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SL Green Realty (SLG)

Filed: 28 Feb 20, 5:11pm
falsefalse--12-31--12-31FYFY2019201900010409710001492869Non-accelerated Filer15457000154570001247700012477000200000020000000.7750.81250.853666000003666000000.30130.30130.12870.1287108280600078368000P6MP7Y0.3330.667P3Y15702000157020001236900012369000575000017500002750000003.13753.13753.28753.28753.4353.4350.0116000000084739000802580008473900080258000P3YP3YP5Y0.04143600000577000004740000061700000P14YP1YP1YP1Y87800083400040000012000003467000004819000000.10.0290.110.07110000000205200000413100041960000.07250.060.12360.0460.0550.02751126000001695000001830000043700000625.000.010.0192000009200000920000092000009200000920000092000009200000P40YP40YP7YP3YP4Y4220000017600000214000002140000017823000178230001810600018106000140800000457100000P1YP5YP10Y50000000050000000025.0025.0061055000105500022379000223790001456200014562000The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $205.2 million and $110.0 million of land, $481.9 million and $346.7 million of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $61.7 million and $47.4 million of right of use assets, $17.6 million and $42.2 million of accumulated depreciation, $169.5 million and $112.6 million of other assets included in other line items, $457.1 million and $140.8 million of real estate debt, net, $1.2 million and $0.4 million of accrued interest payable, $57.7 million and $43.6 million of lease liabilities, and $43.7 million and $18.3 million of other liabilities included in other line items as of December 31, 2019 and December 31, 2018, respectively.$366.6 million of the 2017 amount relates to 1515 Broadway. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018. See Note 6, "Investments in Unconsolidated Joint Ventures.".The Operating Partnership's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $205.2 million and $110.0 million of land, $481.9 million and $346.7 million of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $61.7 million and $47.4 million of right of use assets, $17.6 million and $42.2 million of accumulated depreciation, $169.5 million and $112.6 million of other assets included in other line items, $457.1 million and $140.8 million of real estate debt, net, $1.2 million and $0.4 million of accrued interest payable, $57.7 million and $43.6 million of lease liabilities, and $43.7 million and $18.3 million of other liabilities included in other line items as of December 31, 2019 and December 31, 2018, respectively.$366.6 million of the 2017 amount relates to 1515 Broadway. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018.
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to                
Commission File Number: 1-13199 (SL Green Realty Corp.)
Commission File Number: 33-167793-02 (SL Green Operating Partnership, L.P.)
______________________________________________________________________
SL GREEN REALTY CORP.
SL GREEN OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
______________________________________________________________________
SL Green Realty Corp.Maryland13-3956775
SL Green Operating Partnership, L.P.Delaware13-3960938
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
420 Lexington AvenueNew YorkNY 10170
(Address of principal executive offices—Zip Code)

(212594-2700
(Registrant's telephone number, including area code)
______________________________________________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Registrant Trading Symbol Title of Each Class Name of Each Exchange on Which Registered
SL Green Realty Corp. SLG Common Stock, $0.01 par value New York Stock Exchange
SL Green Realty Corp. SLG.PRI 6.500% Series I Cumulative Redeemable Preferred Stock, $0.01 par value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 
SL Green Realty Corp.    Yes x    No o                SL Green Operating Partnership, L.P.    Yes o    No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 
SL Green Realty Corp.    Yes o    No x                SL Green Operating Partnership, L.P.    Yes o    No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
SL Green Realty Corp.    Yes x    No o                SL Green Operating Partnership, L.P.    Yes x    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
SL Green Realty Corp.     Yes x    No o                SL Green Operating Partnership, L.P.    Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 
SL Green Realty Corp.    o                    SL Green Operating Partnership, L.P.    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
SL Green Realty Corp.
Large Accelerated Filerx Accelerated Filero
Non-Accelerated Filero  
Smaller Reporting Company Emerging Growth Company
     
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
SL Green Operating Partnership, L.P.
Large Accelerated Filero Accelerated Filero
Non-Accelerated Filerx  
Smaller Reporting Company Emerging Growth Company
     
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
SL Green Realty Corp.    Yes     No x                SL Green Operating Partnership, L.P.    Yes     No x
The aggregate market value of the common stock held by non-affiliates of SL Green Realty Corp. (76,111,663 shares) was $6.1 billion based on the quoted closing price on the New York Stock Exchange for such shares on June 30, 2019.
As of February 27, 2020, 77,935,496 shares of SL Green Realty Corp.'s common stock, par value $0.01 per share, were outstanding. As of February 27, 2020, 1,025,366 common units of limited partnership interest of SL Green Operating Partnership, L.P. were held by non-affiliates. There is no established trading market for such units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the SL Green Realty Corp.'s Proxy Statement for its 2020 Annual Stockholders' Meeting to be filed within 120 days after the end of the Registrant's fiscal year are incorporated by reference into Part III of this Annual Report on Form 10-K.
 




EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2019 of SL Green Realty Corp. and SL Green Operating Partnership, L.P. Unless stated otherwise or the context otherwise requires, references to "SL Green Realty Corp.," the "Company" or "SL Green" mean SL Green Realty Corp. and its consolidated subsidiaries; and references to "SL Green Operating Partnership, L.P.," the "Operating Partnership" or "SLGOP" mean SL Green Operating Partnership, L.P. and its consolidated subsidiaries. The terms "we," "our" and "us" mean the Company and all the entities owned or controlled by the Company, including the Operating Partnership.
The Company is a Maryland corporation which operates as a self-administered and self-managed real estate investment trust, or REIT, and is the sole managing general partner of the Operating Partnership. As a general partner of the Operating Partnership, the Company has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.
As of December 31, 2019, the Company owns 94.97% of the outstanding general and limited partnership interest in the Operating Partnership. The Company also owns 9,200,000 Series I Preferred Units of the Operating Partnership. As of December 31, 2019, noncontrolling investors held, in aggregate, a 5.03% limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership.
The Company and the Operating Partnership are managed and operated as one entity. The financial results of the Operating Partnership are consolidated into the financial statements of the Company. The Company has no significant assets other than its investment in the Operating Partnership. Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership. Therefore, the assets and liabilities of the Company and the Operating Partnership are substantially the same.
Noncontrolling interests in the Operating Partnership, stockholders' equity of the Company and partners' capital of the Operating Partnership are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership not owned by the Company are accounted as noncontrolling interests, within mezzanine equity, in the Company's and the Operating Partnership's consolidated financial statements.
We believe combining the annual reports on Form 10-K of the Company and the Operating Partnership into this single report results in the following benefits:
Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
Combined reports eliminate duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company's disclosure applies to both the Company and the Operating Partnership; and
Combined reports create time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Note 11, Noncontrolling Interests on the Company’s Consolidated Financial Statements;
Note 12, Stockholders' Equity of the Company;
Note 13, Partners' Capital of the Operating Partnership;
Note 22, Quarterly Financial Data of the Company (unaudited); and
Note 23, Quarterly Financial Data of the Operating Partnership (unaudited).
This report also includes separate Part II, Item 5. Market for Registrants' Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities, Item 6. Selected Financial Data and Item 9A. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership, respectively, in order to establish that the Chief Executive Officer and the Chief Financial Officer of the Company, in both their capacity as the principal executive officer and principal financial officer of the Company and the principal executive officer and principal financial officer of the general partner of the Operating Partnership, have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act.




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




PART I

ITEM 1. BUSINESS

General
SL Green Realty Corp. is a self-managed real estate investment trust, or REIT, engaged in the acquisition, development, ownership, management and operation of commercial and residential real estate properties, principally office properties, located in the New York metropolitan area. We were formed in June, 1997 for the purpose of continuing the commercial real estate business of S.L. Green Properties, Inc., our predecessor entity. S.L. Green Properties, Inc., which was founded in 1980 by Stephen L. Green, who serves as a member and the chairman emeritus of the Company's board of directors, had been engaged in the business of owning, managing, leasing, and repositioning office properties in Manhattan, a borough of New York City.
As of December 31, 2019, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties:
    Consolidated Unconsolidated Total
Location Property Type Number of Properties Approximate Square Feet Number of Properties Approximate Square Feet Number of Properties Approximate Square Feet 
Weighted Average Occupancy(1)
Commercial:              
Manhattan Office 20
 12,387,091
 10
 11,216,183
 30
 23,603,274
 94.5%
  Retail 6
(2)320,430
 8
 289,050
 14
 609,480
 98.4%
  Development/Redevelopment(3)6
 189,538
 1
 
 7
 189,538
 84.9%
  Fee Interest 
 
 1
 
 1
 
 %
    32
 12,897,059
 20
 11,505,233
 52
 24,402,292
 94.6%
Suburban Office 8
 1,044,800
 
 
 8
 1,044,800
 85.7%
  Retail 1
 52,000
 
 
 1
 52,000
 100.0%
    9
 1,096,800
 
 
 9
 1,096,800
 86.4%
Total commercial properties 41
 13,993,859
 20
 11,505,233
 61
 25,499,092
 94.2%
Residential:                
Manhattan Residential 2
(2)445,105
 8
 1,663,774
 10
 2,108,879
 95.7%
Total residential properties 2
 445,105
 8
 1,663,774
 10
 2,108,879
 95.7%
Total portfolio 43
 14,438,964
 28
 13,169,007
 71
 27,607,971
 94.3%
(1)The weighted average occupancy for commercial properties represents the total occupied square feet divided by total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by total available units.
(2)As of December 31, 2019, we owned a building at 315 West 33rd Street, also known as The Olivia, 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 in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.
(3)Properties in Development are included in Number of Properties and have no Approximate Square Feet.
As of December 31, 2019, we also managed two office buildings owned by third parties encompassing approximately 2.1 million square feet, and held debt and preferred equity investments with a book value of $1.7 billion, including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in balance sheet line items other than the Debt and Preferred Equity Investments line item.
Our corporate offices are located in midtown Manhattan at 420 Lexington Avenue, New York, New York 10170. As of December 31, 2019, we employed 1,033 employees, 290 of whom were employed in our corporate offices. We can be contacted at (212) 594-2700. We maintain a website at www.slgreen.com. On our website, you can obtain, free of charge, a copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file such material electronically with, or furnish it to, the Securities and Exchange Commission, or the SEC. We have also made available on our website our audit committee charter, compensation committee charter, nominating and corporate governance committee charter, code of business conduct and ethics and corporate governance principles. We do not intend for information contained on our website to be part of this annual report on Form 10-K. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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Unless the context requires otherwise, all references to the "Company," "SL Green," "we," "our" and "us" in this annual report means SL Green Realty Corp., a Maryland corporation, and one or more of its subsidiaries, including the Operating Partnership, or, as the context may require, SL Green only or the Operating Partnership only, and "S.L. Green Properties" means S.L. Green Properties, Inc., a New York corporation, as well as the affiliated partnerships and other entities through which Stephen L. Green historically conducted commercial real estate activities.
Corporate Structure
In connection with the Company's initial public offering, or IPO, in August 1997, the Operating Partnership received a contribution of interests in real estate properties as well as a 95% economic, non-voting interest in the management, leasing and construction companies affiliated with S.L. Green Properties. We refer to these management, leasing and construction entities, which are owned by S.L. Green Management Corp, as the "Service Corporation." The Company is organized so as to qualify, and has elected to qualify as a REIT, under the Internal Revenue Code of 1986, as amended, or the Code.
Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. We are the sole managing general partner of the Operating Partnership, and as of December 31, 2019, we owned 94.97% of its economic interests. All of the management and leasing operations with respect to our wholly-owned properties are conducted through SL Green Management LLC, or Management LLC. The Operating Partnership owns 100% of Management LLC.
In order to maintain the Company's qualification as a REIT while realizing income from management, leasing and construction contracts with third parties and joint venture properties, all of these service operations are conducted through the Service Corporation, a consolidated variable interest entity. We, through our Operating Partnership, receive substantially all of the cash flow from the Service Corporation's operations. All of the voting common stock of the Service Corporation is held by an entity owned and controlled by Stephen L. Green, who serves as a member and as the chairman emeritus of the Company's board of directors.
Business and Growth Strategies
SL Green is Manhattan's largest owner of office real estate and an investment-grade, S&P 500 company that is focused primarily on owning, managing and maximizing the value of Manhattan commercial properties.
Our core business is the ownership of high quality commercial properties and our primary business objective is to maximize the total return to stockholders, through growth in net income attributable to common stockholders and funds from operations, or FFO, and through asset value appreciation. The commercial real estate expertise resulting from owning, operating, investing, developing, redeveloping and lending on real estate in Manhattan for over 39 years has enabled us to invest in a collection of premier office and retail properties, selected multifamily residential assets, and high quality debt and preferred equity investments. We also own high quality commercial properties in the New York metropolitan area.
We are led by a strong, experienced management team that provides a foundation of skills in all aspects of real estate, including acquisitions, dispositions, management, leasing, development, redevelopment, and financing. It is with this team that we have achieved a market leading position in our targeted submarkets.
We seek to enhance the value of our company by executing strategies that include the following:
Leasing and property management, which capitalizes on our extensive presence and knowledge of the marketplaces in which we operate;
Acquiring office, retail and residential properties and employing our local market skills to reposition these assets to create incremental cash flow and capital appreciation;
Identifying properties well suited for development/redevelopment and maximizing the value of those properties through development/redevelopment or reconfiguration to match current workplace, retail and housing trends;
Investing in debt and preferred equity positions that generate consistently strong risk-adjusted returns, increase the breadth of our market insight, foster key market relationships and source potential future investment opportunities;
Executing dispositions through sales or joint ventures that harvest embedded equity which has been generated through management's value enhancing activities; and
Maintaining a prudently levered, liquid balance sheet with consistent access to diversified sources of property level and corporate capital.

5


Leasing and Property Management
We seek to capitalize on our management's extensive knowledge of Manhattan and the New York metropolitan area and the needs of our tenants through proactive leasing and management programs, which include: (i) use of in-depth market experience resulting from managing and leasing tens of millions of square feet of office, retail and residential space since the Company was founded; (ii) careful tenant management, which results in long average lease terms and a manageable lease expiration schedule; (iii) utilization of an extensive network of third-party brokers to supplement our in-house leasing team; (iv) use of comprehensive building management analysis and planning; and (v) a commitment to tenant satisfaction by providing high quality tenant services at competitive rental rates.
Property Acquisitions
We acquire properties for long-term value appreciation and earnings growth. This strategy has resulted in capital gains that increase our investment capital base. In implementing this strategy, we continually evaluate potential acquisition opportunities. These opportunities may come from new properties as well as acquisitions in which we already hold a joint venture interest or, from time to time, from our debt and preferred equity investments.
Through intimate knowledge of our markets we have developed an ability to source transactions with superior risk-adjusted returns by capturing off-market opportunities. In rising markets, we primarily seek to acquire strategic vacancies that provide the opportunity to take advantage of our exceptional leasing and repositioning capabilities to increase cash flow and property value. In stable or falling markets, we primarily target assets featuring credit tenancies with fully escalated in-place rents to provide cash flow stability near-term and the opportunity for increases over time.
We believe that we have many advantages over our competitors in acquiring core and non-core properties, both directly and through our joint venture program that includes a predominance of high quality institutional investors. Those advantages include: (i) senior management's long-tenured experience leading a full-service, fully-integrated real estate company focused, primarily, on the Manhattan market; (ii) the ability to offer tax-efficient structures to sellers through the exchange of ownership interests, including units in our Operating Partnership; and (iii) the ability to underwrite and close transactions on an expedited basis even when the transaction involves a complicated structure.
Property Dispositions
We continually evaluate our portfolio to identify those properties that are most likely to meet our long-term earnings and cash flow growth objectives and contribute to increasing portfolio value. Properties that no longer meet our objectives are evaluated for sale, or in certain cases, joint venture to release equity created through management's value enhancement programs or to take advantage of attractive market valuations.
We seek to efficiently deploy the capital proceeds generated from these dispositions into property acquisitions and debt and preferred equity investments that we expect will provide enhanced future capital gains and earnings growth opportunities. Management may also elect to utilize the capital proceeds from these dispositions to repurchase shares of our common stock, repay existing indebtedness of the Company or its subsidiaries, or increase cash liquidity.
Property Repositioning
Our extensive knowledge of the markets in which we operate and our ability to efficiently plan and execute capital projects provide the expertise to enhance returns by repositioning properties that are underperforming. Many of the properties we own or seek to acquire feature unique architectural design elements or other amenities and characteristics that can be appealing to tenants when fully exploited. Our strategic investment in these properties, combined with our active management and pro-active leasing, provide the opportunity to creatively meet market needs and generate favorable returns.
Development / Redevelopment
Our constant interactions with tenants and other market participants keep us abreast of innovations in workplace layout, store design and smart living. We leverage this information to identify properties primed for development or redevelopment to meet these demands and unlock value. The expertise and relationships that we have built from managing complex construction projects in New York City and its surrounding areas allow us to cost efficiently add new and renovated assets of the highest quality and desirability to our operating portfolio.
Debt and Preferred Equity Investments
We invest in well-collateralized debt and preferred equity investments in the markets in which we operate, primarily New York City, that generate attractive yields. See Note 5, "Debt and Preferred Equity Investments," in the accompanying consolidated financial statements. Knowledge of our markets and our leasing and asset management expertise provide underwriting capabilities that enable a highly educated assessment of risk and return. The benefits of this investment program, which has a carefully managed aggregate size, include the following:

6


Our typical investments provide high current returns at conservative exposure levels and, in certain cases, the potential for future capital gains. Our expertise and operating capabilities provide both insight and operating skills that mitigate risk.
In certain instances, these investments serve as a potential source of real estate acquisitions for us when a borrower seeks an efficient off-market transaction. Ownership knows that we are fully familiar with the asset through our existing investment, and that we can close more efficiently and quickly than others. Property owners may also provide us the opportunity to consider off-market transactions involving other properties because we have previously provided debt or preferred equity financing to them.
These investments are concentrated in Manhattan, which helps us gain market insight, awareness of upcoming investment opportunities and foster key relationships that may provide access to future investment opportunities.
Capital Resources
Our objective is to maintain multiple sources of corporate and property level capital to obtain the most appropriate and lowest cost of capital. This objective is supported by:
Property operations that generally provide stable and growing cash flows through market cycles due to favorable supply/demand metrics in Manhattan, long average lease terms, high credit quality tenants and superior leasing, operating and asset management skills;
Concentration of our activities in a Manhattan market that is consistently attractive to property investors and lenders through market cycles relative to other markets;
Maintaining strong corporate liquidity and careful management of future debt maturities; and
Maintaining access to corporate capital markets through balanced financing and investment activities that result in strong balance sheet and cash flow metrics.
Manhattan Office Market Overview
Manhattan is by far the largest office market in the United States containing more rentable square feet than the next four largest central business district office markets combined. The properties in our portfolio are primarily concentrated in some of Manhattan's most prominent midtown locations.
According to Cushman and Wakefield Research Services as of December 31, 2019, Manhattan has a total office inventory of approximately 408.9 million square feet, including approximately 250.7 million square feet in midtown. We estimate that approximately 13.6 million square feet of new construction class-A buildings over 250,000 square feet will become available between 2020 and 2024 in Manhattan, approximately 43.7% of which is pre-leased. We estimate that this increase is partially offset by approximately 5.5 million square feet which will be converted from office use to an alternative use. This will add only approximately 0.4% per year to Manhattan's total inventory, net of conversions, over the next five years.
While the addition of new supply to the Manhattan office inventory is nominal relative to the size of the overall market, we view any additional supply as a positive to the Manhattan office market given the older vintage of the majority of Manhattan’s office inventory and the desire of certain tenants to occupy new, high quality, efficient office space, which often isn’t available in older vintage properties. In addition, Manhattan’s office inventory has only grown by approximately 8.6 million square feet over the last 25 years.
According to Cushman and Wakefield Research Services the total volume of leases signed in Manhattan for the years ended December 31, 2019 and 2018 was 34.7 million and 35.9 million, respectively. Manhattan's diverse tenant base is exemplified by the following tables, which show the percentage of leasing volume attributable to each industry:

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Percent of Manhattan Leasing Volume (1)
Industry 2019 2018
Technology, Advertising, Media, and Information ("TAMI") 38.1% 15.7%
Financial Services 19.7% 25.6%
Real Estates 12.1% 17.5%
Legal Services 7.4% 8.5%
Professional Services 6.1% 7.4%
Retail/Wholesale 4.6% 5.9%
Public Sector 3.9% 6.2%
Other 8.1% 13.2%
(1)Source: Cushman and Wakefield Research Services
General Terms of Leases in the Manhattan Markets
Leases entered into for space in Manhattan typically contain terms that may not be contained in leases in other U.S. office markets. The initial term of leases entered into for space in Manhattan is generally seven to fifteen years. Tenants leasing space in excess of 10,000 square feet for an initial term of 10 years or longer often will negotiate an option to extend the term of the lease for one or two renewal periods, typically for a term of five years each. The base rent during the initial term often will provide for agreed-upon periodic increases over the term of the lease. Base rent for renewal terms is most often based upon the then fair market rental value of the premises as of the commencement date of the applicable renewal term (generally determined by binding arbitration in the event the landlord and the tenant are unable to mutually agree upon the fair market value), though base rent for a renewal period may be set at 95% of the then fair market rent. Very infrequently, leases may contain termination options whereby a tenant can terminate the lease obligation before the lease expiration date upon payment of a penalty together with repayment of the unamortized portion of the landlord's transaction costs (e.g., brokerage commissions, free rent periods, tenant improvement allowances, etc.).
In addition to base rent, a tenant will generally also pay its pro rata share of increases in real estate taxes and operating expenses for the building over a base year, which is typically the year during which the term of the lease commences, based upon the tenant's proportionate occupancy of the building. In some smaller leases (generally less than 10,000 square feet), in lieu of paying additional rent based upon increases in building operating expenses, base rent will be increased each year during the lease term by a set percentage on a compounding basis (though the tenant will still pay its pro rata share of increases in real estate taxes over a base year).
Tenants typically receive a free rent period following commencement of the lease term, which in some cases may coincide with the tenant's construction period.
The landlord most often supplies electricity either on a sub-metered basis at the landlord's cost plus a fixed percentage or on a rent inclusion basis (i.e., a fixed fee is added to the base rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant). Base building services, other than electricity, such as heat, air conditioning, freight elevator service during business hours and base building cleaning typically are provided at no additional cost, but are included in the building's operating expenses. The tenant will typically pay additional rent only for services which exceed base building services or for services which are provided other than during normal business hours.
In a typical lease for a new tenant renting in excess of 10,000 square feet, the landlord will deliver the premises with existing improvements demolished. In such instances, the landlord will typically provide a tenant improvement allowance, which is a fixed sum that the landlord makes available to the tenant to reimburse the tenant for all or a portion of the tenant's initial construction of its premises. Such sum typically is payable as work progresses, upon submission by the tenant of invoices for the cost of construction and lien waivers. However, in certain leases (most often for relatively small amounts of space), the landlord will construct the premises for the tenant at a cost to the landlord not to exceed an agreed upon amount with the tenant paying any amount in excess of the agreed upon amount. In addition, landlords may rent space to a tenant that is "pre-built" (i.e., space that was constructed by the landlord in advance of lease signing and is ready to for the tenant to move in with the tenant selecting paint and carpet colors).

8


Occupancy
The following table sets forth the weighted average occupancy rates at our office properties based on space leased for properties owned by us as of December 31, 2019:
  Percent Occupied as of December 31,
Property 2019 2018
Same-Store office properties - Manhattan (1) 
 96.2% 96.0%
Manhattan office properties 94.5% 94.5%
Suburban office properties 85.7% 91.3%
Unconsolidated joint venture office properties 93.9% 95.4%
Portfolio (2)
 94.3% 94.2%
(1)All office properties located in Manhattan owned by us at January 1, 2018 and still owned by us in the same manner at December 31, 2019. Percent Occupied includes leases signed but not yet commenced.
(2)Excludes properties under development.
Rent Growth
We are constantly evaluating our schedule of future lease expirations to mitigate occupancy risk while maximizing rent growth. We proactively manage future lease expirations based on our view of estimated current and future market conditions and asking rents. The following table sets forth our future lease expirations, excluding triple net leases, and management's estimates of market asking rents. Taking rents are typically lower than asking rents and may vary from building to building. There can be no assurances that our estimates of market rents are accurate or that market rents currently prevailing will not erode or outperform in the future.
  ANNUAL LEASE EXPIRATIONS - MANHATTAN OPERATING PROPERTIES
  Consolidated Properties Joint Venture Properties
Year of Lease Expiration Number of Expiring Leases (2)
Rentable Square Footage of Expiring Leases
Percentage of Total
Sq. Ft.

 Annualized Cash Rent of Expiring Leases
 
 Annualized Cash Rent Per Square Foot of Expiring Leases
$/psf (3)

Current Weighted Average Asking Rent
$/psf (4)

 Number of Expiring Leases (2)
Rentable Square Footage of Expiring Leases
Percentage of Total
Sq. Ft.

 Annualized Cash Rent of Expiring Leases
 
 Annualized Cash Rent Per Square Foot of Expiring Leases
$/psf (3)

Current Weighted Average Asking Rent $/psf (4)
                 
2019 (1)
 14
422,686
3.42%$35,203,898 
$83.29

$69.38
 2
1,714
0.02%
$54,600
 
$31.86

$32.47
                 
1st Quarter 2020 14
108,121
0.87%$7,418,586 
$68.61

$65.41
 4
132,676
1.23%
$8,212,220
 
$61.90

$75.46
2nd Quarter 2020 15
44,882
0.36%2,965,824
 66.08
76.41
 5
56,941
0.53%4,337,388
 76.17
83.37
3rd Quarter 2020 19
243,599
1.97%15,140,069
 62.15
62.17
 4
30,098
0.28%2,196,793
 72.99
73.26
4th Quarter 2020 28
1,478,732
11.95%100,725,841
 
91.21(5)

80.68(5)

 5
30,276
0.28%3,011,293
 99.46
86.37
                 
Total 2020 76
1,875,334
15.15%$126,250,320 
$76.69

$72.02
 18
249,991
2.32%
$17,757,694
 
$71.03

$78.32
                 
2021 108
1,259,079
10.18%$77,936,064 $61.90$67.88 26
291,807
2.70%
$22,156,933
 
$75.93

$79.20
2022 97
822,698
6.65%67,030,173
 81.48
82.72
 31
894,293
8.28%83,342,706
 93.19
95.10
2023 76
883,272
7.14%57,648,722
 65.27
65.99
 16
438,826
4.06%38,216,366
 87.09
80.68
2024 60
399,467
3.23%28,380,429
 71.05
71.32
 24
1,003,426
9.29%106,754,273
 106.39
87.20
2025 45
591,666
4.78%53,408,872
 90.27
82.35
 12
426,938
3.95%34,135,739
 79.95
84.97
2026 30
781,269
6.32%55,151,891
 70.59
68.48
 20
499,312
4.62%50,595,762
 101.33
103.74
2027 35
602,943
4.87%46,184,007
 76.60
71.71
 17
375,697
3.48%33,260,546
 88.53
94.16
2028 38
599,486
4.85%44,180,538
 73.70
76.07
 18
206,956
1.92%21,542,167
 104.09
100.76
Thereafter 91
4,132,832
33.41%242,723,273
 58.73
66.56
 47
6,408,455
59.36%427,998,688
 66.79
82.80
  670
12,370,732
100.00%$834,098,187 
68.05(5)

70.23(5)

 231
10,797,415
100.00%
$835,815,474
 
$77.41

$85.72
(1)Includes month to month holdover tenants that expired prior to December 31, 2019.
(2)Tenants may have multiple leases.
(3)Represents in place annualized rent allocated by year of expiration.
(4)Management's estimate of current average asking rents for currently occupied space as of December 31, 2019. Taking rents are typically lower than asking rents and may vary from property to property.
(5)Excludes Credit Suisse at One Madison Avenue. In January 2020, Credit Suisse entered into a lease termination agreement with the Company and vacated its space at the property.
Industry Segments
The Company is a REIT that is engaged in the acquisition, development, ownership, management and operation of commercial and residential real estate properties, principally office properties, located in the New York metropolitan area and has two reportable segments: real estate and debt and preferred equity investments. Our industry segments are discussed in Note 21, "Segment Information," in the accompanying consolidated financial statements.

