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SL Green Realty 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-10.2
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2010

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                  .

 

Commission File Number: 1-13199

 


 

SL GREEN REALTY CORP.

(Exact name of registrant as specified in its charter)

 


 

Maryland

 

13-3956775

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

420 Lexington Avenue, New York, New York 10170

(Address of principal executive offices) (Zip Code)

 

(212) 594-2700

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x     NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x    NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer ¨

 

 

 

Non-accelerated filer ¨

 

Smaller Reporting Company ¨

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

 

The number of shares outstanding of the registrant’s common stock, $0.01 par value, was 78,260,832 as of October 31, 2010.

 

 

 



Table of Contents

 

SL GREEN REALTY CORP.

 

INDEX

 

 

PAGE

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009

3

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009 (unaudited)

4

 

 

Condensed Consolidated Statement of Equity for the nine months ended September 30, 2010 (unaudited)

5

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)

6

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

34

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

51

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

51

 

 

 

PART II.

OTHER INFORMATION

52

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

52

 

 

 

ITEM 1A.

RISK FACTORS

52

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

53

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

53

 

 

 

ITEM 4.

(REMOVED AND RESERVED)

53

 

 

 

ITEM 5.

OTHER INFORMATION

53

 

 

 

ITEM 6.

EXHIBITS

53

 

 

SIGNATURES

55

 

2



Table of Contents

 

PART I.                                                    FINANCIAL INFORMATION

ITEM 1.                                                     Financial Statements

 

SL Green Realty Corp.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share data)

 

 

 

September 30,
2010

 

December 31,
2009

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Commercial real estate properties, at cost:

 

 

 

 

 

Land and land interests

 

$

1,459,690

 

$

1,379,052

 

Building and improvements

 

5,838,978

 

5,585,584

 

Building leasehold and improvements

 

1,288,798

 

1,280,256

 

Property under capital lease

 

12,208

 

12,208

 

 

 

8,599,674

 

8,257,100

 

Less: accumulated depreciation

 

(871,910

)

(738,422

)

 

 

7,727,764

 

7,518,678

 

Assets held for sale

 

 

992

 

Cash and cash equivalents

 

270,803

 

343,715

 

Restricted cash

 

153,667

 

94,495

 

Investment in marketable securities

 

72,090

 

58,785

 

Tenant and other receivables, net of allowance of $14,402 and $14,271 in 2010 and 2009, respectively

 

29,470

 

22,483

 

Related party receivables

 

7,088

 

8,570

 

Deferred rents receivable, net of allowance of $24,785 and $24,347 in 2010 and 2009, respectively

 

190,481

 

166,981

 

Structured finance investments, net of discount of $40,822 and $46,802 and allowance of $87,768 and $93,844 in 2010 and 2009, respectively

 

907,936

 

784,620

 

Investments in unconsolidated joint ventures

 

777,556

 

1,058,369

 

Deferred costs, net

 

156,502

 

139,257

 

Other assets

 

294,518

 

290,632

 

Total assets

 

$

10,587,875

 

$

10,487,577

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Mortgage notes and other loans payable

 

$

2,896,946

 

$

2,595,552

 

Revolving credit facility

 

800,000

 

1,374,076

 

Senior unsecured notes

 

831,261

 

823,060

 

Accrued interest payable and other liabilities

 

21,357

 

34,734

 

Accounts payable and accrued expenses

 

144,814

 

125,982

 

Deferred revenue/gains

 

320,712

 

349,669

 

Capitalized lease obligation

 

17,028

 

16,883

 

Deferred land leases payable

 

18,204

 

18,013

 

Dividend and distributions payable

 

14,203

 

12,006

 

Security deposits

 

38,019

 

39,855

 

Junior subordinate deferrable interest debentures held by trusts that issued trust preferred securities

 

100,000

 

100,000

 

Total liabilities

 

5,202,544

 

5,489,830

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

Noncontrolling interests in operating partnership

 

79,117

 

84,618

 

 

 

 

 

 

 

Equity

 

 

 

 

 

SL Green stockholders’ equity:

 

 

 

 

 

Series C preferred stock, $0.01 par value, $25.00 liquidation preference, 11,700 and 6,300 issued and outstanding at September 30, 2010 and December 31, 2009, respectively

 

274,000

 

151,981

 

Series D preferred stock, $0.01 par value, $25.00 liquidation preference, 4,000 issued and outstanding at September 30, 2010 and December 31, 2009, respectively

 

96,321

 

96,321

 

Common stock, $0.01 par value 160,000 shares authorized and 81,621 and 80,875 issued and outstanding at September 30, 2010 and December 31, 2009, respectively (including 3,369 and 3,360 shares at September 30, 2010 and December 31, 2009, held in Treasury, respectively)

 

816

 

809

 

Additional paid-in-capital

 

3,570,752

 

3,525,901

 

Treasury stock at cost

 

(303,222

)

(302,705

)

Accumulated other comprehensive loss

 

(30,936

)

(33,538

)

Retained earnings

 

1,180,667

 

949,669

 

Total SL Green stockholders’ equity

 

4,788,398

 

4,388,438

 

Noncontrolling interests in other partnerships

 

517,816

 

524,691

 

Total equity

 

5,306,214

 

4,913,129

 

Total liabilities and equity

 

$

10,587,875

 

$

10,487,577

 

 

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

 

3



Table of Contents

 

SL Green Realty Corp.

