SL Green Realty Corp: Form 10-Q for the period ended Sep 30, 2023

Overview

SL Green Realty Corp., which is referred to as SL Green or the Company, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Company is a self-managed real estate investment trust, or REIT, primarily engaged in the acquisition, development, redevelopment, repositioning, ownership, management and operation of commercial real estate properties, principally office properties, located in the New York metropolitan area, principally Manhattan. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the Operating Partnership.

The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in this Quarterly Report on this Form 10-Q and in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, 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:

(1) The weighted average leased occupancy for commercial properties represents the total leased square footage divided by the total square footage at acquisition. The weighted average leased occupancy for residential properties represents the total leased units divided by the total available units. Properties under construction are not included in the calculation of weighted average leased occupancy.

(2) As of September 30, 2023, we owned a building at 7 Dey Street / 185 Broadway that was comprised of approximately 140,382 square feet (unaudited) of residential space and approximately 50,206 square feet (unaudited) of office and retail space that is under development. For the purpose of this report, we have included this building in the number of residential properties we own. However, we have included only the residential square footage in the residential approximate square footage, and have listed the balance of the square footage as development square footage.

As of September 30, 2023, we also managed one office building owned by a third party encompassing approximately 0.3 million square feet (unaudited), and held debt and preferred equity investments with a book value excluding the impact of credit losses of $334.3 million, excluding approximately $8.3 million of debt and preferred equity investments and other financing receivables that are included in other balance sheet line items other than the Debt and preferred equity investments line item.

Critical Accounting Policies and Estimates

Refer to the 2022 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies and estimates, which include investment in commercial real estate properties, investment in unconsolidated joint ventures, lease classification, revenue recognition, and debt and preferred equity investments. During the three and nine months ended September 30, 2023, there were no material changes to these policies.

Results of Operations

Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022

The following comparison for the three months ended September 30, 2023, or 2023, to the three months ended September 30, 2022, or 2022, makes reference to the effect of the following:

i. “Same-Store Properties,” which represents all operating properties owned by us at January 1, 2022 and still owned by us in the same manner as of September 30, 2023 (Same-Store Properties totaled 20 of our 27 consolidated operating buildings),

ii. “Acquisition Properties,” which represents all properties or interests in properties acquired in 2023 and 2022 and all non-Same-Store Properties, including properties that are under development or redevelopment,

iii."Disposed Properties," which represents all properties or interests in properties sold in 2023 and 2022, and

iv. “Other,” which represents properties where we sold an interest resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc.

(in millions)

58

Rental Revenue

Rental revenues decreased primarily due to the deconsolidation of 245 Park Avenue as a result of the sale of a joint venture interest during the second quarter of 2023 ($9.2 million).

The following table presents a summary of the commenced leasing activity for the three months ended September 30, 2023 in our Manhattan portfolio:

(1) Annual initial base rent.

(2) Escalated rent includes base rent plus all additional amounts paid by the tenant in the form of real estate taxes, operating expenses, porters wage or a consumer price index (CPI) adjustment.

(3) Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over.

(4) Average starting office rent excluding new tenants replacing vacancies was $84.86 per rentable square feet for 73,484 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $82.96 per rentable square feet for 218,964 rentable square feet.

Investment Income

Investment income decreased due to a lower weighted average debt and preferred equity investment balance and a lower weighted average yield for the three months ended September 30, 2023 as compared to the same period in 2022, and due to the recognition of previously unrecorded default interest on our preferred equity investment at 245 Park Avenue in the third quarter of 2022. For the three months ended September 30, 2023, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $608.7 million and 6.2%, respectively, as compared to $995.0 million and 11.7%, respectively, for the three months ended September 30, 2022.

Other Income

Other income decreased due to reduced lease termination income ($2.5 million) and lower management, leasing and construction fee income ($1.4 million) during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Property Operating Expenses

Property operating expenses increased due primarily to increased variable expenses at our Acquired and Same-Store Properties ($3.8 million and $2.6 million, respectively), offset by the sale of a joint venture interest and deconsolidation of 245 Park Avenue in the second quarter of 2023 ($4.0 million).

