 |
| April 2007 | 520,000 |
| Jericho Plaza | Onyx Equities/Credit Suisse | 20.26% | 20.26% | 640,000 |
| April 2007 | 210,000 |
| The Meadows(3) | Onyx Equities | 50.00% | 50.00% | 582,100 |
| September 2007 | 111,500 |
| 600 Lexington Avenue | Canadian Pension Plan Investment Board | 55.00% | 55.00% | 303,515 |
| May 2010 | 193,000 |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
The table below provides general information on each of our joint ventures as of September 30, 2014 (amounts in thousands):
| | | | | | | | | | | | | | | | | Property | | Partner | | Ownership Interest | | Economic Interest | | Square Feet | | Acquisition Date | | Acquisition Price(1) | 100 Park Avenue | | Prudential | | 49.90% | | 49.90% | | 834 |
| | January 2000 | | $ | 95,800 |
| 717 Fifth Avenue | | Sutton/Private Investor | | 10.92% | | 10.92% | | 120 |
| | September 2006 | | 251,900 |
| 800 Third Avenue | | Private Investors | | 42.95% | | 42.95% | | 526 |
| | December 2006 | | 285,000 |
| 1745 Broadway | | Witkoff/SITQ/Lehman Bros. | | 32.26% | | 32.26% | | 674 |
| | April 2007 | | 520,000 |
| 1 and 2 Jericho Plaza | | Onyx/Credit Suisse | | 20.26% | | 20.26% | | 640 |
| | April 2007 | | 210,000 |
| The Meadows | | Onyx | | 50.00% | | 50.00% | | 582 |
| | September 2007 | | 111,500 |
| 600 Lexington Avenue | | CPPIB | | 55.00% | | 55.00% | | 304 |
| | May 2010 | | 193,000 |
| 11 West 34th Street | | Private Investor/Sutton | | 30.00% | | 30.00% | | 17 |
| | December 2010 | | 10,800 |
| 7 Renaissance | | Cappelli | | 50.00% | | 50.00% | | 37 |
| | December 2010 | | 4,000 |
| 3 Columbus Circle(2) | | Moinian | | 48.90% | | 48.90% | | 769 |
| | January 2011 | | 500,000 |
| 280 Park Avenue | | Vornado | | 50.00% | | 49.50% | | 1,237 |
| | March 2011 | | 400,000 |
| 1552-1560 Broadway(3) | | Sutton | | 50.00% | | 50.00% | | 49 |
| | August 2011 | | 136,550 |
| 724 Fifth Avenue | | Sutton | | 50.00% | | 50.00% | | 65 |
| | January 2012 | | 223,000 |
| 10 East 53rd Street | | CPPIB | | 55.00% | | 55.00% | | 390 |
| | February 2012 | | 252,500 |
| 33 Beekman(4) | | Harel/Naftali | | 45.90% | | 45.90% | | 145 |
| | August 2012 | | 31,000 |
| 521 Fifth Avenue | | Plaza | | 50.50% | | 50.50% | | 460 |
| | November 2012 | | 315,000 |
| 21 East 66th Street(5) | | Private Investors | | 32.28% | | 32.28% | | 17 |
| | December 2012 | | 75,000 |
| 315 West 36th Street | | Private Investors | | 35.50% | | 35.50% | | 148 |
| | December 2012 | | 45,000 |
| 650 Fifth Avenue(6) | | Sutton | | 50.00% | | 50.00% | | 32 |
| | November 2013 | | — |
| 121 Greene Street | | Sutton | | 50.00% | | 50.00% | | 7 |
| | September 2014 | | 28,200 |
|
| | | | | | | | | | | Property | Partner | Ownership Interest | Economic Interest | Approximate Square Feet | Acquisition Date | Acquisition Price(1) (in thousands) | 11 West 34th Street | Private Investor/ Jeff Sutton | 30.00% | 30.00% | 17,150 |
| December 2010 | 10,800 |
| 7 Renaissance | Louis Cappelli | 50.00% | 50.00% | 65,641 |
| December 2010 | 4,000 |
| 3 Columbus Circle(4) | The Moinian Group | 48.90% | 48.90% | 741,500 |
| January 2011 | 500,000 |
| 280 Park Avenue | Vornado Realty Trust | 50.00% | 50.00% | 1,219,158 |
| March 2011 | 400,000 |
| 1552-1560 Broadway(5) | Jeff Sutton | 50.00% | 50.00% | 35,897 |
| August 2011 | 136,550 |
| 724 Fifth Avenue | Jeff Sutton | 50.00% | 50.00% | 65,040 |
| January 2012 | 223,000 |
| 10 East 53rd Street | Canadian Pension Plan Investment Board | 55.00% | 55.00% | 354,300 |
| February 2012 | 252,500 |
| 33 Beekman(6) | Harel Insurance and Finance/TNG 33 LLC | 45.90% | 45.90% | — |
| August 2012 | 31,000 |
| 521 Fifth Avenue | Plaza Global Real Estate Partners LP | 50.50% | 50.50% | 460,000 |
| November 2012 | 315,000 |
| 21 East 66th Street(7) | Private Investors | 32.28% | 32.28% | 16,736 |
| December 2012 | 75,000 |
| 315 West 36th Street | Private Investors | 35.50% | 35.50% | 147,619 |
| December 2012 | 45,000 |
| 650 Fifth Avenue(8) | Jeff Sutton | 50.00% | 50.00% | 32,324 |
| November 2013 | — |
| 121 Greene Street | Jeff Sutton | 50.00% | 50.00% | 7,131 |
| September 2014 | 27,400 |
| 175-225 Third Street | KCLW 3rd Street LLC/LIVWRK LLC | 95.00% | 95.00% | — |
| October 2014 | 74,600 |
| 55 West 46th Street | Prudential Real Estate Investors | 25.00% | 25.00% | 347,000 |
| November 2014 | 295,000 |
| Stonehenge Portfolio(9) | Various | Various | Various | 2,046,733 |
| February 2015 | 36,668 |
|
| | (1) | Acquisition price represents the actual or implied gross purchase price for the joint venture.venture, which is not adjusted for subsequent acquisitions of additional interest. |
| | (2) | In March 2015, we acquired an additional 17.56% interest in this joint venture for $67.5 million. |
| | (3) | In June 2015, we entered into an agreement to sell the property for $121.1 million. This transaction is expected to close during the third quarter of 2015, subject to customary closing conditions. |
| | (4) | As a result of the sale of a condominium interest in September 2012, Young & Rubicam, Inc., or Y&R, owns a portion of the property, generally floors three through eight referred to as Y&R units.at the property. Because the joint venture has an option to repurchase the Y&R units,these floors, the gain associated with this sale was deferred. |
| | (3)(5) | The purchase price pertainedrepresents only to the purchase of the 1552 Broadway interest which comprised approximately 13,045 square feet. The joint venture also owns a long-term leasehold interest in the retail space and certain other spaces at 1560 Broadway, which is adjacent to 1552 Broadway. |
| | (4)(6) | The joint venture owns a fee interest inAs of June 30, 2015, the propertyredevelopment project was substantially complete and will develop an approximately 30 story building for student housing. Upon completionbe conveyed to Pace University during the third quarter of the development, the joint venture will convey a long-term ground lease condominium interest in the building to Pace.2015. |
| | (5)(7) | We hold a 32.28% interest in three retail and two residential units at the property and a 16.14% interest in fourthree residential units at the property. |
| | (6)(8) | The joint venture owns a long-term leasehold interest in the retail space at 650 Fifth Avenue. In connection with the ground lease obligation, SLG provided a performance guaranty and Suttonour joint venture partner executed a contribution agreement to reflect its pro rata obligation. In the event the property is converted into a condominium unit and the landlord elects the purchase option, the joint venture shall be obligated to acquire the unit at the then fair value. |
| | (9) | In October 2014, theFebruary 2015, we acquired an interest in a portfolio of Manhattan residential and retail properties for $40.2 million, of which $3.5 million represented an increase in ownership interest in six of our existing consolidated joint venture closed on a $97.0properties. The $40.2 million floating rate leasehold mortgage with an initial funding of $65.0 million.consideration included the issuance of $40.0 million aggregate liquidation preference of 3.75% Series M Preferred Units of limited partnership interest of the Operating Partnership. |
Acquisition, Development and Construction Arrangements
In September 2014, we, along with our joint venture partners, sold all our interests in 180 Broadway, including the underlying property at an implied gross valuation of $222.5 million. We recognized a promote of $3.3 million and a gain of $16.5 millionBased on the salecharacteristics of the property.
In May 2014,following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50%, we sold our 33.33% partnership interest in the joint venture which owns 100% interest as tenant-in-common in 30 East 65th Street Corporationhave accounted for these debt and the related proprietary lease of five cooperative apartment units in the property located at 747 Madison Avenue at an implied gross valuation of $160.0 million, inclusive of the $33.1 million mortgage encumbering the property. We recognized a promote of $10.3 million and originated a $30.0 million preferred equity investment. Given our continuing involvement as a preferred equity holder, we deferred the gain on sale of $13.1 million as we did not meet the requisites of a saleinvestments under the full accrualequity method. We, along with our joint venture partners, retained one apartment unit at this property.As of June 30, 2015 and December 31, 2014, the carrying value for acquisition, development and construction arrangements were as follows (in thousands):
| | | | | | | | | | | | Loan Type | | June 30, 2015 | | December 31, 2014 | | Initial Maturity Date | Mezzanine loan and preferred equity | | $ | 99,777 |
| | $ | 99,629 |
| | March 2016 | Mezzanine loan(1) | | 45,913 |
| | 46,246 |
| | February 2022 | | | $ | 145,690 |
| | $ | 145,875 |
| | |
| | (1) | We have an option to convert our loan to equity interest subject to certain conditions. In addition, we have determined that our option to convert the loan to equity is not a derivative financial instrument pursuant to Generally Accepted Accounting Principles, or GAAP. As such, the embedded feature is not required to be bifurcated and the fair value accounting for the embedded feature at each reporting date is not applicable. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
In March 2014, we sold our 43.74% economic ownership interest in the joint venture which holds the West Coast Office portfolio at an implied gross valuation of $756.0 million, inclusive of the $526.3 million mortgage encumbering the property. We recognized a gain of $85.5 million on the sale of our investment.
In March 2014, we closed on the origination of a $100.0 million acquisition and equity participating financing consisting of a $60.0 million mezzanine loan and a $40.0 million preferred equity, which are both due to mature in March 2016, subject to three one-year extension options and a two-year option for the last extension. These loans, which were previously accounted for as debt and preferred equity investments, were reclassified to investments in unconsolidated joint ventures as a result of meeting the criteria of a real estate investment under the guidance for ADC arrangements. We have accounted for this wholly-owned investment under the equity method of accounting.
In January 2014, we sold our 49.90% partnership interest in the joint venture which holds 21-25 West 34th Street at an implied gross valuation of $114.9 million, inclusive of the $100.0 million mortgage encumbering the property. We recognized a gain of $20.9 million on the sale of our investment. We, along with our joint venture partner, retained approximately 91,300 square feet of development rights at this property.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
Mortgages and Other Loans Payable We generally finance our joint ventures with non-recourse debt. However, in certain cases we have provided guarantees or master leases for tenant space. These guarantees and master leases terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The seniorfirst mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at SeptemberJune 30, 20142015 and December 31, 2013,2014, respectively, are as follows (amounts in thousands): | | Property | | Maturity Date | | Interest Rate(1) | | September 30, 2014 | | December 31, 2013 | | Maturity Date | | Interest Rate(1) | | June 30, 2015 | | December 31, 2014 | Fixed Rate Debt: | | | | | | | | | | | | | | | 7 Renaissance | | December 2015 |
| | 10.00 | % | | $ | 1,868 |
| | $ | 1,276 |
| | December 2015 | | 10.00 | % | | $ | 2,600 |
| | $ | 2,147 |
| 11 West 34th Street | | January 2016 |
| | 4.82 | % | | 16,982 |
| | 17,205 |
| | January 2016 | | 4.82 | % | | 16,749 |
| | 16,905 |
| 280 Park Avenue | | June 2016 |
| | 6.57 | % | | 701,928 |
| | 706,886 |
| | June 2016 | | 6.57 | % | | 696,563 |
| | 700,171 |
| 1745 Broadway | | January 2017 |
| | 5.68 | % | | 340,000 |
| | 340,000 |
| | January 2017 | | 5.68 | % | | 340,000 |
| | 340,000 |
| 1 and 2 Jericho Plaza | | May 2017 |
| | 5.65 | % | | 163,750 |
| | 163,750 |
| | Jericho Plaza(2) | | | May 2017 | | 5.65 | % | | 163,750 |
| | 163,750 |
| 800 Third Avenue | | August 2017 |
| | 6.00 | % | | 20,910 |
| | 20,910 |
| | August 2017 | | 6.00 | % | | 20,910 |
| | 20,910 |
| 315 West 36th Street(3) | | December 2017 |
| | 3.16 | % | | 25,000 |
| | 25,000 |
| | December 2017 | | 3.16 | % | | 25,000 |
| | 25,000 |
| 717 Fifth Avenue(2) | | July 2022 |
| | 4.45 | % | | 300,000 |
| | 300,000 |
| | 521 Fifth Avenue | | | November 2019 | | 3.73 | % | | 170,000 |
| | 170,000 |
| 717 Fifth Avenue(4) | | | July 2022 | | 4.45 | % | | 300,000 |
| | 300,000 |
| 21 East 66th Street | | April 2023 |
| | 3.60 | % | | 12,000 |
| | 12,000 |
| | April 2023 | | 3.60 | % | | 12,000 |
| | 12,000 |
| 717 Fifth Avenue(2) | | July 2024 |
| | 9.00 | % | | 311,698 |
| | 304,000 |
| | 388 and 390 Greenwich Street(3) | | — |
| | — |
| | — |
| | 996,082 |
| | 100 Park Avenue(4) | | — |
| | — |
| | — |
| | 209,786 |
| | 21 West 34th Street(5) | | — |
| | — |
| | — |
| | 100,000 |
| | 1604-1610 Broadway(6) | | — |
| | — |
| | — |
| | 27,000 |
| | 717 Fifth Avenue(4) | | | July 2024 | | 9.00 | % | | 319,900 |
| | 314,381 |
| 3 Columbus Circle(5) | | | March 2025 | | 3.61 | % | | 350,000 |
| | — |
| Stonehenge Portfolio(6) | | | Various | | 4.18 | % | | 434,492 |
| | — |
| Total fixed rate debt | | | | | | $ | 1,894,136 |
| | $ | 3,223,895 |
| | | | $ | 2,851,964 |
| | $ | 2,065,264 |
| Floating Rate Debt: | | | | | | | | | | | | | | | The Meadows | | September 2015 |
| | 7.75 | % | | 67,350 |
| | 67,350 |
| | September 2015 | | 7.75 | % | | 67,350 |
| | 67,350 |
| 3 Columbus Circle(7) | | April 2016 |
| | 2.34 | % | | 233,058 |
| | 239,233 |
| | 1552 Broadway(8) | | April 2016 |
| | 4.21 | % | | 180,885 |
| | 158,690 |
| | 1552 Broadway(7) | | | April 2016 | | 4.26 | % | | 188,410 |
| | 184,210 |
| Other loan payable | | June 2016 |
| | 1.06 | % | | 30,000 |
| | 30,000 |
| | June 2016 | | 1.08 | % | | 30,000 |
| | 30,000 |
| 650 Fifth Avenue(8) | | | October 2016 | | 3.69 | % | | 65,000 |
| | 65,000 |
| 175-225 Third Street | | | December 2016 | | 4.25 | % | | 40,000 |
| | 40,000 |
| 10 East 53rd Street | | February 2017 |
| | 2.66 | % | | 125,000 |
| | 125,000 |
| | February 2017 | | 2.69 | % | | 125,000 |
| | 125,000 |
| 724 Fifth Avenue(9) | | April 2017 |
| | 2.58 | % | | 275,000 |
| | 120,000 |
| | April 2017 | | 2.60 | % | | 275,000 |
| | 275,000 |
| 33 Beekman(10) | | August 2017 |
| | 2.91 | % | | 43,707 |
| | 18,362 |
| | 33 Beekman(9) | | | August 2017 | | 2.93 | % | | 65,506 |
| | 52,283 |
| 600 Lexington Avenue | | October 2017 |
| | 2.24 | % | | 117,717 |
| | 120,616 |
| | October 2017 | | 2.28 | % | | 114,774 |
| | 116,740 |
| 521 Fifth Avenue | | November 2019 |
| | 2.36 | % | | 170,000 |
| | 170,000 |
| | 100 Park Avenue(4) | | February 2021 |
| | 1.91 | % | | 360,000 |
| | — |
| | 55 West 46th Street(10) | | | October 2017 | | 2.49 | % | | 150,000 |
| | 150,000 |
| Stonehenge Portfolio | | | December 2017 | | 3.25 | % | | 10,500 |
| | — |
| 121 Greene Street | | | November 2019 | | 1.69 | % | | 15,000 |
| | 15,000 |
| 100 Park Avenue | | | February 2021 | | 1.94 | % | | 360,000 |
| | 360,000 |
| 21 East 66th Street | | June 2033 |
| | 2.88 | % | | 1,902 |
| | 1,959 |
| | June 2033 | | 2.88 | % | | 1,844 |
| | 1,883 |
| 388 and 390 Greenwich Street(3) | | — |
| | — |
| | — |
| | 142,297 |
| | 747 Madison Avenue | | — |
| | — |
| | — |
| | 33,125 |
| | West Coast Office portfolio(11) | | — |
| | — |
| | — |
| | 526,290 |
| | 180/182 Broadway(12) | | — |
| | — |
| | — |
| | 89,893 |
| | 3 Columbus Circle(5) | | | | | — |
| | 230,974 |
| Total floating rate debt | | | | | | $ | 1,604,619 |
| | $ | 1,842,815 |
| | | | $ | 1,508,384 |
| | $ | 1,713,440 |
| Total joint venture mortgages and other loans payable | Total joint venture mortgages and other loans payable | | | | $ | 3,498,755 |
| | $ | 5,066,710 |
| Total joint venture mortgages and other loans payable | | | | $ | 4,360,348 |
| | $ | 3,778,704 |
|
| | (1) | Effective weighted average interest rate for the three months ended SeptemberJune 30, 2014,2015, taking into account interest rate hedges in effect during the period. |
| | (2) | This loan is in default as of June 30, 2015 due to the non-payment of debt service. The joint venture is in discussions with the special servicer on account of the loan. |
| | (3) | In July 2015, the joint venture refinanced the previous mortgage. |
| | (4) | These loans are comprised of a $300.0 million fixed rate mortgage loan and $290.0 million mezzanine loan. The mezzanine loan is subject to accretion based on the difference between contractual interest rate and contractual pay rate. |
| | (5) | In March 2015, the joint venture refinanced the previous mortgage and incurred a net loss on early extinguishment of debt of $0.8 million. |
| | (6) | Amount is comprised of $13.5 million, $56.0 million, $35.0 million, $7.4 million, $142.7 million, and $179.9 million in fixed-rate mortgages that mature in July 2016, June 2017, November 2017, February 2018, August 2019, and June 2024, respectively. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
| | (3) | In May 2014, we acquired the interest of our joint venture thereby consolidating the entity. Simultaneous with the acquisition, we refinanced the mortgage and incurred a net loss on early extinguishment of debt of $2.4 million. |
| | (4) | In February 2014, the joint venture replaced the previous fixed rate mortgage with a $360.0 million, seven-year floating rate, mortgage and incurred a net loss on early extinguishment of $3.2 million. |
| | (5) | In January 2014, we sold our interest in the joint venture, inclusive of our share of the joint venture debt. |
| | (6) | This loan was in default since November 2009 due to the non-payment of debt service. In January 2014, the joint venture relinquished its ground lease position to the lender. During the nine months ended September 30, 2014, we recognized $7.7 million of incentive income, which is included in other income on the consolidated statements of income. |
| | (7) | The joint venture has the ability to increase the mortgage by $40.0 million based on meeting certain performance hurdles. In connection with this obligation, we executed a master lease agreement and our joint venture partner executed a contribution agreement to reflect its pro rata obligation under the master lease. The lien on the mortgage and the master lease excludes the condominium interest owned by Y&R. See Note 2 of prior table. |
| | (8) | These loans are comprised of a $150.0 million mortgage loan and a $41.5 million mezzanine loan and are subject to two one-year extension options.loan. As of SeptemberJune 30, 2014, $5.72015, $1.7 million of the mortgage loan and $4.9$1.4 million of the mezzanine loan remainedwas unfunded. |
| | (8) | This loan has a committed amount of $97.0 million, of which $32.0 million was unfunded as of June 30, 2015. |
| | (9) | In April 2014, the joint venture refinanced the previous mortgage with a $235.0 million mortgage and a $40.0 million mezzanine loan and incurred a net loss on early extinguishment of debt of $1.2 million. |
| | (10) | This loan has a committed amount of $75.0 million, of which $18.4 million is recourse to us. Our partner has indemnified us for its pro rata share of the recourse guarantee. A portion of the guarantee terminates upon the joint venture reaching certain milestones. We believe it is unlikely that we will be required to perform under this guarantee. |
| | (11)(10) | In March 2014, we sold our interest in the joint venture, inclusiveThis loan has a committed amount of our share in the joint venture debt. |
| | (12) | In September 2014, the joint venture sold the property and repaid the debt.$190.0 million, of which $40.0 million was unfunded as of June 30, 2015. |
We act as the operating partner and day-to-day manager for all our joint ventures, except for 800 Third Avenue, 1 and 2 Jericho Plaza, 280 Park Avenue, 3 Columbus Circle, The Meadows, 315 West 36th Street, 21 East 66th Street, 175-225 Third Street and The Meadows.the Stonehenge Portfolio. We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to certain of our joint ventures. We earned$3.8 $2.1 million, $15.0$4.9 million, $3.5$4.8 million and $7.5$11.2 million from these services for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively. In addition, we have the ability to earn incentive fees based on the ultimate financial performance of certain of the joint venture properties. The combined balance sheets for the unconsolidated joint ventures, at SeptemberJune 30, 20142015 and December 31, 2013,2014, are as follows (in thousands): | | | September 30, 2014 | | December 31, 2013 | June 30, 2015 | | December 31, 2014 | Assets | | | | | | | Commercial real estate property, net | $ | 4,850,149 |
| | $ | 6,846,021 |
| $ | 6,124,617 |
| | $ | 5,275,632 |
| Other assets | 746,234 |
| | 827,282 |
| 924,855 |
| | 810,567 |
| Total assets | $ | 5,596,383 |
| | $ | 7,673,303 |
| $ | 7,049,472 |
| | $ | 6,086,199 |
| Liabilities and members' equity | | | | | | | Mortgages and other loans payable | $ | 3,498,755 |
| | $ | 5,066,710 |
| $ | 4,360,348 |
| | $ | 3,778,704 |
| Other liabilities | 474,427 |
| | 596,960 |
| 495,523 |
| | 485,572 |
| Members' equity | 1,623,201 |
| | 2,009,633 |
| 2,193,601 |
| | 1,821,923 |
| Total liabilities and members' equity | $ | 5,596,383 |
| | $ | 7,673,303 |
| $ | 7,049,472 |
| | $ | 6,086,199 |
| Company's investments in unconsolidated joint ventures | $ | 996,842 |
| | $ | 1,113,218 |
| $ | 1,262,723 |
| | $ | 1,172,020 |
|
The combined statements of income for the unconsolidated joint ventures, from acquisition date through the three and six months ended June 30, 2015 and 2014 are as follows (in thousands): | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | 2015 | | 2014 | | 2015 | | 2014 | Total revenues | $ | 143,535 |
| | $ | 130,495 |
| | $ | 272,451 |
| | $ | 291,633 |
| Operating expenses | 26,345 |
| | 18,362 |
| | 51,831 |
| | 45,045 |
| Ground rent | 2,572 |
| | 2,632 |
| | 5,164 |
| | 4,657 |
| Real estate taxes | 22,335 |
| | 15,406 |
| | 41,711 |
| | 32,342 |
| Interest expense, net of interest income | 51,715 |
| | 44,728 |
| | 95,722 |
| | 97,064 |
| Amortization of deferred financing costs | 3,145 |
| | 2,026 |
| | 6,155 |
| | 6,659 |
| Transaction related costs, net of recoveries | 3 |
| | (207 | ) | | 11 |
| | 64 |
| Depreciation and amortization | 37,894 |
| | 33,858 |
| | 70,878 |
| | 79,462 |
| Total expenses | 144,009 |
| | 116,805 |
| | 271,472 |
| | 265,293 |
| Loss on early extinguishment of debt | — |
| | (3,546 | ) | | (833 | ) | | (6,743 | ) | Net income (loss) before gain on sale | $ | (474 | ) | | $ | 10,144 |
| | $ | 146 |
| | $ | 19,597 |
| Company's equity in net income from unconsolidated joint ventures | $ | 2,994 |
| | $ | 8,619 |
| | $ | 7,024 |
| | $ | 14,748 |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
7. Deferred Costs Deferred costs at June 30, 2015 and December 31, 2014 consisted of the following (in thousands): | | | | | | | | | | June 30, 2015 | | December 31, 2014 | Deferred leasing | $ | 406,498 |
| | $ | 385,555 |
| Deferred financing | 191,980 |
| | 193,776 |
| | 598,478 |
| | 579,331 |
| Less accumulated amortization | (269,640 | ) | | (251,369 | ) | Deferred costs, net | $ | 328,838 |
| | $ | 327,962 |
|
8. Mortgages and Other Loans Payable The first mortgages and other loans payable collateralized by the respective properties and assignment of leases at June 30, 2015 and December 31, 2014, respectively, were as follows (amounts in thousands): | | | | | | | | | | | | | | | Property | | Maturity Date | | Interest Rate(1) | | June 30, 2015 | | December 31, 2014 | Fixed Rate Debt: | | | | | | | | | 500 West Putnam Avenue | | January 2016 | | 5.52 | % | | $ | 22,676 |
| | $ | 22,968 |
| Landmark Square | | December 2016 | | 4.00 | % | | 80,424 |
| | 81,269 |
| 485 Lexington Avenue | | February 2017 | | 5.61 | % | | 450,000 |
| | 450,000 |
| 120 West 45th Street(2) | | February 2017 | | 6.12 | % | | 170,000 |
| | 170,000 |
| 762 Madison Avenue(3) | | February 2017 | | 3.86 | % | | 7,959 |
| | 8,045 |
| 885 Third Avenue | | July 2017 | | 6.26 | % | | 267,650 |
| | 267,650 |
| 1745 Broadway | | June 2018 | | 4.81 | % | | 16,000 |
| | 16,000 |
| 388-390 Greenwich Street(4) | | June 2018 | | 3.25 | % | | 1,004,000 |
| | 1,004,000 |
| One Madison Avenue | | May 2020 | | 5.91 | % | | 554,405 |
| | 565,742 |
| 100 Church Street | | July 2022 | | 4.68 | % | | 226,862 |
| | 228,612 |
| 919 Third Avenue(5) | | June 2023 | | 5.12 | % | | 500,000 |
| | 500,000 |
| 400 East 57th Street | | February 2024 | | 4.13 | % | | 68,276 |
| | 68,896 |
| 400 East 58th Street | | February 2024 | | 4.13 | % | | 29,261 |
| | 29,527 |
| 420 Lexington Avenue | | October 2024 | | 3.99 | % | | 300,000 |
| | 300,000 |
| 1515 Broadway | | March 2025 | | 3.93 | % | | 900,000 |
| | 900,000 |
| Series J Preferred Units(6) | | April 2051 | | 3.75 | % | | 4,000 |
| | 4,000 |
| 711 Third Avenue(7) | | | | | | — |
| | 120,000 |
| Total fixed rate debt | | | | | | $ | 4,601,513 |
| | $ | 4,736,709 |
| Floating Rate Debt: | | | | | | | | | Master Repurchase Agreement | | December 2015 | | 3.44 | % | | 106,421 |
| | 100,000 |
| 388-390 Greenwich Street(4) | | June 2018 | | 1.93 | % | | 446,000 |
| | 446,000 |
| 248-252 Bedford Avenue | | June 2019 | | 1.69 | % | | 29,000 |
| | 29,000 |
| 220 East 42nd Street | | October 2020 | | 1.79 | % | | 275,000 |
| | 275,000 |
| 180 Maiden Lane(8) | | | | | | — |
| | 253,942 |
| Total floating rate debt | | | | | | $ | 856,421 |
| | $ | 1,103,942 |
| Total fixed rate and floating rate debt | | | | | | $ | 5,457,934 |
| | $ | 5,840,651 |
| Mortgages reclassed to liabilities related to assets held for sale | | | | | | (170,000 | ) | | (253,942 | ) | Total mortgages and other loans payable | | | | | | $ | 5,287,934 |
| | $ | 5,586,709 |
|
| | (1) | Effective weighted average interest rate for the three months ended June 30, 2015, taking into account interest rate hedges in effect during the period. |
| | (2) | This property was held for sale at June 30, 2015 and the related mortgage is included in liabilities related to assets held for sale. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
The combined statements of income for the unconsolidated joint ventures, from acquisition date through the three and nine months ended September 30, 2014 and 2013 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2014 | | 2013 | | 2014 | | 2013 | Total revenues | $ | 114,831 |
| | $ | 156,571 |
| | $ | 406,464 |
| | $ | 462,776 |
| Operating expenses | 18,530 |
| | 29,211 |
| | 63,575 |
| | 86,027 |
| Ground rent | 2,638 |
| | 657 |
| | 7,295 |
| | 1,972 |
| Real estate taxes | 15,867 |
| | 19,105 |
| | 48,209 |
| | 53,368 |
| Interest expense, net of interest income | 40,885 |
| | 56,169 |
| | 137,949 |
| | 169,137 |
| Amortization of deferred financing costs | 2,837 |
| | 2,869 |
| | 9,496 |
| | 12,454 |
| Transaction related costs, net of recoveries | 501 |
| | — |
| | 565 |
| | — |
| Depreciation and amortization | 28,324 |
| | 49,402 |
| | 107,786 |
| | 144,552 |
| Total expenses | 109,582 |
| | 157,413 |
| | 374,875 |
| | 467,510 |
| Loss on early extinguishment of debt | — |
| | — |
| | (6,743 | ) | | — |
| Net income (loss) before gain on sale | $ | 5,249 |
| | $ | (842 | ) | | $ | 24,846 |
| | $ | (4,734 | ) | Company's equity in net income from unconsolidated joint ventures | $ | 6,034 |
| | $ | 2,939 |
| | $ | 20,781 |
| | $ | 4,251 |
|
7. Deferred Costs
Deferred costs at September 30, 2014 and December 31, 2013 consisted of the following (in thousands):
| | | | | | | | | | September 30, 2014 | | December 31, 2013 | Deferred leasing | $ | 353,316 |
| | $ | 326,379 |
| Deferred financing | 199,081 |
| | 157,088 |
| | 552,397 |
| | 483,467 |
| Less accumulated amortization | (241,537 | ) | | (216,409 | ) | Deferred costs, net | $ | 310,860 |
| | $ | 267,058 |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
8. Mortgages and Other Loans Payable
The first mortgages and other loans payable collateralized by the respective properties and assignment of leases at September 30, 2014 and December 31, 2013 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | Property | | Maturity Date | | Interest Rate(1) | | September 30, 2014 | | December 31, 2013 | Fixed Rate Debt: | | | | | | | | | 125 Park Avenue(2) | | October 2014 |
| | 5.75 | % | | $ | 146,250 |
| | $ | 146,250 |
| 711 Third Avenue | | June 2015 |
| | 4.99 | % | | 120,000 |
| | 120,000 |
| 625 Madison Avenue | | November 2015 |
| | 7.27 | % | | 116,383 |
| | 120,830 |
| 500 West Putnam Avenue | | January 2016 |
| | 5.52 | % | | 23,112 |
| | 23,529 |
| Landmark Square | | December 2016 |
| | 4.00 | % | | 81,685 |
| | 82,909 |
| 485 Lexington Avenue | | February 2017 |
| | 5.61 | % | | 450,000 |
| | 450,000 |
| 120 West 45th Street | | February 2017 |
| | 6.12 | % | | 170,000 |
| | 170,000 |
| 762 Madison Avenue | | February 2017 |
| | 3.75 | % | | 8,087 |
| | 8,211 |
| 2 Herald Square(3) | | April 2017 |
| | 5.36 | % | | 191,250 |
| | 191,250 |
| 885 Third Avenue | | July 2017 |
| | 6.26 | % | | 267,650 |
| | 267,650 |
| 388-390 Greenwich Street(4) | | June 2018 |
| | 3.80 | % | | 504,000 |
| | — |
| Other loan payable(5) | | September 2019 |
| | 8.00 | % | | 50,000 |
| | 50,000 |
| One Madison Avenue | | May 2020 |
| | 5.91 | % | | 571,284 |
| | 587,336 |
| 100 Church | | July 2022 |
| | 4.68 | % | | 229,472 |
| | 230,000 |
| 919 Third Avenue(6) | | June 2023 |
| | 5.12 | % | | 500,000 |
| | 500,000 |
| 400 East 57th Street | | February 2024 |
| | 4.13 | % | | 69,201 |
| | 70,000 |
| 400 East 58th Street | | February 2024 |
| | 4.13 | % | | 29,658 |
| | 30,000 |
| 420 Lexington Avenue(7) | | October 2024 |
| | 6.77 | % | | 300,000 |
| | 182,641 |
| 1515 Broadway | | March 2025 |
| | 3.93 | % | | 900,000 |
| | 900,000 |
| Series J Preferred Units(8) | | April 2051 |
| | 3.75 | % | | 4,000 |
| | — |
| 609 Partners, LLC(9) | | — |
| | — |
| | — |
| | 23 |
| Total fixed rate debt | | | | | | $ | 4,732,032 |
| | $ | 4,130,629 |
| Floating Rate Debt: | | | | | | | | | Master repurchase agreement(10) | | December 2014 |
| | 3.37 | % | | 100,000 |
| | 91,000 |
| 180 Maiden Lane(11) | | November 2016 |
| | 2.34 | % | | 256,152 |
| | 262,706 |
| 388-390 Greenwich Street(4) | | June 2018 |
| | 1.91 | % | | 946,000 |
| | — |
| 248-252 Bedford Avenue(12) | | June 2019 |
| | 1.66 | % | | 29,000 |
| | 22,000 |
| 220 East 42nd Street | | October 2020 |
| | 1.76 | % | | 275,000 |
| | 275,000 |
| 16 Court Street(13) | | 0 |
| | 0 |
| | — |
| | 79,243 |
| Total floating rate debt | | | | | | $ | 1,606,152 |
| | $ | 729,949 |
| Total mortgages and other loans payable(14) | | | | | | $ | 6,338,184 |
| | $ | 4,860,578 |
|
_________________________________ | | (1) | Effective weighted average interest rate for the three months ended September 30, 2014, taking into account interest rate hedges in effect during the period. |
| | (2) | This loan was repaid at maturity. |
| | (3) | This property is held for sale at September 30, 2014 andIn February 2015, we entered into a new swap agreement with a fixed interest rate of 3.86% per annum, which replaced the related mortgage is included in liabilities related to assets held for sale.previous swap agreement with a fixed interest rate of 3.75% per annum. |
| | (4) | SimultaneousIn connection with the acquisition of our joint venture partner's interest, we refinancedassumed the $1.1 billion floatingexisting derivative instruments, which swapped $504.0 million of the mortgage to a fixed rate mortgage withwhich bears interest at 3.80% per annum. In October 2014, we entered into multiple swap agreements to hedge our interest rate exposure on the additional $500.0 million portion of this mortgage, which was swapped to a $1.5 billion seven-year floatingfixed rate mortgage, and have consolidatedof 2.69% per annum. Including the property.as-of right extension option, this loan matures in June 2021. |
| | (5) | This loan is secured by a portion of a preferred equity investment. |
| | (6) | We own a 51.0% controlling interest in the joint venture that is the borrower on this loan. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
| | (7) | In September 2014, we refinanced the $181.0 million fixed rate mortgage with a $300.0 million 10-year fixed rate mortgage and incurred a loss on early extinguishment of debt of $24.5 million, which consisted mainly of a prepayment penalty fee. |
| | (8)(6) | In connection with the acquisition of a commercial real estate property, the Operating Partnership issued $4.0 million, or 4,000, 3.75% Series J Preferred Units of limited partnership interest, ofor the Series J Preferred Units, with a mandatory liquidation preference of $1,000.00 per unit. The Series J Preferred Units are accounted for as debt because they can be redeemed in cash by the Operating Partnership on the earlier of (i) the date of the sale of the property or (ii) April 30, 2051 or at the option of the unitholders as further prescribed in the related agreement. |
| | (9)(7) | In April 2014,March 2015, we repaid the remaining 22,658 Series E Preferred Units of the Operating Partnership were canceled.mortgage. |
| | (10)(8) | The Master Repurchase Agreement, or MRA, has a maximum facility capacity of $300.0 million. |
| | (11) | In connection with this consolidated joint venture obligation, we executed a master lease agreement. Our partner has executed a contribution agreement to reflect its pro rata share of the obligation under the master lease. This property iswas held for sale at September 30,December 31, 2014 and the related mortgage is included in liabilities related to assets held for sale. |
| | (12) | In June 2014, we replacedJanuary 2015, the previous floating rate mortgage with a $29.0 million, five-year floating rate mortgageproperty was sold and incurred a net loss on early extinguishment ofthe debt of $0.5 million. |
| | (13) | In April 2014, we repaid the loan and incurred a loss on early extinguishment of debt of $0.5 million. |
| | (14) | Includes mortgages related to 2 Herald Square and 180 Maiden, which are currently held for sale.was repaid. |
The Master Repurchase Agreement, as amended in December 2013, or MRA, provides us with the ability to sell certain debt investments with a simultaneous agreement to repurchase the same at a certain date or on demand. This MRA has a maximum facility capacity of $300.0 million and bears interest ranging from 250 and 325 basis points over 30-day LIBOR depending on the pledged collateral. 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 facility 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, our ability to satisfy margin calls with cash or cash equivalents and access to additional liquidity through the 2012 Credit Facility.