Condensed Consolidated Statements of Income

(Unaudited, and amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Revenues

 

 

 

 

 

 

 

 

 

Rental revenue, net

 

$

199,347

 

$

189,454

 

$

591,664

 

$

571,094

 

Escalation and reimbursement

 

31,491

 

29,061

 

91,344

 

92,595

 

Preferred equity and investment income

 

84,377

 

16,266

 

125,543

 

48,697

 

Other income

 

8,065

 

10,988

 

25,450

 

40,421

 

Total revenues

 

323,280

 

245,769

 

834,001

 

752,807

 

Expenses

 

 

 

 

 

 

 

 

 

Operating expenses (including approximately $3,391 and $9,572 (2010) and $3,316 and $11,042 (2009) paid to affiliates)

 

59,320

 

54,315

 

170,998

 

159,809

 

Real estate taxes

 

36,534

 

34,220

 

112,259

 

106,344

 

Ground rent

 

7,860

 

7,912

 

23,360

 

24,004

 

Interest expense, net of interest income

 

57,225

 

65,366

 

172,353

 

182,105

 

Amortization of deferred financing costs

 

2,802

 

3,069

 

7,110

 

5,981

 

Depreciation and amortization

 

56,932

 

56,364

 

169,668

 

164,477

 

Loan loss and other investment reserves, net of recoveries

 

1,338

 

16,100

 

12,323

 

123,677

 

Transaction related costs

 

3,254

 

 

8,416

 

 

Marketing, general and administrative

 

18,474

 

18,869

 

55,251

 

54,736

 

Total expenses

 

243,739

 

256,215

 

731,738

 

821,133

 

Income (loss) from continuing operations before equity in net income of unconsolidated joint ventures, noncontrolling interests and discontinued operations

 

79,541

 

(10,446

)

102,263

 

(68,326

)

Equity in net income from unconsolidated joint ventures

 

7,544

 

16,585

 

32,925

 

46,486

 

Equity in net gain on sale of interest in unconsolidated joint ventures/ real estate

 

520

 

 

127,289

 

6,848

 

Gain (loss) on equity investment in marketable securities

 

 

52

 

(285

)

(629

)

Gain (loss) on early extinguishment of debt

 

(511

)

8,368

 

(1,900

)

85,401

 

Income from continuing operations

 

87,094

 

14,559

 

260,292

 

69,780

 

Net income from discontinued operations

 

1,987

 

1,863

 

5,420

 

4,180

 

Gain (loss) on sale of discontinued operations

 

35,485

 

(11,829

)

35,485

 

(5,257

)

Net income

 

124,566

 

4,593

 

301,197

 

68,703

 

Net (income) loss attributable to noncontrolling interests in the operating partnership

 

(1,786

)

214

 

(4,544

)

(1,488

)

Net income attributable to noncontrolling interests in other partnerships

 

(3,735

)

(2,358

)

(10,831

)

(9,518

)

Net income attributable to SL Green

 

119,045

 

2,449

 

285,822

 

57,697

 

Preferred stock dividends

 

(7,545

)

(4,969

)

(22,205

)

(14,906

)

Net income (loss) attributable to SL Green common stockholders

 

$

111,500

 

$

(2,520

)

$

263,617

 

$

42,791

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to SL Green common stockholders:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

74,087

 

$

7,158

 

$

98,272

 

$

37,213

 

Discontinued operations

 

1,957

 

1,807

 

5,328

 

4,040

 

Gain (loss) on sale of discontinued operations

 

34,944

 

(11,485

)

34,884

 

(5,080

)

Gain on sale of unconsolidated joint ventures/ real estate

 

512

 

 

125,133

 

6,618

 

Net (loss)

 

$

111,500

 

$

(2,520

)

$

263,617

 

$

42,791

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Net income from continuing operations before gain on sale and discontinued operations

 

$

0.95

 

$

0.09

 

$

1.26

 

$

0.56

 

Net income from discontinued operations

 

0.03

 

0.03

 

0.07

 

0.06

 

Gain (loss) on sale of discontinued operations

 

0.44

 

(0.15

)

0.45

 

(0.08

)

Gain on sale of unconsolidated joint ventures/ real estate

 

0.01

 

 

1.60

 

0.10

 

Net income (loss) attributable to SL Green common stockholders

 

$

1.43

 

$

(0.03

)

$

3.38

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Net income from continuing operations before gain on sale and discontinued operations

 

$

0.94

 

$

0.09

 

$

1.24

 

$

0.56

 

Net income from discontinued operations

 

0.03

 

0.03

 

0.07

 

0.06

 

Gain (loss) on sale of discontinued operations

 

0.44

 

(0.15

)

0.45

 

(0.08

)

Gain on sale of unconsolidated joint ventures/ real estate

 

0.01

 

 

1.60

 

0.10

 

Net income (loss) attributable to SL Green common stockholders

 

$

1.42

 

$

(0.03

)

$

3.36

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.10

 

$

0.10

 

$

0.30

 

$

0.575

 

Basic weighted average common shares outstanding

 

78,227

 

76,832

 

78,034

 

67,196

 

Diluted weighted average common shares and common share equivalents outstanding

 

79,781

 

79,168

 

79,722

 

69,580

 

 

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

 

4



Table of Contents

 

SL Green Realty Corp.