9


At December 31, 2019, our real estate portfolio was primarily located in one geographical market, the New York metropolitan area. The primary sources of revenue are generated from tenant rents and escalations and reimbursement revenue. Real estate property operating expenses consist primarily of cleaning, security, maintenance, utility costs, real estate taxes and, at certain properties, ground rent expense. As of December 31, 2019, one tenant in our office portfolio, Credit Suisse, contributed 8.2% of our share of annualized cash rent. In January 2020, Credit Suisse executed a lease termination agreement with the Company and vacated its space at the property, thereby reducing its share of annualized cash rent to approximately 3.3%. No other tenant contributed more than 5.0% of our share of annualized cash rent. No property contributed in excess of 10.0% of our consolidated total revenue for 2019.
At December 31, 2019, we held debt and preferred equity investments with a book value of $1.7 billion, including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in balance sheet line items other than the Debt and Preferred Equity Investments line item. At December 31, 2019, the assets underlying our debt and preferred equity investments were located in the New York metropolitan area. The primary sources of revenue are generated from interest and fee income.
Employees
At December 31, 2019, we employed 1,033 employees, 290 of whom were employed in our corporate offices. There are currently six collective bargaining agreements which cover the workforce that services substantially all of our properties.
Highlights from 2019
Our significant achievements from 2019 included:
Corporate
Repurchased 4.6 million shares of our common stock under our share repurchase program at an average price of $83.62 per share and increased the size of our share repurchase program by $500 million to $3.0 billion. From program inception through December 31, 2019, we have repurchased a cumulative total of 22.7 million shares of our common stock under the program at an average price of $95.66 per share.
Leasing
Signed 163 Manhattan office leases covering approximately 2.5 million square feet. The mark-to-market on signed Manhattan office leases was 38.1% higher in 2019 than the previously fully escalated rents on the same spaces.
Reached 65% leased at One Vanderbilt Avenue after signing new leases with KPS Capital Partners LP; Sentinel Capital Partners; and Oak Hill Advisors and lease expansions with The Carlyle Group and McDermott Will & Emery.
Reached 96.2% leased at 410 Tenth Avenue after signing new leases with First Republic Bank and Amazon.
Signed a lease renewal with BMW of Manhattan for 227,000 square feet at 555 West 57th Street.
Signed a new retail lease with Ulta Beauty for 12,040 square feet at 2 Herald Square.
Acquisitions
Entered into a contract to acquire 707 Eleventh Avenue for a gross purchase price of $90.0 million. The 160,000-square-foot office property will be redeveloped into a modern, Class-A building. The acquisition was closed in January 2020.
Closed on the acquisition of a majority and controlling interest in 410 Tenth Avenue at a gross purchase price of $440 million.
Closed on the acquisition from our joint venture partner of the remaining 10% interest in 110 Greene Street that we did not already own at a gross asset valuation of $256.5 million.
Took possession of the retail co-op at 106 Spring Street in Soho. This property previously served as collateral for a debt and preferred equity investment and was acquired through a negotiated transaction with the sponsor of the investment.
Dispositions
Closed on the sale of 360 Hamilton Avenue in White Plains, New York and 100, 200 and 500 Summit Lake Drive in Valhalla, New York.
Closed on the sale of the development site at 562 Fifth Avenue for a sale price of $52.4 million.
Closed on the sale of the development site at 1640 Flatbush Avenue in Brooklyn for a sale price of $16.2 million.
Closed on the sale of 1010 Washington Boulevard in Stamford, Connecticut for a sale price of $23.1 million.

10


Entered into a contract to sell 220 East 42nd Street, also known as The News Building, for total consideration of $815.0 million.
Sold a 49% interest in the prime retail condominium at 115 Spring Street in Soho at a gross asset valuation of $66.6 million.
Together with our joint venture partner, closed on the sale of 521 Fifth Avenue for a sale price of $381.0 million.
Closed on the sale of our 20.0% interest in 131-137 Spring Street to the owner of the remaining 80.0% interest. The transaction generated net cash proceeds to the Company of $15.2 million.
Debt and Preferred Equity Investments
Originated and retained, or acquired, $0.7 billion in debt and preferred equity investments, inclusive of advances under future funding obligations, discount and fee amortization, and paid-in-kind interest, net of premium amortization, and recorded $1.2 billion of proceeds from sales, repayments and participations.
Finance
Together with our joint venture partner, closed on the refinancing of 55 West 46th Street, also known as Tower 46. The new $198.0 million mortgage replaces the previous $195.0 million mortgage, has a 3-year term, with two one-year extension options, and bears interest at a floating rate of 1.25% over LIBOR.
Together with our joint venture partner, closed on a $75.0 million upsize of our existing financing at 2 Herald Square to $225.0 million and reduced the interest rate on the loan by 10 basis points to a floating rate of 1.45% over LIBOR.
Entered into an agreement to reduce the interest rate spread by 65 basis points on the Company's $200.0 million, 7-year term loan that matures in 2024.
Closed on a $465.0 million construction facility for the redevelopment of 410 Tenth Avenue. The floating rate facility has a term of three years, with two one-year extension options, and bears interest at an initial floating rate of 2.225% over LIBOR.
Closed on a new $85.0 million financing of the office portion of 609 Fifth Avenue. The new mortgage has a 5-year term and bears interest at a floating rate of 2.40% over LIBOR.

11


ITEM 1A.    RISK FACTORS
Declines in the demand for office space in the New York metropolitan area, and in particular midtown Manhattan, could adversely affect the value of our real estate portfolio and our results of operations and, consequently, our ability to service current debt and to pay dividends and distributions to security holders.
The majority of our property holdings are comprised of commercial office properties located in midtown Manhattan. Our property holdings also include some retail properties and multifamily residential properties. As a result of the concentration of our holdings, our business is dependent on the condition of the New York metropolitan area economy in general and the market for office space in midtown Manhattan in particular. Future weakness and uncertainty in the New York metropolitan area economy could materially reduce the value of our real estate portfolio and our rental revenues, and thus adversely affect our cash flow and our ability to service current debt and to pay dividends and distributions to security holders.
We may be unable to renew leases or relet space as leases expire.
If tenants decide not to renew their leases upon expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of a renewal or new lease, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. As of December 31, 2019, approximately 46.3% and approximately 26.7% of the rentable square feet, are scheduled to expire by December 31, 2024 at our consolidated properties and unconsolidated joint venture properties, respectively, and as of December 31, 2019, these leases had annualized escalated rent totaling $408.6 million and $268.3 million, respectively. In addition, changes in space utilization by tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and pay dividends and distributions to security holders could be adversely affected.
We face significant competition for tenants.
The leasing of real estate is highly competitive. The principal competitive factors are rent, location, lease term, lease concessions, services provided and the nature and condition of the property to be leased. We directly compete with all owners, developers and operators of similar space in the areas in which our properties are located.
Our commercial office properties are concentrated in highly developed areas of the New York metropolitan area. Manhattan is the largest office market in the United States. The number of competitive office properties in the New York metropolitan area, which may be newer or better located than our properties, could have a material adverse effect on our ability to lease office space at our properties, and on the effective rents we are able to charge.
The expiration of long term leases or operating sublease interests where we do not own a fee interest in the land could adversely affect our results of operations.
Our interests in certain properties are entirely or partially comprised of either long-term leasehold or operating sublease interests in the land and the improvements, rather than by ownership of fee interest in the land. As of December 31, 2019, the expiration dates of these long-term leases range from 2043 to 2115, including the effect of our unilateral extension rights on each of these properties. Pursuant to the leasehold arrangements, we, as tenant under the operating sublease, perform the functions traditionally performed by landlords with respect to our subtenants. We are responsible for not only collecting rent from our subtenants, but also maintaining the property and paying expenses relating to the property. Annualized cash rents, including our share of joint venture annualized cash rents, from properties held through long-term leases or operating sublease interests at December 31, 2019 totaled $337.4 million, or 23.7%, of our share of total Portfolio annualized cash rent. Unless we purchase a fee interest in the underlying land or extend the terms of these leases prior to expiration, we will lose our right to operate these properties upon expiration of the leases, which could adversely affect our financial condition and results of operations. Rent payments under leasehold or operating sublease interests are adjusted, within the parameters of the contractual arrangements, at certain intervals. Rent adjustments may result in higher rents that could adversely affect our financial condition and results of operation.
We rely on five large properties for a significant portion of our revenue.
Five of our properties, 1185 Avenue of the Americas, 11 Madison Avenue, 420 Lexington Avenue, 1515 Broadway, and One Madison Avenue accounted for 33.7% of our Portfolio annualized cash rent, which includes our share of joint venture annualized cash rent, as of December 31, 2019.
Our revenue and cash available to service debt obligations and for distribution to our stockholders would be materially adversely affected if any of these properties were materially damaged or destroyed. Additionally, our revenue and cash available to service debt obligations and for distribution to our stockholders would be materially adversely affected if tenants at these properties fail to timely make rental payments due to adverse financial conditions or otherwise, default under their leases or file for bankruptcy or become insolvent.

12


Our results of operations rely on major tenants and insolvency or bankruptcy of these or other tenants could adversely affect our results of operations.
Giving effect to leases in effect as of December 31, 2019 for consolidated properties and unconsolidated joint venture properties, as of that date, our five largest tenants, based on annualized cash rent, accounted for 19.0% of our share of Portfolio annualized cash rent, with one tenant, Credit Suisse Securities (USA) LLC, accounting for 8.2% of our share of Portfolio annualized cash rent, respectively. In January 2020, Credit Suisse entered into a lease termination agreement with the Company and vacated its space at the property, thereby reducing its share of annualized cash rent to approximately 3.3%. Our business and results of operations would be adversely affected if any of our major tenants became insolvent, declared bankruptcy, or otherwise refused to pay rent in a timely fashion or at all. In addition, if business conditions in the industries in which our tenants are concentrated deteriorate, or economic volatility has a disproportionate impact on our clients, we may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents across tenants in such industries, which could in turn have an adverse effect on our business and results of operations.
Construction is in progress at our development projects
The Company's development projects are subject to internal and external factors which may affect construction progress. Unforeseen matters could delay completion, result in increased costs or otherwise have a material effect on our results of operations. In addition, the extended time frame to complete these projects could cause them to be subject to shifts and trends in the real estate market which may not be consistent with our current business plans for the properties.
We are subject to risks that affect the retail environment.
While only 6.0% of our Portfolio annualized cash rent is generated by retail properties, principally in Manhattan, we are subject to risks that affect the retail environment generally, including the level of consumer spending and preferences, consumer confidence, electronic retail competition and levels of tourism in Manhattan. These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our retail properties, which could in turn have an adverse effect on our business and results of operations.
We are subject to the risk of adverse changes in economic and geopolitical conditions in general and the commercial office markets in particular
Our business may be affected by volatility in the financial and credit markets and other market, economic, or political challenges experienced by the U.S. economy or the real estate industry as a whole, including changes in law and policy and uncertainty in connection with any such changes. Future periods of economic weakness or volatility could result in reduced access to credit and/or wider credit spreads. Economic or political uncertainty, including concern about growth and the stability of the markets generally and changes in the federal interest rates, may lead many lenders and institutional investors to reduce and, in some cases, cease to provide funding to borrowers, which could adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants. Specifically, our business may be affected by the following conditions:
significant job losses or declining rates of job creation which may decrease demand for office space, causing market rental rates and property values to be negatively impacted;
our ability to borrow on terms and conditions that we find acceptable, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reducing our returns from both our existing operations and our acquisition and development activities and increasing our future interest expense; and
reduced values of our properties, which may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans.
Leasing office space to smaller and growth-oriented businesses could adversely affect our cash flow and results of operations.
Some of the tenants in our properties are smaller, growth-oriented businesses that may not have the financial strength of larger corporate tenants. Smaller companies generally experience a higher rate of failure than larger businesses. Growth-oriented firms may also seek other office space as they develop. Leasing office space to these companies could create a higher risk of tenant defaults, turnover and bankruptcies, which could adversely affect our cash flow and results of operations.
We may suffer adverse consequences if our revenues decline since our operating costs do not necessarily decline in proportion to our revenue.
We earn a significant portion of our income from renting our properties. Our operating costs, however, do not necessarily fluctuate in direct proportion to changes in our rental revenue. If revenues decline more than expenses, we may be forced to borrow to cover our costs, we may incur losses or we may not have cash available to service our debt and to pay dividends and distributions to security holders.

13


Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.
We may acquire properties when we are presented with attractive opportunities. We may face competition for acquisition opportunities from other investors, particularly those investors who are willing to incur more leverage, and this competition may adversely affect us by subjecting us to the following risks:
an inability to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors; and
an increase in the purchase price for such acquisition property.
If we are unable to successfully acquire additional properties, our ability to grow our business could be adversely affected.
We face risks associated with property acquisitions.
Our acquisition activities may not be successful if we are unable to meet required closing conditions or unable to finance acquisitions and developments of properties on favorable terms or at all. Additionally, we have less visibility into the future performance of acquired properties than properties that we have owned for a period of time, and therefore, recently acquired properties may not be as profitable as our existing portfolio.
Further, we may acquire properties subject to both known and unknown liabilities and without any recourse, or with only limited recourse to the seller. As a result, if a liability were asserted against us arising from our ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include:
claims by tenants, vendors or other persons arising from dealing with the former owners of the properties;
liabilities incurred in the ordinary course of business;
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties; and
liabilities for clean-up of undisclosed environmental contamination.
Limitations on our ability to sell or reduce the indebtedness on specific properties could adversely affect the value of our common stock.
In connection with past and future acquisitions of interests in properties, we have or may agree to restrictions on our ability to sell or refinance the acquired properties for certain periods. These limitations could result in us holding properties which we would otherwise sell, or prevent us from paying down or refinancing existing indebtedness, any of which may have adverse consequences on our business and result in a material adverse effect on our financial condition and results of operations.
Potential losses may not be covered by insurance.
We maintain “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism, excluding nuclear, biological, chemical, and radiological terrorism ("NBCR")), within three property insurance programs and liability insurance. Separate property and liability coverage may be purchased on a stand-alone basis for certain assets, such as the development of One Vanderbilt. Additionally, one of our captive insurance companies, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by our other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under our insurance policies, we would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under our debt instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by the Company or its affiliates.
Furthermore, with respect to certain of our properties, including properties held by joint ventures or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss.

14


The occurrence of a terrorist attack may adversely affect the value of our properties and our ability to generate cash flow.
Our operations are primarily concentrated in the New York metropolitan area. In the aftermath of a terrorist attack or other acts of terrorism or war, tenants in the New York metropolitan area may choose to relocate their business to less populated, lower-profile areas of the United States that those tenants believe are not as likely to be targets of future terrorist activity. In addition, economic activity could decline as a result of terrorist attacks or other acts of terrorism or war, or the perceived threat of such acts. Each of these impacts could in turn trigger a decrease in the demand for space in the New York metropolitan area, which could increase vacancies in our properties and force us to lease our properties on less favorable terms. While under the Terrorism Risk Insurance Program Reauthorization Act of 2015, insurers must make terrorism insurance available under their property and casualty insurance policies, this legislation does not regulate the pricing of such insurance. The absence of affordable terrorism insurance coverage may adversely affect the general real estate lending market, lending volume and the market's overall liquidity and, in the event of an uninsured loss, we could lose all or a portion of our assets. Furthermore, we may also experience increased costs in relation to security equipment and personnel. As a result, the value of our properties and our results of operations could materially decline.
We face possible risks associated with the natural disasters and the physical effects of climate change.
We are subject to risks associated with natural disasters and the physical effects of climate change, which can include storms, hurricanes and flooding, any of which could have a material adverse effect on our properties, operations and business. To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and rising sea-levels. Over time, these conditions could result in declining demand for office space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.
We depend on dividends and distributions from our direct and indirect subsidiaries.
Substantially all of our assets are held through subsidiaries of our Operating Partnership. Our Operating Partnership’s cash flow is dependent on cash distributions from its subsidiaries, and in turn, substantially all of our cash flow is dependent on cash distributions from our Operating Partnership. The creditors of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before distributions may be made by that subsidiary to its equity holders.
Therefore, our Operating Partnership’s ability to make distributions to holders of its partnership units depends on its subsidiaries’ ability first to satisfy their obligations to their creditors and then to make distributions to our Operating Partnership. Likewise, our ability to pay dividends to holders of common stock and preferred stock depends on our Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions payable to holders of preferred units and then to make distributions to us.
Furthermore, the holders of preferred partnership units of our Operating Partnership are entitled to receive preferred distributions before payment of distributions to holders of common units of our Operating Partnership, including us. Thus, our ability to pay cash dividends to our shareholders and satisfy our debt obligations depends on our Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions to holders of its preferred partnership units and then to holders of its common units, including us.
In addition, our participation in any distribution of the assets of any of our direct or indirect subsidiaries upon any liquidation, reorganization or insolvency is only after the claims of the creditors, including trade creditors and preferred security holders, are satisfied.

15


Debt financing, financial covenants, degree of leverage, and increases in interest rates could adversely affect our economic performance.
Scheduled debt payments could adversely affect our results of operations.
Cash flow could be insufficient to meet the payments of principal and interest required under our current mortgages, our 2017 credit facility, our senior unsecured notes, our debentures and indebtedness outstanding at our joint venture properties. The total principal amount of our outstanding consolidated indebtedness was $5.6 billion as of December 31, 2019, consisting of $1.5 billion in unsecured bank term loans (or "Term Loan A" and "Term Loan B"), $1.5 billion under our senior unsecured notes, $0.1 billion of junior subordinated deferrable interest debentures, $2.2 billion of non-recourse mortgages and loans payable on certain of our properties and debt and preferred equity investments, $240.0 million drawn under our revolving credit facility, and $11.8 million of outstanding letters of credit. In addition, we could increase the amount of our outstanding consolidated indebtedness in the future, in part by borrowing under the revolving credit facility portion of our 2017 credit facility. As of December 31, 2019, the total principal amount of non-recourse indebtedness outstanding at the joint venture properties was $9.0 billion, of which our proportionate share was $4.0 billion. As of December 31, 2019, we had no recourse indebtedness outstanding at our unconsolidated joint venture properties.
If we are unable to make payments under our 2017 credit facility, all amounts due and owing at such time shall accrue interest at a rate equal to 2% higher than the rate at which each draw was made. If we are unable to make payments under our senior unsecured notes, the principal and unpaid interest will become immediately payable. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose on the property, resulting in loss of income and asset value. Foreclosure on mortgaged properties or an inability to make payments under our 2017 credit facility or our senior unsecured notes could trigger defaults under the terms of our other financings, making such financings at risk of being declared immediately payable, and would have a negative impact on our financial condition and results of operations.
We may not be able to refinance existing indebtedness, which may require substantial principal payments at maturity. $55.0 million of consolidated mortgage debt and $105.0 million of unconsolidated joint venture debt is scheduled to mature in 2020 after giving effect to our as-of-right extension options and repayments and refinancing of consolidated and joint venture debt between December 31, 2019 and February 27, 2020 as discussed in the "Financial Statements and Supplementary Data" section. At the present time, we intend to repay, refinance, or exercise extension options on the debt associated with our properties on or prior to their respective maturity dates. At the time of refinancing, prevailing interest rates or other factors, such as the possible reluctance of lenders to make commercial real estate loans, may result in higher interest rates. Increased interest expense on the extended or refinanced debt would adversely affect cash flow and our ability to service debt obligations and pay dividends and distributions to security holders. If any principal payments due at maturity cannot be repaid, refinanced or extended, our cash flow will not be sufficient to repay maturing or accelerated debt.
Financial covenants could adversely affect our ability to conduct our business.
The mortgages and mezzanine loans on our properties generally contain customary negative covenants that limit our ability to further mortgage the properties, to enter into material leases without lender consent or materially modify existing leases, among other things. In addition, our 2017 credit facility and senior unsecured notes contain restrictions and requirements on our method of operations. Our 2017 credit facility and our unsecured notes also require us to maintain designated ratios, including but not limited to, total debt-to-assets, debt service coverage and unencumbered assets-to-unsecured debt. These restrictions could adversely affect operations (including reducing our flexibility and our ability to incur additional debt), our ability to pay debt obligations and our ability to pay dividends and distributions to security holders.
Rising interest rates could adversely affect our cash flow.
Advances under our 2017 credit facility and certain property-level mortgage debt bear interest at a variable rate. Our consolidated variable rate borrowings totaled $2.0 billion at December 31, 2019. In addition, we could increase the amount of our outstanding variable rate debt in the future, in part by borrowing additional amounts under our 2017 credit facility. Borrowings under our revolving credit facility and term loans bore interest at the 30-day LIBOR, plus spreads of 100 basis points, 110 basis points, and 100 basis points, respectively, at December 31, 2019. As of December 31, 2019, borrowings under our term loans and junior subordinated deferrable interest debentures totaled $1.5 billion and $100.0 million, respectively. We may incur indebtedness in the future that also bears interest at a variable rate or may be required to refinance our debt at higher rates. At December 31, 2019, a hypothetical 100 basis point increase in interest rates across each of our variable interest rate instruments, including our variable rate debt and preferred equity investments which mitigate our exposure to interest rate changes, would increase our net annual interest costs by $13.3 million and would increase our share of joint venture annual interest costs by $17.0 million. Our joint ventures may also incur variable rate debt and face similar risks. Accordingly, increases in interest rates could adversely affect our results of operations and financial conditions and our ability to continue to pay dividends and distributions to security holders.

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The potential phasing out of LIBOR after 2021 may affect our financial results.
The chief executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, has announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict the effect of these changes or the establishment of alternative reference rates.
The Alternative Reference Rate Committee ("ARRC"), a committee convened by the Federal Reserve that includes major market participants, and on which the SEC staff and other regulators participate, has proposed an alternative rate, the Secured Overnight Financing Rate (“SOFR”), to replace U.S. Dollar LIBOR. Any changes announced by the FCA, ARRC, other regulators or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which U.S. Dollar LIBOR, SOFR, or any other alternative rates are determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the levels of interest payments we incur and interest payments we receive may change. It is also uncertain whether SOFR or any other alternative rate will gain market acceptance. In addition, although certain of our LIBOR based obligations and investments provide for alternative methods of calculating the interest rate if LIBOR is not reported, uncertainty as to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR rate was available in its current form. We may also need to renegotiate our LIBOR based obligations, which we may not be successful in doing on a timely basis or on terms acceptable to us.
Failure to hedge effectively against interest rate changes may adversely affect results of operations.
The interest rate hedge instruments we use to manage some of our exposure to interest rate volatility involve risk and counterparties may fail to perform under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to interest rate changes and when existing interest rate hedges terminate, we may incur increased costs in putting in place further interest rate hedges. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
Increases in our leverage could adversely affect our stock price.
Our organizational documents do not contain any limitation on the amount of indebtedness we may incur. We consider many factors when making decisions regarding the incurrence of indebtedness, such as the purchase price of properties to be acquired with debt financing, the estimated market value of our properties and the ability of particular properties and our business as a whole to generate cash flow to cover expected debt service. Any changes that increase our leverage could be viewed negatively by investors. As a result, our stock price could decrease.
A downgrade in our credit ratings could materially adversely affect our business and financial condition.
Our credit rating and the credit ratings assigned to our debt securities and our preferred stock could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and any rating could be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant such action. If any of the credit rating agencies that have rated our securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its outlook for that rating is negative, such action could have a material adverse effect on our costs and availability of funding, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.
Debt and preferred equity investments could cause us to incur expenses, which could adversely affect our results of operations.
We held first mortgages, mezzanine loans, junior participations and preferred equity interests with an aggregate net book value of $1.7 billion at December 31, 2019. Some of these instruments may have some recourse to their sponsors, while others are limited to the collateral securing the loan. In the event of a default under these obligations, we may have to take possession of the collateral securing these interests. Borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce their obligations to us. Declines in the value of the property may prevent us from realizing an amount equal to our investment upon foreclosure or realization even if we make substantial improvements or repairs to the underlying real estate in order to maximize such property's investment potential. In addition, we may invest in mortgage-backed securities and other marketable securities.
We maintain and regularly evaluate the need for reserves to protect against potential future losses. Our reserves reflect management's judgment of the probability and severity of losses and the value of the underlying collateral. We cannot be certain that our judgment will prove to be correct and that our reserves will be adequate over time to protect against future losses because of unanticipated adverse changes in the economy or events adversely affecting specific properties, assets, tenants, borrowers, industries in which our tenants and borrowers operate or markets in which our tenants and borrowers or their properties are located.

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If our reserves for credit losses prove inadequate, we could suffer losses which would have a material adverse effect on our financial performance, the market prices of our securities and our ability to pay dividends and distributions to security holders.
Joint investments could be adversely affected by our lack of sole decision-making authority and reliance upon a co-venturer's financial condition.
We co-invest with third parties through partnerships, joint ventures, co-tenancies or other structures, and by acquiring non-controlling interests in, or sharing responsibility for managing the affairs of, a property, partnership, joint venture, co-tenancy or other entity. Therefore, we may not be in a position to exercise sole decision-making authority regarding such property, partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may involve risks not present were a third party not involved, including the possibility that our partners, co-tenants or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, our partners or co-venturers might at any time have economic or other business interests or goals which are competitive or inconsistent with our business interests or goals. These investments may also have the potential risk of impasses on decisions such as a sale, because neither we, nor the partner, co-tenant or co-venturer would have full control over the partnership or joint venture. In addition, we may in specific circumstances be liable for the actions of our third-party partners, co-tenants or co-venturers. As of December 31, 2019, we had an aggregate cost basis in joint ventures totaling $2.9 billion.
Certain of our joint venture agreements contain terms in favor of our partners that could have an adverse effect on the value of our investments in the joint ventures.
Each of our joint venture agreements has been individually negotiated with our partner in the joint venture and, in some cases, we have agreed to terms that are more favorable to our partner in the joint venture than to us. For example, our partner may be entitled to a specified portion of the profits of the joint venture before we are entitled to any portion of such profits. We may also enter into similar arrangements in the future.
We may incur costs to comply with governmental laws and regulations.
We are subject to various federal, state and local environmental and health and safety laws that can impose liability on current and former property owners or operators for the clean-up of certain hazardous substances released on a property or of contamination at any facility (e.g., a landfill) to which we have sent hazardous substances for treatment or disposal, without regard to fault or whether the release or disposal was in compliance with law. Being held responsible for such a clean-up could result in significant cost to us and have a material adverse effect on our financial condition and results of operations.
Our properties may be subject to risks relating to current or future laws, including laws benefiting disabled persons, such as the Americans with Disabilities Act, or ADA, and state or local zoning, construction or other regulations. Compliance with such laws may require significant property modifications in the future, which could be costly and non-compliance could result in fines being levied against us in the future. Such costs could have an adverse impact on our cash flows and ability to pay dividends to stockholders.
Our charter documents, debt instruments and applicable law may hinder any attempt to acquire us, which could discourage takeover attempts and prevent our stockholders from receiving a premium over the market price of our stock.
Provisions of our charter and bylaws could inhibit changes in control.
A change of control of our company could benefit stockholders by providing them with a premium over the then-prevailing market price of our stock. However, provisions contained in our charter and bylaws may delay or prevent a change in control of our company. These provisions, discussed more fully below, are:
Ownership limitations
Maryland takeover statutes that may prevent a change of control of our company; and
Contractual provisions that limit the assumption of certain of our debt
We have a stock ownership limit.
To remain qualified as a REIT for federal income tax purposes, not more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals at any time during the last half of any taxable year. For this purpose, stock may be "owned" directly, as well as indirectly under certain constructive ownership rules, including, for example, rules that attribute stock held by one shareholder to another shareholder. In part to avoid violating this rule regarding stock ownership limitations and maintain our REIT qualification, our charter prohibits ownership by any single stockholder of more than 9.0% in value or number of shares of our common stock. Limitations on the ownership of preferred stock may also be imposed by us.
Our board of directors has the discretion to raise or waive this limitation on ownership for any stockholder if deemed to be in our best interest. Our board of directors has granted such waivers from time to time. To obtain a waiver, a stockholder must

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present the board and our tax counsel with evidence that ownership in excess of this limit will not affect our present or future REIT status.
Absent any exemption or waiver, stock acquired or held in excess of the limit on ownership will be transferred to a trust for the exclusive benefit of a designated charitable beneficiary, and the stockholder's rights to distributions and to vote would terminate. The stockholder would be entitled to receive, from the proceeds of any subsequent sale of the shares transferred to the charitable trust, the lesser of: the price paid for the stock or, if the owner did not pay for the stock, the market price of the stock on the date of the event causing the stock to be transferred to the charitable trust; and the amount realized from the sale.
This limitation on ownership of stock could delay or prevent a change in control of our company.
Maryland takeover statutes may prevent a change of control of our company, which could depress our stock price.
Under the Maryland General Corporation Law, or the MGCL, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, stock exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
any person who beneficially owns 10% or more of the voting power of the corporation's outstanding voting stock; or
an affiliate or associate of the corporation who, at any time within the two year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.
A person is not an interested stockholder under the statute if the board of directors approves in advance the transaction by which he otherwise would have become an interested stockholder.
After the five year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation, voting together as a single group; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer, including potential acquisitions that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
In addition, Maryland law provides that holders of "control shares" of a Maryland corporation acquired in a "control share acquisition" will not have voting rights with respect to the control shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiror, by officers of the corporation or by directors who are employees of the corporation, under the Maryland Control Share Acquisition Act. "Control shares" means voting shares of stock that, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-tenth or more but less than one-third; (ii) one-third or more but less than a majority; or (iii) a majority or more of all voting power. A "control share acquisition" means the acquisition of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares, subject to certain exceptions.
We have opted out of these provisions of the MGCL, with respect to business combinations and control share acquisitions, by resolution of our board of directors and a provision in our bylaws, respectively. However, in the future, our board of directors may reverse its decision by resolution and elect to opt in to the MGCL's business combination provisions, or amend our bylaws and elect to opt in to the MGCL's control share provisions.
Additionally, the MGCL permits our board of directors, without stockholder approval and regardless of what is provided in our charter or bylaws, to implement takeover defenses, some of which have not been implemented by our board of directors. Such takeover defenses, if implemented, may have the effect of inhibiting a third party from making us an acquisition proposal or of delaying, deferring or preventing a change in our control under circumstances that otherwise could provide our stockholders with an opportunity to realize a premium over the then-current market price.
Contractual provisions that limit the assumption of certain of our debt may prevent a change in control.
Certain of our consolidated debt is not assumable and may be subject to significant prepayment penalties. These limitations could deter a change in control of our company.

