SL Green Realty
Annual Report 2018

Plain-text annual report

B U I L D I N G F O R T H E F U T U R E B U I L D I N G F O R T H E F U T U R E SL Green Realty Corp. SL Green Realty Corp. 2018 Annual Report 2018 Annual Report B 1 Financial Highlights1 21 Years Listed 48.3M Total Square Feet 4 701.7% TRS Since IPO $1.8B Combined Revenues 108 Number of Properties4 260.5% SNL Office REIT Index Total Return to Shareholders (Includes reinvestment of dividends) (Based on $100 investment made. $21.00 at IPO, diluted, in dollars) $6.78 Funds from Operations Per Share 2 +5.1% Funds from Operations Per Share Growth 2, 3 $1.15B Liquidity $16.9B Enterprise Value +4.8% Dividend Per Share Growth 3 1 Data as of 12 / 31 / 2018. 2 Normalized FFO per share excludes non-recurring prepayment penalty associated with early repayment of the debt at One Madison Avenue. 3 2017 to 2018 year-over-year growth. 4 Includes 34 Debt and Preferred Equity investments secured by 18.7M square feet. SLG NYC in 2018 $1,100 1,000 900 800 700 600 500 400 300 200 100 DEC 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 SL GREEN REALTY CORP. S&P 500 NASDAQ INDEX DOW JONES INDUSTRIALS INDEX MSCI U.S. REIT INDEX START DATE SLG IPO: 8/14/1997 Singularly focused on New York City real estate, SL Green operates in one of the most liquid and resilient real estate markets in the world—and also one of the most complex and competitive. An active, transaction-oriented company committed to excellence and results, SL Green executes more trans- actions than its competitors year after year. Whether working independently or collaborating with strategic partners, we are proud of our record of acquiring, improving, operating and monetizing properties that bring great value to our shareholders. 2 Dear Shareholders, 2018 was another strong year for SL Green and for the New York City economy that has driven our success for the past 21 years. Yet again, SL Green was far and away the most active player in our market. Over the course of the year, we signed 180 Manhattan office leases across 2.3 million square feet, hit major milestones and announced new world- class development projects, closed on a number of key leases in our high street retail portfolio, moved swiftly on great debt and preferred equity investment opportunities and disposed of mature and non-core assets to fund our aggressive share buyback program that capitalizes on the unprecedented discount in our stock price. This level of activity is nothing new for our best-in-class team, consistent with the hustle and determination we have shown over the past two decades to make SL Green the largest and most profitable owner of office space in New York City. At our Investor Conference in December we detailed an unprecedented history of ownership and investment in an astounding 115 million square feet of commercial real estate in Manhattan, primarily in core Midtown. This achievement has been mapped to show that nearly every block of prime commercial real estate in East Midtown has had SL Green’s fingerprints at some point. Combining everything we currently own, with what we previously sold, totals approximately 50 million square feet of real property. Our debt and preferred equity and special servicing platforms have participated in deals representing another 65 million square feet of collateral interests. All told, over the course of our history, SL Green’s market penetration covers in excess of 25 percent of the Manhattan office inventory. This unrivaled scale and scope confirms the Company as the focused sharp shooter in New York City, committed to excellence year after year. SL GREEN REALT Y COR P. ANNUAL REPOR T 2 018 Through all of this incredible work, we remained true to our core mission of investing, managing and developing world-class properties in New York City, dominating the world’s most important and valuable commercial real estate market. We continue to take a long-term view of our business, remaining bullish on the value of New York, its allure as a global business address, and the promise of its growth and talent pool. And 2018 brought a number of very positive indicators to support that confidence. In addition to continued overall and office-using job growth (and the lowest unemployment rate in the city’s history), two areas stood out: booming investment in East Midtown, and the emergence of the technology sector as one of the pillars of New York’s economy. Last year was an exceptional one for East Midtown, where so much of our portfolio is concentrated. Grand Central led all Midtown sub-districts in increased leasing volume, reaffirming our belief that greater East Midtown remains the most sought-after sub-market in New York. The most obvious and visible example of this desirability is the progress of our flagship One Vanderbilt development project, which is on track to top out in the second half of this year, and open for business next year—under budget and ahead of schedule. In fact, leasing is moving so swiftly, SL Green had to move fast to reserve space for our own new headquarters within this iconic new tower before all of the space we had targeted was leased! We look forward to relocating to One Vanderbilt next year and joining our esteemed roster of tenants in this highly sought after, efficient and sustainable building. One Vanderbilt’s early success can be felt across the district with others following suit: a joint venture between RXR Realty, TF Cornerstone and MSD Capital announced a $3 billion redevelopment of the Grand Hyatt Hotel adjacent to Grand Central and J.P. Morgan is moving ahead with its plan to develop a 2.5 million square foot skyscraper at the site of its current headquarters on Park Avenue. It is an extraordinary vote of confidence in East Midtown’s future that two functional, but obsolete, towers will be torn down, and billions invested, to bring the most modern product online in what continues to be regarded as the very best location in Manhattan. The city’s tech sector is also having its moment, maturing into a true pillar of a diversified New York economy that is no longer solely reliant on the FIRE sector for growth. The proof of this sea change is everywhere, with Google, Facebook, Amazon and Netflix dramatically expanding their presence in order to tap into a highly skilled, educated and Marc Holliday Chairman & Chief Executive Officer Andrew W. Mathias President young urban workforce. It’s clear that major companies like these want to be here because New York continues to attract the best talent from around the country and the world. It is unfortunate that Amazon ultimately decided not to pursue a headquarters in Long Island City, and there were mistakes made by all parties that led to that outcome. But New York’s initial selection ahead of more than 200 other cities illustrates that the city has all of the elements that tech companies demand. We expect Amazon to continue expanding in Midtown and that an ever expanding roster of tech tenants will increasingly look upon the city as a top location for creative, technologically advanced office space. Even the retail sector is showing signs of resiliency after several years of decline, as new retailers are attracted to high traffic areas, 3 One Vanderbilt construction progress despite daily doomsday prognostications. For properties like ours, where retail rents are at realistic levels, we have proven there is still good demand for the best located product as we continue to see solid performance in our high street retail portfolio. In fact, the city added 4,000 new retail jobs in 2018 (several hundred of which can be attributed to SL Green tenants), reversing shrinking job numbers in 2016 and 2017. Despite all of this positive momentum, there is no denying that our share price continues to display a level of underperformance that is completely disconnected from the performance within our operating portfolio and the unprecedented level of growth in New York City. In previous years this antipathy has impacted office REITs across the country, but in 2018 the challenges more narrowly impacted New York City-focused REITs. Unfortunately, some investors continue to see New York as less attractive due to a misconception that there is over-supply in this market. The reality is that while there is some incremental new supply, the job growth we’ve been experiencing for more than 9 years has been more than able to absorb that new inventory and, as a result, the vacancy rate has been slowly but steadily declining. The public market concern stands in stark contrast to the views and actions of private market investors. Nearly $50 billion was invested in New York commercial real estate last year, targeting the exact type of product that we invest in and know better than anyone. These investors are typically looking to invest in assets with global appeal and credit tenancy, in a market with enormous depth and liquidity. We think private investors, which make up the vast majority of the investment market, have the market analysis right and we trust that the public market will eventually recalibrate and return to a fair valuation for our highly sought- after assets. Nonetheless, we would all much prefer to see our efforts embraced by the public markets and reflected in a higher share price in the immediate term. assets, all above Net Asset Value. This strategy has proven to be accretive to earnings and Net Asset Value, as well as being sensitive to our investment grade balance sheet. We believe this is a program that creates tremendous value for our investors and we expect to continue this program until our share price better reflects the value of our holdings. SL Green is one of the few companies in New York — public or private — that sells as aggressively as we buy. By shedding lower- growth or non-core assets and replacing them with investment in higher-quality new investments or development assets with higher returns, we are creating a compound benefit for shareholders as the shares we are repurchasing are increasing the percentage of all shareholder ownership in a superior portfolio. For now, our share price continues to trade Key to our approach is supplementing our at a sizable discount relative to the underlying value of our portfolio. To recapture the difference between our stock price and this underlying value, we continued to increase the size of our share repurchase program last year, bringing total authorization to $2.5 billion. Since activating this investment strategy in 2016, we’ve executed $1.9 billion to date through the debt neutral sale of non-core and mature industry-leading operating assets with a steady development pipeline that will enhance natural growth in the portfolio by providing additional earnings as we deliver new projects over the next three to five years. One Vanderbilt is just the first piece of a diversified development pipeline of office, retail and residential projects in development or already under construction. We are keeping the One Vanderbilt team 4 5 together to redevelop One Madison into the premier office building in Midtown South, while 185 Broadway is already under construction further downtown and Armani will keep its flagship on Madison Avenue for another generation while we bring a unique condo product online in partnership with them. These are all tangible examples of embedded future earnings growth and portfolio expansion funded with internal cash flow, proceeds of asset sales and third-party investment. Yet as we’ve advanced more new development we have also doubled-down on credit fundamentals, displaying the fiscally prudent approach that has always characterized SL Green. We maintained an incredible amount of liquidity in 2018; our debt to EBITDA ratio remains in the low 7s, despite the nearly 20 percent reduction in total enterprise value of the company to support our share buyback program, and we continue to boast an investment grade balance sheet with a strong BBB rating. As you can see, 2018 was a big year as we worked tirelessly across all aspects of our company to generate value for you, our shareholders. Our plan is for the long-term, however, and there is a lot to look forward to as our portfolio and the New York City market remain strong in 2019. NYC Outlook The story of our success always begins with the fundamentals of the New York City economy and job market, and they are very strong. In fact, the city remains in the midst of one of the greatest and most prolonged periods of growth in its history, with a decade of progress leading to the current record high employment. All the stats are pointing in the right direction, albeit at a slower rate than we have seen in previous years, but still among the highest rates of growth in the country. New York City’s unemployment rate fell to 4.0 percent by the end of 2018, the lowest unemployment rate on record, bolstered by an influx of tech jobs as the city now boasts the most tech workers in the country, even more than Silicon Valley. TAMI leasing continues to be a catalyst for expansion and has helped position New York City as among the most — if not the most — desirable locations for tech companies both large and small. For 2018, total New York City private-sector jobs were up by 1.9 percent, matching the national growth rates and achieving the city’s ninth consecutive year of job creation, the longest sequence of job gains on record. In addition, a record high of 65.2 million tourists visited the city in 2018, fueling more than 37 million hotel room nights sold, a boon for the hospitality sector and local economy. In the real estate sector, new commercial leasing activity in Manhattan rose 45.1 percent (in the fourth quarter of 2018); the largest fourth quarter increase on record. New leases were signed at a record rate, rising to nearly 36 million square feet throughout the city and to 23.7 million square feet in Midtown alone. Overall, these figures underpin the city’s status as a leading global financial center with a healthy outlook heading into 2019, and that Midtown continues to attract top-tier companies looking to grow their businesses. No other organization is better positioned than SL Green to continue meeting this demand as we provide premier, Class-A office space in the most desirable locations. 2018 Highlights 2018 marked another blockbuster year of SL Green operating performance and portfolio activity. As always, the bedrock of our company is industry-leading occupancy across the biggest office portfolio in New York City. On that front 2018 was a monumental year, as we signed more than 180 office leases, representing an incredible 2.3 million square feet of space, while maintaining an occupancy rate of nearly 95 percent. Reflecting the breadth of New York’s economy, leases were executed across diverse sectors from tech, media and financial services to insurance, nonprofits and healthcare. These included major deals at One Vanderbilt, where TD Securities signed a 118,872 square foot lease, and McDermott Will & Emery inked a 20-year lease for 105,539 square feet and at 609 Fifth Avenue, where WeWork signed 139,000-square- feet for the entire office portion of the property. This leasing success was mirrored in our retail portfolio, where we signed several top-tier retailers, cementing a 24,000-square- foot retail lease at 609 Fifth Avenue with sports brand PUMA, and a lease with Coty Inc., one of the world’s preeminent beauty conglomerates, for 10,040-square-feet at 719 Seventh Avenue, now known as 30 Times Square, the retail flagship development that SL Green completed in 2017. In total, the Company executed 21 retail leases for 96,000 square feet in 2018. We continued to demonstrate our ability to undertake complex development projects, with over $7 billion worth of assets now in development or redevelopment. At our East Midtown skyscraper, One Vanderbilt, construction progress has been just as vigorous as our leasing activity. As of April 2019, the building superstructure reached the 60th floor and we just signed an expansion deal with private equity giant, The Carlyle Group, to take an additional 33,000 square feet, bringing their total footprint to 128,000 square feet. The end of last year saw a flurry of leasing activity, where we secured 229,000 square feet of office commitments, nearly two years from opening, including TD Securities, the investment banking arm of anchor tenant TD Bank, which signed a lease for 119,000 square feet. A testament to the demand for modern, transit-oriented office space, the building is now 56.9 percent leased and well on the way to our upsized goal of 65 percent leased by the end of 2019. We also refinanced the project’s construction facility, increasing its size by $250 million to $1.75 billion and reducing the interest rate by 75 basis points. This significant improvement in terms was due, in large part, to the rapid pace of leasing and construction progress. Building on the success of One Vanderbilt, we announced plans in December to reassemble the same design and development team — Kohn Pedersen Fox, Hines and Gensler — for a sweeping redevelopment of One Madison Avenue, the Class-A office tower across from Madison Square Park. A modern 518,000 square foot glass addition on top of a nine-story redeveloped podium will add open office space, tenant specialty floors and over one acre of outdoor terraces, within a design that is harmonious with the surrounding Madison Square District. Showing the company’s versatility and commitment to the success of New York City, in Lower Manhattan, we closed on $225 million of construction financing and commenced vertical construction of 185 Broadway, a ground-up, 31-story, 260,000-square-foot, mixed-use residential building that will be part of the Affordable New York Housing Program. On the dispositions front, 2018 was our most active year ever, as we worked hard to create liquidity and advance our share buyback program, selling assets for large profits. With each sale, we demonstrated a strong understanding of the market and moved with impeccable timing. By the end of the year, we executed dispositions totaling $3.3 billion, which generated $1.5 billion of cash proceeds and reduced our on-balance sheet debt by $650 million. Some of our most notable transactions include the sale of the leasehold office condominium at 1745 Broadway in Manhattan for a sale price of $633 million, the fee interest at 635 Madison Avenue for a sale price of $153 million and our 48.9 percent interest in 3 Columbus Circle at a property valuation of $851.0 million. Each opportunity represents a strategic divestment of a mature or non-core asset that both supported the stock repurchase program and illustrated the company’s ability to identify and derive value from assets across the portfolio. Our Debt & Preferred Equity platform continued to be extremely active, executing SL GREEN REALT Y COR P. ANNUAL REPOR T 2 018 approximately $1.2 billion in gross originations. Through our deep relationships and our expertise across all segments of the market, we are the preferred partner for the most complex and profitable deals in New York City. For example, at 245 Park we now have a preferred equity investment totaling $148.2 million and at 2 Herald Square we were the successful bidder at foreclosure for the leasehold interest and then completed a joint venture with an Israeli-based institutional investor. Through our direct relationships, we also financed multiple off-market investments at 460 West 34th Street, our first foray into the Hudson Yards and Manhattan West sub- districts, resulting in ownership of a controlling majority, which will undoubtedly deliver value to our shareholders in the years to come as we look to reposition an affordable alternative to new construction on the Westside. We continue to hold a market-leading position in the origination of subordinate debt positions and are frequently the mezzanine lender of choice among borrowers and senior debt providers. Our industry-leading commitment to sustainability was rewarded again this year with a series of honors from the U.S. Environmental Protection Agency. We received the ENERGY STAR Partner of the Year for Sustained Excellence award for the second consecutive year (2018 and 2019) and have been an ENERGY STAR Partner for four years (2015, 2016, 2018, 2019). We were also recognized by the Building Owners and Managers Association (BOMA) with the “Earth Award” for 1515 Broadway, the “Renovated Building of the Year Award” for 280 Park Avenue, and two Middle Atlantic Region Outstanding Building View from One Vanderbilt of the Year Award (TOBY) for 810 7th Avenue and 635–641 6th Avenue. Looking Ahead As you can see, I believe deeply in the path we have taken — leveraging the best talent and the best office market to make SL Green the dominant player in New York City commercial real estate and derive extraordinary value for our shareholders. Looking ahead to 2019 and beyond, we remain tremendously optimistic that this approach, in this city, will deliver maximum value. We are already seeing positive signs in the first quarter of 2019, having leased over 400,000 square feet of office space while maintaining our extraordinary level of occupancy at roughly 96 percent leased in the Manhattan same-store portfolio, executing $597 million of dispositions so far, generating liquidity for our share repurchase program and for debt repayment and originating over $419.0 million of new debt and preferred equity investments, bringing the portfolio to over $2.3 billion. When we step back and look at the bigger picture, we see several big trends continuing to drive this growth and support our portfolio. On the demand side, we expect to finally see the recalibration toward more space per employee with the increasing realization that densification may have gone too far. The exponential growth of co-working companies in New York — accounting for 18 percent of new signings in Manhattan in 2018 — will continue driving demand. We believe that co-working is here to stay and that it’s actually a good thing for our industry, but not a segment to which SL Green will ever oversubscribe with less than 3 percent exposure to this sector. Finally, Amazon’s flirtation with New York was a huge positive. It was an indicator that tech companies need to be here and will drive more growth. And hopefully moving forward, the City and State will use the experience with Amazon as a springboard to ensure there is a more transparent process for public subsidies and that everyone who wants to grow here is on a level playing field. This overall increased demand — combined with the migration of office tenants to higher- quality buildings — has led to a tightening of the market as there is a real shortage of big blocks of new space that premium tenants demand. In our portfolio, for instance, we have no blocks of 300,000 square feet or more available in 2019. So that demand will have to be filled by new construction. As we have said for years now, there simply isn’t enough new construction in the pipeline to keep up with this demand. Hudson Yards is officially open and all but 4.5 million square feet of that space has been leased or presold, which means that over time demand will increasingly have to be met by new construction, generally in East Midtown, which will further benefit our portfolio. On that front, 2019 promises to be a year full of milestones at One Vanderbilt, which will soon reach its full height and will become completely cladded in its iconic terracotta spandrels. As we advance toward opening on August 4, 2020, we’ll continue to fill the building with world-class tenants across a number of foundational industries and deliver the promised $220 million in public transit and infrastructure upgrades, many of which are already online and being used to the benefit of commuters today. These trends also bode well for our next big bet on new construction at One Madison Avenue. With Credit Suisse’s lease coming to an end, we have formulated an extraordinary vision for the iconic property that is perfect for today’s Midtown South submarket and its influx of creative and tech tenants. And we expect to make significant progress on our flagship retail and luxury condominium project with Armani in 2019, after securing necessary approvals and, with the support of Giorgio Armani, we look forward to moving ahead with interior design. When you put all of these pieces together, you can see that we have a comprehensive plan in place to outperform our peers and stay at the top of our game. But that is not enough. Our entire executive team is deeply invested in our stock and we share your laser focus on doing everything in our power to restore the connection between our share price and the underlying value of our assets. In 2019, we will continue to monetize assets and redeploy capital into share buybacks. Because every time we buy a share, we’re buying more of a better portfolio. And we know it is only a matter of time before the public market follows the private market in recognizing that New York real estate remains a stable and profitable investment. On behalf of myself, Andrew Mathias, and the entire executive team, thank you for your continued support and partnership. I think you will find that we have executed on your behalf in 2018 and are on track to do it again in 2019. Marc Holliday Chairman & Chief Executive Officer O n e V a n d e r b i l t 6 SLG NYC Building for the Future The SL Green leadership team is consistently raising the bar for commercial office space and the tenant experience. Through strategic investments in a variety of projects — including new, ground-up developments and repositioning of existing assets — the team creates additional value and identifies opportunities that complement the existing portfolio. From One Vanderbilt to One Madison, SL Green is at the forefront of bringing to life the most ambitious new commercial developments across Midtown, which today’s leading businesses will call home. The redevelopment of 760 Madison, set to reinforce why Madison Avenue is the city’s premier retail corridor, and the new 185 Broadway, a 31- story mixed-use building in the heart of Lower Manhattan, will bring to market two mixed-use buildings offering prime retail and housing opportunities. Through the developments detailed in the following pages, SL Green is hard at work identifying new, value-add projects to enhance value for shareholders and strengthen an already robust portfolio of Class-A assets. SL GREEN REALT Y COR P. ANNUAL REPOR T 2 018 O n e V a n d e r b i l t One Vanderbilt Key Highlights $1.75B L+350 $1.5B Construction Loan L+275 Rate Reduction 57% 1 Pre-leased! 2020 Open for Business TCO date accelerated by eight weeks to August 4th, 2020. $100M Under budget on construction costs Designed by Kohn Pedersen Fox, One Vanderbilt is paving the way in the modernization of Manhattan’s East Midtown business district. At 1,401 feet tall and 1.7 million square feet of space, this unprecedented commercial office building will offer jaw-dropping views, unparalleled tenant amenities and a modern workplace experience unlike any other in New York City and around the world. Our progress toward its 2020 opening — on both the leasing and the construction fronts—has been exceptional. Currently more than half leased, it has attracted several global names in law and finance and is on track for an expedited opening next summer. 1 Percentage leased at One Vanderbilt as of 4/18/2019. O n e M a d i s o n One Madison Key Highlights Large Podium Floor Plates1/New 17-Story Glass Tower 2/21st Century — Class-A Infrastructure3 / Rooftop Terraces for Outdoor Use4 At One Madison Avenue, SL Green has reassembled its all-star team from One Vanderbilt—Kohn Pedersen Fox, Hines and Gensler — to completely reimagine the building as a modern, functional, Class-A office property in the heart of Midtown South’s Madison Square submarket. With plans to bring the current structure down to a nine- story podium topped by a new 17-story glass tower, One Madison will feature a tenant specialty floor with a sweeping outdoor terrace overlooking Madison Square Park. One Madison will be unlike anything else available in the Midtown South market and is already catching the attention of the world’s top technology and creative firms. 1 Large podium floor plates can accommodate trading floors and/or high-density users. 2 New 17-story glass tower with 530,000 rentable square feet and virtually column- free floor plates. 3 21st century, Class-A infrastructure that sits atop the No. 6 subway line and a block from the R and W lines. 4 Approximately one acre of roof setback terraces are available for outdoor use. 1 8 5 B r o a d w a y 185 Broadway Key Highlights Across from Fulton Transit Center Project completion by 2021 Targeting project completion in the second quarter of 2021. Over 200 units — 30% affordable housing Will qualify for 35-year tax abatement under Affordable New York housing program. Retail attraction for: Tourists Office Users Residents Tremendous branding opportunity for signage. One of the first residential developments built under New York State’s Affordable New York program, 185 Broadway will be a 31-story mixed-use building offering more than 200 units of housing, of which 30% will be designated as affordable. A true mixed-use development underway in the heart of Lower Manhattan, it will feature two floors of flagship retail and three floors of commercial space. 7 6 0 M a d i s o n 760 Madison Key Highlights New Flagship Giorgio Armani Retail Boutique1 /Renowned New York Architecture Firm COOKFOX 2/Outdoor Terraces Provide Visual Connection to Central Park3/Fifteen- Year Lease to Armani 4 Working hand in hand with renowned Italian fashion designer, Giorgio Armani, SL Green is spearheading the redevelopment of 760 Madison Avenue on Manhattan’s Upper East Side. The reimagined property will include luxury residences —designed by Mr. Armani himself—as well as a new flagship Giorgio Armani boutique. With this redevelopment, SL Green solidifies Armani’s lasting presence along one of the city’s most recognized retail corridors. 1 New flagship Giorgio Armani retail boutique and 19 luxury residences designed by Giorgio Armani. 2 Renowned New York design architecture firm, COOKFOX, will serve as architect. 3 97,000-square-foot property will include setbacks and outdoor terraces that create definition from the street and provide visual connection to Central Park. 4 New 15-year lease to Armani, encompassing the grade, second floor and lower level of the building. 4 6 0 W e s t 3 4 t h 460 West 34th Street Key Highlights New modern redesign for office & retail spaces New lobby elevators, storefronts, double-height retail, modernized office with enlarged windows; activation of numerous roof setback terraces and an additional rooftop amenity. Best value for money Efficiently priced Hudson Yards location, with proximity to Penn Station transit center. $733psf 2021 Expected completion in the first quarter of 2021. $528psf From blended acquisition cost to redeveloped basis. A former printing plant, 460 West 34th Street marks SL Green’s introduction into the Hudson Yards/ Manhattan West submarkets, with plans to fully reposition the building into a Class-A office property at a competitive price point for tenants. The redevelopment plan includes comprehensive upgrades, including a new building entrance, lobby, elevators, storefronts, windows and infrastructure. The reimagined industrial building will serve as a creative work environment in contrast to the surrounding glass skyscrapers. First Republic Bank, a leading private bank and wealth management company, will be the building’s anchor tenant, occupying 212,000 square feet in two new retail branches as well as five floors of corporate offices. 6 0 9 F i f t h 609 Fifth Key Highlights 100% Leased to PUMA, WeWork & Vince /Full-Building Redevelopment1 61%Stabilized NOI projected to increase by 61% over 2017. 6.1% cash-on-cost yield on incremental capital After unveiling the large-scale repositioning of 609 Fifth Avenue, SL Green announced leases with PUMA, WeWork and Vince, bringing the building to 100% leased, well ahead of the expected leasing timeline. The repositioning, which includes relocation of the lobby entrance and the entire elevator core, adds substantial, high-value retail space and creates an enhanced office environment that is particularly attractive to creative users. 1 Comprehensive full-building redevelopment covering aesthetic and infrastructure enhancements creating a Class-A property in the highest value corridor of Fifth Avenue. Submarket Ownership Usable Square Feet Occupancy (%) Map Key Ownership Interest (%) Submarket Ownership Usable Square Feet Occupancy (%) New York City Portfolio 21 20 Surburban Portfolio Properties (As of December 31, 2018) OFFICE PORTFOLIO 100 Summit Lake Drive 200 Summit Lake Drive 500 Summit Lake Drive 360 Hamilton Avenue 1 Landmark Square 2 Landmark Square 3 Landmark Square 4 Landmark Square 5 Landmark Square 6 Landmark Square 7 Landmark Square 1055 Washington Boulevard 1010 Washington Boulevard SUBURBAN GRAND TOTAL Ownership Interest (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Valhalla, New York Valhalla, New York Valhalla, New York White Plains, New York Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Stamford, Connecticut Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Leasehold Interest Fee Interest 250,000 245,000 228,000 384,000 312,000 46,000 130,000 105,000 61,000 172,000 36,800 182,000 143,400 2,295,200 97.5 86.1 99.9 100.0 88.4 99.5 58.0 85.3 98.6 93.7 100.0 85.5 89.7 100.0 51.0 55.0 60.0 60.0 50.0 100.0 90.0 100.0 100.0 100.0 50.0 100.0 100.0 100.0 100.0 50.5 100.0 100.0 100.0 100.0 100.0 2 100.0 60.5 100.0 51.0 100.0 100.0 70.0 24.35 Properties (As of December 31, 2018) OFFICE PORTFOLIO 1 Madison Avenue 2 Herald Square 10 East 53rd Street 11 Madison Avenue 30 East 40th Street 100 Park Avenue 100 Church Street 110 Greene Street 110 East 42nd Street 125 Park Avenue 220 East 42nd Street 280 Park Avenue 304 Park Avenue South 420 Lexington Avenue (Graybar) 461 Fifth Avenue 485 Lexington Avenue 521 Fifth Avenue 555 West 57th Street 625 Madison Avenue 635 Sixth Avenue 641 Sixth Avenue 711 Third Avenue 750 Third Avenue 800 Third Avenue 810 Seventh Avenue 919 Third Avenue 1185 Avenue of the Americas 1350 Avenue of the Americas 1515 Broadway 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Worldwide Plaza SUBTOTAL RETAIL PORTFOLIO 11 West 34th Street 21 East 66th Street 115 Spring Street 121 Greene Street 131–137 Spring Street 133 Greene Street 315 West 33rd Street – “The Olivia” 650 Fifth Avenue 712 Madison Avenue 717 Fifth Avenue 719 Seventh Avenue 752–760 Madison Avenue 762 Madison Avenue Williamsburg Terrace 1552–1560 Broadway SUBTOTAL DEVELOPMENT / REDEVELOPMENT PORTFOLIO 71.0 100.0 100.0 100.0 100.0 25.0 100.0 45 One Vanderbilt 46 47 48 49 50 * 30.0 32.3 100.0 50.0 20.0 100.0 100.0 50.0 100.0 10.9 75.0 100.0 90.0 100.0 50.0 31 32 33 34 35 36 37 38 39 40 41 42 43 * 44 19–21 East 65th Street 185 Broadway 562 Fifth Avenue 609 Fifth Avenue 55 West 46th Street – Tower 46 1640 Flatbush Avenue SUBTOTAL RESIDENTIAL PORTFOLIO 315 West 33rd Street – “The Olivia” 400 East 57th Street 400 East 58th Street 1080 Amsterdam Avenue Stonehenge Portfolio 605 West 42nd Street – “Sky” SUBTOTAL NEW YORK CITY GRAND TOTAL – 51 52 * * 53 Park Avenue South Herald Square Plaza District Park Avenue South Grand Central South Grand Central South Downtown Soho Grand Central Grand Central Grand Central Park Avenue Midtown South Grand Central North Midtown Grand Central North Grand Central Midtown West Plaza District Midtown South Midtown South Grand Central North Grand Central North Grand Central North Times Square Grand Central North Rockefeller Center Rockefeller Center Times Square Westside Fee Interest Leasehold Interest Fee Interest Fee Interest Leasehold Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Leasehold Interest Leasehold Interest 1 Fee Interest Fee Interest Fee Interest Leasehold Interest Fee Interest Fee Interest Leasehold Interest Fee Interest Fee Interest Fee Interest Fee Interest Leasehold Interest Fee Interest Fee Interest Fee Interest Herald Square/Penn Station Plaza District Soho Soho Soho Soho Penn Station Plaza District Plaza District Midtown/Plaza District Times Square Plaza District Plaza District Brooklyn, New York Times Square Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Leasehold Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Grand Central Plaza District Lower Manhattan Plaza District Rockefeller Center Midtown Brooklyn, New York Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest Fee Interest 100.0 41.0 90.0 92.5 Various 20.0 Penn Station Upper East Side Upper East Side Upper West Side Westside Fee Interest Fee Interest Fee Interest Leasehold Interest Fee Interest Fee Interest 1,176,900 369,000 354,300 2,314,000 69,446 834,000 1,047,500 223,600 215,400 604,245 1,135,000 1,219,158 215,000 1,188,000 200,000 921,000 460,000 941,000 563,000 104,000 163,000 524,000 780,000 526,000 692,000 1,454,000 1,062,000 562,000 1,750,000 2,048,725 23,716,274 17,150 13,069 5,218 7,131 68,342 6,425 270,132 69,214 6,600 119,550 10,040 21,124 6,109 52,000 57,718 729,822 1,730,989 23,610 259,856 42,635 160,000 347,000 1,000 2,565,090 222,855 290,482 140,000 82,250 938,911 927,358 2,601,856 29,613,042 100.0 73.4 83.7 100.0 94.3 90.0 99.6 77.3 79.2 99.5 88.8 89.5 100.0 95.7 79.0 81.0 94.7 99.9 98.8 100.0 100.0 93.7 98.0 93.1 97.6 100.0 85.5 89.8 98.5 96.9 100.0 100.0 100.0 100.0 96.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 88.3 — 18.0 — 100.0 96.0 72.1 — 96.1 92.8 95.2 94.8 95.2 86.0 SL GREEN REALT Y COR P. ANNUAL REPOR T 2 018 1 The Company has an option to acquire the fee interest for a fixed price on a specific date. 2 The Company owns 50% of the fee interest. 7 47 33 35 34 36 8 20 21 13 1 4 45 17 15 31 2 14TH STREET 23RD STREET 5 6 14TH STREET 23RD STREET 29 37 34TH STREET 34TH STREET 11 9 23 14 10 3 16 12 48 50 27 49 38 42ND STREET 22 24 26 50TH STREET 51 52 57TH STREET 59TH STREET E U N E V D A N O C E S E U N E V T A S FIR 65TH STREET E U N E V D A R I H T E U N E V A N O T G N I X E L 40 E U N E V A H T F I F 39 E U N E V A N O S I D A M 42 46 19 E U N E V A K R A P 43 32 28 S I X T H A V E N U E CENTRAL PARK SOUTH 30 41 42ND STREET 44 53 25 S E V E N T H A V E N U E E I G H T H A V E N U E 50TH STREET N I N T H A V E N U E T E N T H A V E N U E 57TH STREET 18 B R O A D W A Y C E N T R A L P A R K W E S T 66TH STREET 24 Sustainability Key Achievements 25 This was another year of banner operating performance by SL Green, and we are extremely proud of our achievements. Our market-leading role in social responsibility is recognized year after year. View from One Vanderbilt No.1 MOST SUSTAINABLE REIT BY THE PUBLICATION REAL ESTATE FINANCE AND INVESTMENT (2017, 2018) SL GREEN REALT Y COR P. ANNUAL REPOR T 2 018 20.5M SQUARE FEET connected to a real-time energy management platform (2018) 130 COMMUNIT Y E VENTS provided to our tenants and employees as volunteering opportunities (2018) $220M INVESTED IN PUBLIC TR ANSIT IMPROVEMENTS around Grand Central Terminal at our ground-up development, One Vanderbilt (2018) 14M SQUARE FEET ENERGY STAR certified. Awarded ENERGY STAR Partner of the Year — Sustained Excellence (2017–2019) $1M INCRE ASE pledged to employee charitable contribution match program (2018) 18M SQUARE FEET participating in the WELL Portfolio program (2018) 30% PORTFOLIO -WIDE emissions intensity reduction goal (by 2025) $66M INVESTED IN ENERGY EFFICIENCY including HVAC, BMS & lighting upgrades, and variable frequency drive installations (since 2010) 63% MANHAT TAN OPER ATING PROPERTIES LEED Certified (2018) 67% GRI INDICATORS disclosed in SL Green’s Content Index 26 Form 10-K Table of Contents 1 4 Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations 32 Quantitative and Qualitative Disclosure About Market Risk 34 Consolidated Financial Statements 51 Notes to Consolidated Financial Statements 98 Schedules 102 Report of Independent Registered Public Accounting Firm 106 Controls and Procedures 108 Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities 110 Reconciliation of Non-GAAP Financial Measures 111 Signatures 115 Exhibits Table of Contents SELECTED FINANCIAL DATA The following table sets forth our selected financial data and should be read in conjunction with our Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report. Operating Data (in thousands, except per share data) 2018 2017 2016 2015 2014 SL GREEN REALTY CORP. Year Ended December 31, Total revenue Operating expenses Real estate taxes Ground rent Interest expense, net of interest income Amortization of deferred finance costs Depreciation and amortization Loan loss and other investment reserves, net of recoveries Transaction related costs Marketing, general and administrative Total expenses Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Purchase price and other fair value adjustment Gain on sale of real estate, net Gain (loss) on sale of investment in marketable securities $ 1,227,392 $ 1,511,473 $ 1,863,981 $ 1,662,829 $ 1,519,978 229,347 186,351 32,965 208,669 12,408 279,507 6,839 1,099 92,631 293,364 244,323 33,231 257,045 16,498 403,320 — (1,834) 100,498 312,859 248,388 33,261 321,199 24,564 821,041 — 7,528 99,759 301,624 232,702 32,834 323,870 27,348 560,887 — 11,430 94,873 282,283 217,843 32,307 317,400 22,377 371,610 — 8,707 92,488 1,049,816 1,346,445 1,868,599 1,585,568 1,345,015 7,311 21,892 11,874 13,028 26,537 303,967 57,385 (30,757) 16,166 — 73,241 44,009 — 238,116 15,844 40,078 175,974 — 3,262 (83) — 123,253 67,446 — 3,895 — Depreciable real estate reserves and impairment (227,543) (178,520) (10,387) (19,226) Loss on early extinguishment of debt Income from continuing operations Discontinued operations Net income Net income attributable to noncontrolling interest in the Operating Partnership Net loss (income) attributable to noncontrolling interests in other partnerships Preferred unit distributions Net income attributable to SL Green Preferred stock redemption costs Perpetual preferred stock dividends Net income attributable to SL Green common stockholders Net income per common share—Basic Net income per common share—Diluted Cash dividends declared per common share Basic weighted average common shares outstanding Diluted weighted average common shares and common share equivalents outstanding — — (49) (32,365) (17,083) 270,856 — 101,069 278,911 — — 270,856 101,069 278,911 302,910 14,549 317,459 363,729 182,134 545,863 (12,216) (3,995) (10,136) (10,565) (18,467) 6 (11,384) 247,262 — 15,701 (11,401) 101,374 — (7,644) (11,235) 249,896 — (15,843) (6,967) 284,084 — (6,590) (2,750) 518,056 — (14,950) (14,950) (14,950) (14,952) (14,952) $ $ $ $ $ $ $ $ 232,312 2.67 2.67 3.2875 86,753 $ $ $ $ 86,424 0.87 0.87 3.1375 98,571 234,946 2.34 2.34 2.94 $ $ $ $ 269,132 2.71 2.70 2.52 $ $ $ $ 503,104 5.25 5.23 2.10 100,185 99,345 95,774 91,530 103,403 104,881 103,734 99,696 SL GREEN REALT Y COR P. ANNUAL REPOR T 2 018 1 Table of Contents Table of Contents Balance Sheet Data (in thousands) 2018 2017 2016 2015 2014 Commercial real estate, before accumulated depreciation $ 8,513,935 $ 10,206,122 $ 12,743,332 $ 16,681,602 $ 14,069,141 Operating Data (in thousands, except per unit data) 2018 2017 2016 2015 2014 Year Ended December 31, As of December 31, SL GREEN OPERATING PARTNERSHIP, L.P. Total assets 12,751,358 13,982,904 15,857,787 19,727,646 17,096,587 Mortgages and other loans payable, revolving credit facilities, term loans and senior unsecured notes and trust preferred securities, net 5,541,701 5,855,132 6,481,666 10,275,453 8,178,787 Noncontrolling interests in the Operating Partnership 387,805 461,954 473,882 424,206 496,524 Total equity 5,947,855 6,589,454 7,750,911 7,719,317 7,459,216 Other Data (in thousands) Net cash provided by operating activities(1) Net cash provided by (used in) investing activities(1) Net cash (used in) provided by financing activities(1) Funds from operations available to all stockholders(2) 2018 2017 2016 2015 2014 441,537 681,662 543,001 22,014 644,010 542,691 1,973,382 (2,151,702) (1,094,112) (684,956) (2,736,402) 1,713,417 605,720 667,294 869,855 661,825 496,895 (784,710) 379,784 583,036 Year Ended December 31, (1) All periods presented in accordance with ASU2016-18 (2) FFO is a widely recognized non-GAAP financial measure of REIT performance. The Company computes FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than the Company does. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and subsequently amended, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties and real estate related impairment charges, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company presents FFO because it considers it an important supplemental measure of the Company’s operating performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, particularly those that own and operate commercial office properties. The Company also uses FFO as one of several criteria to determine performance-based bonuses for members of its senior management. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions, and real estate related impairment charges, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, providing perspective not immediately apparent from net income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including our ability to make cash distributions A reconciliation of FFO to net income computed in accordance with GAAP is under the heading of "Management's Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations." Total revenue Operating expenses Real estate taxes Ground rent Interest expense, net of interest income Amortization of deferred finance costs Depreciation and amortization Loan loss and other investment reserves, net of recoveries Transaction related costs Marketing, general and administrative Total expenses Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/ real estate Purchase price and other fair value adjustment $ 1,227,392 $ 1,511,473 $ 1,863,981 $ 1,662,829 $ 1,519,978 229,347 186,351 32,965 208,669 12,408 279,507 6,839 1,099 92,631 293,364 244,323 33,231 257,045 16,498 403,320 — (1,834) 100,498 312,859 248,388 33,261 321,199 24,564 821,041 — 7,528 99,759 301,624 232,702 32,834 323,870 27,348 560,887 — 11,430 94,873 282,283 217,843 32,307 317,400 22,377 371,610 — 8,707 92,488 1,049,816 1,346,445 1,868,599 1,585,568 1,345,015 7,311 21,892 11,874 13,028 26,537 303,967 57,385 16,166 — 44,009 — 15,844 40,078 123,253 67,446 Gain on sale of real estate, net (30,757) 73,241 238,116 175,974 Gain (loss) on sale of investment in marketable securities — 3,262 (83) — Depreciable real estate reserves and impairment (227,543) (178,520) (10,387) (19,226) — 3,895 — Loss on early extinguishment of debt Income from continuing operations Discontinued operations Net income Net loss (income) attributable to noncontrolling interests in other partnerships Preferred unit distributions Net income attributable to SLGOP Preferred unit redemption costs Perpetual preferred unit distributions Net income attributable to SLGOP common stockholders Net income per common unit—Basic Net income per common unit—Diluted Cash dividends declared per common unit Basic weighted average common units outstanding Diluted weighted average common units and common units equivalents outstanding — — (49) (32,365) (17,083) 270,856 — 101,069 278,911 — — 270,856 101,069 278,911 6 (11,384) 259,478 — 15,701 (11,401) 105,369 — (7,644) (11,235) 260,032 — 302,910 14,549 317,459 (15,843) (6,967) 294,649 — 363,729 182,134 545,863 (6,590) (2,750) 536,523 — (14,950) (14,950) (14,950) (14,952) (14,952) $ $ $ $ 244,528 2.67 2.67 3.2875 91,315 $ $ $ $ 90,419 0.87 0.87 3.1375 103,127 $ $ $ $ 245,082 2.34 2.34 2.94 104,508 $ $ $ $ 279,697 2.71 2.70 2.52 103,244 $ $ $ $ 521,571 5.25 5.23 2.10 99,288 91,530 103,403 104,881 103,734 99,696 Balance Sheet Data (in thousands) 2018 2017 2016 2015 2014 Commercial real estate, before accumulated depreciation $ 8,513,935 $ 10,206,122 $ 12,743,332 $ 16,681,602 $ 14,069,141 Total assets 12,751,358 13,982,904 15,857,787 19,727,646 17,096,587 As of December 31, Mortgages and other loans payable, revolving credit facilities, term loans and senior unsecured notes and trust preferred securities, net Total capital 5,541,701 5,947,855 5,855,132 6,589,454 6,481,666 7,750,911 10,275,453 7,719,317 8,178,787 7,459,216 2 3 Table of Contents Table of Contents MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 31, 2018 we have repurchased a cumulative total of 18.1 million shares of our common stock under the program at an average price of $98.72 per share. Overview SL Green Realty Corp., which is referred to as SL Green or the Company, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Company is a self-managed real estate investment trust, or REIT, engaged in the acquisition, development, ownership, management and operation of commercial and residential real estate properties, principally office properties, located in the New York metropolitan area. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership. Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P. or ROP, are wholly-owned subsidiaries of the SL Green Realty Corp. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in this Annual Report. Leasing and Operating In 2018, our same-store Manhattan office property occupancy inclusive of leases signed but not commenced, was 95.7% compared to 95.8% in the prior year. We signed office leases in Manhattan encompassing approximately 2.3 million square feet, of which approximately 1.3 million square feet represented office leases that replaced previously occupied space. Our mark-to- market on the signed Manhattan office leases that replaced previously occupied space was 6.5% for 2018. According to Cushman & Wakefield, leasing activity in Manhattan in 2018 totaled approximately 35.9 million square feet. Of the total 2018 leasing activity in Manhattan, the Midtown submarket accounted for approximately 23.7 million square feet, or approximately 66.0%. Manhattan's overall office vacancy went from 8.9% at December 31, 2017 to 9.2% at December 31, 2018 primarily as a result of increased vacancy in the Downtown submarket partially offset by decreased vacancy in the Midtown submarket. Overall average asking rents in Manhattan increased in 2018 by 0.04% from $72.25 per square foot at December 31, 2017 to $72.28 per square foot at December 31, 2018. Acquisition and Disposition Activity Overall Manhattan sales volume increased by 43.5% in 2018 to $32.4 billion as compared to $22.5 billion in 2017. Consistent with our multi-faceted approach to property acquisitions, we were the successful bidder at the foreclosure of the leasehold interest in 2 Herald Square, and accepted equity interests in 1231 Third Avenue, 133 Greene Street, and 712 Madison Avenue in lieu of repayment of the respective mezzanine loans. We also continued to take advantage of significant interest by both international and domestic institutions and individuals seeking ownership interests in Manhattan properties to sell assets, disposing of a significant volume of properties that were non- core or had more limited growth opportunities, raising efficiently priced capital that was used primarily for share repurchases and debt reduction. During the year, we sold all or part of our interest in 600 Lexington Avenue, 1515 Broadway, 1745 Broadway, 3 Columbus Circle, 2 Herald Square, 115-117 Stevens Avenue, Jericho Plaza, 1-6 International Drive, 175-225 Third Street, 635 Madison Avenue, 724 Fifth Avenue, and the 72nd Street Assemblage for total gross valuations of $5.0 billion Debt and Preferred Equity In 2017 and 2018, in our debt and preferred equity portfolio we continued to focus on the origination of financings, typically in the form of mezzanine debt, for owners, acquirers or developers of properties in New York City. This investment strategy provides us with the opportunity to fill a need for additional debt financing, while achieving attractive risk adjusted returns to us on the investments and receiving a significant amount of additional information on the New York City real estate market. The typical investments made by us during 2017 and 2018 were to reputable owners or acquirers which have sizable equity subordinate to our last dollar of exposure. During 2018, our debt and preferred equity activities included purchases and originations, inclusive of advances under future funding obligations, discount and fee amortization, and paid-in-kind interest, net of premium amortization, of $986.0 million, and sales, redemption and participations of $994.9 million. Highlights from 2018 Our significant achievements from 2018 included: Corporate (cid:127) Repurchased 9.7 million shares of our common stock under our share repurchase program at an average price of $96.22 per share and increased the size of our share repurchase program by $1 billion to $2.5 billion. Through Leasing (cid:127) (cid:127) Signed 180 Manhattan office leases covering approximately 2.3 million square feet. The mark-to-market on signed Manhattan office leases was 6.5% higher in 2018 than the previously fully escalated rents on the same spaces. Signed 49 Suburban office leases covering approximately 0.4 million square feet. The mark-to-market on signed Suburban office leases was 3.7% lower in 2019 than the previously fully escalated rents on the same spaces. (cid:127) Reached 52% leased at One Vanderbilt Avenue after signing leases with Greenberg Traurig, The Carlyle Group, TD Securities, MFA Financial Inc. and McDermott Will & Emery (cid:127) (cid:127) Signed a new lease with Coty Inc. for 10,040 square feet at the retail flagship development 719 Seventh Avenue, now known as 30 Times Square. Signed a new retail lease with sports brand PUMA for 24,000 square feet and a new lease with WeWork for 138,563 square feet, comprising the entire office portion of the building, at 609 Fifth Avenue. Acquisitions (cid:127) Took ownership of the leasehold interest at 2 Herald Square following the foreclosure of the asset and subsequently completed a recapitalization of the asset, which included securing $150.0 million of mortgage financing and selling a 49.0% interest in the property. (cid:127) Announced that we had entered into an agreement to purchase a majority and controlling interest in 460 West 34th Street at a gross purchase price of $440 million. (cid:127) Took possession of the retail co-op at 133 Greene Street in Soho. The 6,425 square foot retail space, inclusive of 3,300 square feet on grade, is located along one of SoHo's most popular shopping corridors and is currently occupied by Dior Homme. This property previously served as collateral for a debt and preferred equity investment and was acquired through a negotiated transaction with the sponsor of the investment. (cid:127) Took possession of 712 Madison Avenue on Manhattan's Upper East Side. The five-story building offers 6,362 square feet of retail space, which is currently occupied by David Yurman. This property previously served as collateral for a debt and preferred equity investment and was acquired through a negotiated transaction with the sponsor of the investment. Dispositions (cid:127) Closed on the sale of 600 Lexington Avenue for a gross asset valuation of $305.0 million. (cid:127) Closed on the sale of an additional 13% interest in 1515 Broadway, thereby completing the previously announced sale of interests totaling 43% at a gross asset valuation of $1.950 billion. (cid:127) Together with our joint venture partner, closed on the sale of the multi-family property at 1274 Fifth Avenue at a gross asset valuation of $44.1 million (cid:127) Together with our joint venture partners, closed on the sale of Stonehenge Village, at a gross asset valuation of $287.0 million. (cid:127) Closed on a multi-faceted retail transaction, which included the sale of substantially all of the Company's interest in 724 Fifth Avenue to its joint venture partner, redemption of its investment in 720 Fifth Avenue, and partial repayment of another partnership loan. (cid:127) Together with our joint venture partner, closed on the sale of the leasehold office condominium at 1745 Broadway for a sale price of $633 million (cid:127) Closed on the sale of the fee interest at 635 Madison Avenue for a sale price of $153.0 million. (cid:127) Closed on the sale of Reckson Executive Park in Rye Brook, New York, 115-117 Stevens Avenue, in Valhalla, New York and our 11.7% interest in Jericho Plaza for asset valuations totaling $184.4 million. (cid:127) Closed on the sale of our 48.9% interest in 3 Columbus Circle to the Moinian Group, the owner of the remaining 51.1% interest, for a gross asset valuation of $851.0 million (cid:127) Closed on the sale of our interests in 1231 Third Avenue and an Upper East Side residential assemblage for a combined sales price of $143.8 million. 4 5 Table of Contents Table of Contents (cid:127) Entered into an agreement to sell our 20.0% interest in 131-137 Spring Street to Invesco Real Estate, the owner of the Critical Accounting Policies remaining 80.0% interest. Debt and Preferred Equity Investments (cid:127) Originated and retained, or acquired, $1.0 billion in debt and preferred equity investments, inclusive of advances under future funding obligations, discount and fee amortization, and paid-in-kind interest, net of premium amortization, and recorded $1.0 billion of proceeds from sales, repayments and participations. Finance (cid:127) Issued $350.0 million aggregate principal amount of floating rate notes due 2021. The notes are callable by the Company, at par, after one year and bear interest at a floating rate of 0.98% over LIBOR. (cid:127) Closed on a $65.6 million financing of 115 Spring Street. The new mortgage has a 5-year term and bears interest at a floating rate of 3.40% over LIBOR. (cid:127) Refinanced One Vanderbilt Avenue's construction facility, increasing the facility size from $1.5 billion to $1.75 billion and decreasing the interest rate by 75 basis points to 2.75% over LIBOR. (cid:127) Closed on a $225.0 million construction facility for 185 Broadway. The floating rate facility has a term of three years, with two one-year extension options and bears interest at an initial floating rate of 2.85% over LIBOR. As of December 31, 2018, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties: Consolidated Unconsolidated Total Location Property Type Number of Properties Approximate Square Feet Number of Properties Approximate Square Feet Number of Properties Approximate Square Feet Weighted Average Occupancy(1) Commercial: Manhattan Office Retail Development/ Redevelopment Fee Interest Suburban Office Retail Development/ Redevelopment Total commercial properties Residential: Manhattan Residential Suburban Residential Total residential properties Total portfolio 20 7 (2) 12,387,091 325,648 5 — 32 13 1 1 15 47 2 (2) — 2 49 486,101 — 13,198,840 2,295,200 52,000 1,000 2,348,200 15,547,040 445,105 — 445,105 15,992,145 10 9 2 1 22 — — — — 22 10 — 10 32 11,329,183 352,174 347,000 — 12,028,357 — — — — 12,028,357 2,156,751 — 2,156,751 14,185,108 30 16 7 1 54 13 1 1 15 69 12 — 12 81 23,716,274 677,822 833,101 — 25,227,197 2,295,200 94.5% 96.7% 54.1% —% 93.2% 91.3% 52,000 100.0% 1,000 2,348,200 27,575,397 2,601,856 — 2,601,856 30,177,253 —% 91.4% 93.1% 91.5% —% 91.5% 92.9% (1) The weighted average occupancy for commercial properties represents the total occupied square feet divided by total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by total available units. (2) As of December 31, 2018, we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet of retail space and approximately 222,855 square feet of residential space. For the purpose of this report, we have included the building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage. As of December 31, 2018, we also managed two office buildings owned by third parties encompassing approximately 2.1 million square feet, and held debt and preferred equity investments with a book value of $2.1 billion, including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in balance sheet line items other than the Debt and Preferred Equity Investments line item. Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Investment in Commercial Real Estate Properties Real estate properties are presented at cost less accumulated depreciation and amortization. Costs directly related to the development or redevelopment of properties are capitalized. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. We recognize the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests in an acquired entity at their respective fair values on the acquisition date. We incur a variety of costs in the development and leasing of our properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major construction activity ceases. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction. On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be other than temporarily impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property. We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded. See Note 4, "Properties Held for Sale and Dispositions." Investments in Unconsolidated Joint Ventures We account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are variable interest entities (each, a "VIE") and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. Equity in net income (loss) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture and includes adjustments related to basis differences that were identified as part of the initial accounting for the investment. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. None of the joint venture debt is recourse to us. The Company has performance guarantees under a master lease at one joint venture. See Note 6, "Investments in Unconsolidated Joint Ventures." We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for 6 7 Table of Contents Table of Contents Any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense. We continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly. Debt and preferred equity investments that are classified as held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment. Derivative Instruments In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collars and floors, to manage, or hedge, interest rate risk. Effectiveness is essential for those derivatives that we intend to qualify for hedge accounting. Some derivative instruments are associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long- term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at December 31, 2018. We may originate loans for real estate acquisition, development and construction, where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with the accounting for our debt and preferred equity investments. Revenue Recognition Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets. We establish, on a current basis, an allowance for future potential tenant credit losses, which may occur against this account. The balance reflected on the consolidated balance sheets is net of such allowance. We record a gain on sale of real estate when title is conveyed to the buyer, subject to the buyer's financial commitment being sufficient to provide economic substance to the sale and provided that we have no substantial economic involvement with the buyer. Interest income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when, in the opinion of management, it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt. Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to the interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield. Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed. Interest is recorded as income on impaired loans only to the extent cash is received. We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we derecognize the loan sold and recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income. Asset management fees are recognized on a straight-line basis over the term of the asset management agreement. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required payments. If the financial condition of a specific tenant were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. Allowance for loan loss and other investment reserves The expense for loan loss and other investment reserves in connection with debt and preferred equity investments is the charge to earnings to adjust the allowance for possible losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality. The Company evaluates debt and preferred equity investments that are held to maturity for possible impairment or credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor. Quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from less risk to greater risk, which ratings are defined as follows: 1 - Low Risk Assets - Low probability of loss, 2 - Watch List Assets - Higher potential for loss, 3 - High Risk Assets - Loss more likely than not. When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired. A valuation allowance is measured based upon the excess of the recorded investment amount over the fair value of the collateral. 8 9 Table of Contents Reconciliation of Net Income to Same-Store Operating Income We present Same-Store Operating Income because we believe that this measure, when taken together with the corresponding GAAP financial measures and our reconciliation, provides investors with meaningful information regarding the operating performance of our properties. When operating performance is compared across multiple periods, the investor is provided with information not immediately apparent from net income that is determined in accordance with GAAP. Same-Store Operating Income provides information on trends in the revenue generated and expenses incurred in operating our properties, unaffected by the cost of leverage, depreciation, amortization, and other net income components. We use this metric internally as a performance measure. This measure is not an alternative to net income (determined in accordance with GAAP) and same-store performance should not be considered an alternative to GAAP net income performance. This metric may be defined differently, and may not be comparable, to similarly named metrics used by other companies. Comparison of the year ended December 31, 2018 to the year ended December 31, 2017 For properties owned since January 1, 2017 and still owned and operated at December 31, 2018, Same-Store Operating Income is determined as follows (in millions): Table of Contents Results of Operations Comparison of the year ended December 31, 2018 to the year ended December 31, 2017 The following comparison for the year ended December 31, 2018, or 2018, to the year ended December 31, 2017, or 2017, makes reference to the effect of the following: i. “Same-Store Properties,” which represents all operating properties owned by us at January 1, 2017 and still owned by us in the same manner at December 31, 2018 (Same-Store Properties totaled 40 of our 49 consolidated operating properties), ii. “Acquisition Properties,” which represents all properties or interests in properties acquired in 2018 and 2017 and all non- Same-Store Properties, including properties that are under development or redevelopment, iii. "Disposed Properties" which represents all properties or interests in properties sold in 2018 and 2017, and iv. “Other,” which represents properties where we sold an interest resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc. (in millions) Net income Equity in net gain on sale of interest in unconsolidated joint venture/real estate Purchase price and other fair value adjustment Loss (gain) on sale of real estate, net Depreciable real estate reserves and impairment Gain on sale of investment in marketable securities Depreciation and amortization Interest expense, net of interest income Amortization of deferred financing costs Operating income Less: Operating income from other properties/affiliates Same-store operating income Year Ended December 31, 2018 2017 $ 270.9 $ 101.1 (304.0) (57.4) 30.8 227.5 — 279.5 208.7 12.4 668.4 (16.2) — (73.2) 178.5 (3.3) 403.3 257.0 16.5 863.7 (131.3) (345.9) $ 537.1 $ 517.8 Comparison of the year ended December 31, 2017 to the year ended December 31, 2016 For properties owned since January 1, 2016 and still owned and operated at December 31, 2017, Same-Store Operating Income is determined as follows (in millions): (in millions) Net income Equity in net gain on sale of interest in unconsolidated joint venture/real estate Gain on sale of real estate, net Depreciable real estate reserves and impairment (Gain) loss on sale of investment in marketable securities Depreciation and amortization Interest expense, net of interest income Amortization of deferred financing costs Operating income Less: Operating income from other properties/affiliates Same-store operating income Year Ended December 31, 2017 2016 $ 101.1 $ 278.9 (16.2) (73.2) 178.5 (3.3) 403.3 257.0 16.5 (44.0) (238.1) 10.4 0.1 821.0 321.2 24.6 863.7 1,174.1 (244.2) $ 619.5 $ (556.9) 617.2 (in millions) Rental revenue Escalation and reimbursement Investment income Other income Total revenues Same-Store Disposed Other Consolidated 2018 2017 $ Change % Change 2018 2017 2018 2017 2018 2017 $ Change % Change $ 832.9 $ 816.7 $ 16.2 2.0% $ 8.8 $ 62.0 $ 23.3 $222.3 $ 865.0 $1,101.0 $(236.0) (21.4)% 111.9 105.3 — 11.2 — 4.8 6.6 — 6.4 6.3% —% 133.3% 0.9 — 1.5 956.0 926.8 29.2 3.2% 11.2 5.1 0.8 62.5 — 201.5 193.9 34.6 35.1 113.6 201.5 47.3 172.9 193.9 43.7 (59.3) (34.3)% 7.6 3.6 3.9 % 8.2 % 260.2 513.8 1,227.4 1,511.5 (284.1) (18.8)% Property operating expenses 418.1 408.5 Transaction related costs Marketing, general and administrative 0.3 — — — 418.4 408.5 9.6 0.3 — 9.9 2.4% —% —% 2.4% 5.2 — — 5.2 Other income (expenses): Interest expense and amortization of deferred financing costs, net of interest income Depreciation and amortization Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Purchase price and other fair value adjustment (Loss) gain on sale of real estate, net Depreciable real estate reserves and impairment Gain (loss) on sale of investment in marketable securities Loss on early extinguishment of debt Loan loss and other investment reserves, net of recoveries Net income 3.8 70.9 28.0 — — 25.4 0.8 92.6 28.0 118.8 134.4 448.7 570.9 (122.2) (21.4)% (1.8) 1.1 (1.8) 2.9 (161.1)% 100.5 233.1 92.6 542.4 100.5 669.6 (7.9) (7.9)% (127.2) (19.0)% (221.1) (273.6) 52.5 (19.2)% (279.5) (403.3) 123.8 (30.7)% 7.3 21.9 (14.6) (66.7)% 304.0 16.2 287.8 1,776.5 % 57.4 — 57.4 — % (30.8) 73.2 (104.0) (142.1)% (227.5) (178.5) (49.0) 27.5 % — (17.1) 3.3 — (3.3) (100.0)% (17.1) — % (6.8) — (6.8) — % $ 270.9 $ 101.1 $ 169.8 168.0 % Rental, Escalation and Reimbursement Revenues Rental revenues decreased primarily as a result of Disposed Properties ($53.2 million), including the partial sale and deconsolidation of 1515 Broadway, along with the deconsolidation of 919 Third Avenue ($190.6 million). The decrease was partially offset by increased revenue at our Same-Store properties ($16.2 million). 10 11 Table of Contents Table of Contents Escalation and reimbursement revenue decreased primarily as a result of the partial sale and deconsolidation of 1515 Broadway and the deconsolidation of 919 Third Avenue ($56.3 million), partially offset by higher recoveries at our Same-Store properties ($6.6 million). The following table presents a summary of the commenced leasing activity for the year ended December 31, 2018 in our Manhattan and Suburban portfolio: Usable SF Rentable SF New Cash Rent (per rentable SF) (1) Prev. Escalated Rent (per rentable SF) (2) TI/LC per rentable SF Free Rent (in months) Average Lease Term (in years) Manhattan Space available at beginning of the year 1,502,238 Property no longer in redevelopment Sold Vacancies Properties placed in service Acquired vacancies Property in redevelopment Space which became available during the year(3) (cid:127) Office (cid:127) Retail (cid:127) Storage Total space available Leased space commenced during the year: (cid:127) Office(4) (cid:127) Retail (cid:127) Storage 79,192 (57,385) 67,917 51,583 1,009,099 14,692 4,744 1,028,535 2,672,080 1,220,716 1,333,727 35,125 6,227 34,865 7,810 Total leased space commenced 1,262,068 1,376,402 Total available space at end of year 1,410,012 Early renewals (cid:127) Office (cid:127) Retail (cid:127) Storage Total early renewals Total commenced leases, including replaced previous vacancy (cid:127) Office (cid:127) Retail (cid:127) Storage Total commenced leases 362,783 423,632 34,173 12,166 34,015 12,501 409,122 470,148 1,757,359 68,880 20,311 1,846,550 $ $ $ $ $ $ $ $ $ $ $ $ 67.20 90.77 28.99 67.58 79.74 94.04 6.65 78.83 70.22 92.39 15.24 70.44 $ $ $ $ $ $ $ $ $ $ $ $ 63.32 194.72 25.97 65.00 73.07 104.44 6.64 73.58 66.99 125.16 10.89 68.39 $ $ $ $ $ $ $ $ $ $ $ $ 69.17 148.12 — 70.78 30.16 58.80 — 31.43 59.77 104.01 — 60.76 5.8 9.0 0.3 5.9 4.6 — 0.2 4.2 5.6 4.5 0.3 5.5 14.0 12.2 5.1 13.9 6.8 12.9 6.3 7.2 12.3 12.5 5.9 12.2 Usable SF Rentable SF New Cash Rent (per rentable SF) (1) Prev. Escalated Rent (per rentable SF) (2) TI/LC per rentable SF Free Rent (in months) Average Lease Term (in years) Suburban Space available at beginning of year Sold Vacancies Space which became available during the year(3) (cid:127) Office (cid:127) Retail (cid:127) Storage Total space available Leased space commenced during the year: (cid:127) Office(5) (cid:127) Retail (cid:127) Storage 655,672 (502,366) 172,144 2,693 4,056 178,893 332,199 125,629 124,899 2,385 1,705 2,685 1,816 Total leased space commenced 129,719 129,400 Total available space at end of the year 461,918 Early renewals (cid:127) Office (cid:127) Retail (cid:127) Storage Total early renewals Total commenced leases, including replaced previous vacancy (cid:127) Office (cid:127) Retail (cid:127) Storage Total commenced leases 195,623 50,585 2,000 248,208 197,514 50,585 2,000 250,099 322,413 53,270 3,816 379,499 $ $ $ $ $ $ $ $ $ $ $ $ 33.99 29.60 13.74 33.61 28.68 7.64 11.00 24.29 30.74 8.74 12.31 27.47 $ $ $ $ $ $ $ $ $ $ $ $ 36.38 17.00 12.36 35.84 31.40 7.66 11.00 26.43 32.78 7.80 11.49 28.66 $ $ $ $ $ $ $ $ $ $ $ $ 19.42 — — 18.74 24.22 — — 19.13 22.36 — — 18.99 3.1 5 — 3.1 8.3 9.0 — 8.4 6.3 8.8 — 6.6 5.7 7.6 3.5 5.7 7.3 12.2 7.6 8.3 6.7 12.0 5.7 7.4 Escalated rent is calculated as total annual income less electric charges. Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over. (1) Annual initial base rent. (2) (3) (4) Average starting office rent excluding new tenants replacing vacancies was $72.42 per rentable square feet for 1,127,841 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $66.29 per rentable square feet for 629,518 rentable square feet. (5) Average starting office rent excluding new tenants replacing vacancies was $30.05 per rentable square feet for 217,842 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $32.17 per rentable square feet for 104,571 rentable square feet. Investment Income Investment income increased primarily as a result of new originations, a larger weighted average book balance, and higher acceleration of previously unrecognized fees as a result of sales, redemptions, modifications or syndications ($1.3 million). For the year ended December 31, 2018, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $2.1 billion and 9.0%, respectively. Excluding our investment in Two Herald Square which was put on non-accrual in August 2017, the weighted average debt and preferred equity investment balance outstanding and weighted average yield for the year ended December 31, 2017 were to $1.9 billion and 9.3%, respectively. As of December 31, 2018, the debt and preferred equity investments had a weighted average term to maturity of 1.8 years excluding extension options. Other Income Other income increased primarily as a result of fees recognized in connection with the recapitalization of a joint venture property ($5.8 million), real estate tax refunds at our Same-Store Properties ($3.2 million), lease termination income ($2.9 million), 12 13 Table of Contents Table of Contents and promote income related to the sale of 1274 Fifth Avenue ($2.1 million), partially offset by net fees recognized in connection with the One Vanderbilt joint venture ($8.4 million). Third Avenue ($8.8 million) which closed in 2016, but was only recognized in the second quarter of 2017 due to the sale not meeting the criteria for sale accounting under the full accrual method in ASC 360-20 until the second quarter of 2017. Property Operating Expenses Depreciable Real Estate Reserves and Impairment During the year ended December 31, 2018, we recorded a charge related to 5 suburban office properties comprised of 13 buildings ($221.9 million), which the company has stated it intends to dispose of, and a charge related to the Upper East Side Residential Assemblage ($5.8 million). During the year ended December 31, 2017, we recorded a $178.5 million of depreciable real estate reserves and impairment related to Reckson Executive Park, Stamford Towers, 125 Chubb Avenue in Lyndhurst, NJ, 115-117 Stevens Avenue in Valhalla, New York, 520 White Plains Road in Tarrytown, NY, and our investment in Jericho Plaza. Loss on early extinguishment of debt During the year ended December 31, 2018, we recognized a loss on early extinguishment of debt as a result of the early repayment of the debt at One Madison Avenue ($14.9 million), and the mortgage at 220 East 42nd ($2.2 million). Loan loss and other investment reserves, net of recoveries During the year ended December 31, 2018, we recognized a loss related to two of our debt and preferred equity positions ($5.8 million) that are being marketed for sale, and the repayment of an investment pursuant to the sale of a property ($1.1 million). Comparison of the year ended December 31, 2017 to the year ended December 31, 2016 The following comparison for the year ended December 31, 2017, or 2017, to the year ended December 31, 2016, or 2016, makes reference to the effect of the following: i. “Same-Store Properties,” which represents all operating properties owned by us at January 1, 2016 and still owned by us in the same manner at December 31, 2017 (Same-Store Properties totaled 43 of our 60 consolidated operating properties), ii. “Acquisition Properties,” which represents all properties or interests in properties acquired in 2017 and 2016 and all non- Same-Store Properties, including properties that are under development or redevelopment, iii. "Disposed Properties" which represents all properties or interests in properties sold in 2017 and 2016, and iv. “Other,” which represents properties where we sold an interest resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc. Property operating expenses decreased primarily as a result of the partial sale and deconsolidation of 1515 Broadway, the deconsolidation of 919 Third Avenue ($103.2 million) and the Disposed Properties ($22.8 million), which was partially offset by increased real estate taxes at our Same-Store Properties ($8.0 million). Marketing, General and Administrative Expenses Marketing, general and administrative expenses decreased by $7.9 million to $92.6 million for the year ended December 31, 2018, or 5.2% of total combined revenues, including our share of joint venture revenues, compared to $100.5 million, or 5.3% of total revenues including our share of joint venture revenues, for the year ended December 31, 2017. Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income Interest expense and amortization of deferred financing costs, net of interest income, decreased primarily as a result of the partial sale and deconsolidation of 1515 Broadway ($33.0 million) and the deconsolidation of 919 Third Avenue ($26.5 million). The weighted average consolidated debt balance outstanding was $5.7 billion for the year ended December 31, 2018 as compared to $6.6 billion for the year ended December 31, 2017. The consolidated weighted average interest rate increased to 4.06% for the year ended December 31, 2018 as compared to 4.00% for the year ended December 31, 2017 as a result of an increase in LIBOR. Depreciation and Amortization Depreciation and amortization decreased primarily as a result of 185 Broadway which was moved to development ($50.4 million) in the first quarter of 2018, the deconsolidation of 919 Third Avenue, the partial sale and deconsolidation of 1515 Broadway ($60.6 million) and the Disposed Properties ($22.4 million). Equity in Net Income in Unconsolidated Joint Venture/Real Estate Equity in net income from unconsolidated joint ventures decreased primarily as a result of the repayment and redemption of certain debt and preferred equity positions accounted for under the equity method ($8.7 million), and the sale of 1745 Broadway in the second quarter of 2018 ($2.9 million), partially offset by the partial sale and deconsolidation of 1515 Broadway and the deconsolidation of 919 Third Avenue ($6.6 million). Equity in Net Gain on Sale of Interest in Unconsolidated Joint Ventures During the year ended December 31, 2018, we recognized a gain on sale related to our joint venture interests in 3 Columbus Circle ($160.4 million), 724 Fifth Avenue ($64.6 million), 1745 Broadway ($52.0 million), 175-225 Third Avenue ($19.5 million), 720 Fifth Avenue ($6.3 million) and Jericho Plaza ($0.1 million), and a loss related to the sale of our interest in Stonehenge Village ($5.7 million). Purchase price and other fair value adjustments In January 2018, the partnership agreement for our investment in 919 Third Avenue was modified resulting in our partner now having substantive participating rights in the venture and the Company no longer having a controlling interest in the investment. As a result the investment in this property was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $49.3 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles of the property. In May, 2018, the Company was the successful bidder at the foreclosure of 2 Herald Square, at which time the Company's $250.5 million outstanding principal balance on its debt and preferred equity investment and $7.7 million accrued interest balance receivables were credited to our equity investment in the property. We recorded the assets acquired and liabilities assumed at fair value. This resulted in the recognition of a fair value adjustment of $8.1 million, which is reflected on the Company's consolidated statement of operations within purchase price and other fair value adjustments. This fair value was allocated to the assets and liabilities, including identified intangibles of the property. (Loss) Gain on Sale of Real Estate, Net During the year ended December 31, 2018, we recognized a gain on sale related to our interests in 600 Lexington ($23.8 million) and we recognized a loss on sale related to our interest in 300-400 Summit Lake Drive ($36.2 million), 635 Madison ($14.1 million), Reckson Executive Park ($2.6 million) and 115-117 Stevens Avenue ($0.7 million). During the year ended December 31, 2017, we recognized a gain on sale associated with the sale of the property at 16 Court Street ($64.9 million), and the partial sale of the property at 102 Greene Street ($4.9 million). This gain was partially offset by a loss on the sale of 885 14 15 Table of Contents (in millions) Rental revenue Escalation and reimbursement Investment income Other income Total revenues Same-Store Disposed Other Consolidated 2017 2016 $ Change % Change 2017 2016 2017 2016 2017 2016 $ Change % Change $ 961.8 $ 942.6 $ 19.2 2.0 % $121.1 $360.7 $ 18.1 $ 20.5 $1,101.0 $1,323.8 $(222.8) (16.8)% 131.4 142.0 (10.6) (7.5)% 40.1 52.7 1.4 2.2 — 8.9 — 6.8 — 2.1 — % 30.9 % — 0.5 — 193.9 213.0 94.3 34.3 29.2 172.9 193.9 43.7 196.9 213.0 130.3 (24.0) (19.1) (86.6) 1,102.1 1,091.4 10.7 1.0 % 161.7 507.7 247.7 264.9 1,511.5 1,864.0 (352.5) (12.2)% (9.0)% (66.5)% (18.9)% Table of Contents Usable SF Rentable SF New Cash Rent (per rentable SF) (1) Prev. Escalated Rent (per rentable SF) (2) TI/LC per rentable SF Free Rent (in months) Average Lease Term (in years) Manhattan Space available at beginning of the year 1,149,571 Space which became available during the year(3) Property operating expenses 482.6 474.2 Transaction related costs Marketing, general and administrative — — — — 482.6 474.2 8.4 — — 8.4 1.8 % — % — % 1.8 % 65.3 — — 98.7 — 23.0 (1.8) 21.6 7.5 570.9 594.5 (23.6) (4.0)% (1.8) 7.5 (9.3) (124.0)% — 100.5 99.8 65.3 98.7 121.7 128.9 100.5 669.6 99.8 701.8 0.7 (32.2) 0.7 % (4.6)% Total space available Leased space commenced during the year: (cid:127) Office (cid:127) Retail (cid:127) Storage 1,181,119 29,739 16,594 1,227,452 2,377,023 Operating income before equity in net income from unconsolidated joint ventures Other income (expenses): Interest expense and amortization of deferred financing costs, net of interest income Depreciation and amortization Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Gain on sale of real estate, net Depreciable real estate reserves and impairment Gain (loss) on sale of investment in marketable securities Net income $ 619.5 $ 617.2 $ 2.3 0.4 % $ 96.4 $409.0 $126.0 $136.0 $ 841.9 $1,162.2 $(320.3) (27.6)% (cid:127) Office(4) (cid:127) Retail (cid:127) Storage 806,688 884,513 33,257 34,840 63,710 5,560 Total leased space commenced 874,785 953,783 Total available space at end of year 1,502,238 (273.6) (345.8) 72.2 (20.9)% (403.3) (821.0) 417.7 (50.9)% Early renewals 21.9 11.9 10.0 84.0 % (cid:127) Office (cid:127) Retail (cid:127) Storage 16.2 44.0 (27.8) (63.2)% Total early renewals 73.2 238.1 (164.9) (69.3)% (178.5) (10.4) (168.1) 1,616.3 % 3.3 (0.1) 3.4 (3,400.0)% $ 101.1 $ 278.9 $(177.8) (63.8)% Total commenced leases, including replaced previous vacancy (cid:127) Office (cid:127) Retail (cid:127) Storage Total commenced leases 281,039 285,889 45,652 2,730 35,089 2,817 329,421 323,795 1,170,402 98,799 8,377 1,277,578 $ $ $ $ $ $ $ $ $ $ $ $ 73.59 297.35 36.32 88.32 79.07 73.96 29.44 78.09 74.93 218.01 34.00 85.73 $ $ $ $ $ $ $ $ $ $ $ $ 62.13 251.55 48.86 82.88 73.96 50.53 30.52 71.04 66.58 176.40 38.77 78.42 $ $ $ $ $ $ $ $ $ $ $ $ 56.80 37.72 1.92 55.20 11.46 2.01 — 10.34 45.72 25.04 1.27 43.83 4.6 6.5 1.9 4.7 1.9 0.1 1.3 1.7 3.9 4.2 1.7 3.9 8.2 13.1 7.4 8.5 4.5 5.5 3.2 4.6 7.3 10.4 6.0 7.5 Rental, Escalation and Reimbursement Revenues Rental revenues decreased primarily as a result of Disposed Properties ($239.7 million), which included 388-390 Greenwich Street and the effect of the partial sale and deconsolidation of 11 Madison Avenue in the third quarter of 2016. This decrease was offset by increased rental revenue at Same-Store Properties ($19.1 million), and by 1515 Broadway which, in 2016, recognized accounting write-offs ($17.4 million) related to the space previously leased to Aeropostale following the tenant's bankruptcy. Escalation and reimbursement revenue decreased primarily as a result of Disposed Properties ($12.7 million) and lower recoveries at our Same-Store properties ($10.6 million). The following table presents a summary of the commenced leasing activity for the year ended December 31, 2017 in our Manhattan and Suburban portfolio: 16 17 Table of Contents Table of Contents Usable SF Rentable SF New Cash Rent (per rentable SF) (1) Prev. Escalated Rent (per rentable SF) (2) TI/LC per rentable SF Free Rent (in months) Average Lease Term (in years) Suburban Space available at beginning of year Sold Vacancies Properties placed in service Space which became available during the year(3) (cid:127) Office (cid:127) Retail (cid:127) Storage Total space available Leased space commenced during the year: (cid:127) Office(5) (cid:127) Retail (cid:127) Storage 965,021 (222,250) — 246,565 1,338 2,866 250,769 993,540 334,739 345,633 338 2,791 338 2,858 Total leased space commenced 337,868 348,829 Total available space at end of the year 655,672 Early renewals (cid:127) Office (cid:127) Storage Total early renewals Total commenced leases, including replaced previous vacancy (cid:127) Office (cid:127) Retail (cid:127) Storage Total commenced leases 181,288 2,213 183,501 183,331 2,213 185,544 528,964 338 5,071 534,373 $ $ $ $ $ $ $ $ $ $ $ 31.62 33.00 17.42 31.51 32.21 17.01 32.03 31.83 33.00 17.24 31.69 $ $ $ $ $ $ $ $ $ $ $ 35.13 33.00 13.92 34.79 32.86 16.52 32.67 33.76 33.00 15.31 33.51 $ $ $ $ $ $ $ $ $ $ $ 34.99 — 10.13 34.75 8.05 — 7.96 25.65 — 5.71 25.45 6.2 — 0.9 6.2 4.1 — 4.0 5.5 — 0.5 5.4 7.5 5.0 4.7 7.5 4.2 4.8 4.2 6.3 5.0 4.7 6.3 Escalated rent is calculated as total annual income less electric charges. Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over. (1) Annual initial base rent. (2) (3) (4) Average starting office rent excluding new tenants replacing vacancies was $70.21 per rentable square feet for 120,566 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $72.83 per rentable square feet for 217,384 rentable square feet. (5) Average starting office rent excluding new tenants replacing vacancies was $37.88 per rentable square feet for 25,866 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $35.19 per rentable square feet for 96,688 rentable square feet. Investment Income Investment income decreased primarily as a result of additional income recognized from the recapitalization of a debt investment ($41.0 million) in the third quarter of 2016, partially offset by income related to our preferred equity investment in 885 Third Avenue ($16.9 million) and a larger weighted average book balance. For the twelve months ended December 31, 2017, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $1.9 billion and 9.3% excluding our investment in Two Herald Square which was put on non-accrual in August 2017, respectively, compared to $1.5 billion and 9.7%, respectively, for the same period in 2016. As of December 31, 2017, the debt and preferred equity investments had a weighted average term to maturity of 2.2 years excluding extension options and our investment in Two Herald Square. Other Income Other income decreased primarily as a result of the termination fee earned in connection with the termination of the lease with Citigroup, Inc. at 388-390 Greenwich in 2016 ($94.0 million) and promote income earned in connection with the sale of 33 Beekman in the second quarter of 2016 ($10.8 million). The decrease was partially offset by net fees recognized in connection with the One Vanderbilt venture in 2017 ($13.3 million). Property Operating Expenses Property operating expenses decreased primarily as a result of Disposed Properties ($33.4 million) partially offset by increased real estate taxes at our Same-Store Properties ($8.2 million). Transaction Related Costs The decrease in transaction related costs in 2017 is primarily due to the adoption of ASU No. 2017-01 in 2017, which clarified the definition of a business and provided guidance to assist in determining whether transactions should be accounted for as acquisitions of assets or businesses. Following the adoption of the guidance, most of our real estate acquisitions are considered asset acquisitions and transaction costs are therefore capitalized to the investment basis when they would have previously been expensed under the previous guidance. Transaction costs expensed in 2017 relate primarily to transactions that are not moving forward for which any costs incurred are expensed. Marketing, General and Administrative Expenses Marketing, general and administrative expenses for the year ended December 31, 2017 were $100.5 million, including a $4.1 million charge related to forfeiture of the Company's 2014 Outperformance Plan awards, or 5.3% of total combined revenues, including our share of joint venture revenues, and 53 basis points of total combined assets, including our share of joint venture assets compared to $99.8 million, or 4.7% of total revenues including our share of joint venture revenues, and 53 basis points of total combined assets including our share of joint venture assets for 2016. Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income Interest expense and amortization of deferred financing costs, net of interest income, decreased primarily as a result of the Disposed Properties ($72.2 million). The weighted average consolidated debt balance outstanding was $6.6 billion for the year ended December 31, 2017 from $8.5 billion for the year ended December 31, 2016. The consolidated weighted average interest rate was 4.00% for the year ended December 31, 2017 as compared to 3.82% for the year ended December 31, 2016. Depreciation and Amortization Depreciation and amortization decreased primarily as a result of the Disposed Properties ($448.9 million), partially offset by accelerated amortization at 5-7 Dey Street, 183 & 187 Broadway upon the commencement of demolition of the properties ($32.0 million). Equity in Net Income in Unconsolidated Joint Venture/Real Estate Equity in net income from unconsolidated joint ventures increased primarily as a result of the sale of a 40% interest in 11 Madison in the third quarter of 2016 ($13.0 million), as well as higher net income contributions from 1745 Broadway ($7.3 million) and 605 West 42nd Street ($3.5 million) in 2017. These increases were partially offset by lower net income contributions from 280 Park Avenue ($5.7 million) as a result of the write off of deferred financing costs in conjunction with the refinancing of the debt on the property, reduced occupancy at 3 Columbus Circle ($3.9 million), and revenues from a debt and preferred equity investment that was contributed to a joint venture in the first quarter of 2016, and repaid in the second quarter of 2017 ($2.7 million). Equity in Net Gain on Sale of Interest in Unconsolidated Joint Ventures During the year ended December 31, 2016 we recognized a gain on the sale related to our interests in 747 Madison Avenue ($13.0 million), 102 Greene Street ($0.3 million) and part of our interest in the Stonehenge Portfolio ($0.9 million). The sale of 747 Madison, which occurred in 2014, did not meet the criteria for sale accounting at that time and, therefore, remained on our consolidated financial statement until the criteria was met in the second quarter of 2017. During the year ended December 31, 2016, in which we recognized a gain on the sale of our interests in 33 Beekman Street ($33.0 million), 7 Renaissance Square ($4.2 million), 1 Jericho ($3.3 million) and EOP Denver ($3.1 million). Gain on Sale of Real Estate, Net During the year ended December 31, 2017, we recognized a gain on sale associated with the sale of the property at 16 Court Street ($64.9 million), and the partial sale of the property at 102 Greene Street ($4.9 million). This gain was partially offset by a loss on the sale of 885 Third Avenue ($8.8 million) which closed in 2016, but was only recognized in the second quarter of 2017 due to the sale not meeting the criteria for sale accounting under the full accrual method in ASC 360-20 until the second quarter of 2017. During the year ended December 31, 2016 we recognized a gain on sale associated with the sales of 388-390 Greenwich ($206.5 million), a 49% interest in 400 East 57th Street ($23.9 million), 248-252 Bedford Avenue in Brooklyn, New York ($15.3 million), and a 40% interest in 11 Madison Avenue ($3.6 million), partially offset by the loss on the sale of 7 International Drive, Westchester County, NY ($6.9 million). 18 19 Table of Contents Table of Contents Depreciable Real Estate Reserves and Impairment During the year ended December 31, 2017, we recorded a $178.5 million of depreciable real estate reserves and impairment related to Reckson Executive Park, Stamford Towers, 125 Chubb Avenue in Lyndhurst, NJ, 115-117 Stevens Avenue in Valhalla, New York, 520 White Plains Road in Tarrytown, NY, and our investment in Jericho Plaza. During the year ended December 31, 2016, we recognized depreciable real estate reserves and impairment related to 500 West Putnam ($10.4 million). Liquidity and Capital Resources We currently expect that our principal sources of funds to meet our short-term and long-term liquidity requirements for working capital, acquisitions, development or redevelopment of properties, tenant improvements, leasing costs, share repurchases, dividends to shareholders, distributions to unitholders, repurchases or repayments of outstanding indebtedness (which may include exchangeable debt) and for debt and preferred equity investments will include: (1) (2) (3) (4) (5) (6) Cash flow from operations; Cash on hand; Net proceeds from divestitures of properties and redemptions, participations and dispositions of debt and preferred equity investments; Borrowings under the 2017 credit facility; Other forms of secured or unsecured financing; and Proceeds from common or preferred equity or debt offerings by the Company or the Operating Partnership (including issuances of units of limited partnership interest in the Operating Partnership and Trust preferred securities). Cash flow from operations is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent, operating escalations and recoveries from our tenants and the level of operating and other costs. Additionally, we believe that our debt and preferred equity investment program will continue to serve as a source of operating cash flow. The combined aggregate principal maturities of our property mortgages and other loans payable, corporate obligations and our share of joint venture debt, including as-of-right extension options, as of December 31, 2018 were as follows (in thousands): Property mortgages and other loans $ 6,241 $ 26,640 $ 151,505 $ 208,017 $ 122,851 $ 1,145,405 $ 1,660,659 2019 2020 2021 2022 2023 Thereafter Total MRA and FHLB facilities 27,500 300,000 250,000 — — — — 327,500 350,000 800,000 1,800,000 400,000 3,600,000 — 115,295 278,791 518,371 220,810 277,996 2,430,198 3,841,461 Total $ 149,036 $ 855,431 $ 1,019,876 $ 1,228,827 $ 2,200,847 $ 3,975,603 $ 9,429,620 As of December 31, 2018, we had $158.1 million of consolidated cash on hand, inclusive of $28.6 million of marketable securities. We expect to generate positive cash flow from operations for the foreseeable future. We may seek to divest of properties or interests in properties or access private and public debt and equity capital when the opportunity presents itself, although there is no guarantee that this capital will be made available to us at efficient levels or at all. Management believes that these sources of liquidity, if we are able to access them, along with potential refinancing opportunities for secured and unsecured debt, will allow us to satisfy our debt obligations, as described above, upon maturity, if not before. We also have investments in several real estate joint ventures with various partners who we consider to be financially stable and who have the ability to fund a capital call when needed. Most of our joint ventures are financed with non-recourse debt. We believe that property level cash flows along with unfunded committed indebtedness and proceeds from the refinancing of outstanding secured indebtedness will be sufficient to fund the capital needs of our joint venture properties. Corporate obligations Joint venture debt-our share Net cash provided by operating activities Net cash provided by investing activities Net cash used in by financing activities Year Ended December 31, 2018 2017 (Decrease) Increase $ $ $ 441,537 681,662 $ $ (1,094,112) $ 543,001 22,014 $ $ (684,956) $ (101,464) 659,648 (409,156) Our principal source of operating cash flow is related to the leasing and operating of the properties in our portfolio. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service, and fund quarterly dividend and distribution requirements. Our debt and preferred equity investments and joint venture investments also provide a steady stream of operating cash flow to us. Cash is used in investing activities to fund acquisitions, development or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills, and invest in existing buildings that meet our investment criteria. During the year ended December 31, 2018, when compared to the year ended December 31, 2017, we used cash primarily for the following investing activities (in thousands): Acquisitions of real estate Capital expenditures and capitalized interest Escrow cash-capital improvements/acquisition deposits/deferred purchase price Joint venture investments Distributions from joint ventures Proceeds from sales of real estate/partial interest in property Debt and preferred equity and other investments Increase in net cash used in investing activities $ $ (31,806) 81,541 — (11,180) (86,627) 538,208 169,512 659,648 Funds spent on capital expenditures, which are comprised of building and tenant improvements, decreased from $336.0 million for the year ended December 31, 2017 to $254.5 million for the year ended December 31, 2018. The decrease in capital expenditures relates primarily to lower costs incurred in connection with the redevelopment of properties. We generally fund our investment activity through the sale of real estate, property-level financing, our credit facilities, our MRA facilities, senior unsecured notes, convertible or exchangeable securities, and construction loans. From time to time, the Company may issue common or preferred stock, or the Operating Partnership may issue common or preferred units of limited partnership interest. During the year ended December 31, 2018, when compared to the year ended December 31, 2017, we used cash for the following financing activities (in thousands): Proceeds from our debt obligations Repayments of our debt obligations Net distribution to noncontrolling interests Other financing activities Proceeds from stock options exercised and DRSPP issuance Payment of debt extinguishment costs Repurchase of common stock Redemption of preferred stock Dividends and distributions paid $ 29,333 (249,600) 12,532 (39,155) 5,511 (13,918) (173,239) (933) 20,313 Increase in net cash provided by financing activities $ (409,156) Cash Flows Capitalization The following summary discussion of our cash flows is based on our consolidated statements of cash flows in the Financial Statements and is not meant to be an all-inclusive discussion of the changes in our cash flows for the years presented below. Cash, restricted cash, and cash equivalents were $279.1 million and $250.0 million at December 31, 2018 and 2017, respectively, representing a increase of $29.1 million. The increase was a result of the following changes in cash flows (in thousands): Our authorized capital stock consists of 260,000,000 shares, $0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01 par value per share, 75,000,000 shares of excess stock, at $0.01 par value per share, and 25,000,000 shares of preferred stock, $0.01 par value per share. As of December 31, 2018, 83,683,847 shares of common stock and no shares of excess stock were issued and outstanding. 20 21 Table of Contents Share Repurchase Program Table of Contents 2014 Outperformance Plan In August 2016, our Board of Directors approved a share repurchase plan under which we can repurchase up to $1.0 billion of shares of our common stock. The Board of Directors has since authorized three separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, and fourth quarter of 2018, bringing the total program size to $2.5 billion. At December 31, 2018 repurchases executed under the plan were as follows: Period Year ended 2017 First quarter 2018 Second quarter 2018 Third quarter 2018 Fourth quarter 2018 Shares repurchased Average price paid per share Cumulative number of shares repurchased as part of the repurchase plan or programs 8,342,411 3,653,928 3,479,552 252,947 2,358,484 $101.64 $97.07 $97.22 $99.75 $93.04 8,342,411 11,996,339 15,475,891 15,728,838 18,087,322 At-The-Market Equity Offering Program In March 2015, the Company, along with the Operating Partnership, entered into an "at-the-market" equity offering program, or ATM Program, to sell an aggregate of $300.0 million of our common stock. The Company did not make any sales of its common stock under the ATM program in the years ended December 31, 2018, 2017, or 2016. Dividend Reinvestment and Stock Purchase Plan ("DRSPP") In February 2018, the Company filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRSPP, which automatically became effective upon filing. The Company registered 3,500,000 shares of our common stock under the DRSPP. The DRSPP commenced on September 24, 2001. The following table summarizes SL Green common stock issued, and proceeds received from dividend reinvestments and/ or stock purchases under the DRSPP for the years ended December 31, 2018, 2017, and 2016, respectively (in thousands): Year Ended December 31, 2018 2017 2016 Shares of common stock issued 1,399 2,141 Dividend reinvestments/stock purchases under the DRSPP $ 136 $ 223 $ 2,687 277 Fourth Amended and Restated 2005 Stock Option and Incentive Plan The Fourth Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's board of directors in April 2016 and its stockholders in June 2016 at the Company's annual meeting of stockholders. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 27,030,000 fungible units may be granted as options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under the 2005 Plan. As of December 31, 2018, 6.7 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units. In August 2014, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2014 Outperformance Plan, or the 2014 Outperformance Plan. Participants in the 2014 Outperformance Plan could earn, in the aggregate, up to 610,000 LTIP Units in our Operating Partnership based on our total return to stockholders for the three-year period beginning September 1, 2014. Under the 2014 Outperformance Plan, two-thirds of the LTIP Units were subject to performance based vesting based on the Company’s absolute total return to stockholders and one-third of the LTIP Units were subject to performance based vesting based on relative total return to stockholders compared to the constituents of the MSCI REIT Index. LTIP Units earned under the 2014 Outperformance Plan were to be subject to continued vesting requirements, with 50% of any awards earned vesting on August 31, 2017 and the remaining 50% vesting on August 31, 2018, subject to continued employment with us through such dates. Participants were not entitled to distributions with respect to LTIP Units granted under the 2014 Outperformance Plan unless and until they are earned. If LTIP Units were earned, each participant would have been entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of cash or additional LTIP Units. Thereafter, distributions were to be paid currently with respect to all earned LTIP Units, whether vested or unvested. Based on our performance, none of the LTIP Units granted under the 2014 Outperformance Plan were earned pursuant to the terms of the 2014 Outperformance Plan, and all units issued were forfeited in 2017. The cost of the 2014 Outperformance Plan ($27.9 million subject to forfeitures), based on the portion of the 2014 Outperformance Plan granted prior to termination, was amortized into earnings through December 31, 2017. We recorded zero compensation expense during the year ended December 31, 2018, and compensation expense of $13.6 million and $8.4 million during the years ended December 31, 2017 and 2016, respectively, related to the 2014 Outperformance Plan. Deferred Compensation Plan for Directors Under our Non-Employee Director's Deferral Program, which commenced July 2004, the Company's non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees, meeting fees and annual stock grant. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The program provides that a director's phantom stock units generally will be settled in an equal number of shares of common stock upon the earlier of (i) the January 1 coincident with or the next following such director's termination of service from the Board of Directors or (ii) a change in control by us, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of our common stock on the first business day of the respective quarter. Each participating non-employee director is also credited with dividend equivalents or phantom stock units based on the dividend rate for each quarter, which are either paid in cash currently or credited to the director’s account as additional phantom stock units. During the year ended December 31, 2018, 13,638 phantom stock units were earned and 9,459 shares of common stock were issued to our board of directors. We recorded compensation expense of $2.4 million during the year ended December 31, 2018 related to the Deferred Compensation Plan. As of December 31, 2018, there were 113,492 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program. Employee Stock Purchase Plan In 2007, the Company's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage our employees to increase their efforts to make our business more successful by providing equity-based incentives to eligible employees. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code, and has been adopted by the board to enable our eligible employees to purchase the Company's shares of common stock through payroll deductions. The ESPP became effective on January 1, 2008 with a maximum of 500,000 shares of the common stock available for issuance, subject to adjustment upon a merger, reorganization, stock split or other similar corporate change. The Company filed a registration statement on Form S-8 with the SEC with respect to the ESPP. The common stock is offered for purchase through a series of successive offering periods. Each offering period will be three months in duration and will begin on the first day of each calendar quarter, with the first offering period having commenced on January 1, 2008. The ESPP provides for eligible employees to purchase the common stock at a purchase price equal to 85% of the lesser of (1) the market value of the common stock on the first day of the offering period or (2) the market value of the common stock on the last day of the offering period. The ESPP was approved by our stockholders at our 2008 annual meeting of stockholders. As of December 31, 2018, 116,368 shares of our common stock had been issued under the ESPP. 22 23 Table of Contents the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. As of December 31, 2018, the facility fee was 20 basis points. As of December 31, 2018, we had $11.8 million of outstanding letters of credit, $500.0 million drawn under the revolving credit facility and $1.5 billion outstanding under the term loan facilities, with total undrawn capacity of $1.0 billion under the 2017 credit facility. At December 31, 2018 and December 31, 2017, the revolving credit facility had a carrying value of $492.2 million and $30.3 million, respectively, net of deferred financing costs. At December 31, 2018 and December 31, 2017, the term loan facilities had a carrying value of $1.5 billion and $1.5 billion, respectively, net of deferred financing costs. The Company and the Operating Partnership are borrowers jointly and severally obligated under the 2017 credit facility. The 2017 credit facility includes certain restrictions and covenants (see Restrictive Covenants below). Federal Home Loan Bank of New York Facility The Company’s wholly-owned subsidiary, Ticonderoga Insurance Company, or Ticonderoga, a Vermont licensed captive insurance company, is a member of the Federal Home Loan Bank of New York, or FHLBNY. As a member, Ticonderoga may borrow funds from the FHLBNY in the form of secured advances. As of December 31, 2018, we had $13.0 million and $14.5 million in outstanding secured advances with a borrowing rate of 30-day LIBOR over 27 basis points and 30-day LIBOR over 18 basis points, respectively. Master Repurchase Agreements The Company has entered into two Master Repurchase Agreements, or MRAs, known as the 2016 MRA and 2017 MRA, which provide us with the ability to sell certain debt investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facilities permit valuation adjustments based on capital markets activity, and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to recollateralize the facility with additional assets from our portfolio of debt investments, our ability to satisfy margin calls with cash or cash equivalents and our access to additional liquidity through the 2017 credit facility, as defined above. In June 2017, we entered into the 2017 MRA, with a maximum facility capacity of $300.0 million. In April 2018, we increased the maximum facility capacity to $400.0 million. The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate and has an initial one year term, with two one year extension options. In June 2018, we exercised a one year extension option. At December 31, 2018, the facility had a carrying value of $299.6 million, net of deferred financing costs. In July 2016, we entered into a restated 2016 MRA, with a maximum facility capacity of $300.0 million. In June 2018, we terminated the restated 2016 MRA. The facility bore interest ranging from 225 and 400 basis points over 30-day LIBOR depending on the pledged collateral and had an initial two-year term, with a one year extension option. Since December 6, 2015, we had been required to pay monthly in arrears a 25 basis point fee on the excess of $150.0 million over the average daily balance during the period when the average daily balance was less than $150.0 million. Table of Contents Indebtedness The table below summarizes our consolidated mortgages and other loans payable, 2017 credit facility, senior unsecured notes and trust preferred securities outstanding at December 31, 2018 and 2017, (amounts in thousands). Debt Summary: Balance Fixed rate Variable rate—hedged Total fixed rate Total variable rate Total debt Debt, preferred equity, and other investments subject to variable rate Net exposure to variable rate debt Percent of Total Debt: Fixed rate Variable rate Total Effective Interest Rate for the Year: Fixed rate Variable rate Effective interest rate December 31, 2018 2017 $ $ 2,543,476 $ 1,000,000 3,543,476 2,048,442 5,591,918 $ 1,299,390 749,052 63.4% 36.6% 100.0% 4.34% 3.57% 4.06% 3,805,165 500,000 4,305,165 1,605,431 5,910,596 1,325,166 280,265 72.8% 27.2% 100.0% 4.31% 2.76% 4.00% The variable rate debt shown above generally bears interest at an interest rate based on 30-day LIBOR (2.50% and 1.56% at December 31, 2018 and 2017, respectively). Our consolidated debt at December 31, 2018 had a weighted average term to maturity of 4.66 years. Certain of our debt and preferred equity investments, with a carrying value of $1.3 billion at December 31, 2018, are variable rate investments, which mitigate our exposure to interest rate changes on our unhedged variable rate debt. Mortgage Financing As of December 31, 2018, our total mortgage debt (excluding our share of joint venture mortgage debt of $3.8 billion) consisted of $1.4 billion of fixed rate debt, including swapped variable rate debt, with an effective weighted average interest rate of 4.26% and $0.6 billion of variable rate debt with an effective weighted average interest rate of 4.87%. Corporate Indebtedness 2017 Credit Facility In November 2017, we entered into an amendment to the credit facility, referred to as the 2017 credit facility, that was originally entered into by the Company in November 2012, or the 2012 credit facility. As of December 31, 2018, the 2017 credit facility consisted of a $1.5 billion revolving credit facility, a $1.3 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of March 31, 2022, March 31, 2023, and November 21, 2024, respectively. The revolving credit facility has two six-month as-of-right extension options to March 31, 2023. We also have an option, subject to customary conditions, to increase the capacity of the credit facility to $4.5 billion at any time prior to the maturity dates for the revolving credit facility and term loans without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions. As of December 31, 2018, the 2017 credit facility bore interest at a spread over 30-day LIBOR ranging from (i) 82.5 basis points to 155 basis points for loans under the revolving credit facility, (ii) 90 basis points to 175 basis points for loans under Term Loan A, and (iii) 150 basis points to 245 basis points for loans under Term Loan B, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. At December 31, 2018, the applicable spread was 100 basis points for the revolving credit facility, 110 basis points for Term Loan A, and 165 basis points for Term Loan B. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on 24 25 Table of Contents Senior Unsecured Notes The following table sets forth our senior unsecured notes and other related disclosures as of December 31, 2018 and 2017, respectively, by scheduled maturity date (amounts in thousands): Issuance March 16, 2010 (2) August 7, 2018 (3) (4) October 5, 2017 (3) November 15, 2012 (5) December 17, 2015 (2) August 5, 2011 (2) (6) Deferred financing costs, net December 31, 2018 Unpaid Principal Balance December 31, 2018 Accreted Balance December 31, 2017 Accreted Balance Interest Rate (1) Initial Term (in Years) Maturity Date $ 250,000 $ 250,000 $ 250,000 7.75% 10 March 2020 350,000 500,000 300,000 100,000 — 1,500,000 1,500,000 $ $ 350,000 499,591 304,168 100,000 — — L+ 0.98% 499,489 305,163 100,000 249,953 3.25% 4.50% 4.27% 3 August 2021 5 October 2022 10 December 2022 10 December 2025 $ $ 1,503,759 (8,545) 1,495,214 $ $ 1,404,605 (8,666) 1,395,939 (1) (2) (3) (4) (5) (6) Interest rate as of December 31, 2018, taking into account interest rate hedges in effect during the period. Floating rate notes are presented with the stated spread over 3-month LIBOR, unless otherwise specified. Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates. Issued by the Company and the Operating Partnership as co-obligors. Issued by the Operating Partnership with the Company as the guarantor. Beginning on August 8, 2019 and at any time thereafter, the notes are subject to redemption at the Company's option, in whole but not in part, at a redemption price equal to 100% of the principal amount of the notes, plus unpaid accrued interest thereon to the redemption date. In October 2017, the Company and the Operating Partnership as co-obligors issued an additional $100.0 million of 4.50% senior unsecured notes due December 2022. The notes were priced at 105.334%. The balance was repaid in August 2018. Restrictive Covenants The terms of the 2017 credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, our ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that, we will not during any time when a default is continuing, make distributions with respect to common stock or other equity interests, except to enable the Company to continue to qualify as a REIT for Federal income tax purposes. As of December 31, 2018 and 2017, we were in compliance with all such covenants. Junior Subordinated Deferrable Interest Debentures In June 2005, the Company and the Operating Partnership issued $100.0 million in unsecured trust preferred securities through a newly formed trust, SL Green Capital Trust I, or the Trust, which is a wholly-owned subsidiary of the Operating Partnership. The securities mature in 2035 and bear interest at a floating rate of 125 basis points over the three-month LIBOR. Interest payments may be deferred for a period of up to eight consecutive quarters if the Operating Partnership exercises its right to defer such payments. The Trust preferred securities are redeemable at the option of the Operating Partnership, in whole or in part, with no prepayment premium. We do not consolidate the Trust even though it is a variable interest entity as we are not the primary beneficiary. Because the Trust is not consolidated, we have recorded the debt on our consolidated balance sheets and the related payments are classified as interest expense. Interest Rate Risk We are exposed to changes in interest rates primarily from our variable rate debt. Our exposure to interest rate fluctuations are managed through either the use of interest rate derivative instruments and/or through our variable rate debt and preferred equity investments. Based on the debt outstanding as of December 31, 2018, a hypothetical 100 basis point increase in the floating rate interest rate curve would increase our consolidated annual interest cost, net of interest income from variable rate debt and preferred equity investments, by $7.1 million and would increase our share of joint venture annual interest cost by $14.3 million. At December 31, 2018, 61.9% of our $2.1 billion debt and preferred equity portfolio is indexed to LIBOR. Table of Contents We recognize most derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If a derivative is considered a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. Our long-term debt of $3.5 billion bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. Our variable rate debt and variable rate joint venture debt as of December 31, 2018 bore interest at rates between LIBOR plus 18 basis points and LIBOR plus 340 basis points. Contractual Obligations The combined aggregate principal maturities of mortgages and other loans payable, the 2017 credit facility, senior unsecured notes (net of discount), trust preferred securities, our share of joint venture debt, including as-of-right extension options and put options, estimated interest expense, and our obligations under our capital lease and ground leases, as of December 31, 2018 are as follows (in thousands): 2019 2020 2021 2022 2023 Thereafter Total $ 6,241 $ 26,640 $ 151,505 $ 208,017 $ 122,851 $ 1,145,405 $ 1,660,659 Property mortgages and other loans MRA and FHLB facilities Revolving credit facility Unsecured term loans Senior unsecured notes Trust preferred securities Capital lease Ground leases Estimated interest expense Joint venture debt — — — — 2,411 31,066 222,554 115,295 27,500 300,000 — — — — — — — — 250,000 350,000 800,000 — 2,620 31,436 196,142 278,791 — 2,794 31,628 185,017 518,371 — 2,794 29,472 150,712 220,810 — 500,000 1,300,000 — — 2,794 27,166 81,781 277,996 — — 200,000 327,500 500,000 1,500,000 100,000 1,500,000 100,000 817,100 676,090 193,794 2,430,198 100,000 830,513 826,858 1,030,000 3,841,461 Total $ 405,067 $ 1,085,629 $ 1,239,315 $ 1,411,805 $ 2,312,588 $ 5,662,587 $ 12,116,991 Off-Balance Sheet Arrangements We have off-balance sheet investments, including joint ventures and debt and preferred equity investments. These investments all have varying ownership structures. Substantially all of our joint venture arrangements are accounted for under the equity method of accounting as we have the ability to exercise significant influence, but not control, over the operating and financial decisions of these joint venture arrangements. Our off-balance sheet arrangements are discussed in Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures" in the accompanying consolidated financial statements. Capital Expenditures We estimate that for the year ending December 31, 2019, we expect to incur $151.1 million of recurring capital expenditures and $65.2 million of development or redevelopment expenditures on existing consolidated properties, and our share of capital expenditures at our joint venture properties will be $449.6 million. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect to fund these capital expenditures with operating cash flow, existing liquidity, or incremental borrowings. We expect our capital needs over the next twelve months and thereafter will be met through a combination of cash on hand, net cash provided by operations, potential asset sales, borrowings or additional equity or debt issuances. Dividends/Distributions We expect to pay dividends to our stockholders based on the distributions we receive from our Operating Partnership primarily from property revenues net of operating expenses or, if necessary, from working capital. To maintain our qualification as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains. We intend to continue to pay regular quarterly dividends to our stockholders. Based on our current annual dividend rate of $3.40 per share, we would pay $298.6 million in dividends to our common stockholders on an annual basis. Before we pay any dividend, whether for 26 27 Table of Contents Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under the 2017 credit facility and senior unsecured notes, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable. Related Party Transactions Cleaning/ Security/ Messenger and Restoration Services Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, who serves as a member and as the chairman emeritus of our board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements. Income earned from the profit participation, which is included in other income on the consolidated statements of operations, was $3.9 million, $3.9 million and $3.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. We also recorded expenses, inclusive of capitalized expenses, of $18.8 million, $22.6 million and $23.4 million the years ended December 31, 2018, 2017 and 2016, respectively, for these services (excluding services provided directly to tenants). Management Fees S.L. Green Management Corp., a consolidated entity, receives property management fees from an entity in which Stephen L. Green owns an interest. We received management fees from this entity of $0.6 million, $0.5 million and $0.7 million for the years ended December 31, 2018, 2017, and 2016 respectively. One Vanderbilt Investment In December 2016, we entered into agreements with entities owned and controlled by Marc Holliday and Andrew Mathias, pursuant to which they agreed to make an investment in our One Vanderbilt project at the appraised fair market value for the interests acquired. This investment entitles these entities to receive approximately 1.50% - 1.80% and 1.00% - 1.20%, respectively, of any profits realized by the Company from its One Vanderbilt project in excess of the Company’s capital contributions. The entities have no right to any return of capital. Accordingly, subject to previously disclosed repurchase rights, these interests will have no value and will not entitle these entities to any amounts (other than limited distributions to cover tax liabilities incurred) unless and until the Company has received distributions from the One Vanderbilt project in excess of the Company’s aggregate investment in the project. In the event that the Company does not realize a profit on its investment in the project (or would not realize a profit based on the value at the time the interests are repurchased), the entities owned and controlled by Messrs. Holliday and Mathias will lose the entire amount of their investment. The entities owned and controlled by Messrs. Holliday and Mathias paid $1.4 million and $1.0 million, respectively, which equal the fair market value of the interests acquired as of the date the investment agreements were entered into as determined by an independent third party appraisal that we obtained. Messrs. Holliday and Mathias cannot monetize their interests until after stabilization of the property (50% within three years after stabilization and 100% three years or more after stabilization). In addition, the agreement calls for us to repurchase these interests in the event of a sale of One Vanderbilt or a transactional change of control of the Company. We also have the right to repurchase these interests on the seven-year anniversary of the stabilization of the project or upon the occurrence of certain separation events prior to the stabilization of the project relating to each of Messrs. Holliday’s and Mathias’s continued service with us. The price paid upon monetization of the interests will equal the liquidation value of the interests at the time, with the value of One Vanderbilt being based on its sale price, if applicable, or fair market value as determined by an independent third party appraiser. Table of Contents Insurance We maintain “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism, excluding nuclear, biological, chemical, and radiological terrorism ("NBCR")), within three property insurance programs and liability insurance. Separate property and liability coverage may be purchased on a stand-alone basis for certain assets, such as the development of One Vanderbilt. Additionally, one of our captive insurance companies, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by our other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under our insurance policies, we would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under debt our instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by the Company or its affiliates. Furthermore, with respect to certain of our properties, including properties held by joint ventures, or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss. Funds from Operations FFO is a widely recognized non-GAAP financial measure of REIT performance. The Company computes FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than the Company does. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and subsequently amended, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties and real estate related impairment charges, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company presents FFO because it considers it an important supplemental measure of the Company’s operating performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, particularly those that own and operate commercial office properties. The Company also uses FFO as one of several criteria to determine performance-based bonuses for members of its senior management. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions, and real estate related impairment charges, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, providing perspective not immediately apparent from net income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including our ability to make cash distributions. 28 29 Table of Contents Table of Contents (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) risks relating to debt and preferred equity investments; availability and creditworthiness of prospective tenants and borrowers; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants or borrowers; adverse changes in the real estate markets, including reduced demand for office space, increasing vacancy, and increasing availability of sublease space; availability of capital (debt and equity); unanticipated increases in financing and other costs, including a rise in interest rates; our ability to comply with financial covenants in our debt instruments; our ability to maintain our status as a REIT; risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations; the threat of terrorist attacks; our ability to obtain adequate insurance coverage at a reasonable cost and the potential for losses in excess of our insurance coverage, including as a result of environmental contamination; and legislative, regulatory and/or safety requirements adversely affecting REITs and the real estate business including costs of compliance with the Americans with Disabilities Act, the Fair Housing Act and other similar laws and regulations. Other factors and risks to our business, many of which are beyond our control, are described in other sections of this report and in our other filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise. FFO for the years ended December 31, 2018, 2017, and 2016 are as follows (in thousands): Net income attributable to SL Green common stockholders $ 232,312 $ 86,424 $ 234,946 Year Ended December 31, 2018 2017 2016 Add: Depreciation and amortization Joint venture depreciation and noncontrolling interest adjustments Net income (loss) attributable to noncontrolling interests Less: (Loss) gain on sale of real estate and discontinued operations Equity in net gain on sale of interest in unconsolidated joint venture/real estate Purchase price and other fair value adjustment Depreciable real estate reserves and impairment Depreciation on non-rental real estate assets Funds from Operations attributable to SL Green common stockholders and noncontrolling interests Cash flows provided by operating activities Cash flows provided by investing activities Cash flows used in by financing activities Inflation 279,507 187,147 12,210 (30,757) 303,967 57,385 (227,543) 2,404 403,320 102,334 (11,706) 73,241 16,166 — (178,520) 2,191 821,041 69,853 17,780 238,116 44,009 — (10,387) 2,027 $ $ $ $ 605,720 441,537 681,662 $ $ $ 667,294 543,001 22,014 $ $ $ 869,855 644,010 1,973,382 (1,094,112) $ (684,956) $ (2,736,402) Substantially all of our office leases provide for separate real estate tax and operating expense escalations as well as operating expense recoveries based on increases in the Consumer Price Index or other measures such as porters' wage. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases will be at least partially offset by the contractual rent increases and expense escalations described above. Accounting Standards Updates The Accounting Standards Updates are discussed in Note 2, "Significant Accounting Policies - Accounting Standards Updates" in the accompanying consolidated financial statements. Forward-Looking Information This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), development trends of the real estate industry and the New York metropolitan area markets, business strategies, expansion and growth of our operations and other similar matters, are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," "continue," or the negative of these words, or other similar words or terms. Forward-looking statements contained in this report are subject to a number of risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by forward-looking statements made by us. These risks and uncertainties include: (cid:127) (cid:127) (cid:127) the effect of general economic, business and financial conditions, and their effect on the New York City real estate market in particular; dependence upon certain geographic markets; risks of real estate acquisitions, dispositions, development and redevelopment, including the cost of construction delays and cost overruns; 30 31 Table of Contents Table of Contents QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The table below lists our consolidated derivative instruments, which are hedging variable rate debt, and their related fair See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Rate Risk" for additional information regarding our exposure to interest rate fluctuations. The table below presents the principal cash flows based upon maturity dates of our debt obligations and debt and preferred equity investments and the weighted-average interest rates by expected maturity dates, including as-of-right extension options, as of December 31, 2018 (in thousands): Long-Term Debt Variable Rate Average Interest Rate Debt and Preferred Equity Investments (1) Amount Weighted Yield 4.04% $ 442,557 10.31% 2019 2020 2021 2022 2023 Thereafter Total Fair Value Fixed Rate 6,241 261,117 11,636 1,008,017 1,007,301 1,245,405 3,539,717 3,230,127 $ $ $ Average Interest Rate 4.08% $ 3.87% 3.83% 3.82% 4.08% 4.29% 27,500 315,523 489,869 — 915,550 300,000 3.79% 3.73% 4.00% 4.38% 4.45% 1,273,679 26,471 204,790 42,706 109,190 8.21% 9.54% 11.46% 8.55% 8.46% 9.01% 3.92% $ 2,048,442 3.92% $ 2,099,393 $ 2,057,966 values as of December 31, 2018 (in thousands): Asset Hedged Benchmark Rate Notional Value Strike Rate Effective Date Expiration Date Fair Value Interest Rate Swap Interest Rate Swap Interest Rate Cap Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap Total Consolidated Hedges Credit Facility Credit Facility Mortgage Credit Facility Credit Facility Credit Facility Credit Facility Credit Facility LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR $ 200,000 100,000 137,500 100,000 100,000 150,000 150,000 200,000 1.131% 1.161% July 2016 July 2016 July 2023 $ 11,148 July 2023 4.000% September 2017 September 2019 1.928% December 2017 November 2020 1.934% December 2017 November 2020 2.696% 2.721% 2.740% January 2019 January 2019 January 2019 January 2024 January 2026 January 2026 5,447 — 1,045 1,035 (1,858) (2,450) (3,354) $ 11,013 In addition to these derivative instruments, some of our joint venture loan agreements require the joint venture to purchase interest rate caps on its debt. All such interest rate caps represented in aggregate an asset of $7.0 million at December 31, 2018. We also swapped certain floating rate debt at some of our joint ventures. These swaps represented in aggregate an asset of $11.1 million at December 31, 2018. (1) Our debt and preferred equity investments had an estimated fair value ranging between $2.1 billion and $2.3 billion at December 31, 2018. The table below presents the principal cash flows based upon maturity dates of our share of our joint venture debt obligations and the weighted-average interest rates by expected maturity dates as of December 31, 2018 (in thousands): Long Term Debt Fixed Rate Average Interest Rate Variable Rate Average Interest Rate 2019 2020 2021 2022 2023 Thereafter Total Fair Value $ 106,255 4.16% $ 11,236 11,730 220,779 271,064 1,719,845 2,340,909 2,327,716 $ $ 4.16% 4.16% 4.12% 3.95% 3.91% 9,040 267,555 506,641 31 6,932 710,353 4.12% $ 1,500,552 $ 1,510,470 4.47% 4.45% 4.41% 4.70% 5.13% 5.27% 4.55% 32 33 Table of Contents Table of Contents SL Green Realty Corp. Consolidated Balance Sheets (in thousands, except per share data) SL Green Realty Corp. Consolidated Balance Sheets (in thousands, except per share data) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Equity SL Green stockholders' equity: Series I Preferred Stock, $0.01 par value, $25.00 liquidation preference, 9,200 issued and outstanding at both December 31, 2018 and 2017 Common stock, $0.01 par value, 160,000 shares authorized and 84,739 and 93,858 issued and outstanding at December 31, 2018 and 2017, respectively (including 1,055 and 1,055 shares held in treasury at December 31, 2018 and 2017, respectively) Additional paid-in-capital Treasury stock at cost Accumulated other comprehensive income Retained earnings Total SL Green stockholders' equity Noncontrolling interests in other partnerships Total equity Total liabilities and equity 221,932 221,932 847 4,508,685 (124,049) 15,108 1,278,998 5,901,521 46,334 5,947,855 939 4,968,338 (124,049) 18,604 1,139,329 6,225,093 364,361 6,589,454 $ 12,751,358 $ 13,982,904 (1) The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs, excluding the Operating Partnership: $110.0 million and $398.0 million of land, $0.3 billion and $1.4 billion of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $47.4 million and $47.4 million of properties under capital lease, $42.2 million and $330.9 million of accumulated depreciation, $721.3 million and $221.0 million of other assets included in other line items, $140.8 million and $628.9 million of real estate debt, net, $0.4 million and $2.5 million of accrued interest payable, $43.6 million and $42.8 million of capital lease obligations, and $18.4 million and $56.8 million of other liabilities included in other line items as of December 31, 2018 and December 31, 2017, respectively. The accompanying notes are an integral part of these consolidated financial statements. Assets Commercial real estate properties, at cost: Land and land interests Building and improvements Building leasehold and improvements Properties under capital lease Less: accumulated depreciation Assets held for sale Cash and cash equivalents Restricted cash Investments in marketable securities Tenant and other receivables, net of allowance of $15,702 and $18,637 in 2018 and 2017, respectively Related party receivables Deferred rents receivable, net of allowance of $15,457 and $17,207 in 2018 and 2017, respectively Debt and preferred equity investments, net of discounts and deferred origination fees of $22,379 and $25,507 in 2018 and 2017, respectively, and allowance of $5,750 in 2018 Investments in unconsolidated joint ventures Deferred costs, net Other assets Total assets (1) Liabilities Mortgages and other loans payable, net Revolving credit facility, net Unsecured term loans, net Unsecured notes, net Accrued interest payable Other liabilities Accounts payable and accrued expenses Deferred revenue Capital lease obligations Deferred land leases payable Dividend and distributions payable Security deposits Liabilities related to assets held for sale Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities Total liabilities (1) Commitments and contingencies Noncontrolling interests in Operating Partnership Preferred units $ 1,774,899 $ 5,268,484 1,423,107 47,445 8,513,935 (2,099,137) 6,414,798 — 129,475 149,638 28,638 41,589 28,033 335,985 2,357,051 6,351,012 1,450,614 47,445 10,206,122 (2,300,116) 7,906,006 338,354 127,888 122,138 28,579 57,644 23,039 365,337 2,099,393 2,114,041 $ $ $ $ 3,019,020 209,110 295,679 12,751,358 1,961,240 492,196 1,493,051 1,495,214 23,154 116,566 147,060 94,453 43,616 3,603 80,430 64,688 — 100,000 6,115,271 387,805 300,427 2,362,989 226,201 310,688 13,982,904 2,837,282 30,336 1,491,575 1,395,939 38,142 188,005 137,142 208,119 42,843 3,239 85,138 67,927 4,074 100,000 6,629,761 461,954 301,735 34 35 Table of Contents Table of Contents SL Green Realty Corp. Consolidated Statements of Operations (in thousands, except per share data) SL Green Realty Corp. Consolidated Statements of Comprehensive Income (in thousands) Net income Other comprehensive income: Change in net unrealized (loss) gain on derivative instruments, including SL Green's share of joint venture net unrealized (loss) gain on derivative instruments Change in unrealized gain (loss) on marketable securities Other comprehensive (loss) income Comprehensive income Net (income) loss attributable to noncontrolling interests and preferred units distributions Other comprehensive income (loss) attributable to noncontrolling interests Year Ended December 31, 2017 2018 2016 $ 270,856 $ 101,069 $ 278,911 (3,622) 60 (3,562) 267,294 (23,594) 66 1,040 (4,667) (3,627) 97,442 305 94 28,508 3,677 32,185 311,096 (29,015) (1,299) 280,782 Comprehensive income attributable to SL Green $ 243,766 $ 97,841 $ The accompanying notes are an integral part of these consolidated financial statements. Revenues Rental revenue, net Escalation and reimbursement Investment income Other income Total revenues Expenses Year Ended December 31, 2018 2017 2016 $ 864,978 $ 1,100,993 $ 1,323,767 113,596 201,492 47,326 172,939 193,871 43,670 196,858 213,008 130,348 1,227,392 1,511,473 1,863,981 Operating expenses, including $17,823 in 2018, $21,400 in 2017, $21,890 in 2016 of related party expenses 229,347 293,364 Real estate taxes Ground rent Interest expense, net of interest income Amortization of deferred financing costs Depreciation and amortization Loan loss and other investment reserves, net of recoveries Transaction related costs Marketing, general and administrative Total expenses Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Purchase price and other fair value adjustment (Loss) gain on sale of real estate, net Depreciable real estate reserves and impairment Gain (loss) on sale of investment in marketable securities Loss on early extinguishment of debt Net income Net (income) loss attributable to noncontrolling interests: Noncontrolling interests in the Operating Partnership Noncontrolling interests in other partnerships Preferred units distributions Net income attributable to SL Green Preferred stock redemption costs Perpetual preferred stock dividends Net income attributable to SL Green common stockholders Basic earnings per share: Diluted earnings per share: Basic weighted average common shares outstanding Diluted weighted average common shares and common share equivalents outstanding 186,351 32,965 208,669 12,408 279,507 6,839 1,099 92,631 1,049,816 7,311 303,967 57,385 (30,757) (227,543) — (17,083) 270,856 (12,216) 6 (11,384) 247,262 — (14,950) 232,312 2.67 2.67 86,753 91,530 $ $ $ 244,323 33,231 257,045 16,498 403,320 — (1,834) 100,498 1,346,445 21,892 16,166 — 73,241 (178,520) 3,262 — 101,069 (3,995) 15,701 (11,401) 101,374 — (14,950) 86,424 0.87 0.87 98,571 103,403 $ $ $ $ $ $ 312,859 248,388 33,261 321,199 24,564 821,041 — 7,528 99,759 1,868,599 11,874 44,009 — 238,116 (10,387) (83) — 278,911 (10,136) (7,644) (11,235) 249,896 — (14,950) 234,946 2.34 2.34 100,185 104,881 The accompanying notes are an integral part of these consolidated financial statements. 36 37 Table of Contents Table of Contents SL Green Realty Corp. Consolidated Statements of Equity (in thousands, except per share data) SL Green Realty Corp. Stockholders Common Stock SL Green Realty Corp. Consolidated Statements of Equity (in thousands, except per share data) SL Green Realty Corp. Stockholders Common Stock Series I Preferred Stock Shares Par Value Additional Paid- In-Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interests Total Series I Preferred Stock Shares Par Value Additional Paid- In-Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interests Total Balance at December 31, 2015 $ 221,932 99,976 $1,001 $5,439,735 $ (10,000) $ (8,749) $1,643,546 $ 431,852 $7,719,317 Balance at January 1, 2018 221,932 92,803 939 4,968,338 (124,049) 18,604 1,709,853 364,361 7,159,978 Net income (loss) Other comprehensive loss Preferred dividends DRSPP proceeds Conversion of units in the Operating Partnership to common stock Reallocation of noncontrolling interest in the Operating Partnership Deferred compensation plan and stock awards, net of forfeitures and tax withholdings 1 136 160 2 16,301 149 1 17,483 316 3 28,909 Proceeds from stock options exercised Contributions to consolidated joint venture interests Deconsolidation of partially owned entity Cash distributions to noncontrolling interests Cash distributions declared ($3.2875 per common share, none of which represented a return of capital for federal income tax purposes) 247,262 (6) 247,256 (3,496) (14,950) 34,236 (3,496) (14,950) 136 16,303 34,236 17,484 (937,795) 28,912 5,459 5,459 (315,116) (315,116) (8,364) (8,364) (282,188) (282,188) Repurchases of common stock (9,745) (98) (522,482) (415,215) Balance at December 31, 2018 $ 221,932 83,684 $ 847 $4,508,685 $ (124,049) $ 15,108 $1,278,998 $ 46,334 $5,947,855 The accompanying notes are an integral part of these consolidated financial statements. Net income Other comprehensive income Preferred dividends DRSPP proceeds Conversion of units in the Operating Partnership to common stock Reallocation of noncontrolling interest in the Operating Partnership Deferred compensation plan and stock awards, net of forfeitures and tax withholdings Issuance of common stock Proceeds from stock options exercised Contributions to consolidated joint venture interests Cash distributions to noncontrolling interests Cash distributions declared ($2.94 per common share, none of which represented a return of capital for federal income tax purposes) 249,896 7,644 257,540 30,886 (14,950) (4,222) 2 277 295 3 31,803 96 193 1 10 2 23,901 113,999 (114,049) 14,830 30,886 (14,950) 277 31,806 (4,222) 23,902 (40) 14,832 2,359 2,359 (15,419) (15,419) (295,377) (295,377) Balance at December 31, 2016 221,932 100,562 1,017 5,624,545 (124,049) 22,137 1,578,893 426,436 7,750,911 Net income (loss) Other comprehensive loss Preferred dividends DRSPP proceeds Conversion of units in the Operating Partnership to common stock Reallocation of noncontrolling interest in the Operating Partnership Equity component of repurchased exchangeable senior notes Deferred compensation plan and stock awards, net of forfeitures and tax withholdings 2 223 202 2 21,572 (109,776) 87 1 29,786 101,374 (15,701) (3,533) (14,950) 5,712 Repurchases of common stock (8,342) (83) (621,324) (226,641) 85,673 (3,533) (14,950) 223 21,574 5,712 (109,776) 29,787 (848,048) 23,314 292 2 23,312 Proceeds from stock options exercised Contributions to consolidated joint venture interests Deconsolidation of partially owned entity Cash distributions to noncontrolling interests Cash distributions declared ($3.1375 per common share, none of which represented a return of capital for federal income tax purposes) 36,275 36,275 (30,203) (30,203) (52,446) (52,446) (305,059) (305,059) Balance at December 31, 2017 221,932 92,803 939 4,968,338 (124,049) 18,604 1,139,329 364,361 6,589,454 Cumulative adjustment upon adoption of ASC 610-20 570,524 570,524 38 39 Table of Contents Table of Contents SL Green Realty Corp. Consolidated Statements of Cash Flows (in thousands, except per share data) SL Green Realty Corp. Consolidated Statements of Cash Flows (in thousands, except per share data) Year Ended December 31, 2018 2017 2016 $ 270,856 $ 101,069 $ 278,911 Financing Activities Proceeds from mortgages and other loans payable Repayments of mortgages and other loans payable Year Ended December 31, 2018 2017 2016 $ 564,391 $ 870,459 $ 408,293 (868,842) (902,460) (1,822,303) Proceeds from revolving credit facility, term loans and senior unsecured notes 3,120,000 2,784,599 1,325,300 Repayments of revolving credit facility, term loans and senior unsecured notes (2,560,000) (2,276,782) (2,334,604) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Equity in net income from unconsolidated joint ventures Distributions of cumulative earnings from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture interest/real estate Purchase price and other fair value adjustment Depreciable real estate reserves and impairment Loss (gain) on sale of real estate, net Loan loss reserves and other investment reserves, net of recoveries (Gain) loss on sale of investments in marketable securities Loss on early extinguishment of debt Deferred rents receivable Other non-cash adjustments (1) Changes in operating assets and liabilities: Tenant and other receivables Related party receivables Deferred lease costs Other assets Accounts payable, accrued expenses and other liabilities and security deposits Deferred revenue and land leases payable Net cash provided by operating activities Investing Activities Acquisitions of real estate property Additions to land, buildings and improvements Investments in unconsolidated joint ventures Distributions in excess of cumulative earnings from unconsolidated joint ventures Proceeds from disposition of real estate/joint venture interest Proceeds from sale of marketable securities Purchases of marketable securities Other investments 291,915 (7,311) 10,277 (303,967) (57,385) 227,543 30,757 6,839 — 17,083 (18,216) 2,932 6,968 (1,044) (44,158) (8,310) 4,410 12,348 441,537 (60,486) (254,460) (400,429) 233,118 1,231,004 — — (38,912) 419,818 (21,892) 20,309 (16,166) — 178,520 (73,241) — (3,262) — (38,009) 19,621 (5,717) (7,209) (41,939) (23,068) (12,440) 46,607 543,001 (28,680) (336,001) (389,249) 319,745 692,796 55,129 — 25,330 845,605 (11,874) 24,337 (44,009) — 10,387 (238,116) — 83 — 26,716 (152,428) 4,780 (5,183) (70,707) 9,899 (35,628) 1,237 644,010 (39,890) (411,950) (145,375) 196,211 2,475,954 6,965 (43,341) 7,704 (977,413) 904,517 1,973,382 Origination of debt and preferred equity investments Repayments or redemption of debt and preferred equity investments Net cash provided by investing activities (731,216) (1,129,970) 703,043 681,662 812,914 22,014 Payment of debt extinguishment costs Proceeds from stock options exercised and DRSPP issuance Repurchase of common stock Redemption of preferred stock Redemption of OP units Distributions to noncontrolling interests in other partnerships Contributions from noncontrolling interests in other partnerships Distributions to noncontrolling interests in the Operating Partnership Dividends paid on common and preferred stock Other obligations related to mortgage loan participations Payment of tax witholdings for restricted share awards Deferred loan costs and capitalized lease obligation Net cash used in by financing activities Net increase (decrease) in cash and cash equivalents Cash, restricted cash, and cash equivalents at beginning of year (13,918) 29,048 — 23,537 (979,541) (806,302) (1,208) (33,972) (8,364) 5,459 (15,000) (313,230) 16 (3,842) (15,109) (1,094,112) 29,087 250,026 (275) — (52,446) 36,275 (14,266) (333,543) 17,227 (3,879) (684,956) (119,941) 369,967 — 15,109 — (3,299) — (15,419) 2,359 (12,671) (314,079) 59,150 (3,162) (2,736,402) (119,010) 488,977 369,967 (27,100) $ (41,076) Cash, restricted cash, and cash equivalents at end of period $ 279,113 $ 250,026 $ (1) Included in Other non-cash adjustments is $172.4 million for the year ended December 31, 2016 for the amortization of the below-market lease at 388-390 Greenwich Street as a result of the tenant exercising their option to purchase the property and entering into an agreement to accelerate the sale. Supplemental cash flow disclosures: Interest paid Income taxes paid $ $ 259,776 1,418 $ $ 273,819 2,448 $ $ 344,295 2,009 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Issuance of units in the operating partnership Redemption of units in the operating partnership Redemption of units in the operating partnership for a joint venture sale Exchange of debt investment for real estate or equity in joint venture Issuance of preferred units relating to the real estate acquisition Tenant improvements and capital expenditures payable Fair value adjustment to noncontrolling interest in operating partnership Deconsolidation of a subsidiary (1) Transfer of assets to assets held for sale Transfer of liabilities related to assets held for sale Removal of fully depreciated commercial real estate properties Issuance of SLG's common stock to a consolidated joint venture — 16,303 10,445 298,956 — — 34,236 298,404 — — 124,249 — 25,723 21,574 — — — 6,667 5,712 695,204 611,809 5,364 15,488 — 78,495 31,806 — 68,581 22,793 15,972 4,222 1,226,425 2,048,376 1,677,528 31,474 114,049 Share repurchase payable (1) $366.6 million of the 2017 amount relates to 1515 Broadway. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018. See Note 6, "Investments in Unconsolidated Joint Ventures.". 41,746 — — 40 41 In December 2018, 2017 and 2016, the Company declared quarterly distributions per share of $0.85, $0.8125 and $0.775, respectively. These distributions were paid in January 2019, 2018 and 2017, respectively. Table of Contents Table of Contents SL Green Realty Corp. Consolidated Statements of Cash Flows (in thousands, except per share data) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. Cash and cash equivalents Restricted cash Total cash, cash equivalents, and restricted cash Year Ended 2018 2017 2016 $ $ 129,475 149,638 279,113 $ $ 127,888 122,138 279,443 90,524 250,026 $ 369,967 The accompanying notes are an integral part of these consolidated financial statements. SL Green Operating Partnership, L.P. Consolidated Balance Sheets (in thousands, except per unit data) December 31, 2018 December 31, 2017 Assets Commercial real estate properties, at cost: Land and land interests Building and improvements Building leasehold and improvements Property under capital lease Less: accumulated depreciation Assets held for sale Cash and cash equivalents Restricted cash Investments in marketable securities Tenant and other receivables, net of allowance of $15,702 and $18,637 in 2018 and 2017, respectively Related party receivables Deferred rents receivable, net of allowance of $15,457 and $17,207 in 2018 and 2017, respectively Debt and preferred equity investments, net of discounts and deferred origination fees of $22,379 and $25,507 in 2018 and 2017, respectively, and allowance of $5,750 in 2018 Investments in unconsolidated joint ventures Deferred costs, net Other assets Total assets (1) Liabilities Mortgages and other loans payable, net Revolving credit facility, net Unsecured term loans, net Unsecured notes, net Accrued interest payable Other liabilities Accounts payable and accrued expenses Deferred revenue Capital lease obligations Deferred land leases payable Dividend and distributions payable Security deposits Liabilities related to assets held for sale Junior subordinated deferrable interest debentures held by trusts that issued trust preferred securities Total liabilities (1) Commitments and contingencies Limited partner interests in SLGOP (4,131 and 4,453 limited partner common units outstanding at December 31, 2018 and 2017, respectively) Preferred units $ 1,774,899 $ $ $ 5,268,484 1,423,107 47,445 8,513,935 (2,099,137) 6,414,798 — 129,475 149,638 28,638 41,589 28,033 335,985 2,099,393 3,019,020 209,110 295,679 12,751,358 1,961,240 492,196 1,493,051 1,495,214 23,154 116,566 147,060 94,453 43,616 3,603 80,430 64,688 — 100,000 6,115,271 387,805 300,427 $ $ 2,357,051 6,351,012 1,450,614 47,445 10,206,122 (2,300,116) 7,906,006 338,354 127,888 122,138 28,579 57,644 23,039 365,337 2,114,041 2,362,989 226,201 310,688 13,982,904 2,837,282 30,336 1,491,575 1,395,939 38,142 188,005 137,142 208,119 42,843 3,239 85,138 67,927 4,074 100,000 6,629,761 461,954 301,735 42 43 Table of Contents Table of Contents SL Green Operating Partnership, L.P. Consolidated Balance Sheets (in thousands, except per unit data) SL Green Operating Partnership, L.P. Consolidated Statements of Operations (in thousands, except per unit data) December 31, 2018 December 31, 2017 Capital SLGOP partners' capital: Series I Preferred Units, $25.00 liquidation preference, 9,200 issued and outstanding at both December 31, 2018 and 2017 221,932 221,932 SL Green partners' capital (878 and 973 general partner common units, and 82,806 and 91,831 limited partner common units outstanding at December 31, 2018 and 2017, respectively) Accumulated other comprehensive income Total SLGOP partners' capital Noncontrolling interests in other partnerships Total capital Total liabilities and capital 5,664,481 15,108 5,901,521 46,334 5,947,855 5,984,557 18,604 6,225,093 364,361 6,589,454 $ 12,751,358 $ 13,982,904 (1) The Operating Partnership's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs: $110.0 million and $398.0 million of land, $0.3 billion and $1.4 billion of building and improvements, $2.0 million and $2.0 million of building and leasehold improvements, $47.4 million and $47.4 million of properties under capital lease, $42.2 million and $330.9 million of accumulated depreciation, $721.3 million and $221.0 million of other assets included in other line items, $140.8 million and $628.9 million of real estate debt, net, $0.4 million and $2.5 million of accrued interest payable, $43.6 million and $42.8 million of capital lease obligations, and $18.4 million and $56.8 million of other liabilities included in other line items as of December 31, 2018 and December 31, 2017, respectively. The accompanying notes are an integral part of these consolidated financial statements. Revenues Rental revenue, net Escalation and reimbursement Investment income Other income Total revenues Expenses Year Ended December 31, 2018 2017 2016 $ 864,978 $ 1,100,993 $ 1,323,767 113,596 201,492 47,326 172,939 193,871 43,670 196,858 213,008 130,348 1,227,392 1,511,473 1,863,981 Operating expenses, including $17,823 in 2018, $21,400 in 2017, $21,890 in 2016 of related party expenses Real estate taxes Ground rent Interest expense, net of interest income Amortization of deferred financing costs Depreciation and amortization Loan loss and other investment reserves, net of recoveries Transaction related costs Marketing, general and administrative Total expenses Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Purchase price and other fair value adjustment (Loss) gain on sale of real estate, net Depreciable real estate reserves and impairment Gain (loss) on sale of investment in marketable securities Loss on early extinguishment of debt Net income Net (income) loss attributable to noncontrolling interests in other partnerships Preferred unit distributions Net income attributable to SLGOP Preferred stock redemption costs Perpetual preferred stock dividends Net income attributable to SLGOP common unitholders Basic earnings per unit: Diluted earnings per unit: $ $ $ Basic weighted average common units outstanding Diluted weighted average common units and common unit equivalents outstanding 229,347 186,351 32,965 208,669 12,408 279,507 6,839 1,099 92,631 1,049,816 7,311 303,967 57,385 (30,757) (227,543) — (17,083) 270,856 6 (11,384) 259,478 — (14,950) 244,528 2.67 2.67 91,315 91,530 $ $ $ 293,364 244,323 33,231 257,045 16,498 403,320 — (1,834) 100,498 1,346,445 21,892 16,166 — 73,241 (178,520) 3,262 — 101,069 15,701 (11,401) 105,369 — (14,950) 90,419 0.87 0.87 103,127 103,403 $ $ $ 312,859 248,388 33,261 321,199 24,564 821,041 — 7,528 99,759 1,868,599 11,874 44,009 — 238,116 (10,387) (83) — 278,911 (7,644) (11,235) 260,032 — (14,950) 245,082 2.34 2.34 104,508 104,881 The accompanying notes are an integral part of these consolidated financial statements. 44 45 Table of Contents Table of Contents SL Green Operating Partnership, L.P. Consolidated Statements of Comprehensive Income (in thousands) Net income Other comprehensive income: Change in net unrealized (loss) gain on derivative instruments, including SLGOP's share of joint venture net unrealized (loss) gain on derivative instruments Change in unrealized gain (loss) on marketable securities Other comprehensive (loss) income Comprehensive income Net loss (income) attributable to noncontrolling interests Other comprehensive income (loss) attributable noncontrolling interests Year Ended December 31, 2017 2016 2018 $ 270,856 $ 101,069 $ 278,911 (3,622) 60 (3,562) 267,294 6 66 1,040 (4,667) (3,627) 97,442 15,701 94 28,508 3,677 32,185 311,096 (7,644) (1,299) Comprehensive income attributable to SLGOP $ 267,366 $ 113,237 $ 302,153 The accompanying notes are an integral part of these consolidated financial statements. SL Green Operating Partnership, L.P. Consolidated Statements of Capital (in thousands, except per unit data) Balance at December 31, 2015 Net income Other comprehensive income Preferred dividends DRSPP proceeds Conversion of common units Reallocation of noncontrolling interests in the operating partnership Deferred compensation plan and stock awards, net of forfeitures and tax withholdings Issuance of stock Contributions to consolidated joint venture interests Proceeds from stock options exercised Cash distributions to noncontrolling interests Cash distributions declared ($2.94 per common unit, none of which represented a return of capital for federal income tax purposes) Balance at December 31, 2016 Net income (loss) Other comprehensive loss Preferred dividends DRSPP proceeds Conversion of common units Reallocation of noncontrolling interests in the operating partnership Equity component of repurchased exchangeable senior notes Deferred compensation plan and stock awards, net of forfeitures and tax withholdings Repurchases of common units Proceeds from stock options exercised Contributions to consolidated joint venture interests Deconsolidation of partially owned entity Cash distributions to noncontrolling interests SL Green Operating Partnership Unitholders Partners' Interest Series I Preferred Units Common Units Common Unitholders Accumulated Other Comprehensive (Loss) Income Noncontrolling Interests Total $ 221,932 99,976 $ 7,074,282 $ (8,749) $ 431,852 $ 7,719,317 7,644 30,886 249,896 (14,950) 277 31,806 (4,222) 23,902 (40) 2 295 96 193 14,832 2,359 257,540 30,886 (14,950) 277 31,806 (4,222) 23,902 (40) 2,359 14,832 221,932 100,562 7,080,406 22,137 426,436 7,750,911 (295,377) (295,377) (15,419) (15,419) 101,374 (14,950) 223 21,574 5,712 (109,776) 2 202 87 29,787 (8,342) (848,048) 292 $ 23,314 (15,701) (3,533) 36,275 (30,203) (52,446) 85,673 (3,533) (14,950) 223 21,574 5,712 (109,776) 29,787 (848,048) 23,314 36,275 (30,203) (52,446) (305,059) Cash distributions declared ($3.1375 per common unit, none of which represented a return of capital for federal income tax purposes) (305,059) Balance at December 31, 2017 221,932 92,803 5,984,557 18,604 364,361 6,589,454 Cumulative adjustment upon adoption of ASC 610-20 570,524 570,524 Balance at January 1, 2018 Net income (loss) Other comprehensive loss Preferred dividends DRSPP proceeds Conversion of common units Reallocation of noncontrolling interest in the Operating Partnership Deferred compensation plan and stock awards, net of forfeitures and tax withholdings Repurchases of common units Proceeds from stock options exercised Contributions to consolidated joint venture interests Deconsolidation of partially owned entity Cash distributions to noncontrolling interests 221,932 92,803 6,555,081 18,604 364,361 7,159,978 (3,496) 247,262 (14,950) 136 16,303 34,236 1 160 149 17,484 (9,745) (937,795) 316 28,912 (6) 247,256 (3,496) (14,950) 136 16,303 34,236 17,484 (937,795) 28,912 5,459 5,459 (315,116) (315,116) (8,364) (8,364) Cash distributions declared ($3.2875 per common unit, none of which represented a return of capital for federal income tax purposes) (282,188) (282,188) Balance at December 31, 2018 $ 221,932 83,684 $ 5,664,481 $ 15,108 $ 46,334 $ 5,947,855 46 47 Table of Contents Table of Contents SL Green Operating Partnership, L.P. Consolidated Statements of Cash Flows (in thousands) SL Green Operating Partnership, L.P. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2018 2017 2016 $ 270,856 $ 101,069 $ 278,911 Financing Activities Proceeds from mortgages and other loans payable Repayments of mortgages and other loans payable Year Ended December 31, 2018 2017 2016 $ 564,391 $ 870,459 $ 408,293 (868,842) (902,460) (1,822,303) Proceeds from revolving credit facility, term loans and senior unsecured notes 3,120,000 2,784,599 1,325,300 Repayments of revolving credit facility, term loans and senior unsecured notes (2,560,000) (2,276,782) (2,334,604) Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Equity in net income from unconsolidated joint ventures Distributions of cumulative earnings from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture interest/real estate Purchase price and other fair value adjustment Depreciable real estate reserves and impairment Loss (gain) on sale of real estate, net Loan loss reserves and other investment reserves, net of recoveries (Gain) loss on sale of investments in marketable securities Loss on early extinguishment of debt Deferred rents receivable Other non-cash adjustments (1) Changes in operating assets and liabilities: Tenant and other receivables Related party receivables Deferred lease costs Other assets Accounts payable, accrued expenses and other liabilities and security deposits Deferred revenue and land leases payable Net cash provided by operating activities Investing Activities Acquisitions of real estate property Additions to land, buildings and improvements Investments in unconsolidated joint ventures Distributions in excess of cumulative earnings from unconsolidated joint ventures Net proceeds from disposition of real estate/joint venture interest Proceeds from sale of marketable securities Purchases of marketable securities Other investments 291,915 (7,311) 10,277 (303,967) (57,385) 227,543 30,757 6,839 — 17,083 (18,216) 2,932 6,968 (1,044) (44,158) (8,310) 4,410 12,348 441,537 (60,486) (254,460) (400,429) 233,118 1,231,004 — — (38,912) Origination of debt and preferred equity investments Repayments or redemption of debt and preferred equity investments Net cash provided by investing activities (731,216) (1,129,970) 703,043 681,662 812,914 22,014 419,818 (21,892) 20,309 (16,166) — 178,520 (73,241) — (3,262) — (38,009) 19,621 (5,717) (7,209) (41,939) (23,068) (12,440) 46,607 845,605 (11,874) 24,337 (44,009) — 10,387 (238,116) — 83 — 26,716 (152,428) 4,780 (5,183) (70,707) 9,899 (35,628) 1,237 543,001 644,010 (28,680) (336,001) (389,249) 319,745 692,796 55,129 — 25,330 (39,890) (411,950) (145,375) 196,211 2,475,954 6,965 (43,341) 7,704 (977,413) 904,517 1,973,382 Payments of debt extinguishment costs Proceeds from stock options exercised and DRSPP issuance Repurchase of common stock Redemption of preferred units Redemption of OP units Distributions to noncontrolling interests in other partnerships Contributions from noncontrolling interests in other partnerships Distributions paid on common and preferred units Other obligations related to mortgage loan participations Payment of tax witholdings for restricted share awards Deferred loan costs and capitalized lease obligation Net cash used in by financing activities Net increase (decrease) in cash and cash equivalents Cash, restricted cash, and cash equivalents at beginning of year (13,918) 29,048 — 23,537 (979,541) (806,302) (1,208) (33,972) (8,364) 5,459 (275) — (52,446) 36,275 — 15,109 — (3,299) — (15,419) 2,359 (328,230) (347,809) (326,750) 16 (3,842) (15,109) (1,094,112) 29,087 250,026 17,227 (3,879) (27,100) (684,956) (119,941) 369,967 59,150 (3,162) (41,076) (2,736,402) (119,010) 488,977 369,967 Cash, restricted cash, and cash equivalents at end of period $ 279,113 $ 250,026 $ (1) Included in Other non-cash adjustments is $172.4 million for the year ended December 31, 2016 for the amortization of the below-market lease at 388-390 Greenwich Street as a result of the tenant exercising their option to purchase the property and entering into an agreement to accelerate the sale. Supplemental cash flow disclosures: Interest paid Income taxes paid Supplemental Disclosure of Non-Cash Investing and Financing Activities: Issuance of units in the operating partnership Redemption of units in the operating partnership Redemption of units in the operating partnership for a joint venture sale Exchange of debt investment for equity in joint venture Issuance of preferred units relating to the real estate acquisition Tenant improvements and capital expenditures payable Fair value adjustment to noncontrolling interest in the operating partnership Deconsolidation of a subsidiary (1) Transfer of assets to assets held for sale Transfer of liabilities related to assets held for sale Removal of fully depreciated commercial real estate properties Issuance of SLG's common stock to a consolidated joint venture Share repurchase payable $ $ 259,776 1,418 $ $ 273,819 2,448 $ $ 344,295 2,009 — 16,303 10,445 298,956 — — 34,236 298,404 — — 124,249 — — 25,723 21,574 — — — 6,667 5,712 695,204 611,809 5,364 15,488 — 41,746 78,495 31,806 — 68,581 22,793 15,972 4,222 1,226,425 2,048,376 1,677,528 31,474 114,049 — (1) $366.6 million of the 2017 amount relates to 1515 Broadway. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018. See Note 6, "Investments in Unconsolidated Joint Ventures.". In December 2018, 2017 and 2016, SLGOP declared quarterly distributions per common unit of $0.85, $0.8125 and $0.775, respectively. These distributions were paid in January 2019, 2018 and 2017, respectively. 48 49 Table of Contents Table of Contents SL Green Operating Partnership, L.P. Consolidated Statements of Cash Flows (in thousands) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. Cash and cash equivalents Restricted cash Total cash, cash equivalents, and restricted cash Year Ended 2018 2017 2016 $ $ 129,475 149,638 279,113 $ $ 127,888 122,138 279,443 90,524 250,026 $ 369,967 The accompanying notes are an integral part of these consolidated financial statements. SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements December 31, 2018 1. Organization and Basis of Presentation SL Green Realty Corp., which is referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Operating Partnership received a contribution of interest in the real estate properties, as well as 95% of the economic interest in the management, leasing and construction companies which are referred to as the Service Corporation. All of the management, leasing and construction services that are provided to the properties that are wholly-owned by us and that are provided to certain joint ventures are conducted through SL Green Management LLC which is 100% owned by the Operating Partnership. The Company has qualified, and expects to qualify in the current fiscal year, as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, and operates as a self-administered, self-managed REIT. A REIT is a legal entity that holds real estate interests and, through payments of dividends to stockholders, is permitted to minimize the payment of Federal income taxes at the corporate level. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership. Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. The Company is the sole managing general partner of the Operating Partnership. As of December 31, 2018, noncontrolling investors held, in the aggregate, a 4.70% limited partnership interest in the Operating Partnership. We refer to these interests as the noncontrolling interests in the Operating Partnership. The Operating Partnership is considered a variable interest entity, or VIE, in which we are the primary beneficiary. See Note 11, "Noncontrolling Interests on the Company's Consolidated Financial Statements." Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P., or ROP, are wholly-owned subsidiaries of SL Green Realty Corp. As of December 31, 2018, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties: Consolidated Unconsolidated Total Property Type Number of Properties Approximate Square Feet (unaudited) Number of Properties Approximate Square Feet (unaudited) Number of Properties Approximate Square Feet (unaudited) Weighted Average Occupancy(1) (unaudited) Location Commercial: Manhattan Office Retail Development/ Redevelopment Fee Interest Suburban Office Retail Development/ Redevelopment Total commercial properties Residential: Manhattan Residential Suburban Residential Total residential properties Total portfolio 20 7 (2) 12,387,091 325,648 5 — 32 13 1 1 15 47 2 (2) — 2 49 486,101 — 13,198,840 2,295,200 52,000 1,000 2,348,200 15,547,040 445,105 — 445,105 15,992,145 10 9 2 1 22 — — — — 22 10 — 10 32 11,329,183 352,174 347,000 — 12,028,357 — — — — 12,028,357 2,156,751 — 2,156,751 14,185,108 30 16 7 1 54 13 1 1 15 69 12 — 12 81 23,716,274 677,822 833,101 — 25,227,197 2,295,200 94.5% 96.7% 54.1% —% 93.2% 91.3% 52,000 100.0% 1,000 2,348,200 27,575,397 2,601,856 — 2,601,856 30,177,253 —% 91.4% 93.1% 91.5% —% 91.5% 92.9% 50 51 (1) The weighted average occupancy for commercial properties represents the total occupied square feet divided by total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by total available units. Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 (2) As of December 31, 2018, we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet (unaudited) of retail space and approximately 222,855 square feet (unaudited) of residential space. For the purpose of this report, we have included this building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage. As of December 31, 2018, we also managed two office buildings owned by third parties encompassing approximately 2.1 million square feet (unaudited) and held debt and preferred equity investments with a book value of $2.1 billion, including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in balance sheet line items other than the Debt and Preferred Equity Investments line item. Partnership Agreement In accordance with the partnership agreement of the Operating Partnership, or the Operating Partnership Agreement, we allocate all distributions and profits and losses in proportion to the percentage of ownership interests of the respective partners. As the managing general partner of the Operating Partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the Operating Partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to minimize any Federal income or excise tax at the Company level. Under the Operating Partnership Agreement, each limited partner has the right to redeem units of limited partnership interests for cash, or if we so elect, shares of SL Green's common stock on a one-for-one basis. 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method. See Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures." All significant intercompany balances and transactions have been eliminated. We consolidate a VIE in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. A noncontrolling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to us. Noncontrolling interests are required to be presented as a separate component of equity in the consolidated balance sheet and the presentation of net income is modified to present earnings and other comprehensive income attributed to controlling and noncontrolling interests. We assess the accounting treatment for each joint venture and debt and preferred equity investment. This assessment includes a review of each joint venture or limited liability company agreement to determine the rights provided to each party and whether those rights are protective or participating. For all VIEs, we review such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity's economic performance. In situations where we and our partner approve, among other things, the annual budget, receive a detailed monthly reporting package, meet on a quarterly basis to review the results of the joint venture, review and approve the joint venture's tax return before filing, and approve all leases that cover more than a nominal amount of space relative to the total rentable space at each property, we do not consolidate the joint venture as we consider these to be substantive participation rights that result in shared power of the activities that most significantly impact the performance of the joint venture. Our joint venture agreements typically contain certain protective rights such as requiring partner approval to sell, finance or refinance the property and the payment of capital expenditures and operating expenditures outside of the approved budget or operating plan. Investment in Commercial Real Estate Properties Real estate properties are presented at cost less accumulated depreciation and amortization. Costs directly related to the development or redevelopment of properties are capitalized. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. We recognize the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests in an acquired entity at their respective fair values on the acquisition date. When we acquire our partner's equity interest in an existing unconsolidated joint venture and gain control over the investment, we record the consolidated investment at fair value. The difference between the book value of our equity investment on the purchase date and our share of the fair value of the investment's purchase price is recorded as a purchase price fair value adjustment in our consolidated statements of operations. See Note 3, "Property Acquisitions." We allocate the purchase price of real estate to land and building (inclusive of tenant improvements) and, if determined to be material, intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building (inclusive of tenant improvements) over their estimated useful lives, which generally range from three to 40 years. We amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease, which generally range from one to 14 years, and record it as either an increase (in the case of below- market leases) or a decrease (in the case of above-market leases) to rental income. We amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease, which generally ranges from one to 14 years. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and 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. To the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material, we amortize such below-market lease value into rental income over the renewal period. As of December 31, 2018, the weighted average amortization period for above-market leases, below-market leases, and in-place lease costs is 1.8 years, 4.6 years, and 5.8 years, respectively. We incur a variety of costs in the development and leasing of our properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major construction activity ceases. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction. Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: Category Building (fee ownership) Building improvements Building (leasehold interest) Property under capital lease Furniture and fixtures Tenant improvements Term 40 years shorter of remaining life of the building or useful life lesser of 40 years or remaining term of the lease remaining lease term four to seven years shorter of remaining term of the lease or useful life Depreciation expense (including amortization of capital lease assets) totaled $242.8 million, $365.3 million, and $783.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property. We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded. We recognized $6.8 million, $20.3 million, and $196.2 million of rental revenue for the years ended December 31, 2018, 2017, and 2016 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. Included in rental revenue 52 53 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 for the year ended December 31, 2016 is $172.4 million related to the amortization of below-market leases at 388-390 Greenwich Street as a result of the tenant exercising their option to purchase the property and entering into an agreement to accelerate the sale. We recognized as a reduction to interest expense the amortization of the above-market rate mortgages assumed of $0.0 million, $0.8 million, and $2.