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses increased to $22.9 million for three months ended September 30, 2023, as compared to $21.3 million for the same period in 2022 due to the timing of compensation related expenses.

Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income

Interest expense and amortization of deferred financing costs, net of interest income, increased due to rising SOFR rates, higher interest expense from unsecured corporate term loans ($12.4 million) and the revolving credit facility ($6.5 million) during three months ended September 30, 2023 compared to the three months ended September 30, 2022. These increases were offset primarily by repayments of unsecured bonds ($5.9 million) in the third quarter of 2022, the deconsolidation of 245 Park Avenue in the second quarter of 2023 ($4.4 million), and a decrease in interest capitalization in connection with properties that are under development ($3.6 million). The weighted average consolidated debt balance outstanding was $3.9 billion for the three months ended September 30, 2023, compared to $4.4 billion for the three months ended September 30, 2022. The consolidated weighted average interest rate was 5.06% for the three months ended September 30, 2023, as compared to 3.57% for the three months ended September 30, 2022.

Depreciation and Amortization

Depreciation and amortization increased at our Acquired Properties ($3.5 million) and Same-Store Properties ($1.0 million) during the three months ended September 30, 2023, partially offset by the deconsolidation of 245 Park Avenue ($2.6 million) as a result of the interest sale during the second quarter of 2023.

Equity in net loss from unconsolidated joint ventures

Equity in net loss from unconsolidated joint ventures decreased as a result of an increase in income from operations at One Vanderbilt Avenue ($13.3 million) and 245 Park ($5.4 million) and the conversion of previous mezzanine debt investments into a 90.43% ownership in the fee interest at 625 Madison ($10.0 million), offset by increased interest expense across our joint venture portfolio ($20.8 million).

Purchase price and other fair value adjustments

During the three months ended September 30, 2023, we recorded a $10.2 million purchase price adjustment related to a previous transaction. During the three months ended September 30, 2022, we recorded a $1.1 million fair value adjustment related to derivatives that are not designated as hedges.

Gain on sale of real estate, net

Gain on sale of real estate, net remained relatively flat for the three months ended September 30, 2023 as compared to the same period in 2022, as we did not dispose of any properties.

Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022

The following comparison for the nine months ended September 30, 2023, or 2023, to the nine months ended September 30, 2022, or 2022, makes reference to the effect of the following:

i. “Same-Store Properties,” which represents all operating properties owned by us at January 1, 2022 and still owned by us in the same manner as of September 30, 2023 (Same-Store Properties totaled 20 of our 27 consolidated operating properties),

ii. “Acquisition Properties,” which represents all properties or interests in properties acquired in 2023 and 2022 and all non-Same-Store Properties, including properties that are under development, redevelopment or were deconsolidated during the period,

iii."Disposed Properties," which represents all properties or interests in properties sold or partially sold in 2023 and 2022, and

iv. “Other,” which represents properties that were partially sold resulting in deconsolidation and corporate level items not allocable to specific properties, as well as the Service Corporation and eEmerge Inc.

(in millions)

61

Rental Revenue

Rental revenues increased due primarily to the acquisition of 245 Park Avenue ($67.8 million) during the third quarter of 2022 and prior to its deconsolidation as a result of the sale of a joint venture interest during the second quarter of 2023, offset by a lower contribution from our Same-Store Properties ($7.5 million).

The following table presents a summary of the commenced leasing activity for the nine months ended September 30, 2023 in our Manhattan and Suburban portfolio:

(1) Annual initial base rent.

(2) Escalated rent includes base rent plus all additional amounts paid by the tenant in the form of real estate taxes, operating expenses, porters wage or a consumer price index (CPI) adjustment.

(3) Includes expiring space, relocating tenants and move-outs where tenants vacated. Excludes lease expirations where tenants held over.

(4) Average starting office rent excluding new tenants replacing vacancies was $78.24 per rentable square feet for 399,048 rentable square feet. Average starting office rent for office space (leased and early renewals, excluding new tenants replacing vacancies) was $74.89 per rentable square feet for 972,911 rentable square feet.