Condensed Consolidated Statement of Equity

(Unaudited, and amounts in thousands, except per share data)

 

SL Green Realty Corp. Stockholders

 

 

 

Series C

 

Series D

 

Common
Stock

 

Additional

 

 

 

Accumulated
Other

 

 

 

 

 

 

 

 

 

 

 

Preferred
Stock

 

Preferred
Stock

 

Shares

 

Par
Value

 

Paid-
In-Capital

 

Treasury
Stock

 

Comprehensive
Loss

 

Retained
Earnings

 

Noncontrolling
Interests

 

Total

 

Comprehensive
Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2009

 

$

151,981

 

$

96,321

 

77,515

 

$

809

 

$

3,525,901

 

$

(302,705

)

$

(33,538

)

$

949,669

 

$

524,691

 

$

4,913,129

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

285,822

 

10,831

 

296,653

 

$

296,653

 

Net unrealized loss on derivative instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,194

)

 

 

 

 

(4,194

)

(4,194

)

SL Green’s share of joint venture net unrealized loss on derivative instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,534

)

 

 

 

 

(2,534

)

(2,534

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

9,330

 

 

 

 

 

9,330

 

9,330

 

Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,205

)

 

 

(22,205

)

 

 

Redemption of units and DRIP proceeds

 

 

 

 

 

470

 

4

 

23,338

 

 

 

 

 

 

 

 

 

23,342

 

 

 

Reallocation of noncontrolling interest in the operating partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,865

)

 

 

(11,865

)

 

 

Deferred compensation plan & stock award, net

 

 

 

 

 

169

 

2

 

472

 

(517

)

 

 

 

 

 

 

(43

)

 

 

Amortization of deferred compensation plan

 

 

 

 

 

 

 

 

 

18,043

 

 

 

 

 

 

 

 

 

18,043

 

 

 

Deconsolidation of real estate investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,011

 

(9,532

)

(6,521

)

 

 

Net proceeds from preferred stock offering

 

122,019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

122,019

 

 

 

Proceeds from stock options exercised

 

 

 

 

 

98

 

1

 

2,998

 

 

 

 

 

 

 

 

 

2,999

 

 

 

Cash contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,782

 

2,782

 

 

 

Cash distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,956

)

(10,956

)

 

 

Cash distribution declared ($0.30 per common share of which none represented a return of capital for federal income tax purposes)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,765

)

 

 

(23,765

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2010

 

$

274,000

 

$

96,321

 

78,252

 

$

816

 

$

3,570,752

 

$

(303,222

)

$

(30,936

)

$

1,180,667

 

$

517,816

 

$

5,306,214

 

$

299,255

 

 

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

 

5



Table of Contents

 

SL Green Realty Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited, and amounts in thousands, except per share data)

 

 

 

Nine Months

 

 

 

Ended September 30,

 

 

 

2010

 

2009

 

Operating Activities

 

 

 

 

 

Net income

 

$

301,197

 

$

68,703

 

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

 

 

 

 

 

Depreciation and amortization

 

178,404

 

172,996

 

(Gain) loss on sale of discontinued operations

 

(35,485

)

5,257

 

Equity in net income from unconsolidated joint ventures

 

(32,925

)

(46,486

)

Equity in net gain on sale of unconsolidated joint venture interests/ real estate

 

(127,289

)

(6,848

)

Distributions of cumulative earnings from unconsolidated joint ventures

 

19,423

 

28,890

 

Loan loss and other investment reserves

 

12,323

 

123,677

 

Loss on equity investment in marketable securities

 

285

 

629

 

(Gain) loss on early extinguishment of debt

 

1,900

 

(85,401

)

Deferred rents receivable

 

(30,472

)

(19,132

)

Other non-cash adjustments

 

(12,607

)

1,163

 

Changes in operating assets and liabilities:

 

 

 

 

 

Restricted cash — operations

 

(5,717

)

19,878

 

Tenant and other receivables

 

(3,352

)

6,210

 

Related party receivables

 

1,609

 

(909

)

Deferred lease costs

 

(27,331

)

(15,497

)

Other assets

 

(1,404

)

(27,601

)

Accounts payable, accrued expenses and other liabilities

 

10,272

 

(6,441

)

Deferred revenue and land leases payable

 

5,218

 

(4,276

)

Net cash provided by operating activities

 

254,049

 

214,812

 

Investing Activities

 

 

 

 

 

Acquisitions of real estate property

 

(183,750

)

(8,340

)

Additions to land, buildings and improvements

 

(55,389

)

(62,815

)

Escrowed cash — capital improvements/acquisition deposits

 

(5,979

)

(5,837

)

Investments in unconsolidated joint ventures

 

(83,355

)

(14,522

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

15,160

 

26,631

 

Net proceeds from disposition of real estate/ partial interest in property

 

623,121

 

27,946

 

Other investments

 

(7,811

)

(41,082

)

Structured finance and other investments net of repayments/participations

 

(127,007

)

40,606

 

Net cash provided by (used in) investing activities

 