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) as of December 31, 2018 and 2017 (in thousands): Identified intangible assets (included in other assets): Gross amount Accumulated amortization Net(1) Identified intangible liabilities (included in deferred revenue): Gross amount Accumulated amortization Net(1) December 31, 2018 2017 $ $ $ $ 266,540 (241,040) 25,500 276,245 (253,767) 22,478 $ $ $ $ 325,880 (277,038) 48,842 540,283 (402,583) 137,700 (1) As of December 31, 2018, no net intangible assets and no net intangible liabilities were reclassified to assets held for sale and liabilities related to assets held for sale. As of December 31, 2017, $13.9 million net intangible assets and $4.1 million net intangible liabilities were reclassified to assets held for sale and liabilities related to assets held for sale. The estimated annual amortization of acquired above-market leases, net of acquired (below-market) leases (a component of rental revenue), for each of the five succeeding years is as follows (in thousands): 2019 2020 2021 2022 2023 $ (5,227) (3,655) (1,631) (1,328) (749) The estimated annual amortization of all other identifiable assets (a component of depreciation and amortization expense) including tenant improvements for each of the five succeeding years is as follows (in thousands): 2019 2020 2021 2022 2023 Cash and Cash Equivalents $ 9,825 4,817 3,454 1,892 1,507 We consider all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. Restricted Cash Restricted cash primarily consists of security deposits held on behalf of our tenants, interest reserves, as well as capital improvement and real estate tax escrows required under certain loan agreements. Fair Value Measurements See Note 16, "Fair Value Measurements." Investment in Marketable Securities At acquisition, we designate a security as held-to-maturity, available-for-sale, or trading. As of December 31, 2018, we did not have any securities designated as held-to-maturity or trading. We account for our available-for-sale securities at fair value pursuant to Accounting Standards Codification, or ASC, 820-10, with the net unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. The cost of marketable securities sold and the amount reclassified out of accumulated other comprehensive income into earnings is determined using the specific identification method. Any unrealized losses that are determined to be other-than-temporary are recognized in earnings up to their credit component. The Company adopted ASU 2016-01 effective January 1, 2018 which required entities to measure investments in equity securities at fair value and recognize any changes in fair value in net income. Upon adoption we did not hold investments in equity securities and therefore did not record a cumulative-effect adjustment. We did not hold investments in equity securities as of December 31, 2018. At December 31, 2018 and 2017, we held the following marketable securities (in thousands): Commercial mortgage-backed securities Total marketable securities available-for-sale December 31, 2018 2017 $ $ 28,638 28,638 $ $ 28,579 28,579 The cost basis of the commercial mortgage-backed securities was $27.5 million and $27.5 million at December 31, 2018 and 2017, respectively. These securities mature at various times through 2035. We held no equity marketable securities at December 31, 2018 and 2017. During the year ended December 31, 2018, we did not dispose of any marketable securities. During the year ended December 31, 2017, we disposed of marketable securities for aggregate net proceeds of $55.1 million and realized a loss of $3.3 million, which is included in gain (loss) on sale of investment in marketable securities on the consolidated statements of operations. During the year ended December 31, 2016, we disposed of marketable securities for aggregate net proceeds of $7.0 million and realized a loss of $0.1 million, which is included in gain (loss) on sale of investment in marketable securities on the consolidated statements of operations. Investments in Unconsolidated Joint Ventures We account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are VIEs and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. Equity in net income (loss) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture and includes adjustments related to basis differences that were identified as part of the initial accounting for the investment. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. None of the joint venture debt is recourse to us. The Company has performance guarantees under a master lease at one joint venture. See Note 6, "Investments in Unconsolidated Joint Ventures." We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at December 31, 2018. We may originate loans for real estate acquisition, development and construction, where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint 54 55 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with the accounting for our debt and preferred equity investments. Deferred Lease Costs Deferred lease costs consist of fees and direct costs incurred to execute operating leases and are amortized on a straight-line basis over the related lease term. Certain of our employees provide leasing services to the wholly-owned properties. For the years ended December 31, 2018, 2017 and 2016, $15.7 million, $16.4 million, and $15.4 million of their compensation, respectively, was capitalized and is amortized over an estimated average lease term of seven years. Deferred Financing Costs Deferred financing costs represent commitment fees, legal, title and other third party costs associated with obtaining commitments for financing which result in a closing of such financing. These costs are amortized over the terms of the respective agreements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not close. Deferred financing costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Revenue Recognition Rental revenue is recognized on a straight-line basis over the term of the lease. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. In order for the tenant to take possession, the leased space must be substantially ready for its intended use. To determine whether the leased space is substantially ready for its intended use, management evaluates whether we are or the tenant is the owner of tenant improvements for accounting purposes. When management concludes that we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete. In certain instances, when management concludes that we are not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space. When management concludes that we are the owner of tenant improvements for accounting purposes, we record amounts funded to construct the tenant improvements as a capital asset. For these tenant improvements, we record amounts reimbursed by tenants as a reduction of the capital asset. When management concludes that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred costs, net on our consolidated balance sheets and amortized as a reduction to rental revenue on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets. We establish, on a current basis, an allowance for future potential tenant credit losses, which may occur against this account. The balance reflected on the consolidated balance sheets is net of such allowance. In addition to base rent, our tenants also generally will pay their pro rata share of increases in real estate taxes and operating expenses for the building over a base year. In some leases, in lieu of paying additional rent based upon increases in building operating expenses, the tenant will pay additional rent based upon increases in the wage rate paid to porters over the porters' wage rate in effect during a base year or increases in the consumer price index over the index value in effect during a base year. In addition, many of our leases contain fixed percentage increases over the base rent to cover escalations. Electricity is most often supplied by the landlord either on a sub-metered basis, or rent inclusion basis (i.e., a fixed fee is included in the rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant). Base building services other than electricity (such as heat, air conditioning and freight elevator service during business hours, and base building cleaning) are typically provided at no additional cost, with the tenant paying additional rent only for services which exceed base building services or for services which are provided outside normal business hours. These escalations are based on actual expenses incurred in the prior calendar year. If the expenses in the current year are different from those in the prior year, then during the current year, the escalations will be adjusted to reflect the actual expenses for the current year. We record a gain on sale of real estate assets when we no longer hold a controlling financial interest in the entity holding the real estate, a contract exists with a third party and that third party has control of the assets acquired. Investment income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when, in the opinion of management, it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt. Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield. Discounts or premiums associated with the purchase of loans are amortized or accreted into interest income as a yield adjustment on the effective interest method based on expected cash flows through the expected maturity date of the related investment. If we purchase a debt or preferred equity investment at a discount, intend to hold it until maturity and expect to recover the full value of the investment, we accrete the discount into income as an adjustment to yield over the term of the investment. If we purchase a debt or preferred equity investment at a discount with the intention of foreclosing on the collateral, we do not accrete the discount. For debt investments acquired at a discount for credit quality, the difference between contractual cash flows and expected cash flows at acquisition is not accreted. Anticipated exit fees, the collection of which is expected, are also recognized over the term of the loan as an adjustment to yield. Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed. Interest is recorded as income on impaired loans only to the extent cash is received. We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we derecognize the loan sold and recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income. Asset management fees are recognized on a straight-line basis over the term of the asset management agreement. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required payments. If the financial condition of a specific tenant were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. Allowance for Loan Loss and Other Investment Reserves The expense for loan loss and other investment reserves in connection with debt and preferred equity investments is the charge to earnings to adjust the allowance for possible losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality. The Company evaluates debt and preferred equity investments that are classified as held to maturity for possible impairment or credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor. Quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from less risk to greater risk, which ratings are defined as follows: 1 - Low Risk Assets - Low probability of loss, 2 - Watch List Assets - Higher potential for loss, 3 - High Risk Assets - Loss more likely than not. When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired. A valuation allowance is measured based upon the excess of the recorded investment amount over the 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 continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly. Debt and preferred equity investments that are classified as held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment. 56 57 Table of Contents Rent Expense SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 Rent expense is recognized on a straight-line basis over the initial term of the lease. The excess of the rent expense recognized over the amounts contractually due pursuant to the underlying lease is included in the deferred lease payable on the consolidated balance sheets. Underwriting Commissions and Costs Underwriting commissions and costs incurred in connection with our stock offerings are reflected as a reduction of additional paid-in-capital. Exchangeable Debt Instruments The initial proceeds from exchangeable debt that may be settled in cash, including partial cash settlements, are bifurcated between a liability component and an equity component associated with the embedded conversion option. The objective of the accounting guidance is to require the liability and equity components of exchangeable debt to be separately accounted for in a manner such that the interest expense on the exchangeable debt is not recorded at the stated rate of interest but rather at an effective rate that reflects the issuer's conventional debt borrowing rate at the date of issuance. We calculate the liability component of exchangeable debt based on the present value of the contractual cash flows discounted at our comparable market conventional debt borrowing rate at the date of issuance. The difference between the principal amount and the fair value of the liability component is reported as a discount on the exchangeable debt that is accreted as additional interest expense from the issuance date through the contractual maturity date using the effective interest method. A portion of this additional interest expense may be capitalized to the development and redevelopment balances qualifying for interest capitalization each period. The liability component of the exchangeable debt is reported net of discounts on our consolidated balance sheets. We calculate the equity component of exchangeable debt based on the difference between the initial proceeds received from the issuance of the exchangeable debt and the fair value of the liability component at the issuance date. The equity component is included in additional paid-in-capital, net of issuance costs, on our consolidated balance sheets. We allocate issuance costs for exchangeable debt between the liability and the equity components based on their relative values. Transaction Costs In January 2017, we adopted ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, which changed how we account for transaction costs. Prior to January 2017, transaction costs were expensed as incurred. Starting in January 2017, transaction costs for asset acquisitions are capitalized to the investment basis which is then subject to a purchase price allocation based on relative fair value and transaction costs for business combinations or costs incurred on potential transactions which are not consummated are expensed as incurred. Income Taxes SL Green is taxed as a REIT under Section 856(c) of the Code. As a REIT, SL Green generally is not subject to Federal income tax. To maintain its qualification as a REIT, SL Green must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If SL Green fails to qualify as a REIT in any taxable year, SL Green will be subject to Federal income tax on its taxable income at regular corporate rates. SL Green may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on its undistributed taxable income. The Operating Partnership is a partnership and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective income tax returns. The only provision for income taxes included in the consolidated statements of operations relates to the Operating Partnership’s consolidated taxable REIT subsidiaries. The Operating Partnership may also be subject to certain state, local and franchise taxes. We have elected, and may elect in the future, to treat certain of our corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, TRSs may perform non-customary services for the tenants of the Company, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business. The TRSs generate income, resulting in Federal and state income tax liability for these entities. During the years ended December 31, 2018, 2017 and 2016, we recorded Federal, state and local tax provisions of $2.8 million, $4.3 million, and $2.8 million, respectively. For the year ended December 31, 2018, the Company paid distributions on its common stock of $3.25 per share which represented $1.46 per share of ordinary income and $1.79 per share of capital gains. For the year ended December 31, 2017, the Company paid distributions on its common stock of $3.10 per share which represented $1.24 per share of ordinary income, and $1.86 per share of capital gains. For the year ended December 31, 2016, the Company paid distributions on its common stock of $2.88 per share which represented $2.48 per share of ordinary income and $0.40 per share of capital gains. We follow a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited. On December 22, 2017, the Tax Cuts and Jobs Act (the ‘‘Tax Act’’) was signed into law and makes substantial changes to the Code. The Tax Act has not had a material impact on our financial statements for the years ended December 31, 2018 or December 31, 2017. Stock-Based Employee Compensation Plans We have a stock-based employee compensation plan, described more fully in Note 14, "Share-based Compensation." The Company's stock options are recorded at fair value at the time of issuance. Fair value of the stock options is determined using the Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our plan has characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the employee stock options. Compensation cost for stock options, if any, is recognized over the vesting period of the award. Our policy is to grant options with an exercise price equal to the quoted closing market price of the Company's common stock on either the grant date or the date immediately preceding the grant date. Awards of stock or restricted stock are expensed as compensation over the benefit period based on the fair value of the stock on the grant date. For share-based awards with a performance or market measure, we recognize compensation cost over the requisite service period, using the accelerated attribution expense method. The requisite service period begins on the date the compensation committee of our board of directors authorizes the award, adopts any relevant performance measures and communicates the award to the employees. For programs with awards that vest based on the achievement of a performance condition or market condition, we determine whether it is probable that the performance condition will be met, and estimate compensation cost based on the fair value of the award at the applicable award date estimated using a binomial model or market quotes. For share-based awards for which there is no pre-established performance measure, we recognize compensation cost over the service vesting period, which represents the requisite service period, on a straight-line basis. In accordance with the provisions of our share-based incentive compensation plans, we accept the return of shares of the Company's common stock, at the current quoted market price, from certain key employees to satisfy minimum statutory tax-withholding requirements related to shares that vested during the period. Awards can also be made in the form of a separate series of units of limited partnership interest in the Operating Partnership called long-term incentive plan units, or LTIP units. LTIP units, which can be granted either as free-standing awards or in tandem with other awards under our stock incentive plan, are valued by reference to the value of the Company's common stock at the time of grant, and are subject to such conditions and restrictions as the compensation committee of the Company's board of directors may determine, including continued employment or service, computation of financial metrics and/or achievement of pre-established performance goals and objectives. Derivative Instruments In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collars and floors, to manage, or hedge, interest rate risk. Effectiveness is essential for those derivatives that we intend to qualify for hedge accounting. Some derivative instruments are associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long- term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option 58 59 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. In the normal course of business, we are exposed to the effect of interest rate changes and limit these risks by following established risk management policies and procedures including the use of derivatives. To address exposure to interest rates, derivatives are used primarily to fix the rate on debt based on floating-rate indices and manage the cost of borrowing obligations. We use a variety of conventional derivative products. These derivatives typically include interest rate swaps, caps, collars and floors. We expressly prohibit the use of unconventional derivative instruments and using derivative instruments for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. We may employ swaps, forwards or purchased options to hedge qualifying forecasted transactions. Gains and losses related to these transactions are deferred and recognized in net income as interest expense in the same period or periods that the underlying transaction occurs, expires or is otherwise terminated. Hedges that are reported at fair value and presented on the balance sheet could be characterized as cash flow hedges or fair value hedges. Interest rate caps and collars are examples of cash flow hedges. Cash flow hedges address the risk associated with future cash flows of interest payments. For all hedges held by us and which were deemed to be fully effective in meeting the hedging objectives established by our corporate policy governing interest rate risk management, no net gains or losses were reported in earnings. The changes in fair value of hedge instruments are reflected in accumulated other comprehensive income. For derivative instruments not designated as hedging instruments, the gain or loss, resulting from the change in the estimated fair value of the derivative instruments, is recognized in current earnings during the period of change. Earnings per Share of the Company The Company presents both basic and diluted earnings per share, or EPS, using the two-class method, which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPS is computed by dividing the income available to common stockholders by the weighted-average number of common stock shares outstanding for the period. Basic EPS includes participating securities, consisting of unvested restricted stock that receive nonforfeitable dividends similar to shares of common stock. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount. Diluted EPS also includes units of limited partnership interest. The dilutive effect of stock options is reflected in the weighted average diluted outstanding shares calculation by application of the treasury stock method. There was no dilutive effect for the exchangeable senior notes as the conversion premium was to be paid in cash. Earnings per Unit of the Operating Partnership The Operating Partnership presents both basic and diluted earnings per unit, or EPU, using the two-class method, which is an earnings allocation formula that determines EPU for common units and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPU is computed by dividing the income available to common unitholders by the weighted-average number of common units outstanding for the period. Basic EPU includes participating securities, consisting of unvested restricted units that receive nonforfeitable dividends similar to shares of common units. Diluted EPU reflects the potential dilution that could occur if securities or other contracts to issue common units were exercised or converted into common units, where such exercise or conversion would result in a lower EPU amount. The dilutive effect of unit options is reflected in the weighted average diluted outstanding units calculation by application of the treasury stock method. There was no dilutive effect for the exchangeable senior notes as the conversion premium was to be paid in cash. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, debt and preferred equity investments and accounts receivable. We place our cash investments with high quality financial institutions. The collateral securing our debt and preferred equity investments is located in the New York metropolitan area. See Note 5, "Debt and Preferred Equity Investments." We perform ongoing credit evaluations of our tenants and require most tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the total value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost revenue and the costs associated with re-tenanting a space. The properties in our real estate portfolio are located in the New York metropolitan area. The tenants located in our buildings operate in various industries. Other than one tenant, Credit Suisse Securities (USA), Inc., who accounts for 8.2% of our share of annualized cash rent, no other tenant in our portfolio accounted for more than 5.0% of our share of annualized cash rent, including our share of joint venture annualized cash rent, at December 31, 2018. For the years ended December 31, 2018, 2017, and 2016, the following properties contributed more than 5.0% of our annualized cash rent, including our share of joint venture annualized cash rent: Property 2018 Property 2017 Property 11 Madison Avenue 7.4% 11 Madison Avenue 7.1% 1515 Broadway 1185 Avenue of the Americas 6.7% 1185 Avenue of the Americas 7.1% 1185 Avenue of the Americas 420 Lexington Avenue 6.5% 1515 Broadway 7.0% 11 Madison Avenue 1515 Broadway 6.0% 420 Lexington Avenue 6.0% 420 Lexington Avenue One Madison Avenue 5.8% One Madison Avenue 5.6% One Madison Avenue 2016 8.8% 6.9% 6.1% 5.9% 5.6% As of December 31, 2018, 68.7% of our work force is covered by six collective bargaining agreements and 56.0% of our work force, which services substantially all of our properties, is covered by collective bargaining agreements that expire in December 2019. See Note 19, "Benefits Plans." Reclassification Certain prior year balances have been reclassified to conform to our current year presentation. Accounting Standards Updates In October 2018, the FASB issued Accounting Standard Update (ASU) No. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities. Under this amendment reporting entities, when determining if the decision-making fees are variable interests, are to consider indirect interests held through related parties under common control on a proportional basis rather than as a direct interest in its entirety. The guidance is effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has adopted this guidance and it had no impact on the Company’s consolidated financial statements. In August 2018, The Securities and Exchange Commission adopted a final rule that eliminated or amended disclosure requirements that were redundant or outdated in light of changes in its requirements, generally accepted accounting principles, or changes in the business environment. The commission also referred certain disclosure requirements to the Financial Accounting Standards Board for potential incorporation into generally accepted accounting principles. The rule is effective for filings after November 5, 2018. The Company assessed the impact of this rule and determined that the changes resulted in clarification or expansion of existing requirements. The Company early adopted the rule upon publication to the federal register on October 5, 2018 and it did not have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued Accounting Standard Update (ASU) No. 2018-15, Intangibles - Goodwill and Other- Internal-Use Software (Topic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments provide guidance on accounting for fees paid when the arrangement includes a software license and align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs to develop or obtain internal-use software. The guidance is effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has not yet adopted this new guidance and does not expect it to have a material impact on the Company’s consolidated financial statements when the new standard is implemented. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This amendment removed, modified and added the disclosure requirements under Topic 820. The changes are effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted for the removed or modified disclosures with adoption of the additional disclosures upon the effective date. The Company has not yet adopted this new guidance and does not expect it to have a material impact on the Company’s consolidated financial statements when the new standard is implemented. 60 61 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This amendment provides additional guidance related to share-based payment transactions for acquiring goods or services from nonemployees. The guidance is effective for the Company for fiscal years beginning after December 15, 2018, including the interim periods within that fiscal year. The Company will adopt this guidance January 1, 2019 and does not expect it to have a material impact on the Company’s consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments- Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. These amendments provide additional guidance related to equity securities without a readily determinable fair value, forward contracts and options purchased on those equity securities and fair value option liabilities. The Company adopted the guidance on July 1, 2018, and it did not have a material impact on the Company’s consolidated financial statements. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, and in July 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in the new standards will permit more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments. The standards will also enhance the presentation of hedge results in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company will adopt this guidance January 1, 2019, and does not expect a material impact on the Company’s consolidated financial statements when the new standards are implemented. In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. The guidance clarifies the changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in Topic 718. The Company adopted the guidance on January 1, 2018 and it had no impact on the Company's consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. As a result, entities will no longer present transfers between these items on the statement of cash flows. The Company adopted the guidance on January 1, 2018 and has included the changes in restricted cash when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. . The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted after December 15, 2018. The Company’s DPE portfolio and capital lease assets will be subject to this guidance once the Company adopts it. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. The Company continues to evaluate the impact of adopting this new accounting standard on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases. In July 2018, the FASB issued ASU No. 2018-10 - Codification Improvements to Topic 842, Leases and ASU No. 2018-11 - Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20 - Narrow-Scope Improvements for Lessors. This guidance requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the previous standard. Depending on the lease classification, lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The Company will apply this guidance to the ground leases under which the Company is lessee. The Company is required to record a liability for the obligation to make payments under the lease and an asset for the right to use the underlying asset during the lease term and will also apply the new expense recognition requirements given the lease classification. While the Company is continuing to assess all potential impacts of the standard, we expect total liabilities and total assets to increase by $0.4 to $0.5 billion as of the date of adoption. The accounting applied by a lessor is largely unchanged from that applied under the previous standard. The Company does expect to adopt the practical expedient offered in ASU No. 2018-11 that allows lessors to not separate non-lease components from the related lease components under certain conditions, which the Company expects most of its leases to qualify for. Additionally, for future leases, the Company will no longer capitalize internal leasing costs as these costs are not considered to be incremental under the new guidance. The Company is assessing all potential impacts of the standard and currently estimates a decrease in net income of approximately $10.0 million related to this change based on its initial assessment. This guidance in this standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this guidance January 1, 2019 and will apply the modified retrospective approach. The Company will elect the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. In January 2016, the FASB issued ASU 2016-01 (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value through earnings, to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income, use the exit price notion when measuring an instrument’s fair value for disclosure and to separately present financial assets and liabilities by measurement category and form of instrument on the balance sheet or in the notes to the financial statements. The Company adopted the guidance effective January 1, 2018, and it had no impact on the Company’s consolidated financial statements. In May 2014, the FASB issued a new comprehensive revenue recognition guidance which requires us to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services (ASU 2014-09). The FASB also issued implementation guidance in March 2016, April 2016 and May 2016 - ASU’s 2016-08, 2016-10 and 2016-12, respectively. The Company adopted this guidance on January 1, 2018. Since the Company’s revenue is related to leasing activities, the adoption of this guidance did not have a material impact on the consolidated financial statements. The new guidance is applicable to service contracts with joint ventures for which the Company earns property management fees, leasing commissions and development and construction fees. The adoption of this new guidance did not change the accounting for these fees as the pattern of recognition of revenue does not change with the new guidance. We will continue to recognize revenue over time on these contracts because the customer simultaneously receives and consumes the benefits provided by our performance. In February 2017, the FASB issued ASU No. 2017-05 to clarify the scope of asset derecognition guidance in Subtopic 610-20, which also provided guidance on accounting for partial sales of nonfinancial assets. Subtopic 610-20 was issued in May 2014 as part of ASU 2014-09. The Company adopted this guidance on January 1, 2018, and applied the modified retrospective approach. The Company elected to adopt the practical expedient under ASC 606, Revenue from Contracts with Customers, which allows an entity to apply the guidance only to contracts with non-customers that are open based on ASU 360-20, Real Estate Sales, (i.e. failed sales) as of the adoption date. The Company had one open contract in 2017 with a non-customer that was evaluated under ASC 610-20. The Company entered into an agreement to sell a portion of their interest in an entity that held a controlling interest in the property at 1515 Broadway. Upon execution of the agreement in 2017, the transaction was evaluated under ASC 360-20, Real Estate Sales, and did not meet the criteria for sale accounting. Upon adoption of ASC 606, this contract met the criteria for sale accounting under ASC 610-20. Through the sale, the Company no longer retains a controlling interest, as defined in ASC 810, Consolidation, and the impact of this adjustment is a gain of $0.6 billion from the sale of the partial interest and related step-up in basis to fair value of the non-controlling interest retained. This was recorded in the first quarter of 2018 as an adjustment to beginning retained earnings. 3. Property Acquisitions 2018 Acquisitions During the year ended December 31, 2018, the properties listed below were acquired from third parties. Property 2 Herald Square(1) 1231 Third Avenue(2)(3) Upper East Side Residential(3)(4) 133 Greene Street(2) 712 Madison Avenue(2) Acquisition Date Property Type Approximate Square Feet Acquisition Price (in millions) May 2018 July 2018 August 2018 October 2018 December 2018 Leasehold Interest 369,000 $ Fee Interest Fee Interest Fee Interest Fee Interest 39,000 0.2 acres 6,425 6,600 266.0 55.4 30.2 31.0 58.0 (1) In May 2018, the Company was the successful bidder for the leasehold interest in 2 Herald Square, at the foreclosure of the asset. In April and May 2017, the Company had purchased, at par, loans in maturity default that were secured by the leasehold interest in 2 Herald Square. At the time the loans were purchased, the Company expected to collect all contractually required payments, including interest. In August 2017, the Company determined that it was probable that the loans would not be repaid in full and therefore, the loans were put on non-accrual status. No impairment was recorded as the Company believed that the fair value of the leasehold exceeded the carrying amount of the loans. In May 2018, the Company was the successful bidder at the foreclosure of the asset. We recorded the assets acquired and liabilities assumed at fair value. This resulted in the recognition of a fair value adjustment of $8.1 million, 62 63 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 which is reflected in the Company's consolidated statement of operations within purchase price and other fair value adjustments. See Note 16, "Fair Value Measurements." The Company subsequently sold a 49% interest in the property in November 2018. See Note 4, "Properties Held for Sale and Dispositions." and Note 6, "Investments in Unconsolidated Joint Ventures." The Company accepted an assignment of the equity interests in the property in lieu of repayment of the Company's debt investment, and recorded the assets received and liabilities assumed at fair value. This property was subsequently sold in October 2018. See Note 4, "Properties Held for Sale and Dispositions." In August 2018, the Company acquired the fee interest in three additional land parcels at the Upper East Side Residential Assemblage. (2) (3) (4) 2017 Acquisitions During the year ended December 31, 2017, we did not acquire any properties from a third party. 2016 Acquisitions During the year ended December 31, 2016, the property listed below was acquired from a third party. The following summarizes our final allocation of the purchase price of the assets acquired and liabilities assumed upon the closing of this acquisition (in thousands): Acquisition Date Ownership Type Property Type Purchase Price Allocation: Land Building and building leasehold Above-market lease value Acquired in-place leases Other assets, net of other liabilities Assets acquired Mark-to-market assumed debt Below-market lease value Derivatives Liabilities assumed Purchase price Net consideration funded by us at closing, excluding consideration financed by debt Equity and/or debt investment held Debt assumed 183 Broadway March 2016 Fee Interest Retail/Residential $ $ $ $ $ 5,799 23,431 — 773 20 30,023 — (1,523) — (1,523) 28,500 28,500 — — 4. Properties Held for Sale and Property Dispositions Properties Held for Sale As of December 31, 2018, no properties were classified as held for sale. Property Dispositions The following table summarizes the properties sold during the years ended December 31, 2018, 2017, and 2016: Disposition Date Property Type Unaudited Approximate Usable Square Feet Sales Price(1) (in millions) Gain (Loss) on Sale(2) (in millions) November 2018 Office/Retail 369,000 $ 265.0 $ November 2018 Land 39.5 acres October 2018 Development Property 2 Herald Square(3) 400 Summit Lake Drive Upper East Side Assemblage(4)(5) 1-6 International Drive 635 Madison Avenue 115-117 Stevens Avenue 600 Lexington Avenue 1515 Broadway (6) 125 Chubb Way 16 Court Street 680-750 Washington Boulevard 520 White Plains Road 102 Greene Street (7) 400 East 57th Street 11 Madison Avenue (8) 500 West Putnam 388 Greenwich 7 International Drive July 2018 June 2018 May 2018 January 2018 December 2017 October 2017 October 2017 July 2017 April 2017 April 2017 October 2016 August 2016 July 2016 June 2016 May 2016 Office Retail Office Office Office Office Office Office Office Retail Residential Office Office Office Land Residential Leased Fee Interest 70,142 540,000 176,530 178,000 303,515 1,750,000 278,000 317,600 325,000 180,000 9,200 290,482 2,314,000 121,500 2,635,000 31 Acres 66,611 607,000 3.0 143.8 55.0 153.0 12.0 305.0 1,950.0 29.5 171.0 97.0 21.0 43.5 83.3 2,605.0 41.0 2,002.3 20.0 55.0 453.0 — (36.2) (6.3) (2.6) (14.1) (0.7) 23.8 — (26.1) 64.9 (44.2) (14.6) 4.9 23.9 3.6 (10.4) 206.5 (6.9) 15.3 (8.8) 248-252 Bedford Avenue February 2016 885 Third Avenue (9) February 2016 (1) (2) (3) Sales price represents the actual sales price for an entire property or the gross asset valuation for interests in a property. The gain on sale for 600 Lexington, 16 Court Street, 102 Greene Street, 400 East 57th Street, 11 Madison Avenue, 388 Greenwich, and 248-252 Bedford Avenue are net of $1.3 million, $2.5 million, $0.9 million, $1.0 million, $0.6 million, $1.6 million, and $1.3 million in employee compensation accrued in connection with the realization of these investment gains. Additionally, amounts do not include adjustments for expenses recorded in subsequent periods. In November 2018, the company sold a 49% interest in 2 Herald Square to an Israeli institutional investor. See Note 6, "Investments in Unconsolidated Joint Ventures." (4) Upper East Side Assemblage consists of 260 East 72nd Street, 31,076 square feet of development rights, 252-254 East 72nd Street, 257 East 71st Street, (5) (6) (7) (8) (9) 259 East 71st Street, and 1231 Third Avenue. The Company recorded a $5.8 million charge in 2018 that is included in depreciable real estate reserves and impairment in the consolidated statement of operations. In November 2017, the Company sold a 30.13% interest in 1515 Broadway to affiliates of Allianz Real Estate. At that time, the sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and closed on the sale of an additional 12.87% interest in the property to Allianz in February 2018. See Note 6, "Investments in Unconsolidated Joint Ventures." In April 2017, we closed on the sale of a 90% interest 102 Greene Street and had subsequently accounted for our interest in the property as an investment in unconsolidated joint ventures. We sold the remaining 10% interest in September 2017. See Note 6, "Investments in Unconsolidated Joint Ventures." In August 2016, we sold a 40% interest in 11 Madison Avenue. At that time, the sale did not meet the criteria for sale accounting and, as a result, the property was accounted for under the profit sharing method. In November 2016, the Company obtained consent to the modifications to the mortgage on the property, which resulted in the Company achieving sale accounting on the transaction. See Note 6, "Investments in Unconsolidated Joint Ventures." In February 2016, we closed on the sale of 885 Third Avenue. At that time, the sale did not meet the criteria for sale accounting and as a result the property remained on our consolidated financial statements until the criteria was met in April 2017. 