Investment Income

Investment income decreased due to a lower weighted average debt and preferred equity investment balance and a lower weighted average yield for the nine months ended September 30, 2023 as compared to the same period in 2022 and due to the recognition of previously unrecorded default interest on our preferred equity investment at 245 Park Avenue in the third quarter of 2022. For the nine months ended September 30, 2023, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $632.3 million and 5.9%, respectively, as compared to $1.1 billion and 8.7%, respectively, for the nine months ended September 30, 2022.

Other Income

Other income increased due to SUMMIT One Vanderbilt operations ($6.5 million) and fee income related to the 49.9% joint venture interest sale of 245 Park Avenue ($4.7 million). This increase was offset by income related to the resolution of the Company's investment in 1591-1597 Broadway ($5.0 million) and fee income related to the acquisition of 450 Park Avenue ($4.7 million) during the nine months ended September 30, 2022, and lower lease termination income ($1.2 million) during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Property Operating Expenses

Property operating expenses increased primarily due to acquiring 245 Park Avenue ($23.2 million) in the third quarter of 2022 and prior to its deconsolidation in the second quarter of 2023, increased variable expenses ($6.3 million) and real estate taxes ($2.4 million) at our Same-Store Properties, and increased variable expenses at our Acquired Properties ($6.0 million), partially offset by decreased variable expenses at our Disposed Properties ($1.2 million).

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses decreased to $69.1 million for the nine months ended September 30, 2023, compared to $69.6 million for the same period in 2022, due to lower compensation related expenses.

Interest Expense and Amortization of Deferred Financing Costs, Net of Interest Income

Interest expense and amortization of deferred financing costs, net of interest income, increased due to rising LIBOR and SOFR rates, higher interest expense from unsecured corporate term loans ($32.3 million) and the revolving credit facility ($19.1 million) during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, acquiring 245 Park Avenue in the third quarter of 2022 ($25.6 million) prior to its deconsolidation in the second quarter of 2023, and the refinancing of 100 Church ($7.6 million) in the second quarter of 2022. These increases were offset primarily by repayments of unsecured bonds ($20.3 million) in the third quarter of 2022, and a decrease in interest capitalization in connection with properties that are under development ($3.9 million). The weighted average consolidated debt balance outstanding was $5.0 billion for the nine months ended September 30, 2023, compared to $4.2 billion for the nine months ended September 30, 2022. The consolidated weighted average interest rate was 4.64% for the nine months ended September 30, 2023, as compared to 3.28% for the nine months ended September 30, 2022.

Depreciation and Amortization

Depreciation and amortization increased primarily due to acquiring 245 Park Avenue ($45.8 million) in the third quarter of 2022 and prior to its deconsolidation in the second quarter of 2023, an increase at our Acquired Properties ($7.7 million) and Same-Store Properties ($2.1 million) during the nine months ended September 30, 2023.

Equity in net loss from unconsolidated joint ventures

Equity in net loss from unconsolidated joint ventures increased as a result of increased interest expense across our joint venture portfolio ($50.7 million) and a decrease in income from operations at 919 Third Avenue ($7.8 million) due to a large tenant expiration in February 2023. This was partially offset by an increase at 2 Herald Square ($26.7 million) primarily due to holdover rent, interest, settlement income, lease termination income and reimbursement of attorneys' fees collected following the completion of legal proceedings against a former tenant and its guarantor as well as an increase in income from operations at One Vanderbilt Avenue ($16.1 million).

Equity in net loss on sale of interest in unconsolidated joint venture/real estate

During the nine months ended September 30, 2023, we recognized a loss on the sale of our interest in 121 Greene Street. During the nine months ended September 30, 2022, we recognized a loss on the sale of our interest in the Stonehenge Portfolio.

Purchase price and other fair value adjustments

During the nine months ended September 30, 2023, we recorded a $17.0 million fair value adjustment relating to the 50.1% interest we retained in 245 Park Avenue, which was deconsolidated when a 49.9% joint venture interest was sold. This was partially offset by a $10.2 million purchase price adjustment related to a previous transaction. During the nine months ended September 30, 2022, we recorded a $6.1 million fair value adjustment related to an investment in marketable securities and a $1.3 million fair value adjustment related to derivatives that are not designated as hedges.