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Compliance with changing or new regulations applicable to corporate governance and public disclosure may result in additional expenses, or affect our operations.
Changing or new laws, regulations and standards relating to corporate governance and public disclosure, including SEC regulations and NYSE rules, can create uncertainty for public companies. These changed or new laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.
Our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our continued efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors' audit of that assessment have required the commitment of significant financial and managerial resources. We expect these efforts to require the continued commitment of significant resources. Further, our directors, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business.
Future issuances of common stock, preferred stock and convertible debt could dilute existing stockholders' interests.
Our charter authorizes our board of directors to issue additional shares of common stock, preferred stock and convertible equity or debt without stockholder approval and without the requirement to offer rights of pre-emption to existing stockholders. Any such issuance could dilute our existing stockholders' interests. Also, any future series of preferred stock may have voting provisions that could delay or prevent a change of control of our company.
Changes in market conditions could adversely affect the market price of our common stock.
As with other publicly traded equity securities, the value of our common stock depends on various market conditions, which may change from time to time. In addition to the current economic environment and future volatility in the securities and credit markets, the following market conditions may affect the value of our common stock:
the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
our financial performance; and
general stock and bond market conditions.
The market value of our common stock is based on a number of factors including, but not limited to, the market's perception of the current and future value of our assets, our growth potential and our current and potential future earnings and cash dividends. Consequently, our common stock may trade at prices that are higher or lower than our net asset value per share of common stock.
The trading price of our common stock has been and may continue to be subject to wide fluctuations.
Between January 1, 2019 and December 31, 2019, the closing sale price of our common stock on the New York Stock Exchange, or the NYSE, ranged from $76.79 to $93.47 per share. Our stock price may fluctuate in response to a number of events and factors, such as those described elsewhere in this "Risk Factors" section. Equity issuances or buybacks by us or the perception that such issuances or buybacks may occur may also affect the market price of our common stock.
We may in the future pay taxable dividends on our common stock in common stock and cash.
In order to qualify as a REIT, we are required to annually distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains. In order to avoid taxation of our income, we are required to annually distribute to our stockholders all of our taxable income, including net capital gains. In order to satisfy these requirements, we may make distributions that are payable partly in cash and partly in shares of our common stock. If we pay such a dividend, taxable stockholders would be required to include the entire amount of the dividend, including the portion paid with shares of common stock, as income to the extent of our current and accumulated earnings and profits, and may be required to pay income taxes with respect to such dividends in excess of the cash dividends received.
We are dependent on external sources of capital.
We need a substantial amount of capital to operate and grow our business. This need is exacerbated by the distribution requirements imposed on us for SL Green to qualify as a REIT. We therefore rely on third-party sources of capital, which may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including the

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market's perception of our growth potential and our current and potential future earnings. In addition, we may raise money in the public equity and debt markets and our ability to do so will depend upon the general conditions prevailing in these markets. At any time, conditions may exist which effectively prevent us, or REITs in general, from accessing these markets. Moreover, additional equity offerings may result in substantial dilution of our stockholders' interests, and additional debt financing may substantially increase our leverage.
Our property taxes could increase due to reassessment or property tax rate changes.
We are required to pay real property taxes or payments in lieu of taxes in respect of our properties and such taxes may increase as our properties are reassessed by taxing authorities or as property tax rates change. An increase in the assessed value of our properties or our property tax rates could adversely impact our financial condition, results of operations and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.
We face potential conflicts of interest.
There are potential conflicts of interest between us and Stephen L. Green.
There is a potential conflict of interest relating to the disposition of certain property contributed to us by Stephen L. Green and affiliated entities in our initial public offering. Mr. Green serves as a member and as the chairman emeritus of our board of directors. If we sell a property in a transaction in which a taxable gain is recognized, for tax purposes the built-in gain would be allocated solely to him and not to us. As a result, Mr. Green has a conflict of interest if the sale of a property he contributed is in our best interest but not his.
In addition, Mr. Green's tax basis includes his share of debt, including mortgage indebtedness, owed by the Operating Partnership. If the Operating Partnership were to retire such debt, then he would experience a decrease in his share of liabilities, which, for tax purposes, would be treated as a distribution of cash to him. To the extent the deemed distribution of cash exceeded his tax basis, he would recognize gain. As a result, Mr. Green has a conflict of interest if the refinancing of indebtedness is in our best interest but not his.
Members of management may have a conflict of interest over whether to enforce terms of agreements with entities which Mr. Green, directly or indirectly, has an affiliation.
Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, who serves as a member and as the chairman emeritus of our board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements.
Our company and our tenants accounted for 22.70% of Alliance's 2019 estimated total revenue, based on information provided to us by Alliance. While we believe that the contracts pursuant to which these services are provided were the result of arm's length negotiations, there can be no assurance that the terms of such agreements, or dealings between the parties during the performance of such agreements, will be as favorable to us as those which could be obtained from unaffiliated third parties providing comparable services under similar circumstances.
SL Green's failure to qualify as a REIT would be costly and would have a significant effect on the value of our securities.
We believe we have operated in a manner for SL Green to qualify as a REIT for federal income tax purposes and intend to continue to so operate. Many of the REIT compliance requirements, however, are highly technical and complex. The determination that SL Green is a REIT requires an analysis of factual matters and circumstances. These matters, some of which are not totally within our control, can affect SL Green's qualification as a REIT. For example, to qualify as a REIT, at least 95% of our gross income must come from designated sources that are listed in the REIT tax laws. We are also required to distribute to stockholders at least 90% of our REIT taxable income excluding capital gains. The fact that we hold our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the Internal Revenue Service, or the IRS, might make changes to the tax laws and regulations that make it more difficult, or impossible, for us to remain qualified as a REIT.
If SL Green fails to qualify as a REIT, the funds available for distribution to our stockholders would be substantially reduced as we would not be allowed a deduction for dividends paid to our stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates and possibly increased state and local taxes.
Also, unless the IRS grants us relief under specific statutory provisions, SL Green would remain disqualified as a REIT for four years following the year in which SL Green first failed to qualify. If SL Green failed to qualify as a REIT, SL Green would

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have to pay significant income taxes and would therefore have less money available for investments, to service debt obligations or to pay dividends and distributions to security holders. This would have a significant adverse effect on the value of our securities. In addition, the REIT tax laws would no longer obligate us to make any distributions to stockholders. As a result of all these factors, if SL Green fails to qualify as a REIT, this could impair our ability to expand our business and raise capital.
Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.
The Tax Cuts and Jobs Act (the ‘‘Tax Act’’), signed into law on December 22, 2017, made substantial changes to the Code.  The Tax Act did not have a material impact on our financial statements for the years ended December 31, 2019 or December 31, 2018 and we do not expect that it will have significant direct impact on us.  However, it is possible that it could impact us indirectly, for example, because the overall investment thesis for REITs may be impacted in positive or negative ways that are difficult to predict.  In addition, while some Treasury Regulations have been issued with respect to the Tax Act, there may be a substantial delay before additional regulations are promulgated. 
Additionally, the rules dealing with U.S. federal income taxation are continually under review by Congress, the IRS, and the U.S. Department of the Treasury. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets.
Loss of our key personnel could harm our operations and our stock price.
We are dependent on the efforts of Marc Holliday, our chairman and chief executive officer, and Andrew W. Mathias, our president. These officers have employment agreements which expire in January 2022 and December 2021, respectively. A loss of the services of either of these individuals could adversely affect our operations and could be negatively perceived by the market resulting in a decrease in our stock price.
Our business and operations would suffer in the event of system failures or cyber security attacks.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to a number of risks including energy blackouts, natural disasters, terrorism, war, telecommunication failures and cyber attacks and intrusions, such as computer viruses, malware, attachments to e-mails, intrusion and unauthorized access, including from persons inside our organization or from persons outside our organization with access to our systems. The risk of a security breach or disruption, particularly through cyber attacks and intrusions, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and instructions from around the world have increased. Our systems are critical to the operation of our business and any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions. Although we make efforts to maintain the security and integrity of our systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business.
Forward-looking statements may prove inaccurate.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking Information," for additional disclosure regarding forward-looking statements.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
As of December 31, 2019, we did not have any unresolved comments with the staff of the SEC.

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ITEM 2.    PROPERTIES
Our Portfolio
General
As of December 31, 2019, we owned or held interests in 20 consolidated commercial office buildings encompassing approximately 12.4 million rentable square feet and 10 unconsolidated commercial office buildings encompassing approximately 11.2 million rentable square feet located primarily in midtown Manhattan. Many of these buildings include some amount of retail space on the lower floors, as well as basement/storage space. As of December 31, 2019, our portfolio also included ownership interests in 8 consolidated commercial office buildings encompassing approximately 1.0 million rentable square feet, which we refer to as our Suburban properties. Some of these buildings also include a small amount of retail space on the lower floors, as well as basement/storage space.
As of December 31, 2019, we also owned investments in 15 prime retail properties encompassing approximately 0.7 million square feet, seven buildings in differing stages of development or redevelopment encompassing approximately 0.2 million square feet, and 10 residential buildings encompassing 2,532 units (approximately 2.1 million square feet). In addition, we manage two office buildings owned by third parties encompassing approximately 2.1 million square feet and held debt and preferred equity investments with a book value of $1.7 billion including $0.1 billion of investments recorded in balance sheet line items other than the Debt and Preferred Equity Investments line item.
The following tables set forth certain information with respect to each of the Manhattan and Suburban office, prime retail, residential, development and redevelopment properties and land interest in the portfolio as of December 31, 2019 (dollars in thousands):
Manhattan Properties 
Year Built/
Renovated
 City/ Town 
Approximate
Rentable
Square
Feet
 
Percent
Occupied (1)
 
Annualized
Cash
Rent
(2)
 
Percent
of Portfolio
Annualized
Cash
Rent (3)
 
Number
of
Tenants
 
Annualized
Cash
Rent per
Leased
Square
Foot (4)
CONSOLIDATED OFFICE PROPERTIES            
"Same Store"                
30 East 40th Street—60.00% 1927 Grand Central South 69,446
 93.5% $5,195
 0.3% 54
 $73.57
100 Church Street 1959/2010 Downtown 1,047,500
 99.3 49,234
 4.0 19
 44.70
110 East 42nd Street 1921 Grand Central 215,400
 83.0 11,159
 0.9 25
 62.18
110 Greene Street 1908/1920 Soho 223,600
 94.3 15,999
 1.3 61
 81.93
125 Park Avenue 1923/2006 Grand Central 604,245
 95.0 43,382
 3.5 25
 71.12
220 East 42nd Street 1929 Grand Central 1,135,000
 97.0 68,321
 5.5 37
 58.82
304 Park Avenue South 1930 Midtown South 215,000
 95.9 15,076
 1.2 8
 73.51
420 Lexington Ave (Graybar) 1927/1999 Grand Central North 1,188,000
 92.0 81,640
 6.6 189
 60.42
461 Fifth Avenue (5)
 1988 Midtown 200,000
 87.3 16,729
 1.3 12
 92.94
485 Lexington Avenue 1956/2006 Grand Central North 921,000
 90.4 58,540
 4.7 30
 72.25
555 West 57th Street 1971 Midtown West 941,000
 99.9 45,917
 3.7 9
 45.38
625 Madison Avenue 1956/2002 Plaza District 563,000
 98.1 60,395
 4.9 24
 105.26
635 Sixth Avenue 1902 Midtown South 104,000
 100.0 10,112
 0.8 2
 107.23
641 Sixth Avenue 1902 Midtown South 163,000
 100.0 15,531
 1.2 6
 91.57
711 Third Avenue(6)
 1955 Grand Central North 524,000
 97.0 36,508
 2.9 22
 64.37
750 Third Avenue 1958/2006 Grand Central North 780,000
 91.2 46,204
 3.7 27
 61.97
810 Seventh Avenue 1970 Times Square 692,000
 93.0 47,722
 3.8 48
 69.24
1185 Avenue of the Americas 1969 Rockefeller Center 1,062,000
 92.7 94,733
 7.6 14
 93.05
1350 Avenue of the Americas 1966 Rockefeller Center 562,000
 91.7 43,035
 3.5 41
 79.55
1 Madison Avenue 1960/2002 Park Avenue South 1,176,900
 100.0 74,842
 6.0 4
 62.50
Subtotal / Weighted Average 12,387,091
 95.1% $840,274
 67.4% 657  
Total / Weighted Average Manhattan Consolidated Office Properties 12,387,091
 95.1% $840,274
 67.4% 657  
             

23


Manhattan Properties 
Year Built/
Renovated
 City/ Town 
Approximate
Rentable
Square
Feet
 
Percent
Occupied (1)
 
Annualized
Cash
Rent
(2)
 
Percent
of Portfolio
Annualized
Cash
Rent (3)
 
Number
of
Tenants
 
Annualized
Cash
Rent per
Leased
Square
Foot (4)
UNCONSOLIDATED OFFICE PROPERTIES            
"Same Store"                
10 East 53rd Street— 55.00% 1972/2014 Plaza District 354,300
 97.1% $33,070
 1.5% 39 $88.96
11 Madison Avenue—60.00% 1929 Park Avenue South 2,314,000
 95.8 153,182
 7.4 10 70.13
100 Park Avenue—50.00% 1950/1980 Grand Central South 834,000
 84.9 59,503
 2.3 35 79.40
280 Park Avenue—50.00% 1961 Park Avenue 1,219,158
 89.5 117,442
 4.6 36 101.45
800 Third Avenue—60.50% 1972/2006 Grand Central North 526,000
 96.2 38,513
 1.9 40 71.80
919 Third Avenue—51.00% 1970 Grand Central North 1,454,000
 100.0 101,327
 4.2 9 67.68
Added to Same Store in 2019            
55 West 46th Street - Tower 46— 25.00% 2009 Midtown 347,000
 90.3 26,654
 0.5 15 92.98
1515 Broadway— 56.87% 1972 Times Square 1,750,000
 94.9 133,226
 6.1 12 75.18
Worldwide Plaza— 24.35% 1989/2013 Westside 2,048,725
 94.7 141,052
 2.8 24 72.80
Subtotal / Weighted Average 10,847,183
 94.3% $803,969
 31.3% 220  
"Non Same Store"            
2 Herald Square—51.00% 1909 Herald Square 369,000
 81.9% $31,848
 1.3% 4 $104.57
Subtotal / Weighted Average 369,000
 81.9% $31,848
 1.3% 4  
Total / Weighted Average Unconsolidated Office Properties 11,216,183
 93.9% $835,817
 32.6% 224  
Manhattan Office Grand Total / Weighted Average 23,603,274
 94.5% $1,676,091
 100.0% 881  
Manhattan Office Grand Total—SLG share of Annualized Rent     $1,244,931
 100.0%    
Manhattan Office Same Store Occupancy %—Combined 23,234,274
 94.7%        
Suburban Properties 
Year Built/
Renovated
 City/ Town 
Approximate
Rentable
Square
Feet
 
Percent
Occupied (1)
 
Annualized
Cash
Rent
(2)
 
Percent
of Portfolio
Annualized
Cash
Rent (3)
 
Number
of
Tenants
 
Annualized
Cash
Rent per
Leased
Square
Foot (4)
CONSOLIDATED OFFICE PROPERTIES            
"Same Store" Connecticut            
Landmark Square 1973-1984 Stamford 862,800
 85.1% $21,577
 77.8% 116 $34.87
1055 Washington Boulevard 1987 Stamford 182,000
 88.5 6,161
 22.2 25 37.39
Connecticut Subtotal/Weighted Average 1,044,800
 85.7% $27,738
 100.0% 141  
Total / Weighted Average Consolidated Office Properties 1,044,800
 85.7% $27,738
 100.0% 141  
Suburban Grand Total / Weighted Average 1,044,800
 85.7% $27,738
   141  
Suburban Office Grand Total—SLG share of Annualized Rent     $27,739
 100.0%    
Suburban Office Same Store Occupancy %—Combined 1,044,800
 85.7%        

  
Year Built/
Renovated
 City/ Town 
Approximate
Rentable
Square
Feet
 
Percent
Occupied (1)
 
Annualized
Cash
Rent
(2)
 Percent of Portfolio
Annualized
Cash
Rent (3)
 Number
of
Tenants
 
Annualized
Cash
Rent per
Leased
Square
Foot (4)
PRIME RETAIL                
"Same Store" Prime Retail              
11 West 34th Street—30.00% 1920/2010 Herald Square/Penn Station 17,150
 100.0% $3,013
 1.1% 1 $270.20
21 East 66th Street—32.28% 1921 Plaza District 13,069
 100.0 3,831
 1.5 1 630.83
121 Greene Street—50.00% 1887 Soho 7,131
 100.0 1,711
 1.0 2 239.93
315 West 33rd Street—The Olivia 2000 Penn Station 270,132
 100.0 16,876
 19.9 10 64.21
717 Fifth Avenue—10.92% 1958/2000 Midtown/Plaza District 119,550
 100.0 53,619
 6.9 6 433.52
752 Madison Avenue 1996/2012 Plaza District 21,124
 100.0 16,053
 18.9 1 759.92

24


762 Madison Avenue—90.00% 1910 Plaza District 6,109
 55.1 651
 0.7 3 179.11
Williamsburg Terrace 2010 Brooklyn, New York 52,000
 100.0 1,807
 2.1 3 34.72
1552-1560 Broadway—50.00% 1926/2014 Times Square 57,718
 88.3 29,115
 17.1 3 645.37
Subtotal/Weighted Average 563,983
 98.3% $126,676
 69.2% 30  
"Non Same Store" Prime Retail              
115 Spring Street—51.00% 1900 SoHo 5,218
 100.0% $3,610
 2.2% 1 $691.80
133 Greene Street 1900 SoHo 6,425
 100.0 690
 0.8 2 107.50
650 Fifth Avenue— 50.00% 1977-1978 Plaza District 69,214
 100.0 34,186
 20.1 1 493.91
712 Madison Avenue 1900/1980 Plaza District 6,600
 100.0 3,512
 4.1 1 532.14
719 Seventh Avenue—75.00% 1927 Times Square 10,040
 100.0 4,127
 3.6 1 411.10
Subtotal/Weighted Average 97,497
 100.0% $46,125
 30.8% 6  
Total / Weighted Average Prime Retail Properties 661,480
 98.6% $172,801
 100.0% 36  
DEVELOPMENT/REDEVELOPMENT            
19-21 East 65th Street 1928-1940 Plaza District 23,610
 3.6% $31
 0.1% 1 $39.24
106 Spring Street 1900 Soho 5,928
  
   
609 Fifth Avenue 1925/1990 Rockefeller Center 160,000
 100.0 21,119
 99.9 3 127.70
One Vanderbilt—71.01%(7)
 N/A Grand Central 
  
   
185 Broadway(8)
 1921 Lower Manhattan 
  
   
410 Tenth Avenue—70.87%(9)
 1927 Hudson Yards 
  
   
Total / Weighted Average Development/Redevelopment Properties 189,538
 84.9% $21,150
 100.0% 4  
             
    Useable Sq. Feet Total Units 
Percent
Occupied (1)
 
Annualized Cash
Rent (2)
 
Average
Monthly Rent
Per Unit
RESIDENTIAL          
"Same Store" Residential            
315 West 33rd Street Penn Station 222,855
 333
 95.8% $16,160
 $4,235
400 East 57th Street—41.00% Upper East Side 290,482
 263
 95.1
 12,993
 3,821
400 East 58th Street—90.00% Upper East Side 140,000
 126
 96.0
 5,940
 3,717
1080 Amsterdam—92.50% Upper West Side 82,250
 97
 100.0
 5,173
 4,207
Stonehenge Portfolio   445,934
 538
 94.8
 26,811
 3,889
605 West 42nd Street—20.00% Midtown West 927,358
 1,175
 95.9
 54,330
 3,578
Subtotal/Weighted Average 2,108,879
 2,532
 95.7% $121,407
 $3,787
Total / Weighted Average Residential Properties 2,108,879
 2,532
 95.7% $121,407
 $3,787
(1)Excludes leases signed but not yet commenced as of December 31, 2019.
(2)Annualized Cash Rent represents the monthly contractual rent under existing leases as of December 31, 2019 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date.
(3)Includes our share of unconsolidated joint venture annualized cash rent.
(4)Annualized Cash Rent Per Leased Square Foot represents Annualized Cash Rent, as described in footnote (1) above, presented on a per leased square foot basis.
(5)The Company has an option to acquire the fee interest for a fixed price on a specific date.
(6)The Company owns 100% of the leasehold interest and 50% of the fee interest.
(7)The 1.7 million square foot development project, which is anticipated to be completed in the third quarter of 2020, has a total development budget, including land mark-up, of $3.3 billion. As of December 31, 2019, $1.0 billion of the budget remains to be spent, all of which will be funded by the project’s construction facility.
(8)The 0.2 million square foot development project, which is anticipated to be completed in the second quarter of 2021, has a total budget of $309.7 million. As of December 31, 2019, $142.4 million of the budget remains to be spent, comprised of $37.5 million of equity and $104.9 million of financing available under the project's construction facility.
(9)The 0.6 million square foot redevelopment project, which is anticipated to be completed in the second quarter of 2021, has a total budget of $652.5 million. As of December 31, 2019, $238.6 million of the budget remains to be spent, comprised of $104.4 million of partners' equity and $134.2 million of financing available under the project's construction facility.

25


Historical Occupancy
Historically we have achieved consistently higher occupancy rates in our Manhattan portfolio as compared to the overall midtown Manhattan market, as shown over the last five years in the following table:
 

Occupancy Rate of
Manhattan Operating
Portfolio(1)
 
Occupancy Rate of
Class A
Office Properties
in the Midtown Manhattan
Markets(2)(3)
 
Occupancy Rate of
Class B
Office Properties
in the Midtown Manhattan
Markets(2)(3)
December 31, 201994.5% 88.8% 87.4%
December 31, 201894.5% 91.1% 89.4%
December 31, 201793.8% 90.5% 90.3%
December 31, 201694.9% 90.0% 92.2%
December 31, 201594.2% 90.9% 91.3%
(1)Includes our consolidated and unconsolidated Manhattan office properties.
(2)Includes vacant space available for direct lease and sublease. Source: Cushman & Wakefield.
(3)The term "Class B" is generally used in the Manhattan office market to describe office properties that are more than 25 years old but that are in good physical condition, enjoy widespread acceptance by high-quality tenants and are situated in desirable locations in Manhattan. Class B office properties can be distinguished from Class A properties in that Class A properties are generally newer properties with higher finishes and frequently obtain the highest rental rates within their markets.
Lease Expirations
Leases in our Manhattan portfolio, as at many other Manhattan office properties, typically have an initial term of seven to fifteen years, compared to typical lease terms of five to ten years in other large U.S. office markets. For the five years ending December 31, 2024, the average annual lease expirations at our Manhattan consolidated and unconsolidated operating properties is expected to be approximately 0.9 million square feet and approximately 0.6 million square feet, respectively, representing an average annual expiration rate of approximately 8.6% and approximately 3.9%, respectively, per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults), excluding the lease with Credit Suisse at One Madison Avenue. In January 2020, Credit Suisse entered into a lease termination agreement with the Company and vacated its space at the property.
The following tables set forth a schedule of the annual lease expirations at our Manhattan consolidated and unconsolidated operating properties, respectively, with respect to leases in place as of December 31, 2019 for each of the next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or other tenant defaults):
Manhattan Consolidated
Operating Properties
Year of Lease Expiration
 
Number
of
Expiring
Leases(1)
 
Square
Footage
of
Expiring
Leases
 
Percentage
of
Total
Leased
Square
Feet
 
Annualized
Cash Rent
of
Expiring
Leases(2)
 
Percentage
of
Annualized
Cash Rent
of
Expiring
Leases
 
Annualized
Cash Rent
Per
Leased
Square
Foot of
Expiring
Leases(3)
2020(4)
 90
 2,298,020
 18.6% $161,454,218
 19.4% $70.26
2021 108
 1,259,079
 10.2% 77,936,064
 9.3
 61.90
2022 97
 822,698
 6.7% 67,030,173
 8.0
 81.48
2023 76
 883,272
 7.1% 57,648,722
 6.9
 65.27
2024 60
 399,467
 3.2% 28,380,429
 3.4
 71.05
2025 45
 591,666
 4.8% 53,408,872
 6.4
 90.27
2026 30
 781,269
 6.3% 55,151,891
 6.6
 70.59
2027 35
 602,943
 4.9% 46,184,007
 5.5
 76.60
2028 38
 599,486
 4.8% 44,180,538
 5.3
 73.70
2029 & thereafter 91
 4,132,832
 33.4% 242,723,273
 29.2
 58.73
Total/weighted average 670
 12,370,732
 100.0% $834,098,187
 100.0% $67.43
(1)Tenants may have multiple leases.
(2)Annualized Cash Rent of Expiring Leases represents the monthly contractual rent for December 2019 under existing leases as of December 31, 2019 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date.