64 65 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 5. Debt and Preferred Equity Investments Below is a summary of the activity relating to our debt and preferred equity investments as of December 31, 2018 and 2017 (in thousands): Balance at beginning of period (1) Debt investment originations/accretion (2) Preferred equity investment originations/accretion (2) Redemptions/sales/syndications/amortization (3) Net change in loan loss reserves Balance at end of period (1) December 31, 2018 December 31, 2017 $ $ 2,114,041 $ 834,304 151,704 (994,906) (5,750) 1,640,412 1,142,591 144,456 (813,418) — 2,099,393 $ 2,114,041 (1) Net of unamortized fees, discounts, and premiums. (2) Accretion includes amortization of fees and discounts and paid-in-kind investment income. (3) Certain participations in debt investments that were sold or syndicated did not meet the conditions for sale accounting and are included in other assets and other liabilities on the consolidated balance sheets. The following table is a rollforward of our total loan loss reserves at December 31, 2018, 2017 and 2016 (in thousands): Balance at beginning of year Expensed Recoveries Charge-offs and reclassifications Balance at end of period 2018 December 31, 2017 2016 — $ — $ 6,839 — (1,089) — — — 5,750 $ — $ — — — — — $ $ At December 31, 2018, all debt and preferred equity investments were performing in accordance with the terms of the relevant investments. At December 31, 2018 the Company's loan loss reserves of $5.8 million were attributable to two investments with an unpaid principal balance of $159.9 million that are being marketed for sale, are performing in accordance with their respective terms, and were not put on nonaccrual. At December 31, 2017, all debt and preferred equity investments were performing in accordance with the terms of the relevant investments, with the exception of our investment in 2 Herald Square which was purchased in maturity default in May 2017 and April 2017, respectively, for which we subsequently were the successful bidder for the leasehold interest at the foreclosure of the asset as discussed in Note 3, "Property Acquisitions," and a junior mortgage participation acquired in September 2014, which was acquired for zero, had a carrying value of zero and was canceled in 2018. We have determined that we have one portfolio segment of financing receivables at December 31, 2018 and 2017 comprising commercial real estate which is primarily recorded in debt and preferred equity investments. Included in other assets is an additional amount of financing receivables totaling $88.8 million and $65.5 million at December 31, 2018 and 2017, respectively. No financing receivables were 90 days past due at December 31, 2018 with the exception of a $28.4 million financing receivable which was put on nonaccrual in August as a result of interest default. The loan was evaluated in accordance with our loan review procedures and the Company concluded that the fair value of the collateral exceeded the carrying amount of the loan. As of December 31, 2018, Management estimated the weighted average risk rating for our debt and preferred equity investments to be 1.2. Debt Investments As of December 31, 2018 and 2017, we held the following debt investments with an aggregate weighted average current yield of 8.99%, at December 31, 2018 (in thousands): 66 Loan Type Fixed Rate Investments: Mezzanine Loan(3a) Mezzanine Loan Mezzanine Loan Mezzanine Loan Mezzanine Loan Mezzanine Loan Mezzanine Loan(3b) Mezzanine Loan Mezzanine Loan Mezzanine Loan Mortgage/Jr. Mortgage Loan(4) Mortgage Loan(5) Mortgage Loan(5) Total fixed rate Floating Rate Investments: Mezzanine Loan(6) Mezzanine Loan(3c)(7) Mezzanine Loan(3d)(7) Mezzanine Loan(8) Mezzanine Loan(7) Mezzanine Loan Mortgage/Jr. Mortgage Participation Loan Mezzanine Loan(7)(8) Mortgage/Mezzanine Loan(7) Mortgage/Mezzanine Loan Mezzanine Loan Mortgage/Mezzanine Loan(9) Mezzanine Loan(9) Mortgage Loan Mezzanine Loan Mortgage/Mezzanine Loan Mortgage/Mezzanine Loan(7) Mezzanine Loan Mortgage/Mezzanine Loan Mezzanine Loan Mortgage/Mezzanine Loan Mortgage/Mezzanine Loan Jr. Mortgage Participation/ Mezzanine Loan Mezzanine Loan(8) Mortgage/Mezzanine Loan (5) Mortgage/Mezzanine Loan (5) Mortgage/Mezzanine Loan (10) December 31, 2018 Future Funding Obligations December 31, 2018 Senior Financing December 31, 2018 Carrying Value (1) December 31, 2017 Carrying Value (1) Maturity Date (2) $ — $ 1,160,000 $ 213,185 $ 204,005 March 2020 $ $ $ $ — — — — — — — — — — — — 15,000 147,000 280,000 85,097 180,000 115,000 95,000 340,000 1,712,750 — — — — $ 4,129,847 — $ — — — — — 40,530 — — 1,027 — 7,243 559 11,204 1,277 14,860 — 7,887 — 38,575 33,131 — — — — — — 45,025 85,000 65,000 38,000 40,000 265,000 233,086 65,000 — — 350,000 — 575,955 — 322,300 — — 38,167 — 362,908 — — 60,000 38,596 — — — 67 $ $ 3,500 24,932 36,585 12,706 30,000 12,941 30,000 11,000 55,250 — — — 430,099 37,499 15,333 14,822 21,990 19,986 24,961 84,012 14,998 19,999 154,070 34,886 62,493 79,164 88,501 53,402 277,694 37,094 12,627 83,449 88,817 98,804 35,266 15,665 7,305 — — — 3,500 September 2021 24,913 34,600 April 2022 August 2022 12,699 November 2023 — December 2023 12,932 30,000 June 2024 January 2025 15,000 November 2026 55,250 250,464 26,366 239 669,968 34,879 15,381 14,869 21,939 19,982 24,830 71,832 14,955 19,940 June 2027 January 2019 March 2019 March 2019 March 2019 April 2019 April 2019 August 2019 August 2019 August 2019 143,919 September 2019 34,737 43,845 75,834 October 2019 January 2020 January 2020 — February 2020 — — — 11,259 March 2020 April 2020 June 2020 July 2020 — October 2020 75,428 November 2020 88,989 December 2020 35,152 December 2020 15,635 July 2021 34,947 December 2021 162,553 74,755 23,609 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 December 31, 2018 Future Funding Obligations December 31, 2018 Senior Financing — — — — — — — — — — — — — — — — — — — — December 31, 2018 Carrying Value (1) — December 31, 2017 Carrying Value (1) 16,969 Maturity Date (2) — — — — — — — — — 59,723 37,851 14,855 12,174 10,934 37,250 15,148 8,550 26,927 $ $ 156,293 156,293 $ $ 2,584,037 6,713,884 $ $ 1,382,837 1,812,936 $ $ 1,299,650 1,969,618 Loan Type Mortgage/Mezzanine Loan(5) Mezzanine Loan(5) Mezzanine Loan(5) Mezzanine Loan(5) Mezzanine Loan(11) Mezzanine Loan(11) Mezzanine Loan(5) Mezzanine Loan(5) Mezzanine Loan(5) Mezzanine Loan(11) Total floating rate Total (1) (2) (3) (4) Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees. Represents contractual maturity, excluding any unexercised extension options. Carrying value is net of the following amounts that were sold or syndicated, which are included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting: (a) $1.3 million, (b) $12.0 million, (c) $14.6 million, and (d) $14.1 million. These loans were purchased at par in April and May 2017 and were in maturity default at the time of acquisition. At the time the loans were purchased, the Company expected to collect all contractually required payments, including interest. In August 2017, the Company determined that it was probable that the loans would not be repaid in full and therefore, the loans were put on non-accrual status. No impairment was recorded as the Company believed that the fair value of the property exceeded the carrying amount of the loans. In May 2018, the Company was the successful bidder at the foreclosure of the asset, at which time the loans were credited to our equity investment in the property. This loan was repaid in 2018. (5) (6) As of January 2019, this loan is in maturity default. No impairment was recorded as the Company believes that the fair value of the property exceeded the carrying amount of the loans. This loan was extended in 2018. This loan was repaid in 2019. This loan was modified in 2019. (7) (8) (9) (10) This loan was sold in 2018. (11) In 2018, the Company accepted an assignment of the equity interests in the property in lieu of repayment of the loan, and recorded the assets received and liabilities assumed at fair value. Preferred Equity Investments As of December 31, 2018 and 2017, we held the following preferred equity investments with an aggregate weighted average current yield of 9.12% at December 31, 2018 (in thousands): Type Preferred Equity(3) Preferred Equity December 31, 2018 Future Funding Obligations December 31, 2018 Senior Financing $ $ — $ — 272,000 1,768,000 — $ 2,040,000 $ December 31, 2018 Carrying Value (1) 143,183 $ December 31, 2017 Carrying Value (1) 144,423 $ 143,274 286,457 $ — 144,423 Mandatory Redemption (2) April 2021 June 2022 (1) (2) (3) Carrying value is net of deferred origination fees. Represents contractual maturity, excluding any unexercised extension options. In February 2016, we closed on the sale of 885 Third Avenue and retained a preferred equity position in the property. The sale did not meet the criteria for sale accounting under the full accrual method in ASC 360-20, Property, Plant and Equipment - Real Estate Sales. As a result the property remained on our consolidated balance sheet until the criteria was met in April 2017 at which time the property was deconsolidated and the preferred equity investment was recognized. 6. Investments in Unconsolidated Joint Ventures We have investments in several real estate joint ventures with various partners. As of December 31, 2018, the book value of these investments was $3.0 billion, net of investments with negative book values totaling $85.8 million for which we have an implicit commitment to fund future capital needs. As of December 31, 2018 and December 31, 2017, 800 Third Avenue, 21 East 66th Street, 605 West 42nd Street, 333 East 22nd Street, One Vanderbilt and certain properties within the Stonehenge Portfolio are VIEs in which we are not the primary beneficiary. Our net equity investment in these VIEs was $808.3 million as of December 31, 2018 and $606.2 million as of December 31, 2017. Our maximum loss is limited to the amount of our equity investment in these VIEs. See the "Principles of Consolidation" section of Note 2, "Significant Accounting Policies". All other investments below are voting interest entities. As we do not control the joint ventures listed below, we account for them under the equity method of accounting. The table below provides general information on each of our joint ventures as of December 31, 2018: Property Partner Ownership Interest (1) Economic Interest (1) Unaudited Approximate Square Feet Acquisition Date (2) Acquisition Price(2) (in thousands) 100 Park Avenue 717 Fifth Avenue 800 Third Avenue 919 Third Avenue(3) 11 West 34th Street 280 Park Avenue 1552-1560 Broadway(4) 10 East 53rd Street 521 Fifth Avenue 21 East 66th Street(5) 650 Fifth Avenue(6) 121 Greene Street Prudential Real Estate Investors Jeff Sutton/Private Investor Private Investors New York State Teacher's Retirement System Private Investor/ Jeff Sutton Vornado Realty Trust Jeff Sutton Canadian Pension Plan Investment Board Plaza Global Real Estate Partners LP Private Investors Jeff Sutton Jeff Sutton Prudential Real Estate 55 West 46th Street Investors Stonehenge Portfolio(7) Various 131-137 Spring Street(8) 605 West 42nd Street The Moinian Group Invesco Real Estate 11 Madison Avenue PGIM Real Estate 333 East 22nd Street 400 East 57th Street(9) Private Investors BlackRock, Inc and Stonehenge Partners One Vanderbilt(10) Worldwide Plaza 1515 Broadway(11) 2 Herald Square National Pension Service of Korea/Hines Interest LP RXR Realty / New York REIT / Private Investor Allianz Real Estate of America Israeli Institutional Investor 49.90% 49.90% 834,000 February 2000 $ 95,800 10.92% 60.52% 10.92% 60.52% 119,500 526,000 September 2006 December 2006 251,900 285,000 51.00% 51.00% 1,454,000 January 2007 1,256,727 30.00% 50.00% 50.00% 30.00% 50.00% 50.00% 17,150 December 2010 1,219,158 March 2011 57,718 August 2011 55.00% 55.00% 354,300 February 2012 50.50% 32.28% 50.00% 50.00% 25.00% Various 20.00% 20.00% 60.00% 33.33% 50.50% 32.28% 50.00% 50.00% 25.00% Various 20.00% 20.00% 60.00% 33.33% 460,000 November 2012 13,069 69,214 December 2012 November 2013 7,131 September 2014 347,000 November 2014 1,439,016 February 2015 68,342 927,358 August 2015 April 2016 2,314,000 August 2016 26,926 August 2016 10,800 400,000 136,550 252,500 315,000 75,000 — 27,400 295,000 36,668 277,750 759,000 2,605,000 — 51.00% 41.00% 290,482 October 2016 170,000 71.01% 71.01% — January 2017 24.35% 24.35% 2,048,725 October 2017 56.87% 56.87% 1,750,000 November 2017 51.00% 51.00% 369,000 November 2018 3,310,000 1,725,000 1,950,000 266,000 (1) Ownership interest and economic interest represent the Company's interests in the joint venture as of December 31, 2018. Changes in ownership or economic interests within the current year are disclosed in the notes below. (2) Acquisition date and price represent the date on which the Company initially acquired an interest in the joint venture and the actual or implied gross purchase (3) price for the joint venture on that date. Acquisition date and price are not adjusted for subsequent acquisitions or dispositions of interest. In January 2018, the partnership agreement for our investment was modified resulting in the Company no longer having a controlling interest in this investment. As a result the investment was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting 68 69 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 (4) in a $49.3 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles of the property. The purchase price represents only the purchase of the 1552 Broadway interest which comprised approximately 13,045 square feet. The joint venture also owns a long-term leasehold interest in the retail space and certain other spaces at 1560 Broadway, which is adjacent to 1552 Broadway. (5) We hold a 32.28% interest in three retail and two residential units at the property and a 16.14% interest in three residential units at the property. (6) The joint venture owns a long-term leasehold interest in the retail space at 650 Fifth Avenue. In connection with the ground lease obligation, SLG provided a performance guaranty and our joint venture partner executed a contribution agreement to reflect its pro rata obligation. In the event the property is converted into a condominium unit and the landlord elects the purchase option, the joint venture shall be obligated to acquire the unit at the then fair value. In February and March 2018, the Company, together with its joint venture partner, closed on the sale of two properties from the Stonehenge Portfolio. These sales are further described under Sale of Joint Venture Interest of Properties below. In January 2019, we closed on the sale of our interest in this property to our joint venture partner. The transaction generated net cash proceeds to the Company of $15.2 million. In October 2016, the Company sold a 49% interest in this property to an investment account managed by BlackRock, Inc. The Company's interest in the property was sold within a consolidated joint venture owned 90% by the Company and 10% by Stonehenge. The transaction resulted in the deconsolidation of the venture's remaining 51% interest in the property. The Company's joint venture with Stonehenge remains consolidated resulting in the combined 51% interest being shown within investments in unconsolidated joint ventures on the Company's balance sheet. (7) (8) (9) (11) (10) The partners have committed aggregate equity to the project totaling no less than $525 million and their ownership interest in the joint venture is based on their capital contributions, up to an aggregate maximum of 29.0%. At December 31, 2018 the total of the two partners' ownership interests based on equity contributed was 23.4%. In November 2017, the Company sold a 30% interest in 1515 Broadway to affiliates of Allianz Real Estate. The sale did not meet the criteria for sale accounting and as a result the property was accounted for under the profit sharing method at December 31, 2017. The Company achieved sale accounting upon adoption of ASC 610-20 in January 2018 and recorded a $0.6 billion gain from the sale of the partial interest and related step-up in basis to fair value of the retained non-controlling interest as an adjustment to beginning retained earnings based on the application of the modified retrospective adoption approach. The Company closed on the sale of an additional 13% interest in the property to Allianz in February 2018. Acquisition, Development and Construction Arrangements Based on the characteristics of the following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50%, we have accounted for these debt and preferred equity investments under the equity method. As of December 31, 2018 and 2017, the carrying value for acquisition, development and construction arrangements were as follows (in thousands): Loan Type Mezzanine Loan(1) Mezzanine Loan and Preferred Equity (2) Mezzanine Loan(3) December 31, 2018 December 31, 2017 Maturity Date $ $ 44,357 — — 44,357 $ 44,823 100,000 26,716 171,539 February 2022 (1) We have an option to convert our loan to an equity interest subject to certain conditions. We have determined that our option to convert the loan to equity is not a derivative financial instrument pursuant to GAAP. The mezzanine loan was repaid and the preferred equity interest was redeemed in March 2018. The Company was redeemed on this investment in July 2018. (2) (3) Disposition of Joint Venture Interests or Properties The following table summarizes the investments in unconsolidated joint ventures sold during the years ended December 31, 2018, 2017, and 2016: Property 3 Columbus Circle Mezzanine Loan(3) 724 Fifth Avenue Jericho Plaza(4) 1745 Broadway 175-225 Third Street Brooklyn, New York Stonehenge Village(5) 1515 Broadway(6) 1274 Fifth Avenue(5) 102 Greene Street 76 11th Avenue(7) Stonehenge Portfolio (partial)(6) EOP Denver 33 Beekman (8) EOP Denver 7 Renaissance Square Jericho Plaza (4) Ownership Interest Sold 48.90% 33.33% 49.90% 11.67% 56.87% 95.00% 0.50% 13.00% 9.83% 10.00% 33.33% Various 0.48% 45.90% 4.79% 50.00% 66.11% Disposition Date Type of Sale November 2018 Ownership Interest August 2018 Repayment July 2018 June 2018 May 2018 April 2018 March 2018 Ownership Interest Ownership Interest Property Property Property February 2018 Ownership Interest February 2018 Property September 2017 Ownership Interest May 2017 Repayment March 2017 Ownership Interest September 2016 Ownership Interest May 2016 Property March 2016 Ownership Interest March 2016 Property February 2016 Ownership Interest Gross Asset Valuation (in thousands)(1) 851,000 $ Gain (Loss) on Sale (in thousands)(2) 160,368 $ 15,000 365,000 117,400 633,000 115,000 287,000 1,950,000 44,100 43,500 138,240 300,000 180,700 196,000 180,700 20,700 95,200 N/A 64,587 147 52,038 19,483 (5,701) — (362) 283 N/A 871 300 33,000 2,800 4,200 3,300 (1) (2) Represents implied gross valuation for the joint venture or sales price of the property. Represents the Company's share of the gain or loss. The gain on sale is net of $11.7 million, $0, and $1.1 million of employee compensation accrued in connection with the realization of these investment gains in the years ended December 31, 2018, 2017, and 2016, respectively. Additionally, gain (loss) amounts do not include adjustments for expenses recorded in subsequent periods. (3) Our investment in a joint venture that owned a mezzanine loan secured by a commercial property in midtown Manhattan was repaid after the joint venture received repayment of the underlying loan. (4) We sold our 11.67% interest in June 2018. In the first quarter of 2016, our ownership percentage was reduced from 77.78% to 11.67%, upon completion of a restructuring of the joint venture. Properties were part of the Stonehenge Portfolio. (5) (6) Our investment in 1515 Broadway was marked to fair value on January 1, 2018 upon adoption of ASC 610-20. (7) Our investment in a joint venture that owned two mezzanine notes secured by interests in the entity that owns 76 11th Avenue was repaid after the joint venture received repayment of the underlying loans. In connection with the sale of the property, we also recognized a promote of $10.8 million. (8) In May 2017, we recognized a gain of $13.0 million related to the sale in May 2014 of our ownership interest in 747 Madison Avenue. The sale did not meet the criteria for sale accounting at that time and, therefore, remained on our consolidated financial statements. The sale criteria was met in May of 2017 resulting in recognition of the deferred gain on the sale. Joint Venture Mortgages and Other Loans Payable We generally finance our joint ventures with non-recourse debt. In certain cases we may provide guarantees or master leases for tenant space, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The first mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at December 31, 2018 and 2017, respectively, are as follows (amounts in thousands): 70 71 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 Property Fixed Rate Debt: 521 Fifth Avenue 717 Fifth Avenue (3) 717 Fifth Avenue (3) 650 Fifth Avenue (4) 650 Fifth Avenue (4) 21 East 66th Street 919 Third Avenue 1515 Broadway 11 Madison Avenue 800 Third Avenue 400 East 57th Street Worldwide Plaza Stonehenge Portfolio (5) 3 Columbus Circle (6) Total fixed rate debt Floating Rate Debt: 280 Park Avenue 121 Greene Street 10 East 53rd Street 131-137 Spring Street (7) 1552 Broadway 55 West 46th Street (8) 11 West 34th Street 103 East 86th Street (9) 100 Park Avenue One Vanderbilt (10) 2 Herald Square (11) 605 West 42nd Street 21 East 66th Street 175-225 Third Street Brooklyn, New York (12) 1745 Broadway (12) Jericho Plaza (13) 724 Fifth Avenue (14) Total floating rate debt Economic Interest (1) Maturity Date Interest Rate (2) December 31, 2018 December 31, 2017 50.50% November 2019 3.73% $ 170,000 $ 10.92% 10.92% 50.00% 50.00% 32.28% 51.00% 56.87% July 2022 July 2022 October 2022 October 2022 April 2023 June 2023 March 2025 60.00% September 2025 60.52% February 2026 41.00% November 2026 24.35% November 2027 Various Various 4.45% 5.50% 4.46% 5.45% 3.60% 5.12% 3.93% 3.84% 3.37% 3.00% 3.98% 4.20% 300,000 355,328 210,000 65,000 12,000 500,000 855,876 1,400,000 177,000 99,828 1,200,000 321,076 — $ 5,666,108 50.00% September 2019 L+ 1.73% $ 1,200,000 50.00% November 2019 55.00% 20.00% 50.00% February 2020 August 2020 October 2020 25.00% November 2020 30.00% 1.00% January 2021 January 2021 49.90% February 2021 71.01% September 2021 51.00% November 2021 20.00% August 2027 L+ 1.50% L+ 2.25% L+ 1.55% L+ 2.65% L+ 2.13% L+ 1.45% L+ 1.40% L+ 1.75% L+ 2.75% L+ 1.55% L+ 1.44% 15,000 170,000 141,000 195,000 185,569 23,000 38,000 360,000 375,000 133,565 550,000 32.28% June 2033 Treasury+ 2.75% 1,571 1 Year $ $ — — — — 170,000 300,000 355,328 210,000 65,000 12,000 — 872,528 1,400,000 177,000 100,000 1,200,000 357,282 350,000 5,569,138 1,200,000 15,000 170,000 141,000 195,000 171,444 23,000 55,340 360,000 355,535 — 550,000 1,648 40,000 345,000 81,099 275,000 In January 2019, we closed on the sale of our interest in this property to our joint venture partner. This loan has a committed amount of $195.0 million, of which $9.4 million was unfunded as of December 31, 2018. In February 2019, along with our joint venture partner, we closed on the sale of the property. (7) (8) (9) (10) This loan is a $1.75 billion construction facility, with reductions in interest cost based on meeting certain conditions, and has an initial five-year term with two one-year extension options. Advances under the loan are subject to incurred costs, funded equity, loan to value thresholds, and entering into construction contracts. (11) This loan has a committed amount of $150.0 million. (12) (13) (14) In 2018, along with our joint venture partner, we closed on the sale of the property. In 2018, we closed on the sale of our interest in the property. In 2018, we closed on the sale of substantially all of our interest in the property to our joint venture partner. We act as the operating partner and day-to-day manager for all our joint ventures, except for Worldwide Plaza, 800 Third Avenue, 280 Park Avenue, 21 East 66th Street, 605 West 42nd Street, 400 East 57th Street, and the Stonehenge Portfolio. We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to certain of our joint ventures. We earned $14.2 million, $22.6 million and $4.0 million from these services, net of our ownership share of the joint ventures, for the years ended December 31, 2018, 2017, and 2016, respectively. In addition, we have the ability to earn incentive fees based on the ultimate financial performance of certain of the joint venture properties. The combined balance sheets for the unconsolidated joint ventures, at December 31, 2018 and 2017, are as follows (in thousands): Assets (1) Commercial real estate property, net Cash and restricted cash Tenant and other receivables, related party receivables, and deferred rents receivable, net of allowance Debt and preferred equity investments, net Other assets Total assets Liabilities and equity (1) Mortgages and other loans payable, net Deferred revenue/gain Other liabilities Equity Total liabilities and equity Company's investments in unconsolidated joint ventures December 31, 2018 December 31, 2017 $ $ $ $ $ 14,347,673 $ 381,301 273,141 44,357 2,187,166 17,233,638 8,950,622 1,660,838 946,313 5,675,865 17,233,638 3,019,020 $ $ $ $ 12,822,133 494,909 349,944 202,539 1,407,806 15,277,331 9,412,101 985,648 411,053 4,468,529 15,277,331 2,362,989 (1) The combined assets, liabilities and equity for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018. Total joint venture mortgages and other loans payable Deferred financing costs, net Total joint venture mortgages and other loans payable, net $ $ $ 3,387,705 9,053,813 (103,191) 8,950,622 $ $ $ 3,979,066 9,548,204 (136,103) 9,412,101 (1) (2) (3) Economic interest represents the Company's interests in the joint venture as of December 31, 2018. Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures table above. Interest rate as of December 31, 2018, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated interest rate spread over 30-day LIBOR, unless otherwise specified. These loans are comprised of a $300.0 million fixed rate mortgage loan and $355.3 million mezzanine loan. The mezzanine loan is subject to accretion based on the difference between contractual interest rate and contractual pay rate. These loans are comprised of a $210.0 million fixed rate mortgage loan and $65.0 million fixed rate mezzanine loan. (4) (5) Amount is comprised of $134.3 million, $54.1 million, and $132.6 million in fixed-rated mortgages that mature in August 2019, June 2024, and April 2028, respectively. In November 2018, we closed on the sale of our interest in the property to our joint venture partner. (6) 72 73 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 The combined statements of operations for the unconsolidated joint ventures, from acquisition date through the years ended 8. Mortgages and Other Loans Payable December 31, 2018, 2017, and 2016 are as follows (in thousands): Total revenues Operating expenses Real estate taxes Ground rent Interest expense, net of interest income Amortization of deferred financing costs Transaction related costs Depreciation and amortization Total expenses Loss on early extinguishment of debt Net (loss) income before gain on sale (1) Company's equity in net income from unconsolidated joint ventures (1) Year Ended December 31, 2018 2017 2016 $ 1,244,804 $ 904,230 $ 219,440 226,961 18,697 363,055 21,634 — 421,458 $ $ $ 1,271,245 $ — (26,441) $ 7,311 $ 157,610 142,774 16,794 250,063 23,026 146 279,419 869,832 (7,899) 26,499 21,892 $ $ $ 712,689 126,913 111,673 14,924 197,741 24,829 5,566 199,011 680,657 (1,606) 30,426 11,874 (1) The combined statements of operations and the Company's equity in net income for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018. 7. Deferred Costs Deferred costs at December 31, 2018 and 2017 consisted of the following (in thousands): Deferred leasing costs Less: accumulated amortization Deferred costs, net December 31, 2018 2017 $ $ 453,833 (244,723) 209,110 $ $ 443,341 (217,140) 226,201 The first mortgages and other loans payable collateralized by the respective properties and assignment of leases or debt investments at December 31, 2018 and 2017, respectively, were as follows (amounts in thousands): Property Fixed Rate Debt: 762 Madison Avenue 100 Church Street 420 Lexington Avenue 400 East 58th Street (2) Landmark Square 485 Lexington Avenue 1080 Amsterdam (3) 315 West 33rd Street 919 Third Avenue (4) Unsecured Loan (5) Series J Preferred Units (6) One Madison Avenue (7) Total fixed rate debt Floating Rate Debt: FHLB Facility 2017 Master Repurchase Agreement FHLB Facility 133 Greene Street 185 Broadway (8) 712 Madison 115 Spring Street 719 Seventh Avenue 220 East 42nd Street (9) Total floating rate debt Total fixed rate and floating rate debt Mortgages reclassed to liabilities related to assets held for sale Total mortgages and other loans payable Deferred financing costs, net of amortization Total mortgages and other loans payable, net Maturity Date Interest Rate (1) December 31, 2018 December 31, 2017 February 2022 July 2022 October 2024 November 2026 January 2027 February 2027 February 2027 February 2027 5.00% 4.68% 3.99% 3.00% 4.90% 4.25% 3.58% 4.17% 771 213,208 300,000 39,931 100,000 450,000 35,807 250,000 — — — — $ 1,389,717 May 2019 L+ 0.27% $ June 2019 L+ 2.34% December 2019 L+ 0.18% August 2020 L+ 2.00% November 2021 L+ 2.85% December 2021 L+ 2.50% September 2023 L+ 3.40% September 2023 L+ 1.20% $ $ $ $ 13,000 300,000 14,500 15,523 111,869 28,000 65,550 50,000 — 598,442 1,988,159 — 1,988,159 (26,919) 1,961,240 $ $ $ $ $ $ 771 217,273 300,000 40,000 100,000 450,000 36,363 250,000 500,000 16,000 4,000 486,153 2,400,560 — 90,809 — — 58,000 — — 41,622 275,000 465,431 2,865,991 — 2,865,991 (28,709) 2,837,282 (1) (2) (3) Interest rate as of December 31, 2018, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated interest rate spread over 30-day LIBOR, unless otherwise specified. The loan carries a fixed interest rate of 300 basis points for the first five years and is prepayable without penalty at the end of year five. The loan is comprised of a $35.5 million mortgage loan and $0.9 million subordinate loan with a fixed interest rate of 350 basis points and 700 basis points, respectively, for the first five years and is prepayable without penalty at the end of year five. (4) Our investment in the property was deconsolidated as of January 1, 2018. See Note 6, "Investments in Unconsolidated Joint Ventures". (5) (6) (7) (8) In May 2018, the loan was repaid in connection with the sale of the property. In June 2018, the Series J Preferred Units were redeemed in connection with the sale of the property. In 2018, the Company recognized a $14.9 million loss on extinguishment of debt related to the early repayment of this loan. This loan is a $225.0 million construction facility, with reductions in interest cost based on meeting certain conditions, and has an initial three-year term with two one-year extension options. Advances under the loan are subject to incurred costs and funded equity requirements. In 2018, the mortgage was repaid. (9) 74 75 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 At December 31, 2018 and 2017, the gross book value of the properties and debt and preferred equity investments collateralizing the mortgages and other loans payable, not including assets held for sale, was approximately $3.9 billion and $4.8 billion, respectively. Federal Home Loan Bank of New York Facility The Company’s wholly-owned subsidiary, Ticonderoga Insurance Company, or Ticonderoga, a Vermont licensed captive insurance company, is a member of the Federal Home Loan Bank of New York, or FHLBNY. As a member, Ticonderoga may borrow funds from the FHLBNY in the form of secured advances. As of December 31, 2018, we had $13.0 million and $14.5 million in outstanding secured advances with a borrowing rate of 30-day LIBOR over 27 basis points and 30-day LIBOR over 18 basis points, respectively. Master Repurchase Agreements The Company has entered into two Master Repurchase Agreements, or MRAs, known as the 2016 MRA and 2017 MRA, which provide us with the ability to sell certain debt investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facilities permit valuation adjustments based on capital markets activity, and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to recollateralize the facility with additional assets from our portfolio of debt investments, our ability to satisfy margin calls with cash or cash equivalents and our access to additional liquidity through the 2017 credit facility, as defined below. In June 2017, we entered into the 2017 MRA, with a maximum facility capacity of $300.0 million. In April 2018, we increased the maximum facility capacity to $400.0 million. The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate and has an initial one year term, with two one year extension options. In June 2018, we exercised a one year extension option. At December 31, 2018, the facility had a carrying value of $299.6 million, net of deferred financing costs. In July 2016, we entered into a restated 2016 MRA, with a maximum facility capacity of $300.0 million. In June 2018, we terminated the restated 2016 MRA. The facility bore interest ranging from 225 and 400 basis points over 30-day LIBOR depending on the pledged collateral and had an initial two-year term, with a one year extension option. Since December 6, 2015, we had been required to pay monthly in arrears a 25 basis point fee on the excess of $150.0 million over the average daily balance during the period when the average daily balance was less than $150.0 million. 9. Corporate Indebtedness 2017 Credit Facility In November 2017, we entered into an amendment to the credit facility, referred to as the 2017 credit facility, that was originally entered into by the Company in November 2012, or the 2012 credit facility. As of December 31, 2018, the 2017 credit facility consisted of a $1.5 billion revolving credit facility, a $1.3 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of March 31, 2022, March 31, 2023, and November 21, 2024, respectively. The revolving credit facility has two six-month as-of-right extension options to March 31, 2023. We also have an option, subject to customary conditions, to increase the capacity of the credit facility to $4.5 billion at any time prior to the maturity dates for the revolving credit facility and term loans without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions. As of December 31, 2018, the 2017 credit facility bore interest at a spread over 30-day LIBOR ranging from (i) 82.5 basis points to 155 basis points for loans under the revolving credit facility, (ii) 90 basis points to 175 basis points for loans under Term Loan A, and (iii) 150 basis points to 245 basis points for loans under Term Loan B, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. At December 31, 2018, the applicable spread was 100 basis points for the revolving credit facility, 110 basis points for Term Loan A, and 165 basis points for Term Loan B. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. As of December 31, 2018, the facility fee was 20 basis points. As of December 31, 2018, we had $11.8 million of outstanding letters of credit, $500.0 million drawn under the revolving credit facility and $1.5 billion outstanding under the term loan facilities, with total undrawn capacity of $1.0 billion under the 2017 credit facility. At December 31, 2018 and December 31, 2017, the revolving credit facility had a carrying value of $492.2 million and $30.3 million, respectively, net of deferred financing costs. At December 31, 2018 and December 31, 2017, the term loan facilities had a carrying value of $1.5 billion and $1.5 billion, respectively, net of deferred financing costs. The Company and the Operating Partnership are borrowers jointly and severally obligated under the 2017 credit facility. The 2017 credit facility includes certain restrictions and covenants (see Restrictive Covenants below). Senior Unsecured Notes The following table sets forth our senior unsecured notes and other related disclosures as of December 31, 2018 and 2017, respectively, by scheduled maturity date (amounts in thousands): Issuance March 16, 2010 (2) August 7, 2018 (3) (4) October 5, 2017 (3) November 15, 2012 (5) December 17, 2015 (2) August 5, 2011 (2) (6) Deferred financing costs, net December 31, 2018 Unpaid Principal Balance December 31, 2018 Accreted Balance December 31, 2017 Accreted Balance Interest Rate (1) Initial Term (in Years) Maturity Date $ 250,000 $ 250,000 $ 250,000 7.75% 350,000 500,000 300,000 100,000 — 1,500,000 1,500,000 $ $ 350,000 499,591 304,168 100,000 — — L+ 0.98% 499,489 305,163 100,000 249,953 3.25% 4.50% 4.27% $ $ 1,503,759 (8,545) 1,495,214 $ $ 1,404,605 (8,666) 1,395,939 10 3 5 March 2020 August 2021 October 2022 10 December 2022 10 December 2025 (1) (2) (3) (4) (5) (6) Interest rate as of December 31, 2018, taking into account interest rate hedges in effect during the period. Floating rate notes are presented with the stated spread over 3-month LIBOR, unless otherwise specified. Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates. Issued by the Company and the Operating Partnership as co-obligors. Issued by the Operating Partnership with the Company as the guarantor. Beginning on August 8, 2019 and at any time thereafter, the notes are subject to redemption at the Company's option, in whole but not in part, at a redemption price equal to 100% of the principal amount of the notes, plus unpaid accrued interest thereon to the redemption date. In October 2017, the Company and the Operating Partnership as co-obligors issued an additional $100.0 million of 4.50% senior unsecured notes due December 2022. The notes were priced at 105.334%. The balance was repaid in August 2018. 76 77 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 Restrictive Covenants The terms of the 2017 credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, our ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that, we will not during any time when a default is continuing, make distributions with respect to common stock or other equity interests, except to enable the Company to continue to qualify as a REIT for Federal income tax purposes. As of December 31, 2018 and 2017, we were in compliance with all such covenants. Junior Subordinated Deferrable Interest Debentures In June 2005, the Company and the Operating Partnership issued $100.0 million in unsecured trust preferred securities through a newly formed trust, SL Green Capital Trust I, or the Trust, which is a wholly-owned subsidiary of the Operating Partnership. The securities mature in 2035 and bear interest at a floating rate of 125 basis points over the three-month LIBOR. Interest payments may be deferred for a period of up to eight consecutive quarters if the Operating Partnership exercises its right to defer such payments. The Trust preferred securities are redeemable at the option of the Operating Partnership, in whole or in part, with no prepayment premium. We do not consolidate the Trust even though it is a variable interest entity as we are not the primary beneficiary. Because the Trust is not consolidated, we have recorded the debt on our consolidated balance sheets and the related payments are classified as interest expense. Principal Maturities Combined aggregate principal maturities of mortgages and other loans payable, 2017 credit facility, trust preferred securities, senior unsecured notes and our share of joint venture debt as of December 31, 2018, including as-of-right extension options and put options, were as follows (in thousands): Scheduled Amortization Principal Revolving Credit Facility Unsecured Term Loans Trust Preferred Securities Senior Unsecured Notes Total Joint Venture Debt $ 6,241 $ 27,500 $ — $ — $ — $ — $ 33,741 $ 115,295 11,117 11,636 9,429 7,301 9,290 315,523 139,869 198,588 115,550 — — — — — — 500,000 1,300,000 — — — — 250,000 350,000 800,000 576,640 501,505 1,008,017 — 1,922,851 278,791 518,371 220,810 277,996 1,136,115 — 200,000 100,000 100,000 1,545,405 2,430,198 2019 2020 2021 2022 2023 Thereafter into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements. Income earned from the profit participation, which is included in other income on the consolidated statements of operations, was $3.9 million, $3.9 million and $3.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. We also recorded expenses, inclusive of capitalized expenses, of $18.8 million, $22.6 million and $23.4 million the years ended December 31, 2018, 2017 and 2016, respectively, for these services (excluding services provided directly to tenants). Management Fees S.L. Green Management Corp., a consolidated entity, receives property management fees from an entity in which Stephen L. Green owns an interest. We received management fees from this entity of $0.6 million, $0.5 million and $0.7 million for the years ended December 31, 2018, 2017, and 2016 respectively. One Vanderbilt Investment In December 2016, we entered into agreements with entities owned and controlled by Marc Holliday and Andrew Mathias, pursuant to which they agreed to make an investment in our One Vanderbilt project at the appraised fair market value for the interests acquired. This investment entitles these entities to receive approximately 1.50% - 1.80% and 1.00% - 1.20%, respectively, of any profits realized by the Company from its One Vanderbilt project in excess of the Company’s capital contributions. The entities have no right to any return of capital. Accordingly, subject to previously disclosed repurchase rights, these interests will have no value and will not entitle these entities to any amounts (other than limited distributions to cover tax liabilities incurred) unless and until the Company has received distributions from the One Vanderbilt project in excess of the Company’s aggregate investment in the project. In the event that the Company does not realize a profit on its investment in the project (or would not realize a profit based on the value at the time the interests are repurchased), the entities owned and controlled by Messrs. Holliday and Mathias will lose the entire amount of their investment. The entities owned and controlled by Messrs. Holliday and Mathias paid $1.4 million and $1.0 million, respectively, which equal the fair market value of the interests acquired as of the date the investment agreements were entered into as determined by an independent third party appraisal that we obtained. Messrs. Holliday and Mathias cannot monetize their interests until after stabilization of the property (50% within three years after stabilization and 100% three years or more after stabilization). In addition, the agreement calls for us to repurchase these interests in the event of a sale of One Vanderbilt or a transactional change of control of the Company. We also have the right to repurchase these interests on the seven-year anniversary of the stabilization of the project or upon the occurrence of certain separation events prior to the stabilization of the project relating to each of Messrs. Holliday’s and Mathias’s continued service with us. The price paid upon monetization of the interests will equal the liquidation value of the interests at the time, with the value of One Vanderbilt being based on its sale price, if applicable, or fair market value as determined by an independent third party appraiser. $ 55,014 $ 1,933,145 $ 500,000 $ 1,500,000 $ 100,000 $ 1,500,000 $ 5,588,159 $ 3,841,461 Other Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands): Interest expense before capitalized interest Interest capitalized Interest income Interest expense, net 10. Related Party Transactions Cleaning/ Security/ Messenger and Restoration Services Year Ended December 31, 2017 2016 2018 $ $ 244,788 $ 284,649 $ 348,062 (34,162) (1,957) (26,020) (1,584) (24,067) (2,796) 208,669 $ 257,045 $ 321,199 Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, who serves as a member and as the chairman emeritus of our board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered 78 We are entitled to receive fees for providing management, leasing, construction supervision, and asset management services to certain of our joint ventures as further described in Note 6, "Investments in Unconsolidated Joint Ventures." Amounts due from joint ventures and related parties at December 31, 2018 and 2017 consisted of the following (in thousands): Due from joint ventures Other Related party receivables December 31, 2018 2017 $ $ 18,655 9,378 28,033 $ $ 15,025 8,014 23,039 11. Noncontrolling Interests on the Company's Consolidated Financial Statements Noncontrolling interests represent the common and preferred units of limited partnership interest in the Operating Partnership not held by the Company as well as third party equity interests in our other consolidated subsidiaries. Noncontrolling interests in the Operating Partnership are shown in the mezzanine equity while the noncontrolling interests in our other consolidated subsidiaries are shown in the equity section of the Company’s consolidated financial statements. 