Loss on sale of real estate, net

During the nine months ended September 30, 2023, we recognized a loss on the sale of a 49.9% joint venture interest in 245 Park Avenue ($28.3 million). During the nine months ended September 30, 2022, we recognized losses on the sales of 609 Fifth Avenue ($80.2 million) and 707 Eleventh Avenue ($0.8 million), offset by a gain on the sale of 1080 Amsterdam Avenue ($17.9 million).

Depreciable real estate reserves and impairment

During the nine months ended September 30, 2023, we recognized depreciable real estate reserves and impairments related to our leasehold interest at 625 Madison Avenue ($305.9 million) following a strategic review of the property that addressed a range of relevant considerations, including the increase in ground rent to an amount substantially above what the Company believed was appropriate. During the nine months ended September 30, 2022, we did not recognize any depreciable real estate reserves.

Loan loss and other investment reserves, net of recoveries

During the nine months ended September 30, 2023, we recorded $6.9 million of loan loss reserve on one debt and preferred equity investment. During the nine months ended September 30, 2022, we did not recognize any loan loss and other investment reserves.

Liquidity and Capital Resources

We currently expect that the principal sources of funds to meet our short-term and long-term liquidity requirements for working capital, development or redevelopment of properties, tenant improvements, leasing costs, dividends to shareholders, distributions to unitholders, repurchases or repayments of outstanding indebtedness, acquisitions, share repurchases and for debt and preferred equity investments will include:

(1) Cash flow from operations;

(2) Cash on hand;

(3) Net proceeds from divestitures of properties and redemptions, participations, dispositions and repayments of debt and preferred equity investments;

(4) Borrowings under the revolving credit facility;

(5) Other forms of secured or unsecured financing; and

(6) Proceeds from common or preferred equity or debt offerings by the Company or the Operating Partnership (including issuances of units of limited partnership interest in the Operating Partnership and Trust preferred securities).

Cash flow from operations is primarily dependent upon the collectability of rent, the occupancy level of our portfolio, the net effective rental rates achieved on our leases, operating escalations and recoveries from our tenants and the level of operating and other costs. We also believe that our ability to generate third-party fees and the debt and preferred equity investment program will continue to serve as a supplemental source of operating cash flow.

The combined aggregate principal maturities of mortgages and other loans payable, the 2021 credit facility, 2022 term loan, senior unsecured notes (net of discount), trust preferred securities, our share of joint venture debt, including as-of-right extension options and put options, estimated interest expense, and our obligations under our financing and operating leases, as of September 30, 2023 are as follows (in thousands):

We estimate that for the remainder of the year ending December 31, 2023, we expect to incur $19.5 million of recurring capital expenditures on existing consolidated properties and $26.5 million of development or redevelopment expenditures on existing consolidated properties, of which $0.4 million will be funded by construction financing facilities or loan reserves. We expect our share of capital expenditures at our joint venture properties will be $62.9 million, of which $50.1 million will be funded by construction financing facilities or loan reserves.

As of September 30, 2023, we had liquidity of $1.0 billion, comprised of $850.0 million of availability under our revolving credit facility and $199.4 million of consolidated cash on hand, inclusive of $9.6 million of marketable securities. This liquidity excludes $165.8 million representing our share of cash at unconsolidated joint venture properties. We may seek to divest of properties, interests in properties or debt and preferred equity investments or access private and public debt and equity capital when the opportunity presents itself, although there is no guarantee that this capital will be made available to us at efficient levels or at all. Management believes that these sources of liquidity, if we are able to access them, along with potential refinancing opportunities for secured and unsecured debt, will allow us to satisfy our debt obligations, as described above, upon maturity, if not before.

We have investments in several real estate joint ventures with various partners who are generally considered to be financially stable. Most of our joint ventures are financed with non-recourse debt. We believe that property level cash flows along with unfunded committed indebtedness and proceeds from the refinancing of outstanding secured indebtedness will be sufficient to fund the capital needs of our joint venture properties.

