SL Green Realty Corp.
RECKSON OPERATING PARTNERSHIP LP (Form: 10-Q, Received: 08/14/2017 16:58:52)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________  
FORM 10-Q
_________________________________________________________ 
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the quarterly period ended June 30, 2017
 
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
11-3233647
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
420 Lexington Avenue, New York, New York 10170
(Address of principal executive offices) (Zip Code)

(212) 594-2700
(Registrant’s telephone number, including area code)
 _________________________________________________________
 
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 Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
x
 (Do not check if a smaller reporting company)
 
Smaller Reporting Company
o
 
Emerging Growth Company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o   NO ý
 
As of August 14, 2017 , no common units of limited partnership interest of the Registrant were held by non-affiliates of the Registrant.  There is no established trading market for such units.
 



Reckson Operating Partnership, L.P.
TABLE OF CONTENTS

 
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016
 
Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (unaudited)
 
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016 (unaudited)
 
Consolidated Statement of Capital for the six months ended June 30, 2017 (unaudited)
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)
 
 
 


1

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)
 
June 30, 2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Commercial real estate properties, at cost:
 
 
 
Land and land interests
$
1,754,680

 
$
1,805,198

Building and improvements
4,428,461

 
4,629,994

Building leasehold and improvements
1,073,703

 
1,073,678

 
7,256,844

 
7,508,870

Less: accumulated depreciation
(1,469,042
)
 
(1,437,222
)
 
5,787,802

 
6,071,648

Assets held for sale
119,224

 

Cash and cash equivalents
50,978

 
59,930

Restricted cash
80,948

 
43,489

Tenant and other receivables, net of allowance of $6,282 and $4,879 in 2017 and 2016, respectively
25,717

 
30,999

Deferred rents receivable, net of allowance of $16,245 and $17,798 in 2017 and 2016, respectively
236,738

 
238,447

Debt and preferred equity investments, net of discounts and deferred origination fees of $16,079 and $16,705 in 2017 and 2016, respectively
1,986,413

 
1,640,412

Investments in unconsolidated joint ventures
132,413

 
174,127

Deferred costs, net of accumulated amortization of $73,616 and $73,673 in 2017 and 2016, respectively
112,274

 
121,470

Other assets
286,550

 
374,091

Total assets
$
8,819,057

 
$
8,754,613

Liabilities
 
 
 
Mortgages and other loans payable, net
$
921,176

 
$
676,068

Revolving credit facility, net
195,125

 

Unsecured term loan, net
1,180,217

 
1,179,521

Unsecured notes, net
795,942

 
795,260

Accrued interest payable
17,586

 
15,781

Other liabilities
87,190

 
160,982

Accounts payable and accrued expenses
56,706

 
60,855

Related party payables
23,808

 
23,808

Deferred revenue
144,661

 
161,772

Deferred land leases payable
1,842

 
1,795

Dividends payable
807

 
754

Security deposits
40,366

 
40,033

Liabilities related to assets held for sale
106

 

Total liabilities
3,465,532

 
3,116,629

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)


 
June 30, 2017
 
December 31, 2016
 
(unaudited)
 
 
Commitments and contingencies

 

Preferred units
109,161

 
109,161

 
 
 
 
Capital
 
 
 
General partner capital
4,873,544

 
5,139,842

Accumulated other comprehensive loss
(1,438
)
 
(1,618
)
Total ROP partner's capital
4,872,106

 
5,138,224

Noncontrolling interests in other partnerships
372,258

 
390,599

Total capital
5,244,364

 
5,528,823

Total liabilities and capital
$
8,819,057

 
$
8,754,613

 
 
 
 
1)  The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs: $268.6 million and $297.3 million of land, $1.3 billion and $1.4 billion of building and improvements, $301.7 million and $318.4 million of accumulated depreciation, $254.3 and $160.5 of other assets included in other line items, $494.5 million and $494.0 million of real estate debt, net, $2.1 million and $2.1 million of accrued interest payable, and $53.0 million and $61.4 million of other liabilities included in other line items as of June 30, 2017 and December 31, 2016, respectively.