79 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 Common Units of Limited Partnership Interest in the Operating Partnership As of December 31, 2018 and 2017, the noncontrolling interest unit holders owned 4.70%, or 4,130,579 units, and 4.58%, or 4,452,979 units, of the Operating Partnership, respectively. As of December 31, 2018, 4,130,579 shares of our common stock were reserved for issuance upon the redemption of units of limited partnership interest of the Operating Partnership. Noncontrolling interests in the Operating Partnership is recorded at the greater of its cost basis or fair market value based on the closing stock price of our common stock at the end of the reporting period. Below is a summary of the activity relating to the noncontrolling interests in the Operating Partnership as of December 31, 2018 and 2017 (in thousands): Balance at beginning of period Distributions Issuance of common units Redemption of common units Net income Accumulated other comprehensive income allocation Fair value adjustment Balance at end of period December 31, 2018 2017 $ 461,954 $ (15,000) 23,655 (60,718) 12,216 (66) (34,236) 473,882 (14,266) 25,723 (21,574) 3,995 (94) (5,712) $ 387,805 $ 461,954 Preferred Units of Limited Partnership Interest in the Operating Partnership The Operating Partnership has 1,902,000 4.50% Series G Preferred Units of limited partnership interest, or the Series G Preferred Units outstanding, with a liquidation preference of $25.00 per unit, which were issued in January 2012 in conjunction with an acquisition. The Series G Preferred unitholders receive annual dividends of $1.125 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series G Preferred Units are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $88.50. The common units of limited partnership interest in the Operating Partnership may be redeemed in exchange for our common stock on a 1-to-1 basis. The Series G Preferred Units also provide the holder with the right to require the Operating Partnership to repurchase the Series G Preferred Units for cash before January 31, 2022. The Operating Partnership has 60 Series F Preferred Units outstanding with a mandatory liquidation preference of $1,000.00 per unit. The Operating Partnership has authorized up to 700,000 3.50% Series K Preferred Units of limited partnership interest, or the Series K Preferred Units, with a liquidation preference of $25.00 per unit. In August 2014, the Company issued 563,954 Series K Preferred Units in conjunction with an acquisition. The Series K Preferred unitholders receive annual dividends of $0.875 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series K Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $134.67. The Operating Partnership has authorized up to 500,000 4.00% Series L Preferred Units of limited partnership interest, or the Series L Preferred Units, with a liquidation preference of $25.00 per unit. In August 2014, the Company issued 378,634 Series L Preferred Units in conjunction with an acquisition. The Series L Preferred unitholders receive annual dividends of $1.00 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series L Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized up to 1,600,000 3.75% Series M Preferred Units of limited partnership interest, or the Series M Preferred Units, with a liquidation preference of $25.00 per unit. In February 2015, the Company issued 1,600,000 Series M Preferred Units in conjunction with the acquisition of ownership interests in and relating to certain residential and retail real estate properties. The Series M Preferred unitholders receive annual dividends of $0.9375 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series M Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized up to 552,303 3.00% Series N Preferred Units of limited partnership interest, or the Series N Preferred Units, with a liquidation preference of $25.00 per unit. In June 2015, the Company issued 552,303 Series N Preferred Units in conjunction with an acquisition. The Series N Preferred unitholders receive annual dividends of $0.75 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series N Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized an aggregate of one 6.25% Series O Preferred Unit of limited partnership interest, or the Series O Preferred Unit. In June 2015, the Company issued the Series O Preferred Unit in connection with an acquisition. The Operating Partnership has authorized up to 200,000 4.00% Series P Preferred Units of limited partnership interest, or the Series P Preferred Units, with a liquidation preference of $25.00 per unit. In July 2015, the Company issued 200,000 Series P Preferred Units in conjunction with an acquisition. The Series P Preferred unitholders receive annual dividends of $1.00 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series P Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized up to 268,000 3.50% Series Q Preferred Units of limited partnership interest, or the Series Q Preferred Units, with a liquidation preference of $25.00 per unit. In July 2015, the Company issued 268,000 Series Q Preferred Units in conjunction with an acquisition. The Series Q Preferred unitholders receive annual dividends of $0.875 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series Q Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $148.95. The Operating Partnership has authorized up to 400,000 3.50% Series R Preferred Units of limited partnership interest, or the Series R Preferred Units, with a liquidation preference of $25.00 per unit. In August 2015, the Company issued 400,000 Series R Preferred Units in conjunction with an acquisition. The Series R Preferred unitholders receive annual dividends of $0.875 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series R Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $154.89. The Operating Partnership has authorized up to 1,077,280 4.00% Series S Preferred Units of limited partnership interest, or the Series S Preferred Units, with a liquidation preference of $25.00 per unit. In August 2015, the Company issued 1,077,280 Series S Preferred Units in conjunction with an acquisition. The Series S Preferred unitholders receive annual dividends of $1.00 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series S Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. The Operating Partnership has authorized up to 230,000 2.75% Series T Preferred Units of limited partnership interest, or the Series T Preferred Units, with a liquidation preference of $25.00 per unit. In March 2016, the Company issued 230,000 Series T Preferred Units in conjunction with an acquisition. The Series T Preferred unitholders receive annual dividends of $0.6875 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Series T Preferred Units can be redeemed at any time at par, at the option of the unitholder, either for cash or are convertible into a number of common units of limited partnership interest in the Operating Partnership equal to (i) the liquidation preference plus accumulated and unpaid distributions on the conversion date divided by (ii) $119.02. The Operating Partnership has authorized up to 680,000 4.50% Series U Preferred Units of limited partnership interest, or the Series U Preferred Units, with a liquidation preference of $25.00 per unit. In March 2016, the Company issued 680,000 Series U Preferred Units in conjunction with an acquisition. The Series U Preferred unitholders initially receive annual dividends of $1.125 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The annual dividend is subject to reduction upon the occurrence of certain circumstances set forth in the terms of the Series U Preferred Units. The minimum annual dividend is $0.75 per unit. The Series U Preferred Units can be redeemed at any time at par for cash at the option of the unitholder. Through a consolidated subsidiary, we have authorized up to 109,161 3.50% Series A Preferred Units of limited partnership interest, or the Subsidiary Series A Preferred Units, with a liquidation preference of $1,000.00 per unit. In August 2015, the Company issued 109,161 Subsidiary Series A Preferred Units in conjunction with an acquisition. The Subsidiary Series A Preferred unitholders receive annual dividends of $35.00 per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Subsidiary Series A Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible on a one-for-one basis, into the Series B Preferred Units of limited partnership interest, or the Subsidiary Series 80 81 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 B Preferred Units. The Subsidiary Series B Preferred Units can be converted at any time, at the option of the unitholder, into a number of common stock equal to 6.71348 shares of common stock for each Subsidiary Series B Preferred Unit. As of December 31, 2018, no Subsidiary Series B Preferred Units have been issued. Below is a summary of the activity relating to the preferred units in the Operating Partnership as of December 31, 2018 and 2017 (in thousands): Balance at beginning of period Issuance of preferred units Redemption of preferred units Balance at end of period 12. Stockholders’ Equity of the Company Common Stock December 31, 2018 2017 301,735 $ 302,010 — (1,308) — (275) 300,427 $ 301,735 $ $ Our authorized capital stock consists of 260,000,000 shares, $0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01 par value per share, 75,000,000 shares of excess stock, at $0.01 par value per share, and 25,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2018, 83,683,847 shares of common stock and no shares of excess stock were issued and outstanding. Share Repurchase Program In August 2016, our Board of Directors approved a share repurchase plan under which we can buy up to $1.0 billion of shares of our common stock. The Board of Directors has since authorized three separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, and fourth quarter of 2018, bringing the program total to $2.5 billion. At December 31, 2018 repurchases executed under the plan were as follows: Period Year ended 2017 First quarter 2018 Second quarter 2018 Third quarter 2018 Fourth quarter 2018 Shares repurchased Average price paid per share Cumulative number of shares repurchased as part of the repurchase plan or programs 8,342,411 3,653,928 3,479,552 252,947 2,358,484 $101.64 $97.07 $97.22 $99.75 $93.04 8,342,411 11,996,339 15,475,891 15,728,838 18,087,322 At-The-Market Equity Offering Program In March 2015, the Company, along with the Operating Partnership, entered into an "at-the-market" equity offering program, or ATM Program, to sell an aggregate of $300.0 million of our common stock. The Company did not make any sales of its common stock under the ATM program in the years ended December 31, 2018, 2017, or 2016. Perpetual Preferred Stock We have 9,200,000 shares of our 6.50% Series I Cumulative Redeemable Preferred Stock, or the Series I Preferred Stock, outstanding with a mandatory liquidation preference of $25.00 per share. The Series I Preferred stockholders receive annual dividends of $1.625 per share paid on a quarterly basis and dividends are cumulative, subject to certain provisions. We are entitled to redeem the Series I Preferred Stock at par for cash at our option. In August 2012, we received $221.9 million in net proceeds from the issuance of the Series I Preferred Stock, which were recorded net of underwriters' discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for 9,200,000 units of 6.50% Series I Cumulative Redeemable Preferred Units of limited partnership interest, or the Series I Preferred Units. Dividend Reinvestment and Stock Purchase Plan ("DRSPP") In February 2018, the Company filed a registration statement with the SEC for our dividend reinvestment and stock purchase plan, or DRSPP, which automatically became effective upon filing. The Company registered 3,500,000 shares of our common stock under the DRSPP. The DRSPP commenced on September 24, 2001. The following table summarizes SL Green common stock issued, and proceeds received from dividend reinvestments and/ or stock purchases under the DRSPP for the years ended December 31, 2018, 2017, and 2016, respectively (dollars in thousands): Year Ended December 31, 2018 2017 2016 Shares of common stock issued 1,399 2,141 Dividend reinvestments/stock purchases under the DRSPP $ 136 $ 223 $ 2,687 277 Earnings per Share We use the two-class method of computing earnings per share (“EPS”), which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid). Under the two- class method, basic EPS is computed by dividing the income available to common stockholders by the weighted-average number of common stock shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from share equivalent activity. SL Green's earnings per share for the years ended December 31, 2018, 2017, and 2016 are computed as follows (in thousands): Numerator Basic Earnings: Year Ended December 31, 2018 2017 2016 Income attributable to SL Green common stockholders Less: distributed earnings allocated to participating securities Net income attributable to SL Green common stockholders (numerator for basic earnings per share) Add back: undistributed earnings allocated to participating securities Add back: Effect of dilutive securities (redemption of units to common shares) Income attributable to SL Green common stockholders (numerator for diluted earnings per share) $ $ $ 232,312 $ 86,424 $ 234,946 (552) $ (471) $ (634) 231,760 $ 85,953 $ 234,312 552 12,216 471 3,995 634 10,136 244,528 $ 90,419 $ 245,082 Denominator Basic Shares: Weighted average common stock outstanding Effect of Dilutive Securities: Operating Partnership units redeemable for common shares Stock-based compensation plans Diluted weighted average common stock outstanding Year Ended December 31, 2018 2017 2016 86,753 98,571 100,185 4,562 215 91,530 4,556 276 4,323 373 103,403 104,881 SL Green has excluded 1,138,647, 774,782 and 263,991 common stock equivalents from the diluted shares outstanding for the years ended December 31, 2018, 2017, and 2016 respectively, as they were anti-dilutive. 82 83 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 13. Partners' Capital of the Operating Partnership 14. Share-based Compensation The Company is the sole managing general partner of the Operating Partnership and at December 31, 2018 owned 83,683,847 general and limited partnership interests in the Operating Partnership and 9,200,000 Series I Preferred Units. Partnership interests in the Operating Partnership are denominated as “common units of limited partnership interest” (also referred to as “OP Units”) or “preferred units of limited partnership interest” (also referred to as “Preferred Units”). All references to OP Units and Preferred Units outstanding exclude such units held by the Company. A holder of an OP Unit may present such OP Unit to the Operating Partnership for redemption at any time (subject to restrictions agreed upon at the issuance of OP Units to particular holders that may restrict such right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, the Operating Partnership must redeem such OP Unit in exchange for the cash equal to the then value of a share of common stock of the Company, except that the Company may, at its election, in lieu of cash redemption, acquire such OP Unit for one share of common stock. Because the number of shares of common stock outstanding at all times equals the number of OP Units that the Company owns, one share of common stock is generally the economic equivalent of one OP Unit, and the quarterly distribution that may be paid to the holder of an OP Unit equals the quarterly dividend that may be paid to the holder of a share of common stock. Each series of Preferred Units makes a distribution that is set in accordance with an amendment to the partnership agreement of the Operating Partnership. Preferred Units may also be convertible into OP Units at the election of the holder thereof or the Company, subject to the terms of such Preferred Units. Net income (loss) allocated to the preferred unitholders and common unitholders reflects their pro rata share of net income (loss) and distributions. Limited Partner Units As of December 31, 2018, limited partners other than SL Green owned 4.70%, or 4,130,579 common units, of the Operating Partnership. Preferred Units Preferred units not owned by SL Green are further described in Note 11, “Noncontrolling Interests on the Company’s Consolidated Financial Statements - Preferred Units of Limited Partnership Interest in the Operating Partnership.” Earnings per Unit The Operating Partnership's earnings per unit for the years ended December 31, 2018, 2017, and 2016 respectively are computed as follows (in thousands): Numerator Basic Earnings: Year Ended December 31, 2018 2017 2016 Income attributable to SLGOP common unitholders Less: distributed earnings allocated to participating securities Net Income attributable to SLGOP common unitholders (numerator for basic earnings per unit) Add back: undistributed earnings allocated to participating securities Income attributable to SLGOP common unitholders $ $ $ 244,528 $ 90,419 $ 245,082 (552) $ (471) $ (634) 243,976 552 244,528 $ $ 89,948 471 90,419 $ $ 244,448 634 245,082 We have stock-based employee and director compensation plans. Our employees are compensated through the Operating Partnership. Under each plan, whenever the Company issues common or preferred stock, the Operating Partnership issues an equivalent number of units of limited partnership interest of a corresponding class to the Company. Fourth Amended and Restated 2005 Stock Option and Incentive Plan The Fourth Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's board of directors in April 2016 and its stockholders in June 2016 at the Company's annual meeting of stockholders. The 2005 Plan authorizes the issuance of stock options, stock appreciation rights, unrestricted and restricted stock, phantom shares, dividend equivalent rights, cash-based awards and other equity-based awards. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 27,030,000 fungible units may be granted under the 2005 Plan. Currently, different types of awards count against the limit on the number of fungible units differently, with (1) full-value awards (i.e., those that deliver the full value of the award upon vesting, such as restricted stock) counting as 3.74 Fungible Units per share subject to such awards, (2) stock options, stock appreciation rights and other awards that do not deliver full value and expire five years from the date of grant counting as 0.73 fungible units per share subject to such awards, and (3) all other awards (e.g., ten-year stock options) counting as 1.0 fungible units per share subject to such awards. Awards granted under the 2005 Plan prior to the approval of the fourth amendment and restatement in June 2016 continue to count against the fungible unit limit based on the ratios that were in effect at the time such awards were granted, which may be different than the current ratios. As a result, depending on the types of awards issued, the 2005 Plan may result in the issuance of more or less than 27,030,000 shares. If a stock option or other award granted under the 2005 Plan expires or terminates, the common stock subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Shares of our common stock distributed under the 2005 Plan may be treasury shares or authorized but unissued shares. Currently, unless the 2005 Plan has been previously terminated by the Company's board of directors, new awards may be granted under the 2005 Plan until June 2, 2026, which is the tenth anniversary of the date that the 2005 Plan was most recently approved by the Company's stockholders. As of December 31, 2018, 6.7 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non- Employee Directors' Deferral Program and LTIP Units. Options are granted under the plan with an exercise price at the fair market value of the Company's common stock on the date of grant and, subject to employment, generally expire five or ten years from the date of grant, are not transferable other than on death, and generally vest in one to five years commencing one year from the date of grant. We have also granted Class O LTIP Units, which are a class of LTIP Units in the Operating Partnership structured to provide economics similar to those of stock options. Class O LTIP Units, once vested, may be converted, at the election of the holder, into a number of common units of the Operating Partnership per Class O LTIP Unit determined by the increase in value of a share of the Company’s common stock at the time of conversion over a participation threshold, which equals the fair market value of a share of the Company’s common stock at the time of grant. Class O LTIP Units are entitled to distributions, subject to vesting, equal per unit to 10% of the per unit distributions paid with respect to the common units of the Operating Partnership. The fair value of each stock option or LTIP Unit 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 years ended December 31, 2018, 2017, and 2016. Denominator Basic units: Year Ended December 31, 2018 2017 2016 Dividend yield Expected life Risk-free interest rate Expected stock price volatility Weighted average common units outstanding 91,315 103,127 104,508 Effect of Dilutive Securities: Stock-based compensation plans Diluted weighted average common units outstanding 215 91,530 276 103,403 373 104,881 The Operating Partnership has excluded 1,138,647, 774,782, and 263,991 common unit equivalents from the diluted units outstanding for the years ended December 31, 2018, 2017, and 2016 respectively, as they were anti-dilutive. 84 85 2018 2017 2016 2.85% 2.51% 2.37% 3.5 years 4.4 years 3.7 years 2.48% 22.00% 1.73% 28.10% 1.57% 26.76% Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 A summary of the status of the Company's stock options as of December 31, 2018, 2017, and 2016 and changes during the years ended December 31, 2018, 2017, and 2016 are as follows: 2018 2017 2016 Options Outstanding Weighted Average Exercise Price Options Outstanding Weighted Average Exercise Price Options Outstanding Weighted Average Exercise Price Balance at beginning of year $ 1,548,719 $ 101.48 $ 1,737,213 $ 98.44 $ 1,595,007 $ 95.52 Granted Exercised Lapsed or canceled Balance at end of year 6,000 (316,302) (101,400) 97.91 90.22 113.22 174,000 (292,193) (70,301) 105.66 81.07 121.68 445,100 (192,875) (110,019) $ 1,137,017 $ $ 135.54 $ 1,548,719 101.28 800,902 $ $ 101.48 $ 1,737,213 94.33 748,617 105.86 76.90 123.86 98.44 87.72 $ $ Options exercisable at end of year 783,035 Weighted average fair value of options granted during the year $ 84,068 $ 3,816,652 $ 8,363,036 All options were granted with strike prices ranging from $20.67 to $137.18. The remaining weighted average contractual life of the options outstanding was 3.5 years and the remaining weighted average contractual life of the options exercisable was 3.7 years. During the years ended December 31, 2018, 2017, and 2016, we recognized compensation expense for these options of $5.4 million, $7.8 million, and $8.9 million, respectively. As of December 31, 2018, there was $2.6 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 1.0 years. Stock-based Compensation Effective January 1, 1999, the Company implemented a stock-based compensation plan where shares are granted to certain employees, including our executives, and vesting will occur annually upon the completion of a service period or our meeting established financial performance criteria. Annual vesting occurs at rates ranging from 15% to 35% once performance criteria are reached. A summary of the Company's restricted stock as of December 31, 2018, 2017, and 2016 and charges during the years ended December 31, 2018, 2017, and 2016 are as follows: 2018 2017 2016 Balance at beginning of year Granted Canceled Balance at end of year Vested during the year Compensation expense recorded Weighted average fair value of restricted stock granted during the year 3,202,031 3,137,881 3,298,216 162,900 (9,100) 3,452,016 92,114 96,185 — 3,298,216 95,736 $ $ 12,757,704 13,440,503 $ $ 9,809,749 9,905,986 $ $ 98,800 (34,650) 3,202,031 83,822 7,153,966 10,650,077 The fair value of restricted stock that vested during the years ended December 31, 2018, 2017, and 2016 was $9.8 million, $9.4 million and $7.6 million, respectively. As of December 31, 2018, there was $22.7 million of total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 2.3 years. For the years ended December 31, 2018, 2017, and 2016, $6.3 million, $7.2 million, and $6.0 million, respectively, was capitalized to assets associated with compensation expense related to our long-term compensation plans, restricted stock and stock options. We granted LTIP Units, which include bonus, time-based and performance based awards, with a fair value of $22.0 million and $20.5 million during the years ended December 31, 2018 and 2017, respectively. The grant date fair value of the LTIP Unit awards was calculated in accordance with ASC 718. A third party consultant determined the fair value of the LTIP Units to have a discount from our common stock price. The discount was calculated by considering the inherent uncertainty that the LTIP Units will reach parity with other common partnership units and the illiquidity due to transfer restrictions. As of December 31, 2018, there was $2.9 million of total unrecognized compensation expense related to the time-based and performance based LTIP Unit awards, which is expected to be recognized over a weighted average period of 1.3 years. During the years ended December 31, 2018, 2017, and 2016, we recorded compensation expense related to bonus, time- based and performance based LTIP Unit awards of $24.4 million, $26.1 million, and $26.5 million, respectively. 2014 Outperformance Plan In August 2014, the compensation committee of the Company's board of directors approved the general terms of the SL Green Realty Corp. 2014 Outperformance Plan, or the 2014 Outperformance Plan. Participants in the 2014 Outperformance Plan could earn, in the aggregate, up to 610,000 LTIP Units in our Operating Partnership based on our total return to stockholders for the three-year period beginning September 1, 2014. Under the 2014 Outperformance Plan, two-thirds of the LTIP Units were subject to performance based vesting based on the Company’s absolute total return to stockholders and one-third of the LTIP Units were subject to performance based vesting based on relative total return to stockholders compared to the constituents of the MSCI REIT Index. LTIP Units earned under the 2014 Outperformance Plan were to be subject to continued vesting requirements, with 50% of any awards earned vesting on August 31, 2017 and the remaining 50% vesting on August 31, 2018, subject to continued employment with us through such dates. Participants were not entitled to distributions with respect to LTIP Units granted under the 2014 Outperformance Plan unless and until they are earned. If LTIP Units were earned, each participant would have been entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period, with such distributions being paid in the form of cash or additional LTIP Units. Thereafter, distributions were to be paid currently with respect to all earned LTIP Units, whether vested or unvested. Based on our performance, none of the LTIP Units granted under the 2014 Outperformance Plan were earned pursuant to the terms of the 2014 Outperformance Plan, and all units issued were forfeited in 2017. The cost of the 2014 Outperformance Plan ($27.9 million subject to forfeitures), based on the portion of the 2014 Outperformance Plan granted prior to termination, was amortized into earnings through December 31, 2017. We recorded zero compensation expense during the year ended December 31, 2018, and compensation expense of $13.6 million and $8.4 million during the years ended December 31, 2017 and 2016, respectively, related to the 2014 Outperformance Plan. Deferred Compensation Plan for Directors Under our Non-Employee Director's Deferral Program, which commenced July 2004, the Company's non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees, meeting fees and annual stock grant. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The program provides that a director's phantom stock units generally will be settled in an equal number of shares of common stock upon the earlier of (i) the January 1 coincident with or the next following such director's termination of service from the Board of Directors or (ii) a change in control by us, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of our common stock on the first business day of the respective quarter. Each participating non-employee director is also credited with dividend equivalents or phantom stock units based on the dividend rate for each quarter, which are either paid in cash currently or credited to the director’s account as additional phantom stock units. During the year ended December 31, 2018, 13,638 phantom stock units were earned and 9,459 shares of common stock were issued to our board of directors. We recorded compensation expense of $2.4 million during the year ended December 31, 2018 related to the Deferred Compensation Plan. As of December 31, 2018, there were 113,492 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program. Employee Stock Purchase Plan In 2007, the Company's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage our employees to make our business more successful by providing equity-based incentives to eligible employees. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code, and has been adopted by the board to enable our eligible employees to purchase the Company's shares of common stock through payroll deductions. The ESPP became effective on January 1, 2008 with a maximum of 500,000 shares of the common stock available for issuance, subject to adjustment upon a merger, reorganization, stock split or other similar corporate change. The Company filed a registration statement on Form S-8 with the SEC with respect to the ESPP. The common stock is offered for purchase through a series of successive offering periods. Each offering period will be three months in duration and will begin on the first day of each calendar quarter, with the first offering period having commenced on January 1, 2008. The ESPP provides for eligible employees to purchase the common stock at a 86 87 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 purchase price equal to 85% of the lesser of (1) the market value of the common stock on the first day of the offering period or (2) the market value of the common stock on the last day of the offering period. The ESPP was approved by our stockholders at our 2008 annual meeting of stockholders. As of December 31, 2018, 116,368 shares of our common stock had been issued under the ESPP. 15. Accumulated Other Comprehensive Income The following tables set forth the changes in accumulated other comprehensive income (loss) by component as of December 31, 2018, 2017 and 2016 (in thousands): Net unrealized gain on derivative instruments (1) SL Green’s share of joint venture net unrealized gain on derivative instruments (2) Net unrealized gain on marketable securities Total Balance at December 31, 2015 $ (10,160) $ (592) $ Other comprehensive income before reclassifications Amounts reclassified from accumulated other comprehensive income Balance at December 31, 2016 Other comprehensive (loss) income before reclassifications Amounts reclassified from accumulated other comprehensive income Balance at December 31, 2017 Other comprehensive (loss) income before reclassifications Amounts reclassified from accumulated other comprehensive income Balance at December 31, 2018 13,534 9,222 12,596 (1,618) 1,564 12,542 (2,252) 1,160 3,453 4,021 233 766 5,020 (103) $ (574) 9,716 $ (618) 4,299 $ 2,003 $ 3,517 — 5,520 (1,348) (3,130) 1,042 51 — 1,093 $ (8,749) 18,211 12,675 22,137 (2,733) (800) 18,604 (2,304) (1,192) 15,108 (1) Amount reclassified from accumulated other comprehensive income (loss) is included in interest expense in the respective consolidated statements of operations. As of December 31, 2018 and 2017, the deferred net losses from these terminated hedges, which is included in accumulated other comprehensive loss relating to net unrealized loss on derivative instrument, was $1.3 million and $3.2 million, respectively. (2) Amount reclassified from accumulated other comprehensive income (loss) is included in equity in net income from unconsolidated joint ventures in the respective consolidated statements of operations. 16. Fair Value Measurements We are required to disclose fair value information with regard to our financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practical to estimate fair value. The FASB guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. We measure and/or disclose the estimated fair value of financial assets and liabilities based on a hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date; Level 2 - inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 - unobservable inputs for the asset or liability that are used when little or no market data is available. We follow this hierarchy for our assets and liabilities measured at fair value on a recurring and nonrecurring basis. In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. Our assessment of the significance of the particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following tables set forth the assets and liabilities that we measure at fair value on a recurring and non-recurring basis by their levels in the fair value hierarchy at December 31, 2018 and 2017 (in thousands): Assets: Marketable securities Interest rate cap and swap agreements (included in other assets) Liabilities: Interest rate cap and swap agreements (included in other liabilities) Assets: Marketable securities Interest rate cap and swap agreements (included in other assets) December 31, 2018 Total Level 1 Level 2 Level 3 28,638 18,676 $ $ — $ 28,638 — $ 18,676 $ $ 7,663 $ — $ 7,663 $ December 31, 2017 Total Level 1 Level 2 Level 3 28,579 16,692 $ $ — $ 28,579 — $ 16,692 $ $ — — — — — $ $ $ $ $ We determine impairment in real estate investments and debt and preferred equity investments, including intangibles primarily utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs. In December 2018, the Company determined that it was more likely than not that its suburban properties would be sold or otherwise disposed of significantly before the end of their previously estimated useful life. The Company tested the recoverability of the assets and, as a result of the carrying amount of the assets not being deemed recoverable and exceeding their fair value as measured on a asset by asset basis, recorded a $221.9 million impairment loss. These charges are included in depreciable real estate reserves and impairment in the consolidated statement of operations. The fair value of the assets were determined primarily utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs. In May 2018, the Company was the successful bidder at the foreclosure of 2 Herald Square, at which time the Company's $250.5 million outstanding principal balance and $7.7 million accrued interest balance receivables were credited to our equity investment in the property. We recorded the assets acquired and liabilities assumed at fair value. This resulted in the recognition of a fair value adjustment of $8.1 million, which is reflected on the Company's consolidated statement of operations within purchase price and other fair value adjustments. This fair value was determined by utilizing our successful bid at the foreclosure of the asset, the agreement to sell a partial interest in the property, and cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as a sales comparison approach, which utilizes comparable sales, listings and sales contracts, all of which are classified as Level 3 inputs. In January 2018, the partnership agreement for our investment in 919 Third Avenue was modified resulting in the Company no longer having a controlling interest in this investment. As a result the investment was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $49.3 million fair value adjustment in the consolidated statement of operations. This fair value was determined using a third party valuation which primarily utilized cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs. Marketable securities classified as Level 1 are derived from quoted prices in active markets. The valuation technique used to measure the fair value of marketable securities classified as Level 2 were valued based on quoted market prices or model driven valuations using the significant inputs derived from or corroborated by observable market data. Marketable securities in an unrealized loss position are not considered to be other than temporarily impaired. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases. The fair value of derivative instruments is based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well-recognized financial principles and reasonable estimates about relevant future market conditions, which are classified as Level 2 inputs. 88 89 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 The financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, debt and preferred equity investments, mortgages and other loans payable and other secured and unsecured debt. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses reported in our consolidated balance sheets approximates fair value due to the short term nature of these instruments. The fair value of debt and preferred equity investments, which is classified as Level 3, is estimated by discounting the future cash flows using current interest rates at which similar loans with the same maturities would be made to borrowers with similar credit ratings. The fair value of borrowings, which is classified as Level 3, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates, which is provided by a third-party specialist. The following table provides the carrying value and fair value of these financial instruments as of December 31, 2018 and December 31, 2017 (in thousands): December 31, 2018 December 31, 2017 Carrying Value (1) Fair Value Carrying Value (1) Fair Value Debt and preferred equity investments Fixed rate debt Variable rate debt $ $ $ 2,099,393 (2) 3,543,476 2,048,442 5,591,918 $ $ 3,230,127 2,057,966 5,288,093 $ $ $ 2,114,041 (2) 4,305,165 1,605,431 5,910,596 $ $ 4,421,866 1,612,224 6,034,090 (1) Amounts exclude net deferred financing costs. (2) At December 31, 2018, debt and preferred equity investments had an estimated fair value ranging between $2.1 billion and $2.3 billion. At December 31, 2017, debt and preferred equity investments had an estimated fair value ranging between $2.1 billion and $2.3 billion. Disclosure about fair value of financial instruments was based on pertinent information available to us as of December 31, 2018 and 2017. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein. 17. Financial Instruments: Derivatives and Hedging In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collar and floors, to manage, or hedge interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedge 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 will be immediately recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all of our designated derivative instruments are effective hedging instruments. The following table summarizes the notional value at inception and fair value of our consolidated derivative financial instruments at December 31, 2018 based on Level 2 information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (amounts in thousands). Interest Rate Swap Interest Rate Swap Interest Rate Cap Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap $ Notional Value 200,000 100,000 137,500 100,000 100,000 150,000 150,000 200,000 Strike Rate 1.131% 1.161% Effective Date July 2016 July 2016 Expiration Date Balance Sheet Location Fair Value July 2023 Other Assets $ July 2023 Other Assets 4.000% September 2017 September 2019 Other Assets 1.928% December 2017 November 2020 Other Assets 1.934% December 2017 November 2020 Other Assets 2.696% 2.721% 2.740% January 2019 January 2024 Other Liabilities January 2019 January 2026 Other Liabilities January 2019 January 2026 Other Liabilities 11,148 5,447 — 1,045 1,035 (1,858) (2,450) (3,354) $ 11,013 During the years ended December 31, 2018, 2017, and 2016, we recorded a $0.2 million loss, a $0.5 million loss, and a $0.5 million gain, respectively, on the changes in the fair value, which is included in interest expense in the consolidated statements of operations. The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of December 31, 2018, the fair value of derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $7.7 million. As of December 31, 2018, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $7.7 million at December 31, 2018. Gains and losses on terminated hedges are included in accumulated other comprehensive income, and are recognized into earnings over the term of the related mortgage obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive income will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that $2.5 million of the current balance held in accumulated other comprehensive income will be reclassified into interest expense and $0.6 million of the portion related to our share of joint venture accumulated other comprehensive income will be reclassified into equity in net income from unconsolidated joint ventures within the next 12 months. The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the years ended December 31, 2018, 2017, and 2016, respectively (in thousands): Amount of (Loss) Gain Recognized in Other Comprehensive Loss (Effective Portion) Year Ended December 31, Derivative 2018 2017 2016 Interest Rate Swaps/Caps Share of unconsolidated joint ventures' derivative instruments $ (2,284) $ (2,282) $ 14,616 (1,788) (200) 2,012 $ (4,072) $ (2,482) $ 16,628 Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income Interest expense Equity in net income from unconsolidated joint ventures Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) Year Ended December 31, 2018 2017 2016 $ 609 $ 1,821 $ 9,521 726 1,035 1,981 $ 1,335 $ 2,856 $ 11,502 Location of (Loss) Gain Recognized in Income on Derivative Interest expense Equity in net income from unconsolidated joint ventures Amount of (Loss) Gain Recognized into Income (Ineffective Portion) Year Ended December 31, 2018 2017 2016 $ (559) $ 5 $ (28) (371) $ (930) $ 55 60 785 $ 757 90 91 Table of Contents 18. Rental Income SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) The Operating Partnership is the lessor and the sublessor to tenants under operating leases with expiration dates ranging from January 1, 2019 to 2064. The minimum rental amounts due under the leases are generally either subject to scheduled fixed increases or adjustments. The leases generally also require that the tenants reimburse us for increases in certain operating costs and real estate taxes above their base year costs. Approximate future minimum rents to be received over the next five years and thereafter for non-cancelable operating leases in effect at December 31, 2018 for the consolidated properties, including consolidated joint venture properties, and our share of unconsolidated joint venture properties are as follows (in thousands): 2019 2020 2021 2022 2023 Thereafter 19. Benefit Plans Consolidated Properties Unconsolidated Properties $ 830,336 $ 765,610 625,956 562,250 500,499 348,060 375,228 380,886 348,222 333,501 3,272,014 2,098,995 $ 6,556,665 $ 3,884,892 The building employees are covered by multi-employer defined benefit pension plans and post-retirement health and welfare plans. We participate in the Building Service 32BJ, or Union, Pension Plan and Health Plan. The Pension Plan is a multi-employer, non-contributory defined benefit pension plan that was established under the terms of collective bargaining agreements between the Service Employees International Union, Local 32BJ, the Realty Advisory Board on Labor Relations, Inc. and certain other employees. This Pension Plan is administered by a joint board of trustees consisting of union trustees and employer trustees and operates under employer identification number 13-1879376. The Pension Plan year runs from July 1 to June 30. Employers contribute to the Pension Plan at a fixed rate on behalf of each covered employee. Separate actuarial information regarding such pension plans is not made available to the contributing employers by the union administrators or trustees, since the plans do not maintain separate records for each reporting unit. However, on September 28, 2016, September 28, 2017, and September 28, 2018, the actuary certified that for the plan years beginning July 1, 2016, July 1, 2017, and July 1, 2018, the Pension Plan was in critical status under the Pension Protection Act of 2006. The Pension Plan trustees adopted a rehabilitation plan consistent with this requirement. No surcharges have been paid to the Pension Plan as of December 31, 2018. For the Pension Plan years ended June 30, 2018, 2017, and 2016, the plan received contributions from employers totaling $272.3 million, $257.8 million, and $249.5 million. Our contributions to the Pension Plan represent less than 5.0% of total contributions to the plan. The Health Plan was established under the terms of collective bargaining agreements between the Union, the Realty Advisory Contributions we made to the multi-employer plans for the years ended December 31, 2018, 2017 and 2016 are included in the table below (in thousands): Benefit Plan Pension Plan Health Plan Other plans Total plan contributions 401(K) Plan 2018 2017 2016 $ $ 3,017 $ 3,856 $ 9,310 1,106 11,426 1,463 13,433 $ 16,745 $ 3,979 11,530 1,583 17,092 In August 1997, we implemented a 401(K) Savings/Retirement Plan, or the 401(K) Plan, to cover eligible employees of ours, and any designated affiliate. The 401(K) Plan permits eligible employees to defer up to 15% of their annual compensation, Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 subject to certain limitations imposed by the Code. The employees' elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(K) Plan. During 2003, we amended our 401(K) Plan to provide for discretionary matching contributions only. For 2018, a matching contribution equal to 100% of the first 4% of annual compensation was made. For 2017 and 2016, a matching contribution equal to 50% of the first 6% of annual compensation was made. For the year ended December 31, 2018, we made a matching contribution of $1,075,267. For the years ended December 31, 2017 and 2016, we made matching contributions of $1,011,830 and $906,875, respectively. 