SL GREEN OPERATING PARTNERSHIP, L.P. – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Overview
SL Green Realty Corp., which is referred to as SL Green or the Company, aMaryland corporation, andSL Green Operating Partnership, L.P. , which is referred to as SLGOP or theOperating Partnership , aDelaware limited partnership, were formed inJune 1997 for the purpose of combining the commercial real estate business ofS.L. Green Properties, Inc. and its affiliated partnerships and entities. SL Green is a self-managed real estate investment trust, or REIT, with in-house capabilities in property management, acquisitions, financing, development, construction and leasing. Unless the context requires otherwise, all references to the "Operating Partnership," "we," "our" and "us" in this section mean SLGOP and all entities owned or controlled by SLGOP.
The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in this Quarterly Report on Form 10-Q and in Item 8 of our Annual Report on Form 10-K for the year endedDecember 31, 2011 . As ofMarch 31, 2012 , we owned the following interests in commercial office properties in theNew York Metropolitan area, primarily in midtownManhattan , a borough ofNew York City , orManhattan . Our investments in theNew York Metropolitan area also include investments inBrooklyn ,Queens ,Long Island ,Westchester County ,Connecticut andNew Jersey , which are collectively known as the Suburban assets: Number of Weighted Average Location Ownership Properties Square Feet Occupancy(1)
Manhattan Consolidated properties 26 18,429,945 93.4 % Unconsolidated properties 7 5,326,815 95.6 % Suburban Consolidated properties 25 3,863,000 80.8 % Unconsolidated properties 6 2,941,700 93.8 % 64 30,561,460 92.2 %
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(1) The weighted average occupancy represents the total leased square feet divided by total available rentable square feet.
We also owned investments in 14 stand-alone retail properties encompassing approximately 460,692 square feet, eight development properties encompassing approximately 2,614,996 square feet, two residential properties encompassing approximately 430,482 square feet and two land interests as ofMarch 31, 2012 . In addition, we manage three office properties owned by third parties and affiliated companies encompassing approximately 0.9 million rentable square feet. Critical Accounting Policies Refer to our 2011 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include investment in commercial real estate properties, investment in unconsolidated joint ventures, revenue recognition, allowance for doubtful accounts, reserve for possible credit losses and derivative instruments. There have been no changes to these policies during the three months endedMarch 31, 2012 . Results of Operations
Comparison of the three months ended
The following comparison for the three months endedMarch 31, 2012 , or 2012, to the three months endedMarch 31, 2011 , or 2011, makes reference to the following: (i) the effect of the "Same-Store Properties ," which represents all operating properties owned by us atJanuary 1, 2011 and atMarch 31, 2012 in the same manner and totaled 46 of our 51 consolidated properties, representing approximately 72% of our share of annualized cash rent, (ii) the effect of the "Acquisitions," which represents all properties or interests in properties acquired in 2012 and 2011 and all non-Same-Store Properties , including properties deconsolidated during the period, and (iii) "Other," which represents corporate level items not allocable to specific properties, the Service Corporation and eEmerge. Assets classified as held for sale, are excluded from the following discussion. 40
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Table of Contents $ % Rental Revenues (in millions) 2012 2011 Change Change Rental revenue $ 260.8 $ 227.0 $ 33.8 14.9 % Escalation and reimbursement revenue 41.7 30.3 11.4 37.6 Total $ 302.5 $ 257.3 $ 45.2 17.6 % Same-Store Properties $ 246.8 $ 249.3 $ (2.5 ) (1.0 )% Acquisitions 56.9 7.5 49.4 658.7 Other (1.2 ) 0.5 (1.7 ) (340.0 ) Total $ 302.5 $ 257.3 $ 45.2 17.6 % Occupancy for our stabilized, same-storeManhattan portfolio atMarch 31, 2012 was 93.4% compared to 93.1% atMarch 31, 2011 . During the quarter, we signed 64 office leases in itsManhattan portfolio totaling 674,983 square feet. Twenty-one leases totaling 157,433 square feet represented office leases that replaced previous vacancy, and 43 office leases comprising 517,550 square feet had average starting rents of$69.71 per rentable square foot, representing a 32.3% increase over the previously fully escalated rents on the same office spaces. The average lease term on theManhattan office leases signed in the first quarter was 6.3 years and average tenant concessions were 1.1 months of free rent with a tenant improvement allowance of$17.87 per rentable square foot. Of the 734,218 square feet of office leases which commenced during the first quarter, 194,731 square feet represented office leases that replaced previous vacancy, and 539,487 square feet represented office leases that had average starting rents of$69.81 per rentable square foot, representing a 31.4% increase over the previously fully escalated rents on the same office spaces. Occupancy for our Suburban portfolio was 86.4% atMarch 31, 2012 compared to 86.3% atMarch 31, 2011 . During the quarter, we signed 32 office leases in the Suburban portfolio totaling 128,236 square feet. Nine leases totaling 22,577 square feet represented office leases that replaced previous vacancy, and 23 office leases comprising 105,659 square feet had average starting rents of$33.72 per rentable square foot, representing a 4.6% decrease over the previously fully escalated rents on the same office spaces. The average lease term on the Suburban office leases signed in the first quarter was 3.1 