TheAt June 30, 2015 and December 31, 2014, the gross book value of the properties and debt and preferred equity investments collateralizing the mortgages and other loans payable was $9.5approximately $7.9 billion and $8.0$8.2 billion, at September 30, 2014 and December 31, 2013, respectively.
9. Corporate Indebtedness 2012 Credit Facility In March 2014, we entered into an amendment to the $1.6 billion credit facility entered into by the Company in November 2012, or the 2012 credit facility, which among other things, increased the term loan portion of the 2012 credit facility by $383.0 million to $783.0 million, decreased the interest-rate margin applicable to the term loan portion of the facility by 25 basis points and extended the maturity of the term loan portion of the facility from March 30, 2018 to June 30, 2019. The 2012In November 2014, we increased the term loan portion of the facility by $50.0 million to $833.0 million. In January 2015, we entered into a second amended and restated credit agreement, which decreased the interest-rate margin and facility as amended, consists of a $1.2 billion revolving credit facility, orfee applicable to the revolving credit facility by 20 basis points and a $783.0 million term loan facility, orfive basis points, respectively, and extended the term loan facility. Thematurity date of the revolving credit facility matures into March 2017 and includes two six-month29, 2019 with an as-of-right extension options, subject to the payment of an extension fee of 10 basis points for each such extension.through March 29, 2020. We also have an option, subject to customary conditions, without the consent of existing lenders, to increase the capacity under the revolving credit facility to $1.5 billion at any time prior to the maturity date for the revolving credit facility without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions. TheAs of June 30, 2015, the 2012 credit facility, bearsas amended, consisted of a $1.2 billion revolving credit facility, or the revolving credit facility, and an $833.0 million term loan, or the term loan facility.
As of June 30, 2015, the 2012 credit facility bore interest at a spread over LIBOR ranging from (i) 10087.5 basis points to 175155 basis points for loans under the revolving credit facility and (ii) 95 basis points to 190 basis points for loans under the term loan facility, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. At SeptemberJune 30, 2014,2015, the applicable spread was 145125 basis points for the revolving credit facility and 140 basis points for the term loan facility. At SeptemberJune 30, 2014,2015, the effective interest rate was 1.61%1.44% for the revolving credit facility and 1.64%1.66% for the term loan facility. We are required to pay quarterly in arrears a 1512.5 to 3530 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. As of SeptemberJune 30, 2014,2015, the facility fee was 3025 basis points. At SeptemberAs of June 30, 2014,2015, we had $113.3$89.4 million of outstanding letters of credit, $244.0$705.0 million drawn under the revolving credit facility and $783.0$833.0 million outstanding under the term loan facility, with total undrawn capacity of $0.8 billion$405.6 million under the revolving credit facility. In connection with the amendment of the 2012 credit facility, we incurred debt origination and other loan costs of $2.8 million. We evaluated the modification pursuant to ASC 470 and determined that the terms of the amendment were not substantially different from the terms of the previous 2012 credit facility. As a result, these deferred costs and the unamortized balance of the costs previously incurred are amortized through the extended maturity date of the term loan facility.
The Company, the Operating Partnership and ROP are all borrowers jointly and severally obligated under the 2012 credit facility. None of our other subsidiaries are obligors under the 2012 credit facility. The 2012 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
Senior Unsecured Notes The following table sets forth our senior unsecured notes and other related disclosures as of SeptemberJune 30, 20142015 and December 31, 20132014, respectively, by scheduled maturity date (amounts(dollars in thousands): | | Issuance | | September 30, 2014 Unpaid Principal Balance | | September 30, 2014 Accreted Balance | | December 31, 2013 Accreted Balance | | Coupon Rate(1) | | Effective Rate | | Term (in Years) | | Maturity Date | | June 30, 2015 Unpaid Principal Balance | | June 30, 2015 Accreted Balance | | December 31, 2014 Accreted Balance | | Coupon Rate(1) | | Effective Rate | | Term (in Years) | | Maturity Date | March 31, 2006(2) | | $ | 255,308 |
| | $ | 255,238 |
| | $ | 255,206 |
| | 6.00 | % | | 6.00 | % | | 10 | | March 31, 2016 | | $ | 255,308 |
| | $ | 255,272 |
| | $ | 255,250 |
| | 6.00 | % | | 6.00 | % | | 10 | | March 31, 2016 | October 12, 2010(3) | | 345,000 |
| | 306,187 |
| | 297,837 |
| | 3.00 | % | | 3.00 | % | | 7 | | October 15, 2017 | | 345,000 |
| | 314,993 |
| | 309,069 |
| | 3.00 | % | | 3.00 | % | | 7 | | October 15, 2017 | August 5, 2011(4) | | 250,000 |
| | 249,728 |
| | 249,681 |
| | 5.00 | % | | 5.00 | % | | 7 | | August 15, 2018 | | 250,000 |
| | 249,777 |
| | 249,744 |
| | 5.00 | % | | 5.00 | % | | 7 | | August 15, 2018 | March 16, 2010(4) | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 7.75 | % | | 7.75 | % | | 10 | | March 15, 2020 | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 7.75 | % | | 7.75 | % | | 10 | | March 15, 2020 | November 15, 2012(4) | | 200,000 |
| | 200,000 |
| | 200,000 |
| | 4.50 | % | | 4.50 | % | | 10 | | December 1, 2022 | | 200,000 |
| | 200,000 |
| | 200,000 |
| | 4.50 | % | | 4.50 | % | | 10 | | December 1, 2022 | June 27, 2005(2)(5) | | 7 |
| | 7 |
| | 7 |
| | 4.00 | % | | 4.00 | % | | 20 | | June 15, 2025 | | March 26, 2007(6) | | 10,008 |
| | 10,008 |
| | 10,701 |
| | 3.00 | % | | 3.00 | % | | 20 | | March 30, 2027 | | August 13, 2004(2)(7) | | — |
| | — |
| | 75,898 |
| |
|
| |
|
| |
| |
| | March 26, 2007(5) | | | 10,008 |
| | 10,008 |
| | 10,008 |
| | 3.00 | % | | 3.00 | % | | 20 | | March 30, 2027 | June 27, 2005(2)(6) | | | — |
| | — |
| | 7 |
| | | | | | | | $ | 1,310,323 |
| | $ | 1,271,168 |
| | $ | 1,339,330 |
| | | | | | | $ | 1,310,316 |
| | $ | 1,280,050 |
| | $ | 1,274,078 |
| | | | | |
| | (1) | Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates. |
| | (3) | Issued by the Operating Partnership. Interest on these exchangeable notes is payable semi-annually on April 15 and October 15. The notes had an initial exchange rate representing an exchange price that was set at a 30.0% premium to the last reported sale price of SL Green's common stock on October 6, 2010, or $85.81.$85.81. The initial exchange rate is subject to adjustment under certain circumstances. The current exchange rate is 12.066012.2163 shares of SL Green's common stock per $1,000 principal amount of these notes. The notes are senior unsecured obligations of the Operating Partnership and are exchangeable upon the occurrence of specified events and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of SL Green's common stock, if any, at our option. As a result of meeting specified events (as defined in the Indenture Agreement), these notes became exchangeable commencing January 1, 2015 and will remain exchangeable through September 30, 2015. The notes are guaranteed by ROP. On the issuance date, $78.3$78.3 million of the debt balance was recorded in equity. As of SeptemberJune 30, 2014, $38.82015, $30.0 million remained to be amortized into the debt balance. |
| | (4) | Issued by the Company, the Operating Partnership and ROP, as co-obligors. |
| | (5) | Exchangeable senior debentures which are currently callable at par. In addition, the debentures can be put to ROP, at the option of the holder at par plus accrued and unpaid interest, on June 15, 2015 and 2020 and upon the occurrence of certain change of control transactions. As a result of the acquisition of all outstanding shares of common stock of Reckson, or the Reckson Merger, the adjusted exchange rate for the debentures is 7.7461 shares of SL Green's common stock per $1,000 of principal amount of debentures and the adjusted reference dividend for the debentures is $1.3491.
|
| | (6) | Issued by the Operating Partnership. Interest on these remaining exchangeable notes is payable semi-annually on March 30 and September 30. The notes have an initial exchange rate representing an exchange price that was set at a 25.0% premium to the last reported sale price of the Company's common stock on March 20, 2007, or $173.30.$173.30. The initial exchange rate is subject to adjustment under certain circumstances. The current exchange rate is 5.7952 shares of SL Green's common stock per $1,000 principal amount of these notes. The notes are senior unsecured obligations of the Operating Partnership and are exchangeable upon the occurrence of specified events and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of SL Green's common stock, if any, at our option. The notes are currently redeemable at the Operating Partnership’s option. The Operating Partnership may be required to repurchase the notes on March 30, 2017 and 2022, and upon the occurrence of certain designated events. |
| | (7)(6) | In August 2014, these notes were repaid at maturity.April 2015, we redeemed the remaining outstanding debentures. |
Restrictive Covenants The terms of the 2012 credit facility, as amended, and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, our 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 minimum amount of tangible net worth, a 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, we will not during any time when a default is continuing, make distributions with respect to common stock or other equity interests, except to enable the Company to continue to qualify as a REIT for Federal income tax purposes. As of SeptemberJune 30, 2015 and December 31, 2014,, we were in compliance with all such covenants.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
Junior SubordinateSubordinated Deferrable Interest Debentures In June 2005, the Company and the Operating Partnership issued $100.0 million in unsecured trust preferred securities through a newly formed trust, SL Green Capital Trust I, or the Trust, which is a wholly-owned subsidiary of the Operating Partnership. The securities mature in 2035 and bear interest at a fixed rate of 5.61% for the first ten years ending July 2015. Thereafter, the interest rate will float at three-month LIBOR plus 125 basis points.points over the three-month LIBOR. Interest payments may be deferred for a period of up to eight consecutive quarters if the Operating Partnership exercises its right to defer such payments. The Trust preferred securities are redeemable at the option of the Operating Partnership, in whole or in part, with no prepayment premium. We do not
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
consolidate the Trust even though it is a variable interest entity as we are not the primary beneficiary. Because the Trust is not consolidated, we have recorded the debt on our consolidated balance sheets and the related payments are classified as interest expense. Principal Maturities Combined aggregate principal maturities of mortgages and other loans payable, the 2012 credit facility, trust preferred securities, senior unsecured notes and our share of joint venture debt as of SeptemberJune 30, 20142015, including as-of-right extension options and put options, were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Scheduled Amortization | | Principal Repayments | | | Revolving Credit Facility | | Trust Preferred Securities | | Term Loan and Senior Unsecured Notes | | Total | | Joint Venture Debt | Remaining 2014 | $ | 11,038 |
| | $ | 146,250 |
| | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 157,288 |
| | $ | 2,454 |
| 2015 | 44,701 |
| | 329,537 |
| | | — |
| | — |
| | 7 |
| | 374,245 |
| | 44,446 |
| 2016 | 54,158 |
| | 338,762 |
| (1) | | — |
| | — |
| | 255,308 |
| | 648,228 |
| | 564,269 |
| 2017 | 61,063 |
| | 1,086,579 |
| (1) | | — |
| | — |
| | 355,008 |
| | 1,502,650 |
| | 446,950 |
| 2018 | 64,462 |
| | — |
| | | 244,000 |
| | — |
| | 250,000 |
| | 558,462 |
| | 28 |
| Thereafter | 274,230 |
| | 3,927,404 |
| | | — |
| | 100,000 |
| | 1,233,000 |
| | 5,534,634 |
| | 353,580 |
| | $ | 509,652 |
| | $ | 5,828,532 |
| (1) | | $ | 244,000 |
| | $ | 100,000 |
| | $ | 2,093,323 |
| | $ | 8,775,507 |
| | $ | 1,411,727 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Scheduled Amortization | | Principal Repayments | | Revolving Credit Facility | | Unsecured Term Loan | | Trust Preferred Securities | | Senior Unsecured Notes | | Total | | Joint Venture Debt | Remaining 2015 | $ | 15,354 |
| | $ | 106,421 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 121,775 |
| | $ | 38,176 |
| 2016 | 47,360 |
| | 100,311 |
| | — |
| | — |
| | — |
| | 255,308 |
| | 402,979 |
| | 534,057 |
| 2017(1) | 61,063 |
| | 895,329 |
| | — |
| | — |
| | — |
| | 355,008 |
| | 1,311,400 |
| | 585,526 |
| 2018 | 64,462 |
| | 16,000 |
| | — |
| | — |
| | — |
| | 250,000 |
| | 330,462 |
| | 2,196 |
| 2019 | 70,409 |
| | 28,317 |
| | — |
| | 833,000 |
| | — |
| | — |
| | 931,726 |
| | 104,687 |
| Thereafter | 200,403 |
| | 3,852,505 |
| | 705,000 |
| | — |
| | 100,000 |
| | 450,000 |
| | 5,307,908 |
| | 446,742 |
| | $ | 459,051 |
| | $ | 4,998,883 |
| | $ | 705,000 |
| | $ | 833,000 |
| | $ | 100,000 |
| | $ | 1,310,316 |
| | $ | 8,406,250 |
| | $ | 1,711,384 |
|
| | (1) | PrincipalScheduled principal repayments include the mortgagesmortgage at 180 Maiden Lane and 2 Herald Center,120 West 45th Street, which areis included in liabilities related to assets held for sale. |
Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands): | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 | | 2015 | | 2014 | Interest expense | | $ | 83,158 |
| | $ | 78,770 |
| | $ | 238,285 |
| | $ | 234,303 |
| | $ | 76,472 |
| | $ | 78,419 |
| | $ | 152,930 |
| | $ | 155,127 |
| Interest income | | (782 | ) | | (544 | ) | | (1,861 | ) | | (1,441 | ) | | (726 | ) | | (549 | ) | | (1,377 | ) | | (1,079 | ) | Interest expense, net of interest income | | $ | 82,376 |
| | $ | 78,226 |
| | $ | 236,424 |
| | $ | 232,862 |
| | Interest expense, net | | | $ | 75,746 |
| | $ | 77,870 |
| | $ | 151,553 |
| | $ | 154,048 |
| Interest capitalized | | $ | 7,972 |
| | $ | 3,091 |
| | $ | 18,689 |
| | $ | 10,082 |
| | $ | 7,611 |
| | $ | 6,218 |
| | $ | 16,169 |
| | $ | 10,490 |
|
10. Related Party Transactions Cleaning/ Security/ Messenger and Restoration Services Through Alliance Building Services, or Alliance, First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services, Classic Security LLC provides security services, Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain properties owned by us. Alliance is partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors. 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 profit participation, which is included in other income on the consolidated statements of income,operations, was $0.9 million, $2.8 million, $0.8$1.0 million and $2.7$1.9 million for both the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively. We also recorded expenses of $5.9$4.6 million, $14.7$8.6 million, $5.0 million and $8.8 million for the three and six months ended June 30, 2015 and 2014, respectively, for these services (excluding services provided directly to tenants).
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
$5.9 million and $16.0 million for the three and nine months ended September 30, 2014 and 2013, respectively, for these services (excluding services provided directly to tenants).
Marketing Services
A-List Marketing, LLC, or A-List, provides marketing services to us. Deena Wolff, a sister of Marc Holliday, our chief executive officer, is the owner of A-List. We recorded approximately $26,800, $121,600, $50,700 and $158,000 for the three and nine months ended September 30, 2014 and 2013, respectively, for these services.
Leases
Nancy Peck and Company leases 1,003 square feet of space at 420 Lexington Avenue under a lease that ends in August 2015. Nancy Peck and Company is owned by Nancy Peck, the wife of Stephen L. Green. The rent due pursuant to the lease was $35,516 per annum for year one increasing to $40,000 in year seven.
Management Fees S.L. Green Management Corp., a consolidated entity, receives property management fees from an entity in which Stephen L. Green owns an interest. We received management fees from such entity of approximately $114,300, $330,700, $105,200$0.1 million and $318,900$0.2 million for both the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively. Other Amounts due from related parties at SeptemberJune 30, 20142015 and December 31, 20132014 consisted of the following (in thousands): | | | September 30, 2014 | | December 31, 2013 | June 30, 2015 | | December 31, 2014 | Due from joint ventures | $ | 1,260 |
| | $ | 2,376 |
| $ | 1,308 |
| | $ | 1,254 |
| Other | 12,002 |
| | 6,154 |
| 10,087 |
| | 10,481 |
| Related party receivables | $ | 13,262 |
| | $ | 8,530 |
| $ | 11,395 |
| | $ | 11,735 |
|
11. Noncontrolling Interests on the Company's Consolidated Financial Statements Noncontrolling interests represent the common and preferred units of limited partnership interest in the Operating Partnership not held by the Company as well as third party equity interests in our other consolidated subsidiaries. Noncontrolling interests in the Operating Partnership are shown in the mezzanine equity while the noncontrolling interests in our other consolidated subsidiaries are shown in the equity section of the Company’s consolidated financial statements. Common Units of Limited Partnership Interest in the Operating Partnership As of SeptemberJune 30, 20142015 and December 31, 2013,2014, the noncontrolling interest unit holders owned 3.75%3.78%, or 3,735,4783,907,117 units, and 2.96%3.92%, or 2,902,3173,973,016 units, of the Operating Partnership, respectively. At SeptemberJune 30, 2014, 3,735,4782015, 3,907,117 shares of SL Green's common stock were reserved for issuance upon redemption of units of limited partnership interest of the Operating Partnership. Noncontrolling interests in the Operating Partnership is recorded at the greater of its cost basis or fair market value based on the closing stock price of SL Green's common stock at the end of the reporting period.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
Below is the rollforward analysis of the activity relating to the noncontrolling interests in the Operating Partnership as of SeptemberJune 30, 2014,2015 and December 31, 20132014 (in thousands): | | | September 30, 2014 | | December 31, 2013 | June 30, 2015 | | December 31, 2014 | Balance at beginning of period | $ | 265,476 |
| | $ | 212,907 |
| $ | 469,524 |
| | $ | 265,476 |
| Distributions | (5,482 | ) | | (4,146 | ) | (4,693 | ) | | (7,849 | ) | Issuance of common units | 22,862 |
| | 24,750 |
| 25,241 |
| | 56,469 |
| Redemption of common units | (26,392 | ) | | (17,287 | ) | (37,992 | ) | | (31,653 | ) | Net income | 16,010 |
| | 3,023 |
| 166 |
| | 18,467 |
| Accumulated other comprehensive income allocation | 347 |
| | 611 |
| (158 | ) | | 175 |
| Fair value adjustment | 108,453 |
| | 45,618 |
| (20,670 | ) | | 168,439 |
| Balance at end of period | $ | 381,274 |
| | $ | 265,476 |
| $ | 431,418 |
| | $ | 469,524 |
|
Preferred Units of Limited Partnership Interest in the Operating Partnership The Operating Partnership has 1,902,000 4.5%4.50% Series G Preferred Units of limited partnership interest, or the Series G Preferred Units outstanding, with a liquidation preference of $25.00 per unit, which were issued in January 2012 in conjunction with an acquisition. The Series G Preferred unitholders receive annual dividends of $1.125 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series G Preferred Units are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $88.50. The common units of limited partnership interest in the Operating Partnership may be redeemed in exchange for SL Green's common stock on a 1-to-1 basis. The Series G Preferred Units also provide the holder with the right to require the Operating Partnership to repurchase the Series G Preferred Units for cash before January 31, 2022. The Operating Partnership has 80,000 6.0% Series H Preferred Units of limited partnership interest, or the Series H Preferred Units, with a mandatory liquidation preference of $25.00 per unit, which were issued in November 2011 in conjunction with an acquisition. The Series H Preferred unitholders receive annual dividends of $1.50 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series H Preferred Units can be redeemed at any time at par for cash at the Operating Partnership’s option or the option of the unitholder. The Operating Partnership has 60 Series F Preferred Units outstanding with a mandatory liquidation preference of $1,000.00 per unit.
