SL Green Realty Corp.
RECKSON OPERATING PARTNERSHIP LP (Form: 10-K, Received: 03/23/2016 06:02:21)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-K
ý
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to                
Commission File Number: 033-84580
RECKSON OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
______________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
 
11-3233647
(I.R.S. Employer
Identification No.)
420 Lexington Avenue, New York, NY 10170
(Address of principal executive offices—Zip Code)

(212) 594-2700
(Registrant's telephone number, including area code)
______________________________________________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o     No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o     No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer ý
 
Smaller Reporting Company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o     No  ý
As of March 22, 2016 , no common units of limited partnership of the Registrant were held by non-affiliates of the Registrant. There is no established trading market for such units.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement of SL Green Realty Corp., the indirect parent of the Registrant, for its 2016 Annual Meeting of Stockholders to be filed within 120 days after the end of the Registrant's fiscal year are incorporated by reference into Part III of this Annual Report on Form 10-K.
 



Reckson Operating Partnership, L.P.
TABLE OF CONTENTS

 
1.
1A.
1B.
2
3
4
PART II
 
5
6
7
7A.
8
9
9A.
9B.
PART III
 
10
11
12
13
14
PART IV
 
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Table of Contents

PART I

ITEM 1.    BUSINESS
General
Reckson Operating Partnership, L.P., or ROP, commenced operations on June 2, 1995. The sole general partner of ROP is Wyoming Acquisition GP LLC., or WAGP, a wholly-owned subsidiary of SL Green Operating Partnership, L.P., or the Operating Partnership. The sole limited partner of ROP is the Operating Partnership.
ROP is engaged in the business of owning, managing, leasing, acquiring and repositioning of commercial and residential real estate properties, principally office properties, and also owns land for future development, located in New York City, Westchester County, Connecticut and New Jersey, which collectively is also known as the New York Metropolitan area.
SL Green Realty Corp., or SL Green, and the Operating Partnership were formed in June 1997. SL Green 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," "us" and the "Company" means ROP and all entities owned or controlled by ROP.
On January 25, 2007, SL Green completed the acquisition of all of the outstanding shares of common stock of Reckson Associates Realty Corp., or RARC, the prior general partner of ROP. This transaction is referred to herein as the Merger.
In 2015, SL Green transferred two properties and SL Green's tenancy in common interest in a fee interest with a total value of $395.0 million to ROP. Additionally, in 2015, SL Green transferred one entity that held debt investments and financing receivables with an aggregate carrying value of $1.7 billion to ROP. During 2014 , SL Green transferred five properties with a total value aggregating $884.3 million to ROP. These transfers were made to further diversify ROP's portfolio. Under the Business Combinations guidance (Accounting Standard Codification 805-50), these transfers were determined to be transfers of businesses between the indirect parent company and its wholly-owned subsidiary. As such, the assets and liabilities were transferred at their carrying values and were recorded as of the beginning of the current reporting period as though the assets and liabilities had been transferred at that date. The consolidated financial statements and financial information presented for all prior years have been retrospectively adjusted to furnish comparative information.
As of December 31, 2015 , we owned the following interests in properties in the New York Metropolitan area, primarily in midtown Manhattan. Our investments in the New York Metropolitan area also include investments in Brooklyn, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban properties:
Location
 
Type
 
Number of
Buildings
 
Approximate Square Feet
 
Weighted Average Occupancy (1)
Commercial:
 
 
 
 
 
 
 
 
Manhattan
 
Office
 
16

 
8,463,245

 
94.9
%
 
 
Retail (2)(3)
 
5

 
352,892

 
97.6
%
 
 
Fee Interest
 
2

 
197,654

 
100.0
%
 
 
 
 
23

 
9,013,791

 
95.1
%
Suburban
 
Office
 
19

 
3,287,800

 
80.0
%
 
 
Retail
 
1

 
52,000

 
100.0
%
 
 
 
 
20

 
3,339,800

 
80.3
%
Total commercial properties
 
 
 
43

 
12,353,591

 
91.1
%
Residential:
 
 
 
 
 
 
 
 
Manhattan
 
Residential (2)
 

 
222,855

 
89.5
%
Total portfolio
 
 
 
43

 
12,576,446

 
91.1
%
____________________________________________________________________
(1)
The weighted average occupancy represents the total occupied square feet divided by total available rentable square feet.
(2)
As of December 31, 2015 , we owned a building that was comprised of approximately 270,132 square feet of retail space and approximately 222,855 square feet of residential space. For the purpose of this report, we have included the building as part of retail properties and have shown the square footage under its respective classifications.
(3)
Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet.

As of December 31, 2015 , we also held debt, preferred equity and other investments with a book value of $1.8 billion .
Our corporate offices are located in midtown Manhattan at 420 Lexington Avenue, New York, New York 10170. As of December 31, 2015 , SL Green's corporate staff, inclusive of our staff, consisted of 296 persons, including 187 professionals

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experienced in all aspects of commercial real estate. We can be contacted at (212) 594-2700. Our indirect parent entity, SL Green, maintains a website at www.slgreen.com . On this website, you can obtain, free of charge, a copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we file such material electronically with, or furnish it to, the Securities and Exchange Commission, or the SEC. SL Green has also made available on its website its audit committee charter, compensation committee charter, nominating and corporate governance committee charter, code of business conduct and ethics and corporate governance principles. We do not intend for information contained on SL Green's website to be part of this annual report on Form 10-K. You can also read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549 (1-800-SEC-0330). The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Business and Growth Strategies
See Item 1 "Business—Business and Growth Strategies" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 for a complete description of SL Green's business and growth strategies.
Competition
See Item 1 "Business—Competition" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 for a complete description of SL Green's competition.
Manhattan Office Market Overview
See Item 1 "Business—Manhattan Office Market Overview" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 for a complete description of SL Green's Manhattan office market overview.
Industry Segments
See Item 1 "Business—Industry Segments" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 for a complete description of SL Green's industry segments.
Employees
See Item 1 "Business—Employees" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 for a complete description of SL Green's employees.


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ITEM 1A.  RISK FACTORS
We encourage you to read "Item 1A—Risk Factors" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 .
Declines in the demand for office space in New York City, and in particular midtown Manhattan, as well as our Suburban markets, including Westchester County, Connecticut and New Jersey, could adversely affect the value of our real estate portfolio and our results of operations and, consequently, our ability to service current obligations and make distributions to SL Green.
The majority of our property holdings are comprised of commercial office properties located in midtown Manhattan. Our property holdings also include a number of retail properties and a multifamily residential property. As a result, our business is dependent on the condition of the New York City economy in general and the market for office space in midtown Manhattan in particular. Future weakness and uncertainty in the New York City economy could materially reduce the value of our real estate portfolio and our rental revenues, and thus adversely affect our cash flow and our ability to service current debt and make distributions to SL Green. Similarly, future weakness and uncertainty in our suburban markets could adversely affect our cash flow and our ability to service current debt and to make distributions to SL Green.
We believe that job creation in the financial and professional services industries in New York City impacts our overall financial performance.  Both new leasing activity and overall asking rents could be negatively impacted by declining rates of job creation in the current or future periods.
We may be unable to renew leases or relet space as leases expire.
If our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of a renewal or new lease, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. As of December 31, 2015 , approximately 4.2 million square feet, representing approximately 38.9% of the rentable square feet, are scheduled to expire by December 31, 2020 at our consolidated properties and as of December 31, 2015 , these leases had annualized escalated rent totaling $253.0 million . We also have leases with termination options beyond 2020 . In addition, changes in space utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and make distributions to SL Green could be adversely affected.
We face significant competition for tenants.
The leasing of real estate is highly competitive. The principal competitive factors are rent, location, services provided and the nature and condition of the property to be leased. We directly compete with all owners, developers and operators of similar space in the areas in which our properties are located.
Our commercial office properties are concentrated in highly developed areas of midtown Manhattan and certain Suburban central business districts, or CBDs. Manhattan is the largest office market in the United States. The number of competitive office properties in Manhattan and CBDs in which our Suburban properties are located, which may be newer or better located than our properties, could have a material adverse effect on our ability to lease office space at our properties, and on the effective rents we are able to charge.
The expiration of long term leases or operating sublease interests where we do not own a fee interest in the land could adversely affect our results of operations.
Our interests in 461 Fifth Avenue, 625 Madison Avenue, 1185 Avenue of the Americas and 711 Third Avenue all in Manhattan, and 1055 Washington Boulevard, Stamford, Connecticut, are entirely or partially comprised of either long-term leasehold or operating sublease interests in the land and the improvements, rather than by ownership of fee interest in the land. We have the ability to acquire the fee position at 461 Fifth Avenue for a fixed price on a specific date.
The average remaining term of these long-term leases as of December 31, 2015 , including our unilateral extension rights on each of the properties, is 31  years. Pursuant to the leasehold arrangements, we, as tenants under the operating sublease, perform the functions traditionally performed by landlords with respect to our subtenants. We are responsible for not only collecting rent from our subtenants, but also maintaining the property and paying expenses relating to the property. Our share of annualized cash rents of the commercial office properties held through long-term leases or operating sublease interests at December 31, 2015 totaled $191.2 million , or 32.7% , of our share of total annualized cash rent for office properties. Unless we purchase a fee interest in the underlying land or extend the terms of these leases prior to their expiration, we will lose our right to operate these properties upon expiration of the leases, which could adversely affect our financial condition and results of operations.