174,990

 

(37,413

)

Financing Activities

 

 

 

 

 

Proceeds from mortgage notes and other loans payable

 

166,892

 

186,399

 

Repayments of mortgage notes and other loans payable

 

(133,887

)

(159,824

)

Proceeds from revolving credit facility and senior unsecured notes

 

303,306

 

30,433

 

Repayments of revolving credit facility and senior unsecured notes

 

(873,940

)

(626,207

)

Proceeds from stock options exercised and DRIP issuance

 

14,245

 

278

 

Net proceeds from sale of preferred/common stock

 

122,019

 

387,230

 

Deferred compensation - treasury stock

 

(517

)

 

Distributions to noncontrolling interests in other partnerships

 

(10,952

)

(14,030

)

Contributions from noncontrolling interests in other partnerships

 

2,782

 

 

Redemption of noncontrolling interests in operating partnership

 

(11,096

)

 

Distributions to noncontrolling interests in operating partnership

 

(387

)

(1,985

)

Dividends paid on common and preferred stock

 

(43,607

)

(65,574

)

Deferred loan costs and capitalized lease obligation

 

(36,809

)

(6,936

)

Net cash used in financing activities

 

(501,951

)

(270,216

)

Net decrease in cash and cash equivalents

 

(72,912

)

(92,817

)

Cash and cash equivalents at beginning of period

 

343,715

 

726,889

 

Cash and cash equivalents at end of period

 

$

270,803

 

$

634,072

 

 

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

 

6



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

1.  Organization and Basis of Presentation

 

SL Green Realty Corp., also referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., 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 with respect to the properties wholly-owned by us are conducted through SL Green Management LLC which is 100% owned by our 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 reduce or avoid 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 our operations are conducted through, the operating partnership.  The Company is the sole managing general partner of the operating partnership.  As of September 30, 2010, noncontrolling investors held, in the aggregate, a 1.6% limited partnership interest in the operating partnership.  We refer to this as the noncontrolling interests in the operating partnership.  See Note 13.

 

Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P., or ROP, are subsidiaries of our operating partnership.

 

As of September 30, 2010, we owned the following interests in commercial office properties in the New York Metro area, primarily in midtown Manhattan, a borough of New York City, or Manhattan.  Our investments in the New York Metro area also include investments in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban assets:

 

Location

 

Ownership

 

Number of
Properties

 

Square Feet

 

Weighted Average
Occupancy
(1)

 

Manhattan

 

Consolidated properties

 

22

 

15,141,945

 

91.0

%

 

 

Unconsolidated properties

 

8

 

7,182,515

 

94.1

%

 

 

 

 

 

 

 

 

 

 

Suburban

 

Consolidated properties

 

25

 

3,863,000

 

81.8

%

 

 

Unconsolidated properties

 

6

 

2,941,700

 

93.8

%

 

 

 

 

61

 

29,129,160

 

90.9

%

 


(1)         The weighted average occupancy represents the total leased square feet divided by total available rentable square feet.

 

We also own investments in eight retail properties encompassing approximately 366,312 square feet, three development properties encompassing approximately 399,800 square feet and two land interests.  In addition, we manage four office properties owned by third parties and affiliated companies encompassing approximately 1.3 million rentable square feet.

 

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 ownership interests of the respective partners.  As the managing general partner of the operating partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the operating partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to avoid 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 our common stock on a one-for-one basis.

 

7



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

Basis of Quarterly Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.  The 2010 operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.

 

The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

 

2.  Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method or as structured finance investments.  See Note 5 and Note 6.  All significant intercompany balances and transactions have been eliminated.

 

In June 2009, the FASB amended the guidance for determining whether an entity is a variable interest entity, or VIE, and requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE. Under this guidance, an entity would be required to consolidate a VIE if it 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. Adoption of this guidance on January 1, 2010 did not have a material impact on our consolidated financial statements.

 

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 a parent.  Noncontrolling interests are required to be presented as a separate component of equity in the consolidated balance sheet and modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and noncontrolling interests.

 

We assess the accounting treatment for each joint venture and structured finance investment.  This assessment includes a review of each joint venture or limited liability company agreement to determine which party has what rights and whether those rights are protective or participating.  For all VIE’s, 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 or our partner approves, among other things, the annual budget, receives a detailed monthly reporting package from us, meets on a quarterly basis to review the results of the joint venture, reviews and approves the joint venture’s tax return before filing, and approves 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 our joint venture.  Our joint venture agreements also contain certain protective rights such as the requirement of 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.  We have no VIE’s for which we are the primary beneficiary.

 

Investment in Commercial Real Estate Properties

 

On a periodic basis, we assess whether there are any indicators that the value of our real estate properties may be impaired or that its carrying value may not be recoverable.  A property’s value is considered impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges for consolidated and unconsolidated properties to be generated by the property are less than the carrying value of the property.  To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.  In addition, 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 venture’s projected cash flows.  We do not believe that the value of any of our consolidated or unconsolidated real estate properties or investments in unconsolidated joint ventures was impaired at September 30, 2010 and December 31, 2009, respectively.