Cash Flows

The following summary discussion of our cash flows is based on our consolidated statements of cash flows in "Item 1. Financial Statements" and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Cash, restricted cash, and cash equivalents were $309.3 million and $385.1 million as of September 30, 2023 and 2022, respectively, representing a decrease of $75.8 million. The decrease was a result of the following changes in cash flows (in thousands):

Our principal sources of operating cash flow are the properties in our consolidated and joint venture portfolios, third-party fees and our debt and preferred equity portfolio. These sources generate a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund dividend and distribution requirements.

Cash is used in investing activities to fund acquisitions, development or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills and invest in existing buildings that meet our investment criteria. During the nine months ended September 30, 2023, when compared to the nine months ended September 30, 2022, we used cash primarily for the following investing activities (in thousands):

Funds spent on capital expenditures, which are comprised of building and tenant improvements, decreased from $195.0 million for the nine months ended September 30, 2022 to $194.0 million for the nine months ended September 30, 2023 due to decreased spending on development and redevelopment properties.

We generally fund our investment activity through the sale of real estate, the sale or repayment of debt and preferred equity investments, property-level financing, our corporate credit facilities, or construction facilities. From time to time, the Company may issue common or preferred stock or equity-linked securities, or the Operating Partnership may issue common or preferred units of limited partnership interest.

During the nine months ended September 30, 2023, when compared to the nine months ended September 30, 2022, we used cash for the following financing activities (in thousands):

Capitalization

Our authorized capital stock consists of 260,000,000 shares, $0.01 par value per share, consisting of 160,000,000 shares of common stock, $0.01 par value per share, 75,000,000 shares of excess stock, at $0.01 par value per share, and 25,000,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2023, 64,397,983 shares of common stock and no shares of excess stock were issued and outstanding.

Share Repurchase Program

In August 2016, our Board of Directors approved a $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.

As of September 30, 2023, share repurchases executed under the program, excluding the redemption of OP units, were as follows:

(1) There were no share repurchases during the nine months ended September 30, 2023.

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 three months ended September 30, 2023 and 2022, respectively (dollars in thousands):

Fifth Amended and Restated 2005 Stock Option and Incentive Plan

The Fifth Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by the Company's Board of Directors in April 2022 and its stockholders in June 2022 at the Company's annual meeting of stockholders. Subject to adjustments upon certain corporate transactions or events, awards with respect to up to a maximum of 32,210,000 fungible units may be granted as options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under the 2005 Plan. As of September 30, 2023, 4.0 million fungible units were available for issuance under the 2005 Plan after reserving for shares underlying outstanding restricted stock units, and phantom stock units granted pursuant to our Non-Employee Directors' Deferral Program and LTIP Units.

Deferred Compensation Plan for Directors

During the nine months ended September 30, 2023, 37,112 phantom stock units and 27,739 shares of common stock were issued to our Board of Directors. We recorded compensation expense of $0.2 million and $2.5 million during the three and nine months ended September 30, 2023, respectively, related to the Deferred Compensation Plan. We recorded compensation expense of $0.2 million and $2.4 million during the three and nine months ended September 30, 2022, respectively, related to the Deferred Compensation Plan.

As of September 30, 2023, there were 228,105 phantom stock units outstanding pursuant to our Non-Employee Director's Deferral Program.

Indebtedness

The table below summarizes our consolidated mortgages and other loans payable, 2021 credit facility, 2022 term loan, senior unsecured notes and trust preferred securities outstanding as of September 30, 2023 and December 31, 2022, (amounts in thousands).

(1) Inclusive of the mitigating effect of our debt, preferred equity, and other investments subject to variable rates, the percent of total debt of our net exposure to variable rate debt was (1.2)% and 7.0% as of September 30, 2023 and December 31, 2022, respectively.

The variable rate debt shown above generally bears interest at an interest rate based on 30-day LIBOR (0.00% and 4.39% as of September 30, 2023 and December 31, 2022, respectively), and adjusted Term SOFR (5.32% and 4.30% as of September 30, 2023 and December 31, 2022, respectively). Our consolidated debt as of September 30, 2023 had a weighted average term to maturity of 2.82 years.

