Notes to Consolidated Financial Statements
December 31, 2021
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 S.L. Green Management Corp, or 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 and S.L. Green Management Corp., respectively, which are 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, 2021, noncontrolling investors held, in the aggregate, a 5.57% limited partnership interest in the Operating Partnership, inclusive of retroactive adjustments to reflect the reverse stock split. 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."
On December 31, 2021, 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 Buildings | | Approximate Square Feet (unaudited) | | Number of Buildings | | Approximate Square Feet (unaudited) | | Number of Buildings | | Approximate Square Feet (unaudited) | | Weighted Average Occupancy(1) (unaudited) |
Commercial: | | | | | | | | | | | | | | |
Manhattan | | Office | | 12 | | | 8,180,345 | | | 10 | | | 12,004,183 | | | 22 | | | 20,184,528 | | | 92.1 | % |
| | Retail | | 2 | | | 17,888 | | | 9 | | | 301,996 | | | 11 | | | 319,884 | | | 91.2 | % |
| | Development/Redevelopment | (1) | 8 | | | 2,538,284 | | | 3 | | | 3,275,508 | | | 11 | | | 5,813,792 | | | N/A |
| | Fee Interest | | 1 | | | 7,684 | | | — | | | — | | | 1 | | | 7,684 | | | N/A |
| | | | 23 | | | 10,744,201 | | | 22 | | | 15,581,687 | | | 45 | | | 26,325,888 | | | 92.0 | % |
Suburban | | Office | | 7 | | | 862,800 | | | — | | | — | | | 7 | | | 862,800 | | | 78.9 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total commercial properties | | 30 | | | 11,607,001 | | | 22 | | | 15,581,687 | | | 52 | | | 27,188,688 | | | 91.5 | % |
| | | | | | | | | | | | | | | | |
Residential: | | | | | | | | | | | | | | | | |
Manhattan | | Residential | | 1 | | | 82,250 | | | 6 | | | 445,934 | | | 7 | | | 528,184 | | | 97.0 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total portfolio | | 31 | | | 11,689,251 | | | 28 | | | 16,027,621 | | | 59 | | | 27,716,872 | | | 91.6 | % |
(1)The weighted average occupancy for commercial properties represents the total occupied square footage divided by the total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by the total available units. Properties under construction are not included in the calculation of weighted average occupancy.
As of December 31, 2021, 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 $1.1 billion, excluding $10.1 million 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Partnership Agreement
In accordance with the partnership agreement of the Operating Partnership, or the Operating Partnership Agreement, we allocate all distributions and profits and losses in proportion to the percentage of ownership interests of the respective partners, subject to the priority distributions with respect to preferred units and special provisions that apply to Long Term Incentive Plan ("LTIP") Units. As the managing general partner of the Operating Partnership, we are required to take such reasonable efforts, as determined by us in our sole discretion, to cause the Operating Partnership to distribute sufficient amounts to enable the payment of sufficient dividends by us to minimize any Federal income or excise tax at the Company level. Under the Operating Partnership Agreement, each limited partner has the right to redeem units of limited partnership interests for cash, or if we so elect, shares of SL Green's common stock on a one-for-one basis.
Subsequent Events
On December 2, 2021, our Board of Directors declared an ordinary dividend of $0.3108 per share ($0.3203 per share reflecting reverse stock split noted below) and a special dividend of $2.4392 per share ($2.5138 per share reflecting reverse stock split noted below) (together, "the Total Dividend"). The Total Dividend was paid on January 18, 2022 to shareholders of record at the close of business on December 15, 2021 ("the Record Date"). Shareholders had the opportunity to elect to receive the Total Dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed.
To mitigate the dilutive impact of the common stock issued in the special dividend, the board of directors also authorized a reverse stock split, which was effective after markets closed on January 21, 2022. On January 10, 2022, a committee of the Board of Directors calculated the ratio for the reverse stock split of our issued and outstanding shares of common stock as 1.03060-for-1. After the issuance of the dividend and the completion of the reverse stock split, the number of shares of our common stock outstanding was equivalent to the number of total shares outstanding on the Record Date (not including any issuances or repurchases that occurred following the Record Date, as well as any fractional shares that would have been issued but for which cash-in-lieu was paid). However, on a relative basis, some individual shareholders may have more shares of SLG’s common stock, and some individual shareholders may have fewer shares of our common stock, depending on their individual elections to receive cash or stock and as a result of the cash option being oversubscribed.
All share-related references and measurements including the number of shares outstanding, share prices, number of shares repurchased, earnings per share, dividends per share, and share-based compensation awards, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Annual Report on Form 10-K.
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
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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 3 years 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 1 year to 15 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 1 year to 15 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 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, 2021, the weighted average amortization period for above-market leases, below-market leases, and in-place lease costs is 5.1 years, 14.3 years, and 3.8 years, respectively.
The Company classifies those leases under which the Company is the lessee at lease commencement as finance or operating leases. Leases qualify as finance leases if the lease transfers ownership of the asset at the end of the lease term, the lease grants an option to purchase the asset that we are reasonably certain to exercise, the lease term is for a major part of the remaining economic life of the asset, or the present value of the lease payments exceeds substantially all of the fair value of the asset. Leases that do not qualify as finance leases are deemed to be operating leases. At lease commencement the Company records a lease liability which is measured as the present value of the lease payments and a right of use asset which is measured as the amount of the lease liability and any initial direct costs incurred. The Company applies a discount rate to determine the present value of the lease payments. If the rate implicit in the lease is known, the Company uses that rate. If the rate implicit in the lease is not known, the Company uses a discount rate reflective of the Company’s collateralized borrowing rate given the term of the lease. To determine the discount rate, the Company employs a third party specialist to develop an analysis based primarily on the observable borrowing rates of the Company, other REITs, and other corporate borrowers with long-term borrowings. On the consolidated statements of operations, operating leases are expensed through operating lease rent while financing leases are expensed through amortization and interest expense. When applicable, the Company combines the consideration for lease and non-lease components in the calculation of the value of the lease obligation and right-of-use asset.
We incur a variety of costs in the development and leasing of our properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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 other than Right of use assets - operating leases are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
| | | | | | | | |
Category | | Term |
Building (fee ownership) | | 40 years |
Building improvements | | shorter of remaining life of the building or useful life |
Building (leasehold interest) | | lesser of 40 years or remaining term of the lease |
Right of use assets - financing leases | | lesser of 40 years or remaining lease term |
Furniture and fixtures | | 4 to 7 years |
Tenant improvements | | shorter of remaining term of the lease or useful life |
Right of use assets - operating leases are amortized over the remaining lease term. The amortization is made up of the principal amortization under the lease liability plus or minus the straight-line adjustment of the operating lease rent under ASC 842.
Depreciation expense (including amortization of right of use assets - financing leases) totaled $187.3 million, $277.5 million, and $233.5 million for the years ended December 31, 2021, 2020 and 2019, 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 fair value of the property as calculated in accordance with Accounting Standards Codification, or ASC 820. 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.
For the year ended December 31, 2021, we recognized a reduction of rental revenue of ($4.2 million) for the amortization of aggregate above-market leases in excess of below-market leases resulting from the allocation of the purchase price of the applicable properties. For the years ended December 31, 2020 and 2019, we recognized $5.9 million and $4.5 million, respectively, of rental revenue for the amortization of aggregate below-market leases in excess of above-market leases.
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, 2021 and 2020 (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Identified intangible assets (included in other assets): | | | |
Gross amount | $ | 199,722 | | | $ | 215,673 | |
Accumulated amortization | (182,643) | | | (190,523) | |
Net (1) | $ | 17,079 | | | $ | 25,150 | |
Identified intangible liabilities (included in deferred revenue): | | | |
Gross amount | $ | 212,767 | | | $ | 241,409 | |
Accumulated amortization | (210,262) | | | (230,479) | |
Net (1) | $ | 2,505 | | | $ | 10,930 | |
(1) As of December 31, 2021, $1.8 million of 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, 2020, no net intangible assets and no net intangible liabilities were reclassified to assets held for sale and liabilities related to assets held for sale.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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):
| | | | | | | | |
2022 | | 505 | |
2023 | | 476 | |
2024 | | 56 | |
2025 | | 234 | |
2026 | | 205 | |
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):
| | | | | | | | |
2022 | | 5,575 | |
2023 | | 5,409 | |
2024 | | 3,544 | |
2025 | | 2,027 | |
2026 | | 1,850 | |
Cash and Cash Equivalents
We consider all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash primarily consists of security deposits held on behalf of our tenants, interest reserves, as well as capital improvement and real estate tax escrows required under certain loan agreements.
Fair Value Measurements
See Note 16, "Fair Value Measurements."
Investment in Marketable Securities
At acquisition, we designate a debt security as held-to-maturity, available-for-sale, or trading. As of December 31, 2021, we did not have any debt securities designated as held-to-maturity or trading. We account for our available-for-sale securities at fair value pursuant to 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. Credit losses are recognized in accordance with ASC 326. We account for our equity marketable securities at fair value pursuant to ASC 820-10, with the net unrealized gains or losses reported in net income.
As of December 31, 2021 and 2020, we held the following marketable securities (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
Commercial mortgage-backed securities | $ | 24,146 | | | $ | 28,570 | |
Total marketable securities available-for-sale | $ | 24,146 | | | $ | 28,570 | |
| | | |
Equity marketable securities | $ | 10,606 | | | $ | — | |
Total investment in marketable securities | $ | 34,752 | | | $ | 28,570 | |
The cost basis of the commercial mortgage-backed securities was $23.0 million and $27.5 million as of December 31, 2021 and 2020, respectively. These securities mature at various times through 2035. All securities were in an unrealized gain position as of December 31, 2021 except for one security, which had an unrealized loss of $0.6 million and a fair market value of $7.2 million as of December 31, 2021, and an unrealized loss of $0.7 million and a fair value of $7.0 million as of December 31, 2020. This marketable security was in in a continuous unrealized loss position for more than 12 months as of December 31, 2021 and less than 12 months as of December 31, 2020. We do not intend to sell these securities and it is more likely than not that we will not be required to sell the investment before the recovery of their amortized cost basis.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
We held equity marketable securities as of December 31, 2021 and no equity marketable securities as of December 31, 2020. We recognized $0.6 million of unrealized gains for the year ended December 31, 2021.
During the year ended December 31, 2021, we received aggregate net proceeds of $4.5 million from the repayment of one debt marketable security. During the years ended 2020 and 2019, we did not dispose of any debt marketable securities. We did not dispose of any equity marketable securities during the year ended December 31, 2021.
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 in accounting for the investment. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. We generally finance our joint ventures with non-recourse debt. In certain cases we may provide guarantees or master leases, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans.
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 each joint ventures' actual and projected cash flows. We do not believe that the values of any of our equity investments were impaired as of December 31, 2021.
We may originate loans for real estate acquisition, development and construction ("ADC loans"), where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with the accounting for our debt and preferred equity investments.
Deferred Lease Costs
Deferred lease costs consist of incremental fees and direct costs that would not have been incurred if the lease had not been obtained and are amortized on a straight-line basis over the related lease term. Certain of our employees provide leasing services to the wholly-owned properties. For the years ended December 31, 2021, 2020 and 2019, $6.2 million, $5.4 million, and $6.3 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 consolidated balance sheet as a direct deduction from the carrying amount of that debt liability.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Lease Classification
Lease classification for leases under which the Company is the lessor is evaluated at lease commencement and leases not classified as sales-type leases or direct financing leases are classified as operating leases. Leases qualify as sales-type leases if the contract includes either transfer of ownership clauses, certain purchase options, a lease term representing a major part of the economic life of the asset, or the present value of the lease payments and residual guarantees provided by the lessee exceeds substantially all of the fair value of the asset. Additionally, leasing an asset so specialized that it is not deemed to have any value to the Company at the end of the lease term may also result in classification as a sales-type lease. Leases qualify as direct financing leases when the present value of the lease payments and residual value guarantees provided by the lessee and unrelated third parties exceeds substantially all of the fair value of the asset and collection of the payments is probable.
Revenue Recognition
Rental revenue for operating leases is recognized on a straight-line basis over the term of the lease. Rental revenue recognition commences when the leased space is available for its intended use by the lessee.
To determine whether the leased space is available for its intended use by the lessee, management evaluates whether we or the tenant are the owner of tenant improvements for accounting purposes. When management concludes that we are the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is when such tenant improvements are substantially complete. In certain instances, when management concludes that we are not the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of or controls the space.
The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets.
In addition to base rent, our tenants also generally will pay variable rent which represents their pro rata share of increases in real estate taxes and certain operating expenses for the building over a base year. In some leases, in lieu of paying additional rent based upon increases in certain building operating expenses, the tenant will pay additional rent based upon increases in the wage rate paid to porters over the porters' wage rate in effect during a base year or increases in the consumer price index over the index value in effect during a base year. In addition, many of our leases contain fixed percentage increases over the base rent to cover escalations. Electricity is most often supplied by the landlord either on a sub-metered basis, or rent inclusion basis (i.e., a fixed fee is included in the rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant). Base building services other than electricity (such as heat, air conditioning and freight elevator service during business hours, and base building cleaning) are typically provided at no additional cost, with the tenant paying additional rent only for services which exceed base building services or for services which are provided outside normal business hours. These escalations are based on actual expenses incurred in the prior calendar year. If the expenses in the current year are different from those in the prior year, then during the current year, the escalations will be adjusted to reflect the actual expenses for the current year.
Rental revenue is recognized if collectability is probable. If collectability of substantially all of the lease payments is assessed as not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current-period adjustment to rental revenue. A subsequent change in the assessment of collectability to probable may result in a current-period adjustment to rental revenue for any difference between the rental revenue that would have been recognized if collectability had always been assessed as probable and the rental revenue recognized to date.
We recognize lease concessions related to COVID-19, such as rent deferrals and abatements, in accordance with the Lease Modification Q&A issued by the FASB in April 2020, which provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. This election is only available when total cash flows resulting from the modified lease are substantially similar to the cash flows in the original lease. When total cash flows resulting from the modified lease are not substantially similar to the cash flows in the original lease, we account for the concession agreement as a new lease.
The Company provides its tenants with certain customary services for lease contracts such as common area maintenance and general security. We have elected to combine the non-lease components with the lease components of our operating lease agreements and account for them as a single lease component in accordance with ASC 842.
We record a gain or loss on sale of real estate assets when we no longer have a controlling financial interest in the entity owning the real estate, a contract exists with a third party and that third party has control of the assets acquired.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Investment income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is collectible. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt.
Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield. Discounts or premiums associated with the purchase of loans are amortized or accreted into interest income as a yield adjustment on the effective interest method based on expected cash flows through the expected maturity date of the related investment. If we purchase a debt or preferred equity investment at a discount, intend to hold it until maturity and expect to recover the full value of the investment, we accrete the discount into income as an adjustment to yield over the term of the investment. If we purchase a debt or preferred equity investment at a discount with the intention of foreclosing on the collateral, we do not accrete the discount. For debt investments acquired at a discount for credit quality, the difference between contractual cash flows and expected cash flows at acquisition is not accreted. Anticipated exit fees, the collection of which is expected, are also recognized over the term of the loan as an adjustment to yield.
We consider a debt and preferred equity investment to be past due when amounts contractually due have not been paid. 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 is resumed on any debt or preferred equity investment that is on non-accrual status when such debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed.