26


(3)Annualized Cash Rent Per Leased Square Foot of Expiring Leases represents Annualized Cash Rent of Expiring Leases, as described in footnote (2) above, presented on a per leased square foot basis.
(4)Includes approximately 422,686 square feet and annualized cash rent of $35.2 million occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2019.
Manhattan Unconsolidated
Operating Properties
Year of Lease Expiration
 
Number
of
Expiring
Leases(1)
 
Square
Footage
of
Expiring
Leases
 
Percentage
of
Total
Leased
Square
Feet
 
Annualized
Cash Rent
of
Expiring
Leases(2)
 
Percentage
of
Annualized
Cash Rent
of
Expiring
Leases
 
Annualized
Cash Rent
Per
Leased
Square
Foot of
Expiring
Leases(3)
2020(4)
 20
 251,705
 2.3% $17,812,294
 2.1% $70.77
2021 26
 291,807
 2.7
 22,156,933
 2.7
 75.93
2022 31
 894,293
 8.3
 83,342,706
 10.0
 93.19
2023 16
 438,826
 4.1
 38,216,366
 4.6
 87.09
2024 24
 1,003,426
 9.3
 106,754,273
 12.8
 106.39
2025 12
 426,938
 4.0
 34,135,739
 4.1
 79.95
2026 20
 499,312
 4.6
 50,595,762
 6.1
 101.33
2027 17
 375,697
 3.5
 33,260,546
 4.0
 88.53
2028 18
 206,956
 1.9
 21,542,167
 2.6
 104.09
2029 & thereafter 47
 6,408,455
 59.3
 427,998,688
 51.0
 66.79
Total/weighted average 231
 10,797,415
 100.0% $835,815,474
 100.0% $77.41
(1)Tenants may have multiple leases.
(2)Annualized Cash Rent of Expiring Leases represents the monthly contractual rent for December 2019 under existing leases as of December 31, 2019 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date.
(3)Annualized Cash Rent Per Leased Square Foot of Expiring Leases represents Annualized Cash Rent of Expiring Leases, as described in footnote (2) above, presented on a per leased square foot basis.
(4)Includes approximately 1,714 square feet and annualized cash rent of $0.1 million occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2019.
Tenant Diversification
At December 31, 2019, our properties were leased to 1,062 tenants, which are engaged in a variety of businesses, including, but not limited to, professional services, financial services, media, apparel, business services and government/non-profit. The following table sets forth information regarding the leases with respect to the 30 largest tenants in our properties, which are not intended to be representative of our tenants as a whole, based on the amount of our share of annualized cash rent as of December 31, 2019:
Tenant NamePropertyLease Expiration  Total Rentable Square FeetAnnualized Cash RentSLG Share of Annualized Cash Rent ($)
% of SLG Share of Annualized Cash Rent (1)
Annualized Rent PSF
Credit Suisse Securities (USA), Inc.1 Madison Avenue
Dec 2020(2)
1,142,091
$70,020
$70,020
4.9%$61.31
 11 Madison AvenueMay 20371,265,841
78,881
47,328
3.3
62.31
 1055 Washington BlvdJan 20222,525
100
100

39.60
   2,410,457
$149,001
$117,448
8.2%$61.81
        
Viacom CBS, Inc.1515 BroadwayJun 20311,470,289
$94,011
$53,586
3.7%$63.94
 1515 BroadwayMar 20289,106
1,928
1,099
0.1
211.72
 555 West 57th StreetDec 2023338,527
16,768
16,768
1.2
49.53
 Worldwide PlazaJan 202732,598
2,224
542

68.23
   1,850,520
$114,931
$71,995
5.0%$62.11
        
Ralph Lauren Corporation625 Madison AvenueDec 2019348,285
$29,045
$29,045
2.0%$83.39
 625 Madison AvenueFeb 202038,500
3,329
3,329
0.2
86.45
   386,785
$32,374
$32,374
2.2%$83.70
        
Sony Corporation11 Madison AvenueJan 2031578,791
$44,577
$26,746
1.9%$77.02

27


Debevoise & Plimpton, LLP919 Third AvenueJun 2022577,438
$47,434
$24,191
1.7%$82.14
        
The City of New York100 Church StreetMar 2034510,007
$20,688
$20,688
1.4%$40.57
 420 Lexington AvenueOct 20304,077
287
287
0.1
70.28
   514,084
$20,975
$20,975
1.5%$40.80
        
King & Spalding1185 Avenue of the AmericasOct 2025218,275
$20,809
$20,809
1.5%$95.33
Visiting Nurse Service of New York220 East 42nd StreetSep 2048308,115
$19,039
$19,039
1.3%$61.79
        
Giorgio Armani Corporation752-760 Madison AvenueDec 202421,124
$16,053
$16,053
1.1%$759.92
 717 Fifth AvenueMar 202346,940
23,972
2,613
0.2
510.69
 762 Madison AvenueDec 20241,264
254
228

200.66
   69,328
$40,279
$18,894
1.3%$580.98
        
Advance Magazine Group, Fairchild Publications750 Third AvenueFeb 2021286,622
$15,150
$15,150
1.1%$52.86
 485 Lexington AvenueFeb 202152,573
3,705
3,705
0.3
70.47
   339,195
$18,855
$18,855
1.4%$55.59
        
Metro-North Commuter Railroad Company420 Lexington AvenueNov 2034334,654
$18,041
$18,041
1.3%$53.91
 110 East 42nd StreetOct 20211,840
130
130

70.43
   336,494
$18,171
$18,171
1.3%$54.00
        
News America Incorporated1185 Avenue of the AmericasNov 2020165,086
$18,095
$18,095
1.3%$109.61
Nike Retail Services, Inc.650 Fifth AvenueJan 203369,214
$34,186
$17,093
1.2%$493.91
Cravath, Swaine & Moore LLPWorldwide PlazaAug 2024617,135
$67,019
$16,319
1.1%$108.60
   






 
Omnicom Group, Inc., Cardinia Real Estate220 East 42nd StreetApr 2032231,114
$14,869
$14,869
1.0%$64.34
 1055 Washington Blvd.Oct 202823,800
881
881
0.1
37.00
   254,914
$15,750
$15,750
1.1%$61.78
   






 
National Hockey League1185 Avenue of the AmericasNov 2022148,217
$15,643
$15,643
1.1%$105.54
        
WME IMG, LLC304 Park AvenueApr 2028134,475
$9,417
$9,417
0.7%$70.03
 11 Madison AvenueSep 2030104,618
9,178
5,507
0.4
87.72
   239,093
$18,595
$14,924
1.1%$77.77
        
Amerada Hess Corp.1185 Avenue of the AmericasDec 2027167,169
$14,833
$14,833
1.0%$88.73
        
WeWork609 Fifth AvenueApr 2035138,563
$11,224
$11,224
0.8%$81.00
 2 Herald SquareFeb 2036123,633
7,063
3,602
0.3
57.13
   262,196
$18,287
$14,826
1.1%$69.74
        
Infor (US) Inc635 Sixth AvenueFeb 202571,048
$6,612
$6,612
0.5%$93.07
 641 Sixth AvenueJul 202243,000
2,975
2,975
0.2
69.19
 641 Sixth AvenueJun 202621,981
1,964
1,964
0.1
89.37
 641 Sixth AvenueDec 202713,090
1,377
1,377
0.1
105.17
   149,119
$12,928
$12,928
0.9%$86.70
        
Total  9,661,625
741,781
529,908
37.2%$76.78
        

28


(1)SLG Share of Annualized Cash Rent includes Manhattan, Suburban, Retail, Residential, and Development / Redevelopment properties.
(2)In January 2020, Credit Suisse entered into a lease termination agreement with the Company and vacated its space at 1 Madison Avenue.
Environmental Matters
Phase I environmental site assessments have been prepared on the properties in our portfolio, in order to assess existing environmental conditions. All of the Phase I assessments met the American Society for Testing and Materials (ASTM) Standard. Under the ASTM Standard, a Phase I environmental site assessment consists of a site visit, an historical record review, a review of regulatory agency data bases and records, and interviews with on-site personnel, with the purpose of identifying potential environmental concerns associated with real estate. These environmental site assessments did not reveal any known environmental liability that we believe will have a material adverse effect on our results of operations or financial condition.
ITEM 3.    LEGAL PROCEEDINGS
As of December 31, 2019, the Company and 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 which if adversely determined could have a material adverse impact on us.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.

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PART II
ITEM 5.    MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
SL GREEN REALTY CORP.
Our common stock trades on the New York Stock Exchange, or the NYSE, under the symbol "SLG." On February 27, 2020, the reported closing sale price per share of common stock on the NYSE was $80.44 and there were 454 holders of record of our common stock.
SL GREEN OPERATING PARTNERSHIP, L.P.
At December 31, 2019, there were 4,195,875 units of limited partnership interest of the Operating Partnership outstanding and held by persons other than the Company, which received distributions per unit of the same amount and in the same manner as dividends per share were distributed to common stockholders.
There is no established public trading market for the common units of the Operating Partnership. On February 27, 2020, there were 34 holders of record and 82,066,533 common units outstanding, 77,935,496 of which were held by SL Green.
In order for SL Green to maintain its qualification as a REIT, it must make annual distributions to its stockholders of at least 90% of its taxable income (not including net capital gains). SL Green has adopted a policy of paying regular quarterly dividends on its common stock, and the Operating Partnership has adopted a policy of paying regular quarterly distributions to its common units in the same amount as dividends paid by SL Green. Cash distributions have been paid on the common stock of SL Green and the common units of the Operating Partnership since the initial public offering of SL Green. Distributions are declared at the discretion of the board of directors of SL Green and depend on actual and anticipated cash from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors SL Green’s board of directors may consider relevant.
Each time SL Green issues shares of stock (other than in exchange for common units of limited partnership interest of the Operating Partnership, or OP Units, when such OP Units are presented for redemption), it contributes the proceeds of such issuance to the Operating Partnership in return for an equivalent number of units of limited partnership interest with rights and preferences analogous to the shares issued.
ISSUER PURCHASES OF EQUITY SECURITIES
In August 2016, our Board of Directors approved a share repurchase program under which we can buy up to $1.0 billion of shares of our common stock. The Board of Directors has since authorized four separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, fourth quarter of 2018, and fourth quarter of 2019 bringing the total program size to $3.0 billion.
At December 31, 2019 repurchases executed under the program were as follows:
PeriodShares repurchasedAverage price paid per shareCumulative number of shares repurchased as part of the repurchase plan or programs
Year ended 20178,342,411$101.648,342,411
Year ended 20189,744,911$96.2218,087,322
Year ended 20194,596,171$83.6222,683,493
SALE OF UNREGISTERED AND REGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES
During the year ended December 31, 2019, we issued 5,013 shares of our common stock to holders of units of limited partnership interest in the Operating Partnership upon the redemption of such units pursuant to the partnership agreement of the Operating Partnership. During the years ended December 31, 2018 and 2017, we issued 160,466 and 201,696 shares of our common stock, respectively, to holders of units of limited partnership interest in the Operating Partnership upon the redemption of such units pursuant to the partnership agreement of the Operating Partnership. The issuance of such shares was exempt from registration under the Securities Act, pursuant to the exemption contemplated by Section 4(a)(2) thereof for transactions not involving a public offering. The units were exchanged for an equal number of shares of our common stock.

30


The following table summarizes information, as of December 31, 2019, relating to our equity compensation plans pursuant to which shares of our common stock or other equity securities may be granted from time to time.
 
Number of securities
to be issued
upon exercise
of outstanding
options, warrants
and rights
 
Weighted
average
exercise
price of
outstanding
options,
warrants and
rights
 
Number of securities
remaining available
for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
 
Plan category(a) (b) (c) 
Equity compensation plans approved by security holders (1)
3,838,427
(2)$101.69
(3)4,435,096
(4)
Equity compensation plans not approved by security holders
 
 
 
Total3,838,427
 $101.69
 4,435,096
 
(1)Includes our Fourth Amended and Restated 2005 Stock Option and Incentive Plan, Amended 1997 Stock Option and Incentive Plan, as amended, and 2008 Employee Stock Purchase Plan.
(2)Includes (i) 1,037,068 shares of common stock issuable upon the exercise of outstanding options (914,929 of which are vested and exercisable), (ii) 21,500 restricted stock units and 128,946 phantom stock units that may be settled in shares of common stock (128,946 of which are vested), (iii) 2,394,267 LTIP units that, upon the satisfaction of certain conditions, are convertible into common units, which may be presented to us for redemption and acquired by us for shares of our common stock (1,781,709 of which are vested).
(3)Because there is no exercise price associated with restricted stock units, phantom stock units or LTIP units, these awards are not included in the weighted-average exercise price calculation.
(4)Balance is after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units. The number of securities remaining available consists of shares remaining available for issuance under our 2008 Employee Stock Purchase Plan and Third Amended and Restated 2005 Stock Option and Incentive Plan.


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ITEM 6.    SELECTED FINANCIAL DATA
The following table sets forth our selected financial data and should be read in conjunction with our Financial Statements and notes thereto included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" in this Form 10-K.

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SL GREEN REALTY CORP.

 Year Ended December 31,
Operating Data2019 2018 2017 2016 2015
(in thousands, except per share data)         
Total revenue$1,238,995
 $1,227,392
 $1,511,473
 $1,863,981
 $1,662,829
Operating expenses234,676
 229,347
 293,364
 312,859
 301,624
Real estate taxes190,764
 186,351
 244,323
 248,388
 232,702
Operating lease rent33,188
 32,965
 33,231
 33,261
 32,834
Interest expense, net of interest income190,521
 208,669
 257,045
 321,199
 323,870
Amortization of deferred finance costs11,653
 12,408
 16,498
 24,564
 27,348
Depreciation and amortization272,358
 279,507
 403,320
 821,041
 560,887
Loan loss and other investment reserves, net of recoveries
 6,839
 
 
 
Transaction related costs729
 1,099
 (1,834) 7,528
 11,430
Marketing, general and administrative100,875
 92,631
 100,498
 99,759
 94,873
Total expenses1,034,764
 1,049,816
 1,346,445
 1,868,599
 1,585,568
Equity in net (loss) income from unconsolidated joint ventures(34,518) 7,311
 21,892
 11,874
 13,028
Equity in net gain on sale of interest in unconsolidated joint venture/real estate76,181
 303,967
 16,166
 44,009
 15,844
Purchase price and other fair value adjustment69,389
 57,385
 
 
 40,078
(Loss) gain on sale of real estate, net(16,749) (30,757) 73,241
 238,116
 175,974
Depreciable real estate reserves and impairment(7,047) (227,543) (178,520) (10,387) (19,226)
Gain (loss) on sale of investment in marketable securities
 
 3,262
 (83) 
Loss on early extinguishment of debt
 (17,083) 
 
 (49)
Discontinued operations
 
 
 
 14,549
Net income291,487
 270,856
 101,069
 278,911
 317,459
Net income attributable to noncontrolling interest in the Operating Partnership(13,301) (12,216) (3,995) (10,136) (10,565)
Net loss (income) attributable to noncontrolling interests in other partnerships3,159
 6
 15,701
 (7,644) (15,843)
Preferred unit distributions(10,911) (11,384) (11,401) (11,235) (6,967)
Net income attributable to SL Green270,434
 247,262
 101,374
 249,896
 284,084
Perpetual preferred stock dividends(14,950) (14,950) (14,950) (14,950) (14,952)
Net income attributable to SL Green common stockholders$255,484
 $232,312
 $86,424
 $234,946
 $269,132
Net income per common share—Basic$3.10
 $2.67
 $0.87
 $2.34
 $2.71
Net income per common share—Diluted$3.10
 $2.67
 $0.87
 $2.34
 $2.70
Cash dividends declared per common share$3.4350
 $3.2875
 $3.1375
 $2.94
 $2.52
Basic weighted average common shares outstanding81,733
 86,753
 98,571
 100,185
 99,345
Diluted weighted average common shares and common share equivalents outstanding86,562
 91,530
 103,403
 104,881
 103,734

33


 As of December 31,
Balance Sheet Data (in thousands)2019 2018 2017 2016 2015
Commercial real estate, before accumulated depreciation$8,784,567
 $8,513,935
 $10,206,122
 $12,743,332
 $16,681,602
Total assets12,766,320
 12,751,358
 13,982,904
 15,857,787
 19,727,646
Mortgages and other loans payable, revolving credit facilities, term loans and senior unsecured notes and trust preferred securities, net5,508,137
 5,541,701
 5,855,132
 6,481,666
 10,275,453
Noncontrolling interests in the Operating Partnership409,862
 387,805
 461,954
 473,882
 424,206
Total equity5,517,198
 5,947,855
 6,589,454
 7,750,911
 7,719,317
 Year Ended December 31,
Other Data (in thousands)2019 2018 2017 2016 2015
Net cash provided by operating activities376,473
 441,537
 543,001
 644,010
 542,691
Net cash provided by (used in) investing activities114,494
 681,662
 22,014
 1,973,382
 (2,151,702)
Net cash (used in) provided by financing activities(528,650) (1,094,112) (684,956) (2,736,402) 1,713,417
Funds from operations available to all stockholders(1)
605,701
 605,720
 667,294
 869,855
 661,825
(1)FFO is a widely recognized non-GAAP financial measure of REIT performance. The Company computes FFO in accordance with standards established by 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 the Company does. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and subsequently amended, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from 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.

The Company presents FFO because it considers it an important supplemental measure of the Company’s operating performance and believes 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. The Company also uses FFO as one of several criteria to determine performance-based bonuses for members of its 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 real estate related impairment charges, 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, and 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 the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including our ability to make cash distributions
A reconciliation of FFO to net income computed in accordance with GAAP is included in Item 7, of "Management's Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations."

34


SL GREEN OPERATING PARTNERSHIP, L.P.
 Year Ended December 31,
Operating Data2019 2018 2017 2016 2015
(in thousands, except per unit data)         
Total revenue$1,238,995
 $1,227,392
 $1,511,473
 $1,863,981
 $1,662,829
Operating expenses234,676
 229,347
 293,364
 312,859
 301,624
Real estate taxes190,764
 186,351
 244,323
 248,388
 232,702
Operating lease rent33,188
 32,965
 33,231
 33,261
 32,834
Interest expense, net of interest income190,521
 208,669
 257,045
 321,199
 323,870
Amortization of deferred finance costs11,653
 12,408
 16,498
 24,564
 27,348
Depreciation and amortization272,358
 279,507
 403,320
 821,041
 560,887
Loan loss and other investment reserves, net of recoveries
 6,839
 
 
 
Transaction related costs729
 1,099
 (1,834) 7,528
 11,430
Marketing, general and administrative100,875
 92,631
 100,498
 99,759
 94,873
Total expenses1,034,764
 1,049,816
 1,346,445
 1,868,599
 1,585,568
Equity in net (loss) income from unconsolidated joint ventures(34,518) 7,311
 21,892
 11,874
 13,028
Equity in net gain on sale of interest in unconsolidated joint venture/real estate76,181
 303,967
 16,166
 44,009
 15,844
Purchase price and other fair value adjustment69,389
 57,385
 
 
 40,078
(Loss) gain on sale of real estate, net(16,749) (30,757) 73,241
 238,116
 175,974
Depreciable real estate reserves and impairment(7,047) (227,543) (178,520) (10,387) (19,226)
Gain (loss) on sale of investment in marketable securities
 
 3,262
 (83) 
Loss on early extinguishment of debt
 (17,083) 
 
 (49)
Discontinued operations
 
 
 
 14,549
Net income291,487
 270,856
 101,069
 278,911
 317,459
Net loss (income) attributable to noncontrolling interests in other partnerships3,159
 6
 15,701
 (7,644) (15,843)
Preferred unit distributions(10,911) (11,384) (11,401) (11,235) (6,967)
Net income attributable to SLGOP283,735
 259,478
 105,369
 260,032
 294,649
Perpetual preferred unit distributions(14,950) (14,950) (14,950) (14,950) (14,952)
Net income attributable to SLGOP common stockholders$268,785
 $244,528
 $90,419
 $245,082
 $279,697
Net income per common unit—Basic$3.10
 $2.67
 $0.87
 $2.34
 $2.71
Net income per common unit—Diluted$3.10
 $2.67
 $0.87
 $2.34
 $2.70
Cash dividends declared per common unit$3.4350
 $3.2875
 $3.1375
 $2.94
 $2.52
Basic weighted average common units outstanding86,008
 91,315
 103,127
 104,508
 103,244
Diluted weighted average common units and common units equivalents outstanding86,562
 91,530
 103,403
 104,881
 103,734
 As of December 31,
Balance Sheet Data (in thousands)2019 2018 2017 2016 2015
Commercial real estate, before accumulated depreciation$8,784,567
 $8,513,935
 $10,206,122
 $12,743,332
 $16,681,602
Total assets12,766,320
 12,751,358
 13,982,904
 15,857,787
 19,727,646
Mortgages and other loans payable, revolving credit facilities, term loans and senior unsecured notes and trust preferred securities, net5,508,137
 5,541,701
 5,855,132
 6,481,666
 10,275,453
Total capital5,517,198
 5,947,855
 6,589,454
 7,750,911
 7,719,317

35


ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
SL Green Realty Corp., 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, engaged in the acquisition, development, ownership, management and operation of commercial and residential real estate properties, principally office properties, located in the New York metropolitan area. 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.
The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in Item 8 of this Annual Report on Form 10-K.
Leasing and Operating
At December 31, 2019, our same-store Manhattan office property occupancy inclusive of leases signed but not commenced, was 96.2% compared to 96.0% at December 31, 2018. We signed office leases in Manhattan encompassing approximately 2.5 million square feet, of which approximately 0.5 million square feet represented office leases that replaced previously occupied space. Our mark-to-market on the signed Manhattan office leases that replaced previously occupied space was 38.1% for 2019.
According to Cushman & Wakefield, leasing activity in Manhattan in 2019 totaled approximately 34.7 million square feet. Of the total 2019 leasing activity in Manhattan, the Midtown submarket accounted for approximately 20.4 million square feet, or approximately 58.8%. Manhattan's overall office vacancy went from 9.2% at December 31, 2018 to 11.1% at December 31, 2019. Overall average asking rents in Manhattan increased in 2019 by 1.6% from $72.28 per square foot at December 31, 2018 to $73.41 per square foot at December 31, 2019.
Acquisition and Disposition Activity
Overall Manhattan sales volume decreased by 15.2% in 2019 to $30.2 billion as compared to $35.6 billion in 2018. Consistent with our multi-faceted approach to property acquisitions, we selectively sourced the purchase of a majority and controlling interest in 410 Tenth Avenue, purchased the remaining 10% interest that we did not already own in 110 Greene Street from our joint partner, and accepted an equity interest in 106 Spring Street in lieu of repayment of the respective mezzanine loan.
We also continued to take advantage of significant interest by both international and domestic institutions and individuals seeking ownership interests in Manhattan properties to sell assets, disposing of a significant volume of properties that were non-core or had more limited growth opportunities, raising efficiently priced capital that was used primarily for share repurchases and debt reduction. During the year, we sold all or part of our interest in 131-137 Spring Street, 115 Spring Street, 1010 Washington Boulevard, 1640 Flatbush Avenue, 562 Fifth Avenue, 521 Fifth Avenue, 100 Summit Lake Drive, 200 Summit Lake Drive, 500 Summit Lake, and 360 Hamilton Avenue for total gross valuations of $983.9 million.
Debt and Preferred Equity
In 2018 and 2019, in our debt and preferred equity portfolio we continued to focus on the origination of financings for owners, acquirers or developers of properties in New York City. This investment strategy provides us with the opportunity to fill a need for additional debt financing, while achieving attractive risk adjusted returns to us on the investments and receiving a significant amount of additional information on the New York City real estate market. The typical investments made by us during 2018 and 2019 were to reputable owners or acquirers which have sizable equity subordinate to our last dollar of exposure. During 2019, our debt and preferred equity activities included purchases and originations, inclusive of advances under future funding obligations, discount and fee amortization, and paid-in-kind interest, net of premium amortization, of $0.7 billion, and sales, redemption and participations of $1.2 billion.
For descriptions of significant activities in 2019, refer to "Part I, Item 1. Business - Highlights from 2019."

36


Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Investment in Commercial Real Estate Properties
Real estate properties are presented at cost less accumulated depreciation and amortization. Costs directly related to the development or redevelopment of properties are capitalized. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.
We recognize the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests in an acquired entity at their respective fair values on the acquisition date.
The Company classifies those leases under which the Company is the lessee at lease commencement as finance or operating leases. Leases qualify as finance leases if the lease transfers ownership of the asset at the end of the lease term, the lease grants an option to purchase the asset that we are reasonably certain to exercise, the lease term is for a major part of the remaining economic life of the asset, or the present value of the lease payments exceeds substantially all of the fair value of the asset. Leases that do not qualify as finance leases are deemed to be operating leases. On the consolidated statements of operations, operating leases are expensed through operating lease rent while financing leases are expensed through amortization and interest expense.
We incur a variety of costs in the development and leasing of our properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major construction activity ceases. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction.
On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be other than temporarily impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.
We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded. See Note 4, "Properties Held for Sale and Dispositions."
Investments in Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are variable interest entities (each, a "VIE") and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. Equity in net income (loss) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture and includes adjustments related to basis differences that were identified as part of the initial accounting for the investment. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for

37


future obligations of the joint venture or may otherwise be committed to provide future additional financial support. Most of the joint venture debt is non-recourse to us. The Company has performance guarantees under a master lease at one joint venture. See Note 6, "Investments in Unconsolidated Joint Ventures."
We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at December 31, 2019.
We may originate loans for real estate acquisition, development and construction ("ADC loans") where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with the accounting for our debt and preferred equity investments.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets. Rental revenue is recognized if collectability is probable. If collectability of substantially all of the lease payments is assessed as not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current-period adjustment to rental revenue.
We record a gain on sale of real estate when title is conveyed to the buyer, subject to the buyer's financial commitment being sufficient to provide economic substance to the sale and provided that we have no substantial economic involvement with the buyer.
Interest income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when, in the opinion of management, it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt.
Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to the interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield.
Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed. Interest is recorded as income on impaired loans only to the extent cash is received.
We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we derecognize the loan sold and recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income.
Asset management fees are recognized on a straight-line basis over the term of the asset management agreement.
Allowance for Loan Loss and Other Investment Reserves
The expense for loan loss and other investment reserves in connection with debt and preferred equity investments is the charge to earnings to adjust the allowance for possible losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality.
The Company evaluates debt and preferred equity investments that are classified as held to maturity for possible impairment or credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor. Quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from less risk to greater risk, which ratings are defined as follows: 1 - Low Risk Assets - Low probability of loss, 2 - Watch List Assets - Higher potential for loss, 3 - High Risk Assets - Loss more likely than not.

38


When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired. A valuation allowance is measured based upon the excess of the carrying value of the investment over the fair value of the collateral. Any deficiency between the carrying value of an asset and the calculated value of the collateral is charged to expense. We continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly.
Debt and preferred equity investments that are classified as held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment.

39


Results of Operations
Comparison of the year ended December 31, 2019 to the year ended December 31, 2018
The following comparison for the year ended December 31, 2019, or 2019, to the year ended December 31, 2018, or 2018, makes reference to the effect of the following:

i.“Same-Store Properties,” which represents all operating properties owned by us at January 1, 2018 and still owned by us in the same manner at December 31, 2019 (Same-Store Properties totaled 34 of our 43 consolidated operating properties),
ii.“Acquisition Properties,” which represents all properties or interests in properties acquired in 2019 and 2018 and all non-Same-Store Properties, including properties that are under development or redevelopment,
iii."Disposed Properties" which represents all properties or interests in properties sold in 2019 and 2018, and
iv.“Other,” which represents properties where we sold an interest resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc.
  Same-Store Disposed Other Consolidated
(in millions) 2019 2018 
$
Change
 
%
Change
 2019 2018 2019 2018 2019 2018 
$
Change
 
%
Change
Rental revenue $921.0
 $902.8
 $18.2
 2.0 % $37.7
 $48.5
 $24.9
 $27.3
 $983.6
 $978.6
 $5.0
 0.5 %
Investment income 
 
 
  % 
 
 195.6
 201.5
 195.6
 201.5
 (5.9) (2.9)%
Other income 14.4
 7.0
 7.4
 105.7 % 4.4
 5.7
 41.0
 34.6
 59.8
 47.3
 12.5
 26.4 %
Total revenues 935.4
 909.8
 25.6
 2.8 % 42.1
 54.2
 261.5
 263.4
 1,239.0
 1,227.4
 11.6
 0.9 %
                         
Property operating expenses 411.8
 399.2
 12.6
 3.2 % 18.2
 23.7
 28.7
 25.8
 458.7
 448.7
 10.0
 2.2 %
Transaction related costs 
 0.3
 (0.3) (100.0)% 
 
 0.7
 0.8
 0.7
 1.1
 (0.4) (36.4)%
Marketing, general and administrative 
 
 
  % 
 
 100.9
 92.6
 100.9
 92.6
 8.3
 9.0 %
  411.8
 399.5
 12.3
 3.1 % 18.2
 23.7
 130.3
 119.2
 560.3
 542.4
 17.9
 3.3 %
                         
Other income (expenses):                        
Interest expense and amortization of deferred financing costs, net of interest income                 $(202.2) $(221.1) 18.9
 (8.5)%
Depreciation and amortization                 (272.4) (279.5) 7.1
 (2.5)%
Equity in net (loss) income from unconsolidated joint ventures                 (34.5) 7.3
 (41.8) (572.6)%
Equity in net gain on sale of interest in unconsolidated joint venture/real estate                 76.2
 304.0
 (227.8) (74.9)%
Purchase price and other fair value adjustment                 69.4
 57.4
 12.0
 20.9 %
(Loss) gain on sale of real estate, net                 (16.7) (30.8) 14.1
 (45.8)%
Depreciable real estate reserves and impairment                 (7.0) (227.5) 220.5
 (96.9)%
Loss on early extinguishment of debt                 
 (17.1) 17.1
 (100.0)%
Loan loss and other investment reserves, net of recoveries                 
 (6.8) 6.8
 (100.0)%
Net income                 $291.5
 $270.9
 $20.6
 7.6 %
Rental Revenue
Rental revenues increased primarily as a result of increased revenue at our Same-Store properties ($18.2 million), partially offset by our Disposed Properties ($10.8 million) and Acquired Properties ($4.5 million).