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
The Operating Partnership has authorized up to 700,000 3.5%3.50% Series K Preferred Units of limited partnership interest, or the Series K Preferred Units, with a liquidation preference of $25.00 per unit. In August 2014, the Company issued 563,954 Series K Preferred Units in conjunction with an acquisition. The Series K Preferred unitholders receive annual dividends of $0.875 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series K Preferred Units can be redeemed at anytime,any time, at the option of the unitholder, either for cash or are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $134.67. The Operating Partnership has authorized up to 500,000 4.00% Series L Preferred Units of limited partnership interest, or the Series L Preferred Units, with a liquidation preference of $25.00 per unit. In August 2014, the Company issued 378,634 Series L Preferred Units in conjunction with an acquisition. The Series L Preferred unitholders receive annual dividends of $1.00 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series L Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized up to 1,600,000 3.75% Series M Preferred Units of limited partnership interest, or the Series M Preferred Units, with a liquidation preference of $25.00 per unit. In February 2015, the Company issued 1,600,000 Series M Preferred Units in conjunction with the acquisition of ownership interests in and relating to certain residential and retail real estate properties. The Series M Preferred unitholders receive annual dividends of $0.9375 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series M Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized up to 552,303 3.00% Series N Preferred Units of limited partnership interest, or the Series N Preferred Units, with a liquidation preference of $25.00 per unit. In June 2015, the Company issued 552,303 Series N Preferred Units in conjunction with an acquisition. The Series N Preferred unitholders receive annual dividends of $0.75 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series N Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized an aggregate of one 6.25% Series O Preferred Unit of limited partnership interest, or the Series O Preferred Unit. In June 2015, the Company issued the Series O Preferred Unit in connection with an acquisition. Below is the rollforward analysis of the activity relating to the preferred units in the Operating Partnership as of June 30, 2015 and December 31, 2014 (in thousands): | | | | | | | | | | June 30, 2015 | | December 31, 2014 | Balance at beginning of period | $ | 71,115 |
| | $ | 49,550 |
| Issuance of preferred units | 53,808 |
| | 23,565 |
| Redemption of preferred units | (200 | ) | | (2,000 | ) | Balance at end of period | $ | 124,723 |
| | $ | 71,115 |
|
12. Stockholders’ Equity of the Company Common Stock Our authorized capital stock consists of 260,000,000 shares, $0.01$0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01$0.01 par value per share, 75,000,000 shares of excess stock, at $0.01$0.01 par value per share, and 25,000,000 shares of preferred stock, par value $0.01$0.01 per share. As of SeptemberJune 30, 2014, 95,944,8612015, 99,589,645 shares of common stock and no shares of excess stock were issued and outstanding.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
At-The-Market Equity Offering Program In July 2011,June 2014, the Company, along with the Operating Partnership, entered into an "at-the-market" equity offering program, or ATM Program, to sell an aggregate of $250.0$300.0 million of SL Green's common stock. During the ninethree months ended September 30, 2014,March 31, 2015, we sold 25,659895,956 shares of our common stock outfor aggregate net proceeds of $113.4 million comprising the remaining balance of this ATM Program for aggregate net proceeds of $2.8 million.Program. The net proceeds from this offeringthese offerings were contributed to the Operating Partnership in exchange for 25,659895,956 units of limited partnership interest of the Operating Partnership. In June 2014,March 2015, the Company, along with the Operating Partnership, entered into a new ATM Program to sell an aggregate of $300.0 million of SL Green's common stock. During the ninesix months ended SeptemberJune 30, 2014,2015, we sold 367,78191,180 shares of our common stock for aggregate net proceeds of $40.3$12.0 million. The net proceeds from this offeringthese offerings were contributed to the Operating
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
Partnership in exchange for 367,78191,180 units of limited partnership interest of the Operating Partnership. As of SeptemberJune 30, 2014, $259.22015, $288.0 million remained available for issuance of common stock under the new ATM Program.program. Perpetual Preferred Stock We have 9,200,000 shares of our 6.50% Series I Cumulative Redeemable Preferred Stock, or the Series I Preferred Stock, outstanding with a mandatory liquidation preference of $25.00 per share. The Series I Preferred stockholders receive annual dividends of $1.625 per share paid on a quarterly basis and dividends are cumulative, subject to certain provisions. We are entitled to redeem the Series I Preferred Stock at par for cash at our option on or after August 10, 2017. TheIn August 2012, we received $221.9 million in net proceeds from thisthe issuance of the Series I Preferred Stock, which were recorded net of underwriters' discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange offor 9,200,000 units of 6.50% Series I Cumulative Redeemable Preferred Units of limited partnership interest, or the Series I Preferred Units. Dividend Reinvestment and Stock Purchase Plan In March 2012,February 2015, the Company filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRIP,DRSPP, which automatically became effective upon filing. The Company registered 3,500,000 shares of SL Green's common stock under the DRIP.DRSPP. The DRIPDRSPP commenced on September 24, 2001. During the ninesix months ended SeptemberJune 30, 2014,2015, the Company issued 400775,316 shares of SL Green's common stock and received approximately $40,000net proceeds of $99.5 million of proceeds from dividend reinvestments and/or stock purchases under the DRIP. DRIPDRSPP. DRSPP shares may be issued at a discount to the market price. Earnings per Share SL Green's earnings per share for the three and ninesix months ended SeptemberJune 30, 20142015 and 20132014 isare computed as follows (in thousands): | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, | Numerator | | 2014 | | 2013 | | 2014 | | 2013 | 2015 | | 2014 | | 2015 | | 2014 | Basic Earnings: | | | | | | | | | | | | | | | | Income attributable to SL Green common stockholders | | $ | 64,688 |
| | $ | 37,025 |
| | $ | 446,319 |
| | $ | 64,210 |
| | (Loss) income attributable to SL Green common stockholders | | $ | (39,106 | ) | | $ | 235,541 |
| | $ | 4,171 |
| | $ | 381,631 |
| Effect of Dilutive Securities: | | | | | | | | | | | | | | | | Redemption of units to common shares | | 2,636 |
| | 1,110 |
| | 16,010 |
| | 1,909 |
| — |
| | 8,645 |
| | 166 |
| | 13,374 |
| Diluted Earnings: | | | | | | | | | | | | | | | | Income attributable to SL Green common stockholders | | $ | 67,324 |
| | $ | 38,135 |
| | $ | 462,329 |
| | $ | 66,119 |
| | (Loss) income attributable to SL Green common stockholders | | $ | (39,106 | ) | | $ | 244,186 |
| | $ | 4,337 |
| | $ | 395,005 |
|
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Denominator | | 2014 | | 2013 | | 2014 | | 2013 | Basic Shares: | | | | | | | | | Weighted average common stock outstanding | | 95,734 |
| | 91,988 |
| | 95,437 |
| | 91,684 |
| Effect of Dilutive Securities: | | | | | | | | | Redemption of units to common shares | | 3,585 |
| | 2,792 |
| | 3,423 |
| | 2,705 |
| Stock-based compensation plans | | 387 |
| | 236 |
| | 462 |
| | 242 |
| Diluted weighted average common stock outstanding | | 99,706 |
| | 95,016 |
| | 99,322 |
| | 94,631 |
|
Table of Contents | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | Denominator | 2015 | | 2014 | | 2015 | | 2014 | Basic Shares: | | | | | | | | Weighted average common stock outstanding | 99,579 |
| | 95,455 |
| | 98,994 |
| | 95,288 |
| Effect of Dilutive Securities: | | | | | | | | Redemption of units to common shares | — |
| | 3,515 |
| | 3,936 |
| | 3,339 |
| Stock-based compensation plans | — |
| | 514 |
| | 493 |
| | 501 |
| Diluted weighted average common stock outstanding | 99,579 |
| | 99,484 |
| | 103,423 |
| | 99,128 |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
SL Green has excluded 231,970, 769,790, 703,702228,122, 212,317, 748,000 and 922,239797,000 common stock equivalents from the diluted shares outstanding for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively, as they were anti-dilutive. Additionally, SL Green has excluded 4,367,272 from the diluted shares outstanding for three months ended June 30, 2015 as they were anti-dilutive as a result of the net loss attributable to SL Green common stockholders.
13. Partners' Capital of the Operating Partnership The Company is the sole general partner of the Operating Partnership and at SeptemberJune 30, 20142015 owned 95,944,86199,589,645 general and limited partnership interests in the Operating Partnership and 9,200,000 Series I Preferred Units. Partnership interests in the Operating Partnership are denominated as “common units of limited partnership interest” (also referred to as “OP Units”) or “preferred units of limited partnership interest” (also referred to as “Preferred Units”). All references to OP Units and Preferred
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
Units outstanding exclude such units held by the Company. A holder of an OP Unit may present such OP Unit to the Operating Partnership for redemption at any time (subject to restrictions agreed upon at the issuance of OP Units to particular holders that may restrict such right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, the Operating Partnership must redeem such OP Unit in exchange for the cash equal to the then value of a share of common stock of the Company, except that the Company may, at its election, in lieu of cash redemption, acquire such OP Unit for one share of common stock. Because the number of shares of common stock outstanding at all times equals the number of OP Units that the Company owns, one share of common stock is generally the economic equivalent of one OP Unit, and the quarterly distribution that may be paid to the holder of an OP Unit equals the quarterly dividend that may be paid to the holder of a share of common stock. Each series of Preferred Units makes a distribution that is set in accordance with an amendment to the partnership agreement of the Operating Partnership. Preferred Units may also be convertible into OP Units at the election of the holder thereof or the Company, subject to the terms of such Preferred Units. Net income (loss) allocated to the preferred unitholders and common unitholders reflects their pro rata share of net income (loss) and distributions. Limited Partner Units As of SeptemberJune 30, 2014,2015, limited partners other than SL Green owned 3.75%3.78%, or 3,735,478,3,907,117 common units, of the Operating Partnership. Preferred Units Preferred units not owned by SL Green are further described in Note 11, “Noncontrolling Interests on the Company’s Consolidated Financial Statements - Preferred Units of Limited Partnership Interest in the Operating Partnership.” Earnings per Unit The Operating Partnership's earnings per unit for the three and ninesix months ended SeptemberJune 30, 20142015 and 20132014 isare computed as follows (in thousands): | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, | Numerator | | 2014 | | 2013 | | 2014 | | 2013 | 2015 | | 2014 | | 2015 | | 2014 | Basic and Diluted Earnings: | | | | | | | | | | | | | | | | Income attributable to SLGOP common unitholders | | $ | 67,324 |
| | $ | 38,135 |
| | $ | 462,329 |
| | $ | 66,119 |
| | (Loss) income attributable to SLGOP common unitholders | | $ | (40,683 | ) | | $ | 244,186 |
| | $ | 4,337 |
| | $ | 395,005 |
|
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, | Denominator | | 2014 | | 2013 | | 2014 | | 2013 | 2015 | | 2014 | | 2015 | | 2014 | Basic units: | | | | | | | | | | | | | | | | Weighted average common units outstanding | | 99,319 |
| | 94,780 |
| | 98,860 |
| | 94,389 |
| 103,487 |
| | 98,970 |
| | 102,930 |
| | 98,627 |
| Effect of Dilutive Securities: | | | | | | | | | | | | | | | | Stock-based compensation plans | | 387 |
| | 236 |
| | 462 |
| | 242 |
| — |
| | 514 |
| | 493 |
| | 501 |
| Diluted weighted average common units outstanding | | 99,706 |
| | 95,016 |
| | 99,322 |
| | 94,631 |
| 103,487 |
| | 99,484 |
| | 103,423 |
| | 99,128 |
|
The Operating Partnership has excluded 231,970, 769,790, 703,702228,122, 212,317, 748,000 and 922,239797,000 common unit equivalents from the diluted units outstanding for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively, as they were anti-dilutive. Additionally, SLGOP has excluded 459,216 from the diluted shares outstanding for three months ended June 30, 2015 as they were anti-dilutive as a result of the net loss attributable to SLGOP common unitholders.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
14. Share-based Compensation We have a stock-based employee and director compensation plans. Our employees are compensated through the Operating Partnership. Under each plan, whenever the Company issues common or preferred stock, the Operating Partnership issues an equivalent number of units of limited partnership interest of a corresponding class to the Company. Third Amended and Restated 2005 Stock Option and Incentive Plan The Third Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's board of directors in April 2013 and its stockholders in June 2013 at the Company's annual meeting of stockholders. The 2005 Plan authorizes the issuance of stock options, stock appreciation rights, unrestricted and restricted stock, phantom shares, dividend
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
equivalent rights and other equity-based awards. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 17,130,000 fungible units may be granted under the 2005 Plan. Currently, different types of awards count against the limit on the number of fungible units differently, with (1) full-value awards (i.e., those that deliver the full value of the award upon vesting, such as restricted stock) counting as 2.76 fungible units per share subject to such award (2) stock options, stock appreciation rights and other awards that do not deliver full value and expire five years from the date of grant counting as 0.77 fungible units per share subject to such award and (3) all other awards (e.g., ten-year stock options) counting as 1.0 fungible units per share subject to such award. Awards granted under the 2005 Plan prior to the approval of the second amendment and restatement in June 2010 and third amendment and restatement in June 2013 continue to count against the fungible unit limit based on the ratios that were in effect at the time such awards were granted, which may be different than the current ratios. As a result, depending on the types of awards issued, the 2005 Plan may result in the issuance of more or less than 17,130,000 shares. If a stock option or other award granted under the 2005 Plan expires or terminates, the common stock subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Shares of SL Green's common stock distributed under the 2005 Plan may be treasury shares or authorized but unissued shares. Currently, unless the 2005 Plan has been previously terminated by the Company's board of directors, new awards may be granted under the 2005 Plan until June 13, 2023, which is the tenth anniversary of the date that the 2005 Plan was most recently approved by the Company's stockholders. As of SeptemberJune 30, 2014, 3,200,0002015, 1.7 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units, including, among others, outstanding LTIP Units issued under our 2011 Long-Term Outperformance Plan. Options are granted under the plan at the fair market value on the date of grant and, subject to employment, generally expire five or ten years from the date of grant, are not transferable other than on death, and generally vest in one to five years commencing one year from the date of grant. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model based on historical information with the following weighted average assumptions for grants during the ninesix months ended SeptemberJune 30, 2015 and year ended December 31, 2014. | | | | | | | | June 30, 2015 | | December 31, 2014 | Dividend yield | 1.60 | % | | 1.60 | % | Expected life of option | 3.5 years |
| | 3.6 years |
| Risk-free interest rate | 1.02 | % | | 1.29 | % | Expected stock price volatility | 34.00 | % | | 33.97 | % |
A summary of the status of the Company's stock options as of June 30, 2015 and December 31, 2014 and changes during the six months ended June 30, 2015 and the year ended December 31, 2013.2014 are as follows: | | | | | | | | September 30, 2014 | | December 31, 2013 | Dividend yield | 1.60 | % | | 1.92 | % | Expected life of option | 3.6 years |
| | 4.1 years |
| Risk-free interest rate | 1.11 | % | | 0.96 | % | Expected stock price volatility | 33.67 | % | | 36.12 | % |
| | | | | | | | | | | | | | | | | | June 30, 2015 | | December 31, 2014 | | Options Outstanding | | Weighted Average Exercise Price | | Options Outstanding | | Weighted Average Exercise Price | Balance at beginning of year | 1,462,726 |
| | $ | 87.98 |
| | 1,765,034 |
| | $ | 83.24 |
| Granted | 12,000 |
| | 128.82 |
| | 102,050 |
| | 119.12 |
| Exercised | (154,836 | ) | | 75.43 |
| | (348,156 | ) | | 72.76 |
| Lapsed or cancelled | (18,767 | ) | | 100.67 |
| | (56,202 | ) | | 90.03 |
| Balance at end of year | 1,301,123 |
| | $ | 89.66 |
| | 1,462,726 |
| | $ | 87.98 |
| Options exercisable at end of year | 606,157 |
| | $ | 88.15 |
| | 428,951 |
| | $ | 90.32 |
| Weighted average fair value of options granted during the year | $ | 356,288 |
| | | | $ | 2,841,678 |
| | |
All options were granted with strike prices ranging from $20.67 to $137.18. The remaining weighted average contractual life of the options outstanding was 3.75 and the remaining average contractual life of the options exercisable was 3.56. During the three and six months ended June 30, 2015 and 2014, we recognized $1.9 million, $3.9 million. $2.0 million and $4.1 million of compensation expense, respectively, for these options. As of June 30, 2015, there was $10.1 million of total
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
A summary of the status of the Company's stock options as of September 30, 2014 and December 31, 2013 and changes during the nine months ended September 30, 2014 and the year ended December 31, 2013 are as follows:
| | | | | | | | | | | | | | | | | | September 30, 2014 | | December 31, 2013 | | Options Outstanding | | Weighted Average Exercise Price | | Options Outstanding | | Weighted Average Exercise Price | Balance at beginning of year | 1,765,034 |
| | $ | 83.24 |
| | 1,201,000 |
| | $ | 75.05 |
| Granted | 9,000 |
| | 106.03 |
| | 828,100 |
| | 87.23 |
| Exercised | (289,793 | ) | | 70.77 |
| | (223,531 | ) | | 53.93 |
| Lapsed or cancelled | (53,235 | ) | | 90.20 |
| | (40,535 | ) | | 83.94 |
| Balance at end of period | 1,431,006 |
| | 85.65 |
| | 1,765,034 |
| | 83.24 |
| Options exercisable at end of period | 439,482 |
| | 89.20 |
| | 461,458 |
| | 89.38 |
| Weighted average fair value of options granted during the period | $ | 219,823 |
| | | | $ | 18,041,576 |
| | |
All options were granted with strike prices ranging from $20.67 to $137.18. The remaining weighted average contractual life of the options outstanding was 4.20 years and the remaining average contractual life of the options exercisable was 3.76 years.
During the three and nine months ended September 30, 2014 and 2013, we recognized $2.0 million, $6.0 million, $2.2 million and $4.8 million of compensation expense, respectively, for these options. As of September 30, 2014, there was $13.6 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of three years.
Stock-based Compensation Effective January 1, 1999, the Company implemented a deferred compensation plan, or the Deferred Plan, where shares issued under the Deferred Plan were granted to certain employees, including our executives and vesting will occur annually upon the completion of a service period or our meeting established financial performance criteria. Annual vesting occurs at rates ranging from 15% to 35% once performance criteria are reached. A summary of the Company's restricted stock as of SeptemberJune 30, 20142015 and December 31, 20132014 and charges during the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31, 20132014 are presented below:as follows: | | | September 30, 2014 | | December 31, 2013 | June 30, 2015 | | December 31, 2014 | Balance at beginning of year | 2,994,197 |
| | 2,804,901 |
| | Balance at beginning of period | | 3,000,979 |
| | 2,994,197 |
| Granted | — |
| | 192,563 |
| 3,053 |
| | 9,550 |
| Cancelled | (2,434 | ) | | (3,267 | ) | (2,900 | ) | | (2,768 | ) | Balance at end of period | 2,991,763 |
| | 2,994,197 |
| 3,001,132 |
| | 3,000,979 |
| Vested during the period | 73,168 |
| | 21,074 |
| 84,581 |
| | 75,043 |
| Compensation expense recorded | $ | 7,267,923 |
| | $ | 6,713,155 |
| $ | 3,812,029 |
| | $ | 9,658,019 |
| Weighted average fair value of restricted stock granted during the period | $ | — |
| | $ | 17,386,949 |
| $ | 391,271 |
| | $ | 1,141,675 |
|
The fair value of restricted stock that vested during the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31, 20132014 was $5.4$7.2 million and $1.6$5.5 million, respectively. As of SeptemberJune 30, 2014,2015, there was $12.4$8.7 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted average period of 2.11.7 years. For the three and ninesix months ended SeptemberJune 30, 2015 and 2014, and 2013, $1.7$1.8 million, $5.2$3.4 million, $0.9$1.9 million and $2.9$3.5 million, respectively, was capitalized to assets associated with compensation expense related to our long-term compensation plans, restricted stock and stock options.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
We granted LTIP units,Units, which include bonus, time-based and performance based awards, with a fair valuevalue of $23.6$25.4 million and $27.1$33.2 million as of SeptemberJune 30, 20142015 and December 31, 2013,2014, respectively. The grant date fair value of the LTIP unitUnit awards was calculated in accordance with ASC 718. A third party consultant determined the fair value of the LTIP unitsUnits to have a discount from SL Green's common stock price. The discount was calculated by considering the inherent uncertainty that the LTIP unitsUnits will reach parity with other common partnership units and the illiquidity due to transfer restrictions. As of SeptemberJune 30, 2014,2015, there was $6.7$7.3 million of total unrecognized compensation expense related to the time-based and performance based awards, which is expected to be recognized over a weighted average period of 1.2 years.1.0 year. During the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, we recorded compensation expense related to bonus, time-based and performance based awards of $3.4$3.1 million, $13.7$16.3 million, $1.9$2.1 million and $3.5$10.3 million, respectively. 2010 Notional Unit Long-Term Compensation Plan In December 2009, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2010 Notional Unit Long-Term Compensation Program, or the 2010 Long-Term Compensation Plan. The 2010 Long-Term Compensation Plan is a long-term incentive compensation plan pursuant to which award recipients could earn, in the aggregate, from approximately $15.0 million up to approximately $75.0 million of LTIP Units in the Operating Partnership based on the Company's stock price appreciation over three years beginning on December 1, 2009; provided that, if maximum performance had been achieved, approximately $25.0 million of awards could be earned at any time after the beginning of the second year and an additional approximately $25.0 million of awards could be earned at any time after the beginning of the third year. In order to achieve maximum performance under the 2010 Long-Term Compensation Plan, the Company's aggregate stock price appreciation during the performance period had to equal or exceed 50%. The compensation committee determined that maximum performance had been achieved at or shortly after the beginning of each of the second and third years of the performance period and for the full performance period and, accordingly, 366,815 LTIP Units, 385,583 LTIP Units and 327,416 LTIP Units were earned under the 2010 Long-Term Compensation Plan in December 2010, 2011 and 2012, respectively. Substantially in accordance with the original terms of the program, 50% of these LTIP Units vested on December 17, 2012 (accelerated from the original January 1, 2013 vesting date), 25% of these LTIP Units vested on December 11, 2013 (accelerated from the original January 1, 2014 vesting date) and the remainder is scheduled to vestvested on January 1, 2015 based on continued employment. In accordance with the terms of the 2010 Long-Term Compensation Plan, distributions
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
were not paid on any LTIP Units until they were earned, at which time we paid all distributions that would have been paid on the earned LTIP Units since the beginning of the performance period. The cost of the 2010 Long-Term Compensation Plan (approximately $31.7($31.7 million, subject to forfeitures) will bewas amortized into earnings through the final vesting period.period of January 1, 2015. We recorded compensation expense of $0.4 million, $2.3 million, $0.9$1.6 million and $3.6$1.9 million during the three and ninesix months ended SeptemberJune 30, 2014 and 2013, respectively, related to the 2010 Long-Term Compensation Plan. 2011 Outperformance Plan In August 2011, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2011 Outperformance Plan, or the 2011 Outperformance Plan. Participants in the 2011 Outperformance Plan maycould earn, in the aggregate, up to $85.0 million of LTIP Units in the Operating Partnership based on our total return to stockholders for the three-year period beginning September 1, 2011. Under the 2011 Outperformance Plan, participants will bewere entitled to share in a "performance pool" comprised of LTIP Units with a value equal to 10% of the amount if any, by which our total return to stockholders during the three-year period exceedsexceeded a cumulative total return to stockholders of 25%, subject to the maximum of $85.0 million of LTIP Units; provided that if maximum performance has beenwas achieved, approximately one-third of each award maycould be earned at any time after the beginning of the second year and an additional approximately one-third of each award maycould be earned at any time after the beginning of the third year. LTIP Units earned under the 2011 Outperformance Plan will beare subject to continued vesting requirements, with 50% of any awards earned vestingvested on August 31, 2014 and the remaining 50% vesting on August 31, 2015, subject to continued employment with us through such dates. Participants willwere not be entitled to distributions with respect to LTIP Units granted under the 2011 Outperformance Plan unless and until they arewere earned. IfFor LTIP Units arethat were earned, each participant willwas also be entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of additional LTIP Units. Thereafter, distributions willare to be paid currently with respect to all earned LTIP Units, whether vested or unvested. In June 2014, the compensation committee determined that maximum performance had been achieved during the third year of the performance period and, accordingly, 560,908 LTIP Units, representing two-thirds of each award, were earned, subject to vesting, under the 2011 Outperformance Plan. The remaining one-thirdIn September 2014, the compensation committee determined that maximum performance had been achieved for the full three-year performance period and, accordingly, 280,454 LTIP units, representing the final third of each award, will bewere earned, based on performance through end ofsubject to vesting, under the performance period.2011 Outperformance Plan.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
The cost of the 2011 Outperformance Plan (approximately $27.0($26.8 million, subject to forfeitures) will be amortized into earnings through the final vesting period. We recorded compensation expense of $1.7$3.2 million, $7.8$3.9 million, $1.7$4.3 million and $6.2$6.1 million during the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively, related to the 2011 Outperformance Plan. 2014 Outperformance Plan In August 2014, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2014 Outperformance Plan, or the 2014 Outperformance Plan. Participants in the 2014 Outperformance Plan may earn, in the aggregate, up to 610,000 LTIP Units in our Operating Partnership based on our total return to stockholders for the three-year period beginning September 1, 2014; however, initially, the compensation committee will only award approximately 50% of the total LTIP Units and will retain discretion as to whether or when it will award the remainder of the total LTIP Units.2014. For each individual award, two-thirds of the LTIP Units may be earned based on the Company’s absolute total return to stockholders and one-third of the LTIP Units may be earned based on relative total return to stockholders compared to the constituents of the MSCI REIT Index. Awards earned based on absolute total return to stockholders will be determined independently of awards earned based on relative total return to stockholders. In the event the Company’s performance reaches either threshold before the end of the three-year performance period, a pro-rata portion of the maximum award may be earned. For each component, if the Company’s performance reaches the maximum threshold beginning with the 19th month of the performance period, participants will earn one-third of the maximum award that may be earned for that component. If the Company’s performance reaches the maximum threshold during the third year of the performance period for a component, participants will earn up to two-thirds (or an additional one-third) of the maximum award that may be earned for that component. LTIP Units earned under the 2014 Outperformance Plan will be subject to continued vesting requirements, with 50% of any awards earned vesting on August 31, 2017 and the remaining 50% vesting on August 31, 2018, subject to continued employment with us through August 31, 2018.such dates. Participants will not be entitled to distributions with respect to LTIP Units granted under the 2014 Outperformance Plan unless and until they are earned. If LTIP Units are earned, each participant will also be entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of cash or additional LTIP Units. Thereafter, distributions will be paid currently with respect to all earned LTIP Units, whether vested or unvested. Awards have not yet been The cost of the 2014 Outperformance Plan ($27.9 million, subject to forfeitures), based on the portion of the 2014 Outperformance Plan granted underas of June 30, 2015, will be amortized into earnings through the final vesting period. We recorded
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
compensation expense of $1.5 million and $2.9 million during the three and six months ended June 30, 2015 related to the 2014 Outperformance Plan. Deferred Compensation Plan for Directors Under our Non-Employee Director's Deferral Program, which commenced July 2004, the Company's non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees, meeting fees and annual stock grant. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The program provides that a director's phantom stock units generally will be settled in an equal number of shares of common stock upon the earlier of (i) the January 1 coincident with or next following such director's termination of service from the Board of Directors or (ii) a change in control by us, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of SL Green's common stock on the first business day of the respective quarter. Each participating non-employee director is also credited with dividend equivalents or phantom stock units based on the dividend rate for each quarter, which are either paid in cash currently or credited to the director’s account as additional phantom stock units. During the ninesix months ended SeptemberJune 30, 2014, 8,6262015, 7,941 phantom stock units were earned.earned and 5,396 shares of common stock were issued to our board of directors. We recorded compensation expense of $0.3 million, $1.7 million, $0.1 million and $1.4 million during the three and six months ended June 30, 2015 and 2014 related to the Deferred Compensation Plan. As of SeptemberJune 30, 2014,2015, there were 80,13783,644 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program. Employee Stock Purchase Plan On September 18,In 2007, the Company's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage our employees to increase their efforts to make our business more successful by providing equity-based incentives to eligible employees. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code, and has been adopted by the board to enable our eligible employees to purchase the Company's shares of common stock through payroll deductions. The ESPP became effective on January 1, 2008 with a maximum of 500,000 shares of the common stock available for issuance, subject to adjustment upon a merger, reorganization, stock split or other similar corporate change. The Company filed a registration statement on Form S-8 with the SEC with respect to the ESPP. The common stock is offered for purchase through a series of successive offering periods. Each offering period will be three months in duration and will begin on the first day of each calendar quarter, with the first offering period having commenced on January 1, 2008. The ESPP provides for eligible employees to purchase the common stock at a purchase price equal to 85% of the lesser of (1) the market value of the common stock on the first day of the offering period or (2) the market value of the common stock on the last day of the offering period. The ESPP was approved by our stockholders at our 2008 annual meeting of stockholders. As of SeptemberJune 30, 2014, 78,5632015, 83,477 shares of SL Green's common stock had been issued under the ESPP.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
15. Accumulated Other Comprehensive Loss of the Company The following tables set forth the changes in accumulated other comprehensive income (loss) by component as of SeptemberJune 30, 2014:2015 (in thousands): | | | | | | | | | | | | | | | | | | Net unrealized gain (loss) on derivative instruments (1) | | SL Green’s share of joint venture net unrealized income (loss) on derivative instruments (2) | | Unrealized gains and loss on marketable securities | | Total | Balance at December 31, 2013 | $ | (15,125 | ) | | $ | (4,870 | ) | | $ | 4,784 |
| | $ | (15,211 | ) | Other comprehensive income before reclassifications | 1,293 |
| | 4,349 |
| | 1,209 |
| | 6,851 |
| Amounts reclassified from accumulated other comprehensive income | 3,658 |
| | 1,806 |
| | — |
| | 5,464 |
| Balance at September 30, 2014 | $ | (10,174 | ) | | $ | 1,285 |
| | $ | 5,993 |
| | $ | (2,896 | ) |
___________________________ | | | | | | | | | | | | | | | | | | Net unrealized (loss) gain on derivative instruments(1) | | SL Green’s share of joint venture net unrealized (loss) gain on derivative instruments(2) | | Unrealized gain and (loss) on marketable securities | | Total | Balance at December 31, 2014 | $ | (9,498 | ) | | $ | (95 | ) | | $ | 2,613 |
| | $ | (6,980 | ) | Other comprehensive loss before reclassifications | (8,258 | ) | | (926 | ) | | (654 | ) | | (9,838 | ) | Amounts reclassified from accumulated other comprehensive income | 5,275 |
| | 637 |
| | — |
| | 5,912 |
| Balance at June 30, 2015 | $ | (12,481 | ) | | $ | (384 | ) | | $ | 1,959 |
| | $ | (10,906 | ) |
| | (1) | AmountsAmount reclassified from accumulated other comprehensive income (loss) areis included in interest expense in the respective consolidated statements of income.operations. As of SeptemberJune 30, 20142015 and December 31, 2013,2014, the deferred net losses from these terminated hedges, which areis included in accumulated other comprehensive loss relating to net unrealized loss on derivative instrument, were $12.2was $10.8 million and $13.8$11.8 million,, respectively.