We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income.
Asset management fees are recognized on a straight-line basis over the term of the asset management agreement.
Debt and Preferred Equity Investments
Debt and preferred equity investments are presented at the net amount expected to be collected in accordance with ASC 326. An allowance for loan losses is deducted from the amortized cost basis of the financial assets to present the net carrying value at the amount expected to be collected through the expected maturity date of such investments. The expense for loan loss and other investment reserves is the charge to earnings to adjust the allowance for loan losses to the appropriate level. Amounts are written off from the allowance when we de-recognize the related investment either as a result of a sale of the investment or acquisition of equity interests in the collateral.
The Company evaluates the amount expected to be collected based on current market and economic conditions, historical loss information, and reasonable and supportable forecasts. The Company's assumptions are derived from both internal data and external data which may include, among others, governmental economic projections for the New York City Metropolitan area, public data on recent transactions and filings for securitized debt instruments. This information is aggregated by asset class and adjusted for duration. Based on these inputs, loans are evaluated at the individual asset level. In certain instances, we may also use a probability-weighted model that considers the likelihood of multiple outcomes and the amount expected to be collected for each outcome.
The evaluation of the possible 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 requires significant judgment, which include both asset level and market assumptions over the relevant time period.
In addition, quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from lower risk to higher 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. Loans with risk ratings of 2 or above are evaluated to determine whether the expected risk of loss is appropriately captured through the combination of our expectations of current conditions, historical loss information and supportable forecasts described above or whether risk characteristics specific to the loan warrant the use of a probability-weighted model.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Financing investments that are classified as held for sale are carried at the expected amount to be collected 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 expected amount to be collected.
Other financing receivables that are included in balance sheet line items other than the Debt and preferred equity investments line are also measured at the net amount expected to be collected.
Accrued interest receivable amounts related to these debt and preferred equity investment and other financing receivables are recorded at the net amount expected to be collected within Other assets in the consolidated balance sheets. Accrued interest receivables that are written off are recognized as an expense in loan loss and other investment reserves.
Rent Expense
Rent expense is recognized on a straight-line basis over the initial term of the lease. The excess of the rent expense recognized over the amounts contractually due pursuant to the underlying lease is included in the lease liability - operating leases on the consolidated balance sheets.
Underwriting Commissions and Costs
Underwriting commissions and costs incurred in connection with our stock offerings are reflected as a reduction of additional paid-in-capital.
Transaction Costs
Transaction costs for asset acquisitions are capitalized to the investment basis, which is then subject to a purchase price allocation based on relative fair value. Transaction costs for business combinations or costs incurred on potential transactions that are not consummated are expensed as incurred.
Income Taxes
SL Green is taxed as a REIT under Section 856(c) of the Code. As a REIT, SL Green generally is not subject to Federal income tax. To maintain its qualification as a REIT, SL Green must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If SL Green fails to qualify as a REIT in any taxable year, SL Green will be subject to Federal income tax on its taxable income at regular corporate rates. SL Green may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on its undistributed taxable income.
The Operating Partnership is a partnership and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective income tax returns. The only provision for income taxes included in the consolidated statements of operations relates to the Operating Partnership’s consolidated taxable REIT subsidiaries. The Operating Partnership may also be subject to certain state, local and franchise taxes.
We have elected, and may elect in the future, to treat certain of our corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, TRSs may perform non-customary services for the tenants of the Company, hold assets that we cannot hold directly and generally may engage in any real estate or non-real estate related business. The TRSs generate income, resulting in Federal and state income tax liability for these entities.
During the years ended December 31, 2021, 2020 and 2019, we recorded Federal, state and local tax provisions of $2.8 million, $1.2 million, and $1.5 million, respectively. For the year ended December 31, 2021, the Company paid distributions on its common stock of $8.09 per share which represented $0.50 per share of ordinary income and $5.92 per share of capital gains. For the year ended December 31, 2020, the Company paid distributions on its common stock of $5.54 per share which represented $1.84 per share of ordinary income, and $3.06 per share of capital gains. For the year ended December 31, 2019, the Company paid distributions on its common stock of $3.40 per share which represented $2.59 per share of ordinary income and $0.81 per share of capital gains. In order to present information that is consistent with the tax forms issued with respect to these tax years, these per-share numbers have not been retroactively adjusted to reflect the reverse stock split that was effectuated in January 2021 and January 2022.
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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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.
Stock Based Employee Compensation Plans
We have a stock-based employee compensation plan, described more fully in Note 14, "Share-based Compensation."
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.
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.
Derivative Instruments
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collars and floors, to manage, or hedge, interest rate risk. Effectiveness is essential for those derivatives that we intend to qualify for hedge accounting. Some derivative instruments are associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.
To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
In the normal course of business, we are exposed to the effect of interest rate changes and limit these risks by following established risk management policies and procedures including the use of derivatives. To address exposure to interest rates, derivatives are used primarily to fix the rate on debt based on floating-rate indices and manage the cost of borrowing obligations.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
We use a variety of conventional derivative products. These derivatives typically include interest rate swaps, caps, collars and floors. We expressly prohibit the use of unconventional derivative instruments and using derivative instruments for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.
We may employ swaps, forwards or purchased options to hedge qualifying forecasted transactions. Gains and losses related to these transactions are deferred and recognized in net income as interest expense in the same period or periods that the underlying transaction occurs, expires or is otherwise terminated.
Hedges that are reported at fair value and presented on the balance sheet could be characterized as cash flow hedges or fair value hedges. Interest rate caps and collars are examples of cash flow hedges. Cash flow hedges address the risk associated with future cash flows of interest payments. For all hedges held by us that meet the hedging objectives established by our corporate policy governing interest rate risk management, no net gains or losses were reported in earnings. The changes in fair value of derivative instruments designated as hedge instruments are reflected in accumulated other comprehensive income (loss). For derivative instruments not designated as hedging instruments, the gain or loss, resulting from the change in the estimated fair value of the derivative instruments, is recognized in current earnings during the period of change.
Earnings per Share of the Company
The Company presents both basic and diluted earnings per share ("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. Earnings per share has been retroactively adjusted to reflect the reverse stock split effectuated in January 2022 for all periods presented in this Annual Report on Form 10-K.
Earnings per Unit of the Operating Partnership
The Operating Partnership presents both basic and diluted earnings per unit ("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. Earnings per unit has been retroactively adjusted for all periods presented in this Annual Report on Form 10-K to reflect the reverse stock split effectuated in January 2022.
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 New York City. See Note 5, "Debt and Preferred Equity Investments."
We perform initial and ongoing evaluations of the credit quality 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 potential source of funds to offset the economic costs associated with lost revenue from that tenant and the costs associated with re-tenanting a space. The properties in our real estate
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
portfolio are located in the New York metropolitan area, principally in Manhattan. Our tenants operate in various industries. Other than one tenant, Viacom CBS Inc., which accounted for 6.3% of our share of annualized cash rent as of December 31, 2021, 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, as of December 31, 2021.
For the years ended December 31, 2021, 2020, and 2019, the following properties contributed more than 5.0% of our annualized cash rent from office properties, including our share of annualized cash rent from joint venture office properties:
| | | | | | | | | | | | | | | | | |
Property | 2021 | Property | 2020 | Property | 2019 |
11 Madison Avenue | 10.8% | 11 Madison Avenue | 8.2% | 1185 Avenue of the Americas | 7.6% |
420 Lexington Avenue | 8.3% | 420 Lexington Avenue | 7.5% | 11 Madison Avenue | 7.4% |
1515 Broadway | 8.1% | 1185 Avenue of the Americas | 6.9% | 420 Lexington Avenue | 6.6% |
1185 Avenue of the Americas | 8.0% | 1515 Broadway | 6.6% | 1515 Broadway | 6.1% |
280 Park Avenue | 6.7% | 220 East 42nd Street | 5.9% | One Madison Avenue | 6.0% |
919 Third Avenue | 5.3% | 280 Park Ave | 5.4% | 220 East 42nd Street | 5.5% |
485 Lexington Avenue | 5.3% | | | | |
555 West 57th Street | 5.2% | | | | |
| | | | | |
As of December 31, 2021, 62.8% of our work force is covered by five collective bargaining agreements. None of these agreements expire before December 31, 2022. See Note 19, "Benefits Plans."
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
Accounting Standards Updates
In July 2021, the FASB issued ASU No. 2021-05 Leases (Topic 842) Lessors - Certain Leases with Variable Lease Payments. ASU 2021-05 amends the lease classification requirements for lessors when classifying and accounting for a lease with variable lease payments that do not depend on a reference rate index or a rate. The update provides criteria, that if met, the lease would be classified and accounted for as an operating lease. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated financial statements, but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
In August 2020, the FASB issued Accounting Standard Update, or "ASU," No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2020-06 on our consolidated financial statements, but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting and then in January 2021, the FASB issued ASU No. 2021-01. The amendments provide practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and is effective between March 12, 2020 and December 31, 2022. The guidance may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendment most relevant to the Company is how to apply the fair value measurement alternative in Topic 321 when an investor must apply the fair value to an investment under the equity method in Topic 323. The amendment clarifies that an entity should consider observable transactions when considering the fair value of an investment. The guidance is effective for the Company for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this guidance on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued 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 Company adopted this guidance on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
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 adopted this guidance on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; in November 2018 issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, in April, May and November 2019, issued ASU No. 2019-04, 2019-05 and 2019-11, which provide codification improvements and targeted transition relief; and in 2020 issued ASU 2020-02 Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842), which updates SEC guidance in those Topics. 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 Company’s DPE portfolio and financing lease assets are subject to this guidance. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. The Company adopted this guidance on January 1, 2020 and recorded a $39.2 million cumulative adjustment to retained earnings upon adoption.
3. Property Acquisitions
2021 Acquisitions
The following table summarizes the properties acquired during the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Acquisition Date | | Property Type | | Approximate Square Feet | | Gross Asset Valuation (in millions) |
885 Third Avenue (1) | | January 2021 | | Fee Interest | | 625,000 | | $ | 387.9 | |
461 Fifth Avenue (2) | | June 2021 | | Fee Interest | | 200,000 | | 28.0 | |
1591-1597 Broadway (3) | | September 2021 | | Fee Interest | | 7,684 | | 121.0 | |
690 Madison Avenue (4) | | September 2021 | | Fee Interest | | 7,848 | | 72.2 | |
(1)In January 2021, pursuant to the partnership documents of our 885 Third Avenue investment, certain participating rights of the common member expired. As a result, it was determined that this investment is a VIE in which we are the primary beneficiary, and the investment was consolidated in our financial statements. Upon consolidating the entity, the assets and liabilities of the entity were recorded at fair value. Prior to January 2021, the investment was accounted for under the equity method. See Note 6, "Investments in Unconsolidated Joint Ventures" and Note 16, "Fair Value Measurements.
(2)In April 2021, the Company exercised its option to acquire the fee interest in the property from the ground lessor and the Company acquired the fee interest in June 2021. The Company held the leasehold interest in the property prior to exercising its option.
(3)A third party has asserted ownership rights to the fee, which the Company is contesting.
(4)In September 2021, the Company was the successful bidder for the fee interest in 690 Madison Avenue at the foreclosure of the asset. The property previously served as collateral for a debt and preferred equity investment. We recorded the assets acquired and liabilities assumed at fair value. See Note 5, "Debt and Preferred Equity Investments" and Note 16, "Fair Value Measurements."
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
2020 Acquisitions
The following table summarizes the properties acquired during the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Acquisition Date | | Property Type | | Approximate Square Feet | | Gross Asset Valuation (in millions) |
762 Madison Avenue (1) | | January 2020 | | Fee Interest | | 6,109 | | $ | 29.3 | |
707 Eleventh Avenue | | January 2020 | | Fee Interest | | 159,720 | | 90.0 | |
15 Beekman (2) | | January 2020 | | Leasehold Interest | | 98,412 | | — | |
590 Fifth Avenue (3) | | October 2020 | | Fee Interest | | 103,300 | | 107.2 | |
(1)The Company acquired from our joint venture partner the remaining 10% interest in this property that the Company did not already own.
(2)In January 2020, the Company entered into a 99-year ground lease of 126 Nassau Street and subsequently renamed the property 15 Beekman. In August 2020, we entered into a partnership as part of the capitalization of this development project. See note 6, “Investment in Unconsolidated Joint Ventures.”
(3)The property previously served as collateral for a debt and preferred equity investment and was acquired through a negotiated transaction with the sponsor.
2019 Acquisitions
The following table summarizes the properties acquired during the year ended December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Acquisition Date | | Property Type | | Approximate Square Feet | | Acquisition Price (in millions) |
106 Spring Street (1) | | April 2019 | | Fee Interest | | 5,928 | | $ | 80.2 | |
410 Tenth Avenue (2) | | May 2019 | | Fee Interest | | 638,000 | | 440.0 | |
110 Greene Street (3) | | May 2019 | | Fee Interest | | 223,600 | | 256.5 | |
(1)In April 2019, the Company accepted an assignment of the equity interests in the property in lieu of repayment of the Company's debt investment and marked the assets received and liabilities assumed to fair value.
(2)In May 2019, the Company closed on the acquisition of a majority and controlling 70.87% interest in 460 West 34th Street and subsequently renamed the property 410 Tenth Avenue. The Company had previously made a loan to the entity that was accounted for as an Acquisition, Development, and Construction (“ADC”) arrangement. Upon consolidating the entity in which it acquired the controlling equity interest, the Company and the Partnership removed the ADC arrangement and recorded the assets and liabilities of the entity at fair value, which resulted in the recognition of a fair value adjustment of $67.6 million, which was reflected in the Company's consolidated statement of operations within purchase price and other fair value adjustments, and $18.3 million of net intangible lease liabilities.
(3)In May 2019, the Company acquired from our joint venture partner the remaining 10% interest in this property that the Company did not already own.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
As of December 31, 2021, 1080 Amsterdam Avenue and 707 Eleventh Avenue were classified as held for sale as we entered into an agreement to sell the properties, both in Manhattan, for a total consideration of $42.5 million and $95.0 million, respectively. The sales of 1080 Amsterdam Avenue and 707 Eleventh Avenue are expected to close in the first quarter of 2022, both subject to customary closing conditions.
The Company recorded a $15.0 million charge in connection with the classification of 707 Eleventh Avenue as held for sale, which is included in Depreciable real estate reserves and impairments in the consolidated statement of operations.