40


The following table presents a summary of the commenced leasing activity for the year ended December 31, 2019 in our Manhattan and Suburban portfolio:
 
Usable
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 
  
  
  
  
  
  
Space available at beginning of the year1,306,846
  
  
  
  
  
  
Property no longer in redevelopment96,857
            
Sold vacancies(16,837)            
Properties placed in service
            
Acquired vacancies
            
Property in redevelopment             
Space which became available during the year(3)
   
  
  
  
  
  
•       Office797,720
  
  
  
  
  
  
•       Retail63,907
  
  
  
  
  
  
•       Storage13,886
  
  
  
  
  
  
 875,513
  
  
  
  
  
  
Total space available2,262,379
  
  
  
  
  
  
Leased space commenced during the year: 
  
  
  
  
  
  
•       Office(4)
900,313
 977,511
 $73.44
 $68.82
 $85.14
 6.7
 13.5
•       Retail45,403
 45,375
 $108.97
 $205.72
 $54.15
 4.5
 10.3
•       Storage9,906
 13,856
 $24.96
 $30.67
 $4.60
 1.4
 14.6
Total leased space commenced955,622
 1,036,742
 $74.35
 $79.56
 $82.71
 6.5
 13.4
              
Total available space at end of year1,306,757
  
  
  
  
  
  
              
Early renewals 
    
  
  
  
  
•       Office588,899
 669,008
 $66.43
 $54.26
 $29.32
 3.2
 7.3
•       Retail67,394
 56,576
 $72.00
 $70.42
 $
 
 1.5
•       Storage14,137
 18,434
 $32.00
 $37.20
 $
 8.3
 14.8
Total early renewals670,430
 744,018
 $66.00
 $55.06
 $26.36
 3.1
 7.1
              
Total commenced leases, including replaced previous vacancy 
  
          
•       Office  1,646,519
 $70.59
 $60.33
 $62.46
 5.3
 11.0
•       Retail 
 101,951
 $88.45
 $128.63
 $24.10
 2.0
 5.4
•       Storage 
 32,290
 $28.98
 $35.75
 $1.98
 5.4
 14.7
Total commenced leases 
 1,780,760
 $70.86
 $65.21
 $59.16
 5.1
 10.8

41


 
Usable
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 
  
  
  
  
  
  
Space available at beginning of year202,480
  
  
  
  
  
  
Sold vacancies(91,957)            
Space which became available during the year(3)
   
  
  
  
  
  
•       Office102,614
  
  
  
  
  
  
•       Retail1,261
  
  
  
  
  
  
•       Storage1,888
  
  
  
  
  
  
 105,763
  
  
  
  
  
  
Total space available216,286
  
  
  
  
  
  
Leased space commenced during the year: 
    
  
  
  
  
•       Office(5)
58,844
 58,964
 $33.81
 $33.87
 $11.74
 3.0
 4.4
•       Retail3,797
 3,797
 $11.46
 $19.74
 $
 
 10.8
•       Storage1,395
 2,021
 $14.17
 $13.95
 $
 
 3.9
Total leased space commenced64,036
 64,782
 $31.88
 $32.51
 $10.69
 2.7
 4.7
 

 

 

 

      
Total available space at end of the year152,250
  
          
 

            
Early renewals 
  
          
•       Office130,280
 129,932
 $36.03
 $37.01
 $11.14
 6.0
 6.9
•       Storage248
 248
 $18.00
 $18.00
 $
 
 10.8
Total early renewals130,528
 130,180
 $36.00
 $36.97
 $11.12
 5.9
 6.9
 

 

          
Total commenced leases, including replaced previous vacancy 
  
  
  
  
  
  
•       Office 
 188,896
 $35.51
 $36.62
 $10.95
 4.9
 6
•       Retail 
 3,797
 $11.46
 $19.74
 $
 
 10.8
•       Storage 
 2,269
 $14.59
 $14.49
 $
 
 4.7
Total commenced leases 
 194,962
 $34.75
 $36.23
 $10.59
 4.8
 6.1
(1)Annual initial base rent.
(2)Escalated rent includes base rent plus all additional amounts paid by the tenant in the form of real estate taxes, operating expenses, porters wage or a consumer price index (CPI) adjustment.
(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 $73.25 per rentable square feet for 478,219 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $69.27 per rentable square feet for 1,147,227 rentable square feet.
(5)Average starting office rent excluding new tenants replacing vacancies was $34.79 per rentable square feet for 32,126 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $35.79 per rentable square feet for 162,058 rentable square feet.
Investment Income
Investment income decreased primarily due to a decrease in the weighted average yield of our debt and preferred equity investments. For the years ended December 31, 2019 and 2018, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $2.1 billion and 8.8%, respectively, compared to $2.1 billion and 9.0%, respectively. As of December 31, 2019, the debt and preferred equity investments had a weighted average term to maturity of 1.8 years excluding extension options.
Other Income
Other income increased primarily due to promote income recognized from the sale of 521 Fifth Avenue ($3.4 million) in the second quarter of 2019, higher lease termination income in 2019 as compared with 2018 ($3.2 million), a leasing commission and fee received at 2 Herald Square ($3.0 million) in the fourth quarter of 2019, and a real estate tax refund received at 220 East 42nd Street ($2.5 million) in the third quarter of 2019.

42


Property Operating Expenses
Property operating expenses increased primarily due to increased operating expenses and real estate taxes at our Same-Store Properties ($3.9 million and $8.4 million, respectively), partially offset by decreased operating expenses and real estate taxes at our Disposed Properties ($3.7 million and $1.9 million, respectively).
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses were $100.9 million for the year ended December 31, 2019, compared to $92.6 million for the same period in 2018. Marketing, general and administrative expenses for the year ended December 31, 2019 includes $10.0 million of additional expense related to new accounting guidance for leasing costs, which requires the Company to expense certain internal costs that were previously capitalized.
Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income
Interest expense and amortization of deferred financing costs, net of interest income, decreased primarily as a result of the repayment of the debt at One Madison Avenue in the fourth quarter of 2018 ($26.2 million) and interest capitalization in connection with a property that is under development ($8.4 million), partially offset by a higher weighted average balance of the 2017 revolving credit facility ($14.3 million). The weighted average consolidated debt balance outstanding was $6.1 billion for the year ended December 31, 2019 as compared to $5.7 billion for the year ended December 31, 2018. The consolidated weighted average interest rate decreased to 4.00% for the year ended December 31, 2019 as compared to 4.06% for the year ended December 31, 2018 as a result of a decrease in LIBOR.
Depreciation and Amortization
Depreciation and amortization decreased primarily as a result decreased depreciation at our Same Store properties ($7.9 million) and Disposed properties ($4.2 million), partially offset by increased depreciation at our Acquired properties ($5.5 million).
Equity in net (loss) income from unconsolidated joint ventures
Equity in net (loss) income from unconsolidated joint ventures decreased primarily as a result of depreciation at 650 Fifth Avenue ($9.6 million) and 2 Herald Square ($6.6 million), the repayment and redemption of certain debt and preferred equity positions accounted for under the equity method ($9.2 million), a tenant related charge at 280 Park Avenue ($6.8 million), and the sale of 3 Columbus Circle in the fourth quarter of 2018 ($5.6 million).
Equity in net gain on sale of interest in unconsolidated joint venture/real estate
During the year ended December 31, 2019, we recognized gains on the sales of our joint venture interests in 521 Fifth Avenue ($57.4 million) and 131 Spring Street ($16.7 million). During the year ended December 31, 2018, we recognized gains on the sales of our joint venture interests in 3 Columbus Circle ($160.4 million), 724 Fifth Avenue ($64.6 million), 1745 Broadway ($52.0 million), 175-225 Third Avenue ($19.5 million), 720 Fifth Avenue ($6.3 million) and Jericho Plaza ($0.1 million), and a loss related to the sale of our interest in Stonehenge Village ($5.7 million).
Purchase price and other fair value adjustments
In August 2019, the Company sold a 49% interest in 115 Spring Street, which resulted in the deconsolidation of our remaining 51% interest. We recorded our investment at fair value which resulted in the recognition of a fair value adjustment of $3.8 million.
In May 2019, the Company closed on the acquisition of a majority and controlling interest in 410 Tenth Avenue. We recorded the assets acquired and liabilities assumed at fair value which resulted in the recognition of a fair value adjustment of $67.6 million, which is reflected on the Company's consolidated statement of operations within purchase price and other fair value adjustments. This fair value was allocated to the assets and liabilities, including identified intangibles of the property.
In January 2018, the partnership agreement for our investment in 919 Third Avenue was modified resulting in our partner now having substantive participating rights in the venture and the Company no longer having a controlling interest in the investment. As a result the investment in this property was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $49.3 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles of the property.
In May, 2018, the Company was the successful bidder at the foreclosure of 2 Herald Square, at which time the Company's $250.5 million outstanding principal balance on its debt and preferred equity investment and $7.7 million accrued interest balance receivables were credited to our equity investment in the property. We recorded the assets acquired and liabilities assumed at fair value. This resulted in the recognition of a fair value adjustment of $8.1 million, which is reflected on the Company's consolidated statement of operations within purchase price and other fair value adjustments. This fair value was allocated to the assets and liabilities, including identified intangibles of the property.

43


(Loss) Gain on Sale of Real Estate, Net
During the year ended December 31, 2019, we recognized a loss on sale related to our interest in 562 Fifth Avenue ($26.6 million) and gains on the sales of our interests in 1640 Flatbush Avenue ($5.5 million), 115 Spring Street ($3.3 million), and the Suburban Properties ($1.8 million). The Suburban Properties consist of 360 Hamilton Avenue, 100 Summit Lake Drive, 200 Summit Lake Drive, and 500 Summit Lake Drive. During the year ended December 31, 2018, we recognized a gain on the sale of our interests in 600 Lexington ($23.8 million) and we recognized losses on the sales of our interests in 300-400 Summit Lake Drive ($36.2 million), 635 Madison ($14.1 million), Reckson Executive Park ($2.6 million) and 115-117 Stevens Avenue ($0.7 million).
Depreciable Real Estate Reserves and Impairment
During the year ended December 31, 2019, we recorded a charge related to 1010 Washington Boulevard in Stamford, Connecticut ($7.0 million). During the year ended December 31, 2018, we recorded a charge related to five suburban office properties comprised of 13 buildings ($221.9 million), which the Company stated it intends to dispose of and three of which were sold in 2019, and a charge related to the Upper East Side Residential Assemblage ($5.8 million).
Loss on early extinguishment of debt
During the year ended December 31, 2018, we recognized a loss on early extinguishment of debt as a result of the early repayment of the debt at One Madison Avenue ($14.9 million), and the mortgage at 220 East 42nd ($2.2 million).
Loan loss and other investment reserves, net of recoveries
During the year ended December 31, 2018, we recognized a loss related to two of our debt and preferred equity positions ($5.8 million) that were being marketed for sale, one of which was sold in 2019, and the repayment of an investment pursuant to the sale of a property ($1.1 million).
Comparison of the year ended December 31, 2018 to the year ended December 31, 2017
For a comparison of the year ended December 31, 2018 to the year ended December 31, 2017, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 27, 2019.
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, acquisitions, development or redevelopment of properties, tenant improvements, leasing costs, share repurchases, dividends to shareholders, distributions to unitholders, repurchases or repayments of outstanding indebtedness and for debt and preferred equity investments will include:
(1)Cash flow from operations;
(2)Liquidity on hand;
(3)Net proceeds from divestitures of properties and redemptions, participations and dispositions of debt and preferred equity investments;
(4)Borrowings under the 2017 credit facility;
(5)Other forms of secured or unsecured financing; and
(6)Proceeds from common or preferred equity or debt offerings by the Company or the Operating Partnership (including issuances of units of limited partnership interest in the Operating Partnership and Trust preferred securities).
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.

44


The combined aggregate principal maturities of our property mortgages and other loans payable, Master Repurchase Agreement ("MRA") and Federal Home Loan Bank of New York ("FHLB") facilities, corporate obligations and our share of joint venture debt, including as-of-right extension options, as of December 31, 2019 were as follows (in thousands):
 2020 2021 2022 2023 2024 Thereafter Total
Property mortgages and other loans$26,640
 $251,546
 $538,805
 $57,301
 $278,781
 $866,626
 $2,019,699
MRA and FHLB facilities192,184
 
 
 
 
 
 192,184
Corporate obligations250,000
 350,000
 800,000
 1,540,000
 200,000
 200,000
 3,340,000
Joint venture debt-our share811,628
 805,276
 268,952
 311,436
 17,022
 1,813,821
 4,028,135
Total$1,280,452
 $1,406,822
 $1,607,757
 $1,908,737
 $495,803
 $2,880,447
 $9,580,018
As of December 31, 2019, we had liquidity of $1.5 billion, comprised of $1.3 billion of availability under our revolving credit facility and $196.0 million of consolidated cash on hand, inclusive of $29.9 million of marketable securities and excluding$131.5 million representing our share of cash at unconsolidated joint venture properties. We expect to generate positive cash flow from operations for the foreseeable future. We may seek to divest of properties or interests in properties or 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 and unsecured 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 years presented below.
Cash, restricted cash, and cash equivalents were $241.4 million and $279.1 million at December 31, 2019 and 2018, respectively, representing a decrease of $37.7 million. The decrease was a result of the following changes in cash flows (in thousands):
 Year Ended December 31,
 2019 2018 
(Decrease)
Increase
Net cash provided by operating activities$376,473
 $441,537
 $(65,064)
Net cash provided by investing activities$114,494
 $681,662
 $(567,168)
Net cash used in financing activities$(528,650) $(1,094,112) $565,462
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 requirements. Our debt and preferred equity investments 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 year ended December 31, 2019, when compared to the year ended December 31, 2018, we used cash primarily for the following investing activities (in thousands):

45


Acquisitions of real estate$(202,105)
Capital expenditures and capitalized interest1,474
Escrow cash-capital improvements/acquisition deposits/deferred purchase price(5,239)
Joint venture investments271,747
Distributions from joint ventures(154,098)
Proceeds from sales of real estate/partial interest in property(1,022,702)
Debt and preferred equity and other investments543,755
Increase in net cash used in investing activities$(567,168)
Funds spent on capital expenditures, which are comprised of building and tenant improvements, decreased from $254.5 million for the year ended December 31, 2018 to $253.0 million for the year ended December 31, 2019. The decrease in capital expenditures relates primarily to lower costs incurred in connection with the redevelopment of properties.
We generally fund our investment activity through the sale of real estate, property-level financing, our credit facilities, our MRA facilities, our FHLB facility, senior unsecured notes, and construction loans. From time to time, the Company may issue common or preferred stock, or the Operating Partnership may issue common or preferred units of limited partnership interest. During the year ended December 31, 2019, when compared to the year ended December 31, 2018, we used cash for the following financing activities (in thousands):
Proceeds from our debt obligations$(1,621,407)
Repayments of our debt obligations1,628,766
Net distribution to noncontrolling interests12,937
Other financing activities755
Proceeds from stock options exercised and DRSPP issuance(28,714)
Payment of debt extinguishment costs13,918
Repurchase of common stock595,142
Redemption of preferred stock(16,934)
Acquisition of subsidiary interest from noncontrolling interest(25,845)
Dividends and distributions paid6,844
Increase in net cash provided by financing activities$565,462
Capitalization
Our authorized capital stock consists of 260,000,000 shares, $0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01 par value per share, 75,000,000 shares of excess stock, at $0.01 par value per share, and 25,000,000 shares of preferred stock, $0.01 par value per share. As of December 31, 2019, 79,202,322 shares of common stock and no shares of excess stock were issued and outstanding.
Share Repurchase Program
In August 2016, our Board of Directors approved a share repurchase program under which we can repurchase up to $1.0 billion of shares of our common stock. The Board of Directors has since authorized four separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, fourth quarter of 2018, and fourth quarter of 2019 bringing the total program size to $3.0 billion.
At December 31, 2019 repurchases executed under the program were as follows:
PeriodShares repurchasedAverage price paid per shareCumulative number of shares repurchased as part of the repurchase plan or programs
Year ended 20178,342,411$101.648,342,411
Year ended 20189,744,911$96.2218,087,322
Year ended 20194,596,171$83.6222,683,493

46


At-The-Market Equity Offering Program
In March 2015, the Company, along with the Operating Partnership, entered into an "at-the-market" equity offering program, or ATM Program, to sell an aggregate of $300.0 million of our common stock. The Company did not make any sales of its common stock under the ATM program in the years ended December 31, 2019, 2018, or 2017.
Dividend Reinvestment and Stock Purchase Plan ("DRSPP")
In February 2018, the Company filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRSPP, which automatically became effective upon filing. The Company registered 3,500,000 shares of our common stock under the DRSPP. The DRSPP commenced on September 24, 2001.
The following table summarizes SL Green common stock issued, and proceeds received from dividend reinvestments and/or stock purchases under the DRSPP for the years ended December 31, 2019, 2018, and 2017, respectively (dollars in thousands):
 Year Ended December 31,
 2019 2018 2017
Shares of common stock issued3,867
 1,399
 2,141
Dividend reinvestments/stock purchases under the DRSPP$334
 $136
 $223
Fourth Amended and Restated 2005 Stock Option and Incentive Plan
The Fourth Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's board of directors in April 2016 and its stockholders in June 2016 at the Company's annual meeting of stockholders. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 27,030,000 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 December 31, 2019, 4.1 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.
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 could 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. Under the 2014 Outperformance Plan, two-thirds of the LTIP Units were subject to performance based vesting based on the Company’s absolute total return to stockholders and one-third of the LTIP Units were subject to performance based vesting based on relative total return to stockholders compared to the constituents of the MSCI REIT Index. LTIP Units earned under the 2014 Outperformance Plan were to 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 such dates. Participants were not entitled to distributions with respect to LTIP Units granted under the 2014 Outperformance Plan unless and until they are earned. If LTIP Units were earned, each participant would have been 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 were to be paid currently with respect to all earned LTIP Units, whether vested or unvested.
Based on our performance, none of the LTIP Units granted under the 2014 Outperformance Plan were earned pursuant to the terms of the 2014 Outperformance Plan, and all units issued were forfeited in 2017.
The cost of the 2014 Outperformance Plan ($27.9 million subject to forfeitures), based on the portion of the 2014 Outperformance Plan granted prior to termination, was amortized into earnings through December 31, 2017. We recorded no compensation expense during the years ended December 31, 2019 and 2018, and compensation expense of $13.6 million during the year ended December 31, 2017 related to the 2014 Outperformance Plan.

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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 the 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 our 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 year ended December 31, 2019, 18,669 phantom stock units and 9,949 shares of common stock were issued to our board of directors. We recorded compensation expense of $2.4 million during the year ended December 31, 2019 related to the Deferred Compensation Plan. As of December 31, 2019, there were 128,946 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program.
Employee Stock Purchase Plan
In 2007, the Company's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage our employees 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 December 31, 2019, 131,440 shares of our common stock had been issued under the ESPP.

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Indebtedness
The table below summarizes our consolidated mortgages and other loans payable, 2017 credit facility, senior unsecured notes and trust preferred securities outstanding at December 31, 2019 and 2018, (dollars in thousands).
 December 31,
Debt Summary:2019 2018
Balance   
Fixed rate$2,536,286
 $2,543,476
Variable rate—hedged1,000,000
 1,000,000
Total fixed rate3,536,286
 3,543,476
Total variable rate2,018,434
 2,048,442
Total debt$5,554,720
 $5,591,918
    
Debt, preferred equity, and other investments subject to variable rate618,885
 1,299,390
Net exposure to variable rate debt1,399,549
 749,052
    
Percent of Total Debt:
   
Fixed rate63.7% 63.4%
Variable rate (1)
36.3% 36.6%
Total100.0% 100.0%
Effective Interest Rate for the Year:   
Fixed rate4.05% 4.34%
Variable rate3.93% 3.57%
Effective interest rate3.85% 4.06%
(1)Inclusive of the mitigating effect of our debt, preferred equity, and other investments subject to variable rates, the percent of total debt of our net exposure to variable rate debt was 28.4% and 17.5% as of December 31, 2019 and December 31, 2018, respectively.
The variable rate debt shown above generally bears interest at an interest rate based on 30-day LIBOR (1.76% and 2.50% at December 31, 2019 and 2018, respectively). Our consolidated debt at December 31, 2019 had a weighted average term to maturity of 3.72 years.
Certain of our debt and equity investments and other investments, with carrying values of $0.6 billion at December 31, 2019 and $1.3 billion at December 31, 2018, are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt. Inclusive of the mitigating effect of these investments, the net percent of our variable rate debt to total debt was 28.4% and 17.5%, respectively.
Mortgage Financing
As of December 31, 2019, our total mortgage debt (excluding our share of joint venture mortgage debt of $4.0 billion) consisted of $1.4 billion of fixed rate debt, including swapped variable rate debt, with an effective weighted average interest rate of 4.26% and $0.8 billion of variable rate debt with an effective weighted average interest rate of 4.52%.
Corporate Indebtedness
2017 Credit Facility
In November 2017, we entered into an amendment to the credit facility, referred to as the 2017 credit facility, that was originally entered into by the Company in November 2012, or the 2012 credit facility. As of December 31, 2019, the 2017 credit facility consisted of a $1.5 billion revolving credit facility, a $1.3 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of March 31, 2022, March 31, 2023, and November 21, 2024, respectively. The revolving credit facility has two six-month as-of-right extension options to March 31, 2023. We also have an option, subject to customary conditions, to increase the capacity of the credit facility to $4.5 billion at any time prior to the maturity dates for the revolving credit facility and term loans without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions.
As of December 31, 2019, the 2017 credit facility bore interest at a spread over 30-day LIBOR ranging from (i) 82.5 basis points to 155 basis points for loans under the revolving credit facility, (ii) 90 basis points to 175 basis points for loans under Term

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Loan A, and (iii) 85 basis points to 165 basis points for loans under Term Loan B, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of the Company.
In May 2019, we entered into an agreement to reduce the interest rate spread under Term Loan B by 65 basis points to a spread over 30-day LIBOR ranging from 85 basis points to 165 basis points. This reduction was effective in November 2019.
At December 31, 2019, the applicable spread was 100 basis points for the revolving credit facility, 110 basis points for Term Loan A, and 100 basis points for Term Loan B. We are required to pay quarterly in arrears a 12.5 to 30 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 the Company. As of December 31, 2019, the facility fee was 20 basis points.
As of December 31, 2019, we had $11.8 million of outstanding letters of credit, $240.0 million drawn under the revolving credit facility and $1.5 billion outstanding under the term loan facilities, with total undrawn capacity of $1.3 billion under the 2017 credit facility. At December 31, 2019 and December 31, 2018, the revolving credit facility had a carrying value of $234.0 million and $492.2 million, respectively, net of deferred financing costs. At December 31, 2019 and December 31, 2018, the term loan facilities had a carrying value of $1.5 billion and $1.5 billion, respectively, net of deferred financing costs.
The Company and the Operating Partnership are borrowers jointly and severally obligated under the 2017 credit facility.
The 2017 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
Federal Home Loan Bank of New York ("FHLB") Facility
The Company’s wholly-owned subsidiary, Ticonderoga Insurance Company, or Ticonderoga, a Vermont licensed captive insurance company, is a member of the Federal Home Loan Bank of New York, or FHLBNY. As a member, Ticonderoga may borrow funds from the FHLBNY in the form of secured advances that bear interest at a floating rate. As of December 31, 2019, we had a total of $39.5 million in outstanding secured advances with an average spread of 0.0025 basis points over 30-day LIBOR.
Master Repurchase Agreement
The Company entered into a Master Repurchase Agreement, or MRA, known as the 2017 MRA, which provides us with the ability to sell certain mortgage investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase 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 our access to additional liquidity through the 2017 credit facility, as defined above.
The 2017 MRA has a maximum facility capacity of $300.0 million. In April 2018, we increased the maximum facility capacity to $400.0 million. The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate. In June 2018, we exercised a 1 year extension option and in June 2019, we exercised another 1 year extension option. In August 2019, we amended our agreement to include two additional 1 year extension options. At December 31, 2019, the facility had a carrying value of $152.4 million, net of deferred financing costs.


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Senior Unsecured Notes
The following table sets forth our senior unsecured notes and other related disclosures as of December 31, 2019 and 2018, respectively, by scheduled maturity date (dollars in thousands):
Issuance December 31,
2019
Unpaid
Principal
Balance
 December 31,
2019
Accreted
Balance
 December 31,
2018
Accreted
Balance
 
Interest Rate (1)
 Initial Term
(in Years)
 Maturity
March 16, 2010 (2)
 $250,000
 $250,000
 $250,000
  7.75% 10 March 2020
August 7, 2018 (3) (4)
 350,000
 350,000
 350,000
 L+0.98% 3 August 2021
October 5, 2017 (3)
 500,000
 499,695
 499,591
  3.25% 5 October 2022
November 15, 2012 (5)
 300,000
 303,142
 304,168
  4.50% 10 December 2022
December 17, 2015 (2)
 100,000
 100,000
 100,000
  4.27% 10 December 2025
  $1,500,000
 $1,502,837
 $1,503,759
       
Deferred financing costs, net   (5,990) (8,545)       
  $1,500,000
 $1,496,847
 $1,495,214
       
(1)Interest rate as of December 31, 2019, taking into account interest rate hedges in effect during the period. Floating rate notes are presented with the stated spread over 3-month LIBOR, unless otherwise specified.
(2)Issued by the Company and the Operating Partnership as co-obligors.
(3)Issued by the Operating Partnership with the Company as the guarantor.
(4)Beginning on August 8, 2019 and at any time thereafter, the notes are subject to redemption at the Company's option, in whole but not in part, at a redemption price equal to 100% of the principal amount of the notes, plus unpaid accrued interest thereon to the redemption date.
(5)In October 2017, the Company and the Operating Partnership as co-obligors issued an additional $100.0 million of 4.50% senior unsecured notes due December 2022. The notes were priced at 105.334% of par.

Restrictive Covenants
The terms of the 2017 credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, 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 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 December 31, 2019 and 2018, we were in compliance with all such covenants.
Junior Subordinated 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 floating rate of 125 basis 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 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.
Interest Rate Risk
We are exposed to changes in interest rates primarily from our variable rate debt. Our exposure to interest rate fluctuations are managed through either the use of interest rate derivative instruments and/or through our variable rate debt and preferred equity investments. Based on the debt outstanding as of December 31, 2019, a hypothetical 100 basis point increase in the floating rate interest rate curve would increase our consolidated annual interest cost, net of interest income from variable rate debt and preferred equity investments, by $13.3 million and would increase our share of joint venture annual interest cost by $17.0 million. At December 31, 2019, 39.2% of our $1.6 billion debt and preferred equity portfolio is indexed to LIBOR.
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 (loss) until the hedged item is recognized in earnings.