The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statements of Operations
(unaudited, in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,

 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Rental revenue, net
 
$
167,058

 
$
160,276

 
$
335,030

 
$
319,894

Escalation and reimbursement
 
22,897

 
25,699

 
47,442

 
50,015

Investment income
 
60,424

 
44,586

 
100,978

 
99,766

Other income
 
1,433

 
1,197

 
717

 
1,747

Total revenues
 
251,812

 
231,758


484,167

 
471,422

Expenses
 
 
 
 
 
 
 
 
Operating expenses, including related party expenses of $6,649 and and $13,178 in 2017, and $7,211 and $12,974 in 2016
 
38,765

 
38,809

 
80,490

 
80,770

Real estate taxes
 
38,826

 
37,302

 
77,622

 
74,526

Ground rent
 
5,235

 
5,235

 
10,470

 
10,470

Interest expense, net of interest income
 
32,108

 
26,443

 
61,575

 
58,644

Amortization of deferred financing costs
 
2,039

 
1,732

 
4,126

 
3,872

Depreciation and amortization
 
50,773

 
50,651

 
102,557

 
101,449

Transaction related costs
 
2

 
67

 
2

 
245

Marketing, general and administrative
 
117

 
265

 
229

 
449

Total expenses
 
167,865

 
160,504

 
337,071

 
330,425

Income before equity in net income from unconsolidated joint ventures, equity in net gain on sale of interest in unconsolidated joint venture/real estate, gain (loss) on sale of real estate, and depreciable real estate reserves
 
83,947

 
71,254

 
147,096

 
140,997

Equity in net income from unconsolidated joint ventures
 
3,180

 
3,666

 
7,435

 
6,123

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

 

 
3

 

Gain (loss) on sale of real estate
 
4,933

 
(6,899
)
 
4,933

 
(6,899
)
Depreciable real estate reserves
 
(29,063
)
 

 
(85,328
)
 

Net income
 
62,997

 
68,021

 
74,139

 
140,221

Net loss (income) attributable to noncontrolling interests in other partnerships
 
18,134

 
(2,062
)
 
18,120

 
(2,074
)
Preferred units dividend
 
(955
)
 
(955
)
 
(1,908
)
 
(1,910
)
Net income attributable to ROP common unitholder
 
$
80,176

 
$
65,004

 
$
90,351

 
$
136,237



The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to ROP common unitholder
$
80,176

 
$
65,004

 
$
90,351

 
$
136,237

Other comprehensive income:
 
 
 
 
 
 
 
Change in net unrealized loss/gain on derivative instruments
90

 
198

 
180

 
418

Comprehensive income attributable to ROP common unitholder
$
80,266

 
$
65,202


$
90,531


$
136,655



The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statement of Capital
(unaudited, in thousands)
  
General
Partner's
Capital
Class A
Common
Units
 
Limited Partner's Capital
 
Noncontrolling
Interests
In Other
Partnerships
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Capital
Balance at December 31, 2016
$
5,139,842

 
$

 
$
390,599

 
$
(1,618
)
 
$
5,528,823

Contributions
1,913,792

 

 

 

 
1,913,792

Distributions
(2,270,441
)
 

 
(221
)
 

 
(2,270,662
)
Net income
90,351

 

 
(18,120
)
 

 
72,231

Other comprehensive income

 

 

 
180

 
180

Balance at June 30, 2017
$
4,873,544

 
$

 
$
372,258

 
$
(1,438
)
 
$
5,244,364



The accompanying notes are an integral part of these consolidated financial statements.


6

Table of Contents
Reckson Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)

 
Six Months Ended June 30,
 
2017
 
2016
Operating Activities
 
 
 
Net income
$
74,139

 
$
140,221

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
106,683

 
105,321

Equity in net income from unconsolidated joint ventures
(7,435
)
 
(6,123
)
Distributions of cumulative earnings from unconsolidated joint ventures
9,479

 
4,376

Equity in net gain on sale of interest in unconsolidated joint venture interest/real estate
(3
)
 

(Gain) loss on sale of real estate
(4,933
)
 
6,899

Depreciable real estate reserves
85,328

 

Deferred rents receivable
(6,446
)
 