Property Dispositions
The following table summarizes the properties sold during the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Disposition Date | | Property Type | | Unaudited Approximate Usable Square Feet | | Sales Price (1) (in millions) | | Gain (Loss) on Sale (2) (in millions) |
110 East 42nd Street | | December 2021 | | Fee Interest | | 215,400 | | | $ | 117.1 | | | $ | 3.6 | |
590 Fifth Avenue | | October 2021 | | Fee Interest | | 103,300 | | | 103.0 | | | (3.2) | |
220 East 42nd Street (3) | | July 2021 | | Fee Interest | | 1,135,000 | | | 783.5 | | | 175.1 | |
635-641 Sixth Avenue | | June 2021 | | Fee Interest | | 267,000 | | | 325.0 | | | 99.4 | |
106 Spring Street (4) | | March 2021 | | Fee Interest | | 5,928 | | | 35.0 | | | (2.8) | |
133 Greene Street (4) | | February 2021 | | Fee Interest | | 6,425 | | | 15.8 | | | 0.2 | |
712 Madison Avenue (5) | | January 2021 | | Fee Interest | | 6,600 | | | 43.0 | | | (1.4) | |
30 East 40th Street | | December 2020 | | Leasehold Interest | | 69,446 | | | 5.2 | | | (1.6) | |
1055 Washington Boulevard | | December 2020 | | Leasehold Interest | | 182,000 | | | 23.8 | | | (11.5) | |
Williamsburg Terrace | | December 2020 | | Fee Interest | | 52,000 | | | 32.0 | | | 11.8 | |
410 Tenth Avenue | | December 2020 | | Fee Interest | | 638,000 | | | 952.5 | | | 56.4 | |
400 East 58th Street | | September 2020 | | Fee Interest | | 140,000 | | | 62.0 | | | 8.3 | |
609 Fifth Avenue - Retail Condominium | | May 2020 | | Fee Interest | | 21,437 | | | 168.0 | | | 63.3 | |
315 West 33rd Street - The Olivia | | March 2020 | | Fee Interest | | 492,987 | | | 446.5 | | | 71.8 | |
Suburban Properties (6) | | December 2019 | | Fee Interest | | 1,107,000 | | | 229.2 | | | 1.8 | |
1640 Flatbush Avenue | | December 2019 | | Fee Interest | | 1,000 | | | 16.2 | | | 5.5 | |
562 Fifth Avenue | | December 2019 | | Fee Interest | | 42,635 | | | 52.4 | | | (26.6) | |
1010 Washington Boulevard (7) | | November 2019 | | Fee Interest | | 143,400 | | | 23.1 | | | (7.1) | |
115 Spring Street (8) | | August 2019 | | Fee Interest | | 5,218 | | | 66.6 | | | 3.6 | |
(1)Sales price represents the gross sales price for a property or the gross asset valuation for interests in a property.
(2)The gain on sale is net of $13.7 million, $10.5 million, and $2.0 million of employee compensation accrued in connection with the realization of these investment gains in the years ended December 31, 2021, 2020, and 2019, respectively. Additionally, amounts do not include adjustments for expenses recorded in subsequent periods.
(3)In July 2021, the Company sold a 49% interest, which resulted in the Company no longer retaining a controlling interest in the entity, as defined in ASC 810, and the deconsolidation of the 51.0% interest we retained. We recorded our investment at fair value which resulted in the recognition of a fair value adjustment of $206.8 million, which is reflected in the Company's consolidated statements of operations within Purchase price and other fair value adjustments. See Note 6, "Investments in Unconsolidated Joint Ventures."
(4)In the first quarter of 2021, the property was foreclosed by the lender.
(5)Disposition resulted from the buyer exercising its purchase option under a ground lease arrangement.
(6)Suburban Properties consists of 360 Hamilton Avenue, 100 Summit Lake Drive, 200 Summit Lake Drive, and 500 Summit Lake Drive.
(7)The Company recorded a $7.1 million charge in 2019 that is included in depreciable real estate reserves and impairments in the consolidated statement of operations.
(8)The Company sold a 49% interest, which resulted in the deconsolidation of our remaining 51% interest. We recorded our investment at fair value which resulted in the recognition of a fair value adjustment of $3.8 million, which is reflected in the Company's consolidated statements of operations within purchase price and other fair value adjustments. See Note 6, "Investments in Unconsolidated Joint Ventures."
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
5. Debt and Preferred Equity Investments
Below is a summary of the activity in our debt and preferred equity investments for the years ended December 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Balance at beginning of year (1) | $ | 1,076,542 | | | $ | 1,580,306 | |
Debt investment originations/fundings/accretion (2) | 193,824 | | | 389,300 | |
Preferred equity investment originations/accretion (2) | 13,220 | | | 167,042 | |
Redemptions/sales/syndications/equity ownership/amortization (3) | (201,446) | | | (1,048,643) | |
Net change in loan loss reserves | 6,583 | | | (11,463) | |
Balance at end of period (1) | $ | 1,088,723 | | | $ | 1,076,542 | |
(1)Net of unamortized fees, discounts, and premiums.
(2)Accretion includes amortization of fees and discounts and paid-in-kind investment income.
(3)Certain participations in debt investments that were sold or syndicated, but did not meet the conditions for sale accounting, are included in Other assets and Other liabilities on the consolidated balance sheets.
Below is a summary of our debt and preferred equity investments as of December 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Floating Rate | | Fixed Rate | | Total Carrying Value | Senior Financing | Maturity(1) |
Type | Carrying Value | Face Value | Interest Rate | | Carrying Value | Face Value | Interest Rate | |
Senior Mortgage Debt | $ | 22,646 | | $ | 22,841 | | L + 3.50 - 3.50% | | $ | 73,000 | | $ | 73,000 | | 3.00% | | $ | 95,646 | | $ | — | | 2022 - 2023 |
Mezzanine Debt | 272,324 | | 273,274 | | L + 5.00 - 12.57% | | 447,747 | | 457,474 | | 2.90 - 14.30% | | 720,071 | | 4,664,200 | | 2022 - 2029 |
Preferred Equity | — | | — | | — | | 273,006 | | 273,821 | | 6.50 - 11.00% | | 273,006 | | 1,962,750 | | 2022 - 2027 |
Balance at end of period | $ | 294,970 | | $ | 296,115 | | | | $ | 793,753 | | $ | 804,295 | | | | $ | 1,088,723 | | $ | 6,626,950 | | |
(1) Excludes available extension options to the extent they have not been exercised as of the date of this filing.
The following table is a rollforward of our total allowance for loan losses for the years ended December 31, 2021, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 | | 2019 |
Balance at beginning of year | $ | 13,213 | | | $ | 1,750 | | | $ | 5,750 | |
Cumulative adjustment upon adoption of ASC 326 | — | | | 27,803 | | | — | |
Current period provision for loan loss | — | | | 20,693 | | | — | |
Write-offs charged against the allowance (1) | (6,583) | | | (37,033) | | | (4,000) | |
Balance at end of period (2) | $ | 6,630 | | | $ | 13,213 | | | $ | 1,750 | |
(1)Includes $0.0 million and $19.0 million of charges recorded against investments that were sold during the year ended December 31, 2021 and 2020, respectively. These charges are included in loan loss and other investment reserves, net of recoveries, in our consolidated statements of operations.
(2)As of December 31, 2021, all financing receivables on non-accrual had an allowance for loan loss except for one debt investment with a carrying value of $225.4 million.
As of December 31, 2021, all debt and preferred equity investments were performing in accordance with their respective terms, with the exception of two investments with a carrying value, net of reserves, of $216.0 million and $6.8 million, as discussed in the Debt Investments and Preferred Equity Investments tables further below.
As of December 31, 2020, all debt and preferred equity investments were performing in accordance with their respective terms, with the exception of one investment with a carrying value, net of reserves, of $6.8 million, as discussed in the Debt Investments table further below.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
No other financing receivables were 90 days past due as of December 31, 2021 and 2020 with the exception of a $27.7 million financing receivable included in Other assets, which was put on non-accrual in August 2018 as a result of an interest default.
The following table sets forth the carrying value of our debt and preferred equity investment portfolio by risk rating as of December 31, 2021 and 2020 ($ in thousands):
| | | | | | | | | | | | | | |
Risk Rating | | December 31, 2021 | | December 31, 2020 |
1 - Low Risk Assets - Low probability of loss | | $ | 644,489 | | | $ | 695,035 | |
2 - Watch List Assets - Higher potential for loss | | 437,344 | | | 365,167 | |
3 - High Risk Assets - Loss more likely than not | | 6,890 | | | 16,340 | |
| | $ | 1,088,723 | | | $ | 1,076,542 | |
The following table sets forth the carrying value of our debt and preferred equity investment portfolio by year of origination and risk rating as of December 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
Risk Rating | | 2021(1) | | 2020(1) | | 2019(1) | | Prior(1) | | Total |
1 - Low Risk Assets - Low probability of loss | | $ | 139,873 | | | $ | 151,086 | | | $ | 57,511 | | | $ | 296,019 | | | $ | 644,489 | |
2 - Watch List Assets - Higher potential for loss | | — | | | 133,735 | | | 260,242 | | | 43,367 | | | 437,344 | |
3 - High Risk Assets - Loss more likely than not | | — | | | — | | | — | | | 6,890 | | | 6,890 | |
| | $ | 139,873 | | | $ | 284,821 | | | $ | 317,753 | | | $ | 346,276 | | | $ | 1,088,723 | |
(1) Year in which the investment was originated or acquired by us or in which a material modification occurred.
We have determined that we have one portfolio segment of financing receivables as of December 31, 2021 and 2020 comprised of commercial real estate which is primarily recorded in debt and preferred equity investments.
Included in Other assets is an additional amount of financing receivables representing loans to joint venture partners totaling $50.3 million and $66.2 million as of December 31, 2021 and 2020, respectively. The Company recorded provisions for loan losses related to these financing receivables of $2.9 million and $14.6 million for the years ended December 31, 2021 and 2020, respectively. The Company recorded adjustments upon the adoption of ASC 326 of $11.4 million for the year ended December 31, 2020. All of these loans have a risk rating of 2 and were performing in accordance with their respective terms with the exception of a $27.7 million financing receivable, which was put on nonaccrual in August 2018, that has a risk rating of 3 and was fully reserved as of December 31, 2021.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Debt Investments
As of December 31, 2021 and 2020, we held the following debt investments with an aggregate weighted average current yield of 6.52%, as of December 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loan Type | | December 31, 2021 Future Funding Obligations | | December 31, 2021 Senior Financing | | December 31, 2021 Carrying Value (1) | | December 31, 2020 Carrying Value (1) | |
Maturity Date (2) |
Fixed Rate Investments: | | | | | | | | | | |
Mezzanine Loan | | $ | — | | | $ | 280,000 | | | $ | 43,521 | | | $ | 41,057 | | | August 2022 |
Mortgage Loan | | — | | | — | | | 73,000 | | | — | | | April 2023 |
Mezzanine Loan (3) | | — | | | 376,705 | | | 225,367 | | | 225,204 | | | June 2023 |
Mezzanine Loan | | — | | | 274,976 | | | 66,873 | | | — | | | June 2023 |
Mezzanine Loan (4a)(5) | | — | | | 105,000 | | | 13,366 | | | 13,366 | | | June 2024 |
Mezzanine Loan | | — | | | 95,000 | | | 30,000 | | | 30,000 | | | January 2025 |
Mezzanine Loan (6) | | — | | | 1,712,750 | | | 55,250 | | | 55,250 | | | June 2027 |
Mezzanine Loan | | — | | | 85,000 | | | 20,000 | | | 20,000 | | | December 2029 |
Junior Mortgage | | — | | | — | | | — | | | 32,888 | | | |
Mezzanine Loan | | — | | | — | | | — | | | 3,500 | | | |
Mortgage/Mezzanine Loan | | — | | | — | | | — | | | 56,244 | | | |
Total fixed rate | | $ | — | | | $ | 2,929,431 | | | $ | 527,377 | | | $ | 477,509 | | | |
Floating Rate Investments: | | | | | | | | | | |
Mezzanine Loan | | $ | — | | | $ | 275,000 | | | $ | 49,998 | | | $ | 49,956 | | | April 2022 |
Mezzanine Loan | | 4,933 | | | 180,415 | | | 37,511 | | | 35,318 | | | July 2022 |
Mezzanine Loan (4b) | | — | | | 1,115,000 | | | 133,735 | | | 127,915 | | | March 2022 |
Mezzanine Loan | | 3,932 | | | 54,000 | | | 8,050 | | | 6,858 | | | May 2022 |
Mortgage and Mezzanine Loan | | 23,360 | | | — | | | 34,874 | | | 14,011 | | | December 2022 |
Mezzanine Loan | | 43,415 | | | 110,354 | | | 30,802 | | | 19,889 | | | May 2023 |
Junior Mortgage Participation/Mezzanine Loan | | — | | | — | | | — | | | 15,733 | | | |
Mezzanine Loan | | — | | | — | | | — | | | 29,106 | | | |
Mortgage Loan | | — | | | — | | | — | | | 53,674 | | | |
Total floating rate | | $ | 75,640 | | | $ | 1,734,769 | | | $ | 294,970 | | | $ | 352,460 | | | |
Allowance for loan loss | | $ | — | | | $ | — | | | $ | (6,630) | | | $ | (13,213) | | | |
Total | | $ | 75,640 | | | $ | 4,664,200 | | | $ | 815,717 | | | $ | 816,756 | | | |
(1)Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees.
(2)Represents contractual maturity, excluding any extension options to the extent they have not been exercised as of the date of this filing.
(3)This loan was put on non-accrual in July 2020 and remains on non-accrual as of December 31, 2021. No investment income has been recognized subsequent to it being put on non-accrual. The Company is in discussions with the borrower.
(4)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) $12.0 million, and (b) $0.4 million.
(5)This loan went into default and was put on non-accrual in June 2020 and remains on non-accrual as of December 31, 2021. No investment income has been recognized subsequent to it being put on non-accrual. The Company is in discussions with the borrower. Additionally, we determined the borrower entity to be a VIE in which we are not the primary beneficiary.
(6)The borrower under this mezzanine loan is an entity affiliated with HNA, which owns an equity interest in 245 Park Avenue. The borrower filed for bankruptcy protection on October 31, 2021, which the Company contested.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Preferred Equity Investments
As of December 31, 2021 and 2020, we held the following preferred equity investments with an aggregate weighted average current yield of 9.87% as of December 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Type | | December 31, 2021 Future Funding Obligations | | December 31, 2021 Senior Financing | | December 31, 2021 Carrying Value (1) | | December 31, 2020 Carrying Value (1) | |
Mandatory Redemption (2) |
Preferred Equity (3) | | $ | — | | | $ | 1,712,750 | | | $ | 160,772 | | | $ | 154,691 | | | June 2022 |
Preferred Equity | | — | | | 250,000 | | | 112,234 | | | 105,095 | | | February 2027 |
Total Preferred Equity | | $ | — | | | $ | 1,962,750 | | | $ | 273,006 | | | $ | 259,786 | | | |
Allowance for loan loss | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
Total | | $ | — | | | $ | 1,962,750 | | | $ | 273,006 | | | $ | 259,786 | | | |
(1)Carrying value is net of deferred origination fees.
(2)Represents contractual redemption, excluding any unexercised extension options.
(3)On October 31, 2021, HNA, through an affiliated entity, filed for Chapter 11 bankruptcy protection on account of its investment in 245 Park Avenue, together with another asset in Chicago. The Company contested the filing, on the basis that the filing was done in bad faith and in violation of HNA's agreements with the Company, and is currently appealing the Bankruptcy court’s ruling upholding the filing by HNA.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
6. Investments in Unconsolidated Joint Ventures
We have investments in several real estate joint ventures with various partners. As of December 31, 2021, the book value of these investments was $3.0 billion, net of investments with negative book values totaling $103.7 million for which we have an implicit commitment to fund future capital needs.