|
| | (2) | AmountsAmount reclassified from accumulated other comprehensive income are(loss) is included in equity in net income from unconsolidated joint ventures in the respective consolidated statements of income.operations. |
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
16. Accumulated Other Comprehensive Loss of the Operating Partnership The following tables set forth the changes in accumulated other comprehensive income (loss) by component as of SeptemberJune 30, 2014:2015 (in thousands): | | | | | | | | | | | | | | | | | | Net unrealized gain (loss) on derivative instruments (1) | | SLGOP’s share of joint venture net unrealized income (loss) on derivative instruments (2) | | Unrealized gains and loss on marketable securities | | Total | Balance at December 31, 2013 | $ | (15,573 | ) | | $ | (5,015 | ) | | $ | 4,926 |
| | $ | (15,662 | ) | Other comprehensive income before reclassifications | 1,245 |
| | 4,475 |
| | 1,282 |
| | 7,002 |
| Amounts reclassified from accumulated other comprehensive income | 3,790 |
| | 1,870 |
| | — |
| | 5,660 |
| Balance at September 30, 2014 | $ | (10,538 | ) | | $ | 1,330 |
| | $ | 6,208 |
| | $ | (3,000 | ) |
___________________________ | | | | | | | | | | | | | | | | | | Net unrealized (loss) gain on derivative instruments(1) | | SLGOP’s share of joint venture net unrealized (loss) gain on derivative instruments(2) | | Unrealized gain and (loss) on marketable securities | | Total | Balance at December 31, 2014 | $ | (9,845 | ) | | $ | (100 | ) | | $ | 2,689 |
| | $ | (7,256 | ) | Other comprehensive loss before reclassifications | (8,616 | ) | | (960 | ) | | (654 | ) | | (10,230 | ) | Amounts reclassified from accumulated other comprehensive income | 5,484 |
| | 662 |
| | — |
| | 6,146 |
| Balance at June 30, 2015 | $ | (12,977 | ) | | $ | (398 | ) | | $ | 2,035 |
| | $ | (11,340 | ) |
| | (1) | Amount reclassified from accumulated other comprehensive income (loss) areis included in interest expense in the respective consolidated statements of income.operations. As of SeptemberJune 30, 20142015 and December 31, 2013,2014, the deferred net losses from these terminated hedges, which areis included in accumulated other comprehensive loss relating to net unrealized loss on derivative instrument, were $12.7was $11.2 million and $14.2$12.2 million, respectively. |
| | (2) | AmountsAmount reclassified from accumulated other comprehensive income are(loss) is included in equity in net income from unconsolidated joint ventures in the respective consolidated statements of income.operations. |
17. Fair Value Measurements We are required to disclose the fair value information aboutwith regard to our financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicablepractical 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 consist 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
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
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. The Company’sOur 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. The following tables set forth the assets and liabilities that we measure at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at SeptemberJune 30, 20142015 and December 31, 20132014 (in thousands): | | | September 30, 2014 | June 30, 2015 | | Total | | Level 1 | | Level 2 | | Level 3 | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | | | Marketable securities | $ | 39,293 |
| | $ | 4,315 |
| | $ | 34,978 |
| | $ | — |
| $ | 46,251 |
| | $ | 4,070 |
| | $ | 42,181 |
| | $ | — |
| Interest rate swap agreements (included in other assets) | | $ | 23 |
| | $ | — |
| | $ | 23 |
| | $ | — |
| Liabilities: | | | | | | | | | | | | | | | Interest rate swap agreements (included in accrued interest payable and other liabilities) | $ | 14,114 |
| | $ | — |
| | $ | 14,114 |
| | $ | — |
| $ | 14,576 |
| | $ | — |
| | $ | 14,576 |
| | $ | — |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
| | | December 31, 2013 | December 31, 2014 | | Total | | Level 1 | | Level 2 | | Level 3 | Total | | Level 1 | | Level 2 | | Level 3 | Assets: | | | | | | | | | | | | | | | Marketable securities | $ | 32,049 |
| | $ | 4,307 |
| | $ | 24,419 |
| | $ | 3,323 |
| $ | 39,429 |
| | $ | 4,332 |
| | $ | 35,097 |
| | $ | — |
| Interest rate swap agreements (included in other assets) | | $ | 2,174 |
| | $ | — |
| | $ | 2,174 |
| | $ | — |
| Liabilities: | | | | | | | | | | | | | | | Interest rate swap agreements (included in accrued interest payable and other liabilities) | $ | 1,329 |
| | $ | — |
| | $ | 1,329 |
| | $ | — |
| $ | 14,728 |
| | $ | — |
| | $ | 14,728 |
| | $ | — |
|
We determine other than temporary impairment in real estate investments and debt and preferred equity investments, including intangibles utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, which are classified as Level 3 inputs. The marketable securities classified as Level 1 were derived from quoted prices in active markets. The valuation technique used to measure the fair value of the marketable securities classified as Level 2 were valued based on quoted market prices or model driven valuations using the significant inputs derived from or corroborated by observable market data. Marketable securities in an unrealized loss position are not considered to be other than temporarily impaired. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases. 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, and 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 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 SeptemberJune 30, 20142015 and December 31, 20132014 (in thousands): | | | | | | | | | | | June 30, 2015 | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | | | | | | | Debt and preferred equity investments | $ | 1,432,951 |
| | (1) |
| | $ | 1,304,839 |
| | (1) |
| $ | 1,685,234 |
| | (1) |
| | $ | 1,408,804 |
| | (1) |
| | | | | | | | | | |
|
| | | | | Fixed rate debt | $ | 6,133,200 |
| | $ | 6,536,977 |
| | $ | 5,599,960 |
| | $ | 5,886,980 |
| $ | 6,011,563 |
| | $ | 6,419,286 |
| | $ | 6,140,786 |
| | $ | 6,565,236 |
| Variable rate debt | 2,603,152 |
| | 2,627,547 |
| | 1,319,948 |
| | 1,327,422 |
| 2,364,421 |
| | 2,412,488 |
| | 2,291,943 |
| | 2,315,952 |
| | $ | 8,736,352 |
| | $ | 9,164,524 |
| | $ | 6,919,908 |
| | $ | 7,214,402 |
| $ | 8,375,984 |
| | $ | 8,831,774 |
| | $ | 8,432,729 |
| | $ | 8,881,188 |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
| | (1) | Debt and preferred equity investments had an estimated fair value ranging between $1.4 billion and $1.6 billion at SeptemberAt June 30, 2014. At December 31, 2013,2015, debt and preferred equity investments had an estimated fair value ranging between $1.3$1.9 billion and $1.4$2.1 billion. At December 31, 2014, debt and preferred equity investments had an estimated fair value ranging between $1.5 billion and $1.8 billion. |
Disclosure about fair value of financial instruments was based on pertinent information available to us as of SeptemberJune 30, 20142015 and December 31, 2013.2014. 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
18. 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 sheetsheets 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 hedgedhedge 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’sderivative'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 of our designated derivative instruments are effective hedging instruments. The following table summarizes the notional and fair value of our consolidated derivative financial instruments at SeptemberJune 30, 20142015 based on Level 2 inputs.information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.risks (amounts in thousands). | | | Notional Value (in thousands) | | Strike Rate | | Effective Date | | Expiration Date | | Balance Sheet Location | | Fair Value (in thousands) | Notional Value | | Strike Rate | | Effective Date | | Expiration Date | | Balance Sheet Location | | Fair Value | Interest Rate Cap - Sold | | $ | 504,000 |
| | 4.750 | % | | May 2014 | | May 2016 | | Other Liabilities | | $ | — |
| Interest Rate Cap | $ | 946,000 |
| | 4.750 | % | | May 2014 | | May 2016 | | Other Assets | | $ | 52 |
| 504,000 |
| | 4.750 | % | | May 2014 | | May 2016 | | Other Assets | | — |
| Interest Rate Cap | 504,000 |
| | 4.750 | % | | May 2014 | | May 2016 | | Other Assets | | 27 |
| 500,000 |
| | 4.750 | % | | October 2014 | | May 2016 | | Other Liabilities | | — |
| Interest Rate Cap - Sold | 504,000 |
| | 4.750 | % | | May 2014 | | May 2016 | | Other Liabilities | | (27 | ) | 500,000 |
| | 4.750 | % | | November 2014 | | May 2016 | | Other Assets | | — |
| Interest Rate Cap | 263,426 |
| | 6.000 | % | | November 2013 | | November 2015 | | Other Assets | | — |
| 446,000 |
| | 4.750 | % | | October 2014 | | May 2016 | | Other Liabilities | | — |
| Interest Rate Cap | 137,500 |
| | 4.000 | % | | October 2013 | | September 2015 | | Other Assets | | — |
| 263,426 |
| | 6.000 | % | | November 2013 | | November 2015 | | Other Liabilities | | — |
| Interest Rate Swap(1) | 144,000 |
| | 2.236 | % | | December 2012 | | December 2017 | | Other Liabilities | | (4,603 | ) | | Interest Rate Swap(1) | 72,000 |
| | 2.310 | % | | December 2012 | | December 2017 | | Other Liabilities | | (2,470 | ) | | Interest Rate Swap(1) | 72,000 |
| | 2.310 | % | | December 2012 | | December 2017 | | Other Liabilities | | (2,467 | ) | | Interest Rate Swap(1) | 57,600 |
| | 1.990 | % | | December 2012 | | December 2017 | | Other Liabilities | | (1,392 | ) | | Interest Rate Swap(1) | 86,400 |
| | 1.948 | % | | December 2012 | | December 2017 | | Other Liabilities | | (1,972 | ) | | Interest Rate Swap(1) | 72,000 |
| | 1.345 | % | | December 2012 | | December 2017 | | Other Liabilities | | (273 | ) | | Interest Rate Cap | | 137,500 |
| | 4.000 | % | | October 2013 | | September 2015 | | Other Liabilities | | — |
| Interest Rate Swap | | 200,000 |
| | 0.938 | % | | October 2014 | | December 2017 | | Other Liabilities | | (133 | ) | Interest Rate Swap | | 150,000 |
| | 0.940 | % | | October 2014 | | December 2017 | | Other Liabilities | | (103 | ) | Interest Rate Swap | | 150,000 |
| | 0.940 | % | | October 2014 | | December 2017 | | Other Liabilities | | (103 | ) | Interest Rate Swap | | 144,000 |
| | 2.236 | % | | December 2012 | | December 2017 | | Other Liabilities | | (4,541 | ) | Interest Rate Swap | | 86,400 |
| | 1.948 | % | | December 2012 | | December 2017 | | Other Liabilities | | (2,123 | ) | Interest Rate Swap | | 72,000 |
| | 2.310 | % | | December 2012 | | December 2017 | | Other Liabilities | | (2,399 | ) | Interest Rate Swap | | 72,000 |
| | 1.345 | % | | December 2012 | | December 2017 | | Other Liabilities | | (725 | ) | Interest Rate Swap | | 72,000 |
| | 2.310 | % | | December 2012 | | December 2017 | | Other Liabilities | | (2,398 | ) | Interest Rate Swap | | 57,600 |
| | 1.990 | % | | December 2012 | | December 2017 | | Other Liabilities | | (1,474 | ) | Interest Rate Swap | | 30,000 |
| | 2.295 | % | | July 2010 | | June 2016 | | Other Liabilities | | (548 | ) | Interest Rate Swap | 30,000 |
| | 2.295 | % | | July 2010 | | June 2016 | | Other Liabilities | | (893 | ) | 14,409 |
| | 0.500 | % | | January 2015 | | January 2017 | | Other Assets | | 23 |
| Interest Rate Swap | 8,500 |
| | 0.740 | % | | February 2012 | | February 2015 | | Other Liabilities | | (17 | ) | 8,018 |
| | 0.852 | % | | February 2015 | | February 2017 | | Other Liabilities | | (29 | ) | | | | | | $ | (14,035 | ) | | | | | $ | (14,553 | ) |
__________________________
| | (1) | As a result of the acquisition and consolidation of 388-390 Greenwich Street, we have assumed these derivative instruments and have designated them as hedges. |
During the three and six months ended June 30, 2015, we recorded a gain on the changes in the fair value of $1,000, which is included in interest expense on the consolidated statements of operations. During the three and six months ended June 30, 2014, we recorded a loss on the changes in the fair value of $31,000 and $41,000, respectively, which is included in interest expense on the consolidated statements of operations.
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of SeptemberJune 30, 20142015, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $14.7$15.5 million. As of SeptemberJune 30, 20142015, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $14.7$15.5 million at SeptemberJune 30, 20142015.
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
Gains and losses on terminated hedges are included in the accumulated other comprehensive loss, and are recognized into earnings over the term of the related mortgage obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive loss will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that approximately $6.7$8.7 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense and $1.0$1.1 million of the portion related to our share of joint venture accumulated other comprehensive loss will be reclassified into equity in net income from unconsolidated joint ventures within the next 12 months. The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of incomeoperations for the three months ended SeptemberJune 30, 2015 and 2014, and 2013respectively (in thousands): | | | | Amount of Gain or (Loss) Recognized in Other Comprehensive Loss (Effective Portion) | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income 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) | | Amount of (Loss) Gain 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 (Loss) or Gain Recognized in Income on Derivative | | Amount of (Loss) or Gain Recognized into Income (Ineffective Portion) | | | Three Months Ended September 30, | | Three Months Ended September 30, | | Three Months Ended September 30, | | Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, | Derivative | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | Interest Rate Swaps/Caps | | $ | 1,761 |
| | $ | (160 | ) | | Interest expense | | $ | 1,826 |
| | $ | 320 |
| | Interest expense | | $ | 1 |
| | $ | 2 |
| | $ | (1,095 | ) | | $ | (465 | ) | | Interest expense | | $ | 2,737 |
| | $ | 1,272 |
| | Interest expense | | $ | (14 | ) | | $ | 1 |
| Share of unconsolidated joint ventures' derivative instruments | | 291 |
| | (2,606 | ) | | Equity in net income from unconsolidated joint ventures | | 41 |
| | 1,281 |
| | Equity in net income from unconsolidated joint ventures | | — |
| | 5 |
| | 277 |
| | 5,930 |
| | Equity in net income from unconsolidated joint ventures | | 331 |
| | 556 |
| | Equity in net income from unconsolidated joint ventures | | 16 |
| | — |
| | | $ | 2,052 |
| | $ | (2,766 | ) | | $ | 1,867 |
| | $ | 1,601 |
| | $ | 1 |
| | $ | 7 |
| | $ | (818 | ) | | $ | 5,465 |
| | $ | 3,068 |
| | $ | 1,828 |
| | $ | 2 |
| | $ | 1 |
|
The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of incomeoperations for the ninesix months ended SeptemberJune 30, 2015 and 2014, and 2013respectively (in thousands): | | | | Amount of Gain or (Loss) Recognized in Other Comprehensive Loss (Effective Portion) | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income 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) | | Amount of (Loss) or Gain 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 (Loss) or Gain Recognized in Income on Derivative | | Amount of (Loss) or Gain Recognized into Income (Ineffective Portion) | | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, | Derivative | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | Interest Rate Swaps/Caps | | $ | 1,245 |
| | $ | (20 | ) | | Interest expense | | $ | 3,790 |
| | $ | 1,258 |
| | Interest expense | | $ | 3 |
| | $ | 2 |
| | $ | (8,616 | ) | | $ | (516 | ) | | Interest expense | | $ | 5,484 |
| | $ | 1,964 |
| | Interest expense | | $ | (424 | ) | | $ | 2 |
| Share of unconsolidated joint ventures' derivative instruments | | 4,475 |
| | 5,503 |
| | Equity in net income from unconsolidated joint ventures | | 1,870 |
| | 3,781 |
| | Equity in net income from unconsolidated joint ventures | | — |
| | — |
| | (960 | ) | | 4,184 |
| | Equity in net income from unconsolidated joint ventures | | 662 |
| | 1,829 |
| | Equity in net income from unconsolidated joint ventures | | — |
| | — |
| | | $ | 5,720 |
| | $ | 5,483 |
| | $ | 5,660 |
| | $ | 5,039 |
| | $ | 3 |
| | $ | 2 |
| | $ | (9,576 | ) | | $ | 3,668 |
| | $ | 6,146 |
| | $ | 3,793 |
| | $ | (424 | ) | | $ | 2 |
|
19. Commitments and Contingencies Legal Proceedings WeAs of June 30, 2015, the Company and the Operating Partnership arewere not presently involved in any material litigation nor, to ourmanagement's knowledge, iswas any material litigation threatened against us or our propertiesportfolio which if adversely determined could have a material adverse effect. Management believesimpact on us other than routine litigation arising in the costs, if any, incurredordinary course of business or litigation that is adequately covered by us relatedinsurance.
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to this litigation will not materially affect our financial position, operating results or liquidity.Consolidated Financial Statements (cont.) June 30, 2015 (unaudited)
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
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2014
(unaudited)
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. Real Estate Purchase Commitment In May 2015, we entered into an agreement to acquire Eleven Madison Avenue for $2.285 billion plus approximately $300.0 million in costs associated with lease stipulated improvements to the property. The transaction is expected to close in the third quarter of 2015, subject to customary closing conditions. Capital and Ground Leases Arrangements The following is a schedule of future minimum lease payments under capital leaseleases and noncancellablenon-cancellable operating leases with initial terms in excess of one year as of SeptemberJune 30, 20142015 (in thousands): | | | Capital lease | | Non-cancellable operating leases | | Capital lease | | Non-cancellable operating leases | Remaining 2014 | $ | 36 |
| | $ | 8,147 |
| | 2015 | 145 |
| | 30,491 |
| | Remaining 2015 | | | $ | 73 |
| | $ | 15,247 |
| 2016 | 170 |
| | 30,612 |
| | 170 |
| | 30,612 |
| 2017 | 291 |
| | 30,845 |
| | 291 |
| | 30,845 |
| 2018 | 291 |
| | 30,845 |
| | 291 |
| | 30,845 |
| 2019 | | | 315 |
| | 30,862 |
| Thereafter | 56,884 |
| | 751,559 |
| | 56,568 |
| | 720,698 |
| Total minimum lease payments | 57,817 |
| | $ | 882,499 |
| | 57,708 |
| | $ | 859,109 |
| Less amount representing interest | (37,089 | ) | | | | (36,695 | ) | | | Capitalized lease obligations | $ | 20,728 |
| | | | Capital lease obligations | | | $ | 21,013 |
| | |
20. Segment Information The Company is a REIT engaged in all aspects of property ownership and management including investment, leasing operations, capital improvements, development and redevelopment, financing, construction and maintenance in the New York Metropolitan area and have two reportable segments, real estate and debt and preferred equity. We evaluate real estate performance and allocate resources based on earnings contribution to income from continuing operations. The primary sources of revenue from our real estate porftolio are generated from tenant rents and escalations and reimbursement revenue. Real estate property operating expenses consist primarily of security, maintenance, utility costs, 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
Selected results of operations for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, and selected asset information as of SeptemberJune 30, 20142015 and December 31, 2013,2014, regarding our operating segments are as follows (in thousands): | | | | | | | | | | | | | | | | Real Estate Segment | | Debt and Preferred Equity Segment | | Total Company | Total revenues | | | | | | | Three months ended: | | | | | | | September 30, 2014 | | $ | 346,305 |
| | $ | 43,969 |
| | $ | 390,274 |
| September 30, 2013 | | 294,334 |
| | 44,448 |
| | 338,782 |
| Nine months ended: | | | | | | | September 30, 2014 | | $ | 995,584 |
| | $ | 137,767 |
| | $ | 1,133,351 |
| September 30, 2013 | | 876,727 |
| | 143,887 |
| | 1,020,614 |
| Income (loss) from continuing operations before equity in net gain on sale of interest in unconsolidated joint venture/real estate | | | | | | | Three months ended: | | | | | | | September 30, 2014 | | $ | (10,542 | ) | | $ | 38,098 |
| | $ | 27,556 |
| September 30, 2013 | | (11,391 | ) | | 35,859 |
| | 24,468 |
| Nine months ended: | | | | | | | September 30, 2014 | | $ | 13,148 |
| | $ | 117,673 |
| | $ | 130,821 |
| September 30, 2013 | | (38,836 | ) | | 117,248 |
| | 78,412 |
| Total assets | | | | | | | As of: | | | | | | | September 30, 2014 | | $ | 15,789,046 |
| | $ | 1,448,063 |
| | $ | 17,237,109 |
| December 31, 2013 | | 13,641,727 |
| | 1,317,274 |
| | 14,959,001 |
|
| | | | | | | | | | | | | | | | Real Estate Segment | | Debt and Preferred Equity Segment | | Total Company | Total revenues | | | | | | | Three months ended: | | | | | | | June 30, 2015 | | $ | 363,883 |
| | $ | 45,191 |
| | $ | 409,074 |
| June 30, 2014 | | 340,918 |
| | 39,714 |
| | 380,632 |
| Six months ended: | | | | | | | June 30, 2015 | | $ | 718,113 |
| | $ | 87,260 |
| | $ | 805,373 |
| June 30, 2014 | | 649,279 |
| | 93,798 |
| | 743,077 |
| (Loss) income from continuing operations before equity in net gain on sale of interest in unconsolidated joint venture/real estate and purchase price fair value adjustment | | | | | | | Three months ended: | | | | | | | June 30, 2015 | | $ | (65,677 | ) | | $ | 35,729 |
| | $ | (29,948 | ) | June 30, 2014 | | 23,069 |
| | 33,993 |
| | 57,062 |
| Six months ended: | | | | | | | June 30, 2015 | | $ | (58,918 | ) | | $ | 71,196 |
| | $ | 12,278 |
| June 30, 2014 | | 23,688 |
| | 79,576 |
| | 103,264 |
| Total assets | | | | | | | As of: | | | | | | | June 30, 2015 | | $ | 15,562,297 |
| | $ | 1,704,661 |
| | $ | 17,266,958 |
| December 31, 2014 | | 15,671,662 |
| | 1,424,925 |
| | 17,096,587 |
|
Income from continuing operations represents total revenues less total expenses for the real estate segment and total investment income less allocated interest expense for the debt and preferred equity segment. Interest costs for the debt and preferred equity segment are imputed assuming the portfolio is 100% leverage atleveraged by our MRA2012 revolving credit facility and 2012 credit facilitycorporate borrowing cost. We also allocate loan loss reserves, net of recoveries, and transaction related costs to the debt and preferred equity segment. We do not allocate marketing, general and administrative expenses (totaling $22.6$23.2 million, $69.8$48.7 million, $20.9$23.9 million and $63.5$47.1 million for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively) to the debt and preferred equity segment since we base performance on the individual segments prior to allocating marketing, general and administrative expenses. All other expenses, except interest, relate entirely to the real estate assets. There were no transactions between the above two segments. The table below reconciles (loss) income from continuing operations to net (loss) income for the three and six months ended June 30, 2015 and 2014 (in thousands):
| | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2015 | | 2014 | | 2015 | | 2014 | (Loss) income from continuing operations before equity in net gain on sale of interest in unconsolidated joint venture/real estate | | $ | (29,948 | ) | | $ | 57,062 |
| | $ | 12,278 |
| | $ | 103,264 |
| Equity in net gain on sale of interest in unconsolidated joint venture/real estate | | 769 |
| | 1,444 |
| | 769 |
| | 106,084 |
| Purchase price fair value adjustment | | — |
| | 71,446 |
| | — |
| | 71,446 |
| (Loss) income from continuing operations | | (29,179 | ) | | 129,952 |
| | 13,047 |
| | 280,794 |
| Net income from discontinued operations | | — |
| | 5,645 |
| | 427 |
| | 11,414 |
| Gain on sale of discontinued operations | | — |
| | 114,735 |
| | 12,983 |
| | 114,735 |
| Net (loss) income | | $ | (29,179 | ) | | $ | 250,332 |
| | $ | 26,457 |
| | $ | 406,943 |
|
SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) SeptemberJune 30, 20142015
(unaudited)
The table below reconciles income from continuing operations to net income for the three and nine months ended September 30, 2014 and 2013 (in thousands):
| | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2014 | | 2013 | | 2014 | | 2013 | Income from continuing operations before purchase price fair value adjustment and equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate | | $ | 27,556 |
| | $ | 24,468 |
| | $ | 130,821 |
| | $ | 78,412 |
| Equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate | | 16,496 |
| | (354 | ) | | 122,580 |
| | (3,937 | ) | Purchase price fair value adjustment | | (4,000 | ) | | — |
| | 67,446 |
| | (2,305 | ) | Income from continuing operations | | 40,052 |
| | 24,114 |
| | 320,847 |
| | 72,170 |
| Net income from discontinued operations | | 4,035 |
| | 7,435 |
| | 15,449 |
| | 19,851 |
| Gain on sale of discontinued operations | | 29,507 |
| | 13,787 |
| | 144,242 |
| | 14,900 |
| Net income | | $ | 73,594 |
| | $ | 45,336 |
| | $ | 480,538 |
| | $ | 106,921 |
|
21. Subsequent Events In July, the Company expanded its unsecured corporate credit facility by $500.0 million to $2.533 billion. The revolving line of credit portion of the facility, which matures in March 2020, was increased by $400.0 million to $1.6 billion and the term loan portion of the facility, which matures in June 2019, was increased by $100.0 million to $933.0 million.
On October 28, 2014, we redeemed all 80,000 units of ourThe Operating Partnership has authorized up to 200,000 4.00% Series HP Preferred Units atof limited partnership interest, or the Series P Preferred Units, with a redemption priceliquidation preference of $25.00 per unit plus $0.05833unit. In July 2015, the Company issued 200,000 Series P Preferred Units in connection with an acquisition. The Series P Preferred Units can be redeemed at any time at par for cash at the option of the unitholder.
The Operating Partnership has authorized up to 268,000 3.50% Series Q Preferred Units of limited partnership interest, or the Series Q Preferred Units, with a liquidation preference of $25.00 per unitunit. In July 2015, the Company issued 268,000 Series Q Preferred Units in accumulated and unpaid dividends on such units through October 28, 2014.
Subsequent to September 30, 2014, we sold and settled approximately 1,019,892 sharesconnection with an acquisition. The Series Q Preferred Units can be redeemed at any time at par for cash at the option of our common stock through our new ATM program for aggregate gross proceeds of $116.8 million ($115.4 million of net proceeds after related expenses). As of November 5, 2014, we had approximately $142.4 million of gross proceeds remaining available for issuance under the new ATM Program.
unitholder.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview SL Green Realty Corp., an S&P 500 Company, which is referred to as SL Green or the Company, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Company is a self-managed real estate investment trust, or REIT, with in-house capabilities in property management, acquisitions and dispositions, financing, development and redevelopment, construction and leasing. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership. Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P. or ROP, are wholly-owned subsidiaries of the Operating Partnership. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in this Quarterly Report on Form 10-Q and in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2013.2014. As of SeptemberJune 30, 2014,2015, we owned the following interests in commercial and residential properties in the New York Metropolitan area, primarily in midtown Manhattan. Our investments in the New York Metropolitan area also include investments in Brooklyn, Long Island, Westchester County, Connecticut and Northern New Jersey, which are collectively known as the Suburban properties: | | | | Consolidated | | Unconsolidated | | Total | | Consolidated | | Unconsolidated | | Total | | | Location | | Type | | Number of Properties | | Square Feet | | Number of Properties | | Square Feet | | Number of Properties | | Square Feet | | Weighted Average Occupancy(1) | | Type | | Number of Properties | | Approximate Square Feet | | Number of Properties | | Approximate Square Feet | | Number of Properties | | Approximate Square Feet | | Weighted Average Occupancy(1) | Commercial: | | | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | | | | Manhattan | | Office | | 23 |
| | 18,429,045 |
| | 7 |
| | 3,476,115 |
| | 30 |
| | 21,905,160 |
| | 95.4 | % | | Office | (2) | 24 |
| | 18,533,045 |
| | 7 |
| | 3,476,115 |
| | 31 |
| | 22,009,160 |
| | 96.9 | % | | | Retail | | 8 |
| (2) | | 394,535 |
| | 7 |
| | 283,295 |
| | 15 |
| | 677,830 |
| | 90.3 | % | | Retail | (2) | 9 |
| (3) | 403,735 |
| | 7 |
| | 279,628 |
| | 16 |
| | 683,363 |
| | 91.9 | % | | | Development/Redevelopment | | 9 |
| (3) | | 1,973,862 |
| | 4 |
| | 1,605,782 |
| | 13 |
| | 3,579,644 |
| | 39.7 | % | | Development/Redevelopment | | 7 |
| | 779,862 |
| | 5 |
| | 1,952,782 |
| | 12 |
| | 2,732,644 |
| | 36.9 | % | | | Fee Interest | | 3 |
| (3) | | 1,137,930 |
| | — |
| | — |
| | 3 |
| | 1,137,930 |
| | 100.0 | % | | Fee Interest | | 2 |
| | 783,530 |
| | — |
| | — |
| | 2 |
| | 783,530 |
| | 100.0 | % | | | 43 |
| | 21,935,372 |
| | 18 |
| | 5,365,192 |
| | 61 |
| | 27,300,564 |
| | 88.2 | % | | 42 |
| | 20,500,172 |
| | 19 |
| | 5,708,525 |
| | 61 |
| | 26,208,697 |
| | 90.6 | % | Suburban | | Office | | 27 |
| | 4,365,400 |
| | 4 |
| | 1,222,100 |
| | 31 |
| | 5,587,500 |
| | 81.3 | % | | Office | | 28 |
| | 4,450,400 |
| | 5 |
| | 1,287,741 |
| | 33 |
| | 5,738,141 |
| | 81.9 | % | | | Retail | | 1 |
| | 52,000 |
| | — |
| | — |
| | 1 |
| | 52,000 |
| | 100.0 | % | | Retail | | 1 |
| | 52,000 |
| | — |
| | — |
| | 1 |
| | 52,000 |
| | 100.0 | % | | | Development/Redevelopment | | 1 |
| | 85,000 |
| | 1 |
| | 65,641 |
| | 2 |
| | 150,641 |
| | 50.5 | % | | Development/Redevelopment | | 1 |
| | 1,000 |
| | 1 |
| | — |
| | 2 |
| | 1,000 |
| | 100.0 | % | | | 29 |
| | 4,502,400 |
| | 5 |
| | 1,287,741 |
| | 34 |
| | 5,790,141 |
| | 80.7 | % | | 30 |
| | 4,503,400 |
| | 6 |
| | 1,287,741 |
| | 36 |
| | 5,791,141 |
| | 82.1 | % | Total commercial properties | Total commercial properties | | 72 |
| | 26,437,772 |
| | 23 |
| | 6,652,933 |
| | 95 |
| | 33,090,705 |
| | 86.8 | % | Total commercial properties | | 72 |
| | 25,003,572 |
| | 25 |
| | 6,996,266 |
| | 97 |
| | 31,999,838 |
| | 89.1 | % | Residential: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Manhattan | | Residential | | 3 |
| (2) | | 735,587 |
| | — |
| | — |
| | 3 |
| | 735,587 |
| | 94.1 | % | | Residential | | 4 |
| (3) | 762,587 |
| | 17 |
| | 2,046,733 |
| | 21 |
| | 2,809,320 |
| | 96.4 | % | Suburban | | Residential | | 1 |
| | 66,611 |
| | — |
| | — |
| | 1 |
| | 66,611 |
| | 79.2 | % | | Residential | | 1 |
| | 66,611 |
| | — |
| | — |
| | 1 |
| | 66,611 |
| | 92.0 | % | Total residential properties | Total residential properties | | 4 |
| | 802,198 |
| | — |
| | — |
| | 4 |
| | 802,198 |
| | 93.2 | % | Total residential properties | | 5 |
| | 829,198 |
| | 17 |
| | 2,046,733 |
| | 22 |
| | 2,875,931 |
| | 96.3 | % | Total portfolio | Total portfolio | | 76 |
| | 27,239,970 |
| | 23 |
| | 6,652,933 |
| | 99 |
| | 33,892,903 |
| | 87.0 | % | Total portfolio | | 77 |
| | 25,832,770 |
| | 42 |
| | 9,042,999 |
| | 119 |
| | 34,875,769 |
| | 89.7 | % |
| | (1) | The weighted average occupancy for commercial properties represents the total occupied square feet divided by total available rentable square feet. The weighted average occupancy for residential properties represents the total occupied units divided by total available units. |
| | (2) | Includes one office and one retail property held for sale as of June 30, 2015. |
| | (3) | As of SeptemberJune 30, 2014,2015, we owned a building that was comprised of approximately 270,132 square feet of retail space and approximately 222,855 square feet of residential space. For the purpose of this report, we have included the building as part ofin the retail properties count and have shownbifurcated the square footage under its respective classifications. |
| | (3) | Includes two properties, which are held for sale as of September 30, 2014into the retail and residential components. |
As of SeptemberJune 30, 2014,2015, we also managed a 336,200an approximately 336,201 square foot office building owned by a third party. As of September 30, 2014, we alsoparty and held debt and preferred equity investments with a book value of $1.4$1.7 billion.