(10,411
)
Other non-cash adjustments
(24,586
)
 
(21,545
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash—operations
707

 
(8,721
)
Tenant and other receivables
2,949

 
3,560

Deferred lease costs
(6,713
)
 
(12,573
)
Other assets
(18,061
)
 
(3,855
)
Accounts payable, accrued expenses and other liabilities
1,985

 
(4,196
)
Deferred revenue and land leases payable
(4,508
)
 
(7,591
)
Net cash provided by operating activities
208,585

 
185,362

Investing Activities
 
 
 
Additions to land, buildings and improvements
(51,777
)
 
(53,065
)
Escrowed cash—capital improvements

 
368

Investments in unconsolidated joint ventures
(84
)
 
(797
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
48,616

 
615

Net proceeds from disposition of real estate/joint venture interest
20,082

 
42,316

Other investments
28,459

 
4,974

Origination of debt and preferred equity investments
(854,577
)
 
(227,482
)
Repayments or redemption of debt and preferred equity investments
633,140

 
418,371

Net cash (used in) provided by investing activities
(176,141
)
 
185,300

Financing Activities
 
 
 
Proceeds from mortgages and other loans payable
$
250,000

 
$

Repayments of mortgages and other loans payable

 
(119,165
)
Proceeds from revolving credit facility and senior unsecured notes
1,072,800

 
700,000

Repayments of revolving credit facility and senior unsecured notes
(872,800
)
 
(1,664,308
)
Distributions to noncontrolling interests in other partnerships
(221
)
 
(197
)
Contributions from common unitholder
1,775,488

 
2,797,191

Distributions to common and preferred unitholders
(2,272,349
)
 
(2,136,728
)
Other obligations related to loan participations
10,000

 
76,500

Deferred loan costs and capitalized lease obligation
(4,314
)
 
(838
)
Net cash provided by (used in) financing activities
(41,396
)
 
(347,545
)
Net (decrease) increase in cash and cash equivalents
(8,952
)
 
23,117

Cash and cash equivalents at beginning of period
59,930

 
50,026

Cash and cash equivalents at end of period
$
50,978

 
$
73,143

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
 
 
Tenant improvements and capital expenditures payable
$
4,986

 
$
8,973

Deferred leasing payable
323

 
677

Change in fair value of hedge
2

 
200

Transfer to assets held for sale
173,918

 

Transfer to liabilities related to assets held for sale
149

 

Exchange of debt investment for equity in joint venture

 
68,581

Removal of fully depreciated commercial real estate properties
202

 
8,281

Contributions from Common Unitholder
138,304

 

Deconsolidation of a subsidiary
3,520

 

Proceeds from sale held in restricted cash
38,166

 



The accompanying notes are an integral part of these consolidated financial statements.

7

Table of Contents

Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements
June 30, 2017
(unaudited)
1. Organization and Basis of Presentation
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. The Operating Partnership is 95.57%  owned by SL Green Realty Corp., or SL Green, as of June 30, 2017 . SL Green is a self-administered and self-managed real estate investment trust, and is the sole managing 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.
As of June 30, 2017 , 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 (unaudited)
 
Weighted Average
Occupancy
(1)  (unaudited)
Commercial:
 
 
 
 
 
 
 
 
Manhattan
 
Office
 
16

 
8,463,245

 
95.7
%
 
 
Retail (2)(3)
 
5

 
364,816

 
98.0
%
 
 
Development/Redevelopment (4)
 
1

 
9,200

 
%
 
 
Fee Interest
 
1

 
176,530

 
100.0
%
 
 
 
 
23

 
9,013,791

 
95.8
%
Suburban
 
Office (5)
 
17

 
3,071,000

 
76.5
%
 
 
Retail
 
1

 
52,000

 
100.0
%
 
 
 
 
18

 
3,123,000

 
76.9
%
Total commercial properties
 
 
 
41

 
12,136,791

 
91.0
%
Residential:
 
 
 
 
 
 
 
 
Manhattan
 
Residential (2)
 

 
222,855

 
91.9
%
Total portfolio
 
 
 