As of December 31, 2021, 800 Third Avenue, 21 East 66th Street, and certain properties within the Stonehenge Portfolio are VIEs in which we are not the primary beneficiary. As of December 31, 2020, 800 Third Avenue, 21 East 66th Street, 605 West 42nd Street, and certain properties within the Stonehenge Portfolio are VIEs in which we were not the primary beneficiary. Our net equity investment in these VIEs was $85.6 million as of December 31, 2021 and $134.0 million as of December 31, 2020. 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
The table below provides general information on each of our joint ventures as of December 31, 2021:
| | | | | | | | | | | | | | |
Property | Partner | Ownership Interest (1) | Economic Interest (1) | Unaudited Approximate Square Feet |
100 Park Avenue | Prudential Real Estate Investors | 49.90% | 49.90% | 834,000 | |
717 Fifth Avenue | Wharton Properties/Private Investor | 10.92% | 10.92% | 119,500 | |
800 Third Avenue | Private Investors | 60.52% | 60.52% | 526,000 | |
919 Third Avenue | New York State Teacher's Retirement System | 51.00% | 51.00% | 1,454,000 | |
11 West 34th Street | Private Investor/Wharton Properties | 30.00% | 30.00% | 17,150 | |
280 Park Avenue | Vornado Realty Trust | 50.00% | 50.00% | 1,219,158 | |
1552-1560 Broadway (2) | Wharton Properties | 50.00% | 50.00% | 57,718 | |
10 East 53rd Street | Canadian Pension Plan Investment Board | 55.00% | 55.00% | 354,300 | |
21 East 66th Street (3) | Private Investors | 32.28% | 32.28% | 13,069 | |
650 Fifth Avenue (4) | Wharton Properties | 50.00% | 50.00% | 69,214 | |
121 Greene Street | Wharton Properties | 50.00% | 50.00% | 7,131 | |
Stonehenge Portfolio (5) | Various | Various | Various | 1,439,016 | |
11 Madison Avenue | PGIM Real Estate | 60.00% | 60.00% | 2,314,000 | |
One Vanderbilt Avenue | National Pension Service of Korea/Hines Interest LP | 71.01% | 71.01% | 1,657,198 | |
Worldwide Plaza (6) | RXR Realty / New York REIT | 24.95% | 24.95% | 2,048,725 | |
1515 Broadway | Allianz Real Estate of America | 56.87% | 56.87% | 1,750,000 | |
2 Herald Square | Israeli Institutional Investor | 51.00% | 51.00% | 369,000 | |
115 Spring Street | Private Investor | 51.00% | 51.00% | 5,218 | |
15 Beekman (7) | A fund managed by Meritz Alternative Investment Management | 20.00% | 20.00% | 221,884 | |
85 Fifth Avenue | Wells Fargo | 36.27% | 36.27% | 12,946 | |
One Madison Avenue (8) | National Pension Service of Korea/Hines Interest LP/International Investor | 25.50% | 25.50% | 1,048,700 | |
220 East 42nd Street (9) | A fund managed by Meritz Alternative Investment Management | 51.00% | 51.00% | 1,135,000 | |
(1)Ownership interest and economic interest represent the Company's interests in the joint venture as of December 31, 2021. Changes in ownership or economic interests within the current year are disclosed in the notes below.
(2)The joint venture owns a long-term leasehold interest in the retail space and certain other spaces at 1560 Broadway, which is adjacent to 1552 Broadway.
(3)We hold a 32.28% interest in three retail units and one residential unit at the property and a 16.14% interest in two residential units at the property.
(4)The joint venture owns a long-term leasehold interest in the retail space at 650 Fifth Avenue.
(5)During the fourth quarter of 2021, the Company recorded a $3.1 million charge in connection with the pending sale of this investment for a gross consideration of approximately $1.0 million. This charge is included in Depreciable real estate reserves and impairments in the consolidated statement of operations.
(6)In May 2021, the Company and RXR Realty jointly acquired a 1.2% interest in the property previously held by a private investor. This resulted in an increase in the Company's ownership interest of 0.6%.
(7)In 2020, the Company formed a joint venture, which then entered into a long-term sublease with the Company.
(8)In 2020, the Company admitted partners to the One Madison Avenue development project, which resulted in the Company no longer retaining a controlling interest in the entity, as defined in ASC 810, and the deconsolidation of our remaining 50.5% interest. We recorded our investment at fair value, which resulted in the recognition of a fair value adjustment of $187.5 million. The fair value of our investment was determined by the terms of the joint venture agreement governing the capitalization of the project. The partners have committed aggregate equity to the project totaling no less than $492.2 million and their ownership interest in the joint venture is based on their capital contributions, up to an aggregate maximum of 49.5%. As of December 31, 2021, the total of the two partners' ownership interests based on equity contributed was 27.1%. In November 2021, the Company admitted an additional partner to the development project for a committed aggregate equity investment totaling no less than $259.3 million. The partner's indirect ownership interest in the joint venture is based on it's capital contributions, up to an aggregate maximum of 25.0%. The transaction did not meet sale accounting under ASC 860 and, as a result, was treated as a secured borrowing for accounting purposes and is included in Other liabilities in our consolidated balance sheets at December 31, 2021.
(9)In July 2021, the Company sold a 49% interest in the property, which resulted in the Company no longer retaining a controlling interest in the entity, as defined in ASC 810, and the deconsolidation of the 51.0% interest we retained. We recorded our investment at fair value which resulted in the recognition of a fair value adjustment of $206.8 million during the year ended December 31, 2021. The fair value of our investment was determined by the terms of the joint venture agreement.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Disposition of Joint Venture Interests or Properties
The following table summarizes the investments in unconsolidated joint ventures sold during the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Ownership Interest Sold | | Disposition Date | | Gross Asset Valuation (in millions) | | Gain (Loss) on Sale (in millions) (1) (2) |
400 East 47th Street (3) | | 41.00% | | September 2021 | | $ | 133.5 | | | $ | (1.0) | |
605 West 42nd Street - Sky | | 20.00% | | June 2021 | | 858.1 | | | 8.9 | |
55 West 46th Street - Tower 46 | | 25.00% | | March 2021 | | 275.0 | | | (15.2) | |
885 Third Avenue (4) | | N/A | | January 2021 | | N/A | | N/A |
333 East 22nd Street | | 33.33% | | December 2020 | | 1.6 | | | 3.0 | |
21 East 66th Street (5) | | 1 residential unit | | December 2019 | | 2.9 | | | 0.3 | |
521 Fifth Avenue | | 50.50% | | May 2019 | | 381.0 | | | 57.9 | |
131-137 Spring Street | | 20.00% | | January 2019 | | 216.0 | | | 17.7 | |
Stonehenge Portfolio (partial) | | Various | | Various - 2019 | | 468.8 | | | (2.4) | |
(1)Represents the Company's share of the gain or loss
(2)The gain on sale is net of $1.4 million, $0.0 million, and $4.0 million of employee compensation accrued in connection with the realization of these investment gains in the years ended December 31, 2021, 2020, and 2019, respectively. Additionally, gain (loss) amounts do not include adjustments for expenses recorded in subsequent periods.
(3)In connection with our agreement to sell the property in April 2021, we recorded a charge of $5.7 million, which is included in Depreciable real estate reserves and impairments in the consolidated statements of operations.
(4)In January 2021, pursuant to the partnership documents, certain participating rights of the common member expired. As a result, it was determined that we are the primary beneficiary of the VIE and the investment was consolidated in our financial statements. See Note 3, "Property Acquisitions."
(5)We, together with our joint venture partner, closed on the sale of one residential unit at the property.
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, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases as of December 31, 2021 and 2020, respectively, are as follows (dollars in thousands):
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Economic Interest (1) | | Current Maturity Date | Final Maturity Date (2) | | Interest Rate (3) | | December 31, 2021 | | December 31, 2020 |
Fixed Rate Debt: | | | | | | | | | | | | |
| | | | | | | | | | | | |
717 Fifth Avenue (mortgage) | | 10.92 | % | | July 2022 | July 2022 | | | 4.45% | | $ | 300,000 | | | $ | 300,000 | |
717 Fifth Avenue (mezzanine) | | 10.92 | % | | July 2022 | July 2022 | | | 5.50% | | 355,328 | | | 355,328 | |
650 Fifth Avenue (mortgage) | | 50.00 | % | | October 2022 | October 2022 | | | 4.46% | | 210,000 | | | 210,000 | |
650 Fifth Avenue (mezzanine) | | 50.00 | % | | October 2022 | October 2022 | | | 5.45% | | 65,000 | | | 65,000 | |
21 East 66th Street | | 32.28 | % | | April 2023 | April 2028 | | | 3.60% | | 12,000 | | | 12,000 | |
919 Third Avenue | | 51.00 | % | | June 2023 | June 2023 | | | 5.12% | | 500,000 | | | 500,000 | |
1515 Broadway | | 56.87 | % | | March 2025 | March 2025 | | | 3.93% | | 801,845 | | | 820,607 | |
11 Madison Avenue | | 60.00 | % | | September 2025 | September 2025 | | | 3.84% | | 1,400,000 | | | 1,400,000 | |
800 Third Avenue | | 60.52 | % | | February 2026 | February 2026 | | | 3.37% | | 177,000 | | | 177,000 | |
| | | | | | | | | | | | |
Worldwide Plaza | | 24.95 | % | | November 2027 | November 2027 | | | 3.98% | | 1,200,000 | | | 1,200,000 | |
One Vanderbilt Avenue | | 71.01 | % | | July 2031 | July 2031 | | | 2.95% | | 3,000,000 | | | — | |
Stonehenge Portfolio (4) | | Various | | Various | Various | | | 3.50% | | 195,493 | | | 195,899 | |
400 East 57th Street | | | | | | | | | | — | | | 97,024 | |
885 Third Avenue | | | | | | | | | | — | | | 272,000 | |
Total fixed rate debt | | | | | | | | $ | 8,216,666 | | | $ | 5,604,858 | |
| | | | | | | | | | | | |
Floating Rate Debt: | | | | | | | | | | | | |
1552 Broadway | | 50.00 | % | | October 2022 | October 2022 | | L+ | 2.65% | | $ | 193,132 | | | $ | 195,000 | |
280 Park Avenue | | 50.00 | % | | September 2022 | September 2024 | | L+ | 1.73% | | 1,200,000 | | | 1,200,000 | |
121 Greene Street | | 50.00 | % | | November 2022 | November 2022 | | L+ | 2.00% | | 13,228 | | | 15,000 | |
2 Herald Square | | 51.00 | % | | November 2022 | November 2023 | | L+ | 1.95% | | 200,989 | | | 214,500 | |
11 West 34th Street | | 30.00 | % | | January 2023 | January 2023 | | L+ | 1.45% | | 23,000 | | | 23,000 | |
220 East 42nd Street | | 51.00 | % | | June 2023 | June 2025 | | L+ | 2.75% | | 510,000 | | | — | |
115 Spring Street | | 51.00 | % | | September 2023 | September 2023 | | L+ | 3.40% | | 65,550 | | | 65,550 | |
100 Park Avenue | | 49.90 | % | | December 2023 | December 2025 | | L+ | 2.25% | | 360,000 | | | 360,000 | |
15 Beekman (5) | | 20.00 | % | | January 2024 | July 2025 | | L+ | 1.50% | | 43,566 | | | 11,212 | |
10 East 53rd Street | | 55.00 | % | | February 2025 | February 2025 | | L+ | 1.35% | | 220,000 | | | 220,000 | |
One Madison Avenue (6) | | 25.50 | % | | November 2025 | November 2026 | | L+ | 3.35% | | 169,629 | | | — | |
21 East 66th Street | | 32.28 | % | | June 2033 | June 2033 | | T+ | 2.75% | | 632 | | | 677 | |
One Vanderbilt Avenue | | | | | | | | | | — | | | 1,210,329 | |
605 West 42nd Street | | | | | | | | | | — | | | 550,000 | |
55 West 46th Street | | | | | | | | | | — | | | 192,524 | |
Total floating rate debt | | | | | | | | $ | 2,999,726 | | | $ | 4,257,792 | |
Total joint venture mortgages and other loans payable | | | | | | | | $ | 11,216,392 | | | $ | 9,862,650 | |
Deferred financing costs, net | | | | | | | | (130,516) | | | (113,446) | |
Total joint venture mortgages and other loans payable, net | | | | | | | | $ | 11,085,876 | | | $ | 9,749,204 | |
(1)Economic interest represents the Company's interests in the joint venture as of December 31, 2021. 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.
(2)Reflects exercise of all available options. The ability to exercise extension options may be subject to certain conditions, including meeting tests based on the operating performance of the property.
(3)Interest rates as of December 31, 2021, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated spread over the 30-day LIBOR ("L") or 1-year Treasury ("T").
(4)Comprised of three mortgages totaling $132.2 million that mature in April 2028 and two mortgages totaling $63.3 million that mature in July 2029.
(5)This loan is a $125.0 million construction facility. Advances under the loan are subject to costs incurred.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
(6)The loan is a $1.25 billion construction facility with an initial term of five years with one, one year extension option. Advances under the loan are subject to costs incurred. In conjunction with the loan, we provided partial guarantees for interest and principal payments, the amounts of which are based on certain construction milestones and operating metrics.
We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to certain of our joint ventures. We earned $19.6 million, $15.8 million and $13.0 million from these services, net of our ownership share of the joint ventures, for the years ended December 31, 2021, 2020, and 2019, 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, as of December 31, 2021 and 2020, are as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Assets (1) | | | |
Commercial real estate property, net | $ | 14,763,874 | | | $ | 16,143,880 | |
Cash and restricted cash | 768,510 | | | 357,076 | |
Tenant and other receivables, related party receivables, and deferred rents receivable | 533,455 | | | 403,883 | |
| | | |
Other assets | 1,776,030 | | | 2,001,612 | |
Total assets | $ | 17,841,869 | | | $ | 18,906,451 | |
Liabilities and equity (1) | | | |
Mortgages and other loans payable, net | $ | 11,085,876 | | | $ | 9,749,204 | |
Deferred revenue/gain | 1,158,242 | | | 1,341,571 | |
Lease liabilities | 980,595 | | | 1,002,563 | |
Other liabilities | 352,499 | | | 464,107 | |
Equity | 4,264,657 | | | 6,349,006 | |
Total liabilities and equity | $ | 17,841,869 | | | $ | 18,906,451 | |
Company's investments in unconsolidated joint ventures | $ | 2,997,934 | | | $ | 3,823,322 | |
(1)As of December 31, 2021, $544.4 million of net unamortized basis differences between the amount at which our investments are carried and our share of equity in net assets of the underlying property will be amortized through equity in net income (loss) from unconsolidated joint ventures over the remaining life of the underlying items having given rise to the differences.