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Adverse economic and geopolitical conditions in general and the commercial office markets in the New York Metropolitan area in particular could have a material adverse effect on our results of operations and financial condition and, consequently, our ability to service debt obligations and make distributions to SL Green.
Our business may be affected by volatility in the financial and credit markets and other market or economic challenges experienced by the U.S. economy or the real estate industry as a whole. Future periods of economic weakness could result in reduced access to credit and/or wider credit spreads. Economic uncertainty, including concern about growth and the stability of the markets generally may lead many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers, which could adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants. Our business may also be adversely affected by local economic conditions, as substantially all of our revenues are derived from our properties located in the New York Metropolitan area, particularly in Manhattan, Westchester County, Connecticut and New Jersey. Because our portfolio consists primarily of commercial office buildings, located principally in midtown Manhattan, as compared to a more diversified real estate portfolio, if economic conditions deteriorate, then our results of operations, financial condition and ability to service current debt and to make distributions to SL Green may be adversely affected. Specifically, our business may be affected by the following conditions:
significant job losses or declining rates of job creation which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;
our ability to borrow on terms and conditions that we find acceptable may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reducing our returns from both our existing operations and our acquisition and development activities and increasing our future interest expense; and
reduced values of our properties, which may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans.
We rely on five large properties for a significant portion of our revenue.
Five of our properties, 1185 Avenue of the Americas, 810 Seventh Avenue, 919 Third Avenue, 625 Madison Avenue and 750 Third Avenue, accounted for 48.5% of our total annualized cash rent for office properties, and 1185 Avenue of the Americas alone accounted for 15.4% of our total annualized cash rent for office properties as of December 31, 2015. Our revenue and cash available to service debt obligations and to make distributions to SL Green would be materially adversely affected if the ground lease for the 1185 Avenue of the Americas property were terminated for any reason or if any of these properties were materially damaged or destroyed. Additionally, our revenue and cash available to service debt obligations and make distributions to SL Green would be materially adversely affected if tenants at these properties fail to timely make rental payments due to adverse financial conditions or otherwise, default under their leases or file for bankruptcy or become insolvent.
Our results of operations rely on major tenants and insolvency or bankruptcy of these or other tenants could adversely affect our results of operations.
Giving effect to leases in effect as of December 31, 2015 for consolidated properties, as of that date, our five largest tenants, based on annualized cash rent, accounted for 15.8% of our share of total annualized cash rent for office properties, with three tenants, Ralph Lauren Corporation , Debevoise & Plimpton, LLP and News America Incorporated , accounting for 4.5% , 3.8% and 2.6% of our share of total annualized cash rent for office properties, respectively. Our business and results of operations would be adversely affected if any of our major tenants became insolvent, declared bankruptcy, or otherwise refused to pay rent in a timely fashion or at all. In addition, if current conditions in the industries in which our tenants are concentrated deteriorate, we may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents across tenants in such industries, which could in turn have an adverse effect on our business and results of operations.
Leasing office space to smaller and growth-oriented businesses could adversely affect our cash flow and results of operations.
Some of the tenants in our properties are smaller, growth-oriented businesses that may not have the financial strength of larger corporate tenants. Smaller companies generally experience a higher rate of failure than larger businesses. Growth-oriented firms may also seek other office space as they develop. Leasing office space to these companies could create a higher risk of tenant defaults, turnover and bankruptcies, which could adversely affect our cash flow and results of operations.
We may suffer adverse consequences if our revenues decline since our operating costs do not necessarily decline in proportion to our revenue.
We earn a significant portion of our income from renting our properties. Our operating costs, however, do not necessarily fluctuate in direct proportion to changes in our rental revenue. As a result, our costs will not necessarily decline even if our revenues do. In such event, we may be forced to borrow to cover our costs, we may incur losses or we may not have cash available to service our debt obligations and make distributions to SL Green.

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We face risks associated with property acquisitions.
We may acquire interests in properties, individual properties and portfolios of properties, including large portfolios that could significantly increase our size and alter our capital structure. Our acquisition activities may be exposed to, and their success may be adversely affected by, the following risks:
we may be unable to meet required closing conditions;
we may be unable to finance acquisitions and developments of properties on favorable terms or at all;
we may be unable to lease our acquired properties on the same terms or to the same level of occupancy as our existing properties;
acquired properties may fail to perform as we expected;
we may expend funds on, and devote management time to, acquisition opportunities which we do not complete, which may include non-refundable deposits;
our estimates of the costs we incur in renovating, improving, developing or redeveloping acquired properties may be inaccurate;
we may not be able to obtain adequate insurance coverage for acquired properties; and
we may be unable to quickly and efficiently integrate new acquisitions and developments, particularly acquisitions of portfolios of properties, into our existing operations, and therefore our results of operations and financial condition could be adversely affected.
We may acquire properties subject to both known and unknown liabilities and without any recourse, or with only limited recourse to the seller. As a result, if a liability were asserted against us arising from our ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include:
claims by tenants, vendors or other persons arising from dealing with the former owners of the properties;
liabilities incurred in the ordinary course of business;
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties; and
liabilities for clean-up of undisclosed environmental contamination.
Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.
We may acquire properties when we are presented with attractive opportunities. We may face competition for acquisition opportunities from other investors, particularly those investors who are willing to incur more leverage, and this competition may adversely affect us by subjecting us to the following risks:
an inability to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors; and
an increase in the purchase price for such acquisition property.
If we are unable to successfully acquire additional properties, our ability to grow our business could be adversely affected. In addition, increases in the cost of acquisition opportunities could adversely affect our results of operations.
We are subject to risks that affect the retail environment.
Approximately 3.6% of our share of total annualized cash rent is generated by retail properties, principally in Manhattan. As a result, we are subject to risks that affect the retail environment generally, including the level of consumer spending, consumer confidence and levels of tourism in Manhattan. These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our retail properties, which could in turn have an adverse effect on our business and results of operations.
The occurrence of terrorist attacks may adversely affect the value of our properties and our ability to generate cash flow.
Our operations are primarily concentrated in the New York Metropolitan area. In the aftermath of a terrorist attack or other acts of terrorism or war, tenants in the New York Metropolitan area may choose to relocate their business to less populated, lower-profile areas of the United States that those tenants believe are not as likely to be targets of future terrorist activity. In addition,

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economic activity could decline as a result of terrorist attacks or other acts of terrorism or war, or the perceived threat of such acts. Each of these impacts could in turn trigger a decrease in the demand for space in the New York Metropolitan area, which could increase vacancies in our properties and force us to lease our properties on less favorable terms. Furthermore, we may also experience increased costs in relation to security equipment and personnel. As a result, the value of our properties and our results of operations could materially decline.
Potential losses may not be covered by insurance.
ROP is insured through a program administered by SL Green. SL Green maintains “all-risk” property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism) within three property insurance portfolios and liability insurance. This includes ROP assets. The first property portfolio maintains a blanket limit of $950.0 million per occurrence, including terrorism, for the majority of the New York City properties in our portfolio, which expires on December 31, 2017. The second portfolio maintains a limit of $1.5 billion per occurrence, including terrorism, for several New York City properties and the majority of the Suburban properties and expires on December 31, 2017. Each policy includes $100.0 million of flood coverage, with a lower sublimit for locations in high hazard flood zones. A third blanket property policy covers most of SL Green's residential assets and maintains a limit of $380.1 million per occurrence, including terrorism, for our residential properties and expires January 31, 2018. SL Green maintains two liability policies which cover all our properties and provide limits of $201.0 million per occurrence and in the aggregate per location. The liability policies expire on October 31, 2016 and January 31, 2017 and cover our commercial and residential assets, respectively. Additional coverage may be purchased on a stand-alone basis for certain assets.
SL Green's wholly-owned taxable REIT subsidiary, Belmont Insurance Company, or Belmont, acts as a captive insurance company and as one of the elements of our overall insurance program. Belmont was formed in an effort to, among other reasons, stabilize to some extent the impact on us of fluctuations of insurance market conditions. Belmont is licensed in New York to write Terrorism, NBCR (nuclear, biological, chemical, and radiological), General Liability, Environmental Liability, Flood, and D&O coverage. As long as SL Green owns Belmont, SL Green is responsible for its liquidity and capital resources, and the accounts of Belmont are part of SL Green's consolidated financial statements. If we experience a loss and Belmont is required to pay a claim under our insurance policy, SL Green would ultimately record the loss to the extent of Belmont’s required payment. Belmont is not reinsured by a third-party. Therefore, insurance coverage provided by Belmont should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance.
On January 12, 2015, the Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007 (TRIPRA) (formerly the Terrorism Risk Insurance Act) was reauthorized through December 31, 2020 pursuant to the Terrorism Insurance Program Reauthorization and Extension Act of 2015. TRIPRA extends the federal Terrorism Insurance Program that requires insurance companies to offer terrorism coverage and provides for compensation for insured losses resulting from acts of certified terrorism, subject to the current program trigger of $100.0 million, which will increase by $20.0 million per annum, commencing December 31, 2015. Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse), mezzanine loans, ground leases, 2012 credit facility, senior unsecured notes and other corporate obligations, contain customary covenants requiring us to maintain insurance. Although we believe that we currently maintain sufficient insurance coverage to satisfy these obligations, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from “all-risk” insurance coverage for losses due to, for example, terrorist acts is a breach of these debt and ground lease instruments allowing the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions. In addition, if lenders require greater coverage that we are unable to obtain at commercially reasonable rates, we may incur substantially higher insurance premiums or our ability to finance our properties and expand our portfolio may be adversely impacted.
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 requiring them to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss. Additionally, we may have less protection than with respect to the properties where we obtain coverage directly. Although we consider our insurance coverage to be appropriate, in the event of a major catastrophe, we may not have sufficient coverage to replace certain properties.
We face possible risks associated with natural disasters and the physical effects of climate change.
We are subject to the risks associated with natural disasters and the physical effects of climate change, which can include storms, hurricanes and flooding, any of which could have a material adverse effect on our properties, operations and business. To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and rising sea-levels. Over time, these conditions could result in declining demand for office space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to