years and average tenant concessions were 1.1 months of free rent with a tenant improvement allowance of$5.33 per rentable square foot. Of the 145,978 square feet of office leases which commenced during the first quarter, 39,641 square feet represented office leases that replaced previous vacancy, and 106,337 square feet represented office leases that had average starting rents of$33.74 per rentable square foot, representing a 4.6% decrease over the previously fully escalated rents on the same office spaces. AtMarch 31, 2012 , approximately 3.1% and 10.1% of the space leased at our consolidatedManhattan and Suburban properties, respectively, is expected to expire during the remainder of 2012. We estimated that the current market rents on these expected 2012 lease expirations at our consolidatedManhattan and Suburban properties would be approximately 10.1% and 1.8% higher, respectively, than then existing in-place fully escalated rents. We estimated that the current market rents on all our consolidatedManhattan and Suburban properties were approximately 10.5% and 3.0% higher, respectively, than the existing in-place fully escalated rents on leases that are scheduled to expire in all future years. The increase in escalation and reimbursement revenue was due to higher recoveries at both the Acquisitions ($10.1 million ) andSame Store Properties ($1.3 million ). The increase in recoveries at theSame-Store Properties was primarily due to higher operating expense escalations ($0.5 million ), higher real estate tax recoveries ($0.3 million ) and electric reimbursements ($0.5 million ). $ % Investment and Other Income (in millions) 2012 2011 Change Change Equity in net (loss) income of unconsolidated joint ventures $ (1.6 ) $ 8.2 $ (9.8 ) (119.5 )% Investment and preferred equity income 26.3 64.7 (38.4 ) 59.4 Other income 10.4 7.2 3.2 44.4 Total $ 35.1 $ 80.1 $ 45.0 56.2 % The decrease in equity in net income of unconsolidated joint ventures was primarily due to lower net income contributions from280 Park Avenue ($6.4 million ),1515 Broadway , which we consolidated inApril 2011 , ($4.5 million ),3 Columbus Circle ($0.6 million ),141 Fifth Avenue , which was sold inFebruary 2012 , ($0.5 million ) and29 West 34th Street ($0.5 million ). This was partially offset by higher net income contributions primarily from our investments in100 Park Avenue ($0.7 million ),1552 Broadway ($1.3 million ), and717 Fifth Avenue ($1.5 million ). Occupancy at our joint venture properties was 94.9% atMarch 31, 2012 and 95.0% atMarch 31, 2011 . AtMarch 31, 2012 , approximately 2.1% and 10.5% of the space leased at ourManhattan and Suburban joint venture properties are expected to expire during the remainder of 2012. We estimated that current market rents on these expected 2012 lease 41 --------------------------------------------------------------------------------
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expirations at our
Investment and preferred equity income decreased during the current quarter. In 2011, debt investments totaling$490.3 million (inclusive of the280 Park Avenue transaction and repayment of the mezzanine portion on666 Fifth Avenue ) were sold or repaid resulting in the recognition of additional income of$46.2 million . During the quarter, we originated or purchased$70.5 million of new debt investments at an average current yield of 8.7%. The weighted average investment balance outstanding and weighted average yield were$1.0 billion and 9.0%, respectively, for 2012 compared to$883.4 million and 7.4%, respectively, for 2011. As ofMarch 31, 2012 , the debt and preferred equity investments had a weighted average term to maturity of approximately 3.1 years. The increase in other income was primarily due to a higher contribution from the Service Corporation ($1.5 million ) and an increase in fee and other income ($1.7 million ). $ % Property Operating Expenses (in millions) 2012 2011 Change Change Operating expenses $ 73.3 $ 60.3 $ 13.0 21.6 % Real estate taxes 51.5 40.0 11.5 28.8 Ground rent 8.8 7.8 1.0 12.8 Total $ 133.6 $ 108.1 $ 25.5 23.6 % Same-Store Properties $ 104.4 $ 101.9 $ 2.5 2.5 % Acquisitions 27.1 3.7 23.4 632.4 Other 2.1 2.5 (0.4 ) (16.0 ) Total $ 133.6 $ 108.1 $ 25.5 23.4 %Same-Store Properties operating expenses increased approximately$2.5 million . There were increases in real estate taxes ($1.3 million ), ground rent ($1.0 million ), payroll costs ($0.9 million ), repairs and maintenance ($0.4 million ) and other expenses ($0.5 million ). This was partially offset by decreases in utilities ($1.6 million ). $ % Other Expenses (in millions) 2012 2011 Change Change Interest expense, net of interest income $ 83.7 $ 68.1 $ 15.6 22.9 % Depreciation and amortization expense 77.1 63.5 13.6 21.4 Loan loss and other investment reserves, net of recoveries 0.6 (3.2 ) 3.8 118.8 Transaction related costs 1.2 2.4 (1.2 ) (50.0 ) Marketing, general and administrative expense 20.2 20.0 0.2 1.0 Total $ 182.8 $ 150.8 $ 32.0 21.2 % The increase in interest expense was primarily attributable to the increase in investment activity inclusive of the acquisitions of1515 Broadway ($4.8 million ),180 Maiden Lane ($1.8 million ) and110 East 42nd Street ($1.7 million ) subject to mortgages encumbering these properties and refinancing of521 Fifth Avenue inApril 2011 ($0.5 million ) and919 Third Avenue inAugust 2011 ($3.4 million ). The weighted average debt balance outstanding was$6.5 billion during the quarter endedMarch 31, 2012 compared to$5.5 billion during the quarter endedMarch 31, 2011 . The weighted average interest rate decreased from 4.97% for the quarter endedMarch 31, 2011 to 4.88% for the quarter endedMarch 31, 2012 .
Loan loss and other investment reserves increased. We recorded
Marketing, general and administrative expense represented 6.0% of total revenues in 2012 compared to 6.1% in 2011.