41

 
12,359,646

 
91.0
%
(1)
The weighted average occupancy for commercial properties represents the total occupied square feet divided by total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by total available units.
(2)
As of June 30, 2017 , we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet (unaudited) of retail space and approximately 222,855 square feet (unaudited) of residential space. For the purpose of this report, we have included this building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.
(3)
Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet
(4)
Includes one unconsolidated joint venture retail property at 102 Greene Street comprised of approximately 9,200 square feet.
(5)
Includes the properties at 680-750 Washington Boulevard, in Stamford, Connecticut, also known as Stamford Towers and 125 Chubb Avenue in Lyndhurst, New Jersey, which are classified as held for sale at June 30, 2017.

As of June 30, 2017 , we held debt and preferred equity investments with a book value of $2.1 billion , including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in other balance sheet line items other than the Debt and Preferred Equity Investments line item.
Net income attributable to ROP common unitholders for the three months ended June 30, 2017 includes $18.8 million relating to an adjustment of net income attributable to noncontrolling interests for the three months ended March 31, 2017. The noncash correction has no impact on net income for the three months ended June 30, 2017 or net income attributable to ROP common unitholders for the six months ended June 30, 2017.

8

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

Basis of Quarterly Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the financial position of the Company at June 30, 2017 and the results of operations for the periods presented have been included. The operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . These financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 .
The consolidated balance sheet at December 31, 2016 has been derived from the audited financial statements as of that date but do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
Subsequent Events
In August 2017, we entered into an agreement to sell 16 Court Street in Brooklyn, NY, for a gross sales price of $171.0 million . The transaction is expected to close during the fourth quarter of 2017.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method. See Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures." All significant intercompany balances and transactions have been eliminated.
We consolidate a variable interest entity, or VIE, in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.
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) 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. We do not believe that there were any indicators of impairment at any of our consolidated properties at June 30, 2017 , except for 125 Chubb Avenue in Lyndhurst, New Jersey, and Stamford Towers, for which we recorded aggregate depreciable real estate reserves of $29.1 million and $70.7 million for the three and six months ended June 30, 2017 , respectively. See Note 4, "Property Dispositions".
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

9

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

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.
We recognized $4.2 million and $8.4 million of rental revenue for the three and six months ended June 30, 2017 , and $3.8 million and $7.8 million of rental revenue for the three and six months ended June 30, 2016 , for the amortization of aggregate below-market leases in excess of above-market leases and a reduction in lease origination costs, resulting from the allocation of the purchase price of the applicable properties.
The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) as of June 30, 2017 and December 31, 2016 (in thousands):
 
June 30, 2017
 
December 31, 2016
Identified intangible assets (included in other assets):
 
 
 
Gross amount
$
299,816

 
$
311,830

Accumulated amortization
(248,938
)
 
(253,064
)
Net (1)
$
50,878

 
$
58,766

Identified intangible liabilities (included in deferred revenue):
 
 
 
Gross amount
$
512,258

 
$
524,793

Accumulated amortization
(368,807
)
 
(368,738
)
Net (1)
$
143,451

 
$
156,055

(1)
As of June 30, 2017 and December 31, 2016, $0.2 million and none , respectively and $0.1 million and none , respectively, of net intangible assets and net intangible liabilities, were reclassified to assets held for sale and liabilities related to assets held for sale.
Fair Value Measurements
See Note 12, "Fair Value Measurements."
Investments in Unconsolidated Joint Ventures
We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at June 30, 2017 .
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 (as described below), 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 the three and six months ended June 30, 2017 and 2016 .
Income Taxes
ROP is a disregarded entity of SL Green Operating Partnership, L.P. for federal income tax purposes, and, as a result, all income and losses of ROP are considered income and losses of SL Green Operating Partnership, L. P. No provision has been made for income taxes in the consolidated financial statements since such taxes, if any, are the responsibility of the individual partners of SL Green Operating Partnership, L.P.