 

8



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

We allocate the purchase price of real estate to land and building and, if determined to be material, intangibles, such as the value of above-, below- and at-market leases and origination costs associated with the in-place leases.  We depreciate the amount allocated to building and other intangible assets over their estimated useful lives, which generally range from three to 40 years and from one to 14 years, respectively.  The values of the above- and below-market leases are amortized and recorded as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income over the remaining term of the associated lease, which generally range from one to 14 years.  The value associated with in-place leases are amortized over the expected term of the associated lease, which generally range from one to 14 years.  If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off.  The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).  We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.  Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

 

We recognized an increase of approximately $6.1 million, $18.9 million, $6.1 million and $16.6 million in rental revenue for the three and nine months ended September 30, 2010 and 2009, respectively, for the amortization of aggregate below-market leases in excess of above-market leases and a reduction in lease origination costs, resulting from the allocation of the purchase price of the applicable properties. We recognized a reduction in interest expense for the amortization of the above-market rate mortgages assumed of approximately $0.3 million, $1.2 million, $0.3 million and $2.4 million for the three and nine months ended September 30, 2010 and 2009, respectively.

 

The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) (amounts in thousands):

 

 

 

September 30,
2010

 

December 31,
2009

 

Identified intangible assets (included in other assets):

 

 

 

 

 

Gross amount

 

$

257,413

 

$

236,594

 

Accumulated amortization

 

(121,982

)

(98,090

)

Net

 

$

135,431

 

$

138,504

 

 

 

 

 

 

 

Identified intangible liabilities (included in deferred revenue):

 

 

 

 

 

Gross amount

 

$

487,750

 

$

480,770

 

Accumulated amortization

 

(205,016

)

(164,073

)

Net

 

$

282,734

 

$

316,697

 

 

Investment in Marketable Securities

 

We invest in marketable securities. At the time of purchase, we are required to designate a security as held-to-maturity, available-for-sale, or trading depending on ability and intent. We do not have any securities designated as held-to-maturity or trading at this time. Securities available-for-sale are reported at fair value pursuant to ASC 820-10, with the net unrealized gains or losses reported as a component of accumulated other comprehensive loss.  Unrealized losses that are determined to be other-than-temporary are recognized in earnings up to their credit component. Included in accumulated other comprehensive loss at September 30, 2010 is approximately $5.6 million in net unrealized gains related to marketable securities.

 

At September 30, 2010, we held the following marketable securities (in thousands):

 

Level 1 — Equity marketable securities

 

$

9,398

 

Level 2 — Bonds

 

62,692

 

Total marketable securities available-for-sale

 

$

72,090

 

 

9



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

Fair Value Measurements

 

The methodologies used for valuing financial instruments have been categorized into three broad levels as follows:

 

Level 1 — Quoted prices in active markets for identical instruments.

 

Level 2 — Valuations based principally on other observable market parameters, including

 

·              Quoted prices in active markets for similar instruments,

·              Quoted prices in less active or inactive markets for identical or similar instruments,

·              Other observable inputs (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates), and

·              Market corroborated inputs (derived principally from or corroborated by observable market data).

 

Level 3 — Valuations based significantly on unobservable inputs.

 

·              Valuations based on third party indications (broker quotes or counterparty quotes) which were, in turn, based significantly on unobservable inputs or were otherwise not supportable as Level 2 valuations.

·              Valuations based on internal models with significant unobservable inputs.

 

These levels form a hierarchy. We follow this hierarchy for our financial instruments measured at fair value on a recurring and nonrecurring basis. The classifications are based on the lowest level of input that is significant to the fair value measurement.

 

Reserve for Possible Credit Losses

 

The expense for possible credit losses in connection with structured finance investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality.  Other factors considered relate to geographic trends and product diversification, the size of the portfolio and current economic conditions.  Based upon these factors, we establish the provision for possible credit losses by loan.  When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired.

 

Where impairment is indicated, a valuation allowance is measured based upon the excess of the recorded investment amount over the net fair value of the collateral.  Any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense.  We recorded approximately $5.0 million, $15.0 million, none and $54.6 million in loan loss reserves during the three and nine months ended September 30, 2010 and 2009, respectively, on investments being held to maturity and none, $1.0 million, $16.1 million and $69.1 million on investments held for sale during the three and nine months ended September 30, 2010 and 2009, respectively.  We also recorded approximately $3.7 million in recoveries during the three and nine months ended September 30, 2010 in connection with the sale of a loan.

 

Structured finance investments held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale.  In such situations, the loan will be reclassified at its net carrying value to structured finance investments held to maturity. For these reclassified loans, 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 loan.

 

Income Taxes

 

We are taxed as a REIT under Section 856(c) of the Code.  As a REIT, we generally are not subject to Federal income tax.  To maintain our qualification as a REIT, we must distribute at least 90% of our REIT taxable income to our stockholders and meet certain other requirements.  If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income tax on our taxable income at regular corporate rates.  We may also be subject to certain state, local and franchise taxes.  Under certain circumstances, Federal income and excise taxes may be due on our undistributed taxable income.