Liquidity and Capital Resources
We currently expect that our principal sources of funds to meet our short-term or long-term liquidity requirements for working capital and funds for acquisition and redevelopment of properties, tenant improvements, leasing costs, repurchases or repayments of outstanding indebtedness (which may include exchangeable debt) and for debt and preferred equity investments will include: (1) Cash flow from operations; (2) Cash on hand; (3) Borrowings under our 2011 revolving credit facility; (4) Other forms of secured or unsecured financing; 42
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(5) Net proceeds from divestitures of properties and redemptions, participations and dispositions of debt and preferred equity investments; and
(6) Proceeds from common or preferred equity or debt offerings by us (including issuances of our limited partnership units and trust preferred securities), SL Green or ROP.
Cash flow from operations is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent and operating escalations and recoveries from our tenants and the level of operating and other costs. Additionally, we believe that our joint venture investment programs will also continue to serve as a source of capital. Our combined aggregate principal maturities of our property mortgages and other loans payable, corporate obligations and our share of joint venture debt, including as-of-right extension options, as ofMarch 31, 2012 are as follows (in thousands): 2012 2013 2014 2015 2016 Thereafter Total Property mortgages and other loans $ 39,712 $ 568,794 $ 648,900 $ 272,343 $
558,411 $ 2,321,555 $ 4,409,715 Corporate obligations - - 98,578 357 674,814 897,582 1,671,331 Joint venture debt-our share 147,947 122,228 123,984 102,477 527,852 916,352 1,940,840 Total $ 187,659 $ 691,022 $ 871,462 $ 375,177 $ 1,761,077 $ 4,135,489 $ 8,021,886 As ofMarch 31, 2012 , we had approximately$159.4 million of cash on hand, inclusive of approximately$25.7 million of marketable securities. We expect to generate positive cash flow from operations for the foreseeable future. We may seek to access private and public debt and equity capital when the opportunity presents itself, although there is no guarantee that this capital will be made available to us at efficient levels or at all. Management believes that these sources of liquidity, if we are able to access them, along with potential refinancing opportunities for secured debt, will allow us to satisfy our debt obligations, as described above, upon maturity, if not before. We also have investments in several real estate joint ventures with various partners who we consider to be financially stable and who have the ability to fund a capital call when needed. Most of our joint ventures are financed with non-recourse debt. We believe that property level cash flows along with unfunded committed indebtedness and proceeds from the refinancing of outstanding secured indebtedness will be sufficient to fund the capital needs of our joint venture properties. Cash Flows The following summary discussion of our cash flows is based on our consolidated statements of cash flows in "Item 1. Financial Statements" and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. 43
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Cash and cash equivalents were$133.7 million and$234.0 million atMarch 31, 2012 and 2011, respectively, representing a decrease of$100.3 million . The decrease was a result of the following changes in cash flows (in thousands): Three months ended March 31, Increase 2012 2011 (Decrease) Net cash provided by operating activities $ 56,831 $ 76,659 $ (19,828 ) Net cash (used in) provided by investing activities $ (294,192 ) $ 34,149 $ (328,341 ) Net cash provided by (used in) financing activities $ 232,834 $ (209,629 ) $ 442,463 Our principal source of operating cash flow is related to the leasing and operating of the properties in our portfolio. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend and distribution payment requirements. AtMarch 31, 2012 our portfolio was 92.2% occupied. Our debt and preferred equity and joint venture investments also provide a steady stream of operating cash flow to us. Cash is used in investing activities to fund acquisitions, 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 three months endedMarch 31, 2012 , when compared to the three months endedMarch 31, 2011 , we used cash primarily for the following investing activities (in thousands): Acquisitions of real estate $ (135,558 ) Capital expenditures and capitalized interest (11,165 ) Escrow cash-capital improvements/acquisition deposits (47,508 ) Joint venture investments (74,334 ) Distributions from joint ventures (79,052 ) Proceeds from sales of real estate/partial interest in property 23,088 Debt and preferred equity and other investments (3,812 ) Decrease in net cash provided by investing activities $ (328,341 ) Funds spent on capital expenditures, which comprise building and tenant improvements, increased from$21.4 million for the three months endedMarch 31, 2011 compared to$32.6 million for the three months endedMarch 31, 2012 . The increased capital expenditures relate primarily to costs incurred in connection with the redevelopment of properties and the build-out of space for tenants resulting from leasing activity. We fund our investment activity through various sources including property-level financing, our 2011 revolving credit facility, senior unsecured notes, convertible or exchangeable securities, construction loans, asset sales and from time to time we issue common or preferred stock. During the three months endedMarch 31, 2012 , when compared to the three months endedMarch 31, 2011 , we used cash for the following financing activities (in thousands): Proceeds from our debt obligations $ (90,050 ) Repayments under our debt obligations
476,154
Noncontrolling interests, contributions in excess of distributions 13,424 Other financing activities
95,001
Proceeds from issuance of common stock (38,761 ) Dividends and distributions paid (13,305 ) Increase in cash used in financing activities$ 442,463 Capitalization As ofMarch 31, 2012 , we had 88,854,562 general and limited partner common units, 3,050,542 limited partner common units held by persons other than the Company, 11,700,000 units of our 7.625% Series C cumulative redeemable preferred units, or Series C preferred units, and 4,000,000 units of our 7.875% Series D cumulative redeemable preferred units, or Series D preferred units. In addition, we also had preferred limited partnership interests having aggregate liquidation preferences of$81.3 million held by persons other than the Company. Whenever SL Green issues common or preferred stock, the net proceeds received are contributed to us in exchange for an equivalent number ofOperating Partnership units of a corresponding class. InJuly 2011 , we, along with SL Green, entered into an "at-the-market" equity offering program, or ATM Program, to sell an aggregate of$250.0 million of SL Green's common stock. During the three months endedMarch 31, 2012 , SL Green had sold 1.6 million shares of its common stock through the ATM program for aggregate gross proceeds of approximately$125.0 million ($123.1 44 --------------------------------------------------------------------------------
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million of net proceeds after related expenses). The net proceeds were used to repay debt, fund new investments and for other corporate purposes. Net proceeds from these offerings (approximately$123.1 million ) were contributed to us in exchange for 1.6 million common partnership units. As ofMarch 31, 2012 , SL Green had$125.0 million available to issue under the ATM program. Compensation Plans All employees of SL Green are compensated through a subsidiary of SLGOP. SL Green's employee and director compensation plans are described below. Under each plan, whenever SL Green issues common or preferred stock, we issue an equivalent number ofOperating Partnership units of a corresponding class to SL Green.