Critical Accounting Policies Refer to the 20132014 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies, which include investment in commercial real estate properties, investment in unconsolidated joint ventures,
revenue recognition, allowance for doubtful accounts, reserve for possible credit losses and derivative instruments. There have been no changes to these accounting policies during the ninethree and six months ended SeptemberJune 30, 2014.2015. Results of Operations Comparison of the three months ended SeptemberJune 30, 20142015 to the three months ended SeptemberJune 30, 20132014 The following comparison for the three months ended SeptemberJune 30, 2014,2015, or 2014,2015, to the three months ended SeptemberJune 30, 2013,2014, or 2013,2014, makes reference to the following: (i) the effect of the “Same-Store Properties,” which represents all operating properties owned by us at January 1, 2014 and still owned by us in the same manner at January 1, 2013 and at SeptemberJune 30, 20142015 and totaled 58 of our 7677 consolidated operating properties, representing 79.9%80.6% of our share of annualized cash rent, (ii) the effect of the “Acquisition Properties,” which represents all properties or interests in properties acquired in 20142015 and 20132014 and all non-Same-Store Properties, including properties that are under development, redevelopment or deconsolidated during the period, and (iii) “Other,” which represents corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc. Any assets sold or held for sale prior to January 1, 2015 are excluded from the income from continuing operations and from the following discussion.
| | | | Same-Store | | Acquisition | | Other | | Consolidated | | Same-Store | | Acquisition | | Other | | Consolidated | (in millions) | | 2014 | | 2013 | | $ Change | | % Change | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | $ Change | | % Change | | 2015 | | 2014 | | $ Change | | % Change | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | $ Change | | % Change | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rental revenue | | $ | 246.2 |
| | $ | 231.4 |
| | $ | 14.8 |
| | 6.4 | % | | $ | 44.7 |
| | $ | 10.6 |
| | $ | 0.4 |
| | $ | 0.5 |
| | $ | 291.3 |
| | $ | 242.5 |
| | $ | 48.8 |
| | 20.1 | % | | $ | 267.7 |
| | $ | 258.6 |
| | $ | 9.1 |
| | 3.5 | % | | $ | 35.7 |
| | $ | 20.7 |
| | $ | 0.8 |
| | $ | 0.3 |
| | $ | 304.2 |
| | $ | 279.6 |
| | $ | 24.6 |
| | 8.8 | % | Escalation and reimbursement | | 40.7 |
| | 39.9 |
| | 0.8 |
| | 2.0 | % | | 2.7 |
| | 1.9 |
| | 0.4 |
| | 0.2 |
| | 43.8 |
| | 42.0 |
| | 1.8 |
| | 4.3 | % | | 40.8 |
| | 37.2 |
| | 3.6 |
| | 9.7 | % | | 0.1 |
| | 1.0 |
| | 0.5 |
| | 0.4 |
| | 41.4 |
| | 38.6 |
| | 2.8 |
| | 7.3 | % | Investment income | | — |
| | — |
| | — |
| | — | % | | 0.1 |
| | — |
| | 43.9 |
| | 44.4 |
| | 44.0 |
| | 44.4 |
| | (0.4 | ) | | (0.9 | )% | | — |
| | — |
| | — |
| | — | % | | 0.1 |
| | 0.1 |
| | 45.1 |
| | 39.6 |
| | 45.2 |
| | 39.7 |
| | 5.5 |
| | 13.9 | % | Other income | | 1.3 |
| | 0.9 |
| | 0.4 |
| | 44.4 | % | | 0.1 |
| | 0.1 |
| | 9.8 |
| | 8.9 |
| | 11.2 |
| | 9.9 |
| | 1.3 |
| | 13.1 | % | | 13.6 |
| | 0.8 |
| | 12.8 |
| | 1,600.0 | % | | — |
| | 0.2 |
| | 4.7 |
| | 21.7 |
| | 18.3 |
| | 22.7 |
| | (4.4 | ) | | (19.4 | )% | Total revenues | | 288.2 |
| | 272.2 |
| | 16.0 |
| | 5.9 | % | | 47.6 |
| | 12.6 |
| | 54.5 |
| | 54.0 |
| | 390.3 |
| | 338.8 |
| | 51.5 |
| | 15.2 | % | | 322.1 |
| | 296.6 |
| | 25.5 |
| | 8.6 | % | | 35.9 |
| | 22.0 |
| | 51.1 |
| | 62.0 |
| | 409.1 |
| | 380.6 |
| | 28.5 |
| | 7.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | 122.6 |
| | 122.1 |
| | 0.5 |
| | 0.4 | % | | 9.1 |
| | 6.8 |
| | 4.0 |
| | 3.3 |
| | 135.7 |
| | 132.2 |
| | 3.5 |
| | 2.6 | % | | 129.3 |
| | 121.8 |
| | 7.5 |
| | 6.2 | % | | 1.9 |
| | 3.5 |
| | 3.3 |
| | 3.6 |
| | 134.5 |
| | 128.9 |
| | 5.6 |
| | 4.3 | % | Transaction related costs, net of recoveries | | — |
| | — |
| | — |
| | — | % | | 2.6 |
| | 0.1 |
| | (0.2 | ) | | (2.5 | ) | | 2.4 |
| | (2.4 | ) | | 4.8 |
| | 200.0 | % | | Transaction related costs | | | 0.2 |
| | 0.1 |
| | 0.1 |
| | 100.0 | % | | 0.6 |
| | 0.4 |
| | 2.3 |
| | 1.2 |
| | 3.1 |
| | 1.7 |
| | 1.4 |
| | 82.4 | % | Marketing, general and administrative | | — |
| | — |
| | — |
| | — | % | | — |
| | — |
| | 22.6 |
| | 20.9 |
| | 22.6 |
| | 20.9 |
| | 1.7 |
| | 8.1 | % | | — |
| | — |
| | — |
| | — | % | | — |
| | — |
| | 23.2 |
| | 23.9 |
| | 23.2 |
| | 23.9 |
| | (0.7 | ) | | (2.9 | )% | Total expenses | | 122.6 |
| | 122.1 |
| | 0.5 |
| | 0.4 | % | | 11.7 |
| | 6.9 |
| | 26.4 |
| | 21.7 |
| | 160.7 |
| | 150.7 |
| | 10.0 |
| | 6.6 | % | | | | | 129.5 |
| | 121.9 |
| | 7.6 |
| | 6.2 | % | | 2.5 |
| | 3.9 |
| | 28.8 |
| | 28.7 |
| | 160.8 |
| | 154.5 |
| | 6.3 |
| | 4.1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Net operating income | | $ | 165.6 |
| | $ | 150.1 |
| | $ | 15.5 |
| | 10.3 | % | | $ | 35.9 |
| | $ | 5.7 |
| | $ | 28.1 |
| | $ | 32.3 |
| | 229.6 |
| | 188.1 |
| | 41.5 |
| | 22.1 | % | | $ | 192.6 |
| | $ | 174.7 |
| | $ | 17.9 |
| | 10.2 | % | | $ | 33.4 |
| | $ | 18.1 |
| | $ | 22.3 |
| | $ | 33.3 |
| | $ | 248.3 |
| | $ | 226.1 |
| | $ | 22.2 |
| | 9.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Other income (expenses): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense and amortization of deferred financing costs, net of interest income | | | | | | | | | | | | | | | | | | (89.1 | ) | | (82.3 | ) | | (6.8 | ) | | 8.3 | % | | | | | | | | | | | | | | | | | | (81.7 | ) | | (83.3 | ) | | 1.6 |
| | (1.9 | )% | Depreciation and amortization | | | | | | | | | | | | | | | | | | (94.4 | ) | | (84.2 | ) | | (10.2 | ) | | 12.1 | % | | | | | | | | | | | | | | | | | | (199.6 | ) | | (93.4 | ) | | (106.2 | ) | | 113.7 | % | Equity in net income from unconsolidated joint ventures | | | | | | | | | | | | | | | | | | 6.0 |
| | 2.9 |
| | 3.1 |
| | 106.9 | % | | | | | | | | | | | | | | | | | | 3.0 |
| | 8.6 |
| | (5.6 | ) | | (65.1 | )% | Equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate | | | | | | | | | | | | | | | | | | 16.5 |
| | (0.4 | ) | | 16.9 |
| | 4,225.0 | % | | Equity in net gain on sale of interest in unconsolidated joint venture/real estate | | | | | | | | | | | | | | | | | | | 0.8 |
| | 1.4 |
| | (0.6 | ) | | (42.9 | )% | Purchase price fair value adjustment | | | | | | | | | | | | | | | | | | (4.0 | ) | | — |
| | (4.0 | ) | | (100.0 | )% | | | | | | | | | | | | | | | | | | — |
| | 71.4 |
| | (71.4 | ) | | (100.0 | )% | Loss on early extinguishment of debt | | | | | | | | | | | | | | | | | | (24.5 | ) | | — |
| | (24.5 | ) | | (100.0 | )% | | | | | | | | | | | | | | | | | | — |
| | (1.0 | ) | | 1.0 |
| | (100.0 | )% | Income from continuing operation | | | | | | | | | | | | | | | | | | 40.1 |
| | 24.1 |
| | 16.0 |
| | 66.4 | % | | (Loss) income from continuing operation | | | | | | | | | | | | | | | | | | | (29.2 | ) | | 129.8 |
| | (159.0 | ) | | (122.5 | )% | Net income from discontinued operations | | | | | | | | | | | | | | | | | | 4.0 |
| | 7.4 |
| | (3.4 | ) | | (45.9 | )% | | | | | | | | | | | | | | | | | | — |
| | 5.6 |
| | (5.6 | ) | | (100.0 | )% | Gain on sale of discontinued operations | | | | | | | | | | | | | | | | | | 29.5 |
| | 13.8 |
| | 15.7 |
| | 113.8 | % | | | | | | | | | | | | | | | | | | — |
| | 114.7 |
| | (114.7 | ) | | (100.0 | )% | Net income | | | | | | | | | | | | | | | | | | $ | 73.6 |
| | $ | 45.3 |
| | $ | 28.3 |
| | 62.5 | % | | Net (loss) income | | | | | | | | | | | | | | | | | | | $ | (29.2 | ) | | $ | 250.1 |
| | $ | (279.3 | ) | | (111.7 | )% |
Rental, Escalation and Reimbursement Revenues
Rental revenues increased primarily as a result of the properties acquired in 2014 and 2015 ($18.3 million), which included the consolidation of 388-390 Greenwich Street ($15.9 million) in 2014, an increase in occupancy at our Same-Store Properties ($9.1 million), and an increase in occupancy for two properties that were placed into service ($2.7 million). This increase was partially offset by vacating the properties that comprise the One Vanderbilt development site ($5.4 million). In May 2014, we acquired our joint venture partner's interest in 388-390 Greenwich Street thereby assuming full ownership of this triple net lease property. As a result of this acquisition, we consolidated the results of operations of this property beginning in May 2014. Prior to May 2014, we accounted for our investments in 388-390 Greenwich Street under the equity method of accounting.
Rental, Escalation and Reimbursement Revenuesreimbursement revenue increased primarily as a result of higher real estate tax recoveries ($3.7 million) at the Same-Store Properties attributable to an increase in the related expense, partially offset by a decrease related to vacating the properties that comprise the One Vanderbilt development site ($0.9 million).
Occupancy in our Same-Store consolidated office operating properties increased to 91.7%93.7% at SeptemberJune 30, 20142015 as compared to 90.4%90.9% at SeptemberJune 30, 2013.2014. Occupancy in our Same-Store Manhattan consolidated office operating portfolio, excluding leases signed but not yet commenced, increased to 94.9%96.8% at SeptemberJune 30, 20142015 as compared to 93.8%94.1% at SeptemberJune 30, 2013.2014. Occupancy infor our Same-Store Suburban consolidated office operating portfolio, excluding leases signed but not yet commenced, increased to 80.2%82.3% at SeptemberJune 30, 20142015 as compared to 77.8%81.7% at SeptemberJune 30, 2013.2014. Rental revenues depend on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from unscheduled lease terminations.
The following table presents a summary of the commenced leasing activity for the three months ended SeptemberJune 30, 20142015 in our Manhattan and Suburban portfolio: | | | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Manhattan | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | | Vacancy at beginning of period | 1,234,491 |
| | |
| | |
| | |
| | |
| | |
| | |
| | Sold vacancies | — |
| | | | | | | | | | | | | | Properties in redevelopment: | — |
| | | | | | | | | | | | | | Space which became available during the period(3) | | | |
| | |
| | |
| | |
| | |
| | |
| | Space available at beginning of the period | | 877,670 |
| | |
| | |
| | |
| | |
| | |
| | | Properties placed in service | | 28,555 |
| | | | | | | | | | | | Space which became available during the period(3) | | | | |
| | |
| | |
| | |
| | |
| | | • Office | 142,821 |
| | |
| | |
| | |
| | |
| | |
| | |
| 264,737 |
| | |
| | |
| | |
| | |
| | |
| | | • Retail | 2,436 |
| | |
| | |
| | |
| | |
| | |
| | |
| 4,643 |
| | |
| | |
| | |
| | |
| | |
| | | • Storage | 1,785 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,963 |
| | |
| | |
| | |
| | |
| | |
| | | | 147,042 |
| | |
| | |
| | |
| | |
| | |
| | |
| 271,343 |
| | |
| | |
| | |
| | |
| | |
| | | Total space available | 1,381,533 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,177,568 |
| | |
| | |
| | |
| | |
| | |
| | | Space leased during the period: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | • Office(4) | 365,606 |
| | 387,767 |
| | $ | 56.94 |
| | $ | 44.46 |
| | $ | 65.36 |
| | 3.7 |
| | 7.9 |
| | Leased space commenced during the period: | | |
| | |
| | |
| | |
| | |
| | |
| | | • Office(4) | | 448,909 |
| | 476,502 |
| | $ | 58.54 |
| | $ | 48.74 |
| | $ | 63.93 |
| | 7.4 |
| | 12.5 | • Retail | 2,527 |
| | 2,502 |
| | $ | 304.78 |
| | $ | 241.21 |
| | $ | — |
| | 5.1 |
| | 9.9 |
| 51,846 |
| | 49,027 |
| | $ | 338.97 |
| | $ | 324.12 |
| | $ | 123.48 |
| | 1.2 |
| | 13.8 | • Storage | 2,845 |
| | 3,019 |
| | $ | 26.47 |
| | $ | 27.50 |
| | $ | 5.73 |
| | — |
| | 9.5 |
| 4,120 |
| | 4,636 |
| | $ | 19.66 |
| | $ | — |
| | $ | — |
| | 1.3 |
| | 10.6 | Total space leased | 370,978 |
| | 393,288 |
| | $ | 58.28 |
| | $ | 46.48 |
| | $ | 64.48 |
| | 3.6 |
| | 7.9 |
| | Total leased space commenced | | 504,875 |
| | 530,165 |
| | $ | 84.13 |
| | $ | 61.53 |
| | $ | 68.88 |
| | 6.8 |
| | 12.6 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total available space at end of the period | 1,010,555 |
| | |
| | |
| | |
| | |
| | |
| | |
| | Total available space at end of period | | 672,693 |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Early renewals | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | |
| | |
| | |
| | |
| | | • Office | 317,775 |
| | 341,548 |
| | $ | 71.89 |
| | $ | 60.21 |
| | $ | 68.57 |
| | 0.4 |
| | 13.1 |
| 92,413 |
| | 96,930 |
| | $ | 70.95 |
| | $ | 61.90 |
| | $ | 7.74 |
| | 0.6 |
| | 5.3 | • Retail | 2,641 |
| | 2,641 |
| | $ | 374.50 |
| | $ | 275.96 |
| | $ | — |
| | — |
| | 4.6 |
| 72,355 |
| | 70,145 |
| | $ | 47.76 |
| | $ | 40.58 |
| | $ | — |
| | — |
| | 10.0 | • Storage | 1,503 |
| | 1,503 |
| | $ | 36.75 |
| | $ | 27.00 |
| | $ | — |
| | — |
| | 15.0 |
| 612 |
| | 612 |
| | $ | 25.00 |
| | $ | 25.00 |
| | $ | — |
| | — |
| | 1.0 | Total early renewals | 321,919 |
| | 345,692 |
| | $ | 74.05 |
| | $ | 61.72 |
| | $ | 67.75 |
| | 0.4 |
| | 13.0 |
| 165,380 |
| | 167,687 |
| | $ | 61.08 |
| | $ | 52.85 |
| | $ | 4.47 |
| | 0.3 |
| | 7.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total commenced leases, including replaced previous vacancy | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | | | | | | | | | • Office | |
| | 729,315 |
| | $ | 63.94 |
| | $ | 53.98 |
| | $ | 66.86 |
| | 2.1 |
| | 10.3 |
| |
| | 573,432 |
| | $ | 60.64 |
| | $ | 52.94 |
| | $ | 54.43 |
| | 6.2 |
| | 11.3 | • Retail | |
| | 5,143 |
| | $ | 340.58 |
| | $ | 259.38 |
| | $ | — |
| | 2.5 |
| | 7.2 |
| |
| | 119,172 |
| | $ | 167.56 |
| | $ | 76.23 |
| | $ | 50.80 |
| | 0.5 |
| | 11.6 | • Storage | |
| | 4,522 |
| | $ | 29.89 |
| | $ | 27.20 |
| | $ | 3.83 |
| | — |
| | 11.3 |
| |
| | 5,248 |
| | $ | 20.28 |
| | $ | 25.00 |
| | $ | — |
| | 1.2 |
| | 9.5 | Total commenced leases | |
| | 738,980 |
| | $ | 65.66 |
| | $ | 55.67 |
| | $ | 66.01 |
| | 2.1 |
| | 10.3 |
| |
| | 697,852 |
| | $ | 78.59 |
| | $ | 57.75 |
| | $ | 53.40 |
| | 5.2 |
| | 11.3 |
| | | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Suburban | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| Vacancy at beginning of period | 1,136,284 |
| | |
| | |
| | |
| | |
| | |
| | |
| | Space which became available during the period(3) | | | |
| | |
| | |
| | |
| | |
| | |
| | Space available at beginning of period | | 1,221,031 |
| | |
| | |
| | |
| | |
| | |
| | |
| Properties placed in service | | 64,510 |
| | | | | | | | | | | | | Space which became available during the period(3) | | | | |
| | |
| | |
| | |
| | |
| | |
| • Office | 172,964 |
| | |
| | |
| | |
| | |
| | |
| | |
| 53,931 |
| | |
| | |
| | |
| | |
| | |
| | |
| • Retail | — |
| | |
| | |
| | |
| | |
| | |
| | |
| — |
| | |
| | |
| | |
| | |
| | |
| | |
| • Storage | 200 |
| | |
| | |
| | |
| | |
| | |
| | |
| 300 |
| | |
| | |
| | |
| | |
| | |
| | |
| | 173,164 |
| | |
| | |
| | |
| | |
| | |
| | |
| 54,231 |
| | |
| | |
| | |
| | |
| | |
| | |
| Total space available | 1,309,448 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,339,772 |
| | |
| | |
| | |
| | |
| | |
| | |
| Space leased during the year: | |
| | |
| | |
| | |
| | | | |
| | |
| | • Office(5) | 141,372 |
| | 140,473 |
| | $ | 31.88 |
| | $ | 29.89 |
| | $ | 38.62 |
| | 6.0 |
| | 8.0 |
| | Leased space commenced during the period: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| • Office(5) | | 155,781 |
| | 148,628 |
| | $ | 28.89 |
| | $ | 31.19 |
| | $ | 41.23 |
| | 7.7 |
| | 9.6 |
| • Retail | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| • Storage | 883 |
| | 933 |
| | $ | 13.93 |
| | $ | 10.00 |
| | $ | — |
| | — |
| | 8.7 |
| 600 |
| | 620 |
| | $ | 13.71 |
| | $ | — |
| | $ | — |
| | — |
| | 8.4 |
| Total space leased | 142,255 |
| | 141,406 |
| | $ | 31.76 |
| | $ | 29.84 |
| | $ | 38.37 |
| | 6.0 |
| | 8.0 |
| | Total leased space commenced | | 156,381 |
| | 149,248 |
| | $ | 28.83 |
| | $ | 31.19 |
| | $ | 41.06 |
| | 7.6 |
| | 9.6 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Total available space at end of the period | 1,167,193 |
| | |
| | | | | | | | | | | 1,183,391 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Early renewals | |
| | |
| | | | | | | | | | | |
| | |
| | | | | | | | | | | • Office | 31,434 |
| | 31,683 |
| | $ | 34.46 |
| | $ | 36.40 |
| | $ | 35.67 |
| | 3.7 |
| | 10.3 |
| 65,144 |
| | 65,355 |
| | $ | 39.01 |
| | $ | 39.83 |
| | $ | 10.76 |
| | 2.2 |
| | 4.5 |
| • Retail | 50,247 |
| | 50,247 |
| | $ | 17.78 |
| | $ | 16.79 |
| | $ | — |
| | — |
| | 5.0 |
| — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| • Storage | 625 |
| | 625 |
| | $ | 18.00 |
| | $ | 14.00 |
| | $ | — |
| | — |
| | 10.0 |
| 125 |
| | 125 |
| | $ | 10.00 |
| | $ | 10.00 |
| | $ | — |
| | — |
| | 3.8 |
| Total early renewals | 82,306 |
| | 82,555 |
| | $ | 24.18 |
| | $ | 24.30 |
| | $ | 13.69 |
| | 1.4 |
| | 7.1 |
| 65,269 |
| | 65,480 |
| | $ | 38.96 |
| | $ | 39.78 |
| | $ | 10.74 |
| | 2.2 |
| | 4.5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Total commenced leases, including replaced previous vacancy | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | | • Office | |
| | 172,156 |
| | $ | 32.36 |
| | $ | 31.63 |
| | $ | 38.08 |
| | 5.6 |
| | 8.4 |
| |
| | 213,983 |
| | $ | 31.98 |
| | $ | 36.72 |
| | $ | 31.92 |
| | 6.0 |
| | 8.0 |
| • Retail | |
| | 50,247 |
| | $ | 17.78 |
| | $ | 16.79 |
| | $ | — |
| | — |
| | 5.0 |
| |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| • Storage | |
| | 1,558 |
| | $ | 15.56 |
| | $ | 13.03 |
| | $ | — |
| | — |
| | 9.2 |
| |
| | 745 |
| | $ | 13.09 |
| | $ | 10.00 |
| | $ | — |
| | — |
| | 7.6 |
| Total commenced leases | |
| | 223,961 |
| | $ | 28.97 |
| | $ | 27.15 |
| | $ | 29.27 |
| | 4.3 |
| | 7.7 |
| |
| | 214,728 |
| | $ | 31.92 |
| | $ | 36.69 |
| | $ | 31.81 |
| | 6.0 |
| | 8.0 |
|
| | (1) | Annual initial base rent. |
| | (2) | Escalated rent is calculated as total annual income less electric charges. |
| | (3) | Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over. |
| | (4) | Average starting office rent excluding new tenants replacing vacancies was $52.46$57.31 per rentable square feet for 223,671207,056 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $64.20$61.66 per rentable square feet for 565,219303,986 rentable square feet. |
| | (5) | Average starting office rent excluding new tenants replacing vacancies was $30.38$31.43 per rentable square feet for 87,25536,733 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $31.47$36.28 per rentable square feet for 118,938102,088 rentable square feet. |
At SeptemberJune 30, 2014, 0.9%2015, 2.0% and 2.0%7.4% of the office space leased at our consolidated Manhattan and Suburban operating properties, respectively, is expected to expire during the remainder of 2014.2015. Based on our estimates at June 30, 2015, the current market asking rents on these expected 20142015 lease expirations at our consolidated Manhattan operating properties would be approximately 102.4%are 14.9% higher than the existing in-place fully escalated rents while the current market asking rents on all our consolidated Manhattan operating properties would be approximately 17.6%are 14.6% higher than the existing in-place fully escalated rents on leases that are scheduled to expire in all future years. Based on our estimates at June 30, 2015, the current market asking rents on these expected 20142015 lease expirations at our consolidated Suburban operating properties would be approximately 0.5%are 0.4% lower than the existing in-place fully escalated rents while the current market asking rents on all our consolidated Suburban operating properties would be approximately 4.4%are 4.6% higher than the existing in-place fully escalated rents on leases that are scheduled to expire in all future years. In May 2014, we acquired our joint partner's interest in 388-390 Greenwich Street thereby assuming full ownership of this triple net lease property. Prior to May 2014, we had accounted for our investment in 388-390 Greenwich Street under the equity method of accounting. As a result of this acquisition, we have consolidated the results of operations of this property beginning in May 2014.Investment Income
Rental revenuesInvestment income increased primarily as a result of the consolidation of 388-390 Greenwich Street ($28.4 million), an overall increase in occupancy at the Same-Store Properties ($14.8 million) and properties acquired in 2013 ($7.2 million). This increase was partially offset by lower revenues from development properties ($2.1 million).
Escalation and reimbursement revenue increased primarily as a result of the properties acquired in 2013 ($1.1 million) and higher recoveries at the Same Store Properties ($0.8 million). The increase in escalation and reimbursement revenue at the Same-Store Properties was primarily a result of higher real estate tax recoveries ($1.3 million) partially offset by lower operating expense escalations ($0.5 million).
Investment Income
Investment income decreased primarily as a result of a lower weighted average yieldinvestment balance compared to the same period in 2014, partially offset by a higherlower weighted average balance andyield during the repaymentsecond quarter of one of our mezzanine investments which resulted in additional income ($0.8 million) in 2014. The2015. For the three months ended June 30, 2015, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $1.5
$1.7 billion and 10.5%10.2%, respectively, compared to $1.4 billion and 10.6%, respectively, for the three months ended September 30, 2014 compared to $1.3 billion and 11.5% during the three months ended September 30, 2013.same period in 2014. As of SeptemberJune 30, 2014, our2015, the debt and preferred equity investments had a weighted average term to maturity of 2.01.7 years. Other Income Other income increaseddecreased primarily as a result of a promote income earned in connection with the sale of theour joint venture property located at 180 Broadwayinterest in 747 Madison Avenue in 2014 ($3.310.3 million) and a higher contribution from Service Corporationone-time fee earned in connection with the restructuring of one of our debt investments in 2014 ($2.65.7 million), partially offset by income from expense reimbursementsa lease termination fee received at 919 Third Avenue in 20132015 ($4.211.3 million). Property Operating Expenses Property operating expenses increased primarily as a result of the properties acquired in 2013 ($3.8 million) and higher operating expenses at the Same StoreSame-Store Properties ($0.57.5 million), partially offset by lower operating expensesa decrease from vacating the properties that comprise the One Vanderbilt development propertiessite ($1.92.8 million). The increase in property operating expenses at the Same-Store Properties was mainly a result of higher real estate taxes driven by higher assessed values and tax rates ($2.55.4 million), repairs and maintenance ($1.1 million), professional fees ($0.5 million) and payroll costs ($0.4 million), partially offset by lower utility costs due, in part, to seasonality ($0.4 million) and repairs and maintenance ($0.41.1 million). Marketing, General and Administrative Expenses Marketing, general and administrative expenses for the three months ended SeptemberJune 30, 20142015 were $22.6$23.2 million, or 5.1%5.0% of total revenues including our share of joint venture revenues, and an annualized 5049 basis points of total assets including our share of joint venture assets compared to $20.9$23.9 million, or 5.1%5.4% of total revenues including our share of joint venture revenues, and an annualized 5052 basis points of total assets including our share of joint venture assets for the three months ended September 30, 2013.same period in 2014. Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income Interest expense and amortization of deferred financing costs, net of interest income, increaseddecreased primarily as a result the repayment of the mortgages at 625 Madison Avenue ($2.2 million) and 125 Park Avenue ($1.4 million) during the fourth quarter of 2014 and 711 Third ($1.6 million) during the first quarter of 2015, the capitalization of interest expense related to vacating the properties that comprise the One Vanderbilt development site ($1.9 million), the repayment of the 5.875% senior notes in August 2014 ($1.1 million), decreased weighted average borrowings on our MRA ($1.1 million) and the redemption of a preferred equity investment which secured a loan during the fourth quarter of 2014 ($1.0 million). This decrease was partially offset by an increase as a result of the consolidationacquisition of our joint venture partner's interest and a new mortgage at 388-390 Greenwich Street ($11.15.4 million) and increased borrowings on the 2012 credit facility ($1.4 million) . This increase was partially offset by the capitalization of interest relating to properties under development ($2.8 million), decreased borrowings from our MRA ($1.1 million) and repayment of the mortgage at 16 Court Street, Brooklyn in April 2014 ($0.7 million) and the 5.875% senior notes in August 2014 ($0.62.7 million). The weighted average consolidated debt balance outstanding increased from $6.9$7.8 billion duringfor the three months ended SeptemberJune 30, 20132014 to $8.7$8.4 billion duringfor the three months ended SeptemberJune 30, 2014.2015. The weighted average interest rate decreased from 4.77%4.38% for the three months ended SeptemberJune 30, 20132014 to 4.12%3.86% for the three months ended SeptemberJune 30, 2014.2015. Depreciation and Amortization Depreciation and amortization increased mainlyprimarily as a result of accelerated depreciation expense related to vacating the properties that comprise the One Vanderbilt development site ($99.1 million) and the consolidation of 388-390 Greenwich Street in 2014 ($7.6 million) and properties acquired in 2013 ($3.8 million), which was partially offset by athe write-off of tenantscertain tenant improvements and value for in-place leases relating toassociated with a former tenant that filed for bankruptcy in August 20132014 ($4.73.4 million). Equity in Net Income from Unconsolidated Joint Ventures Equity in net income from unconsolidated joint ventures increaseddecreased primarily as a result of net loss recognized in the third quarter of 2013 from the West Coast Office portfolio ($5.9 million), which interests were sold in March 2014, a debt and preferred equity investment that was originated in the first quarter of 2014 ($2.1 million), which has been accounted for as a real estate investment rather than a debt and preferred equity investment, and higher net income contributions from 100 Park Avenue as a result of increased occupancy and the refinancing of its mortgage at a lower rate ($1.5 million). This increase was partially offset by lower net income contributions from 388-390 Greenwich ($5.21.9 million) as a result of our acquisition of theour joint venture partner's interest. interest in May 2014, the refinancing of 3 Columbus Circle in the first quarter of 2015 ($1.6 million) and a decrease in the capitalization of costs for 280 Park Avenue ($1.5 million). Occupancy at our unconsolidated Manhattan office operating properties was 94.0%95.2% and 90.0%91.4% at SeptemberJune 30, 20142015 and 2013,2014, respectively. Occupancy at our unconsolidated Suburban office operating properties was 85.3%80.6% and 87.3% at both SeptemberJune 30, 2015 and 2014, and 2013,
respectively. At SeptemberJune 30, 2014, none2015, 5.6% and 6.8% of the space leased at our unconsolidated Manhattan joint venture officeand Suburban operating properties, wererespectively, are expected to expire during the remainder of 2014.in 2015. At SeptemberJune 30, 2014, 13.8% of the space leased at our Suburban joint venture office properties, respectively, were expected to expire during the remainder of 2014. We2015, we estimate that current market asking rents on these expected 20142015 lease expirations at our unconsolidated Manhattan and Suburban joint ventureoffice operating properties are approximately 8.18%14.5% higher and 8.5% lower, respectively, than then existing in-place fully escalated rents. Equity in Net Gain on Sale of Interest in Unconsolidated Joint Ventures/Real Estate
During the three months ended September 30, 2014, we recognized a gain on sale associated with the sale of our joint venture interest at 180 Broadway ($16.5 million). During the three months ended September 30, 2013, we recognized additional post closing costs related to the sale of 521 Fifth Avenue ($0.9 million), partially offset by additional income from the sale of two properties in the West Coast portfolio in 2013 ($0.5 million).
Purchase Price Fair Value Adjustmentprice fair value adjustment Purchase price fair value adjustment for the three months ended SeptemberJune 30, 2014 was attributable to the ground tenancy position at 752 Madison Avenue.acquisition of our joint venture partner interest in 388-390 Greenwich Street.