8


expend funds as we seek to repair and protect our properties against such risks. There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.
Debt financing, financial covenants, degree of leverage, and increases in interest rates could adversely affect our economic performance.
Scheduled debt payments could adversely affect our results of operations.
Cash flow could be insufficient to make distributions to SL Green and meet the payments of principal and interest required under our current mortgages, our 2012 credit facility, our senior unsecured notes, our debentures and indebtedness outstanding at our unconsolidated joint venture property. We, SL Green, and the Operating Partnership are all borrowers jointly and severally obligated under the 2012 credit facility.
The total principal amount of our outstanding consolidated indebtedness was $3.8 billion as of December 31, 2015 , consisting of $1.9 billion under our 2012 credit facility, which is inclusive of our $933.0 million term loan, $1.1 billion under our senior unsecured notes and $753.4 million of non-recourse mortgages and loans payable on one of our consolidated properties and certain debt and preferred equity investments. In addition, we could increase the amount of our outstanding consolidated indebtedness in the future, in part by borrowing under the revolving credit facility portion of our 2012 credit facility. The $1.6 billion revolving credit facility portion of our 2012 credit facility currently matures in March 2020, which includes two six-month extension options. In the first quarter of 2015 we modified and extended the revolving credit facility from March 2018 to March 2020 and reduced the margin by 25 basis points. This modification took effect in the first quarter of 2015. As of December 31, 2015 , the total principal amount of non-recourse indebtedness outstanding at our unconsolidated joint venture property was $141.0 million .
If we are unable to make payments under our 2012 credit facility, all amounts due and owing at such time shall accrue interest at a rate equal to 2% higher than the rate at which each draw was made. If we are unable to make payments under our senior unsecured notes, the principal and unpaid interest will become immediately payable. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose on the property, resulting in loss of income and asset value. Foreclosure on mortgaged properties or an inability to make payments under our 2012 credit facility or our senior unsecured notes could trigger defaults under the terms of our other financings, making such financings at risk of being declared immediately payable, and would have a negative impact on our financial condition and results of operations.
We may not be able to refinance existing indebtedness, which may require substantial principal payments at maturity. In 2016 , $253.4 million under the master repurchase agreement facility and $255.3 million of our senior unsecured notes will mature. At the present time, we intend to exercise extension options, repay or refinance the debt associated with our properties on or prior to their respective maturity dates. At the time of refinancing, prevailing interest rates or other factors, such as the possible reluctance of lenders to make commercial real estate loans may result in higher interest rates. Increased interest expense on the extended or refinanced debt would adversely affect cash flow and our ability to service debt obligations and make distributions to SL Green. If any principal payments due at maturity cannot be repaid, refinanced or extended, our cash flow will not be sufficient to repay maturing or accelerated debt.
Financial covenants could adversely affect our ability to conduct our business.
The mortgages on our properties generally contain customary negative covenants that limit our ability to further mortgage the properties, to enter into material leases without lender consent or materially modify existing leases, among other things. In addition, our 2012 credit facility and senior unsecured notes contain restrictions and requirements on our method of operations. Our 2012 credit facility and our unsecured notes also require us to maintain designated ratios, including but not limited to, total debt-to-assets, debt service coverage and unencumbered assets-to-unsecured debt. These restrictions could adversely affect operations (including reducing our flexibility and our ability to incur additional debt), our ability to service debt obligations and our ability make to distributions to SL Green.
Rising interest rates could adversely affect our cash flow.
Advances under our 2012 credit facility and our master repurchase agreement facility bear interest at a variable rate. Our consolidated variable rate borrowings totaled $2.2 billion at December 31, 2015 . In addition, we could increase the amount of our outstanding variable rate debt in the future, in part by borrowing additional amounts under our 2012 credit facility, which consisted of a $1.6 billion revolving credit facility and $933.0 million  term loan. Borrowings under our revolving credit facility and term loan bore interest at the 30-day LIBOR, plus spreads of 125 basis points and 140 basis points , respectively, at December 31, 2015 . As of December 31, 2015 , borrowings under our 2012 credit facility bore weighted average interest at 1.56% . We may incur indebtedness in the future that also bears interest at a variable rate or may be required to refinance our debt at higher rates. At December 31, 2015 , a hypothetical 100 basis point increase in interest rates across each of our consolidated variable interest rate instruments would increase our annual interest costs by approximately $10.0 million . Our joint ventures may also incur variable rate debt and face similar risks. Accordingly, increases in interest rates could adversely affect our results of operations and financial conditions and our ability to continue to service debt and make distributions to SL Green.

9


Failure to hedge effectively against interest rate changes may adversely affect results of operations.
The interest rate hedge instruments we use to manage some of our exposure to interest rate volatility involve risk and counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to interest rate changes and when existing interest rate hedges terminate, we may incur increased costs in putting in place further interest rate hedges. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
Increases in our level of indebtedness could adversely affect our cash flow.
SL Green considers its business as a whole in determining the amount of leverage of itself and its subsidiaries, including us. SL Green also considers other factors in making decisions regarding the incurrence of indebtedness, such as the purchase price of properties to be acquired with debt financing, the estimated market value of our properties upon refinancing and the ability of particular properties and our business as a whole to generate cash flow to cover expected debt service. Our organizational documents do not contain any limitation on the amount of indebtedness we may incur. As a result, if we become more highly leveraged, an increase in debt service could adversely affect cash available for distributions to SL Green and could increase the risk of default on our indebtedness.
A downgrade in our credit ratings could materially adversely affect our business and financial condition.
Our credit rating and the credit ratings assigned to our debt securities could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and any rating could be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant such action. Moreover, these credit ratings are not recommendations to buy, sell or hold our securities. If any of the credit rating agencies that have rated our securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a “watch list” for a possible downgrading or lowering, or otherwise indicates that its outlook for that rating is negative, such action could have a material adverse effect on our costs and availability of funding, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to service debt obligations and make distributions to SL Green.
Debt and preferred equity investments could cause us to incur expenses, which could adversely affect our results of operations.
We held first mortgages, mezzanine loans, junior participations and preferred equity interests in 41 investments with an aggregate net book value of $1.7 billion at December 31, 2015 . Some of these instruments may be recourse in whole or in part to their sponsors, while others are limited to the collateral securing the loan. In the event of a default under these obligations, we may have to take possession of the collateral securing these interests. Borrowers may, among other things, contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce their obligations to us. Declines in the value of the property may prevent us from realizing an amount equal to our investment upon foreclosure or realization even if we make substantial improvements or repairs to the underlying real estate in order to maximize such property's investment potential. In addition, we may invest in mortgage-backed securities and other marketable securities.
We maintain and regularly evaluate the need for reserves to protect against potential future losses. Our reserves reflect management's judgment of the probability and severity of losses and the value of the underlying collateral. We cannot be certain that our judgment will prove to be correct and that our reserves will be adequate over time to protect against future losses because of unanticipated adverse changes in the economy or events adversely affecting specific properties, assets, tenants, borrowers, industries in which our tenants and borrowers operate or markets in which our tenants and borrowers or their properties are located. As of December 31, 2015, we had no recorded reserves for possible credit losses. If our reserves for credit losses prove inadequate, we could suffer losses which would have a material adverse effect on our financial performance and our ability to service debt obligations and make distributions to SL Green.
Joint investments could be adversely affected by our lack of sole decision-making authority and reliance upon a co-venturer's financial condition.
We co-invest with third parties through partnerships, joint ventures, co-tenancies or other structures, and by acquiring non-controlling interests in, or sharing responsibility for managing the affairs of, a property, partnership, joint venture, co-tenancy or other entity. Therefore, we may not be in a position to exercise sole decision-making authority regarding such property, partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may involve risks not present were a third party not involved, including the possibility that our partners, co-tenants or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, our partners or co-venturers might at any time have economic or other business interests or goals which are competitive or inconsistent with our business interests or goals. These investments may also have the potential risk of impasses on decisions such as a sale, because neither we, nor the partner, co-tenant or co-