The combined statements of operations for the unconsolidated joint ventures, from acquisition date through the years ended December 31, 2021, 2020, and 2019 are as follows (unaudited, in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Total revenues | $ | 1,228,364 | | | $ | 1,133,217 | | | $ | 1,163,534 | |
Operating expenses | 203,332 | | | 180,201 | | | 202,881 | |
Real estate taxes | 225,104 | | | 220,633 | | | 212,355 | |
Operating lease rent | 22,576 | | | 24,134 | | | 24,816 | |
Interest expense, net of interest income | 342,910 | | | 325,500 | | | 372,408 | |
Amortization of deferred financing costs | 31,423 | | | 20,427 | | | 19,336 | |
| | | | | |
Depreciation and amortization | 484,130 | | | 407,834 | | | 407,697 | |
Total expenses | $ | 1,309,475 | | | $ | 1,178,729 | | | $ | 1,239,493 | |
Loss on early extinguishment of debt | (2,017) | | | (194) | | | (1,031) | |
Net loss before gain on sale | $ | (83,128) | | | $ | (45,706) | | | $ | (76,990) | |
Company's equity in net loss from unconsolidated joint ventures | $ | (55,402) | | | $ | (25,195) | | | $ | (34,518) | |
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
7. Deferred Costs
Deferred costs as of December 31, 2021 and 2020 consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Deferred leasing costs | $ | 400,419 | | | $ | 447,002 | |
Less: accumulated amortization | (275,924) | | | (269,834) | |
Deferred costs, net | $ | 124,495 | | | $ | 177,168 | |
8. Mortgages and Other Loans Payable
The mortgages and other loans payable collateralized by the respective properties and assignment of leases or debt investments as of December 31, 2021 and 2020, respectively, were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Current Maturity Date | Final Maturity Date (1) | | Interest Rate (2) | | December 31, 2021 | | December 31, 2020 |
Fixed Rate Debt: | | | | | | | | | | |
100 Church Street | | July 2022 | July 2022 | | | 4.68% | | $ | 200,212 | | | $ | 204,875 | |
420 Lexington Avenue | | October 2024 | October 2040 | | | 3.99% | | 288,660 | | | 294,035 | |
Landmark Square | | January 2027 | January 2027 | | | 4.90% | | 100,000 | | | 100,000 | |
485 Lexington Avenue | | February 2027 | February 2027 | | | 4.25% | | 450,000 | | | 450,000 | |
1080 Amsterdam (3) | | February 2027 | February 2027 | | | 3.59% | | 34,537 | | | 34,773 | |
Total fixed rate debt | | | | | | | | $ | 1,073,409 | | | $ | 1,083,683 | |
Floating Rate Debt: | | | | | | | | | | |
609 Fifth Avenue | | March 2022 | March 2025 | | L+ | 2.95% | | $ | 52,882 | | | $ | 57,651 | |
7 Dey / 185 Broadway (4) | | November 2022 | November 2023 | | L+ | 2.85% | | 198,169 | | | 158,478 | |
719 Seventh Avenue | | September 2023 | September 2023 | | L+ | 1.20% | | 50,000 | | | 50,000 | |
690 Madison Avenue | | July 2024 | July 2025 | | L+ | 1.60% | | 60,000 | | | — | |
220 East 42nd Street (5) | | | | | | | | — | | | 510,000 | |
133 Greene Street | | | | | | | | — | | | 15,523 | |
106 Spring Street | | | | | | | | — | | | 38,025 | |
FHLB Facility | | | | | | | | — | | | 10,000 | |
FHLB Facility | | | | | | | | — | | | 15,000 | |
FHLB Facility | | | | | | | | — | | | 35,000 | |
712 Madison Avenue | | | | | | | | — | | | 28,000 | |
2017 Master Repurchase Agreement (6) | | | | | | | | — | | | — | |
Total floating rate debt | | | | | | | | $ | 361,051 | | | $ | 917,677 | |
Total fixed rate and floating rate debt | | | | | | | | $ | 1,434,460 | | | $ | 2,001,360 | |
Mortgages reclassed to liabilities related to assets held for sale | | | | | | | | (34,537) | | | — | |
Total mortgages and other loans payable | | | | | | | | $ | 1,399,923 | | | $ | 2,001,360 | |
Deferred financing costs, net of amortization | | | | | | | | (5,537) | | | (21,388) | |
Total mortgages and other loans payable, net | | | | | | | | $ | 1,394,386 | | | $ | 1,979,972 | |
(1)Reflects exercise of all available options. The ability to exercise extension options may be subject to certain tests based on the operating performance of the property.
(2)Interest rate as of December 31, 2021, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated spread over the 30-day LIBOR, unless otherwise specified.
(3)The loan is comprised of a $33.6 million mortgage loan and $0.9 million mezzanine 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 the fifth year.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
(4)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. In October 2021, an extension option was exercised, and the maturity date of this loan was extended by one year. Advances under the loan are subject to incurred costs and funded equity requirements.
(5)In July 2021, the Company sold a 49% interest in the property. See Note 4, "Property Dispositions."
(6)In June 2021, we exercised a one year extension option which extended the maturity date to June 2022. As of December 31, 2021, there was no outstanding balance on the $400.0 million facility.
As of December 31, 2021 and 2020, the gross book value of the properties and debt and preferred equity investments collateralizing the mortgages and other loans payable was approximately $2.1 billion and $2.5 billion, respectively.
Federal Home Loan Bank of New York ("FHLB") Facility
As of December 31, 2020, the Company’s wholly-owned subsidiary, Ticonderoga Insurance Company, or Ticonderoga, a Vermont licensed captive insurance company, was a member of the Federal Home Loan Bank of New York, or FHLBNY. As a member, Ticonderoga was able to borrow funds from the FHLBNY in the form of secured advances that bore interest at a floating rate. As a result of a Final Ruling from the Federal Housing Finance Authority, the regulator of the Federal Home Loan Bank system, all captive insurance company memberships were terminated as of February 2021. As such, all advances to Ticonderoga were repaid prior to such termination.
Master Repurchase Agreement
The Company entered into a Master Repurchase Agreement, or MRA, known as the 2017 MRA, which provides us with the ability to sell certain mortgage investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facility permit valuation adjustments based on capital markets activity and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to collateralize 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. As of December 31, 2021, there have been no margin calls on the 2017 MRA.
In April 2018, we increased the maximum facility capacity from $300.0 million 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 is scheduled to mature in June 2022. As of December 31, 2021, the facility had no outstanding balance.
9. Corporate Indebtedness
2021 Credit Facility
In December 2021, we entered into an amended and restated credit facility, referred to as the 2021 credit facility, that was previously amended by the Company in November 2017, or the 2017 credit facility, and was originally entered into by the Company in November 2012, or the 2012 credit facility. As of December 31, 2021, the 2021 credit facility consisted of a $1.25 billion revolving credit facility, a $1.05 billion term loan (or "Term Loan A"), and a $200.0 million term loan (or "Term Loan B") with maturity dates of May 15, 2026, May 15, 2027, and November 21, 2024, respectively. The revolving credit facility has two six-month as-of-right extension options to May 15, 2027. 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, 2021, the 2021 credit facility bore interest at a spread over adjusted Term SOFR plus 10 basis points with an interest period of one or three months, as we may elect, ranging from (i) 72.5 basis points to 140 basis points for loans under the revolving credit facility, (ii) 80 basis points to 160 basis points for loans under Term Loan A, and (iii) 85 basis points to 165 basis points for loans under Term Loan B, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. In instances where there are either only two ratings available or where there are more than two and the difference between them is one rating category, the applicable rating shall be the highest rating. In instances where there are more than two ratings and the difference between the highest and the lowest is two or more rating categories, then the applicable rating used is the average of the highest two, rounded down if the average is not a recognized category.
As of December 31, 2021, the applicable spread over adjusted Term SOFR plus 10 basis points was 85 basis points for the revolving credit facility, 95 basis points for Term Loan A, and 100 basis points for Term Loan B. We are required to pay
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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, 2021, the facility fee was 20 basis points.
As of December 31, 2021, we had $2.0 million of outstanding letters of credit, $390.0 million drawn under the revolving credit facility and $1.25 billion outstanding under the term loan facilities, with total undrawn capacity of $860.0 million under the 2021 credit facility. As of December 31, 2021 and December 31, 2020, the revolving credit facility had a carrying value of $381.3 million and $105.3 million, respectively, net of deferred financing costs. As of December 31, 2021 and December 31, 2020, the term loan facilities had a carrying value of $1.2 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 2021 credit facility.
The 2021 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, 2021 and 2020, respectively, by scheduled maturity date (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance | | December 31, 2021 Unpaid Principal Balance | | December 31, 2021 Accreted Balance | | December 31, 2020 Accreted Balance | | Interest Rate (1) | | Initial Term (in Years) | | Maturity Date |
| | | | | | | | | | | | | |
October 5, 2017 (2) | | $ | 500,000 | | | $ | 499,913 | | | $ | 499,803 | | | | 3.25 | % | | 5 | | October 2022 |
November 15, 2012 (3) | | 300,000 | | | 301,002 | | | 302,086 | | | | 4.50 | % | | 10 | | December 2022 |
December 17, 2015 (4) | | 100,000 | | | 100,000 | | | 100,000 | | | | 4.27 | % | | 10 | | December 2025 |
August 7, 2018 | | — | | | — | | | 350,000 | | | | — | % | | 3 | | August 2021 |
| | $ | 900,000 | | | $ | 900,915 | | | $ | 1,251,889 | | | | | | | | |
Deferred financing costs, net | | | | (1,607) | | | (3,670) | | | | | | | | |
| | $ | 900,000 | | | $ | 899,308 | | | $ | 1,248,219 | | | | | | | | |
(1)Interest rate as of December 31, 2021, taking into account interest rate hedges in effect during the period.
(2)Issued by the Operating Partnership with the Company as the guarantor.
(3)In October 2017, the Company and the Operating Partnership as co-obligors issued an additional $100.0 million of 4.50% senior unsecured notes due December 2022. The notes were priced at 105.334% of par.
(4)Issued by the Company and the Operating Partnership as co-obligors.
Restrictive Covenants
The terms of the 2021 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, 2021 and 2020, 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Principal Maturities
Combined aggregate principal maturities of mortgages and other loans payable, the 2021 credit facility, trust preferred securities, senior unsecured notes and our share of joint venture debt as of December 31, 2021, including as-of-right extension 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 |
2022 | $ | 8,754 | | | $ | 448,835 | | | $ | — | | | $ | — | | | $ | — | | | $ | 800,000 | | | $ | 1,257,589 | | | $ | 426,057 | |
2023 | 6,583 | | | 50,000 | | | — | | | — | | | — | | | — | | | 56,583 | | | 750,696 | |
2024 | 5,268 | | | 332,749 | | | — | | | 200,000 | | | — | | | — | | | 538,017 | | | 616,510 | |
2025 | 812 | | | — | | | — | | | — | | | — | | | 100,000 | | | 100,812 | | | 1,391,185 | |
2026 | 841 | | | — | | | 390,000 | | | — | | | — | | | — | | | 390,841 | | | 150,486 | |
Thereafter | 70 | | | 580,548 | | | — | | | 1,050,000 | | | 100,000 | | | — | | | 1,730,618 | | | 2,435,913 | |
| $ | 22,328 | | | $ | 1,412,132 | | | $ | 390,000 | | | $ | 1,250,000 | | | $ | 100,000 | | | $ | 900,000 | | | $ | 4,074,460 | | | $ | 5,770,847 | |
Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Interest expense before capitalized interest | $ | 145,197 | | | $ | 185,934 | | | $ | 246,848 | |
Interest on financing leases | 5,448 | | | 8,091 | | | 3,243 | |
Interest capitalized | (78,365) | | | (75,167) | | | (55,446) | |
Interest income | (1,389) | | | (2,179) | | | (4,124) | |
Interest expense, net | $ | 70,891 | | | $ | 116,679 | | | $ | 190,521 | |
10. Related Party Transactions
Cleaning/ Security/ Messenger and Restoration Services
Alliance Building Services, or Alliance, and its affiliates, which provide services to certain properties owned by us, 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. 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 $1.7 million, $1.4 million and $3.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
We also recorded expenses, inclusive of capitalized expenses, of $14.0 million, $13.3 million and $18.8 million for the years ended December 31, 2021, 2020 and 2019, 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 $0.7 million, $0.6 million and $0.6 million for the years ended December 31, 2021, 2020, and 2019 respectively.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
One Vanderbilt Avenue Investment
In December 2016, we entered into agreements with entities owned and controlled by our Chairman and CEO, Marc Holliday, and our President, Andrew Mathias, pursuant to which they agreed to make an investment in our One Vanderbilt project at the appraised fair market value for the interests acquired. This investment entitles these entities to receive approximately 1.50% - 1.80% and 1.00% - 1.20%, respectively, of any profits realized by the Company from its One Vanderbilt project in excess of the Company’s capital contributions. The entities have no right to any return of capital. Accordingly, subject to previously disclosed repurchase rights, these interests will have no value and will not entitle these entities to any amounts (other than limited distributions to cover tax liabilities incurred) unless and until the Company has received distributions from the One Vanderbilt project in excess of the Company’s aggregate investment in the project. In the event that the Company does not realize a profit on its investment in the project (or would not realize a profit based on the value at the time the interests are repurchased), the entities owned and controlled by Messrs. Holliday and Mathias will lose the entire amount of their investment. The entities owned and controlled by Messrs. Holliday and Mathias paid $1.4 million and $1.0 million, respectively, which equal the fair market value of the interests acquired as of the date the investment agreements were entered into as determined by an independent third party appraisal that we obtained.
Messrs. Holliday and Mathias cannot monetize their interests until after stabilization of the property (50% within three years after stabilization and 100% three years or more after stabilization). In addition, the agreement calls for us to repurchase these interests in the event of a sale of One Vanderbilt or a transactional change of control of the Company. We also have the right to repurchase these interests on the 7-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. As of December 31, 2021, stabilization of the property was achieved.
One Vanderbilt Avenue Leases
In November 2018, we entered into a lease agreement with the One Vanderbilt Avenue joint venture covering certain floors at the property. In March 2021, the lease commenced and we relocated our corporate headquarters to the leased space. For the year ended December 31, 2021, we recorded $2.4 million of rent expense under the lease. Additionally, in June 2021, we entered into a lease agreement with the One Vanderbilt Avenue joint venture for SUMMIT One Vanderbilt, which commenced in October 2021. For the year ended December 31, 2021, we recorded $5.0 million of rent expense under the lease. See Note 20, “Commitments and Contingencies.”