Loss on Early Extinguishment of Debt Loss on early extinguishment of debt for the three months ended SeptemberJune 30, 2014 was attributable to the refinancing of the previous mortgage at 420 Lexington Avenue.248-252 Bedford Avenue ($0.5 million) and the early repayment of the mortgage at 16 Court Street, Brooklyn ($0.5 million). Discontinued Operations Discontinued operations for the three months ended SeptemberJune 30, 2014 includes the gain recognized on the sale of 985-987 Third673 First Avenue ($29.8117.8 million) and the results of operations of these propertiesfor 180 Maiden Lane, which was sold in 2015, and other properties that2 Herald Square, and 673 First Avenue, which were held for sale or sold as of September 30,in 2014. Discontinued operations for the three months ended September 30, 2013 includes the gain recognized on the sale of 333 West 34th Street ($13.8 million). Prior period's results of operations of these held for sale or sold properties were included in the net income from discontinued operations to conform with the current presentation.
Comparison of the ninesix months ended SeptemberJune 30, 20142015 to the ninesix months ended SeptemberJune 30, 20132014 The following comparison for the ninesix months ended SeptemberJune 30, 2014,2015, or 2014,2015, to the ninesix months ended SeptemberJune 30, 2013,2014, or 2013,2014, makes reference to the following: (i) the effect of the “Same-Store Properties,” which represents all operating properties owned by us at January 1, 2014 and still owned by us in the same manner at January 1, 2013 and at SeptemberJune 30, 20142015 and totaled 58 of our 7677 consolidated operating properties, representing 79.9%80.6% of our share of annualized cash rent, (ii) the effect of the “Acquisition Properties,” which represents all properties or interests in properties acquired in 20142015 and 20132014 and all non-Same-Store Properties, including properties that are under development, redevelopment or deconsolidated during the period, and (iii) “Other,” which represents corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc. Any assets sold or held for sale prior to January 1, 2015 are excluded from the income from continuing operations and from the following discussion. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Same-Store | | Acquisition | | Other | | Consolidated | (in millions) | | 2015 | | 2014 | | $ Change | | % Change | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | | $ Change | | % Change | | | | | | | | | | | | | | | | | | | | | | | | | | Rental revenue | | $ | 526.4 |
| | $ | 507.4 |
| | $ | 19.0 |
| | 3.7 | % | | $ | 79.4 |
| | $ | 28.1 |
| | $ | 1.8 |
| | $ | 0.1 |
| | $ | 607.6 |
| | $ | 535.6 |
| | $ | 72.0 |
| | 13.4 | % | Escalation and reimbursement | | 81.1 |
| | 73.8 |
| | 7.3 |
| | 9.9 | % | | 0.4 |
| | 2.1 |
| | 0.9 |
| | 0.5 |
| | 82.4 |
| | 76.4 |
| | 6.0 |
| | 7.9 | % | Investment income | | — |
| | — |
| | — |
| | — | % | | 0.2 |
| | 0.1 |
| | 87.1 |
| | 93.7 |
| | 87.3 |
| | 93.8 |
| | (6.5 | ) | | (6.9 | )% | Other income | | 15.1 |
| | 2.0 |
| | 13.1 |
| | 655.0 | % | | 4.0 |
| | 0.1 |
| | 9.1 |
| | 35.2 |
| | 28.2 |
| | 37.3 |
| | (9.1 | ) | | (24.4 | )% | Total revenues | | 622.6 |
| | 583.2 |
| | 39.4 |
| | 6.8 | % | | 84.0 |
| | 30.4 |
| | 98.9 |
| | 129.5 |
| | 805.5 |
| | 743.1 |
| | 62.4 |
| | 8.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | 263.8 |
| | 246.0 |
| | 17.8 |
| | 7.2 | % | | 4.6 |
| | 7.8 |
| | 6.8 |
| | 5.4 |
| | 275.2 |
| | 259.2 |
| | 16.0 |
| | 6.2 | % | Transaction related costs | | 0.2 |
| | 0.9 |
| | (0.7 | ) | | (77.8 | )% | | 0.4 |
| | 0.9 |
| | 3.6 |
| | 2.4 |
| | 4.2 |
| | 4.2 |
| | — |
| | — | % | Marketing, general and administrative | | — |
| | — |
| | — |
| | — | % | | — |
| | — |
| | 48.7 |
| | 47.1 |
| | 48.7 |
| | 47.1 |
| | 1.6 |
| | 3.4 | % | | | 264.0 |
| | 246.9 |
| | 17.1 |
| | 6.9 | % | | 5.0 |
| | 8.7 |
| | 59.1 |
| | 54.9 |
| | 328.1 |
| | 310.5 |
| | 17.6 |
| | 5.7 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net operating income | | $ | 358.6 |
| | $ | 336.3 |
| | $ | 22.3 |
| | 6.6 | % | | $ | 79.0 |
| | $ | 21.7 |
| | $ | 39.8 |
| | $ | 74.6 |
| | $ | 477.4 |
| | $ | 432.6 |
| | $ | 44.8 |
| | 10.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Other income (expenses): | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense and amortization of deferred financing costs, net of interest income | | | | | | | | | | | | | | | | | | (164.1 | ) | | (163.1 | ) | | (1.0 | ) | | 0.6 | % | Depreciation and amortization | | | | | | | | | | | | | | | | | | (307.9 | ) | | (179.9 | ) | | (128.0 | ) | | 71.2 | % | Equity in net income from unconsolidated joint ventures | | | | | | | | | | | | | | | | | | 7.0 |
| | 14.7 |
| | (7.7 | ) | | (52.4 | )% | Equity in net gain on sale of interest in unconsolidated joint venture/real estate | | | | | | | | | | | | | | | | | | 0.8 |
| | 106.1 |
| | (105.3 | ) | | (99.2 | )% | Purchase price fair value adjustment | | | | | | | | | | | | | | | | | | — |
| | 71.4 |
| | (71.4 | ) | | (100.0 | )% | Loss on early extinguishment of debt | | | | | | | | | | | | | | | | | | — |
| | (1.0 | ) | | 1.0 |
| | (100.0 | )% | Income from continuing operation | | | | | | | | | | | | | | | | | | 13.2 |
| | 280.8 |
| | (267.6 | ) | | (95.3 | )% | Net income from discontinued operations | | | | | | | | | | | | | | | | | | 0.4 |
| | 11.4 |
| | (11.0 | ) | | (96.5 | )% | Gain on sale of discontinued operations | | | | | | | | | | | | | | | | | | 13.0 |
| | 114.7 |
| | (101.7 | ) | | (88.7 | )% | Net income | | | | | | | | | | | | | | | | | | $ | 26.6 |
| | $ | 406.9 |
| | $ | (380.3 | ) | | (93.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Same-Store | | Acquisition | | Other | | Consolidated | (in millions) | | 2014 | | 2013 | | $ Change | | % Change | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | $ Change | | % Change | | | | | | | | | | | | | | | | | | | | | | | | | | Rental revenue | | $ | 733.6 |
| | $ | 714.3 |
| | $ | 19.3 |
| | 2.7 | % | | $ | 92.7 |
| | $ | 28.6 |
| | $ | 0.6 |
| | $ | (1.9 | ) | | $ | 826.9 |
| | $ | 741.0 |
| | $ | 85.9 |
| | 11.6 | % | Escalation and reimbursement | | 111.6 |
| | 109.5 |
| | 2.1 |
| | 1.9 | % | | 7.7 |
| | 4.8 |
| | 0.9 |
| | 0.6 |
| | 120.2 |
| | 114.9 |
| | 5.3 |
| | 4.6 | % | Investment income | | — |
| | — |
| | — |
| | — | % | | 0.2 |
| | — |
| | 137.6 |
| | 143.9 |
| | 137.8 |
| | 143.9 |
| | (6.1 | ) | | (4.2 | )% | Other income | | 3.3 |
| | 4.3 |
| | (1.0 | ) | | (23.3 | )% | | 0.2 |
| | 0.4 |
| | 45.0 |
| | 16.1 |
| | 48.5 |
| | 20.8 |
| | 27.7 |
| | 133.2 | % | Total revenues | | 848.5 |
| | 828.1 |
| | 20.4 |
| | 2.5 | % | | 100.8 |
| | 33.8 |
| | 184.1 |
| | 158.7 |
| | 1,133.4 |
| | 1,020.6 |
| | 112.8 |
| | 11.1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | 357.9 |
| | 353.2 |
| | 4.7 |
| | 1.3 | % | | 27.6 |
| | 18.1 |
| | 9.4 |
| | 8.5 |
| | 394.9 |
| | 379.8 |
| | 15.1 |
| | 4.0 | % | Transaction related costs, net of recoveries | | — |
| | — |
| | — |
| | — | % | | 4.3 |
| | 0.8 |
| | 2.3 |
| | (0.1 | ) | | 6.6 |
| | 0.7 |
| | 5.9 |
| | 842.9 | % | Marketing, general and administrative | | — |
| | — |
| | — |
| | — | % | | — |
| | — |
| | 69.8 |
| | 63.5 |
| | 69.8 |
| | 63.5 |
| | 6.3 |
| | 9.9 | % | Total expenses | | 357.9 |
| | 353.2 |
| | 4.7 |
| | 1.3 | % | | 31.9 |
| | 18.9 |
| | 81.5 |
| | 71.9 |
| | 471.3 |
| | 444.0 |
| | 27.3 |
| | 6.1 | % | Net operating income | | $ | 490.6 |
| | $ | 474.9 |
| | $ | 15.7 |
| | 3.3 | % | | $ | 68.9 |
| | $ | 14.9 |
| | $ | 102.6 |
| | $ | 86.8 |
| | 662.1 |
| | 576.6 |
| | 85.5 |
| | 14.8 | % | Other income (expenses): | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense and amortization of deferred financing costs, net of interest income | | | | | | | | | | | | | | | | | | (252.2 | ) | | (245.3 | ) | | (6.9 | ) | | 2.8 | % | Depreciation and amortization | | | | | | | | | | | | | | | | | | (274.3 | ) | | (238.7 | ) | | (35.6 | ) | | 14.9 | % | Equity in net income from unconsolidated joint ventures | | | | | | | | | | | | | | | | | | 20.8 |
| | 4.3 |
| | 16.5 |
| | 383.7 | % | Equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate | | | | | | | | | | | | | | | | | | 122.6 |
| | (3.9 | ) | | 126.5 |
| | 3,243.6 | % | Purchase price fair value adjustment | | | | | | | | | | | | | | | | | | 67.4 |
| | (2.3 | ) | | 69.7 |
| | 3,030.4 | % | Loss on sale of investment in marketable securities | | | | | | | | | | | | | | | | | | — |
| | (0.1 | ) | | 0.1 |
| | 100.0 | % | Loss on early extinguishment of debt | | | | | | | | | | | | | | | | | | (25.5 | ) | | (18.5 | ) | | (7.0 | ) | | 37.8 | % | Income from continuing operation | | | | | | | | | | | | | | | | | | 320.9 |
| | 72.1 |
| | 248.8 |
| | 345.1 | % | Net income from discontinued operations | | | | | | | | | | | | | | | | | | 15.4 |
| | 19.9 |
| | (4.5 | ) | | (22.6 | )% | Gain on sale of discontinued operations | | | | | | | | | | | | | | | | | | 144.2 |
| | 14.9 |
| | 129.3 |
| | 867.8 | % | Net income | | | | | | | | | | | | | | | | | | $ | 480.5 |
| | $ | 106.9 |
| | $ | 373.6 |
| | 349.5 | % |
Rental, Escalation and Reimbursement Revenues Rental revenues increased primarily as a result of the properties acquired in 2014 and 2015 ($57.8 million), which included the consolidation of 388-390 Greenwich Street ($52.7 million) in 2014, an increase in occupancy at our Same-Store Properties ($19.0 million) and an increase in occupancy for two properties that were placed into service ($4.1 million). This increase was partially offset by vacating the properties that comprise the One Vanderbilt development site ($9.5 million). Escalation and reimbursement revenue increased primarily as a result of higher real estate tax recoveries ($6.5 million) at the Same-Store Properties mainly attributable to an increase in the related expense, partially offset by vacating the properties that comprise the One Vanderbilt development site ($1.8 million). Occupancy in theour Same-Store consolidated office operating properties increased to 91.7%93.7% at SeptemberJune 30, 20142015 as compared to 90.4%90.9% at SeptemberJune 30, 2013.2014. Occupancy in our Same-Store Manhattan consolidated office operating portfolio, excluding leases signed but not yet commenced, increased to 94.9%96.8% at SeptemberJune 30, 20142015 as compared to 93.8%94.1% at SeptemberJune 30, 2013.2014. Occupancy infor our Same-Store Suburban consolidated office operating portfolio, excluding leases signed but not yet commenced, increased to 80.2%82.3% at SeptemberJune 30, 20142015 as compared to 77.8%81.7% at SeptemberJune 30, 2013.2014. Rental revenues depend on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from unscheduled lease terminations.
The following table presents a summary of the commenced leasing activity for the ninesix months ended SeptemberJune 30, 20142015 in our Manhattan and Suburban portfolio: | | | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Manhattan | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | | Vacancy at beginning of period | 1,155,271 |
| | |
| | |
| | |
| | |
| | |
| | |
| | Sold vacancies | (3,653 | ) | | | | | | | | | | | | | | Properties under redevelopment | (61,123 | ) | | | | | | | | | | | | | | Properties out of redevelopment | 155,684 |
| | | | | | | | | | | | | | Space which became available during the period(3) | | | |
| | |
| | |
| | |
| | |
| | |
| | Vacancy at beginning of year | | 1,030,205 |
| | |
| | |
| | |
| | |
| | |
| | | Properties placed in service | | 28,555 |
| | | | | | | | | | | | Space which became available during the year(3) | | | | |
| | |
| | |
| | |
| | |
| | | • Office | 674,332 |
| | |
| | |
| | |
| | |
| | |
| | |
| 333,187 |
| | |
| | |
| | |
| | |
| | |
| | | • Retail | 8,136 |
| | |
| | |
| | |
| | |
| | |
| | |
| 6,344 |
| | |
| | |
| | |
| | |
| | |
| | | • Storage | 3,154 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,963 |
| | |
| | |
| | |
| | |
| | |
| | | | 685,622 |
| | |
| | |
| | |
| | |
| | |
| | |
| 341,494 |
| | |
| | |
| | |
| | |
| | |
| | | Total space available | 1,931,801 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,400,254 |
| | |
| | |
| | |
| | |
| | |
| | | Space leased during the period: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | • Office(4) | 897,277 |
| | 984,239 |
| | $ | 56.24 |
| | $ | 50.77 |
| | $ | 62.52 |
| | 4.2 |
| | 9.1 |
| | Leased space commenced during the year: | | |
| | |
| | |
| | |
| | |
| | |
| | | • Office(4) | | 666,366 |
| | 715,197 |
| | $ | 58.80 |
| | $ | 50.69 |
| | $ | 60.47 |
| | 6.4 |
| | 11.1 | • Retail | 21,077 |
| | 21,321 |
| | $ | 113.17 |
| | $ | 116.99 |
| | $ | 38.93 |
| | 5.0 |
| | 14.4 |
| 55,330 |
| | 53,442 |
| | $ | 399.68 |
| | $ | 321.33 |
| | $ | 113.28 |
| | 1.4 |
| | 13.6 | • Storage | 2,892 |
| | 3,116 |
| | $ | 26.42 |
| | $ | 27.57 |
| | $ | 5.71 |
| | — |
| | 9.3 |
| 5,865 |
| | 6,381 |
| | $ | 16.86 |
| | $ | — |
| | $ | — |
| | 2.3 |
| | 10.7 | Total space leased | 921,246 |
| | 1,008,676 |
| | $ | 57.35 |
| | $ | 51.65 |
| | $ | 61.84 |
| | 4.2 |
| | 9.2 |
| | Total leased space commenced | | 727,561 |
| | 775,020 |
| | $ | 81.96 |
| | $ | 62.02 |
| | $ | 63.62 |
| | 6.0 |
| | 11.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total available space at end of the period | 1,010,555 |
| | |
| | |
| | |
| | |
| | |
| | |
| | Total available space at end of year | | 672,693 |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Early renewals | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | |
| | |
| | |
| | |
| | | • Office | 511,745 |
| | 552,659 |
| | $ | 68.56 |
| | $ | 57.49 |
| | $ | 47.45 |
| | 0.8 |
| | 10.0 |
| 150,514 |
| | 158,542 |
| | $ | 71.04 |
| | $ | 63.20 |
| | $ | 9.41 |
| | 1.6 |
| | 6.0 | • Retail | 14,158 |
| | 14,314 |
| | $ | 137.99 |
| | $ | 94.84 |
| | $ | 23.76 |
| | 0.3 |
| | 11.0 |
| 72,355 |
| | 70,145 |
| | $ | 47.76 |
| | $ | 40.58 |
| | $ | — |
| | — |
| | 10.0 | • Storage | 3,072 |
| | 3,042 |
| | $ | 34.23 |
| | $ | 26.80 |
| | $ | 0.50 |
| | — |
| | 9.7 |
| 993 |
| | 1,055 |
| | $ | 29.20 |
| | $ | 28.75 |
| | $ | — |
| | — |
| | 3.2 | Total early renewals | 528,975 |
| | 570,015 |
| | $ | 70.12 |
| | $ | 58.26 |
| | $ | 46.60 |
| | 0.8 |
| | 10.0 |
| 223,862 |
| | 229,742 |
| | $ | 63.74 |
| | $ | 56.13 |
| | $ | 6.49 |
| | 1.1 |
| | 7.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total commenced leases, including replaced previous vacancy | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | | | | | | | | | • Office | |
| | 1,536,898 |
| | $ | 60.67 |
| | $ | 54.02 |
| | $ | 57.10 |
| | 3.0 |
| | 9.4 |
| |
| | 873,739 |
| | $ | 61.02 |
| | $ | 54.74 |
| | $ | 51.21 |
| | 5.5 |
| | 10.2 | • Retail | |
| | 35,635 |
| | $ | 123.14 |
| | $ | 103.02 |
| | $ | 32.84 |
| | 3.1 |
| | 13.0 |
| |
| | 123,587 |
| | $ | 199.94 |
| | $ | 88.68 |
| | $ | 48.99 |
| | 0.6 |
| | 11.6 | • Storage | |
| | 6,158 |
| | $ | 30.28 |
| | $ | 27.01 |
| | $ | 3.13 |
| | — |
| | 9.5 |
| |
| | 7,436 |
| | $ | 18.61 |
| | $ | 28.75 |
| | $ | — |
| | 2.0 |
| | 9.6 | Total commenced leases | |
| | 1,578,691 |
| | $ | 61.96 |
| | $ | 54.88 |
| | $ | 56.34 |
| | 3.0 |
| | 9.5 |
| |
| | 1,004,762 |
| | $ | 77.80 |
| | $ | 59.68 |
| | $ | 50.56 |
| | 4.9 |
| | 10.4 |
| | | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Useable SF | | Rentable SF | | New Cash Rent (per rentable SF) (1) | | Prev. Escalated Rent (per rentable SF) (2) | | TI/LC per rentable SF | | Free Rent (in months) | | Average Lease Term (in years) | Suburban | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| Vacancy at beginning of period | 1,069,848 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,128,724 |
| | |
| | |
| | |
| | | | |
| | |
| Property out of redevelopment | 112,921 |
| | | | | | | | | | | | | | Space which became available during the period(3) | | | |
| | |
| | |
| | |
| | |
| | |
| | Properties placed in service | | 64,510 |
| | | | | | | | | | | | | Space which became available during the year(3) | | | | |
| | |
| | |
| | |
| | |
| | |
| • Office | 306,565 |
| | |
| | |
| | |
| | |
| | |
| | |
| 253,534 |
| | |
| | |
| | |
| | |
| | |
| | |
| • Retail | 1,385 |
| | |
| | |
| | |
| | |
| | |
| | |
| — |
| | |
| | |
| | |
| | |
| | |
| | |
| • Storage | 850 |
| | |
| | |
| | |
| | |
| | |
| | |
| 3,972 |
| | |
| | |
| | |
| | |
| | |
| | |
| | 308,800 |
| | |
| | |
| | |
| | |
| | |
| | |
| 257,506 |
| | |
| | |
| | |
| | |
| | |
| | |
| Total space available | 1,491,569 |
| | |
| | |
| | |
| | |
| | |
| | |
| 1,450,740 |
| | |
| | |
| | |
| | |
| | |
| | |
| Space leased during the year: | |
| | |
| | |
| | |
| | | | |
| | |
| | • Office(5) | 323,243 |
| | 329,285 |
| | $ | 30.91 |
| | $ | 30.37 |
| | $ | 34.83 |
| | 4.7 |
| | 7.5 |
| | Leased space commenced during the year: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| • Office(5) | | 266,299 |
| | 260,339 |
| | $ | 30.49 |
| | $ | 33.78 |
| | $ | 31.27 |
| | 6.8 |
| | 8.7 |
| • Retail | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| • Storage | 1,133 |
| | 1,198 |
| | $ | 14.09 |
| | $ | 11.76 |
| | $ | — |
| | — |
| | 7.7 |
| 1,050 |
| | 1,070 |
| | $ | 15.51 |
| | $ | 12.00 |
| | $ | — |
| | — |
| | 7.0 |
| Total space leased | 324,376 |
| | 330,483 |
| | $ | 30.85 |
| | $ | 30.32 |
| | $ | 34.70 |
| | 4.7 |
| | 7.5 |
| | Total leased space commenced | | 267,349 |
| | 261,409 |
| | $ | 30.43 |
| | $ | 33.69 |
| | $ | 31.15 |
| | 6.7 |
| | 8.7 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Total available space at end of the period | 1,167,193 |
| | |
| | | | | | | | | | | | Total available space at end of the year | | 1,183,391 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Early renewals | |
| | |
| | | | | | | | | | | |
| | |
| | | | | | | | | | | • Office | 64,151 |
| | 67,497 |
| | $ | 33.91 |
| | $ | 34.02 |
| | $ | 23.19 |
| | 2.9 |
| | 7.9 |
| 115,484 |
| | 116,239 |
| | $ | 37.47 |
| | $ | 37.64 |
| | $ | 8.72 |
| | 2.5 |
| | 4.4 |
| • Retail | 50,247 |
| | 50,247 |
| | $ | 17.78 |
| | $ | 16.79 |
| | $ | — |
| | — |
| | 5.00 |
| — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| • Storage | 625 |
| | 625 |
| | $ | 18.00 |
| | $ | 14.00 |
| | $ | — |
| | — |
| | 10.0 |
| 125 |
| | 125 |
| | $ | 10.00 |
| | $ | 10.00 |
| | $ | — |
| | — |
| | 3.8 |
| Total early renewals | 115,023 |
| | 118,369 |
| | $ | 26.98 |
| | $ | 26.60 |
| | $ | 13.22 |
| | 1.7 |
| | 6.7 |
| 115,609 |
| | 116,364 |
| | $ | 37.44 |
| | $ | 37.61 |
| | $ | 8.71 |
| | 2.5 |
| | 4.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Total commenced leases, including replaced previous vacancy | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| • Office | |
| | 396,782 |
| | $ | 31.42 |
| | $ | 31.36 |
| | $ | 32.85 |
| | 4.4 |
| | 7.6 |
| |
| | 376,578 |
| | $ | 32.64 |
| | $ | 35.77 |
| | $ | 24.31 |
| | 5.5 |
| | 7.3 |
| • Retail | |
| | 50,247 |
| | $ | 17.78 |
| | $ | 16.79 |
| | $ | — |
| | — |
| | 5.0 |
| |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| • Storage | |
| | 1,823 |
| | $ | 15.43 |
| | $ | 13.04 |
| | $ | — |
| | — |
| | 8.5 |
| |
| | 1,195 |
| | $ | 14.94 |
| | $ | 11.57 |
| | $ | — |
| | — |
| | 6.6 |
| Total commenced leases | |
| | 448,852 |
| | $ | 29.83 |
| | $ | 28.85 |
| | $ | 29.04 |
| | 3.9 |
| | 7.3 |
| |
| | 377,773 |
| | $ | 32.59 |
| | $ | 35.71 |
| | $ | 24.24 |
| | 5.4 |
| | 7.3 |
|
| | (1) | Annual initial base rent. |
| | (2) | Escalated rent is calculated as total annual income less electric charges. |
| | (3) | Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over. |
| | (4) | Average starting office rent excluding new tenants replacing vacancies was $54.04$57.93 per rentable square feet for 589,009331,955 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $61.07$62.17 per rentable square feet for 1,141,668490,497 rentable square feet. |
| | (5) | Average starting office rent excluding new tenants replacing vacancies was $30.80$33.32 per rentable square feet for 181,643108,835 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $31.64$35.46 per rentable square feet for 249,140225,074 rentable square feet. |
At September 30, 2014, 0.9% and 2.0% of the space leased at our consolidated Manhattan and Suburban operating properties, respectively, is expected to expire during the remainder of 2014. Based on our estimates, the current market asking rents on these expected 2014 lease expirations at our consolidated Manhattan operating properties would be approximately 102.4% higher than the existing in-place fully escalated rents while the current market asking rents on all our consolidated Manhattan operating properties were approximately 17.6% higher than the existing in-place fully escalated rents on leases that are scheduled to expire in all future years. Based on our estimates, the current market asking rents on these expected 2014 lease expirations at our consolidated Suburban operating properties would be approximately 0.5% lower than the existing in-place fully escalated rents while the current market asking rents on all our consolidated Suburban operating properties were approximately 4.4% higher than the existing in-place fully escalated rents on leases that are scheduled to expire in all future years.
In May 2014, we acquired our joint partner's interest in 388-390 Greenwich Street thereby assuming full ownership of this triple net lease property. Prior to May 2014, we had accounted for our investment in 388-390 Greenwich Street under the equity
method of accounting. As a result of this acquisition, we have consolidated the results of operations of this property beginning in May 2014.
Rental revenues increased primarily as a result of the consolidation of 388-390 Greenwich Street ($43.2 million), properties acquired in 2013 ($26.4 million) and an overall increase in occupancy at the Same Store Properties ($19.3 million), partially offset by lower income from development properties ($5.3 million).
Escalation and reimbursement revenue increased primarily as a result of the properties acquired in 2013 ($3.9 million) and higher recoveries at the Same Store Properties ($2.1 million), partially offset by lower recoveries from development properties ($0.7 million). The increase in escalation and reimbursement revenue at the Same-Store Properties was primarily a result of higher real estate tax recoveries ($2.7 million) and operating expense escalations ($0.6 million), partially offset by lower electric reimbursements ($1.3 million).
Investment Income Investment income decreased primarily as a result of a lower weighted average yield, the sale of 50% of our interest in one of our debt investments in 2013 ($12.9 million), and the repayment of one of our debt investments ($6.4 million) partially offset by a higher investment balance in 2014, additional income recognized on a mezzanine investment for which the underlying property was sold in June 2014 ($10.1 million), and a financing receivable which we began accruing interest on following the repaymentcompletion of onethe development of our mezzanine investments, which resulted in additional incomethe underlying property ($0.84.9 million) in September 2014. The. This decrease was partially offset by a higher invested balance during the first six months of 2015. For the six months ended June 30, 2015, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $1.7 billion and 10.3%, respectively, compared to $1.4 billion and 10.6%10.7%, respectively, for the nine months ended September 30, 2014 compared to $1.3 billion and 13.5%, respectively, for the nine months ended September 30, 2013.same period in 2014. As of SeptemberJune 30, 2014, our2015, the debt and preferred equity investments had a weighted average term to maturity of 2.01.7 years. Other Income Other income increaseddecreased primarily as a result of a promote income earned in connection with the sale of our joint venture interestsinterest in 747 Madison Avenue and 180 Broadwayin 2014 ($13.610.3 million), incentive income received from a joint venture investment in 2014 ($7.67.7 million), a one-time fee earned in connection with the restructuring of one of our debt investments in 2014 ($5.7 million) and a higher contribution
lower contributions from Service Corporation ($8.86.0 million),. This decrease was partially offset by incomea lease termination fee received at 919 Third Avenue ($11.3 million) and a non-recurring fee received from expense reimbursementsa current tenant ($3.5 million) in 2013 ($4.2 million).2015. Property Operating Expenses Property operating expenses increased primarily as a result of higher operating expenses for the properties acquired in 2013 ($13.5 million) and at the Same StoreSame-Store Properties ($4.717.8 million), partially offset by lower operating expensesa decrease from vacating the properties that comprise the One Vanderbilt development propertiessite ($4.25.7 million). The increase in property operating expenses at the Same-Store Properties was due mainly toa result of higher real estate taxes ($4.6 million)driven by higher assessed values and payroll coststax rates ($1.89.9 million), partially offset by repairs and maintenance ($1.12.1 million). Transaction Related Costs
Transaction related, payroll costs increased primarily as a result of a higher volume of investment activity during the nine months ended September 30, 2014.($1.0 million), utility costs ($0.8 million) and professional fees ($0.7 million).
Marketing, General and Administrative Expenses Marketing, general and administrative expenses for the ninesix months ended SeptemberJune 30, 20142015 were $69.8$48.7 million, or 5.3% of total revenues including our share of joint venture revenues, and an annualized 5051 basis points of total assets including our share of joint venture assets compared to $63.5$47.1 million, or 5.2%5.4% of total revenues including our share of joint venture revenues, and an annualized 5052 basis points of total assets including our share of joint venture assets for the nine months ended September 30, 2013.same period in 2014. Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income Interest expense and amortization of deferred financing costs, net of interest income, increased as a result of the acquisitions of our joint venture partner's interest and a new mortgage at 388-390 Greenwich Street ($16.716.6 million) and an increased borrowingborrowings on the 2012 credit facility ($3.45.3 million),. These increases were partially offset by decreases resulting from the capitalization of interest relating to properties under development ($7.24.7 million), decreased borrowings from our MRAthe repayment of the mortgages at 625 Madison Avenue ($2.8 million), refinancing of 220 East 42nd Street at a lower rate in October 2013 ($1.54.4 million) and 125 Park Avenue ($2.9 million) during the fourth quarter of 2014 and 711 Third ($1.6 million) in the first quarter of 2015, the repayment of 5.875% senior notes in August 2014 ($0.62.2 million), decreased borrowings on our MRA ($2.2 million) and the redemption of a preferred equity investment which secured a loan ($2.0 million) during the fourth quarter of 2014 . The weighted average consolidated debt balance outstanding increased from $6.8$7.5 billion duringfor the ninesix months ended SeptemberJune 30, 20132014 to $7.9$8.3 billion duringfor the ninesix months ended SeptemberJune 30, 2014.2015. The weighted average interest rate decreased from 4.84%4.49% for the ninesix months ended SeptemberJune 30, 20132014 to 4.35%3.90% for the ninesix months ended SeptemberJune 30, 2014.2015. Depreciation and Amortization Depreciation and amortization increased mainlyprimarily as a result of the accelerated depreciation expense related to vacating the properties acquired in 2013that comprise the One Vanderbilt development site ($17.299.1 million), and the consolidation of 388-390 Greenwich Street in 2014 ($10.928.0 million), partially offset by the write-off of certain tenant improvements and value for in-place leases associated with a former tenant in 2014 ($3.4 million) and the remaining increase primarily resulting from increased capital expenditures at certain properties, partially offset by a write-off of certain tenant improvements and value for in-place leases associated with a
former tenant in 2013 ($4.7 million).