Certain of our debt and equity investments and other investments, with carrying values of $158.4 million as of September 30, 2023 and $144.1 million as of December 31, 2022, are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt. Inclusive of the mitigating effect of these investments, the net ratio of our variable rate debt to total debt was (1.2)% and 7.0% as of September 30, 2023 and December 31, 2022, respectively.

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, and was originally entered into by the Company in November 2012. As of September 30, 2023, 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 September 30, 2023, 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 September 30, 2023, the applicable spread over adjusted Term SOFR plus 10 basis points for the 2021 credit facility was 140 basis points for the revolving credit facility, 160 basis points for Term Loan A, and 165 basis points for Term Loan B. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of the Company. As of September 30, 2023, the facility fee was 30 basis points.

As of September 30, 2023, we had $2.0 million of outstanding letters of credit, $400.0 million drawn under the revolving credit facility and $1.25 billion outstanding under the term loan facilities, with total undrawn capacity of $850.0 million under the 2021 credit facility. As of September 30, 2023 and December 31, 2022, the revolving credit facility had a carrying value of $394.4 million and $443.2 million, respectively, net of deferred financing costs. As of September 30, 2023 and December 31, 2022, the term loan facilities had a carrying value of $1.2 billion and $1.2 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).

2022 Term Loan

In October 2022, we entered into a term loan agreement, referred to as the 2022 term loan. In September 2023, the 2022 term loan was repaid in full. The 2022 term loan consisted of a $425.0 million term loan with a maturity date of October 6, 2023. The 2022 term loan had one six-month as-of-right extension option to April 6, 2024. We also had an option, subject to customary conditions, to increase the capacity of the 2022 term loan to $500.0 million on or before January 7, 2023 without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions. In January 2023, the 2022 term loan was increased by $25.0 million to $425.0 million.

The 2022 term loan bore interest at a spread over adjusted Term SOFR plus 10 basis points, ranging from 100 basis points to 180 basis points, in each case based on the credit rating assigned to the senior unsecured long-term indebtedness of the Company. In instances where there were either only two ratings available or where there was more than two and the difference between them was one rating category, the applicable rating was the highest rating. In instances where there were more than two ratings and the difference between the highest and the lowest were two or more rating categories, then the applicable rating used was the average of the highest two, rounded down if the average was not a recognized category. As of December 31, 2022, the 2022 term loan had a carrying value of $398.2 million, net of deferred financing costs.

The Company and the Operating Partnership were borrowers jointly and severally obligated under the 2022 term loan.

Restrictive Covenants

The terms of the 2021 credit facility and 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 September 30, 2023 and December 31, 2022, we were in compliance with all such covenants.

Interest Rate Risk

We are exposed to changes in interest rates primarily from our variable rate debt. Our exposure to interest rate fluctuations are managed through the use of interest rate derivative instruments and through our variable rate debt and preferred equity investments. Based on the debt outstanding as of September 30, 2023, a hypothetical 100 basis point increase in the floating rate interest rate curve would reduce our consolidated annual interest cost, net of interest income from variable rate debt and preferred equity investments, by $0.4 million and would increase our share of joint venture annual interest cost by $12.2 million. As of September 30, 2023, $0.2 billion of our debt and preferred equity portfolio was indexed to SOFR.

We recognize most derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If a derivative is considered a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings.

Our consolidated long-term debt of $3.2 billion bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. Our variable rate debt and variable rate joint venture debt as of September 30, 2023 bore interest based on a spread to LIBOR of 145 basis points and Term SOFR of 50 basis points to 569 basis points.

Off-Balance Sheet Arrangements

We have off-balance sheet investments, including joint ventures and debt and preferred equity investments. These investments all have varying ownership structures. A majority of our joint venture arrangements are accounted for under the equity method of accounting as we have the ability to exercise significant influence, but not control, over the operating and financial decisions of these joint venture arrangements. Our off-balance sheet arrangements are discussed in Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures" in the accompanying consolidated financial statements.