Other
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 as of December 31, 2021 and 2020 consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Due from joint ventures | $ | 28,204 | | | $ | 27,006 | |
Other | 1,204 | | | 7,651 | |
Related party receivables | $ | 29,408 | | | $ | 34,657 | |
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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Common Units of Limited Partnership Interest in the Operating Partnership
As of December 31, 2021 and 2020, the noncontrolling interest unit holders owned 5.57%, or 3,781,565 units, and 5.59%, or 3,938,823 units, of the Operating Partnership, respectively, inclusive of retroactive adjustments to reflect the reverse stock split effectuated by SL Green in January 2022. As of December 31, 2021, 3,781,565 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 for twelve months ended December 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Balance at beginning of period | $ | 358,262 | | | $ | 409,862 | |
Distributions | (15,749) | | | (12,652) | |
Issuance of common units | 18,678 | | | 12,018 | |
Redemption and conversion of common units | (53,289) | | | (36,085) | |
Net income | 25,457 | | | 20,016 | |
Accumulated other comprehensive loss allocation | 1,042 | | | (2,299) | |
Fair value adjustment | 9,851 | | | (32,598) | |
Balance at end of period | $ | 344,252 | | | $ | 358,262 | |
Preferred Units of Limited Partnership Interest in the Operating Partnership
Below is a summary of the preferred units of limited partnership interest in the Operating Partnership as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance | | Stated Distribution Rate | | Number of Units Authorized | | Number of Units Issued | | Number of Units Outstanding | | Annual Dividend Per Unit(1) | | Liquidation Preference Per Unit(2) | | Conversion Price Per Unit(3) | | Date of Issuance |
Series A (4) | | 3.50 | % | | 109,161 | | | 109,161 | | | 109,161 | | | $ | 35.0000 | | | $ | 1,000.00 | | | $ | — | | | August 2015 |
Series F | | 7.00 | % | | 60 | | | 60 | | | 60 | | | 70.0000 | | | 1,000.00 | | | 29.12 | | | January 2007 |
Series G (5) | | 4.50 | % | | 1,902,000 | | | 1,902,000 | | | 718,697 | | | 1.1250 | | | 25.00 | | | 88.50 | | | January 2012 |
Series K | | 3.50 | % | | 700,000 | | | 563,954 | | | 341,677 | | | 0.8750 | | | 25.00 | | | 134.67 | | | August 2014 |
Series L | | 4.00 | % | | 500,000 | | | 378,634 | | | 372,634 | | | 1.0000 | | | 25.00 | | | — | | | August 2014 |
Series P | | 4.00 | % | | 200,000 | | | 200,000 | | | 200,000 | | | 1.0000 | | | 25.00 | | | — | | | July 2015 |
Series Q | | 3.50 | % | | 268,000 | | | 268,000 | | | 268,000 | | | 0.8750 | | | 25.00 | | | 148.95 | | | July 2015 |
Series R | | 3.50 | % | | 400,000 | | | 400,000 | | | 400,000 | | | 0.8750 | | | 25.00 | | | 154.89 | | | August 2015 |
Series S | | 4.00 | % | | 1,077,280 | | | 1,077,280 | | | 1,077,280 | | | 1.0000 | | | 25.00 | | | — | | | August 2015 |
Series V | | 3.50 | % | | 40,000 | | | 40,000 | | | 40,000 | | | 0.8750 | | | 25.00 | | | — | | | May 2019 |
Series W (6) | | (6) | | | 1 | | | 1 | | | 1 | | | (6) | | | (6) | | | (6) | | | January 2020 |
(1)Dividends are cumulative, subject to certain provisions.
(2)Units are redeemable at any time at par for cash at the option of the unitholder unless otherwise specified.
(3)If applicable, 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) the amount shown in the table.
(4)Issued through a consolidated subsidiary. The units are convertible on a one-for-one basis, into the Series B Preferred Units of limited partnership interest, or the Subsidiary Series 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, 2021, no Subsidiary Series B Preferred Units have been issued.
(5)Common units of limited partnership interest in the Operating Partnership issued in a conversion may be redeemed in exchange for our common stock on a 1-to-1 basis. The Series G Preferred Units also provided the holder with the right to require the Operating Partnership to repurchase the Series G Preferred Units for cash before January 31, 2022, which the holder did not execute.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
(6)The Series W preferred unit was issued in January 2020 in exchange for the then-outstanding Series O preferred unit. The holder of the Series W preferred unit is entitled to quarterly dividends in an amount calculated as (i) 1,350 multiplied by (ii) the current distribution per common unit of limited partnership in SL Green Operating Partnership. The holder has the right to require the Operating Partnership to repurchase the Series W unit for cash, or convert the Series W unit for Class B units, in each case at a price that is determined based on the closing price of the Company's common stock at the time such right is exercised. The unit's liquidation preference is the fair market value of the unit plus accrued distributions at the time of a liquidation event.
Below is a summary of the activity relating to the preferred units in the Operating Partnership for the twelve months ended December 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Balance at beginning of period | $ | 202,169 | | | $ | 283,285 | |
Issuance of preferred units | — | | | — | |
Redemption of preferred units | (6,040) | | | (82,750) | |
Dividends paid on preferred units | (6,760) | | | (6,163) | |
Accrued dividends on preferred units | 6,706 | | | 7,797 | |
Balance at end of period | $ | 196,075 | | | $ | 202,169 | |
12. Stockholders’ Equity of the Company
Common Stock
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, 2021, 64,105,276 shares of common stock and no shares of excess stock were issued and outstanding.
On December 2, 2021 our Board of Directors declared an ordinary dividend of $0.3108 per share ($0.3203 per share reflecting reverse stock split noted below) and a special dividend of $2.4392 per share ($2.5138 per share reflecting reverse stock split noted below) (together, "the Total Dividend"). The Total Dividend was paid on January 18, 2022 to shareholders of record at the close of business on December 15, 2021 ("the Record Date"). Shareholders had the opportunity to elect to receive the Total Dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed.
To mitigate the dilutive impact of the common stock issued in the special dividend, the board of directors also authorized a reverse stock split, which was effective after markets closed on January 21, 2022. On January 10, 2022, a committee of the Board of Directors calculated the ratio for the reverse stock split of our issued and outstanding shares of common stock as 1.03060-for-1. After the issuance of the dividend and the completion of the reverse stock split, the number of shares of our common stock outstanding was equivalent to the number of total shares outstanding on the Record Date (not including any issuances or repurchases that occurred following the Record Date, as well as any fractional shares that would have been issued but for which cash-in-lieu was paid). However, on a relative basis, some individual shareholders may have more shares of SLG’s common stock, and some individual shareholders may have fewer shares of our common stock, depending on their individual elections to receive cash or stock and as a result of the cash option being oversubscribed.
All share-related references and measurements including the number of shares outstanding, share prices, number of shares repurchased, earnings per share, dividends per share, and share-based compensation awards, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Annual Report on Form 10-K.
Share Repurchase Program
In August 2016, our Board of Directors approved a $1.0 billion share repurchase program under which we can buy shares of our common stock. The Board of Directors has since authorized five separate $500.0 million increases to the size of the share repurchase program in the fourth quarter of 2017, second quarter of 2018, fourth quarter of 2018, fourth quarter of 2019, and fourth quarter of 2020 bringing the total program size to $3.5 billion.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
As of December 31, 2021, share repurchases, excluding the redemption of OP Units, executed under the program were as follows:
| | | | | | | | | | | | | | | | | | | | |
Period | | Shares repurchased | | Average price paid per share | | Cumulative number of shares repurchased as part of the repurchase plan or programs |
Year ended 2017 | | 7,865,206 | | $107.81 | | 7,865,206 |
Year ended 2018 | | 9,187,480 | | $102.06 | | 17,052,686 |
Year ended 2019 | | 4,333,260 | | $88.69 | | 21,385,946 |
Year ended 2020 | | 8,285,460 | | $64.30 | | 29,671,406 |
Year ended 2021 | | 4,474,649 | | $75.44 | | 34,146,055 |
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 any time, in whole or from time to time in part, at par for cash. 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 2021, 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, 2021, 2020, and 2019, respectively (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Shares of common stock issued | 10,387 | | | 16,181 | | | 3,645 | |
Dividend reinvestments/stock purchases under the DRSPP | $ | 738 | | | $ | 1,006 | | | $ | 334 | |
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 Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
SL Green's earnings per share for the years ended December 31, 2021, 2020, and 2019 are computed as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Numerator | 2021 | | 2020 | | 2019 |
Basic Earnings: | | | | | |
Income attributable to SL Green common stockholders | $ | 434,804 | | | $ | 356,105 | | | $ | 255,484 | |
Less: distributed earnings allocated to participating securities | (2,398) | | | (1,685) | | | (1,700) | |
Less: undistributed earnings allocated to participating securities | (192) | | | (137) | | | — | |
Net income attributable to SL Green common stockholders (numerator for basic earnings per share) | $ | 432,214 | | | $ | 354,283 | | | $ | 253,784 | |
Add back: dilutive effect of earnings allocated to participating securities and contingently issuable shares | 2,039 | | | 1,685 | | | 1,700 | |
Add back: undistributed earnings allocated to participating securities | 192 | | | 137 | | | — | |
Add back: Effect of dilutive securities (redemption of units to common shares) | 25,457 | | | 20,016 | | | 13,301 | |
| | | | | |
Income attributable to SL Green common stockholders (numerator for diluted earnings per share) | $ | 459,902 | | | $ | 376,121 | | | $ | 268,785 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Denominator | 2021 | | 2020 | | 2019 |
Basic Shares: | | | | | |
Weighted average common stock outstanding | 65,740 | | | 70,397 | | | 77,057 | |
Effect of Dilutive Securities: | | | | | |
Operating Partnership units redeemable for common shares | 3,987 | | | 4,096 | | | 4,275 | |
Stock-based compensation plans | 705 | | | 441 | | | 533 | |
Contingently issuable shares | 337 | | | 144 | | | — | |
Diluted weighted average common stock outstanding | 70,769 | | | 75,078 | | | 81,865 | |
The Company has excluded 948,017, 1,676,825 and 1,181,014 common stock equivalents from the calculation of diluted shares outstanding for the years ended December 31, 2021, 2020, and 2019 respectively, as they were anti-dilutive.
13. Partners' Capital of the Operating Partnership
The Company is the sole managing general partner of the Operating Partnership and as of December 31, 2021 owned 64,105,276 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
All unit-related references and measurements including the number of units outstanding and earnings per unit have been retroactively adjusted to reflect the reverse stock split effectuated by SL Green’s Board of Directors in January 2021 for all periods presented in this Annual Report on Form 10-K.
Limited Partner Units
As of December 31, 2021, limited partners other than SL Green owned 3,781,565 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, 2021, 2020, and 2019 respectively are computed as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Numerator | 2021 | | 2020 | | 2019 |
Basic Earnings: | | | | | |
Net income attributable to SLGOP common unitholders (numerator for diluted earnings per unit) | $ | 460,261 | | | $ | 376,121 | | | $ | 268,785 | |
Less: distributed earnings allocated to participating securities | (2,398) | | | (1,685) | | | (1,700) | |
Less: undistributed earnings allocated to participating securities | (192) | | | (137) | | | — | |
Net Income attributable to SLGOP common unitholders (numerator for basic earnings per unit) | $ | 457,671 | | | $ | 374,299 | | | $ | 267,085 | |
Add back: dilutive effect of earnings allocated to participating securities and contingently issuable shares | 2,590 | | | 1,822 | | | 1,700 | |
| | | | | |
Income attributable to SLGOP common unitholders | $ | 460,261 | | | $ | 376,121 | | | $ | 268,785 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Denominator | 2021 | | 2020 | | 2019 |
Basic units: | | | | | |
Weighted average common units outstanding | 69,667 | | | 74,493 | | | 81,332 | |
Effect of Dilutive Securities: | | | | | |
Stock-based compensation plans | 765 | | | 441 | | | 543 | |
Contingently issuable units | 337 | | | 144 | | | (10) | |
Diluted weighted average common units outstanding | 70,769 | | | 75,078 | | | 81,865 | |
The Operating Partnership has excluded 948,017, 1,676,825 and 1,181,014 common unit equivalents from the diluted units outstanding for the years ended December 31, 2021, 2020, and 2019, respectively, as they were anti-dilutive.
14. Share-based Compensation
We have share-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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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., 10-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, 2021, 2.0 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.
Stock Options and Class O LTIP Units
Options are granted 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 years or ten years from the date of grant, are not transferable other than on death, and generally vest in one year 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. There were no options granted during the years ended December 31, 2021, 2020, and 2019.
A summary of the status of the Company's stock options as of December 31, 2021, 2020, and 2019 and changes during the years ended December 31, 2021, 2020, and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Options Outstanding | | Weighted Average Exercise Price | | Options Outstanding | | Weighted Average Exercise Price | | Options Outstanding | | Weighted Average Exercise Price |
Balance at beginning of year | 761,686 | | | $ | 105.76 | | | 977,745 | | | $ | 108.57 | | | 1,071,977 | | | $ | 109.82 | |
| | | | | | | | | | | |
Exercised | (11,314) | | | 72.30 | | | — | | | — | | | — | | | — | |
Lapsed or canceled | (356,283) | | | 112.56 | | | (216,059) | | | 118.49 | | | (94,232) | | | 122.84 | |
Balance at end of year | 394,089 | | | $ | 100.56 | | | 761,686 | | | $ | 105.76 | | | 977,745 | | | $ | 108.57 | |
Options exercisable at end of year | 394,089 | | | $ | 100.56 | | | 760,743 | | | $ | 105.76 | | | 862,593 | | | $ | 107.86 | |
| | | | | | | | | | | |
The remaining weighted average contractual life of the options outstanding was 2.3 years and the remaining weighted average contractual life of the options exercisable was 2.3 years.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
During the years ended December 31, 2021, 2020, and 2019, we recognized compensation expense for these options of $0.0 million, $0.0 million, and $2.5 million, respectively. As of December 31, 2021, there was no unrecognized compensation cost related to unvested stock options.
Restricted Shares
Shares are granted to certain employees, including our executives, and vesting occurs upon the completion of a service period or our meeting established financial performance criteria. 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, 2021, 2020, and 2019 and changes during the years ended December 31, 2021, 2020, and 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Balance at beginning of year | 3,337,545 | | | 3,362,456 | | | 3,254,553 | |
Granted | 141,515 | | | 8,693 | | | 119,122 | |
Canceled | (19,697) | | | (33,604) | | | (11,219) | |
Balance at end of year | 3,459,363 | | | 3,337,545 | | | 3,362,456 | |
Vested during the year | 122,759 | | | 125,064 | | | 106,780 | |
Compensation expense recorded | $ | 8,497,054 | | | $ | 10,895,459 | | | $ | 12,892,249 | |
Total fair value of restricted stock granted during the year | $ | 9,214,531 | | | $ | 734,315 | | | $ | 11,131,181 | |
The fair value of restricted stock that vested during the years ended December 31, 2021, 2020, and 2019 was $11.3 million, $12.5 million and $12.1 million, respectively. As of December 31, 2021, there was $6.9 million of total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.8 years.
We granted LTIP Units, which include bonus, time-based and performance-based awards, with a fair value of $55.0 million and $37.0 million during the years ended December 31, 2021 and 2020, respectively. The grant date fair value of the LTIP Unit awards was calculated in accordance with ASC 718. A third-party consultant determined that the fair value of the LTIP Units has a discount to 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, 2021, there was $46.6 million of total unrecognized compensation expense related to the time-based and performance-based awards, which is expected to be recognized over a weighted average period of 1.7 years.
During the years ended December 31, 2021, 2020, and 2019, we recorded compensation expense related to bonus, time-based and performance-based awards of $41.9 million, $29.4 million, and $22.2 million, respectively.
For the years ended December 31, 2021, 2020, and 2019, $2.1 million, $2.2 million, and $2.1 million, respectively, was capitalized to assets associated with compensation expense related to our long-term compensation plans, restricted stock and stock options.
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, 2021, 24,426 phantom stock units and 12,312 shares of common stock were issued to our Board of Directors. We recorded compensation expense of $2.3 million during the year ended December 31, 2021 related to the Deferred Compensation Plan. As of December 31, 2021, there were 165,201 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Employee Stock Purchase Plan
In 2007, the Company's Board of Directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to provide 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, 2021, 172,421 shares of our common stock had been issued under the ESPP.