10

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

Shares Contributed by Parent Company
We present shares of SL Green common stock as a contra-equity account in our financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, debt and preferred equity investments and accounts receivable. We place our cash investments with high quality financial institutions. The collateral securing our debt and preferred equity investments is located in New York City. See Note 5, "Debt and Preferred Equity Investments." We perform ongoing credit evaluations of our tenants and require most tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the total value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost revenue and the costs associated with re-tenanting a space.
The properties in our real estate portfolio are primarily located in Manhattan. We also have properties located in Brooklyn, Westchester County, Connecticut and New Jersey. The tenants located in our buildings operate in various industries. No tenant in our portfolio accounted for more than 5.0% of our share of annualized cash rent, including our share of joint venture annualized rent, at June 30, 2017 . For the three months ended June 30, 2017 , 13.6% , 8.9% , 7.4% 7.1% , 6.9% , 6.1% , 6.1% , and 5.8% of our share of cash rent, including our share of joint venture annualized rent was attributable to 1185 Avenue of the Americas, 625 Madison Avenue, 919 Third Avenue, 750 Third Avenue, 810 Seventh Avenue, 125 Park Avenue, 555 West 57th Street. and 1350 Avenue of the Americas, respectively. Our share of annualized cash rent for all other properties was below 5.0% .
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
Accounting Standards Updates
In May 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting. The guidance clarifies the changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in Topic 718. The guidance is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted. The Company has not yet adopted the guidance.
In February 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-05 to clarify the scope of Subtopic 610-20 as well as provide guidance on accounting for partial sales of nonfinancial assets. Subtopic 610-20 was issued in May 2014 as part of ASU 2014-09. The Company anticipates adopting this guidance January 1, 2018, and applying the cumulative-effect adoption method. The Company is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In January, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business The guidance clarifies the definition of a business and provides guidance to assist with determining whether transactions should be accounted for as acquisitions of assets or businesses. The main provision is that an acquiree is not a business if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or group of assets. The Company adopted the guidance on the issuance date effective January 5, 2017. The Company expects that most of our real estate acquisitions will be considered asset acquisitions under the new guidance and that transaction costs will be capitalized to the investment basis which is then subject to a purchase price allocation based on relative fair value.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance will require entities to show the changes on the total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between these items on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides final guidance on eight cash flow issues, including debt prepayment or debt

11

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees, separately identifiable cash flows and application of the predominance principle, and others. The amendments in the ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted the guidance effective January 1, 2017 and there was no impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted after December 2018. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The guidance simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the guidance effective January 1, 2017 and there was no material impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic 323). The guidance eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The Company adopted the guidance effective January 1, 2017 and there was no impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the previous standard. Depending on the lease classification, lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by a lessor is largely unchanged from that applied under the previous standard. One of the impacts on the Company will be the presentation and disclosure in the financial statements of non-lease components such as charges to tenants for a building’s operating expenses. The non-lease components will be presented separately from the lease components in both the Consolidated Statements of Operations and Consolidated Balance Sheets. Another impact is the measurement and presentation of ground leases under which the Company is lessee. The Company is required to record a liability for the obligation to make payments under the lease and an asset for the right to use the underlying asset during the lease term and will also apply the new expense recognition requirements given the lease classification. The Company is currently quantifying these impacts. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company anticipates adopting this guidance January 1, 2019 and will apply the modified retrospective approach.
In January 2016, the FASB issued ASU 2016-01 (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to record changes in instruments-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. The guidance is effective for fiscal years beginning after December 15, 2017, and for interim periods therein. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In May 2014, the FASB issued a new comprehensive revenue recognition guidance which requires us to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services (ASU 2014-09). The guidance also requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.
In March 2016, the FASB issued implementation guidance which clarifies principal versus agent considerations in reporting revenue gross versus net (ASU 2016-08).
In April 2016, the FASB amended its new revenue recognition guidance on identifying performance obligations to allow entities to disregard items that are immaterial and clarify when a good or service is separately identifiable (ASU 2016-10).