Dividend Reinvestment and Stock Purchase Plan
InMarch 2012 , SL Green filed a registration statement with theSEC registering 3,500,000 shares of its common stock under its dividend reinvestment and stock purchase plan, or DRIP. The DRIP commenced onSeptember 24, 2001 . During the three months endedMarch 31, 2012 and 2011, SL Green issued approximately 1.3 million shares and 11 shares of its common stock and received approximately$99.5 million and$1,000 of proceeds, respectively, from dividend reinvestments and/or stock purchases under the DRIP. The$99.5 million in proceeds received during the three months endedMarch 31, 2012 were contributed to us by SL Green in exchange for an equivalent number of common units. DRIP shares may be issued at a discount to the market price.
Second Amended and Restated 2005 Stock Option and Incentive Plan
Subject to adjustments upon certain corporate transactions or events, up to a maximum of 10,730,000 fungible units may be granted as options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under the Second Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan. AtMarch 31, 2012 , approximately 4.1 million fungible units, calculated on a weighted basis, were available for issuance under the 2005 Plan, or 5.2 million shares of SL Green's common stock if all shares available under the 2005 Plan were issued as five-year stock options.
2006 Long-Term Outperformance Compensation Program
In
The cost of the 2006 Outperformance Plan (approximately$16.4 million , subject to adjustment for forfeitures) was amortized into earnings throughJuly 31, 2011 , the final vesting period. We recorded approximately$30,000 of compensation expense during the three months endedMarch 31, 2011 in connection with the 2006 Outperformance Plan. The performance criteria under the 2006 Outperformance Plan were not met and, accordingly, no LTIP Units were earned under the 2006 Outperformance Plan. The cost of the 2006 Outperformance Plan had been fully expensed as ofSeptember 30, 2011 .
SL Green Realty Corp. 2010 Notional Unit Long-Term Compensation Plan
InDecember 2009 , the compensation committee of SL Green's board of directors approved the general terms of the SL Green Realty Corp. 2010 Notional Unit Long-Term Compensation Program, or the 2010 Long Term Compensation Plan. The 2010 Long-Term Compensation Plan is a long-term incentive compensation plan pursuant to which award recipients may earn, in the aggregate, from approximately$15 million up to approximately$75 million of LTIP Units in theOperating Partnership based on SL Green's stock price appreciation over three years beginning onDecember 1, 2009 ; provided that, if maximum performance has been achieved, approximately$25 million of awards may be earned at any time after the beginning of the second year and an additional approximately$25 million of awards may be earned at any time after the beginning of the third year. The amount of awards earned will range from approximately$15 million if SL Green's aggregate stock price appreciation during the performance period is 25% to the maximum amount of approximately$75 million if SL Green's aggregate stock price appreciation during the performance period is 50% or greater. No awards will be earned if SL Green's aggregate stock price appreciation is less than 25%. After the awards are earned, they will remain subject to vesting, with 50% of any LTIP Units earned vesting onJanuary 1, 2013 and an additional 25% vesting on each ofJanuary 1, 2014 and 2015 based, in each case, on continued employment through the vesting date. SL Green will not pay distributions on any LTIP Units until they are earned, at which time SL Green will pay all distributions that would have been paid on the earned LTIP Units since the beginning of the performance period. InJanuary 2011 , SL Green's compensation committee determined that under the terms of the 2010 Long Term Compensation Plan, as ofDecember 5, 2010 , maximum performance had been achieved and, accordingly, approximately 366,815 LTIP Units had been earned under the 2010 Long-Term Compensation Plan. InJanuary 2012 , the compensation committee determined that under the terms of the 2010 Long Term Compensation Plan, as ofDecember 1, 2011 , maximum performance had been achieved and, accordingly, approximately 385,583 LTIP Units had been earned under the 2010 Long-Term Compensation Plan. In accordance with the terms of the program, 50% of these LTIP Units will vest onJanuary 1, 2013 and the remainder is scheduled to vest ratably over the subsequent two years based on continued employment. 45 --------------------------------------------------------------------------------
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Overall, the 2010 Long Term Compensation Plan contemplates maximum potential awards of 1,179,987 LTIP Units and a cap of approximately$75 million when earned. However, sufficient shares were not available under the 2005 Plan to fund the entire 2010 Long Term Compensation Plan inDecember 2009 , and the awards granted at that time, in the aggregate, were limited to 744,128 LTIP Units, subject to performance-based and time-based vesting, unless and until additional shares became available under the 2005 Plan prior to the end of the performance period for the 2010 Long Term Compensation Plan. At SL Green's annual meeting of stockholders onJune 15, 2010 , SL Green's stockholders approved the adoption of the 2005 Plan which, among other things, increased the number of shares available under the plan. That increase allowed SL Green to award the balance of the LTIP Units due under the 2010 Long-Term Compensation Plan. The remaining awards were granted inJune 2010 . The cost of the 2010 Long Term Compensation Plan (approximately$31.7 million , subject to forfeitures) will be amortized into earnings through the final vesting period. We recorded compensation expense of approximately$1.9 million and$2.0 million during the three months endedMarch 31, 2012 and 2011, respectively, related to the 2010 Long-Term Compensation Plan.