15. Accumulated Other Comprehensive Loss
The following tables set forth the changes in accumulated other comprehensive (loss) income by component as of December 31, 2021, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized (loss) gain on derivative instruments (1) | | SL Green’s share of joint venture net unrealized (loss) gain on derivative instruments (2) | | Net unrealized gain on marketable securities | | Total |
Balance at December 31, 2018 | $ | 9,716 | | | $ | 4,299 | | | $ | 1,093 | | | $ | 15,108 | |
Other comprehensive (loss) income before reclassifications | (32,723) | | | (11,956) | | | 1,184 | | | (43,495) | |
Amounts reclassified from accumulated other comprehensive loss | 227 | | | (325) | | | — | | | (98) | |
Balance at December 31, 2019 | (22,780) | | | (7,982) | | | 2,277 | | | (28,485) | |
Other comprehensive loss before reclassifications | (48,532) | | | (7,573) | | | (1,256) | | | (57,361) | |
Amounts reclassified from accumulated other comprehensive loss | 13,897 | | | 4,702 | | | — | | | 18,599 | |
Balance at December 31, 2020 | (57,415) | | | (10,853) | | | 1,021 | | | (67,247) | |
Other comprehensive income (loss) before reclassifications | 14,908 | | | (18,015) | | | 96 | | | (3,011) | |
Amounts reclassified from accumulated other comprehensive loss | 16,626 | | | 6,874 | | | — | | | 23,500 | |
Balance at December 31, 2021 | $ | (25,881) | | | $ | (21,994) | | | $ | 1,117 | | | $ | (46,758) | |
(1)Amount reclassified from accumulated other comprehensive loss is included in interest expense in the respective consolidated statements of operations. As of December 31, 2021 and 2020, the deferred net gains from these terminated hedges, which is included in accumulated other comprehensive loss relating to net unrealized gain (loss) on derivative instruments, was $(0.6) million and $(0.5) million, respectively.
(2)Amount reclassified from accumulated other comprehensive loss is included in equity in net loss 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 certain of 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 certain 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
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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 as of December 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Marketable securities available-for-sale | $ | 24,146 | | | $ | — | | | $ | 24,146 | | | $ | — | |
Interest rate cap and swap agreements (included in Other assets) | $ | 1,896 | | | $ | — | | | $ | 1,896 | | | $ | — | |
Liabilities: | | | | | | | |
Interest rate cap and swap agreements (included in Other liabilities) | $ | 29,912 | | | $ | — | | | $ | 29,912 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Marketable securities available-for-sale | $ | 28,570 | | | $ | — | | | $ | 28,570 | | | $ | — | |
Interest rate cap and swap agreements (included in Other assets) | $ | 28 | | | $ | — | | | $ | 28 | | | $ | — | |
Liabilities: | | | | | | | |
Interest rate cap and swap agreements (included in Other liabilities) | $ | 61,217 | | | $ | — | | | $ | 61,217 | | | $ | — | |
We evaluate real estate investments and debt and preferred equity investments, including intangibles, for potential impairment 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 September 2021, the Company was the successful bidder at the foreclosure of 690 Madison Avenue, at which time the company, at which time the Company's outstanding principal and accrued interest balance were credited to our equity investment in the property as it previously served as collateral for a debt and preferred equity investment. We recorded the assets acquired and liabilities assumed at fair value. 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.
In July 2021, the Company sold a 49% interest in its 220 East 42nd Street investment, which resulted in the Company no longer retaining a controlling interest in the entity, as defined in ASC 810, and the deconsolidation of the 51.0% interest we retained. We recorded our investment at fair value which resulted in the recognition of a fair value adjustment of $206.8 million during the year ended December 31, 2021. The fair value of our investment was determined by the terms of the joint venture agreement.
In January 2021, pursuant to the partnership documents of our 885 Third Ave investments, certain participating rights of the common member expired. As a result, it was determined that this investment is a VIE in which we are the primary beneficiary, and the investment was consolidated in our financial statements. Upon consolidating the entity, the assets and liabilities of the entity were recorded at fair value. 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.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
In December 2020, the Company determined there were indicators of impairment in two of its retail assets, 106 Spring Street and 133 Greene Street. The Company tested the recoverability of the assets and, as a result of the carrying amount of the assets being deemed not recoverable, recorded impairments of $39.7 million and $14.1 million, respectively. These charges are included in Depreciable real estate reserves and impairments in the consolidated statements of operations. The fair value of the assets were determined primarily using 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 2020, the Company admitted partners to the One Madison Avenue development project, which resulted in the Company no longer retaining a controlling interest in the entity, as defined in ASC 810, and the deconsolidation of our remaining 50.5% interest. We recorded our investment at fair value, which resulted in the recognition of a fair value adjustment of $187.5 million. The fair value of our investment was determined by the terms of the joint venture agreement governing the capitalization of the project.
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. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.
The fair value of derivative instruments is based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well-recognized financial principles and reasonable estimates about relevant future market conditions, which are classified as Level 2 inputs.
The financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, debt and preferred equity investments, 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, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Carrying Value (1) | | Fair Value | | Carrying Value (1) | | Fair Value |
| | | | | | | |
Debt and preferred equity investments | $ | 1,088,723 | | | (2) | | $ | 1,076,542 | | | (2) |
| | | | | | | |
Fixed rate debt | $ | 3,274,324 | | | $ | 3,336,463 | | | $ | 3,135,572 | | | $ | 3,237,075 | |
Variable rate debt | 801,051 | | | 800,672 | | | 1,827,677 | | | 1,822,740 | |
| $ | 4,075,375 | | | $ | 4,137,135 | | | $ | 4,963,249 | | | $ | 5,059,815 | |
(1)Amounts exclude net deferred financing costs.
(2)As of December 31, 2021, debt and preferred equity investments had an estimated fair value ranging between $1.0 billion and $1.1 billion. As of December 31, 2020, debt and preferred equity investments had an estimated fair value ranging between $1.0 billion and $1.1 billion.
Disclosures regarding the fair value of financial instruments was based on pertinent information available to us as of December 31, 2021 and 2020. Such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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, collars 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 (loss) until the hedged item is 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 as of December 31, 2021 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 (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Notional Value | | Strike Rate | | Effective Date | | Expiration Date | | Balance Sheet Location | | Fair Value |
Interest Rate Cap | $ | 85,000 | | | 4.000 | % | | March 2021 | | March 2022 | | Other Assets | | $ | — | |
Interest Rate Cap | 111,869 | | | 3.500 | % | | November 2021 | | November 2022 | | Other Assets | | 1 | |
Interest Rate Swap | 100,000 | | | 0.212 | % | | January 2021 | | January 2023 | | Other Assets | | 376 | |
Interest Rate Swap | 400,000 | | | 0.184 | % | | January 2022 | | February 2023 | | Other Assets | | 1,519 | |
Interest Rate Swap | 100,000 | | | 1.161 | % | | November 2021 | | July 2023 | | Other Liabilities | | (733) | |
Interest Rate Swap | 200,000 | | | 1.131 | % | | November 2021 | | July 2023 | | Other Liabilities | | (1,371) | |
Interest Rate Swap | 150,000 | | | 2.696 | % | | December 2021 | | January 2024 | | Other Liabilities | | (5,625) | |
Interest Rate Swap | 150,000 | | | 2.721 | % | | December 2021 | | January 2026 | | Other Liabilities | | (9,369) | |
Interest Rate Swap | 200,000 | | | 2.740 | % | | December 2021 | | January 2026 | | Other Liabilities | | (12,814) | |
| | | | | | | | | | | $ | (28,016) | |
During the years ended December 31, 2021, 2020, and 2019, we recorded losses of $0.0 million, $0.1 million, and $0.1 million, respectively, on the changes in the fair value, which is included in interest expense in the consolidated statements of operations.
The Company frequently has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of December 31, 2021, 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 $31.3 million. As of December 31, 2021, the Company was not required to post 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 $31.8 million as of December 31, 2021.
Gains and losses on terminated hedges are included in accumulated other comprehensive income (loss), and are recognized into earnings over the term of the related mortgage obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive loss will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that $11.5 million of the current balance held in accumulated other comprehensive loss will be reclassified in interest expense and $3.8 million of the portion related to our share of joint venture accumulated other comprehensive loss will be reclassified into equity in net loss 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, 2021, 2020, and 2019, respectively (in thousands):
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Loss Recognized in Other Comprehensive Loss | | Location of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income | | Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income |
| | Year Ended December 31, | | | Year Ended December 31, |
Derivative | | 2021 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2019 |
Interest Rate Swaps/Caps | | $ | 15,643 | | | $ | (51,244) | | | $ | (33,907) | | | Interest expense | | $ | (17,602) | | | $ | (14,569) | | | $ | (261) | |
Share of unconsolidated joint ventures' derivative instruments | | (19,400) | | | (7,977) | | | (10,322) | | | Equity in net (loss) income from unconsolidated joint ventures | | (7,582) | | | (4,911) | | | 256 | |
| | $ | (3,757) | | | $ | (59,221) | | | $ | (44,229) | | | | | $ | (25,184) | | | $ | (19,480) | | | $ | (5) | |
The following table summarizes the notional value at inception and fair value of our joint ventures' derivative financial instruments as of December 31, 2021 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 (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Notional Value | | Strike Rate | | Effective Date | | Expiration Date | | Classification | | Fair Value |
Interest Rate Cap | $ | 220,000 | | | 4.000 | % | | February 2020 | | February 2022 | | | | $ | — | |
Interest Rate Cap | 1,075,000 | | | 2.850 | % | | September 2021 | | September 2022 | | | | 5 | |
Interest Rate Cap | 125,000 | | | 2.850 | % | | September 2021 | | September 2022 | | | | 1 | |
Interest Rate Cap | 23,000 | | | 4.750 | % | | January 2021 | | January 2023 | | | | 1 | |
Interest Rate Cap | 510,000 | | | 3.000 | % | | December 2021 | | June 2023 | | | | 155 | |
Interest Rate Cap | 1,250,000 | | | 1.250 | % | | November 2020 | | October 2024 | | | | 8,657 | |
Interest Rate Swap | 177,000 | | | 1.669 | % | | March 2016 | | February 2026 | | | | (3,560) | |
| | | | | | | | | | | $ | 5,259 | |
18. Lease Income
The Operating Partnership is the lessor and the sublessor to tenants under operating and sales-type leases. The minimum rental amounts due under the leases are generally 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.
Future minimum rents to be received over the next five years and thereafter for operating leases in effect at December 31, 2021 are as follows (in thousands):
| | | | | |
2022 | $ | 532,046 | |
2023 | 485,299 | |
2024 | 443,632 | |
2025 | 415,241 | |
2026 | 374,661 | |
Thereafter | 1,655,647 | |
| $ | 3,906,526 | |
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
The components of lease income from operating leases during the years ended December 31, 2021 and 2020 were as follows (in thousands): | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| 2021 | | 2020 |
Fixed lease payments | $ | 600,474 | | | $ | 702,482 | |
Variable lease payments | 73,542 | | | 96,040 | |
Total lease payments | $ | 674,016 | | | $ | 798,522 | |
Amortization of acquired above and below-market leases | 4,160 | | | 5,901 | |
Total rental revenue | $ | 678,176 | | | $ | 804,423 | |
(1)Amounts include $229.2 million and $237.9 million of sublease income for the years ended December 31, 2021 and 2020, respectively.
The table below summarizes our investment in sales-type leases as of December 31, 2021:
| | | | | | | | |
Property | Year of Current Expiration | Year of Final Expiration (1) |
15 Beekman (2) | 2089 | 2089 |
(1)Reflects exercise of all available renewal options.
(2)In August 2020, the Company formed a joint venture, which then entered into a long-term sublease with the Company for the building at 15 Beekman. See Note 6, "Investments in Unconsolidated Joint Ventures."
Future minimum lease payments to be received over the next five years and thereafter for our sales-type leases with initial terms in excess of one year as of December 31, 2021 are as follows (in thousands):
| | | | | |
| Sales-type leases |
2022 | $ | 3,087 | |
2023 | 3,133 | |
2024 | 3,180 | |
2025 | 3,228 | |
2026 | 3,276 | |
Thereafter | 203,494 | |
Total minimum lease payments | $ | 219,398 | |
Amount representing interest | (116,376) | |
Investment in sales-type leases (1) | $ | 103,022 | |
(1)This amount is included in Other assets in our consolidated balance sheets.
The components of lease income from sales-type leases during the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | |
| Twelve Months Ended December 31, |
| 2021 | | 2020 |
Loss recognized at commencement, net (1) | $ | — | | | $ | (6,237) | |
Interest income (2) | 4,422 | | | 1,817 | |
Total gain (loss) recognized on sales-type leases | $ | 4,422 | | | $ | (4,420) | |
(1)These amounts are included in Gain on sale of real estate, net and Depreciable real estate reserves and impairments in our consolidated statements of operations.
(2)These amounts are included in Other income in our consolidated statements of operations.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
19. Benefit Plans
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, 2019, September 27, 2020, and September 28, 2021, the actuary certified that for the plan years beginning July 1, 2019, July 1, 2020, and July 1, 2021, 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, 2021. As of the date of this report, information was not yet available for the Pension Plan year ended June 30, 2021. For the Pension Plan years ended June 30, 2020 and 2019, the plan received contributions from employers totaling $291.3 million and $290.1 million, respectively. 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 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. As of the date of this report, information was not yet available for the Health Plan year ended June 30, 2021. For the Health Plan years ended, June 30, 2020 and 2019, the plan received contributions from employers totaling $1.6 billion and $1.5 billion, respectively. Our contributions to the Health Plan represent less than 5.0% of total contributions to the plan.
Contributions we made to the multi-employer plans for the years ended December 31, 2021, 2020 and 2019 are included in the table below (in thousands):
| | | | | | | | | | | | | | | | | |
Benefit Plan | 2021 | | 2020 | | 2019 |
Pension Plan | $ | 1,994 | | | $ | 2,480 | | | $ | 3,103 | |
Health Plan | 6,333 | | | 7,688 | | | 9,949 | |
Other plans | 849 | | | 929 | | | 1,108 | |
Total plan contributions | $ | 9,176 | | | $ | 11,097 | | | $ | 14,160 | |
401(K) Plan
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, 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 2021, 2020 and 2019, a matching contribution equal to 100% of the first 4% of annual compensation was made. For the years ended December 31, 2021, December 31, 2020, and December 31, 2019 we made matching contributions of $1.5 million, $1.7 million, and $1.6 million, respectively.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
20. Commitments and Contingencies
Legal Proceedings
As of December 31, 2021, 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.
In September 2021, the Company acquired the fee position in 1591-1597 Broadway. A third party has asserted ownership rights to the fee, which the Company is contesting. See Note 3, "Property Acquisitions."
On October 31, 2021, HNA, through an affiliated entity, filed for Chapter 11 bankruptcy protection on account of its investment in 245 Park Avenue, together with another asset in Chicago. The Company contested the filing, on the basis that the filing was done in bad faith and in violation of HNA's agreements with the Company, and is currently appealing the Bankruptcy court’s ruling upholding the filing by HNA. See Note 5, "Debt and Preferred Equity Investments."
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 December 2023 and January 2025. The minimum cash-based compensation, including base salary and guaranteed bonus payments, associated with these employment agreements total $3.4 million for 2022.
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 development projects. Additionally, one of our captive insurance companies, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by our other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under our insurance policies, we would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under our debt instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by the Company or its affiliates.
Furthermore, with respect to certain of our properties, including properties held by joint ventures or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss.