10


venturer would have full control over the partnership or joint venture. In addition, we may in specific circumstances be liable for the actions of our third-party partners, co-tenants or co-venturers.
Certain of our joint venture agreements contain terms in favor of our partners that could have an adverse effect on the value of our investments in the joint ventures.
Each of our joint venture agreements has been individually negotiated with our partner in the joint venture and, in some cases, we have agreed to terms that are more favorable to our partner in the joint venture than to us. For example, our partner may be entitled to a specified portion of the profits of the joint venture before we are entitled to any portion of such profits. We may also enter into similar arrangements in the future. These rights may permit our partner in a particular joint venture to obtain a greater benefit from the value or profits of the joint venture than us, which could have an adverse effect on the value of our investment in the joint venture and on our financial condition and results of operations.
We may incur costs to comply with environmental and health and safety laws.
We are subject to various federal, state and local environmental and health and safety laws which change from time to time. These laws regulate, among other things, air and water quality, our use, storage, disposal and management of hazardous substances and wastes and can impose liability on current and former property owners or operators for the clean-up of certain hazardous substances released on a property and any associated damage to natural resources without regard to whether the release was in compliance with law or whether it was caused by, or known to, the property owner or operator. The presence of hazardous substances on our properties may adversely affect occupancy and our ability to develop or sell or borrow against those properties. In addition to potential liability for clean-up costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Various laws also impose liability for the clean-up of contamination at any facility (e.g., a landfill) to which we have sent hazardous substances for treatment or disposal, without regard to whether the materials were transported, treated and disposed in accordance with law. Being held responsible for such a clean-up could result in significant cost to us and have a material adverse effect on our financial condition and results of operations.
We may incur significant costs complying with the Americans with Disabilities Act and other regulatory and legal requirements.
Our properties may be subject to risks relating to current or future laws including laws benefiting disabled persons, and other state or local zoning, construction or other regulations. These laws may require significant property modifications in the future which could result in fines being levied against us in the future. The occurrence of any of these events could have an adverse impact on our cash flows and ability to service debt and make distributions to SL Green.
Under the Americans with Disabilities Act, or ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. We have not conducted an audit or investigation of all of our properties to determine our compliance with laws and regulations to which we are subject. If one or more of our properties is not in compliance with the material provisions of the ADA or other legislation, then we may be required to incur additional costs to bring the property into compliance with the ADA or state or local laws. We cannot predict the ultimate amount of the cost of compliance with ADA or other legislation. If we incur substantial costs to comply with the ADA and any other legislation, our financial condition, results of operations and cash flow and/or ability to satisfy our debt service obligations and to make distributions to SL Green could be adversely affected.
We face potential conflicts of interest.
Members of management may have a conflict of interest over whether to enforce terms of agreements with entities which Mr. Green, directly or indirectly, has an affiliation.
Through Alliance Building Services, or Alliance, First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services, Classic Security LLC provides security services, Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain properties owned by us. Alliance is partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. SL Green, including us, and our tenants accounted for 14.4% of Alliance's 2015 estimated total revenue. While we believe that the contracts pursuant to which these services are provided were the result of arm's length negotiations, there can be no assurance that the terms of such agreements, or dealings between the parties during the performance of such agreements, will be as favorable to us as those which could be obtained from unaffiliated third parties providing comparable services under similar circumstances.

11


SL Green's failure to qualify as a REIT would be costly and would have a significant effect on the value of SL Green's securities.
We believe that SL Green has operated in a manner to qualify as a REIT for federal income tax purposes and SL Green intends to continue to so operate. Many of the REIT compliance requirements, however, are highly technical and complex. The determination that SL Green is a REIT requires an analysis of factual matters and circumstances. These matters, some of which are not totally within our or SL Green's control, can affect its qualification as a REIT. For example, to qualify as a REIT, at least 95% of SL Green's gross income must come from designated sources that are listed in the REIT tax laws. SL Green is also required to distribute to stockholders at least 90% of its REIT taxable income excluding capital gains. The fact that SL Green holds its assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize SL Green's REIT status. Furthermore, Congress and the Internal Revenue Service, or the IRS, might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for SL Green to remain qualified as a REIT.
If SL Green fails to qualify as a REIT, it would substantially reduce the funds available for distribution to its stockholders because it would not be allowed a deduction for dividends paid to its stockholders in computing its taxable income and would be subject to federal income tax at regular corporate rates and it could be subject to the federal alternative minimum tax and possibly increased state and local taxes.
Also, unless the IRS grants SL Green relief under specific statutory provisions, it would remain disqualified as a REIT for four years following the year it first failed to qualify. If SL Green failed to qualify as a REIT, it would have to pay significant income taxes and ROP would therefore have less money available for investments, to service debt obligations or make distributions to SL Green. This would likely have a significant adverse effect on the value of SL Green's securities. As a result of all these factors, if SL Green fails to qualify as a REIT, this could impair our ability to expand our business and raise capital.
SL Green would incur adverse tax consequences if RARC failed to qualify as a REIT.
SL Green has assumed that RARC has historically qualified as a REIT for United States federal income tax purposes and that SL Green would continue to be able to qualify as a REIT following the Merger. However, if RARC failed to qualify as a REIT, SL Green generally would have succeeded to significant tax liabilities including the significant tax liability that would result from a deemed sale of assets by RARC pursuant to the Merger.
Loss of our key personnel could harm our operations.
We are dependent on the efforts of Marc Holliday, the chief executive officer of SL Green and president of Wyoming Acquisition GP LLC, or WAGP, the sole general partner of ROP, and Andrew W. Mathias, the president of SL Green. These officers have employment agreements which expire in January 2019 and December 2016, respectively. A loss of the services of either of these individuals could adversely affect our operations.
Our business and operations would suffer in the event of system failures or cyber security attacks.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to a number of risks including energy blackouts, natural disasters, terrorism, war, telecommunication failures and cyber attacks and intrusions, such as computer viruses, malware, attachments to e-mails, intrusion and unauthorized access, including from persons inside our organization or from persons outside our organization with access to our systems. The risk of a security breach or disruption, particularly through cyber attacks and intrusions, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and instructions from around the world have increased. Our systems are critical to the operation of our business and any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions. Although we make efforts to maintain the security and integrity of our systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business.
Our property taxes could increase due to reassessment or property tax rate changes.
We are required to pay real property taxes in respect of our properties and such taxes may increase as our properties are reassessed by taxing authorities or as property tax rates change. An increase in the assessed value of our properties or our property tax rates could adversely impact our financial condition, results of operations and our ability to service debt obligations and make distributions to SL Green.

12


Compliance with changing or new regulations applicable to corporate governance and public disclosure may result in additional expenses, affect our operations and affect our reputation.
Changing or new laws, regulations and standards relating to corporate governance and public disclosure, including SEC regulations and the New York Stock Exchange rules, can create uncertainty for public companies. These changed or new laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.
Our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our continued efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors' audit of that assessment have required the commitment of significant financial and managerial resources. We expect these efforts to require the continued commitment of significant resources. Further, our directors, president and treasurer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business.
Forward-looking statements may prove inaccurate
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking Information," for additional disclosure regarding forward-looking statements.

ITEM 1B.    UNRESOLVED STAFF COMMENTS
As of December 31, 2015 , we did not have any unresolved comments with the staff of the SEC.

13


ITEM 2.    PROPERTIES
Our Portfolio
General
As of December 31, 2015 , we owned or held interests in 16 commercial office buildings encompassing approximately 8.5 million rentable square feet, located primarily in midtown Manhattan. Many of these buildings include some amount of retail space on the lower floors, as well as basement/storage space. As of December 31, 2015 , our portfolio also included ownership interests in 19 commercial office buildings encompassing approximately 3.3 million rentable square feet located in Brooklyn, Westchester County, Connecticut and New Jersey. We refer to these buildings as our Suburban properties. Some of these buildings also include a small amount of retail space on the lower floors, as well as basement/storage space.
As of December 31, 2015 , we also owned in Manhattan, a mixed-use residential and prime retail property encompassing approximately 492,987 square feet and a land interest encompassing approximately 197,654 square feet. As of December 31, 2015 , we also held debt, preferred equity, and other investments with a book value of $1.8 billion .
The following tables set forth certain information with respect to each of the Manhattan and Suburban office, prime retail, residential, redevelopment properties and land interest in the portfolio as of December 31, 2015 :
 
 
Year Built/
Renovated
 
SubMarket
 
Approximate
Rentable
Square Feet
 
Percentage of Portfolio Rentable Square Feet
 
Percent Occupied  (1)
 
Annualized
Cash
Rent (2)
 
Percentage
of Portfolio
Annualized
Cash
Rent
 
Number
of
Tenants
 
Annualized
Cash Rent Per
Leased
Square
Foot (3)
MANHATTAN OFFICE PROPERTIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"Same Store"
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
110 East 42nd Street
 