Equity in Net Income from Unconsolidated Joint Ventures Equity in net income from unconsolidated joint ventures increaseddecreased primarily as a result of net loss recognized in the first nine months of 2013 from the West Coast Office portfolio ($13.9 million), which interests were sold in March 2014, a debt and preferred equity investment that was originated in the first quarter of 2014 ($4.7 million), which has been accounted for as a real estate investment rather than a debt and preferred equity investment, and the commencement of leases following the completion of redevelopment in June 2013 at 180 Broadway ($1.4 million), which interests were sold in September 2014. This increase was partially offset by lower net income contributions from 388-390 Greenwich ($8.27.5 million) as a result of our acquisition of theour joint venture partner's interest. Occupancy at our unconsolidated Manhattan office propertiesinterest in May 2014, a decrease in the capitalization of costs for 280 Park Avenue ($2.1 million), the refinancing and early prepayment of 3 Columbus Circle in the first quarter of 2015 ($2.5 million), the disposition of 180 Broadway in September 2014 ($1.2 million) and an increase in net loss recognized as a result of the acquisition of additional interests in 1745 Broadway in the fourth quarter of 2014 ($1.2 million). This decrease was 94.0%partially offset by higher contributions from the debt and 90.0% at September 30,preferred equity investments that were originated during 2014 and 2013, respectively. Occupancyhave been accounted for as equity investments ($2.6 million), the net loss recognized in 2014 from the West Coast Office portfolio ($2.4 million), the refinancing and early prepayment in 2014 of 100 Park Avenue ($2.3 million) and an increase in occupancy at our unconsolidated Suburban office properties was 85.3% at both September 30, 2014 and 2013. At September 30, 2014, none of the space leased at our Manhattan joint venture office properties were expected to expire during the remainder of 2014. At September 30, 2014, 13.8% of the space leased at our Suburban joint venture office properties were expected to expire during the remainder of 2014. We estimate that current market asking rents on these expected 2014 lease expirations at our Suburban joint venture properties are approximately 8.18% lower than then existing in-place fully escalated rents.600 Lexington Avenue ($1.1 million). Equity in Net Gain on Sale of Interest in Unconsolidated Joint Ventures During the ninesix months ended SeptemberJune 30, 2014, we recognized gains on the sale of two properties included in the West Coast portfolio ($85.6 million), the sale of partnership interests in 21 West 34th Street ($20.9 million), the sale of the joint venture property at 180 Broadway ($16.5 million) and the sale of condominium units at 248 Bedford Avenue, Brooklyn ($1.51.6 million), partially offset by additional post closing costs related to the sale of our partnership interest in 27-29 West 34th Street ($1.9 million). During the nine months ended September 30, 2013, we recognized additional post closing costs related to the sale of 521 Fifth Avenue ($2.8 million), partially offset by the sale of two properties included in the West Coast portfolio ($2.1 million). Purchase Price Fair Value Adjustmentprice fair value adjustment Purchase price fair value adjustment for the ninesix months ended SeptemberJune 30, 2014 was attributable to the acquisition of our joint venture partner'spartner interest in 388-390 Greenwich Street ($71.4 million), partially offset by the purchase price adjustment of the ground tenancy position at 752 Madison Avenue ($4.0 million). Purchase price fair value adjustment for the nine months ended September 30, 2013 was attributable to the acquisition of 16 Court Street, Brooklyn ($2.3 million).Street. Loss on Early Extinguishment of Debt Loss on early extinguishment of debt for the ninethree months ended SeptemberJune 30, 2014 was primarily attributable to the refinancing of the previous mortgagesmortgage at 420 Lexington Avenue ($24.5 million) and 248-252 Bedford Avenue ($0.5 million), and the early repayment of the mortgage at 16 Court Street, Brooklyn ($0.5 million). Loss on early extinguishment
Discontinued Operations Discontinued operations for the ninesix months ended SeptemberJune 30, 2015 includes the gain recognized on the sale of 180 Maiden Lane ($17.0 million) and the related results of operations. Discontinued operations for the three months ended June 30, 2014 includes the gainsgain recognized on the sale of 673 First Avenue ($117.8 million) and 985-987 Thirdthe results of operations for 180 Maiden Lane, which was sold in 2015, and 2 Herald Square and 673 First Avenue, ($29.8 million), which were sold in May and July 2014, respectively, and the results of operations of these properties and other properties that were held for sale or sold as of September 30, 2014. Discontinued operations for the nine months ended September 30, 2013 includes the gains recognized on the sale of 333 West 34th ($13.8 million) and 44 West 55th Street ($1.1 million), which were sold in August and February 2013, respectively. Prior period's results of operations of these held for sale or sold properties were included in the net income from discontinued operations to conform with the current presentation.
Reconciliation of Same-Store Operating Income to Net Operating Income We present Same-Store net operating income, or Same-Store NOI, because we believe that these measures providethis measure provides investors with useful information regarding the operating performance of properties that are comparable for the periods presented. We determine Same-Store net operating income by subtracting Same-Store property operating expenses and ground rent from Same-Store rental revenues and other income. Our method of calculation may be different from methods used by other REITs, and, accordingly, may not be comparable to such other REITs. None of these measures is an alternative to net income (determined in accordance with GAAP) and Same-Store performance should not be considered an alternative to GAAP net income performance.
For properties owned since January 1, 2013 (excluding assets held for sale)2014 and still owned and operated at SeptemberJune 30, 2014,2015, Same-Store NOI is determined as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2015 | | 2014 | | $ Change | | % Change | | 2015 | | 2014 | | $ Change | | % Change | Rental revenues | | $ | 308.5 |
| | $ | 295.8 |
| | $ | 12.7 |
| | 4.3 | % | | $ | 607.5 |
| | $ | 581.2 |
| | $ | 26.3 |
| | 4.5 | % | Other income | | 13.6 |
| | 0.8 |
| | 12.8 |
| | 1,600.0 | % | | 15.1 |
| | 2.0 |
| | 13.1 |
| | 655.0 | % | Total revenues | | 322.1 |
| | 296.6 |
| | 25.5 |
| | 8.6 | % | | 622.6 |
| | 583.2 |
| | 39.4 |
| | 6.8 | % | Property operating expenses | | 129.5 |
| | 121.9 |
| | 7.6 |
| | 6.2 | % | | 264.0 |
| | 246.9 |
| | 17.1 |
| | 6.9 | % | Operating income | | 192.6 |
| | 174.7 |
| | 17.9 |
| | 10.2 | % | | 358.6 |
| | 336.3 |
| | 22.3 |
| | 6.6 | % | Less: Non-building NOI | | 0.1 |
| | — |
| | 0.1 |
| | — | % | | 0.5 |
| | (0.5 | ) | | 1.0 |
| | (200.0 | )% | Same-Store NOI | | $ | 192.5 |
| | $ | 174.7 |
| | $ | 17.8 |
| | 10.2 | % | | $ | 358.1 |
| | $ | 336.8 |
| | $ | 21.3 |
| | 6.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2014 | | 2013 | | $ Change | | % Change | | 2014 | | 2013 | | $ Change | | % Change | Rental revenues, rent escalations, and reimbursement revenues | | $ | 286.9 |
| | $ | 271.3 |
| | $ | 15.6 |
| | 5.75 | % | | $ | 845.2 |
| | $ | 823.8 |
| | $ | 21.4 |
| | 2.60 | % | Other income | | 1.3 |
| | 0.9 |
| | 0.4 |
| | 44.44 | % | | 3.3 |
| | 4.3 |
| | (1.0 | ) | | (23.26 | )% | Total revenues | | 288.2 |
| | 272.2 |
| | 16 |
| | 5.88 | % | | 848.5 |
| | 828.1 |
| | 20.4 |
| | 2.46 | % | Property operating expenses | | 122.6 |
| | 122.1 |
| | 0.5 |
| | 0.41 | % | | 357.9 |
| | 353.2 |
| | 4.7 |
| | 1.33 | % | Operating income | | 165.6 |
| | 150.1 |
| | 15.5 |
| | 10.33 | % | | 490.6 |
| | 474.9 |
| | 15.7 |
| | 3.31 | % | Less: Non-building revenue | | 0.2 |
| | 0.2 |
| | — |
| | — | % | | 0.5 |
| | 1.7 |
| | (1.2 | ) | | (70.59 | )% | Same-Store NOI | | $ | 165.4 |
| | $ | 149.9 |
| | $ | 15.5 |
| | 10.34 | % | | $ | 490.1 |
| | $ | 473.2 |
| | $ | 16.9 |
| | 3.57 | % |
Liquidity and Capital Resources We currently expect that our principal sources of funds to meet our short-term and long-term liquidity requirements for working capital and funds for acquisition and development or redevelopment of properties, tenant improvements, leasing costs, repurchases or repayments of outstanding indebtedness (which may include exchangeable debt) and for debt and preferred equity investments will include: | | (1) | Cash flow from operations; |
| | (3) | Borrowings under ourthe 2012 credit facility; |
| | (4) | Other forms of secured or unsecured financing; |
| | (5) | Net proceeds from divestitures of properties and redemptions, participations and dispositions of debt and preferred equity investments; and |
| | (6) | Proceeds from common or preferred equity or debt offerings by the Company, the Operating Partnership (including issuances of units of limited partnership interest in the Operating Partnership and Trust preferred securities) or ROP. |
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, operating escalations and recoveries from our tenants and the level of operating and other costs. Additionally, we believe that our debt and preferred equity investment program will continue to serve as a source of operating cash flow.
The combined aggregate principal maturities of our property mortgages and other loans payable, corporate obligations and our share of joint venture debt, including as-of-right extension options, as of SeptemberJune 30, 20142015 are as follows (in thousands): | | | Remaining 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total | Remaining 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | Thereafter | | Total | Property mortgages and other loans(1) | $ | 157,288 |
| | $ | 274,238 |
| | $ | 392,920 |
| | $ | 1,147,642 |
| | $ | 64,462 |
| | $ | 4,201,634 |
| | $ | 6,238,184 |
| $ | 15,354 |
| | $ | 147,671 |
| | $ | 956,392 |
| (1) | $ | 80,462 |
| | $ | 98,726 |
| | $ | 4,052,908 |
| | $ | 5,351,513 |
| MRA facility | — |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | 100,000 |
| 106,421 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 106,421 |
| Corporate obligations | — |
| | 7 |
| | 255,308 |
| | 355,008 |
| | 494,000 |
| | 1,333,000 |
| | 2,437,323 |
| — |
| | 255,308 |
| | 355,008 |
| | 250,000 |
| | 833,000 |
| | 1,255,000 |
| | 2,948,316 |
| Joint venture debt-our share | 2,454 |
| | 44,446 |
| | 564,269 |
| | 446,950 |
| | 28 |
| | 353,580 |
| | 1,411,727 |
| 38,176 |
| | 534,057 |
| | 585,526 |
| | 2,196 |
| | 104,687 |
| | 446,742 |
| | 1,711,384 |
| Total | $ | 159,742 |
| | $ | 418,691 |
| | $ | 1,212,497 |
| | $ | 1,949,600 |
| | $ | 558,490 |
| | $ | 5,888,214 |
| | $ | 10,187,234 |
| $ | 159,951 |
| | $ | 937,036 |
| | $ | 1,896,926 |
| | $ | 332,658 |
| | $ | 1,036,413 |
| | $ | 5,754,650 |
| | $ | 10,117,634 |
|
| | (1) | Includes the mortgagesmortgage at 180 Maiden Lane and 2 Herald Center,120West 45th Street, which areis included in liabilities related to assets held for sale. |
As of SeptemberJune 30, 2014,2015, we had $292.8$262.1 million of consolidated cash on hand, inclusive of $39.3$46.3 million of marketable securities. We expect to generate positive cash flow from operations for the foreseeable future. We may seek to access private and public debt and equity capital when the opportunity presents itself, although there is no guarantee that this capital will be made available to us at efficient levels or at all. Management believes that these sources of liquidity, if we are able to access them, along with potential refinancing opportunities for secured debt, 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. Cash Flows The following summary discussion of our cash flows is based on our consolidated statements of cash flows in "Item 1. Financial Statements" and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. Cash and cash equivalents were $253.5$215.9 million and $209.1$308.1 million at SeptemberJune 30, 20142015 and 2013,2014, respectively, representing an increasea decrease of $44.4$92.2 million. The increasedecrease was a result of the following changes in cash flows (in thousands): | | | Nine Months Ended September 30, | Six Months Ended June 30, | | 2014 | | 2013 | | Increase (Decrease) | 2015 | | 2014 | | Increase (Decrease) | Net cash provided by operating activities | $ | 377,206 |
| | $ | 310,530 |
| | $ | 66,676 |
| $ | 233,459 |
| | $ | 276,562 |
| | $ | (43,103 | ) | Net cash used in investing activities | $ | (825,263 | ) | | $ | (242,541 | ) | | $ | (582,722 | ) | $ | (257,933 | ) | | $ | (318,041 | ) | | $ | 60,108 |
| Net cash provided by (used in) financing activities | $ | 494,885 |
| | $ | (48,875 | ) | | $ | 543,760 |
| | Net cash (used in) provided by financing activities | | $ | (41,039 | ) | | $ | 142,890 |
| | $ | (183,929 | ) |
Our principal source of operating cash flow is related to the leasing and operating of the properties in our portfolio. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend and distribution payment requirements. At SeptemberJune 30, 2014,2015, our Manhattan and Suburban consolidated office portfolioportfolios were 95.6%97.3% and 80.2%82.3% occupied, respectively. Our debt and preferred equity and joint venture investments also provide a steady stream of operating cash flow to us.
Cash is used in investing activities to fund acquisitions, development or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills and invest in existing buildings that meet our investment criteria. During the ninesix months ended SeptemberJune 30, 2014,2015, when compared to the ninesix months ended SeptemberJune 30, 2013,2014, we used cash primarily for the following investing activities (in thousands): | | Acquisitions of real estate | $ | (653,252 | ) | $ | 166,058 |
| Capital expenditures and capitalized interest | (174,098 | ) | 11,729 |
| Escrow cash-capital improvements/acquisition deposits | 178,814 |
| (191,626 | ) | Joint venture investments | (97,057 | ) | 61,397 |
| Distributions from joint ventures | 139,014 |
| (108,640 | ) | Proceeds from sales of real estate/partial interest in property | 138,725 |
| 233,522 |
| Debt and preferred equity and other investments | (114,868 | ) | (112,332 | ) | Increase in net cash used by investing activities | $ | (582,722 | ) | | Decrease in net cash used by investing activities | | $ | 60,108 |
|
Funds spent on capital expenditures, which are comprised ofcomprise building and tenant improvements, increaseddecreased from $108.8$134.2 million for the ninesix months ended SeptemberJune 30, 20132014 to $282.9$122.5 million for the ninesix months ended SeptemberJune 30, 2014. The increaseddecreased capital expenditures relate primarily to increaseddecreased costs incurred in connection with the redevelopment of properties and new leasing activity.properties.
We generally fund our investment activity through sale of real estate, property-level financing, our 2012 credit facility, MRA facility, senior unsecured notes, convertible or exchangeable securities, construction loans sale of real estate and from time to time, the Company issuesissued common or preferred stock, or the Operating Partnership may issue common or preferred units of limited partnership interest. During the ninesix months ended SeptemberJune 30, 20142015, when compared to the ninesix months ended SeptemberJune 30, 2013,2014, we used cash for the following financing activities (in thousands): | | | | | Proceeds from our debt obligations | $ | 1,313,670 |
| Repayments under our debt obligations, including debt extinguishment costs | (911,615 | ) | Noncontrolling interests, contributions in excess of distributions | 27,429 |
| Other financing activities | (37,449 | ) | Redemption of preferred stock | 192,500 |
| Proceeds from issuance of common and preferred stock | 940 |
| Dividends and distributions paid | (41,715 | ) | Increase in net cash provided in financing activities | $ | 543,760 |
|
| | | | | Proceeds from our debt obligations | $ | (1,123,182 | ) | Repayments under our debt obligations | 792,769 |
| Net distribution to noncontrolling interests | (101,351 | ) | Other financing activities | 64,623 |
| Proceeds from stock options exercised and DRSPP issuance | 91,530 |
| Proceeds from issuance of common stock | 116,249 |
| Redemption of preferred unit | (200 | ) | Dividends and distributions paid | (24,367 | ) | Increase in net cash used in financing activities | $ | (183,929 | ) |
Capitalization As of SeptemberJune 30, 2014,2015, SL Green had 95,944,86199,589,645 shares of common stock, 3,735,4783,907,117 common units of limited partnership interest in the Operating Partnership held by persons other than the Company, and 9,200,000 shares of SL Green's 6.50% Series I Cumulative Redeemable Preferred Stock, or Series I Preferred Stock, outstanding. In addition, persons other than the Company held Preferred Units of limited partnership interests in the Operating Partnership having an aggregate liquidation preference of $77.1$124.7 million. At-the-MarketAt-The-Market Equity Offering Program
In July 2011,June 2014, the Company, along with the Operating Partnership, entered into an "at-the-market" equity offering program, or ATM Program, to sell an aggregate of $250.0$300.0 million of SL Green's common stock. During the ninethree months ended September 30, 2014,March 31, 2015, we sold 25,659895,956 shares of our common stock outfor aggregate net proceeds of $113.4 million comprising the remaining balance of this ATM Program for aggregate net proceeds of $2.8 million.Program. The net proceeds from this offeringthese offerings were contributed to the Operating Partnership in exchange for 25,659895,956 units of limited partnership interest of the Operating Partnership. In June 2014,March 2015, the Company, along with the Operating Partnership, entered into a new ATM Program to sell an aggregate of $300.0 million of SL Green's common stock. During the ninesix months ended SeptemberJune 30, 2014,2015, we sold 367,78191,180 shares of our common stock for aggregate net proceeds of $40.3$12.0 million. The net proceeds from this offeringthese offerings were contributed to the Operating Partnership in exchange for 367,78191,180 units of limited partnership interest of the Operating Partnership. As of SeptemberJune 30, 2014, $259.22015, $288.0 million remained available for issuance of common stock under the new ATM Program.program.
Dividend Reinvestment and Stock Purchase Plan In March 2012,February 2015, the Company filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRIP,DRSPP, which automatically became effective upon filing. The Company registered 3,500,000 shares of SL Green's common stock under the DRIP.DRSPP. The DRIPDRSPP commenced on September 24, 2001. During the ninesix months ended SeptemberJune 30, 2014,2015, the Company issued 400775,316 shares of SL Green's common stock and received approximately $40,000 of net proceeds respectively,of $99.5 million of proceeds from dividend reinvestments and/or stock purchases under the DRIP. DRIPDRSPP. DRSPP shares may be issued at a discount to the market price. Third Amended and Restated 2005 Stock Option and Incentive Plan The Third Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's board of directors in April 2013 and its stockholders in June 2013 at the Company's annual meeting of the stockholders. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 17,130,000 fungible units may be granted as options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under the 2005 Plan. As of SeptemberJune 30, 20142015, 3,200,0001.7 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors’Directors' Deferral Program and LTIP Units, including, among others, outstanding LTIP Units issued under our 2011 Long-Term Outperformance Plan.
2010 Notional Unit Long-Term Compensation Plan In December 2009, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2010 Notional Unit Long-Term Compensation Program, or the 2010 Long-Term Compensation Plan. The 2010 Long-Term Compensation Plan is a long-term incentive compensation plan pursuant to which award recipients could earn, in the aggregate, from approximately $15.0 million up to approximately $75.0 million of LTIP Units in the Operating Partnership based on the Company's stock price appreciation over three years beginning on December 1, 2009; provided that, if maximum performance had been achieved, approximately $25.0 million of awards could be earned at any time after the beginning of the second year and an additional approximately $25.0 million of awards could be earned at any time after the beginning of the third year. In order to achieve maximum performance under the 2010 Long-Term Compensation Plan, the Company's aggregate stock price appreciation during the performance period had to equal or exceed 50%. The compensation committee determined that maximum performance had been achieved at or shortly after the beginning of each of the second and third years of the performance period and for the full performance period and, accordingly, 366,815 LTIP Units, 385,583 LTIP Units and 327,416 LTIP Units were earned under the 2010 Long-Term Compensation Plan in December 2010, 2011 and 2012, respectively. Substantially in accordance with the original terms of the program, 50% of these LTIP Units vested on December 17, 2012 (accelerated from the original January 1, 2013 vesting date), 25% of these LTIP Units vested on December 11, 2013 (accelerated from the original January 1, 2014 vesting date) and the remainder is scheduled to vestvested on January 1, 2015 based on continued employment. In accordance with the terms of the 2010 Long-Term Compensation Plan, distributions were not paid on any LTIP Units until they were earned, at which time we paid all distributions that would have been paid on the earned LTIP Units since the beginning of the performance period. The cost of the 2010 Long-Term Compensation Plan (approximately $31.7($31.7 million, subject to forfeitures) will bewas amortized into earnings through the final vesting period.period of January 1, 2015. We recorded compensation expense of $0.4 million, $2.3 million, $0.9$1.6 million and $3.6$1.9 million during the three and ninesix months ended SeptemberJune 30, 2014 and 2013, respectively, related to the 2010 Long-Term Compensation Plan. 2011 Outperformance Plan In August 2011, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2011 Outperformance Plan, or the 2011 Outperformance Plan. Participants in the 2011 Outperformance Plan maycould earn, in the aggregate, up to $85.0 million of LTIP Units in the Operating Partnership based on our total return to stockholders for the three-year period beginning September 1, 2011. Under the 2011 Outperformance Plan, participants will bewere entitled to share in a "performance pool" comprised of LTIP Units with a value equal to 10% of the amount if any, by which our total return to stockholders during the three-year period exceedsexceeded a cumulative total return to stockholders of 25%, subject to the maximum of $85.0 million of LTIP Units; provided that if maximum performance has beenwas achieved, approximately one-third of each award maycould be earned at any time after the beginning of the second year and an additional approximately one-third of each award maycould be earned at any time after the beginning of the third year. LTIP Units earned under the 2011 Outperformance Plan will beare subject to continued vesting requirements, with 50% of any awards earned vestingvested on August 31, 2014 and the remaining 50% vesting on August 31, 2015, subject to continued employment with us through such dates. Participants willwere not be entitled to distributions with respect to LTIP Units granted under the 2011 Outperformance Plan unless and until they arewere earned. IfFor LTIP Units arethat were earned, each participant willwas also be entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of additional LTIP Units. Thereafter, distributions willare to be paid currently with respect to all earned LTIP Units, whether vested or unvested. In June 2014, the compensation committee determined that maximum performance had been achieved during the third year of the performance period and, accordingly, 560,908 LTIP Units,
representing two-thirds of each award, were earned, subject to vesting, under the 2011 Outperformance Plan. The remaining one-thirdIn September 2014, the compensation committee determined that maximum performance had been achieved for the full three-year performance period and, accordingly, 280,454 LTIP units, representing the final third of each award, will bewere earned, based on performance throughsubject to vesting, under the end of the performance period.2011 Outperformance Plan. The cost of the 2011 Outperformance Plan (approximately $27.0($26.8 million, subject to forfeitures) will be amortized into earnings through the final vesting period. We recorded compensation expense of $1.7$3.2 million, $7.8$3.9 million, $1.7$4.3 million and $6.2$6.1 million during the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively, related to the 2011 Outperformance Plan. 2014 Outperformance Plan
In August 2014, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2014 Outperformance Plan, or the 2014 Outperformance Plan. Participants in the 2014 Outperformance Plan may earn, in the aggregate, up to 610,000 LTIP Units in our Operating Partnership based on our total return to stockholders for the three-year period beginning September 1, 2014; however, initially, the compensation committee will only award approximately 50% of the total LTIP Units and will retain discretion as to whether or when it will award the remainder of the total LTIP Units.2014. For each individual award, two-thirds of the LTIP Units may be earned based on the Company’s absolute total return to stockholders
and one-third of the LTIP Units may be earned based on relative total return to stockholders compared to the constituents of the MSCI REIT Index. Awards earned based on absolute total return to stockholders will be determined independently of awards earned based on relative total return to stockholders. In the event the Company’s performance reaches either threshold before the end of the three-year performance period, a pro-rata portion of the maximum award may be earned. For each component, if the Company’s performance reaches the maximum threshold beginning with the 19th month of the performance period, participants will earn one-third of the maximum award that may be earned for that component. If the Company’s performance reaches the maximum threshold during the third year of the performance period for a component, participants will earn up to two-thirds (or an additional one-third) of the maximum award that may be earned for that component. LTIP Units earned under the 2014 Outperformance Plan will be subject to continued vesting requirements, with 50% of any awards earned vesting on August 31, 2017 and the remaining 50% vesting on August 31, 2018, subject to continued employment with us through August 31, 2018.such dates. Participants will not be entitled to distributions with respect to LTIP Units granted under the 2014 Outperformance Plan unless and until they are earned. If LTIP Units are earned, each participant will also be entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of cash or additional LTIP Units. Thereafter, distributions will be paid currently with respect to all earned LTIP Units, whether vested or unvested. Awards have not yet been The cost of the 2014 Outperformance Plan ($27.9 million, subject to forfeitures), based on the portion of the 2014 Outperformance Plan granted underas of June 30, 2015, will be amortized into earnings through the final vesting period. We recorded compensation expense of $1.5 million and $2.9 million during the three and six months ended June 30, 2015 related to the 2014 Outperformance Plan. Deferred Compensation Plan for Directors Under our Non-Employee Directors'Director's Deferral Program, which commenced July 2004, the Company's non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees, meeting fees and annual stock grant. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The program provides that a director's phantom stock units generally will be settled in an equal number of shares of common stock upon the earlier of (i) the January 1 coincident with or next following such director's termination of service from the Board of Directors or (ii) a change in control by us, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of SL Green's common stock on the first business day of the respective quarter. Each participating non-employee director is also credited with dividend equivalents or phantom stock units based on the dividend rate for each quarter, which are either paid in cash currently or credited to the director’s account as additional phantom stock units. During the ninesix months ended SeptemberJune 30, 2014, 8,6262015, 7,941 phantom stock units were earned.earned and 5,396 shares of common stock were issued to our board of directors. We recorded compensation expense of $0.3 million, $1.7 million, $0.1 million and $1.4 million during the three and six months ended June 30, 2015 and 2014 related to the Deferred Compensation Plan. As of SeptemberJune 30, 2014,2015, there were 80,13783,644 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program. Employee Stock Purchase Plan On September 18,In 2007, the Company's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage our employees to increase their efforts to make our business more successful by providing equity-based incentives to eligible employees. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code, and has been adopted by the board to enable our eligible employees to purchase the Company's shares of common stock through payroll deductions. The ESPP became effective on January 1, 2008 with a maximum of 500,000 shares of the common stock available for issuance, subject to adjustment upon a merger, reorganization, stock split or other similar corporate change. The Company filed a registration statement on Form S-8 with the SEC with respect to the ESPP. The common stock is offered for purchase through a series of successive offering periods. Each offering period will be three months in duration and will begin on the first day of each calendar
quarter, with the first offering period having commenced on January 1, 2008. The ESPP provides for eligible employees to purchase the common stock at a purchase price equal to 85% of the lesser of (1) the market value of the common stock on the first day of the offering period or (2) the market value of the common stock on the last day of the offering period. The ESPP was approved by our stockholders at our 2008 annual meeting of stockholders. As of SeptemberJune 30, 2014, 78,5632015, 83,477 shares of SL Green's common stock had been issued under the ESPP. Market Capitalization At SeptemberJune 30, 2014,2015, borrowings under our mortgages and other loans payable, our 2012 credit facility, senior unsecured notes, trust preferred securities and our share of joint venture debt represented 49.3%46.2% of our combined market capitalization of $20.5$21.8 billion (based on a common stock price of $101.32$109.89 per share, the closing price of SL Green's common stock on the NYSE on SeptemberJune 30, 2014)2015). Market capitalization includes our consolidated debt, common and preferred stock and the conversion of all units of limited partnership interest in the Operating Partnership, and our share of joint venture debt.
Indebtedness The table below summarizes our consolidated mortgages and other loans payable, our 2012 credit facility, senior unsecured notes and trust preferred securities outstanding at SeptemberJune 30, 20142015 and December 31, 2013, respectively2014, (amounts in thousands). | | | September 30, 2014 | | December 31, 2013 | | | | | | Debt Summary: | | | | June 30, 2015 | | December 31, 2014 | Balance | | | | | | | Fixed rate(1) | $ | 5,591,113 |
| | $ | 5,561,749 |
| $ | 4,969,604 |
| | $ | 5,098,741 |
| Variable rate—hedged | 542,087 |
| | 38,211 |
| 1,041,959 |
| | 1,042,045 |
| Total fixed rate | 6,133,200 |
| | 5,599,960 |
| 6,011,563 |
| | 6,140,786 |
| Variable rate | 2,078,131 |
| | 774,301 |
| | Variable rate(2) | | 1,359,882 |
| | 1,572,124 |
| Variable rate—supporting variable rate assets | 525,021 |
| | 545,647 |
| 1,004,539 |
| | 719,819 |
| Total variable rate | 2,603,152 |
| | 1,319,948 |
| 2,364,421 |
| | 2,291,943 |
| Total | $ | 8,736,352 |
| | $ | 6,919,908 |
| $ | 8,375,984 |
| | $ | 8,432,729 |
| Percent of Total Debt: | | | | | | | Total fixed rate | 70.2 | % | | 80.9 | % | | Fixed rate | | 71.8 | % | | 72.8 | % | Variable rate | 29.8 | % | | 19.1 | % | 28.2 | % | | 27.2 | % | Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % | Effective Interest Rate for the Period: | | | | | | | Fixed rate | 5.18 | % | | 5.33 | % | 4.71 | % | | 4.97 | % | Variable rate | 1.92 | % | | 2.39 | % | 1.65 | % | | 1.90 | % | Effective interest rate | 4.35 | % | | 4.81 | % | 3.90 | % | | 4.24 | % |
| | (1) | IncludesAt June 30, 2015, the mortgagesfixed rate balance included the mortgage at 180 Maiden Lane and 2 Herald Center,120 West 45th Street, which arewas included in liabilities related to assets held for sale. |
| | (2) | At December 31, 2014, the variable rate balance included the mortgage at 180 Maiden Lane, which was included in liabilities related to assets held for sale. |
The variable rate debt shown above generally bears interest at an interest rate based on 30-day LIBOR (0.16%(0.19% and 0.17% at SeptemberJune 30, 20142015 and December 31, 2013,2014, respectively). Our consolidated debt at SeptemberJune 30, 20142015 had a weighted average term to maturity of 5.85.46 years. Certain of our debt and preferred equity investments and other investments, with a face amountcarrying value of $525.0 million$1.0 billion at SeptemberJune 30, 2014,2015, are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt. Mortgage Financing As of SeptemberJune 30, 2014,2015, our total mortgage debt (excluding our share of joint venture mortgage debt of $1.4$1.7 billion) consisted of $4.7$4.6 billion of fixed rate debt, including swapped variable rate debt, with an effective weighted average interest rate of 5.15%4.59% and $1.6$0.9 billion of variable rate debt with an effective weighted average interest rate of 2.04%2.06%. Corporate Indebtedness 2012 Credit Facility In March 2014, we entered into an amendment to the $1.6 billion credit facility entered into by the Company in November 2012, or the 2012 credit facility, which among other things, increased the term loan portion of the 2012 credit facility by $383.0 million to $783.0 million, decreased the interest-rate margin applicable to the term loan portion of the facility by 25 basis points and extended the maturity of the term loan portion of the facility from March 30, 2018 to June 30, 2019. The 2012 In November 2014, we increased the term loan portion of the facility by $50.0 million to $833.0 million. In January 2015, we entered into a second amended and restated
credit agreement, which decreased the interest-rate margin and facility as amended, consists of a $1.2 billion revolving credit facility, orfee applicable to the revolving credit facility by 20 basis points and a $783.0 million term loan facility, orfive basis points, respectively, and extended the term loan facility. Thematurity date of the revolving credit facility matures into March 2017 and includes two six-month29, 2019 with an as-of-right extension options, subject to the payment of an extension fee of 10 basis points for each such extension.through March 29, 2020. We also have an option, subject to customary conditions, without the consent of existing lenders, to increase the capacity under the revolving credit facility to $1.5 billion at any time prior to the maturity date for the revolving credit facility without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions. TheAs of June 30, 2015, the 2012 credit facility, bearsas amended, consisted of a $1.2 billion revolving credit facility, or the revolving credit facility, and an $833.0 million term loan, or the term loan facility.