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Our long-term debt of $3.5 billion bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. Our variable rate debt and variable rate joint venture debt as of December 31, 2019 bore interest at rates between LIBOR plus 17 basis points and LIBOR plus 340 basis points.
Contractual Obligations
The combined aggregate principal maturities of mortgages and other loans payable, the 2017 credit facility, senior unsecured notes (net of discount), trust preferred securities, our share of joint venture debt, including as-of-right extension options and put options, estimated interest expense, and our obligations under our financing and operating leases, as of December 31, 2019 are as follows (in thousands):
 2020 2021 2022 2023 2024 Thereafter Total
Property mortgages and other loans$26,640
 $251,546
 $538,805
 $57,301
 $278,781
 $866,626
 $2,019,699
MRA and FHLB facilities192,184
 
 
 
 
 
 192,184
Revolving credit facility
 
 
 240,000
 
 
 240,000
Unsecured term loans
 
 
 1,300,000
 200,000
 
 1,500,000
Senior unsecured notes250,000
 350,000
 800,000
 
 
 100,000
 1,500,000
Trust preferred securities
 
 
 
 
 100,000
 100,000
Financing leases2,619
 2,794
 2,794
 2,794
 2,819
 814,283
 828,103
Operating leases31,508
 31,702
 29,548
 27,243
 27,263
 649,289
 796,553
Estimated interest expense195,571
 176,335
 144,098
 76,664
 59,834
 121,233
 773,735
Joint venture debt811,628
 805,276
 268,952
 311,436
 17,022
 1,813,821
 4,028,135
Total$1,510,150
 $1,617,653
 $1,784,197
 $2,015,438
 $585,719
 $4,465,252
 $11,978,409
Off-Balance Sheet Arrangements
We have 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 year ending December 31, 2020, we expect to incur $145.3 million of recurring capital expenditures and $298.5 million of development or redevelopment expenditures on existing consolidated properties, and our share of capital expenditures at our joint venture properties will be $485.5 million. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect to fund these capital expenditures with operating cash flow, existing liquidity, or incremental borrowings. We expect our capital needs over the next twelve months and thereafter will be met through a combination of cash on hand, net cash provided by operations, potential asset sales, borrowings 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.
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 $3.54 per share, we would pay $280.4 million in dividends to our 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 the 2017 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
Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, who serves as a member and as the chairman emeritus of our board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC

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and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements.
Income earned from the profit participation, which is included in other income on the consolidated statements of operations, was $3.9 million, $3.9 million and $3.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
We also recorded expenses, inclusive of capitalized expenses, of $18.8 million, $18.8 million and $22.6 million the years ended December 31, 2019, 2018 and 2017, respectively, for these services (excluding services provided directly to tenants).
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 this entity of $0.6 million, $0.6 million and $0.5 million for the years ended December 31, 2019, 2018, and 2017 respectively.
One Vanderbilt Investment
In December 2016, we entered into agreements with entities owned and controlled by our Chairman and CEO, Marc Holliday, and our President, Andrew Mathias, pursuant to which they agreed to make an investment in our One Vanderbilt project at the appraised fair market value for the interests acquired. This investment entitles these entities to receive approximately 1.50% - 1.80% and 1.00% - 1.20%, respectively, of any profits realized by the Company from its One Vanderbilt project in excess of the Company’s capital contributions. The entities have no right to any return of capital. Accordingly, subject to previously disclosed repurchase rights, these interests will have no value and will not entitle these entities to any amounts (other than limited distributions to cover tax liabilities incurred) unless and until the Company has received distributions from the One Vanderbilt project in excess of the Company’s aggregate investment in the project. In the event that the Company does not realize a profit on its investment in the project (or would not realize a profit based on the value at the time the interests are repurchased), the entities owned and controlled by Messrs. Holliday and Mathias will lose the entire amount of their investment. The entities owned and controlled by Messrs. Holliday and Mathias paid $1.4 million and $1.0 million, respectively, which equal the fair market value of the interests acquired as of the date the investment agreements were entered into as determined by an independent third party appraisal that we obtained.
Messrs. Holliday and Mathias cannot monetize their interests until after stabilization of the property (50% within three years after stabilization and 100% three years or more after stabilization). In addition, the agreement calls for us to repurchase these interests in the event of a sale of One Vanderbilt or a transactional change of control of the Company. We also have the right to repurchase these interests on the seven-year anniversary of the stabilization of the project or upon the occurrence of certain separation events prior to the stabilization of the project relating to each of Messrs. Holliday’s and Mathias’s continued service with us. The price paid upon monetization of the interests will equal the liquidation value of the interests at the time, with the value of One Vanderbilt being based on its sale price, if applicable, or fair market value as determined by an independent third party appraiser.
Insurance
We maintain “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism, excluding nuclear, biological, chemical, and radiological terrorism ("NBCR")), within three property insurance programs and liability insurance. Separate property and liability coverage may be purchased on a stand-alone basis for certain assets, such as the development of One Vanderbilt. Additionally, one of our captive insurance companies, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by our other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under our insurance policies, we would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under our debt instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by the Company or its affiliates.
Furthermore, with respect to certain of our properties, including properties held by joint ventures or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss.

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Funds from Operations
FFO is a widely recognized non-GAAP financial measure of REIT performance. The Company computes FFO in accordance with standards established by 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 the Company does. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and subsequently amended in December 2018, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from 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.
The Company presents FFO because it considers it an important supplemental measure of the Company’s operating performance and believes 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. The Company also uses FFO as one of several criteria to determine performance-based compensation for members of its 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 real estate related impairment charges, 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, and 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 the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including our ability to make cash distributions.
FFO for the years ended December 31, 2019, 2018, and 2017 are as follows (in thousands):
 Year Ended December 31,
 2019 2018 2017
Net income attributable to SL Green common stockholders$255,484
 $232,312
 $86,424
Add:     
Depreciation and amortization272,358
 279,507
 403,320
Joint venture depreciation and noncontrolling interest adjustments192,426
 187,147
 102,334
Net income (loss) attributable to noncontrolling interests10,142
 12,210
 (11,706)
Less:     
Equity in net gain on sale of interest in unconsolidated joint venture/real estate76,181
 303,967
 16,166
Depreciable real estate reserves and impairment(7,047) (227,543) (178,520)
(Loss) gain on sale of real estate, net(16,749) (30,757) 73,241
Purchase price and other fair value adjustment69,389
 57,385
 
Depreciation on non-rental real estate assets2,935
 2,404
 2,191
Funds from Operations attributable to SL Green common stockholders$605,701
 $605,720
 $667,294
Cash flows provided by operating activities$376,473
 $441,537
 $543,001
Cash flows provided by investing activities$114,494
 $681,662
 $22,014
Cash flows used in financing activities$(528,650) $(1,094,112) $(684,956)
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 will 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.

54


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 New York metropolitan area 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 City real estate market in particular;
dependence upon certain geographic markets;
risks of real estate acquisitions, dispositions, development and 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 or borrowers;
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 our status as a REIT;
risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations;
the threat of terrorist 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.

55


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Rate Risk" for additional information regarding our exposure to interest rate fluctuations.
The table below presents the principal cash flows based upon maturity dates of our debt obligations and debt and preferred equity investments and the weighted-average interest rates by expected maturity dates, including as-of-right extension options, as of December 31, 2019 (in thousands):
 Long-Term Debt 
Debt and Preferred
Equity Investments (1)
 
Fixed
Rate
 
Average
Interest
Rate
 
Variable
Rate
 
Average
Interest
Rate
 Amount 
Weighted
Yield
2020$261,118
 3.93% $207,706
 3.16% $769,661
 8.26%
202111,638
 3.85% 589,908
 2.95% 258,325
 8.09%
20221,007,985
 3.86% 330,820
 2.97% 226,448
 11.23%
20231,007,301
 4.17% 590,000
 3.13% 207,672
 8.02%
2024278,781
 4.25% 200,000
 3.37% 12,950
 9.41%
Thereafter966,626
 4.31% 100,000
 3.64% 105,250
 7.77%
Total$3,533,449
 3.95% $2,018,434
 3.08% $1,580,306
 8.60%
Fair Value$3,642,770
   $2,018,714
      
(1)Our debt and preferred equity investments had an estimated fair value ranging between $1.6 billion and $1.7 billion at December 31, 2019.
The table below presents the principal cash flows based upon maturity dates of our share of our joint venture debt obligations and the weighted-average interest rates by expected maturity dates as of December 31, 2019 (in thousands):
 Long Term Debt
 
Fixed
Rate
 
Average
Interest
Rate
 
Variable
Rate
 
Average
Interest
Rate
2020$11,180
 4.15% $800,448
 3.52%
202111,715
 4.16% 793,561
 3.39%
2022220,806
 4.11% 48,146
 3.58%
2023271,090
 3.94% 40,346
 4.21%
202417,006
 3.88% 16
 4.31%
Thereafter1,703,667
 3.93% 110,154
 4.37%
Total$2,235,464
 4.07% $1,792,671
 3.66%
Fair Value$2,304,813
   $1,796,808
  

56


The table below lists our consolidated derivative instruments, which are hedging variable rate debt, and their related fair values as of December 31, 2019 (in thousands):
 
Asset
Hedged
 
Benchmark
Rate
 
Notional
Value
 
Strike
Rate
 
Effective
Date
 
Expiration
Date
 
Fair
Value
Interest Rate CapMortgage LIBOR $300,000
 3.750% May 2019 May 2020 $
Interest Rate SwapCredit Facility LIBOR 100,000
 1.928% December 2017 November 2020 (281)
Interest Rate SwapMortgage LIBOR 100,000
 1.934% December 2017 November 2020 (286)
Interest Rate CapMortgage LIBOR 111,869
 3.500% December 2019 December 2020 
Interest Rate CapMortgage LIBOR 85,000
 4.000% March 2019 March 2021 
Interest Rate SwapCredit Facility LIBOR 200,000
 1.131% July 2016 July 2023 3,015
Interest Rate SwapCredit Facility LIBOR 100,000
 1.161% July 2016 July 2023 1,404
Interest Rate SwapCredit Facility LIBOR 150,000
 2.696% January 2019 January 2024 (6,570)
Interest Rate SwapCredit Facility LIBOR 150,000
 2.721% January 2019 January 2026 (9,344)
Interest Rate SwapCredit Facility LIBOR 200,000
 2.740% January 2019 January 2026 (12,629)
Total Consolidated Hedges            $(24,691)
In addition to these derivative instruments, some of our joint venture loan agreements require the joint venture to purchase interest rate caps on its debt. All such interest rate caps represented an asset of $0.1 million in the aggregate at December 31, 2019. We also swapped certain floating rate debt at some of our joint ventures. These swaps represented a liability of $0.2 million in the aggregate at December 31, 2019.

57



ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Schedules

FINANCIAL STATEMENTS OF SL GREEN REALTY CORP. 
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
FINANCIAL STATEMENTS OF SL GREEN OPERATING PARTNERSHIP, L.P. 
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Capital for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Schedules 
Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018 and 2017
All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto. 

58



Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of SL Green Realty Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SL Green Realty Corp. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

59


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

Joint Venture Consolidation Assessment
Description of the Matter
The Company accounted for certain investments in real estate joint ventures under the equity method of accounting and consolidated certain other investments in real estate joint ventures. At December 31, 2019, the Company’s investments in unconsolidated joint ventures was $2.9 billion and noncontrolling interests in consolidated other partnerships was $75.9 million. As discussed in Note 2 to the consolidated financial statements, for each joint venture, the Company evaluated the rights provided to each party in the venture to assess the consolidation of the venture.

Auditing management’s joint venture consolidation analyses was complex and highly judgmental due to the subjectivity in assessing which activities most significantly impact a joint venture’s economic performance based on the purpose and design of the entity over the duration of its expected life and assessing which party has rights to direct those activities.
How We Addressed the Matter in Our Audit
We tested the Company’s controls over the assessment of joint venture consolidation. For example, we tested controls over management's review of the consolidation analyses for newly formed ventures as well as controls over management's identification of reconsideration events which could trigger modified consolidation conclusions for existing ventures.

To test the Company’s consolidation assessment for real estate joint ventures, our procedures included, among others, reviewing new and amended joint venture agreements and discussing with management the nature of the rights conveyed to the Company through the joint venture agreements as well as the business purpose of the joint venture transactions. We reviewed management’s assessment of the activities that would most significantly impact the joint venture’s economic performance and evaluated whether the joint venture agreements provided participating or protective rights to the Company. We also evaluated transactions with the joint ventures for events which would require a reconsideration of previous consolidation conclusions.
 /s/ Ernst & Young LLP
We have served as the Company‘s auditor since 1997.
New York, New York
February 28, 2020

60


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

 December 31, 2019 December 31, 2018
Assets   
Commercial real estate properties, at cost:   
Land and land interests$1,751,544
 $1,774,899
Building and improvements5,154,990
 5,268,484
Building leasehold and improvements1,433,793
 1,423,107
Right of use asset - financing leases47,445
 47,445
Right of use asset - operating leases396,795
 
 8,784,567
 8,513,935
Less: accumulated depreciation(2,060,560) (2,099,137)
 6,724,007
 6,414,798
Assets held for sale391,664
 
Cash and cash equivalents166,070
 129,475
Restricted cash75,360
 149,638
Investments in marketable securities29,887
 28,638
Tenant and other receivables, net of allowance of $12,369 and $15,702 in 2019 and 2018, respectively43,968
 41,589
Related party receivables21,121
 28,033
Deferred rents receivable, net of allowance of $12,477 and $15,457 in 2019 and 2018, respectively283,011
 335,985
Debt and preferred equity investments, net of discounts and deferred origination fees of $14,562 and $22,379 and allowances of $1,750 and $5,750 in 2019 and 2018, respectively1,580,306
 2,099,393
Investments in unconsolidated joint ventures2,912,842
 3,019,020
Deferred costs, net205,283
 209,110
Other assets332,801
 295,679
Total assets (1)
$12,766,320
 $12,751,358
Liabilities   
Mortgages and other loans payable, net$2,183,253
 $1,961,240
Revolving credit facility, net234,013
 492,196
Unsecured term loans, net1,494,024
 1,493,051
Unsecured notes, net1,496,847
 1,495,214
Accrued interest payable22,148
 23,154
Other liabilities177,080
 116,566
Accounts payable and accrued expenses166,905
 147,060
Deferred revenue114,052
 94,453
Lease liability - financing leases44,448
 43,616
Lease liability - operating leases381,671
 3,603
Dividend and distributions payable79,282
 80,430
Security deposits62,252
 64,688
Liabilities related to assets held for sale
 
Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities100,000
 100,000
Total liabilities (1)
6,555,975
 6,115,271
Commitments and contingencies


 


Noncontrolling interests in Operating Partnership409,862
 387,805
Preferred units283,285
 300,427

61


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

 December 31, 2019 December 31, 2018
Equity   
SL Green stockholders' equity:   
Series I Preferred Stock, $0.01 par value, $25.00 liquidation preference, 9,200 issued and outstanding at both December 31, 2019 and 2018221,932
 221,932
Common stock, $0.01 par value, 160,000 shares authorized and 80,257 and 84,739 issued and outstanding at December 31, 2019 and 2018, respectively (including 1,055 and 1,055 shares held in treasury at December 31, 2019 and 2018, respectively)803
 847
Additional paid-in-capital4,286,395
 4,508,685
Treasury stock at cost(124,049) (124,049)
Accumulated other comprehensive (loss) income(28,485) 15,108
Retained earnings1,084,719
 1,278,998
Total SL Green stockholders' equity5,441,315
 5,901,521
Noncontrolling interests in other partnerships75,883
 46,334
Total equity5,517,198
 5,947,855
Total liabilities and equity$12,766,320
 $12,751,358
    
(1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $205.2 million and $110.0 million of land, $481.9 million and $346.7 million of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $61.7 million and $47.4 million of right of use assets, $17.6 million and $42.2 million of accumulated depreciation, $169.5 million and $112.6 million of other assets included in other line items, $457.1 million and $140.8 million of real estate debt, net, $1.2 million and $0.4 million of accrued interest payable, $57.7 million and $43.6 million of lease liabilities, and $43.7 million and $18.3 million of other liabilities included in other line items as of December 31, 2019 and December 31, 2018, respectively.


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

62


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



  Year Ended December 31,
  2019 2018 2017
Revenues      
Rental revenue, net $983,557
 $978,574
 $1,273,932
Investment income 195,590
 201,492
 193,871
Other income 59,848
 47,326
 43,670
Total revenues 1,238,995
 1,227,392
 1,511,473
Expenses      
Operating expenses, including $18,106 in 2019, $17,823 in 2018, $21,400 in 2017 of related party expenses 234,676
 229,347
 293,364
Real estate taxes 190,764
 186,351
 244,323
Operating lease rent 33,188
 32,965
 33,231
Interest expense, net of interest income 190,521
 208,669
 257,045
Amortization of deferred financing costs 11,653
 12,408
 16,498
Depreciation and amortization 272,358
 279,507
 403,320
Loan loss and other investment reserves, net of recoveries 
 6,839
 
Transaction related costs 729
 1,099
 (1,834)
Marketing, general and administrative 100,875
 92,631
 100,498
Total expenses 1,034,764
 1,049,816
 1,346,445
Equity in net (loss) income from unconsolidated joint ventures (34,518) 7,311
 21,892
Equity in net gain on sale of interest in unconsolidated joint venture/real estate 76,181
 303,967
 16,166
Purchase price and other fair value adjustment 69,389
 57,385
 
(Loss) gain on sale of real estate, net (16,749) (30,757) 73,241
Depreciable real estate reserves and impairment (7,047) (227,543) (178,520)
Gain on sale of investment in marketable securities 
 
 3,262
Loss on early extinguishment of debt 
 (17,083) 
Net income 291,487
 270,856
 101,069
Net (income) loss attributable to noncontrolling interests:      
Noncontrolling interests in the Operating Partnership (13,301) (12,216) (3,995)
Noncontrolling interests in other partnerships 3,159
 6
 15,701
Preferred units distributions (10,911) (11,384) (11,401)
Net income attributable to SL Green 270,434
 247,262
 101,374
Perpetual preferred stock dividends (14,950) (14,950) (14,950)
Net income attributable to SL Green common stockholders $255,484
 $232,312
 $86,424
       
Basic earnings per share: $3.10
 $2.67
 $0.87
Diluted earnings per share: $3.10
 $2.67
 $0.87
       
Basic weighted average common shares outstanding 81,733
 86,753
 98,571
Diluted weighted average common shares and common share equivalents outstanding 86,562
 91,530
 103,403


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

63


SL Green Realty Corp.
Consolidated Statements of Comprehensive Income
(in thousands)
 Year Ended December 31,
 2019 2018 2017
Net income$291,487
 $270,856
 $101,069
Other comprehensive (loss) income:     
(Decrease) increase in unrealized value of derivative instruments, including SL Green's share of joint venture derivative instruments(47,118) (3,622) 1,040
Increase (decrease) in unrealized value of marketable securities1,249
 60
 (4,667)
Other comprehensive loss(45,869) (3,562) (3,627)
Comprehensive income245,618

267,294

97,442
Net (income) loss attributable to noncontrolling interests and preferred units distributions(21,053) (23,594) 305
Other comprehensive loss attributable to noncontrolling interests2,276
 66
 94
Comprehensive income attributable to SL Green$226,841
 $243,766
 $97,841


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


64


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

 SL Green Realty Corp. Stockholders  
   Common Stock         


 
Series I
Preferred
Stock
 Shares 
Par
Value
 
Additional
Paid-
In-Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interests
 Total
Balance at December 31, 2016 $221,932
 100,562
 $1,017
 $5,624,545
 $(124,049) $22,137
 $1,578,893
 $426,436
 $7,750,911
Net income (loss)             101,374
 (15,701) 85,673
Other comprehensive loss           (3,533)     (3,533)
Preferred dividends             (14,950)   (14,950)
DRSPP proceeds   2
 


 223
         223
Conversion of units in the Operating Partnership to common stock   202
 2
 21,572
         21,574
Reallocation of noncontrolling interest in the Operating Partnership             5,712
   5,712
Equity component of repurchased exchangeable senior notes       (109,776)         (109,776)
Deferred compensation plan and stock awards, net of forfeitures and tax withholdings   87
 1
 29,786
     


   29,787
Repurchases of common stock   (8,342) (83) (621,324) 


   (226,641)   (848,048)
Proceeds from stock options exercised   292
 2
 23,312
         23,314
Contributions to consolidated joint venture interests               36,275
 36,275
Deconsolidation of partially owned entity               (30,203) (30,203)
Cash distributions to noncontrolling interests               (52,446) (52,446)
Cash distributions declared ($3.1375 per common share, none of which represented a return of capital for federal income tax purposes)             (305,059)   (305,059)
Balance at December 31, 2017 221,932
 92,803
 939
 4,968,338
 (124,049) 18,604
 1,139,329
 364,361
 6,589,454
Cumulative adjustment upon adoption of ASC 610-20             570,524
   570,524
Balance at January 1, 2018 221,932
 92,803
 939
 4,968,338
 (124,049) 18,604
 1,709,853
 364,361
 7,159,978
Net income (loss)             247,262
 (6) 247,256
Other comprehensive loss           (3,496)     (3,496)
Preferred dividends             (14,950)   (14,950)
DRSPP proceeds   1
 


 136
         136
Conversion of units in the Operating Partnership to common stock   160
 2
 16,301
         16,303
Reallocation of noncontrolling interest in the Operating Partnership             34,236
   34,236
Deferred compensation plan and stock awards, net of forfeitures and tax withholdings   149
 1
 17,483
         17,484
Repurchases of common stock   (9,745) (98) (522,482) 


   (415,215)   (937,795)
Proceeds from stock options exercised   316
 3
 28,909
         28,912
Contributions to consolidated joint venture interests               5,459
 5,459
Deconsolidation of partially owned entity               (315,116) (315,116)
Cash distributions to noncontrolling interests               (8,364) (8,364)

65


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

 SL Green Realty Corp. Stockholders  
   Common Stock         


 
Series I
Preferred
Stock
 Shares 
Par
Value
 
Additional
Paid-
In-Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interests
 Total
Cash distributions declared ($3.2875 per common share, none of which represented a return of capital for federal income tax purposes)             (282,188)   (282,188)
Balance at December 31, 2018 221,932
 83,684
 847
 4,508,685
 (124,049) 15,108
 1,278,998
 46,334
 5,947,855
Net income (loss)             270,434
 (3,159) 267,275
Acquisition of subsidiary interest from noncontrolling interest       (569)       (25,276) (25,845)
Other comprehensive loss           (43,593)   

 (43,593)
Preferred dividends             (14,950)   (14,950)
DRSPP proceeds   4
   334
         334
Conversion of units in the Operating Partnership to common stock   5
 


 471
         471
Reallocation of noncontrolling interest in the Operating Partnership             (34,320)   (34,320)
Deferred compensation plan and stock awards, net of forfeitures and tax withholdings   105
 2
 25,761
         25,763
Repurchases of common stock   (4,596) (46) (248,287)     (136,066)   (384,399)
Contributions to consolidated joint venture interests               58,462
 58,462
Cash distributions to noncontrolling interests               (478) (478)
Cash distributions declared ($3.435 per common share, none of which represented a return of capital for federal income tax purposes)             (279,377)   (279,377)
Balance at December 31, 2019 $221,932

79,202

$803

$4,286,395

$(124,049)
$(28,485)
$1,084,719

$75,883

$5,517,198


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

66


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


 Year Ended December 31,
 2019 2018 2017
Operating Activities     
Net income$291,487
 $270,856
 $101,069
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization284,011
 289,899
 418,798
Equity in net loss (income) from unconsolidated joint ventures34,518
 (7,311) (21,892)
Distributions of cumulative earnings from unconsolidated joint ventures864
 10,277
 20,309
Equity in net gain on sale of interest in unconsolidated joint venture interest/real estate(76,181) (303,967) (16,166)
Purchase price and other fair value adjustments(69,389) (57,385) 
Depreciable real estate reserves and impairment7,047
 227,543
 178,520
Loss (gain) on sale of real estate, net16,749
 30,757
 (73,241)
Loan loss reserves and other investment reserves, net of recoveries
 6,839
 
Gain on sale of investments in marketable securities
 
 (3,262)
Loss on early extinguishment of debt
 17,083
 
Deferred rents receivable(13,941) (18,216) (38,009)
Non-cash lease expense13,744
 2,016
 1,020
Other non-cash adjustments271
 2,932
 19,621
Changes in operating assets and liabilities:     
Tenant and other receivables(4,968) 6,968
 (5,717)
Related party receivables7,802
 (1,044) (7,209)
Deferred lease costs(70,938) (44,158) (41,939)
Other assets(18,630) (8,310) (23,068)
Accounts payable, accrued expenses, other liabilities and security deposits(25,597) 4,410
 (12,440)
Deferred revenue10,824
 12,348
 46,607
Change in lease liability - operating leases(11,200) 
 
Net cash provided by operating activities376,473
 441,537
 543,001
Investing Activities     
Acquisitions of real estate property(262,591) (60,486) (28,680)
Additions to land, buildings and improvements(252,986) (254,460) (336,001)
Acquisition deposits and deferred purchase price(5,239) 
 
Investments in unconsolidated joint ventures(128,682) (400,429) (389,249)
Distributions in excess of cumulative earnings from unconsolidated joint ventures79,020
 233,118
 319,745
Net proceeds from disposition of real estate/joint venture interest208,302
 1,231,004
 692,796
Proceeds from sale of marketable securities
 
 55,129
Other investments(7,869) (38,912) 25,330
Origination of debt and preferred equity investments(607,844) (731,216) (1,129,970)
Repayments or redemption of debt and preferred equity investments1,092,383
 703,043
 812,914
Net cash provided by investing activities114,494
 681,662
 22,014
      

67


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

 Year Ended December 31,
 2019 2018 2017
Financing Activities     
Proceeds from mortgages and other loans payable$752,984
 $564,391
 $870,459
Repayments of mortgages and other loans payable(230,076) (868,842) (902,460)
Proceeds from revolving credit facility and senior unsecured notes1,310,000
 3,120,000
 2,784,599
Repayments of revolving credit facility and senior unsecured notes(1,570,000) (2,560,000) (2,276,782)
Payment of debt extinguishment costs
 (13,918) 
Proceeds from stock options exercised and DRSPP issuance334
 29,048
 23,537
Repurchase of common stock(384,399) (979,541) (806,302)
Redemption of preferred stock(18,142) (1,208) (275)
Redemption of OP units(27,495) (33,972) 
Distributions to noncontrolling interests in other partnerships(478) (8,364) (52,446)
Contributions from noncontrolling interests in other partnerships10,239
 5,459
 36,275
Acquisition of subsidiary interest from noncontrolling interest(25,845) 
 
Distributions to noncontrolling interests in the Operating Partnership(14,729) (15,000) (14,266)
Dividends paid on common and preferred stock(306,386) (313,230) (333,543)
Other obligations related to loan participations
 16
 17,227
Tax withholdings related to restricted share awards(3,495) (3,842) (3,879)
Deferred loan costs(21,162) (15,109) (27,100)
Net cash used in financing activities(528,650) (1,094,112) (684,956)
Net (decrease) increase in cash, cash equivalents, and restricted cash(37,683) 29,087
 (119,941)
Cash, cash equivalents, and restricted cash at beginning of year279,113
 250,026
 369,967
Cash, cash equivalents, and restricted cash at end of period$241,430
 $279,113
 $250,026
      
Supplemental cash flow disclosures:     
Interest paid$248,684
 $259,776
 $273,819
Income taxes paid$1,489
 $1,418
 $2,448
      
Supplemental Disclosure of Non-Cash Investing and Financing Activities:     
Issuance of units in the operating partnership
 
 25,723
Conversion of units in the operating partnership471
 16,303
 21,574
Redemption of units in the operating partnership for a joint venture sale
 10,445
 
Exchange of debt investment for real estate or equity in joint venture34,498
 298,956
 
Issuance of preferred units relating to the real estate acquisition1,000
 
 
Tenant improvements and capital expenditures payable6,056
 
 6,667
Fair value adjustment to noncontrolling interest in the operating partnership34,320
 34,236
 5,712
Deconsolidation of a subsidiary (1)
395
 298,404
 695,204
Transfer of assets to assets held for sale391,664
 
 611,809
Transfer of liabilities related to assets held for sale
 
 5,364
Removal of fully depreciated commercial real estate properties19,577
 124,249
 15,488
Contribution to consolidated joint venture by noncontrolling interest48,223
 
 
Share repurchase payable
 
 41,746
Recognition of right of use assets and related lease liabilities389,120
 
 
(1) $366.6 million of the 2017 amount relates to 1515 Broadway. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018.