SL Green Realty Corp. 2011 Outperformance Plan
InAugust 2011 , the compensation committee of SL Green's board of directors approved the general terms of the SL Green Realty Corp. 2011 Outperformance Plan, or the 2011 Outperformance Plan. Participants in the 2011 Outperformance Plan may earn, in the aggregate, up to$85 million of LTIP Units in SLGOP based on SL Green's total return to stockholders for the three-year period beginningSeptember 1, 2011 . Under the 2011 Outperformance Plan, participants will be entitled to share in a "performance pool" comprised of LTIP Units with a value equal to 10% of the amount, if any, by which SL Green's total return to stockholders during the three-year period exceeds a cumulative total return to stockholders of 25%, subject to the maximum of$85 million of LTIP Units; provided that if maximum performance has been achieved, approximately one-third of each award may be earned at any time after the beginning of the second year and an additional approximately one-third of each award may be earned at any time after the beginning of the third year. LTIP Units earned under the 2011 Outperformance Plan will be subject to continued vesting requirements, with 50% of any awards earned vesting onAugust 31, 2014 and the remaining 50% vesting onAugust 31, 2015 , subject to continued employment with us through such dates. Participants will not be entitled to distributions with respect to LTIP Units granted under the 2011 Outperformance Plan unless and until they are earned. If LTIP Units are earned, each participant will also be entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of additional LTIP Units. Thereafter, distributions will be paid currently with respect to all earned LTIP Units, whether vested or unvested. As ofMarch 31, 2012 , only 96.8% of the 2011 Outperformance Plan had been granted. The cost of the 2011 Outperformance Plan for the 96.8% granted (approximately$26.1 million , subject to forfeitures) will be amortized into earnings through the final vesting period. We recorded compensation expense of approximately$1.2 million during the three months endedMarch 31, 2012 related to this program.
Deferred Stock Compensation Plan for Directors
Under SL Green's Independent Director's Deferral Program, which commencedJuly 2004 , SL Green's non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees and meeting fees. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The phantom stock units are convertible into an equal number of shares of SL Green's common stock upon such directors' termination of service from SL Green's board of directors or a change in control by SL Green, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of SL Green's common stock on the applicable dividend record date for the respective quarter. Each participating non-employee director's account is also credited for an equivalent amount of phantom stock units based on the dividend rate for each quarter. During the three months endedMarch 31, 2012 , 5,425 phantom stock units were earned. As ofMarch 31, 2012 , there were approximately 72,274 phantom stock units outstanding. Employee Stock Purchase Plan OnSeptember 18, 2007 , SL Green's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage its employees to increase their efforts to make SL Green's 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 Internal Revenue Code of 1986, as amended, and has been adopted by the board to enable our eligible employees to purchase SL Green's shares of common stock through payroll deductions. The ESPP became effective onJanuary 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. SL Green filed a registration statement on Form S-8 with theSecurities Exchange Commission 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 onJanuary 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 46 --------------------------------------------------------------------------------
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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 SL Green's stockholders at its 2008 annual meeting of stockholders. As ofMarch 31, 2012 , approximately 58,085 shares of our common stock had been issued under the ESPP. SL Green contributed the proceeds from the sale of those shares to us in exchange for an equivalent number of our common units. Market Capitalization AtMarch 31, 2012 , borrowings under our mortgages and other loans payable, our 2011 revolving credit facility, senior unsecured notes and trust preferred securities and our share of joint venture debt represented 51.5% of SL Green's combined market capitalization of approximately$15.6 billion (based on a common stock price of$77.55 per share, the closing price of SL Green's common stock on theNew York Stock Exchange onMarch 30, 2012 ). Market capitalization includes our consolidated debt, SL Green common and preferred stock and the conversion of all our units of limited partnership interest into SL Green common stock, and our share of joint venture debt. Indebtedness The table below summarizes our consolidated mortgages and other loans payable, our 2011 revolving credit facility, senior unsecured notes and trust preferred securities outstanding atMarch 31, 2012 andDecember 31, 2011 , respectively (dollars in thousands): Debt Summary: March 31, 2012 December 31, 2011 Balance Fixed rate $ 4,735,282 $ 4,802,009 Variable rate - hedged 38,486 30,000 Total fixed rate 4,773,768 4,832,009 Variable rate 919,386 911,162 Variable rate-supporting variable rate assets 387,892 351,325 Total variable rate 1,307,278 1,262,487 Total $ 6,081,046 $ 6,094,496 Percent of Total Debt: Total fixed rate 78.5 % 79.3 % Variable rate 21.5 % 20.7 % Total 100.0 % 100.0 % Effective Interest Rate for the period: Fixed rate 5.58 % 5.99 % Variable rate 2.55 % 2.16 % Effective interest rate 4.88 % 4.87 % The variable rate debt shown above bears interest at an interest rate based on 30-dayLIBOR (0.24% at bothMarch 31, 2012 and 2011). Our consolidated debt atMarch 31, 2012 had a weighted average term to maturity of approximately 5.7 years. Certain of our debt and preferred equity investments, with a face amount of approximately$387.9 million , are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt atMarch 31, 2012 . Mortgage Financing
As of
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2011 Revolving Credit Facility
InNovember 2011 , we entered into a$1.5 billion revolving credit facility, or the 2011 revolving credit facility. The 2011 revolving credit facility bears interest at a spread overLIBOR ranging from 100 basis points to 185 basis points, based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. AtMarch 31, 2012 , the applicable spread was 150 basis points. The 2011 revolving credit facility matures inNovember 2015 and has a one-year as-of-right extension option, subject to certain conditions and the payment of an extension fee of 20 basis points. We also have an option, subject to customary conditions, without the consent of existing lenders, to increase the capacity under the 2011 revolving credit facility to$1.75 billion at any time prior to the maturity date. We are required to pay quarterly in arrears a 17.5 to 45 basis point facility fee on the total commitments under the 2011 revolving credit facility, which fee is based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. As ofMarch 31, 2012 , the facility fee was 35 basis points. AtMarch 31, 2012 , we had approximately$400.0 million of borrowings and outstanding letters of credit totaling approximately$50.5 million outstanding under the 2011 revolving credit facility, with undrawn capacity of$1.0 billion .