1921
 
Grand Central
 
215,400

 
2
%
 
98.5
%
 
$
10,559,503

 
1
%
 
22

 
$
52.51

1185 Avenue of the Americas (4)
 
1969
 
Rockefeller Center
 
1,062,000

 
9

 
99.0
%
 
89,890,619

 
17

 
18

 
$
83.49

125 Park Avenue
 
1923/2006
 
Grand Central
 
604,245

 
5

 
97.8
%
 
38,574,880

 
6

 
23

 
$
63.51

1350 Avenue of the Americas
 
1966
 
Rockefeller Center
 
562,000

 
5

 
99.6
%
 
42,216,253

 
7

 
35

 
$
72.63

304 Park Avenue South
 
1930
 
Midtown South
 
215,000

 
2

 
75.7
%
 
12,300,464

 
2

 
12

 
$
64.19

461 Fifth Avenue (4)
 
1988
 
Midtown
 
200,000

 
2

 
99.9
%
 
18,067,162

 
3

 
12

 
$
86.86

555 West 57th Street
 
1971
 
Midtown West
 
941,000

 
8

 
99.9
%
 
39,144,741

 
6

 
9

 
$
38.54

609 Fifth Avenue
 
1925/1990
 
Rockefeller Center
 
160,000

 
1

 
76.1
%
 
14,707,066

 
2

 
13

 
$
118.52

625 Madison Avenue (4)(5)
 
1956/2002
 
Plaza District
 
563,000

 
5

 
97.2
%
 
56,748,599

 
10

 
22

 
$
100.53

641 Sixth Avenue
 
1902
 
Midtown South
 
163,000

 
1

 
100.0
%
 
11,569,787

 
2

 
7

 
$
69.06

711 Third Avenue (5)
 
1955
 
Grand Central North
 
524,000

 
4

 
65.8
%
 
21,547,671

 
4

 
16

 
$
59.03

750 Third Avenue
 
1958/2006
 
Grand Central North
 
780,000

 
7

 
97.5
%
 
45,030,155

 
8

 
32

 
$
57.50

810 Seventh Avenue
 
1970
 
Times Square
 
692,000

 
6

 
93.0
%
 
43,982,745

 
8

 
46

 
$
63.56

919 Third Avenue (6)
 
1970
 
Grand Central North
 
1,454,000

 
12

 
100.0
%
 
93,614,502

 
8

 
11

 
$
66.50

 Subtotal/ Weighted Average
 
 
 
 
 
8,135,645

 
69
%
 
95.3
%
 
$
537,954,147

 
84
%
 
278

 
 
"Non Same Store"
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
110 Green Street (5)
 
1908/1920
 
Soho
 
223,600

 
2

 
78.1
%
 
$
9,251,909

 
1

 
63

 
$
69.74

635 Sixth Avenue
 
1902
 
Midtown South
 
104,000

 
1

 
100.0
%
 
8,617,385

 
2

 
2

 
$
91.38

 Subtotal/ Weighted Average
 
 
 
 
 
327,600

 
3
%
 
85.0
%
 
$
17,869,294

 
3
%
 
65

 
 
Total / Weighted Average Manhattan Office Properties
 
8,463,245

 
72
%
 
94.9
%
 
$
555,823,441

 
87
%
 
343

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SUBURBAN OFFICE PROPERTIES
 
 
 
 

 
 
 
 
 
 

 
 

 
 
100 Summit Lake Drive
 
1988
 
Valhalla, Westchester
 
250,000

 
2
%
 
47.1
%
 
$
3,012,094

 
1
%
 
10

 
$
26.46

1100 King Street - 1-6 International Drive
 
1983-1986
 
Rye Brook, Westchester
 
540,000

 
5

 
61.7
%
 
8,669,686

 
1

 
27

 
$
26.44


14


 
 
Year Built/
Renovated
 
SubMarket
 
Approximate
Rentable
Square Feet
 
Percentage of Portfolio Rentable Square Feet
 
Percent Occupied  (1)
 
Annualized
Cash
Rent (2)
 
Percentage
of Portfolio
Annualized
Cash
Rent
 
Number
of
Tenants
 
Annualized
Cash Rent Per
Leased
Square
Foot (3)
115-117 Stevens Avenue
 
1984
 
Valhalla, Westchester
 
178,000

 
1

 
77.2
%
 
2,931,132

 

 
11

 
$
22.47

200 Summit Lake Drive
 
1990
 
Valhalla, Westchester
 
245,000

 
2

 
82.7
%
 
4,963,945

 
1

 
8

 
$
25.37

360 Hamilton Avenue
 
2000
 
White Plains, Westchester
 
384,000

 
4

 
94.7
%
 
13,570,212

 
2

 
21

 
$
37.01

500 Summit Lake Drive
 
1986
 
Valhalla, Westchester
 
228,000

 
2

 
97.8
%
 
5,141,442

 
1

 
7

 
$
26.05

520 White Plains Road
 
1979
 
Tarrytown, Westchester
 
180,000

 
1

 
98.3
%
 
4,379,296

 
1

 
13

 
$
26.73

Westchester, NY Subtotal/Weighted Average
 
2,005,000

 
17
%
 
77.5
%
 
$
42,667,807

 
7
%
 
97

 
 
1010 Washington Boulevard
 
1988
 
Stamford, Connecticut
 
143,400

 
1
%
 
75.3
%
 
$
3,505,394

 
1
%
 
21

 
$
31.35

1055 Washington Boulevard (4)
 
1987
 
Stamford, Connecticut
 
182,000

 
2

 
74.7
%
 
4,953,522

 
1

 
23

 
$
35.40

680 Washington (6)
 
1989
 
Stamford, Connecticut
 
133,000

 
1

 
88.9
%
 
5,242,567

 

 
10

 
$
44.83

7 Landmark Square
 
1973-1984
 
Stamford, Connecticut
 
36,800

 

 
100.0
%
 
728,423

 
1

 
2

 
$
56.55

750 Washington Boulevard (6)
 
1989
 
Stamford, Connecticut
 
192,000

 
2

 
99.1
%
 
8,067,197

 

 
11

 
$
42.38

Connecticut Subtotal/Weighted Average
 
687,200

 
6
%
 
85.8
%
 
$
22,497,103

 
3
%
 
67

 
 

125 Chubb Way
 
2008
 
Lyndhurst, New Jersey
 
278,000

 
2
%
 
66.2
%
 
$
4,289,420

 
1
%
 
6

 
$
24.44

New Jersey Subtotal/Weighted Average
 
278,000

 
2
%
 
66.2
%
 
$
4,289,420

 
1
%
 
6

 
 
16 Court Street
 
1927-1928
 
Brooklyn, New York
 
317,600

 
3
%
 
95.5
%
 
$
12,136,463

 
2
%
 
69

 
$
41.04

Brooklyn Subtotal/Weighted Average
 
317,600

 
3
%
 
95.5
%
 
$
12,136,463

 
2
%
 
69

 
 
Total / Weighted Average Suburban Office Properties
 
3,287,800

 
28
%
 
80.0
%
 
$
81,590,793

 
13
%
 
239

 
 

Portfolio Grand Total / Weighted Average
 
11,751,045

 
100
%
 
90.7
%
 
$
637,414,234

 
100
%
 
582

 
 

Portfolio Grand Total—ROP share of Annualized Cash Rent
 
 
 
 

 
 
 
$
584,105,156

 
 
 
 
 
 
PRIME RETAIL
 
 
 
 
 
 
 
 
 
 
 
 
 
 
102 Greene Street
 
1910
 
SoHo
 
9,200

 
3
%
 
54.3
%
 
$
457,411

 
2
%
 
1

 
$
121.14

115 Spring Street
 
1900
 
SoHo
 
5,218

 
1

 
100.0
%
 
2,800,000

 
13

 
1

 
$
536.60

131-137 Spring Street - 20.0%
 
1891
 
SoHo
 
68,342

 
17

 
93.9
%
 
11,520,129

 
10

 
9

 
$
179.72

315 West 33rd Street - The Olivia
 
2000
 
Penn Station
 
270,132

 
66

 
100.0
%
 
14,878,400

 
67

 
10

 
$
54.47

Williamsburg Terrace (5)
 
2010
 
Brooklyn, New York
 
52,000

 
13

 
100.0
%
 
1,761,576

 
8

 
3

 
$
33.86

Total/Weighted Average Retail Properties
 
404,892

 
100
%
 
97.9
%
 
$
31,417,516

 
100
%
 
24

 
 
LAND
 
 
 
 
 
 
 
 
 
 
 
 
 
 
635 Madison Avenue
 
 
 
Plaza District
 
176,530

 
89
%
 
100.0
%
 
$
3,677,574

 
45
%
 
 
 
 
752 Madison Avenue (7)
 
 
 
Plaza District
 
21,124

 
11

 
100.0
%
 
4,412,024

 
55

 
 
 
 
Total/Weighted Average Land Properties
 
197,654

 
100
%
 
100.0
%
 
$
8,089,598

 
100
%
 
 
 
 
RESIDENTIAL PROPERTY
 
SubMarket
 
Usable Sq. Feet
 
Total Units
 
Percent
Leased
 
Annualized Cash
Rent (1)
 
Average
Monthly Rent
Per Unit
315 West 33rd Street - The Olivia
 
Penn Station
 
222,855

 
333

 
89.5
%
 
$
14,040,156

 
$
3,939

____________________________________________________________________
(1)
Excludes leases signed but not yet commenced as of December 31, 2015.
(2)
Annualized Cash Rent represents the monthly contractual rent under existing leases as of December 31, 2015 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2015 for the 12 months ending December 31, 2016 will reduce cash rent by $5.7 million for our properties.
(3)
Annualized Cash Rent Per Leased Square Foot represents Annualized Cash Rent, as described in footnote (1) above, presented on a per leased square foot basis.
(4)
We hold a leasehold interest in this property.
(5)
Properties that were transferred in 2015.
(6)
We own a 51% interest in this joint venture asset.
(7)
We own a tenancy in common interest in the property.