68


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

In December 2019, 2018 and 2017, the Company declared quarterly distributions per share of $0.885, $0.85 and $0.8125, respectively. These distributions were paid in January 2020, 2019 and 2018, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
 Year Ended
 2019 2018 2017
Cash and cash equivalents$166,070
 $129,475
 $127,888
Restricted cash75,360
 149,638
 122,138
Total cash, cash equivalents, and restricted cash$241,430
 $279,113
 $250,026
The accompanying notes are an integral part of these consolidated financial statements.

69



Report of Independent Registered Public Accounting Firm
To the Partners of SL Green Operating Partnership, L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SL Green Operating Partnership, L.P. (the Operating Partnership) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, capital and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Operating Partnership's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Operating Partnership changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the Operating Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Operating Partnership's auditor since 2010.
New York, New York
February 28, 2020

70


SL Green Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands, except per unit data)

  December 31, 2019 December 31, 2018
Assets    
Commercial real estate properties, at cost:    
Land and land interests $1,751,544
 $1,774,899
Building and improvements 5,154,990
 5,268,484
Building leasehold and improvements 1,433,793
 1,423,107
Right of use asset - financing leases 47,445
 47,445
Right of use asset - operating leases 396,795
 
  8,784,567
 8,513,935
Less: accumulated depreciation (2,060,560) (2,099,137)
  6,724,007
 6,414,798
Assets held for sale 391,664
 
Cash and cash equivalents 166,070
 129,475
Restricted cash 75,360
 149,638
Investments in marketable securities 29,887
 28,638
Tenant and other receivables, net of allowance of $12,369 and $15,702 in 2019 and 2018, respectively 43,968
 41,589
Related party receivables 21,121
 28,033
Deferred rents receivable, net of allowance of $12,477 and $15,457 in 2019 and 2018, respectively 283,011
 335,985
Debt and preferred equity investments, net of discounts and deferred origination fees of $14,562 and $22,379 and allowances of $1,750 and $5,750 in 2019 and 2018, respectively 1,580,306
 2,099,393
Investments in unconsolidated joint ventures 2,912,842
 3,019,020
Deferred costs, net 205,283
 209,110
Other assets 332,801
 295,679
Total assets (1)
 $12,766,320
 $12,751,358
Liabilities    
Mortgages and other loans payable, net $2,183,253
 $1,961,240
Revolving credit facility, net 234,013
 492,196
Unsecured term loans, net 1,494,024
 1,493,051
Unsecured notes, net 1,496,847
 1,495,214
Accrued interest payable 22,148
 23,154
Other liabilities 177,080
 116,566
Accounts payable and accrued expenses 166,905
 147,060
Deferred revenue 114,052
 94,453
Lease liability - financing leases 44,448
 43,616
Lease liability - operating leases 381,671
 3,603
Dividend and distributions payable 79,282
 80,430
Security deposits 62,252
 64,688
Liabilities related to assets held for sale 
 
Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities 100,000
 100,000
Total liabilities (1)
 6,555,975
 6,115,271
Commitments and contingencies 


 


Limited partner interests in SLGOP (4,196 and 4,131 limited partner common units outstanding at December 31, 2019 and 2018, respectively) 409,862
 387,805
Preferred units 283,285
 300,427

71


SL Green Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands, except per unit data)

  December 31, 2019 December 31, 2018
Capital    
SLGOP partners' capital:    
Series I Preferred Units, $25.00 liquidation preference, 9,200 issued and outstanding at both December 31, 2019 and 2018 221,932
 221,932
SL Green partners' capital (834 and 878 general partner common units, and 78,368 and 82,806 limited partner common units outstanding at December 31, 2019 and 2018, respectively) 5,247,868
 5,664,481
Accumulated other comprehensive (loss) income (28,485) 15,108
Total SLGOP partners' capital 5,441,315
 5,901,521
Noncontrolling interests in other partnerships 75,883
 46,334
Total capital 5,517,198
 5,947,855
Total liabilities and capital $12,766,320
 $12,751,358
     
(1) The Operating Partnership's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $205.2 million and $110.0 million of land, $481.9 million and $346.7 million of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $61.7 million and $47.4 million of right of use assets, $17.6 million and $42.2 million of accumulated depreciation, $169.5 million and $112.6 million of other assets included in other line items, $457.1 million and $140.8 million of real estate debt, net, $1.2 million and $0.4 million of accrued interest payable, $57.7 million and $43.6 million of lease liabilities, and $43.7 million and $18.3 million of other liabilities included in other line items as of December 31, 2019 and December 31, 2018, respectively.


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

72


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



  Year Ended December 31,
  2019 2018 2017
Revenues      
Rental revenue, net $983,557
 $978,574
 $1,273,932
Investment income 195,590
 201,492
 193,871
Other income 59,848
 47,326
 43,670
Total revenues 1,238,995

1,227,392

1,511,473
Expenses      
Operating expenses, including $18,106 in 2019, $17,823 in 2018, $21,400 in 2017 of related party expenses 234,676
 229,347
 293,364
Real estate taxes 190,764
 186,351
 244,323
Operating lease rent 33,188
 32,965
 33,231
Interest expense, net of interest income 190,521
 208,669
 257,045
Amortization of deferred financing costs 11,653
 12,408
 16,498
Depreciation and amortization 272,358
 279,507
 403,320
Loan loss and other investment reserves, net of recoveries 
 6,839
 
Transaction related costs 729
 1,099
 (1,834)
Marketing, general and administrative 100,875
 92,631
 100,498
Total expenses 1,034,764
 1,049,816
 1,346,445
Equity in net (loss) income from unconsolidated joint ventures (34,518) 7,311
 21,892
Equity in net gain on sale of interest in unconsolidated joint venture/real estate 76,181
 303,967
 16,166
Purchase price and other fair value adjustment 69,389
 57,385
 
(Loss) gain on sale of real estate, net (16,749) (30,757) 73,241
Depreciable real estate reserves and impairment (7,047) (227,543) (178,520)
Gain on sale of investment in marketable securities 
 
 3,262
Loss on early extinguishment of debt 
 (17,083) 
Net income 291,487
 270,856
 101,069
Net loss attributable to noncontrolling interests in other partnerships 3,159
 6
 15,701
Preferred unit distributions (10,911) (11,384) (11,401)
Net income attributable to SLGOP 283,735
 259,478
 105,369
Perpetual preferred stock dividends (14,950) (14,950) (14,950)
Net income attributable to SLGOP common unitholders $268,785
 $244,528
 $90,419
       
Basic earnings per unit: $3.10
 $2.67
 $0.87
Diluted earnings per unit: $3.10
 $2.67
 $0.87
       
Basic weighted average common units outstanding 86,008
 91,315
 103,127
Diluted weighted average common units and common unit equivalents outstanding 86,562
 91,530
 103,403


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


73


SL Green Operating Partnership, L.P.
Consolidated Statements of Comprehensive Income
(in thousands)
  Year Ended December 31,
  2019 2018 2017
Net income $291,487
 $270,856
 $101,069
Other comprehensive (loss) income:      
(Decrease) increase in unrealized value of derivative instruments, including SLGOP's share of joint venture derivative instruments (47,118) (3,622) 1,040
Increase (decrease) in unrealized value of marketable securities 1,249
 60
 (4,667)
Other comprehensive loss (45,869) (3,562) (3,627)
Comprehensive income 245,618
 267,294
 97,442
Net loss attributable to noncontrolling interests 3,159
 6
 15,701
Other comprehensive loss attributable to noncontrolling interests 2,276
 66
 94
Comprehensive income attributable to SLGOP $251,053
 $267,366
 $113,237


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


74


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


  SL Green Operating Partnership Unitholders    
    Partners' Interest      
  
Series I
Preferred
Units
 
Common
Units
 
Common
Unitholders
 Accumulated
Other
Comprehensive (Loss) Income
 
Noncontrolling
Interests
 Total
Balance at December 31, 2016 $221,932
 100,562
 $7,080,406
 $22,137
 $426,436
 $7,750,911
Net income     101,374
   (15,701) 85,673
Other comprehensive income       (3,533)   (3,533)
Preferred dividends     (14,950)     (14,950)
DRSPP proceeds   2
 223
     223
Conversion of common units   202
 21,574
     21,574
Reallocation of noncontrolling interests in the operating partnership     5,712
     5,712
Equity component of repurchased exchangeable senior notes     (109,776)     (109,776)
Deferred compensation plan and stock awards, net of forfeitures and tax withholdings   87
 29,787
     29,787
Repurchases of common units   (8,342) (848,048)     (848,048)
Proceeds from stock options exercised   292
 23,314
     23,314
Contributions to consolidated joint venture interests         36,275
 36,275
Deconsolidation of partially owned entity         (30,203) (30,203)
Cash distributions to noncontrolling interests         (52,446) (52,446)
Cash distributions declared ($3.1375 per common unit, none of which represented a return of capital for federal income tax purposes)     (305,059)     (305,059)
Balance at December 31, 2017 221,932
 92,803
 5,984,557
 18,604
 364,361
 6,589,454
Cumulative adjustment upon adoption of ASC 610-20     570,524
     570,524
Balance at January 1, 2018 221,932
 92,803
 6,555,081
 18,604
 364,361
 7,159,978
Net income (loss)     247,262
   (6) 247,256
Other comprehensive loss       (3,496)   (3,496)
Preferred dividends     (14,950)     (14,950)
DRSPP proceeds   1
 136
     136
Conversion of common units   160
 16,303
     16,303
Reallocation of noncontrolling interests in the operating partnership     34,236
     34,236
Deferred compensation plan and stock awards, net of forfeitures and tax withholdings   149
 17,484
     17,484
Repurchases of common units   (9,745) (937,795)     (937,795)
Proceeds from stock options exercised   316
 $28,912
     28,912
Contributions to consolidated joint venture interests         5,459
 5,459
Deconsolidation of partially owned entity         (315,116) (315,116)
Cash distributions to noncontrolling interests         (8,364) (8,364)
Cash distributions declared ($3.2875 per common unit, none of which represented a return of capital for federal income tax purposes)     (282,188)     (282,188)
Balance at December 31, 2018 221,932

83,684

5,664,481

15,108

46,334

5,947,855
Net income (loss)     270,434
   (3,159) 267,275
Acquisition of subsidiary interest from noncontrolling interest     (569)   (25,276) (25,845)
Other comprehensive loss       (43,593)   (43,593)
Preferred dividends     (14,950)     (14,950)
DRSPP proceeds   4
 334
     334
Conversion of common units   5
 471
     471
Reallocation of noncontrolling interest in the Operating Partnership     (34,320)     (34,320)
Deferred compensation plan and stock awards, net of forfeitures and tax withholdings   105
 25,763
     25,763
Repurchases of common units   (4,596) (384,399)     (384,399)
Contributions to consolidated joint venture interests         58,462
 58,462
Cash distributions to noncontrolling interests         (478) (478)
Cash distributions declared ($3.435 per common unit, none of which represented a return of capital for federal income tax purposes)     (279,377)     (279,377)
Balance at December 31, 2019 $221,932
 79,202
 $5,247,868
 $(28,485) $75,883
 $5,517,198

75


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



 Year Ended December 31,
 2019 2018 2017
Operating Activities     
Net income$291,487
 $270,856
 $101,069
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization284,011
 289,899
 418,798
Equity in net loss (income) from unconsolidated joint ventures34,518
 (7,311) (21,892)
Distributions of cumulative earnings from unconsolidated joint ventures864
 10,277
 20,309
Equity in net gain on sale of interest in unconsolidated joint venture interest/real estate(76,181) (303,967) (16,166)
Purchase price and other fair value adjustments(69,389) (57,385) 
Depreciable real estate reserves and impairment7,047
 227,543
 178,520
Loss (gain) on sale of real estate, net16,749
 30,757
 (73,241)
Loan loss reserves and other investment reserves, net of recoveries
 6,839
 
Gain on sale of investments in marketable securities
 
 (3,262)
Loss on early extinguishment of debt
 17,083
 
Deferred rents receivable(13,941) (18,216) (38,009)
Non-cash lease expense13,744
 2,016
 1,020
Other non-cash adjustments271
 2,932
 19,621
Changes in operating assets and liabilities:     
Tenant and other receivables(4,968) 6,968
 (5,717)
Related party receivables7,802
 (1,044) (7,209)
Deferred lease costs(70,938) (44,158) (41,939)
Other assets(18,630) (8,310) (23,068)
Accounts payable, accrued expenses and other liabilities and security deposits(25,597) 4,410
 (12,440)
Deferred revenue10,824
 12,348
 46,607
Change in lease liability - operating leases(11,200) 
 
Net cash provided by operating activities376,473
 441,537
 543,001
Investing Activities     
Acquisitions of real estate property(262,591) (60,486) (28,680)
Additions to land, buildings and improvements(252,986) (254,460) (336,001)
Acquisition deposits and deferred purchase price(5,239) 
 
Investments in unconsolidated joint ventures(128,682) (400,429) (389,249)
Distributions in excess of cumulative earnings from unconsolidated joint ventures79,020
 233,118
 319,745
Net proceeds from disposition of real estate/joint venture interest208,302
 1,231,004
 692,796
Proceeds from sale of marketable securities
 
 55,129
Other investments(7,869) (38,912) 25,330
Origination of debt and preferred equity investments(607,844) (731,216) (1,129,970)
Repayments or redemption of debt and preferred equity investments1,092,383
 703,043
 812,914
Net cash provided by investing activities114,494
 681,662
 22,014
      

76


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


 Year Ended December 31,
 2019 2018 2017
Financing Activities     
Proceeds from mortgages and other loans payable$752,984
 $564,391
 $870,459
Repayments of mortgages and other loans payable(230,076) (868,842) (902,460)
Proceeds from revolving credit facility and senior unsecured notes1,310,000
 3,120,000
 2,784,599
Repayments of revolving credit facility and senior unsecured notes(1,570,000) (2,560,000) (2,276,782)
Payment of debt extinguishment costs
 (13,918) 
Proceeds from stock options exercised and DRSPP issuance334
 29,048
 23,537
Repurchase of common units(384,399) (979,541) (806,302)
Redemption of preferred units(18,142) (1,208) (275)
Redemption of OP units(27,495) (33,972) 
Distributions to noncontrolling interests in other partnerships(478) (8,364) (52,446)
Contributions from noncontrolling interests in other partnerships10,239
 5,459
 36,275
Acquisition of subsidiary interest from noncontrolling interest(25,845) 
 
Distributions paid on common and preferred units(321,115) (328,230) (347,809)
Other obligations related to mortgage loan participations
 16
 17,227
Tax withholdings related to restricted share awards(3,495) (3,842) (3,879)
Deferred loan costs(21,162) (15,109) (27,100)
Net cash used in financing activities(528,650) (1,094,112) (684,956)
Net (decrease) increase in cash, cash equivalents, and restricted cash(37,683) 29,087
 (119,941)
Cash, cash equivalents, and restricted cash at beginning of year279,113
 250,026
 369,967
Cash, cash equivalents, and restricted cash at end of period$241,430
 $279,113
 $250,026
      
Supplemental cash flow disclosures: 
  
  
Interest paid$248,684
 $259,776
 $273,819
Income taxes paid$1,489
 $1,418
 $2,448
      
Supplemental Disclosure of Non-Cash Investing and Financing Activities:     
Issuance of units in the operating partnership
 
 25,723
Conversion of units in the operating partnership471
 16,303
 21,574
Redemption of units in the operating partnership for a joint venture sale
 10,445
 
Exchange of debt investment for real estate or equity in joint venture34,498
 298,956
 
Issuance of preferred units relating to the real estate acquisition1,000
 
 
Tenant improvements and capital expenditures payable6,056
 
 6,667
Fair value adjustment to noncontrolling interest in the operating partnership34,320
 34,236
 5,712
Deconsolidation of a subsidiary (1)
395
 298,404
 695,204
Transfer of assets to assets held for sale391,664
 
 611,809
Transfer of liabilities related to assets held for sale
 
 5,364
Removal of fully depreciated commercial real estate properties19,577
 124,249
 15,488
Contribution to consolidated joint venture by noncontrolling interest48,223
 
 
Share repurchase payable
 
 41,746
Recognition of right of use assets and related lease liabilities389,120
 
 
(1) $366.6 million of the 2017 amount relates to 1515 Broadway. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018.

77


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


In December 2019, 2018 and 2017, SLGOP declared quarterly distributions per common unit of $0.885, $0.85 and $0.8125, respectively. These distributions were paid in January 2020, 2019 and 2018, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
 Year Ended
 2019 2018 2017
Cash and cash equivalents$166,070
 $129,475
 $127,888
Restricted cash75,360
 149,638
 122,138
Total cash, cash equivalents, and restricted cash$241,430
 $279,113
 $250,026
The accompanying notes are an integral part of these consolidated financial statements.


78


SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements
December 31, 2019


1. Organization and Basis of Presentation
SL Green Realty Corp., which is referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Operating Partnership received a contribution of interest in the real estate properties, as well as 95% of the economic interest in the management, leasing and construction companies which are referred to as the Service Corporation. All of the management, leasing and construction services that are provided to the properties that are wholly-owned by us and that are provided to certain joint ventures are conducted through SL Green Management LLC which is 100% owned by the Operating Partnership. The Company has qualified, and expects to qualify in the current fiscal year, as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, and operates as a self-administered, self-managed REIT. A REIT is a legal entity that holds real estate interests and, through payments of dividends to stockholders, is permitted to minimize the payment of Federal income taxes at the corporate level. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership.
Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. The Company is the sole managing general partner of the Operating Partnership. As of December 31, 2019, noncontrolling investors held, in the aggregate, a 5.03% limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership. The Operating Partnership is considered a variable interest entity, or VIE, in which we are the primary beneficiary. See Note 11, "Noncontrolling Interests on the Company's Consolidated Financial Statements."
As of December 31, 2019, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties:
    Consolidated Unconsolidated Total  
Location 
Property
Type
 Number of Properties Approximate Square Feet (unaudited) Number of Properties Approximate Square Feet (unaudited) Number of Properties Approximate Square Feet (unaudited) 
Weighted Average Occupancy(1) (unaudited)
Commercial:              
Manhattan Office 20
 12,387,091
 10
 11,216,183
 30
 23,603,274
 94.5%
  Retail 6
(2)320,430
 8
 289,050
 14
 609,480
 98.4%
  Development/Redevelopment(3)6
 189,538
 1
 
 7
 189,538
 84.9%
  Fee Interest 
 
 1
 
 1
 
 %
    32
 12,897,059
 20
 11,505,233
 52
 24,402,292
 94.6%
Suburban Office 8
 1,044,800
 
 
 8
 1,044,800
 85.7%
  Retail 1
 52,000
 
 
 1
 52,000
 100.0%
    9
 1,096,800
 
 
 9
 1,096,800
 86.4%
Total commercial properties 41
 13,993,859
 20
 11,505,233
 61
 25,499,092
 94.2%
Residential:                
Manhattan Residential 2
(2)445,105
 8
 1,663,774
 10
 2,108,879
 95.7%
Total residential properties 2
 445,105
 8
 1,663,774
 10
 2,108,879
 95.7%
Total portfolio 43
 14,438,964
 28
 13,169,007
 71
 27,607,971
 94.3%
(1)The weighted average occupancy for commercial properties represents the total occupied square footage divided by the total square footage at acquisition.  The weighted average occupancy for residential properties represents the total occupied units divided by the total available units.
(2)As of December 31, 2019, we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet (unaudited) of retail space and approximately 222,855 square feet (unaudited) of residential space. For the purpose of this report, we have included this building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.
(3)Properties in Development are included in Number of Properties with no Approximate Square Feet.

79

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


As of December 31, 2019, we also managed 2 office buildings owned by third parties encompassing approximately 2.1 million square feet (unaudited) and held debt and preferred equity investments with a book value of $1.7 billion, including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in balance sheet line items other than the Debt and Preferred Equity Investments line item.
Partnership Agreement
In accordance with the partnership agreement of the Operating Partnership, or the Operating Partnership Agreement, we allocate all distributions and profits and losses in proportion to the percentage of ownership interests of the respective partners, subject to the priority distributions with respect to preferred units and special provisions that apply to LTIP Units. As the managing general partner of the Operating Partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the Operating Partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to minimize any Federal income or excise tax at the Company level. Under the Operating Partnership Agreement, each limited partner has the right to redeem units of limited partnership interests for cash, or if we so elect, shares of SL Green's common stock on a one-for-1 basis.
Subsequent Event
In February 2020, The Company entered into contract to sell 315 West 33rd Street and an adjacent undeveloped parcel of land for a gross asset valuation of $446.5 million. This transaction is expected to close in the second quarter of 2020. At December 31, 2019, we determined that the held for sale criteria was not met for this property as it was not probable that the sale of the asset would be completed within one year.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method. See Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures." All significant intercompany balances and transactions have been eliminated.
We consolidate a VIE in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.
A noncontrolling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to us. Noncontrolling interests are required to be presented as a separate component of equity in the consolidated balance sheet and the presentation of net income is modified to present earnings and other comprehensive income attributed to controlling and noncontrolling interests.
We assess the accounting treatment for each joint venture and debt and preferred equity investment. This assessment includes a review of each joint venture or limited liability company agreement to determine the rights provided to each party and whether those rights are protective or participating. For all VIEs, we review such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity's economic performance. In situations where we and our partner approve, among other things, the annual budget, receive a detailed monthly reporting package, meet on a quarterly basis to review the results of the joint venture, review and approve the joint venture's tax return before filing, and approve all leases that cover more than a nominal amount of space relative to the total rentable space at each property, we do not consolidate the joint venture as we consider these to be substantive participation rights that result in shared power of the activities that most significantly impact the performance of the joint venture. Our joint venture agreements typically contain certain protective rights such as requiring partner approval to sell, finance or refinance the property and the payment of capital expenditures and operating expenditures outside of the approved budget or operating plan.
Investment in Commercial Real Estate Properties
Real estate properties are presented at cost less accumulated depreciation and amortization. Costs directly related to the development or redevelopment of properties are capitalized. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

80

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


We recognize the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests in an acquired entity at their respective fair values on the acquisition date. When we acquire our partner's equity interest in an existing unconsolidated joint venture and gain control over the investment, we record the consolidated investment at fair value. The difference between the book value of our equity investment on the purchase date and our share of the fair value of the investment's purchase price is recorded as a purchase price fair value adjustment in our consolidated statements of operations. See Note 3, "Property Acquisitions."
We allocate the purchase price of real estate to land and building (inclusive of tenant improvements) and, if determined to be material, intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building (inclusive of tenant improvements) over their estimated useful lives, which generally range from three to 40 years. We amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease, which generally range from one to 14 years, and record it as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income. We amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease, which generally ranges from one to 14 years. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. To the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material, we amortize such below-market lease value into rental income over the renewal period. As of December 31, 2019, the weighted average amortization period for above-market leases, below-market leases, and in-place lease costs is 1.7 years, 2.8 years, and 3.5 years, respectively.
The Company classifies those leases under which the Company is the lessee at lease commencement as finance or operating leases. Leases qualify as finance leases if the lease transfers ownership of the asset at the end of the lease term, the lease grants an option to purchase the asset that we are reasonably certain to exercise, the lease term is for a major part of the remaining economic life of the asset, or the present value of the lease payments exceeds substantially all of the fair value of the asset. Leases that do not qualify as finance leases are deemed to be operating leases. At lease commencement the Company records a lease liability which is measured as the present value of the lease payments and a right of use asset which is measured as the amount of the lease liability and any initial direct costs incurred. The Company applies a discount rate to determine the present value of the lease payments. If the rate implicit in the lease is known, the Company uses that rate. If the rate implicit in the lease is not known, the Company uses a discount rate reflective of the Company’s collateralized borrowing rate given the term of the lease. To determine the discount rate, the Company employs a third party specialist to develop an analysis based primarily on the observable borrowing rates of the Company, other REITs, and other corporate borrowers with long-term borrowings. On the consolidated statements of operations, operating leases are expensed through operating lease rent while financing leases are expensed through amortization and interest expense. On the consolidated balance sheet, financing leases include the amounts previously captioned "Properties under capital lease." When applicable, the Company combines the consideration for lease and non-lease components in the calculation of the value of the lease obligation and right-of-use asset.
We incur a variety of costs in the development and leasing of our properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major construction activity ceases. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction.

81

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


Properties other than Right of use assets - operating leases are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Category Term
Building (fee ownership) 40 years
Building improvements shorter of remaining life of the building or useful life
Building (leasehold interest) lesser of 40 years or remaining term of the lease
Right of use assets - financing leases lesser of 40 years or remaining lease term
Furniture and fixtures four to seven years
Tenant improvements shorter of remaining term of the lease or useful life

Right of use assets - operating leases are amortized over the remaining lease term. The amortization is made up of the principal amortization under the lease liability plus or minus the straight line adjustment of the operating lease rent under ASC 840.
Depreciation expense (including amortization of right of use assets - financing leases) totaled $233.5 million, $242.8 million, and $365.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.
We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded.
We recognized $4.5 million, $6.8 million, and $20.3 million of rental revenue for the years ended December 31, 2019, 2018, and 2017, respectively, for the amortization of aggregate below-market leases in excess of above-market leases, resulting from the allocation of the purchase price of the applicable properties.
We recognized 0 reduction to interest expense from the amortization of above-market rate mortgages assumed for the years ended December 31, 2019 and 2018. We recognized $0.8 million as a reduction to interest expense from the amortization of above-market rate mortgages for the year ended December 31, 2017.
The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) as of December 31, 2019 and 2018 (in thousands):
 December 31,
 2019 2018
Identified intangible assets (included in other assets):   
Gross amount$255,198
 $266,540
Accumulated amortization(228,223) (241,040)
Net(1)
$26,975
 $25,500
Identified intangible liabilities (included in deferred revenue):   
Gross amount$282,048
 $276,245
Accumulated amortization(249,514) (253,767)
Net(1)
$32,534
 $22,478
(1)As of December 31, 2019, 0 net intangible assets and 0 net intangible liabilities were reclassified to assets held for sale and liabilities related to assets held for sale. As of December 31, 2018, 0 net intangible assets and 0 net intangible liabilities were reclassified to assets held for sale and liabilities related to assets held for sale.


82

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


The estimated annual amortization of acquired above-market leases, net of acquired (below-market) leases (a component of rental revenue), for each of the five succeeding years is as follows (in thousands):    
2020 $(4,320)
2021 (2,748)
2022 (2,224)
2023 (1,301)
2024 (834)

The estimated annual amortization of all other identifiable assets (a component of depreciation and amortization expense) including tenant improvements for each of the five succeeding years is as follows (in thousands):
2020 $5,183
2021 3,638
2022 2,064
2023 1,435
2024 1,040

Cash and Cash Equivalents
We consider all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash primarily consists of security deposits held on behalf of our tenants, interest reserves, as well as capital improvement and real estate tax escrows required under certain loan agreements.
Fair Value Measurements
See Note 16, "Fair Value Measurements."
Investment in Marketable Securities
At acquisition, we designate a security as held-to-maturity, available-for-sale, or trading. As of December 31, 2019, we did not have any securities designated as held-to-maturity or trading. We account for our available-for-sale securities at fair value pursuant to Accounting Standards Codification, or ASC, 820-10, with the net unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. The cost of marketable securities sold and the amount reclassified out of accumulated other comprehensive income into earnings is determined using the specific identification method. Any unrealized losses that are determined to be other-than-temporary are recognized in earnings up to their credit component.
At December 31, 2019 and 2018, we held the following marketable securities (in thousands):
 December 31,
 2019 2018
Commercial mortgage-backed securities$29,887
 $28,638
Total marketable securities available-for-sale$29,887
 $28,638

The cost basis of the commercial mortgage-backed securities was $27.5 million at both December 31, 2019 and 2018. These securities mature at various times through 2035. We held 0 equity marketable securities at December 31, 2019 and 2018.
During the years ended December 31, 2019 and 2018, we did not dispose of any marketable securities.
During the year ended December 31, 2017, we disposed of marketable securities for aggregate net proceeds of $55.1 million and realized a gain of $3.3 million, which is included in gain on sale of investment in marketable securities on the consolidated statements of operations.