The Company, ROP and the
The 2011 revolving credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
2007 Revolving Credit Facility
The 2011 revolving credit facility replaced our$1.5 billion revolving credit facility, or the 2007 revolving credit facility, which was terminated concurrently with the entering into the 2011 revolving credit facility. The 2007 revolving credit facility bore interest at a spread over the 30-dayLIBOR ranging from 70 basis points to 110 basis points, based on our leverage ratio, and required a 12.5 to 20 basis point fee, also based on our leverage ratio, on the unused balance payable annually in arrears. The 2007 revolving credit facility included certain restrictions and covenants and, as of the time of the termination of the 2007 revolving credit facility and as ofOctober 31, 2011 , we were in compliance with all such restrictions and covenants. Senior Unsecured Notes
The following table sets forth our senior unsecured notes and other related disclosures by scheduled maturity date as of
March 31, March 31, December 31, 2012 Unpaid 2012 2011 Principal Accreted Accreted Coupon Effective Term Issuance Balance Balance Balance Rate(1) Rate (in Years) Maturity March 26, 2007(2) $ 18,003 $ 18,003 $ 119,423 3.000 % 3.000 % 20 March 30, 2027 June 27, 2005(3)(4) 357 357 657 4.000 % 4.000 % 20 June 15, 2025 March 16, 2010(5) 250,000 250,000 250,000 7.750 % 7.750 % 10 March 15, 2020 August 5, 2011(5) 250,000 249,578 249,565 5.000 % 5.031 % 7 August 15, 2018 October 12, 2010(6) 345,000 280,001 277,629 3.000 % 7.125 % 7 October 15, 2017 March 31, 2006(3) 275,000 274,814 274,804 6.000 % 6.019 % 10 March 31, 2016 August 13, 2004(3) 98,578 98,578 98,578 5.875 % 5.875 % 10 August 15, 2014 $ 1,236,938 $ 1,171,331 $ 1,270,656
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(1) Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates. (2) InMarch 2007 , we issued$750.0 million of these exchangeable notes. Interest on these notes is payable semi-annually onMarch 30 andSeptember 30 . The notes have an initial exchange rate representing an
exchange price that was set at a 25.0% premium to the last reported
sale price of our common stock onMarch 20, 2007 , or$173.30 . The initial exchange rate is subject to adjustment under certain circumstances. The notes are our senior unsecured obligations and are exchangeable upon the occurrence of specified events, and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of our
common stock, if any, at our option. The notes are currently redeemable
at our option. We may be required to repurchase the notes on March 30,
2017 and 2022, and upon the occurrence of certain designated events. On
amount of the exchangeable notes pursuant to a mandatory offer to
repurchase the notes. On the issuance date,
in equity and was fully amortized as ofMarch 31, 2012 . (3) Issued by ROP. 48
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(4) Exchangeable senior debentures which are currently callable at 100% of
par. In addition, the debentures can be put to Reckson, at the option
of the holder at par plus accrued and unpaid interest, on
and 2020 and upon the occurrence of certain change of control
transactions. As a result of the acquisition of all outstanding shares
of common stock of
Merger, the adjusted exchange rate for the debentures is 7.7461 shares
of our common stock per
the adjusted reference dividend for the debentures is
the first quarter of 2012, we repurchased$300,000 of these bonds at par. (5) Issued by us, the Company and ROP, as co-obligors. (6) InOctober 2010 , theOperating Partnership issued$345.0 million of these exchangeable notes. Interest on these notes is payable
semi-annually on
exchange rate representing an exchange price that was set at a 30.0% premium to the last reported sale price of SL Green's common stock onOctober 6, 2010 , or$85.81 . The initial exchange rate is subject to adjustment under certain circumstances. The notes are our senior unsecured obligations and are exchangeable upon the occurrence of
specified events, and during the period beginning on the twenty-second
scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of our common stock, if any, at our option. The notes are guaranteed by ROP. On the issuance date, $78.3
million was recorded in equity. As of
$65.0 million remained unamortized.