20. Commitments and Contingencies Legal Proceedings As of December 31, 2018, the Company and the Operating Partnership were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio which if adversely determined could have a material adverse impact on us. Environmental Matters Our management believes that the properties are in compliance in all material respects with applicable Federal, state and local ordinances and regulations regarding environmental issues. Management is not aware of any environmental liability that it believes would have a materially adverse impact on our financial position, results of operations or cash flows. Management is unaware of any instances in which it would incur significant environmental cost if any of our properties were sold. Employment Agreements We have entered into employment agreements with certain executives, which expire between February 2020 and January 2022. The minimum cash-based compensation, including base salary and guaranteed bonus payments, associated with these employment agreements total $3.3 million for 2019. Insurance We maintain “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism, excluding nuclear, biological, chemical, and radiological terrorism ("NBCR")), within three property insurance programs and liability insurance. Separate property and liability coverage may be purchased on a stand-alone basis for certain assets, such as the development of One Vanderbilt. Additionally, one of our captive insurance companies, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by our other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under our insurance policies, we would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under debt our instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by the Company or its affiliates. Furthermore, with respect to certain of our properties, including properties held by joint ventures, or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss. Belmont had loss reserves of $4.0 million and $5.5 million as of December 31, 2018 and 2017, respectively. Ticonderoga had no loss reserves as of December 31, 2018. Capital and Ground Leases Arrangements In 2015, we entered into a ground lease for the land and building located at 30 East 40th Street with a lease term ending in August 2114. Based on our evaluation of the arrangement under ASC 840, land was estimated to be approximately 63.6% of the fair market value of the property. The portion attributable to land was classified as operating lease with an expiration date of 2114 ($76.0 million total over the lease term attributed to ground rent) and the remainder as a capital lease in the amount of $20.0 million. The ground rent will reset in 2035. The property located at 420 Lexington Avenue operates under a ground lease ($10.9 million of ground rent annually through December 2019, $11.2 million of ground rent annually through December 2029, and $12.3 million annually afterwards, subject Board on Labor Relations, Inc. and certain other employers. The Health Plan provides health and other benefits to eligible participants employed in the building service industry who are covered under collective bargaining agreements, or other written agreements, with the Union. The Health Plan is administered by a Board of Trustees with equal representation by the employers and the Union and operates under employer identification number 13-2928869. The Health Plan receives contributions in accordance with collective bargaining agreements or participation agreements. Generally, these agreements provide that the employers contribute to the Health Plan at a fixed rate on behalf of each covered employee. For the Health Plan years ended, June 30, 2018, 2017, and 2016, the plan received contributions from employers totaling $1.4 billion, $1.3 billion and $1.2 billion, respectively. Our contributions to the Health Plan represent less than 5.0% of total contributions to the plan. 92 93 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 to a one-time adjustment based on 6% of the fair value of the land) with an expiration date of 2050 and two options to renew for an additional 30 years. Selected consolidated results of operations for the years ended December 31, 2018, 2017, and 2016, and selected asset information as of December 31, 2018 and 2017, regarding our operating segments are as follows (in thousands): The property located at 1080 Amsterdam Avenue operates under a ground and capital lease with an expiration date of 2111 ($41.6 million total over the lease term attributed to ground rent). Land was estimated to be 40.0% of the fair market value of the property, which was classified as an operating lease. The remainder was classified as a capital lease. The ground rent will reset in 2038. The property located at 711 Third Avenue operates under an operating sub-lease with an expiration date of 2033 and five options to renew for an additional 10 years each. The ground rent was reset in July 2011. Following the reset, we were responsible for ground rent payments of $5.25 million annually through July 2016 and then $5.5 million annually thereafter on the 50% portion of the fee that we do not own. The ground rent will reset in July 2021 to the greater of $5.5 million or 7.75% of the fair value of the land. The property located at 461 Fifth Avenue operates under a ground lease ($2.1 million of ground rent annually) with an expiration date of 2027 and two options to renew for an additional 21 years each, followed by a third option for 15 years. We also have an option to purchase the fee position for a fixed price on a specific date. The property located at 625 Madison Avenue operates under a ground lease ($4.6 million of ground rent annually) with an expiration date of 2022 and two options to renew for an additional 32 years. The property located at 1185 Avenue of the Americas operates under a ground lease ($6.9 million of ground rent annually) with an expiration date of 2043. The property located at 1055 Washington Boulevard operates under a ground lease ($0.6 million of ground rent annually) with an expiration date of 2090. The following is a schedule of future minimum lease payments under capital leases and non-cancellable operating leases with initial terms in excess of one year as of December 31, 2018 (in thousands): 2019 2020 2021 2022 2023 Thereafter Total minimum lease payments Amount representing interest Capital lease obligations Capital lease Non-cancellable operating leases (1) $ $ $ 2,411 $ 2,620 2,794 2,794 2,794 817,100 830,513 $ (786,897) 43,616 31,066 31,436 31,628 29,472 27,166 676,090 826,858 (1) As of December 31, 2018, the total minimum sublease rentals to be received in the future under non-cancellable subleases is $1.7 billion. 21. Segment Information The Company has two reportable segments, real estate and debt and preferred equity investments. We evaluate real estate performance and allocate resources based on earnings contributions. The primary sources of revenue are generated from tenant rents and escalations and reimbursement revenue. Real estate property operating expenses consist primarily of security, maintenance, utility costs, insurance, real estate taxes and ground rent expense (at certain applicable properties). See Note 5, "Debt and Preferred Equity Investments," for additional details on our debt and preferred equity investments. Total revenues Years ended: December 31, 2018 December 31, 2017 December 31, 2016 Net Income Years ended: December 31, 2018 December 31, 2017 December 31, 2016 Total assets As of: December 31, 2018 December 31, 2017 Real Estate Segment Debt and Preferred Equity Segment Total Company $ $ 1,025,900 $ 201,492 $ 1,317,602 1,650,973 193,871 213,008 1,227,392 1,511,473 1,863,981 129,253 $ 141,603 $ (69,294) 74,655 170,363 204,256 270,856 101,069 278,911 $ 10,481,594 $ 2,269,764 $ 11,598,438 2,384,466 12,751,358 13,982,904 Interest costs for the debt and preferred equity segment include actual costs incurred for borrowings on the 2016 MRA and 2017 MRA. Interest is imputed on the investments that do not collateralize the 2016 MRA or 2017 MRA using our weighted average corporate borrowing cost. We also allocate loan loss reserves, net of recoveries, and transaction related costs to the debt and preferred equity segment. We do not allocate marketing, general and administrative expenses to the debt and preferred equity segment since the use of personnel and resources is dependent on transaction volume between the two segments and varies period over period. In addition, we base performance on the individual segments prior to allocating marketing, general and administrative expenses. For the years ended, December 31, 2018, 2017, and 2016 marketing, general and administrative expenses totaled $92.6 million, $100.5 million, and $99.8 million respectively. All other expenses, except interest, relate entirely to the real estate assets. There were no transactions between the above two segments. 94 95 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 SL Green Realty Corp. and SL Green Operating Partnership, L.P. Notes to Consolidated Financial Statements (cont.) December 31, 2018 22. Quarterly Financial Data of the Company (unaudited) 23. Quarterly Financial Data of the Operating Partnership (unaudited) Summarized quarterly financial data for the years ended December 31, 2018 and 2017 was as follows (in thousands, except Summarized quarterly financial data for the years ended December 31, 2018 and 2017 was as follows (in thousands, except December 31 September 30 June 30 March 31 $ 317,036 $ 307,545 $ 301,116 $ 301,695 (265,553) (258,303) (258,282) 971 4,702 4,036 Equity in net (loss) income from unconsolidated joint ventures for per share amounts): 2018 Quarter Ended Total revenues Total expenses Equity in net income from unconsolidated joint ventures Equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate Gain (loss) on sale of real estate, net Purchase price and other fair value adjustments Depreciable real estate reserves and impairment Loss on early extinguishment of debt Noncontrolling interests and preferred unit distributions Net income attributable to SL Green Perpetual preferred stock dividends (267,678) (2,398) 167,445 (36,984) — (220,852) (14,889) 838 (57,482) (3,737) Net (loss) income attributable to SL Green common stockholders Net (loss) income attributable to common stockholders per common share—basic Net (loss) income attributable to common stockholders per common share—diluted $ $ $ (61,219) $ (0.73) $ (0.73) $ 70,937 (2,504) (3,057) (6,691) (2,194) (7,507) 91,947 (3,738) 88,209 1.03 1.03 $ $ $ 72,025 (14,790) 11,149 — — (8,606) 107,293 (3,737) 103,556 1.19 1.19 $ $ $ (6,440) 23,521 49,293 — — (8,319) 105,504 (3,738) 101,766 1.12 1.12 for per share amounts): 2018 Quarter Ended Total revenues Total expenses Equity in net gain (loss) on sale of interest in unconsolidated joint venture/real estate (Loss) gain on sale of real estate, net Purchase price and other fair value adjustments Depreciable real estate reserves and impairment Loss on early extinguishment of debt Noncontrolling interests and preferred unit distributions Net income attributable to SLOP Perpetual preferred units distributions Net (loss) income attributable to SLGOP common unitholders Net (loss) income attributable to common unitholders per common share—basic Net (loss) income attributable to common unitholders per common share—diluted $ $ $ (64,658) $ (0.73) $ (0.73) $ December 31 September 30 June 30 March 31 $ 317,036 $ 307,545 $ 301,116 $ 301,695 (267,678) (2,398) 167,445 (36,984) — (220,852) (14,889) (2,601) (60,921) (3,737) (265,553) (258,303) (258,282) 971 4,702 4,036 70,937 (2,504) (3,057) (6,691) (2,194) (2,710) 96,744 (3,738) 93,006 1.03 1.03 $ $ $ 72,025 (14,790) 11,149 — — (3,020) 112,879 (3,737) 109,142 1.19 1.19 $ $ $ (6,440) 23,521 49,293 — — (3,047) 110,776 (3,738) 107,038 1.12 1.12 2017 Quarter Ended Total revenues Total expenses December 31 September 30 June 30 March 31 $ 361,342 $ 374,600 $ 398,150 $ 377,381 (314,108) (333,913) (365,749) (332,675) 2017 Quarter Ended Total revenues Total expenses December 31 September 30 June 30 March 31 $ 361,342 $ 374,600 $ 398,150 $ 377,381 (314,108) (333,913) (365,749) (332,675) Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Gain (loss) on sale of real estate, net Depreciable real estate reserves and impairment Gain on the sale of investment in marketable securities Noncontrolling interests and preferred unit distributions Net income attributable to SL Green Perpetual preferred stock dividends Net income attributable to SL Green common stockholders Net income attributable to common stockholders per common share—basic Net income attributable to common stockholders per common share—diluted $ $ $ 7,788 — 76,497 (93,184) — (6,616) 31,719 (3,737) 27,982 0.29 0.29 $ $ $ 4,078 1,030 — — — (3,188) 42,607 (3,738) 38,869 0.40 0.40 $ $ $ 3,412 13,089 (3,823) (29,064) — (4,056) 11,959 (3,737) 8,222 0.08 0.08 $ $ $ 6,614 2,047 567 (56,272) 3,262 14,165 15,089 (3,738) 11,351 0.11 0.11 Equity in net income from unconsolidated joint ventures Equity in net gain on sale of interest in unconsolidated joint venture/real estate Gain (loss) on sale of real estate, net Depreciable real estate reserves and impairment Gain on the sale of investment in marketable securities Noncontrolling interests and preferred unit distributions Net income attributable to SLOP Perpetual preferred units distributions Net income attributable to SLGOP common unitholders Net income attributable to common unitholders per common share—basic Net income attributable to common unitholders per common share—diluted $ $ $ 7,788 — 76,497 (93,184) — (5,328) 33,007 (3,737) 29,270 0.29 0.29 $ $ $ 4,078 1,030 — — — (1,376) 44,419 (3,738) 40,681 0.40 0.40 $ $ $ 3,412 13,089 (3,823) (29,064) — (3,637) 12,378 (3,737) 8,641 0.08 0.08 $ $ $ 6,614 2,047 567 (56,272) 3,262 14,641 15,565 (3,738) 11,827 0.11 0.11 96 97 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Schedule II - Valuation and Qualifying Accounts December 31, 2018 (in thousands) Column A Column B Column C Balance at Beginning of Year Additions Charged Against Operations Column D Uncollectible Accounts Written-off/ Recovery (1) Column E Balance at End of Year Description Year Ended December 31, 2018 Tenant and other receivables—allowance Deferred rent receivable—allowance Year Ended December 31, 2017 Tenant and other receivables—allowance Deferred rent receivable—allowance Year Ended December 31, 2016 Tenant receivables—allowance Deferred rent receivable—allowance $ $ $ $ $ $ 18,637 17,207 16,592 25,203 17,618 21,730 $ $ $ $ $ $ 3,726 491 6,106 2,321 10,630 13,620 $ $ $ $ $ $ (6,661) $ (2,241) $ (4,061) $ (10,317) $ (11,656) $ (10,147) $ 15,702 15,457 18,637 17,207 16,592 25,203 (1) Includes the effect of properties that were sold and/or deconsolidated within the period. SL Green Realty Corp. and SL Green Operating Partnership, L.P. Schedule III - Real Estate and Accumulated Depreciation December 31, 2018 (in thousands) Column A Column B Column C Initial Cost Column D Cost Capitalized Subsequent To Acquisition Column E Gross Amount at Which Carried at Close of Period Column F Column G Column H Column I Description Encumbrances Land Building & Improvements Land Building & Improvements Land Building & Improvements Total Accumulated Depreciation Date of Construction Date Acquired Life on Which Depreciation is Computed 420 Lexington Ave(1) 711 Third Avenue(1) 555 W. 57th Street(1) 220 East 42nd Street(1) 461 Fifth Avenue(1) 750 Third Avenue(1) 625 Madison Avenue(1) 485 Lexington Avenue(1) 609 Fifth Avenue(1) 810 Seventh Avenue(1) 1185 Avenue of the Americas(1) 1350 Avenue of the Americas(1) 100 Summit Lake Drive(2) 200 Summit Lake Drive(2) 500 Summit Lake Drive(2) 360 Hamilton Avenue(2) 1-6 Landmark Square(3) 7 Landmark Square(3) 1010 Washington Boulevard(3) 1055 Washington Boulevard(3) 1 Madison Avenue(1) 100 Church Street(1) 125 Park Avenue(1) Williamsburg(4) 110 East 42nd Street(1) 400 East 58th Street(1)(5) 752 Madison Avenue(1) 762 Madison Avenue(1)(5) 19-21 East 65th Street(1) 304 Park Avenue(1) 635 Sixth Avenue(1) 641 Sixth Avenue(1) 1080 Amsterdam(1)(6) 315 West 33rd Street(1) 562 Fifth Avenue(1) $ 300,000 $ — $ 107,832 $ — $ 225,667 $ — $ 333,499 $ 333,499 $ 133,978 1927 3/1998 Various — — — — — — 19,844 18,846 42,499 78,704 — — 73,270 19,844 115,769 135,613 45,066 1955 5/1998 Various 62,242 18,846 140,946 159,792 69,817 1971 1/1999 Various 50,373 203,727 635 161,705 51,008 365,432 416,440 108,450 1929 2/2003 Various — 62,695 51,093 205,972 — 246,673 — — — 25,581 — 88,276 88,276 29,680 1988 10/2003 Various 45,551 51,093 251,523 302,616 101,854 1958 7/2004 Various 44,646 — 291,319 291,319 118,380 1956 10/2004 Various 450,000 77,517 326,825 765 125,806 78,282 452,631 530,913 183,003 1956 12/2004 Various — — — — — — — — 36,677 145,954 114,077 476,386 — 728,213 — — — 49,527 36,677 195,481 232,158 43,777 1925 6/2006 Various 74,433 114,077 550,819 664,896 176,354 1970 1/2007 Various 62,893 — 791,106 791,106 265,896 1969 1/2007 Various 91,038 380,744 (97) 50,773 90,941 431,517 522,458 136,853 1966 1/2007 Various 10,526 11,183 43,109 (3,337) (94) 7,189 43,015 50,204 18,936 1988 1/2007 Various 47,906 (5,321) (9,102) 5,862 38,804 44,666 21,203 1990 1/2007 Various 9,777 39,048 (3,601) (7,875) 6,176 31,173 37,349 14,523 1986 1/2007 Various 29,497 118,250 (2,625) 8,005 26,872 126,255 153,127 43,901 2000 1/2007 Various 100,000 50,947 195,167 (23,095) (33,824) 27,852 161,343 189,195 79,012 1973-1984 1/2007 Various — — — — 2,088 7,747 7,748 (367) 669 1,721 8,417 10,138 1,539 2007 1/2007 Various 30,423 (1,259) 2,928 6,488 33,351 39,839 12,489 1988 1/2007 Various 13,516 53,228 (5,130) (9,986) 8,386 43,242 51,628 20,382 1987 6/2007 Various 172,641 654,394 905 18,411 173,546 672,805 846,351 193,033 1960 8/2007 Various 213,208 32,494 79,996 2,500 103,936 34,994 183,932 218,926 53,269 1959 1/2010 Various — — — 120,900 3,677 189,714 14,708 — 2,523 80,884 (4,550) 120,900 6,200 270,598 10,158 391,498 16,358 77,542 2,127 1923 2010 10/2010 12/2010 Various Various 34,000 46,411 2,196 31,942 36,196 78,353 114,549 17,400 1921 5/2011 Various 39,931 17,549 30,916 — 7,833 17,549 38,749 56,298 6,119 1929 1/2012 Various — 282,415 7,131 1,871 1,183 284,286 8,314 292,600 1,380 1996/2012 1/2012 Various 771 6,153 10,461 — — — — — 54,189 24,180 45,668 35,807 — 7,389 75,619 37,158 67,316 27,445 250,000 195,834 164,429 — 57,052 10,487 — — 300 163 308 — — — 109 6,153 10,570 16,723 1,884 1910 1/2012 Various 1,100 — 8,489 8,489 1,228 1928-1940 1/2012 Various 15,024 54,489 90,643 145,132 19,315 1930 6/2012 Various 51,103 24,343 88,261 112,604 10,931 1902 9/2012 Various 9,760 45,976 77,076 123,052 15,891 1902 9/2012 Various 20,503 — 47,948 47,948 5,441 1932 10/2012 Various 15,133 195,834 179,562 375,396 25,397 2000-2001 11/2013 Various 1,213 57,052 11,700 68,752 4,458 1909/1920/19 21 11/2013 Various 98 99 Table of Contents Table of Contents SL Green Realty Corp. and SL Green Operating Partnership, L.P. Schedule III - Real Estate and Accumulated Depreciation December 31, 2018 (in thousands) Column A Column B Column C Initial Cost Column D Cost Capitalized Subsequent To Acquisition Column E Gross Amount at Which Carried at Close of Period Column F Column G Column H Column I Description Encumbrances Land Building & Improvements Land Building & Improvements Land Building & Improvements Total Accumulated Depreciation Date of Construction Date Acquired Life on Which Depreciation is Computed 719 Seventh Avenue(1)(7) 115 Spring Street(1) 1640 Flatbush Avenue(4) 110 Greene Street(1)(5) 185 Broadway(1) (8) 30 East 40th Street(1)(9) 133 Greene Street(1) 712 Madison Avenue(1) Other(10) Total 50,000 41,850 — (670) 46,232 41,180 46,232 87,412 65,550 11,078 — — 6,226 45,120 44,799 501 215,470 — — — 1,850 11,078 46,649 57,727 503 6,226 1,004 7,230 12,923 45,120 228,393 273,513 23,683 111,869 13,400 34,175 32,022 (6,310) 45,422 27,865 73,287 — 4,650 15,523 3,446 28,000 — 7,207 1,738 20,000 27,542 47,397 16,225 2 — — (2) 6,654 4,652 26,654 31,306 — — (1) 3,446 7,207 1,736 27,542 30,988 47,397 16,224 54,604 17,960 $ 1,660,659 $ 1,776,213 $ 5,370,786 $ (1,314) $ 1,368,250 $ 1,774,899 $ 6,739,036 $ 8,513,935 $ 2,099,137 3,025 5,248 50 419 2,017 119 1927 7/2014 Various 1900 1966 1910 1921 1927 7/2014 3/2015 7/2015 8/2015 8/2015 Various Various Various Various Various 1900 10/2018 Various — 1900/1980 12/2018 Various 4,068 Property located in New York, New York. (1) Property located in Westchester County, New York. (2) Property located in Connecticut. (3) (4) Property located in Brooklyn, New York. (5) We own a 90.0% interest in this property. (6) We own a 92.5% interest in this property. (7) We own a 75.0% interest in this property. (8) (9) We own a 60.0% interest in this property. (10) Other includes tenant improvements of eEmerge, capitalized interest and corporate improvements. Properties at 5-7 Dey Street, 183 Broadway, and 185 Broadway were demolished in preparation of the development site for the 185 Broadway project. SL Green Realty Corp. and SL Green Operating Partnership, L.P. Schedule III - Real Estate and Accumulated Depreciation December 31, 2018 (in thousands) The changes in real estate for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands): Balance at beginning of year Property acquisitions Improvements Retirements/disposals/deconsolidation Balance at end of year 2018 2017 2016 $ 10,206,122 $ 12,743,332 $ 16,681,602 52,939 267,726 13,323 342,014 29,230 426,060 (2,012,852) (2,892,547) (4,393,560) $ 8,513,935 $ 10,206,122 $ 12,743,332 The aggregate cost of land, buildings and improvements, before depreciation, for Federal income tax purposes at December 31, 2018 was $9.9 billion (unaudited). The changes in accumulated depreciation, exclusive of amounts relating to equipment, autos, and furniture and fixtures, for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands): Balance at beginning of year Depreciation for year Retirements/disposals/deconsolidation Balance at end of year 2018 2017 2016 $ 2,300,116 $ 2,264,694 $ 2,060,706 245,033 (446,012) 347,015 (311,593) 353,502 (149,514) $ 2,099,137 $ 2,300,116 $ 2,264,694 100 101 Table of Contents Table of Contents Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of SL Green Realty Corp. To the Shareholders and the Board of Directors of SL Green Realty Corp. Opinion on the Financial Statements Opinion on Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of SL Green Realty Corp. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2019 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company‘s auditor since 1997. New York, New York February 26, 2019 We have audited SL Green Realty Corp.'s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, SL Green Realty Corp. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2018 consolidated financial statements of the Company and our report dated February 26, 2019 expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP New York, New York February 26, 2019 102 103 Table of Contents Table of Contents Report of Independent Registered Public Accounting Firm . Report of Independent Registered Public Accounting Firm To the Partners of SL Green Operating Partnership, L.P. Opinion on the Financial Statements To the Partners of SL Green Operating Partnership, L.P. Opinion on Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of SL Green Operating Partnership, L.P. (the Operating Partnership) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, capital and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Operating Partnership's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2019 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the Operating Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Operating Partnership's auditor since 2010. New York, New York February 26, 2019 We have audited SL Green Operating Partnership L.P.'s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, SL Green Operating Partnership, L.P. (the Operating Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2018 consolidated financial statements of the Operating Partnership and our report dated February 26, 2019 expressed an unqualified opinion thereon. Basis for Opinion The Operating Partnership's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Operating Partnership's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP New York, New York February 26, 2019 104 105 Table of Contents Table of Contents As of the end of the period covered by this report, the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner concluded that the Operating Partnership's disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Operating Partnership that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder. Management’s Report on Internal Control over Financial Reporting The Operating Partnership is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f). Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner, the Operating Partnership conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2018 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO). Based on that evaluation, the Operating Partnership concluded that its internal control over financial reporting was effective as of December 31, 2018. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. The effectiveness of the Operating Partnership's internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein. Changes in Internal Control over Financial Reporting There have been no significant changes in the Operating Partnership's internal control over financial reporting during the year ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. CONTROLS AND PROCEDURES SL GREEN REALTY CORP. Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Also, the Company has investments in certain unconsolidated entities. As the Company does not control these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder. Management's Report on Internal Control over Financial Reporting The Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018 based on the framework in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO). Based on that evaluation, the Company concluded that its internal control over financial reporting was effective as of December 31, 2018. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. The effectiveness of the Company's internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears herein. Changes in Internal Control over Financial Reporting There have been no significant changes in the Company's internal control over financial reporting during the year ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. SL GREEN OPERATING PARTNERSHIP, L.P. Evaluation of Disclosure Controls and Procedures The Operating Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Operating Partnership's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Operating Partnership's management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership's general partner, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Operating Partnership to disclose material information otherwise required to be set forth in the Operating Partnership's periodic reports. Also, the Operating Partnership has investments in certain unconsolidated entities. As the Operating Partnership does not control these entities, the Operating Partnership's disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those it maintains with respect to its consolidated subsidiaries. 106 107 Table of Contents Table of Contents MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The following table summarizes information, as of December 31, 2018, relating to our equity compensation plans pursuant to which shares of our common stock or other equity securities may be granted from time to time. Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders (1) 3,655,400 (2) $ 101.28 (3) 7,086,746 (4) Equity compensation plans not approved by security holders Total — 3,655,400 $ — 101.28 — 7,086,746 (1) (2) (3) (4) Includes our Fourth Amended and Restated 2005 Stock Option and Incentive Plan, Amended 1997 Stock Option and Incentive Plan, as amended, and 2008 Employee Stock Purchase Plan. Includes (i) 1,137,017 shares of common stock issuable upon the exercise of outstanding options (783,035 of which are vested and exercisable), (ii) 32,250 restricted stock units and 113,492 phantom stock units that may be settled in shares of common stock (113,492 of which are vested), (iii) 2,328,675 LTIP units that, upon the satisfaction of certain conditions, are convertible into common units, which may be presented to us for redemption and acquired by us for shares of our common stock (1,800,827 of which are vested). Because there is no exercise price associated with restricted stock units, phantom stock units or LTIP units, these awards are not included in the weighted- average exercise price calculation. Balance is after reserving for shares underlying outstanding restricted stock units, phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units. The number of securities remaining available consists of shares remaining available for issuance under our 2008 Employee Stock Purchase Plan and Third Amended and Restated 2005 Stock Option and Incentive Plan. SL GREEN REALTY CORP. Our common stock trades on the New York Stock Exchange, or the NYSE, under the symbol "SLG." On February 25, 2019, the reported closing sale price per share of common stock on the NYSE was $91.18 and there were 391 holders of record of our common stock. SL GREEN OPERATING PARTNERSHIP, L.P. At December 31, 2018, there were 4,130,579 units of limited partnership interest of the Operating Partnership outstanding and held by persons other than the Company, which received distributions per unit of the same amount and in the same manner as dividends per share were distributed to common stockholders. There is no established public trading market for the common units of the Operating Partnership. On February 25, 2019, there were 35 holders of record and 88,489,537 common units outstanding, 84,325,436 of which were held by SL Green. In order for SL Green to maintain its qualification as a REIT, it must make annual distributions to its stockholders of at least 90% of its taxable income (not including net capital gains). SL Green has adopted a policy of paying regular quarterly dividends on its common stock, and the Operating Partnership has adopted a policy of paying regular quarterly distributions to its common units in the same amount as dividends paid by SL Green. Cash distributions have been paid on the common stock of SL Green and the common units of the Operating Partnership since the initial public offering of SL Green. Distributions are declared at the discretion of the board of directors of SL Green and depend on actual and anticipated cash from operations, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors SL Green’s board of directors may consider relevant. Each time SL Green issues shares of stock (other than in exchange for common units of limited partnership interest of the Operating Partnership, or OP Units, when such OP Units are presented for redemption), it contributes the proceeds of such issuance to the Operating Partnership in return for an equivalent number of units of limited partnership interest with rights and preferences analogous to the shares issued. ISSUER PURCHASES OF EQUITY SECURITIES In August 2016, our Board of Directors approved a share repurchase plan under which we can buy up to $1.0 billion of shares of our common stock. The Board of Directors has since authorized three separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, and fourth quarter of 2018, bringing the total program size to $2.5 billion. At December 31, 2018 repurchases executed under the plan were as follows: Period Year ended 2017 First quarter 2018 Second quarter 2018 Third quarter 2018 Fourth quarter 2018 Shares repurchased Average price paid per share Cumulative number of shares repurchased as part of the repurchase plan or programs 8,342,411 3,653,928 3,479,552 252,947 2,358,484 $101.64 $97.07 $97.22 $99.75 $93.04 8,342,411 11,996,339 15,475,891 15,728,838 18,087,322 SALE OF UNREGISTERED AND REGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES During the year ended December 31, 2018, we issued 160,466 shares of our common stock to holders of units of limited partnership interest in the Operating Partnership upon the redemption of such units pursuant to the partnership agreement of the Operating Partnership. During the years ended December 31, 2017 and 2016, we issued 201,696, and 292,291 shares of our common stock, respectively, to holders of units of limited partnership interest in the Operating Partnership upon the redemption of such units pursuant to the partnership agreement of the Operating Partnership. The issuance of such shares was exempt from registration under the Securities Act, pursuant to the exemption contemplated by Section 4(a)(2) thereof for transactions not involving a public offering. The units were exchanged for an equal number of shares of our common stock. 108 109 Table of Contents Table of Contents Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by indicated: following persons on behalf of the capacities and on registrant and the dates the in the Signatures Title Date Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has thereunto duly authorized. the undersigned, its behalf by signed on to be report this duly caused SIGNATURES /s/ Marc Holliday Marc Holliday /s/ Andrew W. Mathias Andrew W. Mathias and Chairman of the Board of Directors and Chief Executive Officer of SL Green, the sole general partner of the Operating Partnership (Principal Executive Officer) February 26, 2019 President and Director of SL Green, the sole general partner of the Operating Partnership $ February 26, 2019 $ Dated: February 26, 2019 SL GREEN REALTY CORP. By: /s/ Matthew J. DiLiberto Matthew J. DiLiberto Chief Financial Officer /s/ Matthew J. DiLiberto Matthew J. DiLiberto Chief Financial Officer of SL Green, the sole general partner of the Operating Partnership (Principal Financial and Accounting Officer) /s/ Stephen L. Green Stephen L. Green Director of SL Green, the sole general partner of the Operating Partnership net /s/ John H. Alschuler, Jr. John H. Alschuler, Jr. Director of SL Green, the sole general partner of the Operating Partnership February 26, 2019 ) February 26, 2019 February 26, 2019 /s/ Edwin T. Burton, III Edwin T. Burton, III Director of SL Green, the sole general partner of the Operating Partnership $ February 26, 2019 $ ________________________________________________________________________________________________________________________ KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of SL Green Realty Corp. hereby severally constitute Marc Holliday and Matthew J. DiLiberto, and each of them singly, our true and lawful attorneys and with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K filed herewith and any and all amendments to said Annual Report on Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable SL Green Realty Corp. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Annual Report on Form 10-K and any and all amendments thereto. to /s/ John S. Levy John S. Levy /s/ Craig M. Hatkoff Craig M. Hatkoff /s/ Betsy S. Atkins of Director of SL Green, the sole general partner of the Operating Partnership February 26, 2019 Director of SL Green, the sole general partner of the Operating Partnership February 26, 2019 $ $ TOTAL RETURN TO SHAREHOLDERS Betsy S. Atkins Director of SL Green, the sole general partner of the Operating Partnership /s/ Lauren B. Dillard (Based on $100 investment made) (Includes reinvestment of dividends) Lauren B. Dillard Director of SL Green, the sole general partner of the Operating Partnership February 26, 2019 February 26, 2019 110 111 Table of Contents Table of Contents Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has thereunto duly authorized. the undersigned, its behalf by signed on to be report this duly caused SIGNATURES Dated: February 26, 2019 SL GREEN OPERATING PARTNERSHIP, L.P. By: SL Green Realty Corp. By: /s/ Matthew J. DiLiberto Matthew J. DiLiberto Chief Financial Officer ________________________________________________________________________________________________________________________ KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of SL Green Realty Corp., the sole general partner of SL Green Operating Partnership, L.P., hereby severally constitute Marc Holliday and Matthew J. DiLiberto, and each of them singly, our true and lawful attorneys and with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K filed herewith and any and all amendments to said Annual Report on Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable SL Green Operating Partnership, L.P. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Annual Report on Form 10-K and any and all amendments thereto. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by indicated: following persons on behalf of the capacities and on registrant and the dates the in the Signatures Title Date /s/ Marc Holliday Marc Holliday /s/ Andrew W. Mathias Andrew W. Mathias Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) February 26, 2019 President and Director February 26, 2019 /s/ Matthew J. DiLiberto Matthew J. DiLiberto Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Stephen L. Green Stephen L. Green /s/ John H. Alschuler Jr. John H. Alschuler, Jr. /s/ Edwin T. Burton, III Edwin T. Burton, III /s/ John S. Levy John S. Levy /s/ Craig M. Hatkoff Craig M. Hatkoff /s/ Betsy S. Atkins Betsy S. Atkins /s/ Lauren B. Dillard Lauren B. Dillard Director Director Director Director Director Director Director February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 112 113 Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (i) (ii) (iii) Registration Statement (Form S-3 Nos. 333-70111, 333-30394, 333 62434, 333-126058, 333-211945, 333-228887 and 333-223209) of SL Green Realty Corp. and the related Prospectuses; Registration Statement (Form S-8 Nos. 333-61555, 333-87485, 333-89964, 333-127014, 333-143721, 333-189362 and 333-212108) pertaining to the Stock Option and Incentive Plans of SL Green Realty Corp., and Registration Statement (Form S-8 No. 333-148973) pertaining to the 2008 Employee Stock Purchase Plan of SL Green Realty Corp., of our reports dated February 26, 2019, with respect to the consolidated financial statements of SL Green Realty Corp and the effectiveness of internal control over financial reporting of SL Green Realty Corp., included in this Annual Report (Form 10-K) for the year ended December 31, 2018. New York, New York February 26, 2019 /s/ Ernst & Young LLP Table of Contents Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by indicated: following persons on behalf of the capacities and on registrant and the dates the in the Signatures Title Date /s/ Marc Holliday Marc Holliday /s/ Andrew W. Mathias Andrew W. Mathias Chairman of the Board of Directors and Chief Executive Officer of SL Green, the sole general partner of the Operating Partnership (Principal Executive Officer) February 26, 2019 President and Director of SL Green, the sole general partner of the Operating Partnership February 26, 2019 /s/ Matthew J. DiLiberto Matthew J. DiLiberto Chief Financial Officer of SL Green, the sole general partner of the Operating Partnership (Principal Financial and Accounting Officer) /s/ Stephen L. Green Stephen L. Green Director of SL Green, the sole general partner of the Operating Partnership /s/ John H. Alschuler, Jr. John H. Alschuler, Jr. Director of SL Green, the sole general partner of the Operating Partnership /s/ Edwin T. Burton, III Edwin T. Burton, III Director of SL Green, the sole general partner of the Operating Partnership /s/ John S. Levy John S. Levy /s/ Craig M. Hatkoff Craig M. Hatkoff /s/ Betsy S. Atkins Betsy S. Atkins Director of SL Green, the sole general partner of the Operating Partnership Director of SL Green, the sole general partner of the Operating Partnership Director of SL Green, the sole general partner of the Operating Partnership /s/ Lauren B. Dillard Lauren B. Dillard Director of SL Green, the sole general partner of the Operating Partnership February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 February 26, 2019 114 Consent of Independent Registered Public Accounting Firm CERTIFICATION Exhibit 23.2 Exhibit 31.1 We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-228887) of SL Green Operating Partnership, L.P. and in the related Prospectus of our reports dated February 26, 2019, with respect to the consolidated financial statements of SL Green Operating Partnership, L.P., and the effectiveness of internal control over financial reporting of SL Green Operating Partnership, L.P., included in this Annual Report (Form 10-K) for the year ended December 31, 2018. New York, New York February 26, 2019 /s/ Ernst & Young LLP I, Marc Holliday, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of SL Green Realty Corp. (the “registrant”); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2019 /s/ Marc Holliday Name: Marc Holliday Title: Chairman and Chief Executive Officer I, Matthew J. DiLiberto, certify that: I, Marc Holliday, certify that: CERTIFICATION CERTIFICATION Exhibit 31.2 Exhibit 31.3 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of SL Green Realty Corp. (the “registrant”); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of SL Green Operating Partnership, L.P. (the “registrant”); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2019 /s/ Matthew J. DiLiberto Name: Matthew J. DiLiberto Title: Chief Financial Officer Date: February 26, 2019 /s/ Marc Holliday Name: Marc Holliday Title: Chairman and Chief Executive Officer of SL Green Realty Corp., the general partner of the registrant Exhibit 31.4 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of SL Green Realty Corp. (the “Company”) on Form 10-K as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc Holliday, Chairman and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. 2. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Marc Holliday Name: Marc Holliday Title: Chairman and Chief Executive Officer February 26, 2019 I, Matthew J. DiLiberto, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of SL Green Operating Partnership, L.P. (the “registrant”); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2019 /s/ Matthew J. DiLiberto Name: Matthew J. DiLiberto Title: Chief Financial Officer of SL Green Realty Corp., the general partner of the registrant CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 Exhibit 32.3 In connection with the Annual Report of SL Green Realty Corp. (the “Company”) on Form 10-K as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. DiLiberto, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. 2. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. In connection with the Annual Report of SL Green Operating Partnership, L.P. (the “Operating Partnership”) on Form 10-K as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, the sole general partner of the Operating Partnership, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. 2. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership. /s/ Matthew J. DiLiberto Name: Matthew J. DiLiberto Title: Chief Financial Officer February 26, 2019 /s/ Marc Holliday Name: Marc Holliday Title: Chairman and Chief Executive Officer of SL Green Realty Corp., the general partner of the Operating Partnership February 26, 2019 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.4 In connection with the Annual Report of SL Green Operating Partnership, L.P. (the “Operating Partnership”) on Form 10-K as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. DiLiberto, Chief Financial Officer of SL Green Realty Corp, the sole general partner of the Operating Partnership, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. 2. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership. /s/ Matthew J. DiLiberto Name: Matthew J. DiLiberto Title: Chief Financial Officer of SL Green Realty Corp., the general partner of the Operating Partnership February 26, 2019 Corporate Directory Board of Directors Executive Officers Registrar & Transfer Agent Marc Holliday Chairman & Chief Executive Officer Marc Holliday Chairman & Chief Executive Officer Andrew W. Mathias President Matthew J. DiLiberto Chief Financial Officer Andrew S. Levine Chief Legal Officer, General Counsel Counsel Skadden, Arps, Slate, Meagher & Flom LLP New York, NY Auditors Ernst & Young LLP New York, NY Andrew W. Mathias President Stephen L. Green Chairman Emeritus John H. Alschuler, Jr. Lead Independent Director; President, HR&A Advisors Inc. Edwin T. Burton, III Professor of Economics, University of Virginia John S. Levy Chairman, Private Investor Craig M. Hatkoff Co-founder, Tribeca Film Festival; Chairman, Turtle Pond Publications, LLC Betsy Atkins President and CEO, Baja LLC Lauren B. Dillard Managing Director and Head of Investment Solutions, The Carlyle Group Computershare Investor Services P.O. Box 505000 Louisville, KY 40233-5000 Tel: 866-230-9138 www.computershare.com/investor Stock Listing NYSE Symbol: SLG, SLG PrI Investor Relations 420 Lexington Avenue New York, NY 10170 Tel: 212-216-1654 E-mail: investor.relations@slgreen.com www.slgreen.com Annual Meeting Thursday, May 30, 2019, 10:00 a.m. ET at Convene 237 Park Avenue New York, NY 10017 Executive Offices 420 Lexington Avenue New York, NY 10170 Tel: 212-594-2700 Fax: 212-216-1785 www.slgreen.com m o c . c y n c c d , c c d y b g n i t n i r p d n a t n e m e g a n a m l r o o c , g n i h c u o t e R | e i t s i r h C n a y r B y b p a M | t n e r T d a r B y b y h p a r g o t o h p e v i t u c e x E | l m o c . b a d n a r b o t t o , b a L d n a r B O T T O y b d e n g i s e D S L G R E E N R E A LT Y C O R P. 420 Lexington Avenue New York, NY 10170 212.594.2700 www.slgreen.com 

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