Dividends/Distributions

We expect to pay dividends to our stockholders based on the distributions we receive from our Operating Partnership.

To maintain our qualification as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined before taking into consideration the dividends paid deduction and net capital gains.

Any dividend we pay may be in the form of cash, stock or a combination thereof, subject to IRS limitations on the use of stock for dividends. Additionally, if our REIT taxable income in a particular year exceeds the amount of cash dividends we pay in that year, we may pay stock dividends in order to maintain our REIT status and avoid certain REIT-level taxes.

Before we pay any cash dividend, whether for Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under the 2021 credit facility and senior unsecured notes, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable.

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 two 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.

Funds from Operations

FFO is a widely recognized non-GAAP financial measure of REIT performance. The Company computes FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than the Company does. The revised White Paper on FFO approved by the Board of Governors of NAREIT in April 2002, and subsequently amended in December 2018, defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties and real estate related impairment charges, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

The Company presents FFO because it considers it an important supplemental measure of the Company’s operating performance and believes that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, particularly those that own and operate commercial office properties. The Company also uses FFO as one of several criteria to determine performance-based compensation for members of its senior management. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions, and real estate related impairment charges, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, and interest costs, providing perspective not immediately apparent from net income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including our ability to make cash distributions.

FFO for the three and nine months ended September 30, 2023 and 2022 are as follows (in thousands):

Inflation

Substantially all of our office leases provide for separate real estate tax and operating expense escalations as well as operating expense recoveries based on increases in the CPI or other measures such as porters' wage. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases will be at least partially offset by the contractual rent increases and expense escalations described above.

Accounting Standards Updates

The Accounting Standards Updates are discussed in Note 2, "Significant Accounting Policies-Accounting Standards Updates" in the accompanying consolidated financial statements.

Forward-Looking Information

This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), development trends of the real estate industry and the New York metropolitan area markets, business strategies, expansion and growth of our operations and other similar matters, are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate.

Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," "continue," or the negative of these words, or other similar words or terms.

Forward-looking statements contained in this report are subject to a number of risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by forward-looking statements made by us. These risks and uncertainties include:

• the effect of general economic, business and financial conditions, and their effect on the New York City real estate market in particular;
• dependence upon the New York City real estate market;
• risks of real estate acquisitions, dispositions, development and redevelopment, including the cost of construction delays and cost overruns;
• risks relating to debt and preferred equity investments;
• availability and creditworthiness of prospective tenants and borrowers;
• bankruptcy or insolvency of a major tenant or a significant number of smaller tenants or borrowers;
• adverse changes in the real estate markets, including reduced demand for office space, increasing vacancy, and increasing availability of sublease space;
• availability of capital (debt and equity);
• unanticipated increases in financing and other costs, including a rise in interest rates;
• our ability to comply with financial covenants in our debt instruments;
• our ability to maintain our status as a REIT;
• risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations;
• the threat of terrorist attacks;
• our ability to obtain adequate insurance coverage at a reasonable cost and the potential for losses in excess of our insurance coverage, including as a result of environmental contamination; and
• legislative, regulatory and/or safety requirements adversely affecting REITs and the real estate business including costs of compliance with the Americans with Disabilities Act, the Fair Housing Act and other similar laws and regulations.

Other factors and risks to our business, many of which are beyond our control, are described in other sections of this report and in our other filings with the SEC. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

For quantitative and qualitative disclosure about market risk, see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Interest Rate Risk" in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2023 for the Company and the Operating Partnership and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk" in the Annual Report on Form 10-K for the year ended December 31, 2022 for the Company and the Operating Partnership. Our exposures to market risk have not changed materially since December 31, 2022.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Also, the Company has investments in certain unconsolidated entities. As the Company does not control these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.

Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

SL GREEN OPERATING PARTNERSHIP, L.P.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Also, the Company has investments in certain unconsolidated entities. As the Company does not control these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.

Changes in Internal Control over Financial Reporting

There have been no significant changes in the Operating Partnership's internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

As of September 30, 2023, there have been no material changes to the Risk Factors disclosed in "Part I. Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.