12

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

In May 2016, the FASB issued implementation guidance relating to transition, collectability, noncash consideration and presentation matters (ASU 2016-12).
These ASUs are effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted but not before interim and annual reporting periods beginning after December 15, 2016. The new guidance can be applied either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption. The Company anticipates adopting this guidance January 1, 2018, and applying the cumulative-effect adoption method. Since the Company’s revenue is related to leasing activities, the adoption of this guidance will not have a material impact on the consolidated financial statements.
3. Property Acquisitions
During the six months ended June 30, 2017 , we did not acquire any properties from a third party.
4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
During the three months ended June 30, 2017 , we entered into agreements to sell the property at 125 Chubb Avenue in Lyndhurst, New Jersey, and to sell the properties at 680-750 Washington Boulevard in Stamford, Connecticut. We recorded a $26.6 million depreciable real estate reserve in connection with the sale of 125 Chubb Avenue, and a $2.1 million depreciable real estate reserve in connection with the sale of 680-750 Washington Boulevard. We closed on the sale of 680-750 Washington Boulevard in July 2017.
Property Dispositions
The following table summarizes the properties sold during the six months ended June 30, 2017 :
Property
 
Disposition Date
 
Property Type
 
Approximate Square Feet
 
Sales Price (1)
(in millions)
 
Gain (loss) (2)
(in millions)
520 White Plains Road
 
April 2017
 
Office
 
180,000

 
$
21.0

 
$
(14.6
)
102 Greene Street (3)
 
April 2017
 
Retail
 
9,200

 
43.5

 
4.9

(1)
Sales price represents the gross sales price for a property or the gross asset valuation for interests in a property.
(2)
The gain on sale for 102 Greene Street is net of $0.9 million in employee compensation awards accrued in connection with the realization of the investment gain as a bonus to certain employees that were instrumental in realizing the gain on sale. Additionally, gain on sale amounts do not include adjustments for expenses recorded in subsequent periods.
(3)
In April, we closed on the sale of a 90% interest in 102 Greene Street and have subsequently accounted for our interest in the properties as an investment in unconsolidated joint ventures. See Note 6, "Investments in Unconsolidated Joint Ventures".

13

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

5. Debt and Preferred Equity Investments
During the six months ended June 30, 2017 and 2016 , our debt and preferred equity investments, net of discounts and deferred origination fees, increased by $1.0 billion and $255.0 million , respectively, due to originations, purchases, advances under future funding obligations, discount and fee amortization, and paid-in-kind interest, net of premium amortization. We recorded repayments, participations and sales of $656.9 million and $567.9 million during the six months ended June 30, 2017 and 2016 , respectively, which offset the increases in debt and preferred equity investments.
Certain participations in debt investments that were sold or syndicated did not meet the conditions for sale accounting are included in other assets and other liabilities on the consolidated balance sheets.
Debt Investments
As of June 30, 2017 and December 31, 2016 , we held the following debt investments with an aggregate weighted average current yield of 9.73% at June 30, 2017 (in thousands):
Loan Type
 
June 30, 2017
Future Funding
Obligations
 
June 30, 2017 Senior
Financing
 
June 30, 2017
Carrying Value
(1)
 
December 31, 2016
Carrying Value (1)
 
Maturity
Date (2)
Fixed Rate Investments:
 
 
 
 
 
 
 
 
 
 
Mortgage/Jr. Mortgage Loan (3)
 
$

 
$

 
$
250,150

 
$

 
April 2017
Mortgage Loan (4)
 

 

 
26,338

 
26,311

 
February 2019
Mortgage Loan
 

 

 
311

 
380

 
August 2019
Mezzanine Loan (5a)
 

 
1,160,000

 
199,533

 

 
March 2020
Mezzanine Loan
 

 
15,000

 
3,500

 
3,500

 
September 2021
Mezzanine Loan
 

 
147,000

 
24,905

 

 
April 2022
Mezzanine Loan
 

 
87,724

 
12,696

 
12,692

 
November 2023
Mezzanine Loan (5b)
 

 
115,000

 
12,928

 
12,925

 
June 2024
Mezzanine Loan
 

 
95,000

 
30,000

 
30,000

 
January 2025
Mezzanine Loan
 

 
340,000

 
15,000

 
15,000

 
November 2026
Mezzanine Loan
 

 
1,712,750

 
55,250

 

 
June 2027
Mezzanine Loan (6)
 

 

 

 
66,129

 
 
Jr. Mortgage Participation/Mezzanine Loan (7)
 