 

Pursuant to amendments to the Code that became effective January 1, 2001, we have elected, and may in the future, elect to treat certain of our existing or newly created corporate subsidiaries as taxable REIT subsidiaries, or a TRS.  In general, a TRS of ours may perform non-customary services for our tenants, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business.  Our TRSs’ generate income, resulting in Federal income tax liability for these entities.  Our TRSs’ recorded approximately $0.9 million and $0.7 million in Federal, state and local tax expense during the nine months ended September 30, 2010 and 2009, respectively.  We made estimated tax payments of $0.3 million and $0.8 million during the nine months ended September 30, 2010 and 2009, respectively.

 

10



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

Stock-Based Employee Compensation Plans

 

We have a stock-based employee compensation plan, described more fully in Note 12.

 

The Black-Scholes option-pricing 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 our employee stock options.

 

Compensation cost for stock options, if any, is recognized ratably 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 our stock on 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.

 

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model based on historical information with the following weighted average assumptions for grants during the nine months ended September 30, 2010 and 2009, respectively.

 

 

 

2010

 

2009

 

Dividend yield

 

2.00

%

5.79

%

Expected life of option

 

5.9 years

 

5 years

 

Risk-free interest rate

 

2.84

%

1.55

%

Expected stock price volatility

 

50.47

%

55.07

%

 

Earnings Per Share

 

We present both basic and diluted earnings per share, or EPS.  Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, as well as units of limited partnership, were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount.  This also includes units of limited partnership interest.

 

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, structured finance investments and accounts receivable.  We place our cash investments in excess of insured amounts with high quality financial institutions.  The collateral securing our structured finance investments is primarily located in the New York Metro area. (See Note 5). We perform ongoing credit evaluations of our tenants and require certain 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 rent and the costs associated with re-tenanting the space.  Although the properties in our real estate portfolio are primarily located in Manhattan, we also have properties located in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey.  The tenants located in our buildings operate in various industries.  Other than one tenant who accounts for approximately 8.1% of our annualized rent, no other tenant in our portfolio accounts for more than 6.0% of our annualized rent, including our share of joint venture annualized rent at September 30, 2010.  Approximately 7%, 6%, 7% and 6% of our annualized rent, including our share of joint venture annualized rent, was attributable to 1515 Broadway, 420 Lexington Avenue, 1185 Avenue of the Americas and One Madison Avenue, respectively, for the quarter ended September 30, 2010.  Three investments each accounted for more than 10.0% of the revenue earned on structured finance investments during the three months ended September 30, 2010.

 

Reclassification

 

Certain prior year balances have been reclassified to conform with the current year presentation primarily in order to eliminate discontinued operations from income from continuing operations.

 

11



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

Accounting Standards Updates

 

In June 2009, the FASB issued guidance on accounting for transfers of financial assets. This guidance amends various components of the existing guidance governing sale accounting, including the recognition of assets obtained and liabilities assumed as a result of a transfer, and considerations of effective control by a transferor over transferred assets. In addition, this guidance removes the exemption for qualifying special purpose entities from the consolidation guidance.  While the amended guidance governing sale accounting is applied on a prospective basis, the removal of the qualifying special purpose entity exception will require us to evaluate certain entities for consolidation. Adoption of this guidance on January 1, 2010 did not have a material impact on our consolidated financial statements.

 

In July 2010, the FASB issued updated guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses which will require a greater level of information disclosed about the credit quality of loans and allowance for loan losses, as well as additional information related to credit quality indicators, past due information, and information related to loans modified in trouble debt restructuring.  This guidance is effective for the fourth quarter of 2010 and as it only amends existing disclosure requirements we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

In March 2010, the FASB issued updated guidance on embedded credit derivatives for contracts containing an embedded credit derivative feature related to the transfer of credit risk that is not solely in the form of subordination.  This guidance is effective for the third quarter of 2010, though early adoption is permitted. Adoption of this guidance in the third quarter of 2010 did not have a material effect on our consolidated financial statements.

 

In January 2010, the FASB issued updated guidance on fair value measurements and disclosures, which requires disclosure of details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy and inclusion of gross purchases, sales, issuances, and settlements in the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy.  The guidance also clarifies and expands existing disclosure requirements related to the disaggregation of fair value disclosures and inputs used in arriving at fair values for assets and liabilities using Level 2 and Level 3 inputs within the fair value hierarchy.  These disclosure requirements were effective for interim and annual reporting periods beginning after December 15, 2009. The gross presentation of the Level 3 rollforward is required for interim and annual reporting periods beginning after December 15, 2010.

 

3.  Property Acquisitions

 

In January 2010, we became the sole owner of 100 Church Street, a 1.05 million square-foot office tower located in downtown Manhattan, following the successful foreclosure of the senior mezzanine loan at the property.  Our initial investment totaled $40.9 million which was comprised of a 50% interest in the senior mezzanine loan and two other mezzanine loans at 100 Church Street, which we acquired from Gramercy in the summer of 2007.  At closing of the foreclosure, we funded an additional $15.0 million of capital into the project as part of our agreement with Wachovia Bank, N.A. to extend and restructure the existing financing.  Gramercy declined to fund its share of this capital and instead transferred its interests in the investment to us at closing, subject to certain future contingent payments to Gramercy.  The restructured $139.7 million mortgage carries an interest rate of 350 basis points over the 30-day LIBOR.  The restructured mortgage matures in January 2013 and has a one-year extension option.