83

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


Investments in Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are VIEs and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. Equity in net income (loss) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture and includes adjustments related to basis differences in accounting for the investment. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. None of the joint venture debt is recourse to us. The Company has performance guarantees under a master lease at 1 joint venture. See Note 6, "Investments in Unconsolidated Joint Ventures."
We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at December 31, 2019.
We may originate loans for real estate acquisition, development and construction ("ADC loans"), where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with the accounting for our debt and preferred equity investments.
Deferred Lease Costs
Deferred lease costs consist of incremental fees and direct costs that would not have been incurred if the lease had not been obtained and are amortized on a straight-line basis over the related lease term. Certain of our employees provide leasing services to the wholly-owned properties. For the years ended December 31, 2019, 2018 and 2017, $6.3 million, $15.7 million, and $16.4 million of their compensation, respectively, was capitalized and is amortized over an estimated average lease term of eight years.
Deferred Financing Costs
Deferred financing costs represent commitment fees, legal, title and other third party costs associated with obtaining commitments for financing which result in a closing of such financing. These costs are amortized over the terms of the respective agreements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not close. Deferred financing costs related to a recognized debt liability are presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability.
Revenue Recognition
Rental revenue for operating leases is recognized on a straight-line basis over the term of the lease. Rental revenue recognition commences when the leased space is substantially ready for its intended use.
To determine whether the leased space is substantially ready for its intended use, management evaluates whether we are or the tenant is the owner of tenant improvements for accounting purposes. When management concludes that we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete. In certain instances, when management concludes that we are not the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space.

84

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


When management concludes that we are the owner of tenant improvements for accounting purposes, we record amounts funded to construct the tenant improvements as a capital asset. For these tenant improvements, we record amounts reimbursed by tenants as a reduction of the capital asset. When management concludes that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred costs, net on our consolidated balance sheets and amortized as a reduction to rental revenue on a straight-line basis over the term of the lease.
The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets.
In addition to base rent, our tenants also generally will pay variable rent which represents their pro rata share of increases in real estate taxes and operating expenses for the building over a base year. In some leases, in lieu of paying additional rent based upon increases in building operating expenses, the tenant will pay additional rent based upon increases in the wage rate paid to porters over the porters' wage rate in effect during a base year or increases in the consumer price index over the index value in effect during a base year. In addition, many of our leases contain fixed percentage increases over the base rent to cover escalations. Electricity is most often supplied by the landlord either on a sub-metered basis, or rent inclusion basis (i.e., a fixed fee is included in the rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant). Base building services other than electricity (such as heat, air conditioning and freight elevator service during business hours, and base building cleaning) are typically provided at no additional cost, with the tenant paying additional rent only for services which exceed base building services or for services which are provided outside normal business hours. These escalations are based on actual expenses incurred in the prior calendar year. If the expenses in the current year are different from those in the prior year, then during the current year, the escalations will be adjusted to reflect the actual expenses for the current year.
Rental revenue is recognized if collectability is probable. If collectability of substantially all of the lease payments is assessed as not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current-period adjustment to rental revenue. A subsequent change in the assessment of collectability to probable may result in a current-period adjustment to rental revenue for any difference between the rental revenue that would have been recognized if collectability had always been assessed as probable and the rental revenue recognized to date.
The Company provides its tenants with certain customary services for lease contracts such as common area maintenance and general security. We have elected to combine the nonlease components with the lease components of our operating lease agreements and account for them as a single lease component in accordance with ASC 842.
We record a gain or loss on sale of real estate assets when we no longer hold a controlling financial interest in the entity holding the real estate, a contract exists with a third party and that third party has control of the assets acquired.
Investment income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when, in the opinion of management, it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is collectible. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt.
Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield. Discounts or premiums associated with the purchase of loans are amortized or accreted into interest income as a yield adjustment on the effective interest method based on expected cash flows through the expected maturity date of the related investment. If we purchase a debt or preferred equity investment at a discount, intend to hold it until maturity and expect to recover the full value of the investment, we accrete the discount into income as an adjustment to yield over the term of the investment. If we purchase a debt or preferred equity investment at a discount with the intention of foreclosing on the collateral, we do not accrete the discount. For debt investments acquired at a discount for credit quality, the difference between contractual cash flows and expected cash flows at acquisition is not accreted. Anticipated exit fees, the collection of which is expected, are also recognized over the term of the loan as an adjustment to yield.
Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed. Interest is recorded as income on impaired loans only to the extent cash is received.

85

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income.
Asset management fees are recognized on a straight-line basis over the term of the asset management agreement.
Allowance for Loan Loss and Other Investment Reserves
The expense for loan loss and other investment reserves in connection with debt and preferred equity investments is the charge to earnings to adjust the allowance for possible losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality.
The Company evaluates debt and preferred equity investments that are classified as held to maturity for possible impairment or credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor. Quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from less risk to greater risk, which ratings are defined as follows: 1 - Low Risk Assets - Low probability of loss, 2 - Watch List Assets - Higher potential for loss, 3 - High Risk Assets - Loss more likely than not.
When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired. A valuation allowance is measured based upon the excess of the carrying value of the investment over the fair value of the collateral. Any deficiency between the carrying value of an asset and the calculated value of the collateral is charged to expense. We continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly.
Debt and preferred equity investments that are classified as held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment.
Rent Expense
Rent expense is recognized on a straight-line basis over the initial term of the lease. The excess of the rent expense recognized over the amounts contractually due pursuant to the underlying lease is included in the lease liability - operating leases on the consolidated balance sheets.
Underwriting Commissions and Costs
Underwriting commissions and costs incurred in connection with our stock offerings are reflected as a reduction of additional paid-in-capital.
Exchangeable Debt Instruments
The initial proceeds from exchangeable debt that may be settled in cash, including partial cash settlements, are bifurcated between a liability component and an equity component associated with the embedded conversion option. The objective of the accounting guidance is to require the liability and equity components of exchangeable debt to be separately accounted for in a manner such that the interest expense on the exchangeable debt is not recorded at the stated rate of interest but rather at an effective rate that reflects the issuer's conventional debt borrowing rate at the date of issuance. We calculate the liability component of exchangeable debt based on the present value of the contractual cash flows discounted at our comparable market conventional debt borrowing rate at the date of issuance. The difference between the principal amount and the fair value of the liability component is reported as a discount on the exchangeable debt that is accreted as additional interest expense from the issuance date through the contractual maturity date using the effective interest method. A portion of this additional interest expense may be capitalized to the development and redevelopment balances qualifying for interest capitalization each period. The liability component of the exchangeable debt is reported net of discounts on our consolidated balance sheets. We calculate the equity component of exchangeable debt based on the difference between the initial proceeds received from the issuance of the exchangeable debt and the fair value of the liability component at the issuance date. The equity component is included in additional paid-in-capital, net

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Notes to Consolidated Financial Statements (cont.)
December 31, 2019


of issuance costs, on our consolidated balance sheets. We allocate issuance costs for exchangeable debt between the liability and the equity components based on their relative values.
Transaction Costs
Transaction costs for asset acquisitions are capitalized to the investment basis, which is then subject to a purchase price allocation based on relative fair value. Transaction costs for business combinations or costs incurred on potential transactions that are not consummated are expensed as incurred.
Income Taxes
SL Green is taxed as a REIT under Section 856(c) of the Code. As a REIT, SL Green generally is not subject to Federal income tax. To maintain its qualification as a REIT, SL Green must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If SL Green fails to qualify as a REIT in any taxable year, SL Green will be subject to Federal income tax on its taxable income at regular corporate rates. SL Green may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on its undistributed taxable income.
The Operating Partnership is a partnership and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective income tax returns. The only provision for income taxes included in the consolidated statements of operations relates to the Operating Partnership’s consolidated taxable REIT subsidiaries. The Operating Partnership may also be subject to certain state, local and franchise taxes.
We have elected, and may elect in the future, to treat certain of our corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, TRSs may perform non-customary services for the tenants of the Company, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business. The TRSs generate income, resulting in Federal and state income tax liability for these entities.
During the years ended December 31, 2019, 2018 and 2017, we recorded Federal, state and local tax provisions of $1.5 million, $2.8 million, and $4.3 million, respectively. For the year ended December 31, 2019, the Company paid distributions on its common stock of $3.40 per share which represented $2.59 per share of ordinary income and $0.81 per share of capital gains. For the year ended December 31, 2018, the Company paid distributions on its common stock of $3.25 per share which represented $1.46 per share of ordinary income, and $1.79 per share of capital gains. For the year ended December 31, 2017, the Company paid distributions on its common stock of $3.10 per share which represented $1.24 per share of ordinary income and $1.86 per share of capital gains.
We follow a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited.
On December 22, 2017, the Tax Cuts and Jobs Act (the ‘‘Tax Act’’) was signed into law and made substantial changes to the Code. The Tax Act did not have a material impact on our financial statements for the years ended December 31, 2019 or December 31, 2018.
Stock-Based Employee Compensation Plans
We have a stock-based employee compensation plan, described more fully in Note 14, "Share-based Compensation."
The Company's stock options are recorded at fair value at the time of issuance. Fair value of the stock options is determined using the Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our plan has characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the employee stock options.
Compensation cost for stock options, if any, is recognized over the vesting period of the award. Our policy is to grant options with an exercise price equal to the quoted closing market price of the Company's common stock on either the grant date or the date immediately preceding the grant date. Awards of stock or restricted stock are expensed as compensation over the benefit period based on the fair value of the stock on the grant date.

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SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


For share-based awards with a performance or market measure, we recognize compensation cost over the requisite service period, using the accelerated attribution expense method. The requisite service period begins on the date the compensation committee of our board of directors authorizes the award, adopts any relevant performance measures and communicates the award to the employees. For programs with awards that vest based on the achievement of a performance condition or market condition, we determine whether it is probable that the performance condition will be met, and estimate compensation cost based on the fair value of the award at the applicable award date estimated using a binomial model or market quotes. For share-based awards for which there is no pre-established performance measure, we recognize compensation cost over the service vesting period, which represents the requisite service period, on a straight-line basis. In accordance with the provisions of our share-based incentive compensation plans, we accept the return of shares of the Company's common stock, at the current quoted market price, from certain key employees to satisfy minimum statutory tax-withholding requirements related to shares that vested during the period.
Awards can also be made in the form of a separate series of units of limited partnership interest in the Operating Partnership called long-term incentive plan units, or LTIP units. LTIP units, which can be granted either as free-standing awards or in tandem with other awards under our stock incentive plan, are valued by reference to the value of the Company's common stock at the time of grant, and are subject to such conditions and restrictions as the compensation committee of the Company's board of directors may determine, including continued employment or service, computation of financial metrics and/or achievement of pre-established performance goals and objectives.
Derivative Instruments
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collars and floors, to manage, or hedge, interest rate risk. Effectiveness is essential for those derivatives that we intend to qualify for hedge accounting. Some derivative instruments are associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.
To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
In the normal course of business, we are exposed to the effect of interest rate changes and limit these risks by following established risk management policies and procedures including the use of derivatives. To address exposure to interest rates, derivatives are used primarily to fix the rate on debt based on floating-rate indices and manage the cost of borrowing obligations.
We use a variety of conventional derivative products. These derivatives typically include interest rate swaps, caps, collars and floors. We expressly prohibit the use of unconventional derivative instruments and using derivative instruments for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.
We may employ swaps, forwards or purchased options to hedge qualifying forecasted transactions. Gains and losses related to these transactions are deferred and recognized in net income as interest expense in the same period or periods that the underlying transaction occurs, expires or is otherwise terminated.
Hedges that are reported at fair value and presented on the balance sheet could be characterized as cash flow hedges or fair value hedges. Interest rate caps and collars are examples of cash flow hedges. Cash flow hedges address the risk associated with future cash flows of interest payments. For all hedges held by us that meet the hedging objectives established by our corporate policy governing interest rate risk management, no net gains or losses were reported in earnings. The changes in fair value of derivative instruments designated as hedge instruments are reflected in accumulated other comprehensive income (loss). For derivative instruments not designated as hedging instruments, the gain or loss, resulting from the change in the estimated fair value of the derivative instruments, is recognized in current earnings during the period of change.

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SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


Earnings per Share of the Company
The Company presents both basic and diluted earnings per share, or EPS, using the two-class method, which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPS is computed by dividing the income available to common stockholders by the weighted-average number of common stock shares outstanding for the period. Basic EPS includes participating securities, consisting of unvested restricted stock that receive nonforfeitable dividends similar to shares of common stock. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount. Diluted EPS also includes units of limited partnership interest. The dilutive effect of stock options is reflected in the weighted average diluted outstanding shares calculation by application of the treasury stock method. There was no dilutive effect for the exchangeable senior notes as the conversion premium was to be paid in cash.
Earnings per Unit of the Operating Partnership
The Operating Partnership presents both basic and diluted earnings per unit, or EPU, using the two-class method, which is an earnings allocation formula that determines EPU for common units and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPU is computed by dividing the income available to common unitholders by the weighted-average number of common units outstanding for the period. Basic EPU includes participating securities, consisting of unvested restricted units that receive nonforfeitable dividends similar to shares of common units. Diluted EPU reflects the potential dilution that could occur if securities or other contracts to issue common units were exercised or converted into common units, where such exercise or conversion would result in a lower EPU amount. The dilutive effect of unit options is reflected in the weighted average diluted outstanding units calculation by application of the treasury stock method. There was no dilutive effect for the exchangeable senior notes as the conversion premium was to be paid in cash.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, debt and preferred equity investments and accounts receivable. We place our cash investments with high quality financial institutions. The collateral securing our debt and preferred equity investments is located in the New York metropolitan area. See Note 5, "Debt and Preferred Equity Investments."
We perform ongoing credit evaluations of our tenants and require most tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the total value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost revenue and the costs associated with re-tenanting a space. The properties in our real estate portfolio are located in the New York metropolitan area. The tenants located in our buildings operate in various industries. Other than 1 tenant, Credit Suisse Securities (USA), Inc., who accounted for 8.2% of our share of annualized cash rent, no other tenant in our portfolio accounted for more than 5.0% of our share of annualized cash rent, including our share of joint venture annualized cash rent, at December 31, 2019. In January 2020, Credit Suisse entered into a lease termination agreement with the Company and vacated its space at the property, thereby reducing its share of annualized cash rent to approximately 3.3%.
For the years ended December 31, 2019, 2018, and 2017, the following properties contributed more than 5.0% of our annualized cash rent from office properties, including our share of annualized cash rent from joint venture office properties:
Property2019Property2018Property2017
1185 Avenue of the Americas7.6%11 Madison Avenue7.4%11 Madison Avenue7.1%
11 Madison Avenue7.4%1185 Avenue of the Americas6.7%1185 Avenue of the Americas7.1%
420 Lexington Avenue6.6%420 Lexington Avenue6.5%1515 Broadway7.0%
1515 Broadway6.1%1515 Broadway6.0%420 Lexington Avenue6.0%
One Madison Avenue6.0%One Madison Avenue5.8%One Madison Avenue5.6%
220 East 42nd Street
5.5%    


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SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


As of December 31, 2019, 70.1% of our work force is covered by 6 collective bargaining agreement. 2.1% of our work force is covered by collective bargaining agreements that expire in December 2020. See Note 19, "Benefits Plans."
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
Accounting Standards Updates
In August 2018, the FASB issued Accounting Standard Update, or ASU, No. 2018-15, Intangibles - Goodwill and Other- Internal-Use Software (Topic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments provide guidance on accounting for fees paid when the arrangement includes a software license and align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs to develop or obtain internal-use software. The guidance is effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has not yet adopted this new guidance and does not expect it to have a material impact on the Company’s consolidated financial statements when the new standard is implemented.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This amendment removed, modified and added the disclosure requirements under Topic 820. The changes are effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted for the removed or modified disclosures with adoption of the additional disclosures upon the effective date. The Company has not yet adopted this new guidance and does not expect it to have a material impact on the Company’s consolidated financial statements when the new standard is implemented.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting and in November 2019, issued ASU No. 2019-08, Compensation Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). These amendments provide additional guidance related to share-based payment transactions for acquiring goods or services from nonemployees. The Company has adopted this guidance in 2019 and it did not have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities; in July 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes; and in May 2019, issued ASU No. 2019-05, Codification Improvements. The amendments in the new standards will permit more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments. The standards will also enhance the presentation of hedge results in the financial statements. The Company adopted this guidance on January 1, 2019, and it did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; in November 2018 issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in April, May and November 2019, issued ASU No. 2019-04, 2019-05 and 2019-11, which provide codification improvements and targeted transition relief. The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company’s DPE portfolio and financing lease assets will be subject to this guidance once the Company adopts it. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. The Company will adopt this guidance January 1, 2020 and does not expect it to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. In July 2018, the FASB issued ASU No. 2018-10 - Codification Improvements to Topic 842, Leases, and ASU No. 2018-11 - Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20 - Narrow-Scope Improvements for Lessors and in March 2019 issued ASU No. 2019-01 - Codification Improvements. The Company adopted this guidance on January 1, 2019 using the modified retrospective approach which allows the Company to apply the guidance for the current year presentation and not adjust the prior year numbers. The Company elected the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. The new guidance applies to the ground leases under which the Company is a lessee. The Company has recognized a new asset and liability - “Right of use asset - operating leases” and “Lease liability - operating leases” - for those leases classified as operating leases under the previous standard. The Company will continue to recognize expense on a straight-line basis for these operating leases.

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SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


The ground leases that the Company historically reported as “Properties under capital leases” and “Capitalized lease obligations” are now labeled “Right of use asset - financing leases” and “Lease liability - financing leases”. The expense recognition of these leases has not changed. The Company adopted the practical expedient offered in ASU No. 2018-11 that allows lessors to not separate non-lease components from the related lease components under certain conditions. In doing so, the Company has collapsed the line “Escalation and reimbursement revenues” into the “Rental revenue, net” line to reflect adopting this practical expedient. The Company also collapsed the prior year balances to conform to the current year presentation. For future leases, the Company no longer capitalizes internal leasing costs that are not incremental and direct as defined under the new guidance. The Company has recorded additional expense of approximately $10.0 million related to this change for the year ended December 31, 2019.
3. Property Acquisitions
2019 Acquisitions
The following table summarizes the properties acquired during the year ended December 31, 2019:
Property Acquisition Date Property Type Approximate Square Feet 
Gross Asset Valuation
(in millions)
106 Spring Street(1)
 April 2019 Fee Interest 5,928 $80.2
410 Tenth Avenue(2)
 May 2019 Fee Interest 638,000 440.0
110 Greene Street(3)
 May 2019 Fee Interest 223,600 256.5
(1)In April 2019, the Company accepted an assignment of the equity interests in the property in lieu of repayment of the Company's debt investment and marked the assets received and liabilities assumed to fair value.
(2)In May 2019, the Company closed on the acquisition of a majority and controlling 70.87% interest in 410 Tenth Avenue. We recorded the assets acquired and liabilities assumed at fair value, which resulted in the recognition of a fair value adjustment of $67.6 million, which is reflected in the Company's consolidated statement of operations within purchase price and other fair value adjustments, and $18.3 million of net intangible lease liabilities.
(3)In May 2019, the Company acquired from our joint venture partner the remaining 10% interest in this property that the Company did not already own.
2018 Acquisitions
The following table summarizes the properties acquired during the year ended December 31, 2018:
Property Acquisition Date Property Type Approximate Square Feet 
Acquisition Price
(in millions)
2 Herald Square(1)
 May 2018 Leasehold Interest 369,000
 $266.0
1231 Third Avenue(2)(3)
 July 2018 Fee Interest 39,000
 55.4
Upper East Side Residential(3)(4)
 August 2018 Fee Interest 0.2 acres 30.2
133 Greene Street(2)
 October 2018 Fee Interest 6,425
 31.0
712 Madison Avenue(2)
 December 2018 Fee Interest 6,600
 58.0
(1)In May 2018, the Company was the successful bidder at the foreclosure of the asset. We recorded the assets acquired and liabilities assumed at fair value. This resulted in the recognition of a fair value adjustment of $8.1 million, which is reflected in the Company's consolidated statement of operations within purchase price and other fair value adjustments. See Note 16, "Fair Value Measurements." The Company subsequently sold a 49% interest in the property in November 2018. See Note 4, "Properties Held for Sale and Dispositions." and Note 6, "Investments in Unconsolidated Joint Ventures."
(2)The Company accepted an assignment of the equity interests in the property in lieu of repayment of the Company's debt investment, and recorded the assets received and liabilities assumed at fair value.
(3)This property was subsequently sold in October 2018. See Note 4, "Properties Held for Sale and Dispositions."
(4)In August 2018, the Company acquired the fee interest in 3 additional land parcels at the Upper East Side Residential Assemblage.
2017 Acquisitions
During the year ended December 31, 2017, we did not acquire any properties from a third party.


91

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
During the third quarter of 2019, we entered into an agreement to sell 220 East 42nd Street in Manhattan for a total consideration of $815.0 million. The sale is expected to close in the first quarter of 2020.
As of December 31, 2019, 220 East 42nd Street was classified as held for sale.
Property Dispositions
The following table summarizes the properties sold during the years ended December 31, 2019, 2018, and 2017:
Property Disposition Date Property Type Unaudited Approximate Usable Square Feet 
Sales Price(1)
(in millions)
 
Gain (Loss) on Sale(2)
(in millions)
Suburban Properties (3)
 December 2019 Fee Interest 1,107,000
 $229.2
 $1.8
1640 Flatbush Avenue December 2019 Fee Interest 1,000
 16.2
 5.5
562 Fifth Avenue December 2019 Fee Interest 42,635
 52.4
 (26.6)
1010 Washington Boulevard November 2019 Fee Interest 143,400
 23.1
 (7.1)
115 Spring Street (4)
 August 2019 Fee Interest 5,218
 66.6
 3.6
2 Herald Square(5)
 November 2018 Office/Retail 369,000
 265.0
 
400 Summit Lake Drive November 2018 Land 39.5 acres 3.0
 (36.2)
Upper East Side Assemblage(6)(7)
 October 2018 Development 70,142
 143.8
 (6.3)
1-6 International Drive July 2018 Office 540,000
 55.0
 (2.6)
635 Madison Avenue June 2018 Retail 176,530
 153.0
 (14.1)
115-117 Stevens Avenue May 2018 Office 178,000
 12.0
 (0.7)
600 Lexington Avenue January 2018 Office 303,515
 305.0
 23.8
1515 Broadway (8)
 December 2017 Office 1,750,000
 1,950.0
 
125 Chubb Way October 2017 Office 278,000
 29.5
 (26.1)
16 Court Street October 2017 Office 317,600
 171.0
 64.9
680-750 Washington Boulevard July 2017 Office 325,000
 97.0
 (44.2)
520 White Plains Road April 2017 Office 180,000
 21.0
 (14.6)
102 Greene Street (9)
 April 2017 Retail 9,200
 43.5
 4.9
(1)Sales price represents the gross sales price for a property or the gross asset valuation for interests in a property.
(2)The gain on sale for 1640 Flatbush Avenue, 600 Lexington Avenue, 16 Court Street, and 102 Greene Street are net of $2.0 million, $1.3 million, $2.5 million, and $0.9 million, respectively, in employee compensation accrued in connection with the realization of these investment gains. Additionally, amounts do not include adjustments for expenses recorded in subsequent periods.
(3)Suburban Properties consists of 360 Hamilton Avenue, 100 Summit Lake Drive, 200 Summit Lake Drive, and 500 Summit Lake Drive.
(4)The Company sold a 49% interest, which resulted in the deconsolidation of our remaining 51% interest. We recorded our investment at fair value which resulted in the recognition of a fair value adjustment of $3.8 million, which is reflected in the Company's consolidated statements of operations within purchase price and other fair value adjustments. See Note 6, "Investments in Unconsolidated Joint Ventures."
(5)In November 2018, the Company sold a 49% interest in 2 Herald Square to an Israeli institutional investor. See Note 6, "Investments in Unconsolidated Joint Ventures."
(6)Upper East Side Assemblage consists of 260 East 72nd Street, 31,076 square feet of development rights, 252-254 East 72nd Street, 257 East 71st Street, 259 East 71st Street, and 1231 Third Avenue.
(7)The Company recorded a $5.8 million charge in 2018 that is included in depreciable real estate reserves and impairment in the consolidated statement of operations.
(8)In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. At that time, the sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018. See Note 6, "Investments in Unconsolidated Joint Ventures."
(9)In April 2017, we closed on the sale of a 90% interest in 102 Greene Street and accounted for our retained 10% interest in the property as an investment in unconsolidated joint ventures. We sold the remaining 10% interest in September 2017. See Note 6, "Investments in Unconsolidated Joint Ventures."


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SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


5. Debt and Preferred Equity Investments
Below is a summary of the activity relating to our debt and preferred equity investments as of December 31, 2019 and 2018 (in thousands):
 December 31, 2019 December 31, 2018
Balance at beginning of year (1)
$2,099,393
 $2,114,041
Debt investment originations/accretion (2)
652,866
 834,304
Preferred equity investment originations/accretion (2)
14,736
 151,704
Redemptions/sales/syndications/amortization (3)
(1,190,689) (994,906)
Net change in loan loss reserves4,000
 (5,750)
Balance at end of period (1)
$1,580,306
 $2,099,393
(1)Net of unamortized fees, discounts, and premiums.
(2)Accretion includes amortization of fees and discounts and paid-in-kind investment income.
(3)Certain participations in debt investments that were sold or syndicated, but did not meet the conditions for sale accounting, are included in other assets and other liabilities on the consolidated balance sheets.
Below is a summary of the balances relating to our debt and preferred equity investments as of December 31, 2019 (dollars in thousands):
 Floating Rate Fixed Rate Total Carrying ValueSenior FinancingMaturity
TypeCarrying ValueFace ValueInterest Rate Carrying ValueFace ValueInterest Rate 
Senior Mortgage Debt$341,513
$342,861L + 2.75 - 5.50% $1,010
$1,2503.00% $342,523
$
2020-2022
Junior Mortgage Debt31,960
32,000L + 6.00 - 7.25% 
 $31,960
100,000
2020-2021
Mezzanine Debt245,412
247,385L + 4.60 - 12.36% 721,175
728,1382.90 - 10.00% $966,587
5,188,939
2020-2029
Preferred Equity
 239,236
244,9837.00 - 11.00% $239,236
272,000
2020-2023
Balance at end of period$618,885
$622,246
 $961,421
$974,371
 $1,580,306
$5,560,939

The following table is a rollforward of our total loan loss reserves at December 31, 2019, 2018 and 2017 (in thousands):
 December 31,
 2019 2018 2017
Balance at beginning of year$5,750
 $
 $
Expensed
 6,839
 
Recoveries
 
 
Charge-offs and reclassifications(4,000) (1,089) 
Balance at end of period$1,750
 $5,750
 $

At December 31, 2019, all debt and preferred equity investments were performing in accordance with their respective terms. At December 31, 2019, the Company's loan loss reserves of 1.8 million were attributable to 1 investment with an unpaid principal balance of $142.9 million that is being marketed for sale, but is otherwise performing in accordance with its respective terms, and was not put on nonaccrual.
At December 31, 2018, all debt and preferred equity investments were performing in accordance with their respective terms. At December 31, 2018, the Company's loan loss reserves of $5.8 million were attributable to 2 investments with an unpaid principal balance of $159.9 million that were being marketed for sale, were performing in accordance with their respective terms, and were not put on nonaccrual.

93

SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2019


We have determined that we have 1 portfolio segment of financing receivables at December 31, 2019 and 2018 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 $131.1 million and $124.5 million at December 31, 2019 and 2018, respectively. NaN financing receivables were 90 days past due at December 31, 2019 with the exception of a $28.4 million financing receivable which was put on nonaccrual in August 2018 as a result of interest default. The loan was evaluated in accordance with our loan review procedures and the Company concluded that the fair value of the collateral exceeded the carrying amount of the loan.
As of December 31, 2019, management estimated the weighted average risk rating for our debt and preferred equity investments to be 1.2.
Debt Investments
As of December 31, 2019 and 2018, we held the following debt investments with an aggregate weighted average current yield of 8.42%, at December 31, 2019 (in thousands):
Loan Type 
December 31, 2019
Future Funding
Obligations
 
December 31, 2019
Senior
Financing
 
December 31, 2019
Carrying Value (1)
 
December 31, 2018
Carrying Value (1)
 

Maturity
Date (2)
Fixed Rate Investments:          
Mezzanine Loan(3a)