 

 

 
193,422

 
 
Total fixed rate
 
$

 
$
3,672,474

 
$
630,611

 
$
360,359

 
 
Floating Rate Investments:
 


 

 

 

 
 
Mezzanine Loan (8)
 

 
40,000

 
15,442

 
15,369

 
September 2017
Mortgage/Mezzanine Loan
 

 

 
16,989

 
16,960

 
September 2017
Mortgage/Mezzanine Loan
 
1,361

 

 
22,602

 
20,423

 
October 2017
Mezzanine Loan (5c)
 

 
85,000

 
15,273

 
15,141

 
December 2017
Mezzanine Loan (5d)
 

 
65,000

 
14,773

 
14,656

 
December 2017
Mezzanine Loan (5e)
 
795

 

 
15,105

 
15,051

 
December 2017
Mortgage/Mezzanine Loan (9)
 

 
125,000

 
29,934

 
29,998

 
January 2018
Mezzanine Loan
 

 
40,000

 
19,947

 
19,913

 
April 2018
Jr. Mortgage Participation
 

 
175,000

 
34,903

 
34,844

 
April 2018
Mezzanine Loan
 
523

 
20,523

 
10,898

 
10,863

 
August 2018
Mortgage/Mezzanine Loan
 

 

 
19,889

 
19,840

 
August 2018
Mortgage Loan
 

 
65,000

 
14,916

 
14,880

 
August 2018
Mezzanine Loan
 

 
37,500

 
14,749

 
14,648

 
September 2018
Mezzanine Loan
 
2,325

 
45,025

 
34,686

 
34,502

 
October 2018
Mezzanine Loan
 

 
335,000

 
74,612

 
74,476

 
November 2018
Mezzanine Loan
 

 
33,000

 
26,888

 
26,850

 
December 2018

14

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

Loan Type
 
June 30, 2017
Future Funding
Obligations
 
June 30, 2017 Senior
Financing
 
June 30, 2017
Carrying Value
(1)
 
December 31, 2016
Carrying Value (1)
 
Maturity
Date (2)
Mezzanine Loan
 
1,122

 
171,728

 
58,451

 
56,114

 
December 2018
Mezzanine Loan
 
10,758

 
279,563

 
68,437

 
63,137

 
December 2018
Mezzanine Loan
 
7,651

 
221,568

 
71,760

 
64,505

 
December 2018
Mezzanine Loan
 

 
45,000

 
12,138

 
12,104

 
January 2019
Mortgage/Mezzanine Loan
 
38,087

 

 
175,792

 

 
January 2019
Mezzanine Loan
 
7,277

 
19,733

 
6,588

 
5,410

 
January 2019
Mezzanine Loan
 

 
38,000

 
21,915

 
21,891

 
March 2019
Mezzanine Loan
 
513

 
172,604

 
36,655

 

 
April 2019
Mezzanine Loan
 

 
265,000

 
24,767

 
24,707

 
April 2019
Mortgage/Jr. Mortgage Participation Loan
 
31,628

 
188,664

 
67,655

 
65,554

 
August 2019
Mezzanine Loan
 
2,500

 
187,500

 
37,353

 
37,322

 
September 2019
Mortgage/Mezzanine Loan
 
64,691

 

 
130,067

 
111,819

 
September 2019
Mortgage/Mezzanine Loan
 
35,106

 

 
34,271

 
33,682

 
January 2020
Mezzanine Loan (10)
 
9,918

 
521,213

 
69,408

 
125,911

 
January 2020
Jr. Mortgage Participation/Mezzanine Loan
 

 
60,000

 
15,620

 
15,606

 
July 2021
Mortgage/ Mezzanine Loan (6)
 

 

 

 
32,847

 
 
Mortgage/Mezzanine Loan (6)
 

 

 

 
22,959

 
 
Mezzanine Loan (11)
 

 

 

 
14,957

 
 
Mortgage/Mezzanine Loan (12)
 

 

 

 
145,239

 
 
Total floating rate
 
$
214,255

 
$
3,236,621

 
$
1,212,483

 
$
1,232,178

 
 