15


Historical Occupancy
Historically SL Green has achieved consistently higher occupancy rates in our Manhattan portfolio as compared to the overall midtown markets, as shown over the last five years in the following table:
 
Percent of
Manhattan
Portfolio
Occupied (1)
 
Occupancy Rate of
Class A
Office Properties
in the midtown
Markets (2)(3)
 
Occupancy Rate of
Class B
Office Properties
in the midtown
Markets (2)(3)
December 31, 2015
94.2
%
 
90.9
%
 
91.3
%
December 31, 2014
95.3
%
 
89.4
%
 
91.6
%
December 31, 2013
94.3
%
 
88.3
%
 
89.1
%
December 31, 2012
94.3
%
 
89.1
%
 
90.0
%
December 31, 2011
92.5
%
 
89.7
%
 
91.3
%
____________________________________________________________________
(1)
Includes space for leases that were executed as of the relevant date in the wholly-owned and joint venture properties in Manhattan owned by SL Green as of that date.
(2)
Includes vacant space available for direct lease and sublease. Source: Cushman & Wakefield.
(3)
The term "Class B" is generally used in the Manhattan office market to describe office properties that are more than 25 years old but that are in good physical condition, enjoy widespread acceptance by high-quality tenants and are situated in desirable locations in Manhattan. Class B office properties can be distinguished from Class A properties in that Class A properties are generally newer properties with higher finishes and frequently obtain the highest rental rates within their markets.
Historically SL Green has achieved consistently higher occupancy rates in its Westchester County and Connecticut portfolios in comparison to the overall Westchester County and Stamford, Connecticut, CBD markets, as shown over the last five years in the following table:
 
Percent of
Westchester
Portfolio
Occupied (1)
 
Occupancy Rate of
Class A
Office Properties
in the Westchester
Market (2)
 
Percent of
Connecticut
Portfolio
Occupied (1)
 
Occupancy Rate of
Class A
Office Properties
in the Stamford CBD
Market (2)
December 31, 2015
77.5
%
 
76.0
%
 
84.1
%
 
79.9
%
December 31, 2014
78.8
%
 
76.6
%
 
83.6
%
 
75.7
%
December 31, 2013
78.1
%
 
79.4
%
 
80.5
%
 
74.7
%
December 31, 2012
79.2
%
 
78.5
%
 
80.7
%
 
73.7
%
December 31, 2011
80.6
%
 
80.1
%
 
80.3
%
 
73.8
%
____________________________________________________________________
(1)
Includes leases signed but not yet commenced as of the relevant date in the wholly-owned and joint venture properties owned by SL Green.
(2)
Includes vacant space available for direct lease and sublease. Source: Cushman & Wakefield.
Lease Expirations
Leases in our Manhattan portfolio, as at many other Manhattan office properties, typically have an initial term of seven to fifteen years, compared to typical lease terms of five to ten years in other large U.S. office markets. For the five years ending December 31, 2020 , the average annual rollover at our Manhattan operating properties is expected to be approximately 0.6 million square feet representing an average annual expiration rate of approximately 6.9% per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults).

16


The following table sets forth a schedule of the annual lease expirations at our Manhattan operating properties, with respect to leases in place as of December 31, 2015 for each of the next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there no tenant bankruptcies or other tenant defaults):
Manhattan Operating Properties
Year of Lease Expiration
 
Number
of
Expiring
Leases (1)
 
Square
Footage
of
Expiring
Leases
 
Percentage
of
Total
Leased
Square
Feet
 
Annualized
Cash
Rent of
Expiring
Leases (2)
 
Annualized
Cash
Rent Per
Leased
Square
Foot of
Expiring
Leases (3)
2016 (4)
 
62

 
598,353

 
7.3
%
 
$
40,752,104

 
$
68.11

2017
 
44

 
381,674

 
4.6

 
25,785,601

 
$
67.56

2018
 
33

 
427,087

 
5.2

 
38,730,201

 
$
90.68

2019
 
27

 
731,611

 
8.9

 
50,719,033

 
$
69.33

2020
 
38

 
783,191

 
9.5

 
56,801,533

 
$
72.53

2021
 
28

 
1,175,302

 
14.3

 
72,732,140

 
$
61.88

2022
 
23

 
629,146

 
7.7

 
39,802,103

 
$
63.26

2023
 
20

 
599,086

 
7.3

 
33,350,933

 
$
55.67

2024
 
12

 
308,802

 
3.8

 
21,725,005

 
$
70.35

2025 & thereafter
 
65

 
2,578,665

 
31.4

 
175,434,788

 
$
68.03

Total/weighted average
 
352

 
8,212,917

 
100.0
%
 
$
555,833,441

 
$
67.68

____________________________________________________________________
(1)
Tenants may have multiple leases.
(2)
Annualized Cash Rent of Expiring Leases represents the monthly contractual rent under existing leases as of December 31, 2015 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2015 for the 12 months ending December 31, 2016 will reduce cash rent by $3.5 million for the properties.
(3)
Annualized Cash Rent Per Leased Square Foot of Expiring Leases represents Annualized Cash Rent of Expiring Leases, as described in footnote (2) above, presented on a per leased square foot basis.
(4)
Includes approximately 78,265 square feet and annualized cash rent of $4.0 million occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2015 .
Leases in our Suburban portfolio, as at many other suburban operating properties, typically have an initial term of five to ten years. For the five years ending December 31, 2020 , the average annual rollover at our Suburban operating properties is expected to be approximately 0.3 million square feet, representing an average annual expiration rate of approximately 10.5% per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults).

17


The following tables set forth a schedule of the annual lease expirations at our Suburban operating properties with respect to leases in place as of December 31, 2015 for each of the next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or other tenant defaults):
Suburban Operating Properties
Year of Lease Expiration
 
Number
of
Expiring
Leases (1)
 
Square
Footage
of
Expiring
Leases
 
Percentage
of
Total
Leased
Square
Feet
 
Annualized
Cash
Rent of
Expiring
Leases (2)
 
Annualized
Cash
Rent Per
Leased
Square
Foot of
Expiring
Leases (3)
2016 (4)
 
40

 
278,323

 
11.0
%
 
$
9,882,743

 
$
35.51

2017
 
25

 
162,456

 
6.4

 
6,259,459

 
$
38.53

2018
 
33

 
196,262

 
7.7

 
6,523,476

 
$
33.24

2019
 
36

 
476,995

 
18.8

 
13,970,193

 
$
29.29

2020
 
19

 
233,651

 
9.2

 
8,016,962

 
$
34.31

2021
 
24

 
312,942

 
12.3

 
8,899,012

 
$
28.44

2022
 
15

 
80,759

 
3.2

 
3,115,226

 
$
38.57

2023
 
11

 
166,942

 
6.6

 
5,454,494

 
$
32.67

2024
 
11

 
175,331

 
6.9

 
5,510,226

 
$
31.43

2025 & thereafter
 
23

 
456,507

 
17.9

 
13,959,006

 
$
30.58

Total/weighted average
 
237

 
2,540,168

 
100.0
%
 
$
81,590,797

 
$
32.12

____________________________________________________________________
(1)
Tenants may have multiple leases.
(2)
Annualized Cash Rent of Expiring Leases represents the monthly contractual rent under existing leases as of December 31, 2015 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2015 for the 12 months ending December 31, 2016 will reduce cash rent by $2.3 million for the suburban properties.
(3)
Annualized Cash Rent Per Leased Square Foot of Expiring Leases represents Annualized Cash Rent of Expiring Leases, as described in footnote (2) above, presented on a per leased square foot basis.
(4)
Includes approximately 10,695 square feet and annualized cash rent of $0.4 million occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2015 .
Tenant Diversification
At December 31, 2015 , our Manhattan and Suburban office properties were leased to 582 tenants, which are engaged in a variety of businesses, including professional services, financial services, media, apparel, business services and government/non-profit. The following table sets forth information regarding the leases with respect to the ten largest tenants in our Manhattan and Suburban office properties, which are not intended to be representative of our tenants as a whole, based on the amount of square footage leased by our tenants as of December 31, 2015 :
Tenant
 
Properties
 
Lease Expiration
 
Total
Leased
Square
Feet
 
Percentage
of Aggregate
Portfolio
Leased
Square
Feet
 
Percentage
of Aggregate
Portfolio
Annualized
Cash
Rent
Debevoise & Plimpton, LLP
 
919 Third Avenue
 
2021
 
575,324

 
4.9
%
 
3.8
%
Ralph Lauren Corporation
 
625 Madison Avenue
 
2019
 
362,065

 
3.1
%
 
4.5

C.B.S. Broadcasting, Inc.
 