As of June 30, 2015, the 2012 credit facility bore interest at a spread over LIBOR ranging from (i) 10087.5 basis points to 175155.0 basis points for loans under the revolving credit facility and (ii) 95 basis points to 190 basis points for loans under the term loan facility, in each case
based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. At SeptemberJune 30, 2014,2015, the applicable spread was 145125 basis points for the revolving credit facility and 140 basis points for the term loan facility. At SeptemberJune 30, 2014,2015, the effective interest rate was 1.61%1.44% for the revolving credit facility and 1.64%1.66% for the term loan facility. We are required to pay quarterly in arrears a 1512.5 to 3530 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. As of SeptemberJune 30, 2014,2015, the facility fee was 3025 basis points. At SeptemberAs of June 30, 2014,2015, we had $113.3$89.4 million of outstanding letters of credit, $244.0$705.0 million drawn under the revolving credit facility and $783.0$833.0 million outstanding under the term loan facility, with total undrawn capacity of $0.8 billion$405.6 million under the revolving credit facility. In connection with the amendment of the 2012 credit facility, we incurred debt origination and other loan costs of $2.8 million. We evaluated the modification pursuant to ASC 470 and determined that the terms of the amendment were not substantially different from the terms of the previous 2012 credit facility. As a result, these deferred costs and the unamortized balance of the costs previously incurred are amortized through the extended maturity date of the term loan facility.
The Company, the Operating Partnership and ROP are all borrowers jointly and severally obligated under the 2012 credit facility. None of our other subsidiaries are obligors under the 2012 credit facility. The 2012 credit facility includes certain restrictions and covenants (see Restrictive Covenants below). Master Repurchase Agreement The Master Repurchase Agreement, as amended in December 2013, or MRA, provides us anwith the ability to sell certain debt investments in exchange for cash with a simultaneous agreement to repurchase the same debt investments at a certain date or on demand. This MRA has a maximum facility capacity of $300.0 million and bears interest ranging from 250 and 325 basis points over one-month30-day LIBOR depending on the pledged collateral. As of SeptemberAt June 30, 2014,2015, we have drawn $100.0had $106.4 million outstanding under this MRA included in mortgages and other loans payable on the MRA.consolidated balance sheets. Senior Unsecured Notes The following table sets forth our senior unsecured notes and other related disclosures as of SeptemberJune 30, 20142015 and December 31, 20132014, by scheduled maturity date (amounts(dollars in thousands): | | Issuance | | September 30, 2014 Unpaid Principal Balance | | September 30, 2014 Accreted Balance | | December 31, 2013 Accreted Balance | | Coupon Rate(1) | | Effective Rate | | Term (in Years) | | Maturity Date | | June 30, 2015 Unpaid Principal Balance | | June 30, 2015 Accreted Balance | | December 31, 2014 Accreted Balance | | Coupon Rate(1) | | Effective Rate | | Term (in Years) | | Maturity Date | March 31, 2006(2) | | $ | 255,308 |
| | $ | 255,238 |
| | $ | 255,206 |
| | 6.00 | % | | 6.00 | % | | 10 | | March 31, 2016 | | $ | 255,308 |
| | $ | 255,272 |
| | $ | 255,250 |
| | 6.00 | % | | 6.00 | % | | 10 | | March 31, 2016 | October 12, 2010(3) | | 345,000 |
| | 306,187 |
| | 297,837 |
| | 3.00 | % | | 3.00 | % | | 7 | | October 15, 2017 | | 345,000 |
| | 314,993 |
| | 309,069 |
| | 3.00 | % | | 3.00 | % | | 7 | | October 15, 2017 | August 5, 2011(4) | | 250,000 |
| | 249,728 |
| | 249,681 |
| | 5.00 | % | | 5.00 | % | | 7 | | August 15, 2018 | | 250,000 |
| | 249,777 |
| | 249,744 |
| | 5.00 | % | | 5.00 | % | | 7 | | August 15, 2018 | March 16, 2010(4) | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 7.75 | % | | 7.75 | % | | 10 | | March 15, 2020 | | 250,000 |
| | 250,000 |
| | 250,000 |
| | 7.75 | % | | 7.75 | % | | 10 | | March 15, 2020 | November 15, 2012(4) | | 200,000 |
| | 200,000 |
| | 200,000 |
| | 4.50 | % | | 4.50 | % | | 10 | | December 1, 2022 | | 200,000 |
| | 200,000 |
| | 200,000 |
| | 4.50 | % | | 4.50 | % | | 10 | | December 1, 2022 | June 27, 2005(2)(5) | | 7 |
| | 7 |
| | 7 |
| | 4.00 | % | | 4.00 | % | | 20 | | June 15, 2025 | | March 26, 2007(6) | | 10,008 |
| | 10,008 |
| | 10,701 |
| | 3.00 | % | | 3.00 | % | | 20 | | March 30, 2027 | | August 13, 2004(2)(7) | | — |
| | — |
| | 75,898 |
| | | | | | | March 26, 2007(5) | | | 10,008 |
| | 10,008 |
| | 10,008 |
| | 3.00 | % | | 3.00 | % | | 20 | | March 30, 2027 | June 27, 2005(2)(6) | | | — |
| | — |
| | 7 |
| | | | | | | | $ | 1,310,323 |
| | $ | 1,271,168 |
| | $ | 1,339,330 |
| | | | | | | $ | 1,310,316 |
| | $ | 1,280,050 |
| | $ | 1,274,078 |
| | | | | |
| | (1) | Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates. |
| | (3) | Issued by the Operating Partnership. Interest on these exchangeable notes is payable semi-annually on April 15 and October 15. The notes had an initial exchange rate representing an exchange price that was set at a 30.0% premium to the last reported sale price of the SL Green's common stock on October 6, 2010, or $85.81.$85.81. The initial exchange rate is subject to adjustment under certain circumstances. The current exchange rate is 12.066012.2163 shares of SL Green's common stock per $1,000 principal amount of these notes. The notes are senior unsecured obligations of the Operating Partnership and are exchangeable upon the occurrence of specified events and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of SL Green's common stock, if any, at our option. As a result of meeting specified events (as defined in the Indenture Agreement), these notes became exchangeable commencing January 1, 2015 and will remain exchangeable through September 30, 2015. The notes are guaranteed by ROP. On the issuance date, $78.3$78.3 million of the debt balance was recorded in equity. As of SeptemberJune 30, 2014, $38.82015, $30.0 million remained to be amortized into the debt balance. |
| | (4) | Issued by the Company, the Operating Partnership and ROP, as co-obligors. |
| | (5) | Exchangeable senior debentures which are currently callable at par. In addition, the debentures can be put to ROP, at the option of the holder at par plus accrued and unpaid interest, on June 15, 2015 and 2020 and upon the occurrence of certain change of control transactions. As a result of the acquisition of all outstanding shares of common stock of Reckson, or the Reckson Merger, the adjusted exchange rate for the debentures is 7.7461 shares of SL Green's common stock per $1,000 of principal amount of debentures and the adjusted reference dividend for the debentures is $1.3491.
|
| | (6) | Issued by the Operating Partnership. Interest on these remaining exchangeable notes is payable semi-annually on March 30 and September 30. The notes have an initial exchange rate representing an exchange price that was set at a 25.0% premium to the last reported sale price of the Company's common stock on March 20, 2007, or $173.30.$173.30. The initial exchange rate is subject to adjustment under certain circumstances. The current exchange rate is 5.7952 shares of SL Green's common stock per $1,000 principal amount of these notes. The notes are senior unsecured obligations of the Operating Partnership and are exchangeable upon the occurrence of specified events and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of SL Green's common stock, if any, at our option. The notes are currently redeemable at the Operating Partnership’s option. The Operating Partnership may be required to repurchase the notes on March 30, 2017 and 2022, and upon the occurrence of certain designated events. |
| | (7)(6) | In August 2014, these notes were repaid at maturity.April 2015, we redeemed the remaining outstanding debentures. |
Junior SubordinateSubordinated Deferrable Interest Debentures In June 2005, the Company and the Operating Partnership issued $100.0 million in unsecured trust preferred securities through a newly formed trust, SL Green Capital Trust I, or the Trust, which is a wholly-owned subsidiary of Trust Preferred Securities, which are reflected on the consolidated balance sheet as Junior Subordinate Deferrable Interest Debentures.Operating Partnership. The $100.0 million of junior subordinate deferrable interest debentures have a 30-year term ending July 2035. Theysecurities mature in 2035 and bear interest at a fixed rate of 5.61% for the first 10ten years ending July 2015. Thereafter, the interest rate will float at three-month LIBOR plus 125 basis points.points over the three-month LIBOR. Interest payments may be deferred for a period of up to eight consecutive quarters if the Operating Partnership exercises its right to defer such payments. The Trust Preferred Securitiespreferred securities are redeemable at the option of the Operating Partnership, in whole or in part, with no prepayment premium. We do not consolidate the Trust even though it is a variable interest entity as we are not the primary beneficiary. Because the Trust is not consolidated, we have recorded the debt on our consolidated balance sheets and the related payments are classified as interest expense. Restrictive Covenants The terms of the 2012 credit facility, as amended, and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, our ability to pay dividends, (as discussed below), 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 minimum amount of tangible net worth, a 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, we will not during any time when a default is continuing, make distributions with respect to common stock or other equity interests, except to enable the Company to continue to qualify as a REIT for Federal income tax purposes. As of SeptemberJune 30, 2015 and December 31, 2014,, we were in compliance with all such covenants. MarketInterest Rate Risk
We are exposed to changes in interest rates primarily from our variable rate debt. Our exposure to interest rate changes are managed through either the use of interest rate derivativederivatives instruments and/or through our variable rate debt and preferred equity investments. A hypothetical 100 basis point increase in interest rates along the entire interest rate curve for 20142015 would increase our annual interest cost, net of interest income from variable rate debt and preferred equity investments, by approximately $20.1$13.1 million and would increase our share of joint venture annual interest cost by approximately $7.8$7.1 million. We recognize most derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If a derivative is considered 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 hedged 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 is immediately recognized in earnings. We have $6.1Our long-term debt of $6.0 billion of fixed-rate long-term debt,bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. The interest rate on ourOur variable rate debt and variable rate joint venture debt as of SeptemberJune 30, 2014 was2015 bore interest based on LIBOR plus a spread ranging fromof LIBOR plus 90 basis points to LIBOR plus 935 basis points.
Contractual Obligations Refer to our 20132014 Annual Report on Form 10-K for a discussion of our contractual obligations. There have been no material changes, outside the ordinary course of business, to these contractual obligations during the ninethree and six months ended SeptemberJune 30, 20142015. Off-Balance Sheet Arrangements We have a number of off-balance sheet investments, including joint ventures and debt and preferred equity investments. These investments all have varying ownership structures. Substantially all of our joint venture arrangements are accounted for under the equity method of accounting as we have the ability to exercise significant influence, but not control, over the operating and financial decisions of these joint venture arrangements. Our off-balance sheet arrangements are discussed in Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures" in the accompanying consolidated financial statements.
Capital Expenditures We estimate that for the three monthsyear ending December 31, 2014,2015, we expect to incur approximately $103.2$184.7 million of our share of recurring capital expenditures and $45.3$121.8 million of development or redevelopment expenditures, which are net of loan reserves, (including
tenant improvements and leasing commissions) on existing consolidated properties, and we estimate that our share of capital expenditures at our joint venture properties, net of loan reserves, will be approximately $44.7$39.1 million. We expect to fund these capital expenditures with operating cash flow, additionalexisting liquidity, or incremental property level mortgage financings and cash on hand.borrowings. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect that these financing requirements will be met in a similar fashion. We believe that we will have sufficient resources to satisfy our capital needs duringover the next 12-month period. Thereafter, we expect our capital needstwelve months and thereafter will be met through a combination of cash on hand, net cash provided by operations, borrowings, potential asset sales or additional equity or debt issuances. Dividends/Distributions We expect to pay dividends to our stockholders based on the distributions we receive from our Operating Partnership primarily from property revenues net of operating expenses or, if necessary, from working capital or borrowings.capital. To maintain our qualification as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains. We intend to continue to pay regular quarterly dividends to our stockholders. Based on our current annual dividend rate of $2.00$2.40 per share, we would pay approximately $193.0$239.1 million in dividends to SL Green's common stockholders on an annual basis. Before we pay any dividend, whether for Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under ourthe 2012 credit facility and senior unsecured notes, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable. Related Party Transactions Cleaning/ Security/ Messenger and Restoration Services Through Alliance Building Services, or Alliance, First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services, Classic Security LLC provides security services, Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain properties owned by us. Alliance is partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors. 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 profit participation, which is included in other income on the consolidated statements of income,operations, was $0.9 million, $2.8 million, $0.8$1.0 million and $2.7$1.9 million for both the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively. We also recorded expenses of $5.9$4.6 million, $14.7$8.6 million, $5.9$5.0 million and $16.0$8.8 million for the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively, for these services (excluding services provided directly to tenants). Marketing Services
A-List Marketing, LLC, or A-List, provides marketing services to us. Deena Wolff, a sister of Marc Holliday, our chief executive officer, is the owner of A-List. We recorded approximately $26,800, $121,600, $50,700 and $158,000 for the three and nine months ended September 30, 2014 and 2013, respectively, for these services.
Leases
Nancy Peck and Company leases 1,003 square feet of space at 420 Lexington Avenue under a lease that ends in August 2015. Nancy Peck and Company is owned by Nancy Peck, the wife of Stephen L. Green. The rent due pursuant to the lease was $35,516 per annum for year one increasing to $40,000 in year seven.
Management Fees S.L. Green Management Corp., a consolidated entity, receives property management fees from an entity in which Stephen L. Green owns an interest. We received management fees from such entity of approximately $114,300, $330,700, $105,200$0.1 million and $318,900$0.2 million for both the three and ninesix months ended SeptemberJune 30, 20142015 and 2013,2014, respectively. Insurance We maintain “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism) within three property insurance portfolios and liability insurance. As of September 30, 2014, theThe first property portfolio maintains a blanket limit of $950.0 million per occurrence, including terrorism, for the majority of the New York City properties in our portfolio and expires December 31, 2014.2015. The second portfolio maintains a limit of $700.0 million per occurrence, including terrorism, for several New York City properties and the majority of the Suburban properties and expires December 31, 2015. Each of these policies includes $100.0 million of flood coverage, with a lower sublimit for locations in high hazard flood zones. A third blanket property policy covers most of our residential assets and maintains a limit of $300$380 million per occurence,occurrence, including terrorism, for our residential properties and expires January 31, 2015.2016. We maintain two liability policies which cover all our properties and
provide limits of $201.0 million per occurrence and in the aggregate per location. The liability policies expire on October 31, 2015 and January 31, 20152016 and cover our commercial and residential, respectively. Additional coverage may be purchased on a stand-alone basis for certain assets. In October 2006, we formed a wholly-owned taxable REIT subsidiary, Belmont Insurance Company, or Belmont, to act as a captive insurance company and be one of the elements of our overall insurance program. Belmont is a subsidiary of ours. Belmont was formed in an effort to, among other reasons, stabilize to some extent the fluctuations of insurance market conditions. Belmont
is licensed in New York to write Terrorism, NBCR (nuclear, biological, chemical, and radiological), General Liability, Environmental Liability, Flood, Professional Liability and Employment Practices Liability, and D&O coverage. The Terrorism Risk Insurance Act, or TRIA, which was enacted in November 2002, was renewed December 31, 2005 and again on December 31, 2007. Congress extended TRIA, now called TRIPRA (Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007) until December 31, 2014. TRIPRA was not renewed by Congress and expired on December 31, 2014. However, on January 12, 2015, TRIPRA was reauthorized until December 31, 2020 (Terrorism Insurance Program Reauthorization and Extension Act of 2015). The law extends the federal Terrorism Insurance Program that requires insurance companies to offer terrorism coverage and provides for compensation for insured losses resulting from acts of certified terrorism, subject to the current program trigger of $100.0 million. There is no assurance that TRIPRAmillion, which will be extended.increase by $20.0 million per annum, commencing December 31, 2015. Our debt instruments, consisting of a non-recourse mortgage loansnote secured by one of our properties, (which are generally non-recourse to us), mezzanine loans, ground leases, our 2012 credit facility, senior unsecured notes and other corporate obligations, as well as ground leases, contain customary covenants requiring us to maintain insurance. Although we believe that we currently maintain sufficient insurance coverage to satisfy these obligations, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from “all-risk” insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments allowing the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions. In addition, if lenders prevail in asserting that we are required to maintain full coverage for these risks, it could result in substantially higher insurance premiums. We own Belmont and the accounts of Belmont are part of our consolidated financial statements. If Belmont experiences a loss and is required to pay under its insurance policy, we would ultimately record the loss to the extent of Belmont’s required payment. Therefore, insurance coverage provided by Belmont should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance. We monitor all properties that are subject to triple net leases to ensure that tenants are providing adequate coverage. Certain joint ventures may be covered under policies separate from our policies, at coverage limits which we deem to be adequate. We continually monitor these policies. Although we consider our insurance coverage to be appropriate, in the event of a major catastrophe, we may not have sufficient coverage to replace certain properties. Funds from Operations Funds Fromfrom Operations, or FFO, is a widely recognized measure of REIT performance. We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and as subsequently amended, defines FFO as net income (loss) (computed in accordance with Generally Accepted Accounting Principles, or GAAP), excluding gains (or losses) from debt restructurings, sales of properties and real estate related impairment charges, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, particularly those that own and operate commercial office properties. We also use FFO as one of several criteria to determine performance-based bonuses for members of our senior management. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs, providing perspective not immediately apparent from net income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.
FFO for the three and ninesix months ended SeptemberJune 30, 20142015 and 20132014 are as follows (in thousands): | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2014 | | 2013 | | 2014 | | 2013 | 2015 | | 2014 | | 2015 | | 2014 | Net income attributable to SL Green common stockholders | | $ | 64,688 |
| | $ | 37,025 |
| | $ | 446,319 |
| | $ | 64,210 |
| | Net (loss) income attributable to SL Green common stockholders | | $ | (39,106 | ) | | $ | 235,541 |
| | $ | 4,171 |
| | $ | 381,631 |
| Add: | | | | | | | | | | | | | | | | Depreciation and amortization | | 94,443 |
| | 84,162 |
| | 274,337 |
| | 238,666 |
| 199,565 |
| | 93,379 |
| | 307,902 |
| | 179,894 |
| Discontinued operations depreciation adjustments | | 678 |
| | 3,311 |
| | 5,434 |
| | 13,133 |
| — |
| | 1,459 |
| | — |
| | 4,756 |
| Unconsolidated joint ventures depreciation and noncontrolling interest adjustments | | 5,831 |
| | 12,720 |
| | 26,979 |
| | 37,867 |
| | Joint venture depreciation and noncontrolling interest adjustments | | 4,435 |
| | 8,161 |
| | 13,057 |
| | 21,148 |
| Net income attributable to noncontrolling interests | | 4,348 |
| | 4,011 |
| | 21,055 |
| | 10,715 |
| 5,049 |
| | 10,488 |
| | 12,719 |
| | 16,707 |
| Less: | | | | | | | | | | | | | | | | Gain on sale of discontinued operations | | 29,507 |
| | 13,787 |
| | 144,242 |
| | 14,900 |
| — |
| | 114,735 |
| | 12,983 |
| | 114,735 |
| Equity in net gain (loss) on sale of joint venture property/interest | | 16,496 |
| | (354 | ) | | 122,580 |
| | (3,937 | ) | | Equity in net gain on sale of interest in unconsolidated joint venture/real estate | | 769 |
| | 1,444 |
| | 769 |
| | 106,084 |
| Purchase price fair value adjustment | | (4,000 | ) | | — |
| | 67,446 |
| | (2,305 | ) | — |
| | 71,446 |
| | — |
| | 71,446 |
| Depreciable real estate reserves, net of recoveries | | — |
| | — |
| | — |
| | (2,150 | ) | | Depreciation and amortization on non-rental real estate assets | | 503 |
| | 416 |
| | 1,520 |
| | 1,004 |
| | Funds from Operations | | $ | 127,482 |
| | $ | 127,380 |
| | $ | 438,336 |
| | $ | 357,079 |
| | Depreciation on non-rental real estate assets | | 500 |
| | 503 |
| | 1,025 |
| | 1,017 |
| Funds from Operations attributable to SL Green common stockholders and noncontrolling interests | | $ | 168,674 |
| | $ | 160,900 |
| | $ | 323,072 |
| | $ | 310,854 |
| Cash flows provided by operating activities | | $ | 100,644 |
| | $ | 100,842 |
| | $ | 377,206 |
| | $ | 310,530 |
| $ | 142,500 |
| | $ | 188,414 |
| | $ | 233,459 |
| | $ | 276,562 |
| Cash flows used in investing activities | | $ | (507,222 | ) | | $ | (199,819 | ) | | $ | (825,263 | ) | | $ | (242,541 | ) | $ | (488,230 | ) | | $ | (246,240 | ) | | $ | (257,933 | ) | | $ | (318,041 | ) | Cash flows provided by (used in) financing activities | | $ | 351,995 |
| | $ | 109,106 |
| | $ | 494,885 |
| | $ | (48,875 | ) | $ | 230,856 |
| | $ | (81,233 | ) | | $ | (41,039 | ) | | $ | 142,890 |
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Inflation Substantially all of our office leases provide for separate real estate tax and operating expense escalations as well as operating expense recoveries based on increases in the Consumer Price Index or other measures such as porters' wage. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases maywill be at least partially offset by the contractual rent increases and expense escalations described above. Accounting Standards Updates The Accounting Standards Updates are discussed in Note 2, "Significant Accounting Policies-Accounting Standards Updates" in the accompanying consolidated financial statements.
Forward-Looking Information This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), development trends of the real estate industry and the Manhattan, Brooklyn, Westchester County, Connecticut, Long Island and Northern New Jersey office markets, business strategies, expansion and growth of our operations and other similar matters, are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," "continue," or the negative of these words, or other similar words or terms. Forward-looking statements contained in this report are subject to a number of risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by forward-looking statements made by us. These risks and uncertainties include:
the effect of general economic, business and financial conditions, and their effect on the New York metropolitanCity real estate market in particular; dependence upon certain geographic markets;
risks of real estate acquisitions, dispositions, developments and developments,redevelopment, including the cost of construction delays and cost overruns; risks relating to debt and preferred equity investments; availability and creditworthiness of prospective tenants and borrowers; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; adverse changes in the real estate markets, including reduced demand for office space, increasing vacancy, and increasing availability of sublease space; availability of capital (debt and equity); unanticipated increases in financing and other costs, including a rise in interest rates; our ability to comply with financial covenants in our debt instruments; our ability to maintain its status as a REIT; risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations; the continuing threat of terrorist attacks, in particular in the New York Metropolitan area and on our tenants;attacks; our ability to obtain adequate insurance coverage at a reasonable cost and the potential for losses in excess of our insurance coverage, including as a result of environmental contamination; and, legislative, regulatory and/or safety requirements adversely affecting REITs and the real estate business including costs of compliance with the Americans with Disabilities Act, the Fair Housing Act and other similar laws and regulations. Other factors and risks to our business, many of which are beyond our control, are described in other sections of this report and in our other filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.
ITEM 3. Quantitative and Qualitative Disclosure About Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK For quantitative and qualitative disclosure about market risk, see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Market Rate Risk" in this Quarterly Report on Form 10-Q for the three and ninesix months ended SeptemberJune 30, 20142015 for the Company and the Operating Partnership and Item 7A, "Quantitative7, "Management's Discussion and Qualitative Disclosures about Analysis of Financial Condition and Results of Operations—Market Rate Risk" in the Annual Report on Form 10-K for the year ended December 31, 20132014 for the Company and the Operating Partnership. Our exposures to market risk have not changed materially since December 31, 2013.2014. ITEM 4. CONTROLS AND PROCEDURES SL GREEN REALTY CORP. Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Also, the Company has investments in certain unconsolidated entities. As the Company does not control these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder. Changes in Internal Control over Financial Reporting There have been no significant changes in the Company's internal control over financial reporting during the quarter ended SeptemberJune 30, 20142015 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. SL GREEN OPERATING PARTNERSHIP, L.P. Evaluation of Disclosure Controls and Procedures The Operating Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Operating Partnership's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Operating Partnership's management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Operating Partnership to disclose material information otherwise required to be set forth in the Operating Partnership's periodic reports. Also, the Operating Partnership has investments in certain unconsolidated entities. As the Operating Partnership does not control these entities, the Operating Partnership's disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those it maintains with respect to its consolidated subsidiaries. As of the end of the period covered by this report, the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner concluded that the Operating Partnership's disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Operating Partnership that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting There have been no significant changes in the Operating Partnership's internal control over financial reporting during the quarter ended SeptemberJune 30, 20142015 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II ITEM 1.3. LEGAL PROCEEDINGS As of SeptemberJune 30, 2014, neither2015, the Company norand the Operating Partnership were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio other than routine litigation arising in the ordinary course of business or litigation that is adequately covered by insurance. ITEM 1A. RISK FACTORS ThereExcept as forth below, there have been no material changes to the risk factors disclosedRisk Factors described in "Part I. ItemPart I "Item 1A. Risk Factors" in the 2013Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 as filed with the SEC.
We have commenced construction for our ground-up development project at One Vanderbilt Avenue. The Company has obtained the approvals necessary to commence its significant ground-up development project at One Vanderbilt Avenue, and has commenced demolition and construction for that project. Construction of the Companyproject will not be completed for several years. As with any ground-up development project, unforeseen delays and other matters could further delay completion, result in increased costs or otherwise have a material effect on our results of operations. In addition, the Operating Partnership.extended time frame to complete will cause the project to be subject to shifts in market, leasing or geographic trends that are not consistent with our current business plans for this property. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None.During the three months ended June 30, 2015, other than as previously disclosed in Current Reports on Form 8-K during such period, our Operating Partnership issued an aggregate of one unit of limited partnership interest in connection with an acquisition of ownership interests in a commercial real estate property. The terms of the unit provide, among other things, that the unit may be converted into common units of our Operating Partnership, and following such conversion, in certain circumstances may be redeemed for shares of the Company’s common stock. It is not possible to calculate the maximum number of common units into which the unit may be convertible, as this depends on the price of the Company's common stock at or around the date of any conversion. However, based on the current trading price of the Company's common stock, less than 500 common units would be issuable upon a conversion of the unit. The unit was issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. ITEM 5. OTHER INFORMATION None.
ITEM 6. EXHIBITS (a)Exhibits:
| | | | 10.1 | Sixteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of SL Green Operating Partnership, L.P., filed with the SEC on February 13, 2015. | 10.2 | FourteenthSeventeenth Amendment to the First Amended and Restated Agreement of Limited Partnership of SL Green Operating Partnership, L.P., filed with the SEC on June 22, 2015. | 10.3 | Nineteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of SL Green Operating Partnership, L.P., filed with the SEC on July 2, 2014.24, 2015. | 10.210.4 | | FifteenthTwentieth Amendment to the First Amended and Restated Agreement of Limited Partnership of SL Green Operating Partnership, L.P., filed with the SEC on July 2, 2014.24, 2015. | 10.310.5 | | EmploymentThird Amendment to Amended and Restated Credit Agreement, dated as of October 30, 2014 betweenJuly 31, 2015, by and among SL Green Realty Corp., SL Green Operating Partnership, L.P. and Matthew DiLiberto.Reckson Operating Partnership, L.P., as Borrowers, each of the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. | 31.1 | | Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | 31.2 | | Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | 31.3 | | Certification by the Chief Executive Officer of the Company, the sole general partner of the Operating Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | 31.4 | | Certification by the Chief Financial Officer of the Company, the sole general partner of the Operating Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | 32.1 | | Certification by the Chief Executive Officer of the Company pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | 32.2 | | Certification by the Chief Financial Officer of the Company pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | 32.3 | | Certification by the Chief Executive Officer of the Company, the sole general partner of the Operating Partnership pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | 32.4 | | Certification by the Chief Financial Officer of the Company, the sole general partner of the Operating Partnership pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | 101.1 | 101.10 | The following financial statements from SL Green Realty Corp. and SL Green Operating Partnership L.P.’s Quarterly Report on Form 10-Q for the three months ended SeptemberJune 30, 2014,2015, formatted in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of IncomeOperations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statement of Equity (unaudited), (v) Consolidated Statement of Capital (unaudited) (vi) Consolidated Statements of Cash Flows (unaudited), and (vii) Notes to Consolidated Financial Statements (unaudited), detail tagged and filed herewith. |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | | | | SL GREEN REALTY CORP. | | | | | | | | By: | | /s/ James MeadMATTHEW J. DILIBERTO | Date: November 10, 2014Dated: August 6, 2015 | | | | James MeadMatthew J. DiLiberto
Chief Financial Officer |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | | | | SL GREEN OPERATING PARTNERSHIP, L.P. | | | By: | | SL Green Realty Corp. | | | | | | | | | | /s/ James MeadMATTHEW J. DILIBERTO | Date: November 10, 2014Dated: August 6, 2015 | | By: | | James MeadMatthew J. DiLiberto
Chief Financial Officer |
|