 

12



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

The following summarizes our allocation of the purchase price of the assets acquired and liabilities assumed upon the completion of the foreclosure of 100 Church Street (in thousands):

 

Land

 

$

32,494

 

Building

 

86,806

 

Acquired above-market leases

 

118

 

Acquired in-place leases

 

17,380

 

Restricted cash

 

53,735

 

Assets acquired

 

190,533

 

 

 

 

 

Mortgage note payable

 

139,672

 

Acquired below-market leases

 

8,025

 

Other liabilities, net of other assets

 

1,674

 

Liabilities assumed

 

149,371

 

Net assets

 

$

41,162

 

 

In August 2010, we acquired 125 Park Avenue, a Manhattan office tower for $330 million.  In connection with the acquisition, we assumed $146.25 million of in-place financing.  The 5.748% interest-only loan matures in October 2014.  We have not yet obtained all the information necessary to finalize our estimates to complete the purchase price allocations. The purchase price allocations will be finalized once we receive the outstanding information which we expect to occur during the fourth quarter of 2010.

 

4.  Property Dispositions and Assets Held for Sale

 

In September 2010, we sold the property located at 19 West 44th Street in Manhattan for $123.2 million and realized a gain on the sale of approximately $35.5 million. The sale generated approximately $114.6 million of proceeds for the Company.

 

At September 30, 2010, discontinued operations included the results of operations of real estate assets under contract or sold prior to that date.  This included 55 Corporate Drive, NJ, which was sold in January 2009, the membership interests in GKK Manager LLC which were sold in April 2009 (See Note 6), 399 Knollwood Road, Westchester, which was sold in August 2009 and 19 West 44th Street, which was sold in September 2010.

 

The following table summarizes income from discontinued operations and the related realized gain (loss) on sale of discontinued operations for the three and nine months ended September 30, 2010 and 2009, respectively (in thousands).

 

 

 

Three Months 
Ended

 

Three Months 
Ended

 

Nine Months 
Ended

 

Nine Months 
Ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Revenues

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

2,785

 

$

3,645

 

$

8,774

 

$

11,792

 

Escalation and reimbursement revenues

 

836

 

902

 

2,412

 

2,657

 

Other income

 

361

 

(1

)

429

 

6,528

 

Total revenues

 

3,982

 

4,546

 

11,615

 

20,977

 

Operating expense

 

1,081

 

1,123

 

2,791

 

3,625

 

Real estate taxes

 

509

 

688

 

1,778

 

2,264

 

Interest expense, net of interest income

 

 

204

 

 

1,071

 

Marketing, general and administrative

 

 

 

 

7,299

 

Depreciation and amortization

 

405

 

668

 

1,626

 

2,538

 

Total expenses

 

1,995

 

2,683

 

6,195

 

16,797

 

Income from discontinued operations

 

1,987

 

1,863

 

5,420

 

4,180

 

Gain (loss) on sale of discontinued operations

 

35,485

 

(11,829

)

35,485

 

(5,257

)

Income (loss) from discontinued operations

 

$

37,472

 

$

(9,966

)

$

40,905

 

$

(1,077

)

 

5.  Structured Finance Investments

 

During the nine months ended September 30, 2010 and 2009, our structured finance and preferred equity investments (net of discounts), including investments classified as held-for-sale, increased approximately $437.7 million and $61.0 million, respectively, due to originations, purchases, accretion of discounts and paid-in-kind interest.  We recorded approximately $315.3 million and $193.5 million in repayments, participations, sales, foreclosures and loan loss reserves during those periods, respectively, which offset the increases in structured finance investments.

 

13



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

As of September 30, 2010 and December 31, 2009, we held the following structured finance investments, excluding preferred equity investments, with an aggregate weighted average current yield of approximately 7.1% (in thousands):

 

Loan
Type

 

Gross
Investment

 

Senior
Financing

 

2010
Principal
Outstanding

 

2009
Principal
Outstanding

 

Initial
Maturity
Date

 

Other Loan(1)

 

$

3,500

 

$

15,000

 

$

3,500

 

$

3,500

 

September 2021

 

Mezzanine Loan(1)

 

60,000

 

205,000

 

59,069

 

58,760

 

February 2016

 

Mortgage/ Mezzanine Loan(1)

 

50,000

 

174,329

 

46,346

 

25,000

 

May 2016

 

Mezzanine Loan(1)

 

35,000

 

165,000

 

39,669

 

39,125

 

October 2016

 

Mezzanine Loan(1)(3)(9)(10)(11)

 

75,000

 

4,273,051

 

70,092

 

70,092

 

December 2016

 

Other Loan(1)(5)(9)(11)

 

 

 

 

5,350

 

 

Whole Loan(2)(3)(9)(17)

 

 

 

 

9,636

 

 

Mezzanine Loan(1)(2)(4)(9)(11)

 

25,000

 

309,985

 

27,422

 

26,605

 

January 2013

 

Mezzanine Loan(1)

 

16,000

 

90,000

 

15,697

 

15,697

 

August 2017

 

Mezzanine Loan(3)(13)

 

 

 

 

40,938

 

 

Other Loan(1)

 

1,000

 

 

1,000

 

1,000

 

December 2010

 

Junior Participation(1)(6)(9)(11)

 

14,189

 

 

9,938

 

9,938

 