Junior Subordinate Deferrable Interest Debentures
InJune 2005 , we and SL Green issued$100.0 million of Trust Preferred Securities, which are reflected on the balance sheet as Junior Subordinate Deferrable Interest Debentures. The proceeds were used to repay our revolving credit facility. The$100.0 million of junior subordinate deferrable interest debentures have a 30-year term endingJuly 2035 . They bear interest at a fixed rate of 5.61% for the first 10 years endingJuly 2015 . Thereafter, the rate will float at three monthLIBOR plus 1.25%. The securities are currently redeemable at par. Restrictive Covenants The terms of our 2011 revolving 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 (as discussed below), make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and the dispose assets, and which require compliance with financial ratios relating to the minimum amount of tangible net worth, a maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that SL Green will not during any time when we are in default, make distributions with respect to common stock or other equity interests, except to enable SL Green to continue to qualify as a REIT for Federal income tax purposes. As ofMarch 31, 2012 andDecember 31, 2011 , we were in compliance with all such covenants. Market Rate Risk We are exposed to changes in interest rates primarily from our floating rate borrowing arrangements. We use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point increase in interest rates along the entire interest rate curve for 2012 would increase our annual interest cost by approximately$12.6 million and would increase our share of joint venture annual interest cost by approximately$4.6 million , respectively. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. Approximately$4.8 billion of our long-term debt bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. The interest rate on our variable rate debt and joint venture debt as ofMarch 31, 2012 ranged fromLIBOR plus 90 basis points toLIBOR plus 301 basis points. Contractual Obligations Refer to our 2011 Annual Report on Form 10-K for a discussion of our contractual obligations. There have been no material changes, outside the ordinary course of business, to these contractual obligations in 2012.
Off-Balance Sheet Arrangements
We have a number of off-balance sheet investments, including joint ventures and debt and preferred equity investments. These investments all have varying ownership structures. Substantially all of our joint venture arrangements are accounted for under the equity method of accounting as we have the ability to exercise significant influence, but not control over the operating and financial decisions of these joint venture arrangements. Our off-balance sheet arrangements are discussed in Note 5, "Debt and preferred equity Investments" and Note 6, "Investments inUnconsolidated Joint Ventures " in the accompanying consolidated financial statements. 49 --------------------------------------------------------------------------------
Table of Contents Capital Expenditures We estimate that for the nine months endingDecember 31, 2012 , we will incur approximately$126.2 million of capital expenditures, which are net of loan reserves, (including tenant improvements and leasing commissions) on existing wholly-owned properties and our share of capital expenditures at our joint venture properties, net of loan reserves, will be approximately$36.5 million . We expect to fund these capital expenditures with operating cash flow, additional property level mortgage financings and cash on hand. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect that these financing requirements will be met in a similar fashion. We believe that we will have sufficient resources to satisfy our capital needs during the next 12-month period. Thereafter, we expect our capital needs will be met through a combination of cash on hand, net cash provided by operations, borrowings, potential asset sales or additional equity or debt issuances. Distributions SL Green expects to pay dividends to its stockholders on a quarterly basis based on the distributions we make to it primarily from property revenues net of operating expenses or, if necessary, from working capital or borrowings. If SL Green declares a dividend, such dividend is paid in the subsequent quarter. In order to enable 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 we have adopted a policy of paying regular quarterly distributions on our common units corresponding to dividends paid by SL Green. Cash distributions have been paid on the common stock of SL Green and our common units 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, our 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. Based on SL Green's current annual dividend rate of$1.00 per share, it would pay approximately$89.6 million in dividends on an annual basis. Before SL Green pays any dividend, whether for Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under our revolving 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
ThroughAlliance Building Services , or Alliance,First Quality Maintenance, L.P. , or First Quality, provides cleaning, extermination and related services,Classic Security LLC provides security services,Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain properties owned by us. Alliance is partially owned byGary Green , a son ofStephen L. Green , the chairman of SL Green's board of directors. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements. Alliance paid the Service Corporation approximately$0.8 million and$0.1 million for the three months endedMarch 31, 2012 and 2011, respectively. We paid Alliance approximately$3.5 million and$3.1 million for the three months endedMarch 31, 2012 and 2011, respectively, for these services (excluding services provided directly to tenants). Marketing ServicesA-List Marketing, LLC , or A-List, provides marketing services to us. Ms.Deena Wolff , a sister of Mr.Marc Holliday , is the owner of A-List. The aggregate amount of fees we paid to A-List for these marketing services was approximately$11,700 and$25,600 for the three months endedMarch 31, 2012 and 2011, respectively. Leases
Management FeesS.L. Green Management Corp. , a consolidated entity, receives property management fees from an entity in whichStephen L. Green owns an interest. The aggregate amount of fees paid toS.L. Green Management Corp. from such entity was approximately$89,000 and$110,000 for the three months endedMarch 31, 2012 and 2011, respectively. 50
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Table of Contents Gramercy Capital Corp.
Our related party transactions with Gramercy are discussed in Note 11, "Related Party Transactions" in the accompanying financial statements.