555 West 57th Street
 
2023
 
303,415

 
2.6
%
 
2.2

Advance Magazine Group, Fairchild Publications
 
750 Third Avenue
 
2021
 
286,622

 
2.4
%
 
2.2

Schulte, Roth & Zabel LLP
 
919 Third Avenue
 
2036
 
263,186

 
2.2
%
 
1.5

BMW of Manhattan
 
555 West 57th Street
 
2022
 
227,782

 
1.9
%
 
1.1

The City University of New York - CUNY
 
555 West 57th Street & 16 Court Street
 
2020, 2024 & 2030
 
227,622

 
1.9
%
 
1.6

Bloomberg LP
 
919 Third Avenue
 
2029
 
225,545

 
1.9
%
 
1.0

Amerada Hess Corp.
 
1185 Avenue of the Americas
 
2027
 
181,569

 
1.5
%
 
2.4

Newmark & Company Real Estate Inc.
 
125 Park Avenue, 110 East 42nd Street & 680 Washington Blvd.
 
2016, 2026 & 2031
 
178,955

 
1.5
%
 
1.6

Total
 
 
 
 
 
2,832,085

 
23.9
%
 
21.9
%

18


Environmental Matters
We engaged independent environmental consulting firms to perform Phase I environmental site assessments on our portfolio, in order to assess existing environmental conditions. All of the Phase I assessments met the American Society for Testing and Materials (ASTM) Standard. Under the ASTM Standard, a Phase I environmental site assessment consists of a site visit, a historical record review, a review of regulatory agency data bases and records, and interviews with on-site personnel, with the purpose of identifying potential environmental concerns associated with real estate. These environmental site assessments did not reveal any known environmental liability that we believe will have a material adverse effect on our results of operations or financial condition.
ITEM 3.    LEGAL PROCEEDINGS
As of December 31, 2015 , we were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio other than routine litigation arising in the ordinary course of business or litigation that is adequately covered by insurance.
ITEM 4.    MINE SAFETY DISCLOSURES
Not Applicable.

19


PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is no established trading market for our common equity. As of March 22, 2016 , there were two holders of our Class A common units, both of which are subsidiaries of SL Green.
Common Units
No distributions have been declared by ROP in respect of its Class A common units subsequent to the Merger on January 25, 2007.
Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any Class A common units during the years ended December 31, 2015 , 2014 and 2013 that were not registered under the Securities Act of 1933, as amended.
None of the Class A common units were exchanged into shares of SL Green's common stock and cash in accordance with the Merger Agreement.
Purchases of Equity Securities by Issuer and Affiliate Purchasers
None.

20


ITEM 6.    SELECTED FINANCIAL DATA
The following table sets forth our selected financial data and should be read in conjunction with our Financial Statements and notes thereto included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
In connection with this Annual Report on Form 10-K, we are restating our historical audited consolidated financial statements as a result of the transfer of two properties, SL Green's tenancy in common interest in a fee interest and one entity that held debt investments and financing receivables to us by SL Green. Under the Business Combinations guidance, these transfers were determined to be transfers of businesses between the indirect parent company and its wholly-owned subsidiary. As such, the assets and liabilities of the properties were transferred at their carrying values and were recorded as of the beginning of the current reporting period as though the assets and liabilities had been transferred at that date. The consolidated financial statements and financial information presented for all prior periods have been retrospectively adjusted to furnish comparative information.
 
Year Ended December 31,
Operating Data (in thousands)
2015
 
2014
 
2013
 
2012
 
2011
 
 
 
(as adjusted)
 
(as adjusted)
 
(as adjusted)
 
(as adjusted)
Total revenues
$
925,233

 
$
847,522

 
$
821,822

 
$
694,561

 
$
668,243

Operating expenses
163,969

 
154,374

 
146,548

 
143,068

 
134,903

Real estate taxes
143,873

 
133,567

 
118,699

 
110,752

 
100,383

Ground rent
20,941

 
20,941

 
21,139

 
20,803

 
18,441

Interest expense, net of interest income
119,342

 
129,356

 
133,845

 
133,331

 
102,677

Amortization of deferred finance costs
7,519

 
7,810

 
8,460

 
9,435

 
3,898

Depreciation and amortization
202,474

 
196,505

 
181,619

 
173,631

 
148,217

Loan loss reserves, net of recoveries

 

 

 
564

 
6,505

Transaction related costs
2,871

 
3,599

 
3,070

 
2,961

 
1,063

Marketing, general and administrative
464

 
372

 
362

 
344

 
346

Total expenses
661,453

 
646,524

 
613,742

 
594,889

 
516,433

Equity in net income (loss) from unconsolidated joint venture
8,841

 
4,491

 
(17,108
)
 
(4,083
)
 
497

Equity in net gain on sale of interest in unconsolidated joint venture

 
85,559

 
2,056

 
1,001

 

Gain on sale of real estate
100,190

 

 

 

 
 
Depreciable real estate reserves
(9,998
)
 

 

 

 
(5,789
)
Loss on early extinguishment of debt
(49
)
 
(7,385
)
 
(76
)
 
(6,904
)
 

Income from continuing operations
362,764

 
283,663

 
192,952

 
89,686

 
146,518

Discontinued operations

 
119,575

 
19,663

 

 
7,276

Net income
362,764

 
403,238

 
212,615

 
89,686

 
153,794

Net income attributable to noncontrolling interests
(9,169
)
 
(2,641
)
 
(5,200
)
 
(2,363
)
 
(9,763
)
Preferred units dividend
(1,698
)
 

 

 

 
(19
)
Net income attributable to ROP common unitholder
$
351,897

 
$
400,597

 
$
207,415

 
$
87,323

 
$
144,012

 
As of December 31,
Balance Sheet Data (in thousands)
2015
 
2014
 
2013
 
2012
 
2011
 
 
 
(as adjusted)
 
(as adjusted)
 
(as adjusted)
 
(as adjusted)
Commercial real estate, before accumulated depreciation
$
7,428,243

 
$
7,203,216

 
$
6,670,210

 
$
6,289,687

 
$
5,800,432

Total assets
8,858,747

 
8,303,773

 
7,742,056

 
7,408,481

 
6,334,914

Mortgage note and other loan payable, revolving credit facility and term loan and senior unsecured notes
3,735,530

 
2,893,001

 
2,758,137

 
2,559,233

 
2,403,334

Total capital
4,586,952

 
5,080,081

 
4,595,574

 
4,480,226

 
3,539,623



21


ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Reckson Operating Partnership, L.P., or ROP, commenced operations on June 2, 1995. The sole general partner of ROP is Wyoming Acquisition GP LLC., or WAGP, a wholly-owned subsidiary of SL Green Operating Partnership, L.P., or the Operating Partnership. The sole limited partner of ROP is the Operating Partnership. SL Green Realty Corp., or SL Green, is the general partner of the Operating Partnership. Unless the context requires otherwise, all references to "we," "our," "us" and the "Company" means ROP and all entities owned or controlled by ROP.
ROP is engaged in the acquisition, ownership, management and operation of commercial and residential real estate properties, principally office properties, and also owns land for future development, located in New York City, Westchester County, Connecticut and New Jersey, which collectively is also known as the New York Metropolitan area.
The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in Item 8 of this Annual Report on Form 10-K.
The New York City commercial real estate market continued to strengthen in 2015 , and we took advantage of this strengthening market in improving occupancies and deploying capital in the borough of Manhattan to strategically position the Company for future growth.
Leasing and Operating
In 2015 , SL Green's same-store Manhattan office property occupancy based on leases signed increased to 97.1% from 95.7% in the prior year. SL Green signed office leases in Manhattan encompassing approximately 2.3 million square feet, of which approximately 0.9 million square feet represented office leases that replaced previously occupied space. SL Green's mark-to-market on these approximately 0.9 million square feet of signed Manhattan office leases that replaced previously occupied space was 15.3% for 2015 .
According to Cushman and Wakefield, new leasing activity in Manhattan in 2015 totaled approximately 28.2 million square feet. Of the total 2015 leasing activity in Manhattan, the Midtown submarket accounted for approximately 18.5 million square feet, or approximately 65.6% . Midtown's overall office vacancy decreased from 9.3% at December 31, 2014 to 8.5% at December 31, 2015 .
Overall average asking rents in Manhattan increased from $ 67.70 per square foot at December 31, 2014 to $ 71.58 per square foot at December 31, 2015 . Midtown Manhattan average asking rents increased from $ 75.14 per square foot at December 31, 2014 to $ 76.65 per square foot at December 31, 2015 . The Midtown South average asking rent rose 14.7% year-over-year to $ 69.66 per square foot while downtown average asking rents increased 16.7% year-over-year to $ 59.58 per square foot.
Assets Transfer
In 2015, SL Green transferred two properties and SL Green's tenancy in common interest in a fee interest with a total value of $395.0 million to ROP. Additionally, in 2015, SL Green transferred one property that held debt investments and financing receivables with an aggregate carrying value of $1.7 billion to ROP. During 2014 , SL Green transferred five properties with a total value aggregating $884.3 million to ROP. These transfers were made to further diversify ROP's portfolio. These transfers were made to further diversify ROP's portfolio. Under the business combinations guidance (Accounting Standard Codification, or ASC, 805-50), these transfers were determined to be transfers of businesses between the indirect parent company and its wholly-owned subsidiary. As such, the assets and liabilities of the properties were transferred at their carrying values and were recorded as of the beginning of the current reporting period as though the assets and liabilities had been transferred at that date. The financial statements and financial information presented for all prior periods have been retrospectively adjusted to furnish comparative information.