April 2008

 

Mezzanine Loan(1)(11) (12)

 

67,000

 

1,139,000

 

84,062

 

84,636

 

March 2017

 

Mezzanine Loan(14)

 

 

 

 

35,908

 

 

Mezzanine Loan(3)(9)(11)

 

22,644

 

 

 

 

 

Junior Participation(1)(9)

 

11,000

 

53,000

 

11,000

 

11,000

 

November 2011

 

Junior Participation(7)(9)

 

12,000

 

61,250

 

10,875

 

10,875

 

June 2012

 

Junior Participation(9)(11)

 

9,948

 

48,198

 

5,866

 

5,866

 

December 2010

 

Junior Participation(8)(9)

 

50,000

 

2,192,522

 

47,509

 

47,691

 

April 2011

 

Mortgage/ Mezzanine Loan(2)(16)

 

146,164

 

285,000

 

137,222

 

104,431

 

July 2012

 

Whole Loan(1)(3)

 

9,375

 

 

9,918

 

9,902

 

February 2015

 

Junior Participation

 

35,041

 

210,000

 

41,113

 

30,548

 

January 2012

 

Mortgage/mezzanine loan(15)

 

 

 

 

167,717

 

 

Whole loan(1)

 

11,150

 

 

11,150

 

 

November 2013

 

Junior Participation(18)

 

9,113

 

70,800

 

9,113

 

 

October 2011

 

Mezzanine Loan(1)

 

201,375

 

755,000

 

201,375

 

 

June 2016

 

Mezzanine Loan(1)

 

15,000

 

75,000

 

15,000

 

 

July 2013

 

Mortgage(19)

 

86,339

 

 

86,339

 

 

June 2012

 

Loan loss reserve(9)

 

 

 

(105,783

)

(101,866

)

 

 

 

$

965,838

 

$

10,122,135

 

$

837,492

 

$

712,349

 

 

 

 


(1)

This is a fixed rate loan.

(2)

The difference between the pay and accrual rates is included as an addition to the principal balance outstanding.

(3)

Gramercy holds a pari passu interest in this asset.

(4)

This loan had been in default since December 2007. We reached an agreement with the borrower to, amongst other things, extend the maturity date to January 2013.

(5)

The original loan which was scheduled to mature in February 2010 was replaced with two loans which mature in May 2011. The total principal balance remained unchanged. Approximately $10.4 million was redeemed in October 2008. We were foreclosed out of this loan in September 2010.

(6)

This loan is in default. The lender has begun foreclosure proceedings. Another participant holds a $12.2 million pari-pasu interest in this loan.

(7)

This loan was extended for two years to June 2012.

(8)

Gramercy is the borrower under this loan. This loan consists of mortgage and mezzanine financing.

(9)

This represents specifically allocated loan loss reserves. Our reserves reflect management’s judgment of the probability and severity of losses based on Level 3 data. We cannot be certain that our judgment will prove to be correct or that reserves will be adequate over time to protect against potential future losses. This includes a $1.0 million and $69.1 million mark-to-market adjustment against our held for sale investment during the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.

(10)

This investment which was classified as held for sale at June 30, 2010 and December 31, 2009 was sold in August 2010.

(11)

This loan is on non-accrual status.

(12)

Interest is added to the principal balance for this accrual only loan.

(13)

This loan was in default as it was not repaid upon maturity. We were designated as special servicer for this loan and took over management and leasing of the property under a forbearance agreement in August 2009. We foreclosed on this property in January 2010.

(14)

We acquired Gramercy’s interest in this investment in July 2009 for approximately $16.0 million. This investment was sold in February 2010.

(15)

In connection with the sale in September 2010, of 510 Madison Avenue by the owner, the first mortgage loan and senior mezzanine loan, which we had purchased in December 2009 and February 2010 for $180.5 million in the aggregate, were repaid at par. In connection with the repayment of the loans, we recognized additional income of approximately $64.8 million. The income was recorded in preferred equity and investment income on the accompanying statement of income.

(16)

Gramercy holds a pari passu interest in the mezzanine loan.

(17)

This loan was repaid in August 2010.

(18)

The maturity date for this loan was extended for one year to October 2011.

(19)

We hold an 88% interest in the consolidated joint venture that acquired this loan.

 

14



Table of Contents

 

SL Green Realty Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2010

 

Preferred Equity Investments

 

As of September 30, 2010 and December 31, 2009, we held the following preferred equity investments, with an aggregate weighted average current yield of approximately 9.1% (in thousands):

 

Type

 

Gross 
Investment

 

Senior 
Financing

 

2010 
Amount 
Outstanding

 

2009 
Amount 
Outstanding

 

Initial 
Mandatory 
Redemption

 

Preferred equity(1)(3)(5)(8)

 

$

 

$

 

$

 

$

15,000

 

 

Preferred equity(1)(2)(6)(7)

 

51,000

 

208,181

 

44,972

 

41,791

 

February 2014

 

Preferred equity(3)(5)

 

34,120

 

88,000

 

31,178

 

31,178

 

March 2010

 

Preferred equity(3)(4)

 

44,733

 

984,708

 

46,372

 

46,372

 

August 2012

 

Loan loss reserve(3)

 

 

 

(52,078

)

(61,078

)