Belmont had loss reserves of $2.9 million and $2.9 million as of December 31, 2021 and 2020, respectively. Ticonderoga had no loss reserves as of December 31, 2021 and 2020.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
Lease Arrangements
We are a tenant under leases for certain properties, including ground leases. These leases have expirations from 2022 to 2119, or 2043 to 2119 as fully extended. Certain leases offer extension options which we assess against relevant economic factors to determine whether we are reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that we are reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and right of use asset.
Certain of our leases are subject to rent resets, generally based on a percentage of the then fair market value, a fixed amount, or a percentage of the preceding rent at specified future dates. Rent resets will be recognized in the periods in which they are incurred. Additionally, certain of our leases are subject to percentage rent arrangements based on thresholds established in the lease agreement, such as percentage of sales at the property. Percentage rents will be recognized in the periods in which they are incurred.
The table below summarizes our current lease arrangements as of December 31, 2021:
| | | | | | | | |
Property (1) | Year of Current Expiration | Year of Final Expiration (2) |
625 Madison Avenue | 2022 | 2054 |
711 Third Avenue (3) | 2033 | 2083 |
1185 Avenue of the Americas | 2043 | 2043 |
SL Green Headquarters at One Vanderbilt (4) | 2043 | 2048 |
420 Lexington Avenue | 2050 | 2080 |
SUMMIT One Vanderbilt | 2058 | 2070 |
885 Third Avenue | 2080 | 2080 |
1080 Amsterdam Avenue (5) | 2111 | 2111 |
15 Beekman (6)(7) | 2119 | 2119 |
(1)All leases are classified as operating leases unless otherwise specified.
(2)Reflects exercise of all available extension options.
(3)The Company owns 50% of the fee interest.
(4)In March 2021, the Company commenced its lease for its corporate headquarters at One Vanderbilt. See note 10, "Related Party Transactions."
(5)A portion of the lease is classified as a financing lease, which was classified as held for sale as of December 31, 2021.
(6)The Company has an option to purchase the ground lease for a fixed price on a specific date. The lease is classified as a financing lease.
(7)In August 2020, the Company entered into a long-term sublease with an unconsolidated joint venture as part of the capitalization of the 15 Beekman development project. See Note 6, "Investments in Unconsolidated Joint Ventures."
The following is a schedule of future minimum lease payments as evaluated in accordance with ASC 842 for our financing leases and operating leases with initial terms in excess of one year as of December 31, 2021 (in thousands):
| | | | | | | | | | | |
| Financing leases | | Operating leases (1) |
2022 | $ | 3,523 | | | $ | 36,776 | |
2023 | 3,570 | | | 48,680 | |
2024 | 3,641 | | | 54,545 | |
2025 | 3,810 | | | 54,772 | |
2026 | 3,858 | | | 54,911 | |
Thereafter | 256,691 | | | 1,395,533 | |
Total minimum lease payments | $ | 275,093 | | | $ | 1,645,217 | |
Amount representing interest | (149,563) | | | — | |
Amount discounted using incremental borrowing rate | — | | | (786,280) | |
Total lease liabilities excluding liabilities related to assets held for sale | $ | 125,530 | | | $ | 858,937 | |
Leases reclassified to liabilities related to assets held for sale | (22,616) | | | (7,567) | |
Total lease liabilities | $ | 102,914 | | | $ | 851,370 | |
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
The following table provides lease cost information for the Company's operating leases for the twelve months ended December 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | | |
| | Twelve Months Ended December 31, |
Operating Lease Costs | | 2021 | | 2020 |
Operating lease costs before capitalized operating lease costs | | $ | 30,270 | | | $ | 32,169 | |
Operating lease costs capitalized | | (3,716) | | | (3,126) | |
Operating lease costs, net (1) | | $ | 26,554 | | | $ | 29,043 | |
(1)This amount is included in Operating lease rent in our consolidated statements of operations.
The following table provides lease cost information for the Company's financing leases for the twelve months ended December 31, 2021 and 2020 (in thousands): | | | | | | | | | | | | |
| | Twelve Months Ended December 31, |
Financing Lease Costs | | 2021 | | 2020 |
Interest on financing leases before capitalized interest | | $ | 5,448 | | | $ | 8,091 | |
Interest on financing leases capitalized | | — | | | (2,378) | |
Interest on financing leases, net (1) | | 5,448 | | | 5,713 | |
Amortization of right-of-use assets (2) | | 660 | | | 1,200 | |
| | | | |
| | | | |
Financing lease costs, net | | $ | 6,108 | | | $ | 6,913 | |
(1)These amounts are included in Interest expense, net of interest income in our consolidated statements of operations.
(2)These amounts are included in Depreciation and amortization in our consolidated statements of operations.
As of December 31, 2021, the weighted-average discount rate used to calculate the lease liabilities was 4.45%. As of December 31, 2021, the weighted-average remaining lease term was 32 years, inclusive of purchase options expected to be exercised.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
December 31, 2021
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, 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.
Selected consolidated results of operations for the years ended December 31, 2021, 2020, and 2019, and selected asset information as of December 31, 2021 and 2020, regarding our operating segments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Real Estate Segment | | Debt and Preferred Equity Segment | | Total Company |
Total revenues | | | | | | |
Years ended: | | | | | | |
December 31, 2021 | | $ | 763,651 | | | $ | 80,340 | | | $ | 843,991 | |
December 31, 2020 | | 932,581 | | | 120,163 | | | 1,052,744 | |
December 31, 2019 | | 1,043,405 | | | 195,590 | | | 1,238,995 | |
Net Income | | | | | | |
Years ended: | | | | | | |
December 31, 2021 | | $ | 412,393 | | | $ | 68,239 | | | $ | 480,632 | |
December 31, 2020 | | 354,353 | | | 60,405 | | | 414,758 | |
December 31, 2019 | | 158,972 | | | 132,515 | | | 291,487 | |
Total assets | | | | | | |
As of: | | | | | | |
December 31, 2021 | | $ | 9,974,140 | | | $ | 1,092,489 | | | $ | 11,066,629 | |
December 31, 2020 | | 10,579,899 | | | 1,127,668 | | | 11,707,567 | |
Interest costs for the debt and preferred equity segment include actual costs incurred for borrowings on the 2017 MRA and the FHLB Facility. Interest is imputed on the investments that do not collateralize the 2017 MRA and the FHLB Facility 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 because the use of personnel and resources is dependent on transaction volume between the two segments and varies between periods. In addition, we base performance on the individual segments prior to allocating marketing, general and administrative expenses. For the years ended, December 31, 2021, 2020, and 2019 marketing, general and administrative expenses totaled $94.9 million, $91.8 million, and $100.9 million respectively. All other expenses, except interest, relate entirely to the real estate assets.
There were no transactions between the above two segments.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2021
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Column A | | Column B | | Column C Initial Cost | | Column D Cost Capitalized Subsequent To Acquisition (1) | | Column E Gross Amount at Which Carried at Close of Period | | Column F | | Column G | | Column H | | Column I |
Description (2) | | Encumbrances | | Land | | Building & Improvements | | Land | | Building & Improvements | | Land | | Building & Improvements (3) | | Total | | Accumulated Depreciation | | Date of Construction | | Date Acquired | | Life on Which Depreciation is Computed |
420 Lexington Ave | | $ | 288,660 | | | $ | — | | | $ | 333,499 | | | $ | — | | | $ | 212,293 | | | $ | — | | | $ | 545,792 | | | $ | 545,792 | | | $ | 183,070 | | | 1927 | | 3/1998 | | Various |
711 Third Avenue | | — | | | 19,844 | | | 115,769 | | | — | | | 69,839 | | | 19,844 | | | 185,608 | | | 205,452 | | | 71,105 | | | 1955 | | 5/1998 | | Various |
555 W. 57th Street | | — | | | 18,846 | | | 140,946 | | | — | | | 2,376 | | | 18,846 | | | 143,322 | | | 162,168 | | | 86,730 | | | 1971 | | 1/1999 | | Various |
461 Fifth Avenue | | — | | | — | | | 88,276 | | | 28,873 | | | 6,421 | | | 28,873 | | | 94,697 | | | 123,570 | | | 38,024 | | | 1988 | | 10/2003 | | Various |
750 Third Avenue | | — | | | 51,093 | | | 251,523 | | | — | | | 20,428 | | | 51,093 | | | 271,951 | | | 323,044 | | | 114,853 | | | 1958 | | 7/2004 | | Various |
625 Madison Avenue | | — | | | — | | | 291,319 | | | — | | | 62,282 | | | — | | | 353,601 | | | 353,601 | | | 145,749 | | | 1956 | | 10/2004 | | Various |
485 Lexington Avenue | | 450,000 | | | 78,282 | | | 452,631 | | | — | | | (14,169) | | | 78,282 | | | 438,462 | | | 516,744 | | | 188,678 | | | 1956 | | 12/2004 | | Various |
609 Fifth Avenue (4) | | 52,882 | | | 16,869 | | | 107,185 | | | — | | | 62,554 | | | 16,869 | | | 169,739 | | | 186,608 | | | 19,879 | | | 1925 | | 6/2006 | | Various |
810 Seventh Avenue | | — | | | 114,077 | | | 550,819 | | | — | | | 5,205 | | | 114,077 | | | 556,024 | | | 670,101 | | | 221,222 | | | 1970 | | 1/2007 | | Various |
1185 Avenue of the Americas | | — | | | — | | | 791,106 | | | — | | | 127,030 | | | — | | | 918,136 | | | 918,136 | | | 348,065 | | | 1969 | | 1/2007 | | Various |
1350 Avenue of the Americas | | — | | | 90,941 | | | 431,517 | | | — | | | — | | | 90,941 | | | 431,517 | | | 522,458 | | | 168,295 | | | 1966 | | 1/2007 | | Various |
1-6 Landmark Square (5) | | 100,000 | | | 27,852 | | | 161,343 | | | (6,939) | | | (33,873) | | | 20,913 | | | 127,470 | | | 148,383 | | | 36,923 | | | 1973-1984 | | 1/2007 | | Various |
7 Landmark Square (5) | | — | | | 1,721 | | | 8,417 | | | (1,338) | | | (6,240) | | | 383 | | | 2,177 | | | 2,560 | | | 516 | | | 2007 | | 1/2007 | | Various |
100 Church Street | | 200,212 | | | 34,994 | | | 183,932 | | | — | | | 6,326 | | | 34,994 | | | 190,258 | | | 225,252 | | | 65,736 | | | 1959 | | 1/2010 | | Various |
125 Park Avenue | | — | | | 120,900 | | | 270,598 | | | — | | | 15,899 | | | 120,900 | | | 286,497 | | | 407,397 | | | 109,858 | | | 1923 | | 10/2010 | | Various |
19 East 65th Street | | — | | | 8,603 | | | 2,074 | | | — | | | — | | | 8,603 | | | 2,074 | | | 10,677 | | | — | | | 1929 | | 01/2012 | | Various |
304 Park Avenue | | — | | | 54,489 | | | 90,643 | | | — | | | 5,139 | | | 54,489 | | | 95,782 | | | 150,271 | | | 26,627 | | | 1930 | | 6/2012 | | Various |
| | | | | | | | | | | | | | | | | | | | | | | | |
760 Madison Avenue (6) | | — | | | 284,286 | | | 8,314 | | | (2,450) | | | 63,077 | | | 281,836 | | | 71,391 | | | 353,227 | | | 4,991 | | | 1996/2012 | | 7/2014 | | Various |
719 Seventh Avenue (7) | | 50,000 | | | 41,180 | | | 46,232 | | | — | | | (4,725) | | | 41,180 | | | 41,507 | | | 82,687 | | | 3,356 | | | 1927 | | 7/2014 | | Various |
110 Greene Street | | — | | | 45,120 | | | 228,393 | | | — | | | 2,578 | | | 45,120 | | | 230,971 | | | 276,091 | | | 42,909 | | | 1910 | | 7/2015 | | Various |
7 Dey / 185 Broadway (8) | | 198,169 | | | 45,540 | | | 27,865 | | | — | | | 177,184 | | | 45,540 | | | 205,049 | | | 250,589 | | | 419 | | | 1921 | | 8/2015 | | Various |
| | | | | | | | | | | | | | | | | | | | | | | | |
885 Third Avenue | | — | | | 138,444 | | | 244,040 | | | — | | | 15,396 | | | 138,445 | | | 259,438 | | | 397,883 | | | 7,885 | | | 1986 | | 07/2020 | | Various |
690 Madison | | 60,000 | | | 13,820 | | | 51,732 | | | — | | | — | | | 13,820 | | | 51,732 | | | 65,552 | | | 409 | | | 1879 | | 09/2021 | | Various |
1591-1597 Broadway (9) | | — | | | 123,919 | | | — | | | — | | | — | | | 123,919 | | | — | | | 123,919 | | | — | | | 1987 | | 09/2021 | | Various |
Other (10) | | — | | | 1,734 | | | 16,224 | | | — | | | 610,787 | | | 1,734 | | | 627,011 | | | 628,745 | | | 10,900 | | | | | | | |
Total | | $ | 1,399,923 | | | $ | 1,332,556 | | | $ | 4,894,397 | | | $ | 18,146 | | | $ | 1,405,807 | | | $ | 1,350,701 | | | $ | 6,300,206 | | | $ | 7,650,907 | | | $ | 1,896,199 | | | | | | | |
(1)Includes depreciable real estate reserves and impairments recorded subsequent to acquisition.
(2)All properties located in New York, New York unless otherwise noted.
(3)Includes right of use lease assets.
(4)In 2020, we sold the retail condominium at this property. The amounts presented here relate to the office condominium, which we retained.
(5)Property located in Connecticut.
(6)Includes amounts attributable to the property at 762 Madison Avenue, which is part of this development project.
(7)We own a 75.0% interest in this property.
(8)Properties at 5-7 Dey Street, 183 Broadway, and 185 Broadway were demolished in preparation of the development site for the 7 Dey / 185 Broadway project.
(9)A third party has asserted ownership rights to the fee, which the Company is contesting.
(10)Other includes tenant improvements of eEmerge, capitalized interest and corporate improvements.
SL Green Realty Corp. and SL Green Operating Partnership, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2021
(in thousands)
The changes in real estate for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Balance at beginning of year | $ | 7,355,079 | | | $ | 8,784,567 | | | $ | 8,513,935 | |
Property acquisitions | 124,103 | | | 178,635 | | | — | |
Improvements | 296,876 | | | 481,327 | | | 251,674 | |
Retirements/disposals/deconsolidation | (125,151) | | | (2,089,450) | | | 18,958 | |
Balance at end of year | $ | 7,650,907 | | | $ | 7,355,079 | | | $ | 8,784,567 | |
The aggregate cost of land, buildings and improvements, before depreciation, for Federal income tax purposes as of December 31, 2021 was $8.8 billion (unaudited).
The changes in accumulated depreciation, exclusive of amounts relating to equipment, autos, and furniture and fixtures, for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Balance at beginning of year | $ | 1,956,077 | | | $ | 2,060,560 | | | $ | 2,099,137 | |
Depreciation for year | 174,219 | | | 270,843 | | | 222,867 | |
Retirements/disposals/deconsolidation | (234,097) | | | (375,326) | | | (261,444) | |
Balance at end of year | $ | 1,896,199 | | | $ | 1,956,077 | | | $ | 2,060,560 | |