22


As of December 31, 2015 , we owned the following interests in properties in the New York Metropolitan area, primarily in midtown Manhattan. Our investments in the New York Metropolitan area also include investments in Brooklyn, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban properties:
Location
 
Type
 
Number of
Properties
 
Approximate Square Feet
 
Weighted Average
Occupancy
(1)
Commercial:
 
 
 
 
 
 
 
 
Manhattan
 
Office
 
16

 
8,463,245

 
94.9
%
 
 
Retail (2)(3)
 
5

 
352,892

 
97.6
%
 
 
Fee Interest
 
2

 
197,654

 
100.0
%
 
 
 
 
23

 
9,013,791

 
95.1
%
Suburban
 
Office
 
19

 
3,287,800

 
80.0
%
 
 
Retail
 
1

 
52,000

 
100.0
%
 
 
 
 
20

 
3,339,800

 
80.3
%
Total commercial properties
 
 
 
43

 
12,353,591

 
91.1
%
Residential:
 
 
 
 
 
 
 
 
Manhattan
 
Residential (2)
 

 
222,855

 
89.5
%
Total portfolio
 
 
 
43

 
12,576,446

 
91.1
%
____________________________________________________________________
(1)
The weighted average occupancy for commercial properties represents the total occupied square feet divided by total available rentable square feet. The weighted average occupancy for residential properties represents the total occupied units divided by total available units.
(2)
As of December 31, 2015 , we owned a building that was comprised of approximately 270,132 square feet of retail space and approximately 222,855 square feet of residential space. For the purpose of this report, we have included the building in the retail properties count and have bifurcated the square footage into the retail and residential components.
(3)
Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet.

As of December 31, 2015 , we also held debt, preferred equity and other investments with a book value of $1.8 billion .
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Investment in Commercial Real Estate Properties
On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be other than temporarily impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted and without interest charges for consolidated properties) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.
We also evaluate our real estate properties for potential impairment when a real estate property has been classified as held for sale. Real estate assets held for sale are valued at the lower of either their carrying value or fair value less costs to sell. Except as discussed below, we do not believe that there were any indicators of impairment at any of our consolidated properties at December 31, 2015.
During the three months ended September 30, 2015, we recorded a $10.0 million charge in connection with the sale of one of our properties, which closed in the fourth quarter of 2015. This charge is included in depreciable real estate reserves in the consolidated statements of operations. Prior to the quarter ended September 30, 2015, we do not believe that there were any indicators of impairment at this property. See Note 4, "Property Dispositions."
We incur a variety of costs in the development and leasing of our properties. After 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

23


development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major construction activity ceases. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction.
We recognize the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests in an acquired entity at their fair values on the acquisition date. We expense transaction costs related to the acquisition of certain assets as incurred, which are included in transaction related costs on our consolidated statements of operations. Results of operations of properties acquired are included in the consolidated statements of operations from the date of acquisition.
We allocate the purchase price of real estate to land and building (inclusive of tenant improvements) and, if determined to be material, intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building (inclusive of tenant improvements) over their estimated useful lives, which generally range from three to 40 years . We amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease, which generally range from one to 14 years , and record it as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income. We amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease, which generally ranges from one to 14 years . If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. To the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material, we amortize such below-market lease value into rental income over the renewal period.
Investment in Unconsolidated Joint Ventures
We account for our investment in the unconsolidated joint venture under the equity method of accounting in cases where we exercise significant influence, but do not control the entity and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are VIEs and where we are considered to be the primary beneficiary. In all the 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 the joint venture. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. None of the joint venture debt is recourse to us. See Note 5, "Debt, Preferred Equity and Other Investments."
We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture's projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at  December 31, 2015 .
We may originate loans for real estate acquisition, development and construction, where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with our loan accounting for our debt and preferred equity investments.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets. We establish, on a current basis, an allowance for future potential tenant credit losses, which may occur against this account. The balance reflected on the consolidated balance sheets is net of such allowance.

24


We record a gain on sale of real estate when title is conveyed to the buyer, subject to the buyer's financial commitment being sufficient to provide economic substance to the sale and provided that we have no substantial economic involvement with the buyer.
Interest income on debt and preferred equity investments is accrued based on the outstanding principal amount and contractual terms of the instruments and when, in the opinion of management, it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt.
Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to the interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield.
Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed. Interest is recorded as income on impaired loans only to the extent cash is received.
We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we derecognize the loan sold and recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statements of operations. Any fees received at the time of sale or syndication are recognized as part of investment income.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required payments. If the financial condition of a specific tenant were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required.
Reserve for Possible Credit Losses
The expense for possible credit losses in connection with debt and preferred equity investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality. Other factors considered include geographic trends, product diversification, the size of the portfolio and current economic conditions. Based upon these factors, we establish a provision for possible credit loss on each individual investment. When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired.
Where impairment is indicated on an investment that is held to maturity, a valuation allowance is measured based upon the excess of the recorded investment amount over the net fair value of the collateral. Any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense. We continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly. There were no loan reserves recorded during years ended December 31, 2015 , 2014 and 2013 .
Debt and preferred equity investments held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment.
Derivative Instruments
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collar 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.

25


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.
Results of Operations
Comparison of the year ended December 31, 2015 to the year ended December 31, 2014
The following section compares the results of operations for the year ended December 31, 2015 to the year ended December 31, 2014 for the 43 properties owned by ROP. The Company adopted ASU 2014-08 effective January 1, 2015. As a result, the Company classified 140 Grand Street as held for sale as of September 30, 2015 and included the results of operations in continuing operations for all periods presented. Any assets sold or held for sale prior to January 1, 2015 were excluded from income from continuing operations and from the following discussion.
(in thousands)
 
2015
 
2014
 
$
Change
 
%
Change
 
 
 
 
(as adjusted)
 
 
 
 
Rental revenue, net
 
$
621,121

 
$
574,150

 
$
46,971

 
8.2
 %
Escalation and reimbursement
 
95,894

 
92,850

 
3,044

 
3.3
 %
Investment income
 
182,648

 
176,901

 
5,747

 
3.2
 %
Other income
 
25,570

 
3,621

 
21,949

 
606.2
 %
Total revenues
 
925,233

 
847,522

 
77,711

 
9.2
 %
 
 
 
 
 
 
 
 
 
Property operating expenses
 
328,783

 
308,882

 
19,901

 
6.4
 %
Transaction related costs
 
2,871

 
3,599

 
(728
)
 
(20.2
)%
Marketing, general and administrative
 
464

 
372

 
92

 
24.7
 %
 
 
332,118

 
312,853

 
19,265

 
6.2
 %
 
 
 
 
 
 
 
 
 
Net operating income
 
593,115

 
534,669

 
58,446

 
10.9
 %
 
 
 
 
 
 
 
 
 
Interest expense and amortization of financing costs, net of interest income
 
(126,861
)
 
(137,166
)
 
10,305

 
(7.5
)%
Depreciation and amortization
 
(202,474
)
 
(196,505
)
 
(5,969
)
 
3.0
 %
Equity in net income from unconsolidated joint ventures
 
8,841

 
4,491

 
4,350

 
96.9
 %
Equity in net gain on sale of interest in unconsolidated joint venture
 

 
85,559

 
(85,559
)
 
(100.0
)%
Gain on sale of real estate
 
100,190

 

 
100,190

 
100.0
 %
Depreciable real estate reserves
 
(9,998
)
 

 
(9,998
)
 
100.0
 %
Loss on early extinguishment of debt
 
(49
)
 
(7,385
)
 
7,336

 
(99.3
)%
Income from continuing operations
 
362,764

 
283,663

 
79,101

 
27.9
 %
Net income from discontinued operations
 

 
1,996

 
(1,996
)
 
(100.0
)%
Gain on sale of discontinued operations
 

 
117,579

 
(117,579
)
 
(100.0
)%
Net income
 
$
362,764

 
$
403,238

 
$
(40,474
)
 
(10.0
)%
Rental, Escalation and Reimbursement Revenues