Insurance We maintain "all-risk" property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism) within two property insurance portfolios and liability insurance. The first property portfolio maintains a blanket limit of$750.0 million per occurrence, including terrorism, for the majority of theNew York City properties in our portfolio. The second portfolio maintains a limit of$700.0 million per occurrence, including terrorism, for someNew York City properties and the majority of the Suburban properties. Both policies expire onDecember 31, 2012 . Additional coverage may be purchased on a stand-alone basis for certain assets. We maintain liability policies which cover all our properties and provide limits of$201.0 million per occurrence and in the aggregate per location. The liability policies expire onOctober 31, 2012 . InOctober 2006 , SL Green formed a wholly-owned taxable REIT subsidiary,Belmont Insurance Company , or Belmont, to act as a captive insurance company and be one of the elements of its overall insurance program. Belmont is a subsidiary of ours. Belmont was formed in an effort to, among other reasons, stabilize to some extent the fluctuations of insurance market conditions. Belmont is licensed inNew York to write Terrorism, NBCR (nuclear, biological, chemical, and radiological), General Liability, Environmental Liability and D&O coverage. † Terrorism: Belmont acts as a direct property insurer with
respect
to a portion of our terrorism coverage for mostNew York City properties. Belmont has a terrorism coverage limit of$650 million in a layer in excess of$100.0 million . In addition Belmont purchased reinsurance to reinsure the retained insurable risk not otherwise covered underTerrorism Risk Insurance Program Reauthorization and Extension Act of 2007, or TRIPRA, as detailed below. † NBCR: Belmont has acted as a direct insurer of NBCR and since
† General Liability: For the period commencing October 31,
2010,
Belmont insures a retention on the general liability insurance of$150,000 per occurrence and a$2.1 million annual aggregate stop loss limit. We have secured excess insurance to protect against catastrophic liability losses above the$150,000 retention. Prior policy years carried a higher per occurrence deductible and/or higher aggregate stop loss. Belmont has retained a third party administrator to manage all claims within the retention and we anticipate that direct management of liability claims will improve loss experience and ultimately lower the cost of liability insurance in future years. In addition, we have an umbrella liability policy of$200.0 million per occurrence and in the aggregate on a per location basis. † Environmental Liability: Belmont insures a deductible of
per occurrence in excess of
As long as we own Belmont, we are responsible for its liquidity and capital resources, and the accounts of Belmont are part of our consolidated financial statements. If we experience a loss and Belmont is required to pay under its insurance policy, we would ultimately record the loss to the extent of Belmont's required payment. Therefore, insurance coverage provided by Belmont should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance. The Terrorism Risk Insurance Act, or TRIA, which was enacted inNovember 2002 , was renewed onDecember 31, 2007 .Congress extended TRIA, now called TRIPRA (Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007) untilDecember 31, 2014 . The law extends the federal Terrorism Insurance Program that requires insurance companies to offer terrorism coverage and provides for compensation for insured losses resulting from acts of certified terrorism, subject to the current program trigger of$100.0 million . There is no assurance that TRIPRA will be extended. Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), mezzanine loans, ground leases, our 2011 revolving credit facility, senior unsecured notes and other corporate obligations, contain customary covenants requiring us to maintain insurance. Although we believe that we currently maintain sufficient insurance coverage to satisfy these obligations, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from "all-risk" insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments allowing the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions. In addition, if lenders prevail in asserting that we are required to maintain full coverage for these risks, it could result in substantially higher insurance premiums. 51 --------------------------------------------------------------------------------
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We have a 49.9% interest in the property at100 Park Avenue , where we participate with Prudential, which carries a blanket policy of$500.0 million of "all-risk" property insurance, including terrorism coverage. We ownOne Madison Avenue , which is under a triple net lease with insurance provided by the tenant, Credit Suisse Securities (USA ) LLC, or CS. We have a 50.6% interest in the property at388 and 390 Greenwich Street , where we participate with SITQ, which is leased on a triple net basis toCitigroup, N.A. , which provides insurance coverage directly. We monitor all triple net leases to ensure that tenants are providing adequate coverage. Other joint ventures may be covered under policies separate from our policies, at coverage limits which we deem to be adequate. We continually monitor these policies. Although we consider our insurance coverage to be appropriate, in the event of a major catastrophe, such as an act of terrorism, we may not have sufficient coverage to replace certain properties. Inflation Substantially all of the 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 may be at least partially offset by the contractual rent increases and expense escalations described above. Accounting Standards Updates
The Accounting Standards Updates are discussed in Note 2, "Significant Accounting Policies- Accounting Standards Updates" in the accompanying consolidated financial statements.
Forward-Looking Information This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), development trends of the real estate industry and theManhattan ,Brooklyn ,Queens ,Westchester County ,Connecticut ,Long Island andNew Jersey office markets, business strategies, expansion and growth of our operations and other similar matters, are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially,, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," "continue," or the negative of these words, or other similar words or terms.
Forward-looking statements contained in this report are subject to a number of risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by forward-looking statements made by us. These risks and uncertainties include:
† the effect of the credit crisis on general economic, business and financial conditions, and on theNew York metropolitan real estate market in particular; † dependence upon certain geographic markets;
† risks of real estate acquisitions, dispositions and developments, including the cost of construction delays and cost overruns;
† risks relating to debt and preferred equity investments; † availability and creditworthiness of prospective tenants and borrowers;
† bankruptcy or insolvency of a major tenant or a significant number of smaller tenants;
† adverse changes in the real estate markets, including reduced demand for office space, increasing vacancy, and increasing availability of sublease space; † availability of capital (debt and equity);
† unanticipated increases in financing and other costs, including a rise in interest rates;
† our ability to comply with financial covenants in our debt instruments;
† SL Green's ability to maintain its status as a REIT;
† risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations;
† the continuing threat of terrorist attacks, in particular in the
† 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 52 --------------------------------------------------------------------------------
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† 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 theSecurities and Exchange Commission , or theSEC . We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise. 53 --------------------------------------------------------------------------------
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