Total
 
$
214,255

 
$
6,909,095

 
$
1,843,094

 
$
1,592,537

 
 
(1)
Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees.
(2)
Represents contractual maturity, excluding any unexercised extension options.
(3)
These loans were purchased at par in April and May 2017 and were in maturity default at the time of acquisition. At June 30, 2017, $6.2 million of accrued interest on the loan is included in other assets.
(4)
In September 2014, we acquired a $26.4 million mortgage loan at a $0.2 million discount and a $5.7 million junior mortgage participation at a $5.7 million discount. The junior mortgage participation was a nonperforming loan at acquisition, is currently on non-accrual status and has no carrying value.
(5)
Carrying value is net of the following amounts that were sold or syndicated, which are included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting: (a) $1.2 million , (b) $12.0 million , (c) $14.6 million , (d) $14.1 million , and (e) $5.1 million .
(6)
This loan was repaid in June 2017.
(7)
This loan was repaid in March 2017.
(8)
This loan was extended in June 2017.
(9)
This loan was extended in January 2017.
(10)
$66.1 million of outstanding principal was syndicated in February 2017.
(11)
This loan was contributed to a joint venture in May 2017.
(12)
This loan was repaid in January 2017.




15

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

Preferred Equity Investments
As of June 30, 2017 and December 31, 2016 , we held the following preferred equity investments with an aggregate weighted average current yield of 6.41% at June 30, 2017 (in thousands):
Type
 
June 30, 2017
Future Funding
Obligations
 
June 30, 2017
Senior
Financing
 
June 30, 2017
Carrying Value
(1)
 
December 31, 2016
Carrying Value
(1)
 
Mandatory
Redemption (2)
Preferred Equity
 
$

 
$
272,000

 
$
143,319

 
$

 
April 2021
Preferred Equity (3)
 

 

 

 
9,982

 
 
Preferred Equity (4)
 

 

 

 
37,893

 
 
Total
 
$

 
$
272,000

 
$
143,319

 
$
47,875

 
 
(1)
Carrying value is net of deferred origination fees.
(2)
Represents contractual maturity, excluding any unexercised extension options.
(3)
This investment was redeemed in May 2017.
(4)
This investment was redeemed in April 2017.

At June 30, 2017 and December 31, 2016 , all debt and preferred equity investments were performing in accordance with the terms of the relevant investments, with the exception of a junior mortgage participation acquired in September 2014, which was acquired for zero and has a carrying value of zero , as further discussed in subnote 4 of the Debt Investments table above.
We have determined that we have one portfolio segment of financing receivables at June 30, 2017 and 2016 comprising commercial real estate which is primarily recorded in debt and preferred equity investments. Included in other assets is an additional amount of financing receivables totaling $123.7 million and $144.5 million at June 30, 2017 and December 31, 2016 , respectively. No financing receivables were 90 days past due at June 30, 2017 .
6. Investments in Unconsolidated Joint Ventures
We have investments in several real estate joint ventures with various partners. As of June 30, 2017 , none of our investments in unconsolidated joint ventures are VIEs. The table below provides general information on each of our joint ventures as of June 30, 2017 :
Property
Partner
Ownership
Interest (1)
Economic
Interest (1)
Unaudited Approximate Square Feet
Acquisition Date (2)
Acquisition
Price (2)
(in thousands)
131-137 Spring Street
Invesco Real Estate
20.00%
20.00%
68,342

August 2015
$
277,750

102 Greene (3)
Private Investors
10.00%
10.00%
9,200

April 2017
43,500

Mezzanine Loan (4)
Private Investors
33.33%
33.33%

May 2017
15,000

(1)
Ownership interest and economic interest represent the Company's interests in the joint venture as of June 30, 2017 . Changes in ownership or economic interests, if any, within the current year are disclosed in the notes below.
(2)
Acquisition date and price represent the date on which the Company initially acquired an interest in the joint venture and the actual or implied gross purchase price for the joint venture on that date. Acquisition date and price are not adjusted for subsequent acquisitions or dispositions of interest.
(3)
In April 2017, the Company sold a 90% interest in 102 Greene Street resulting in deconsolidation of the property.
(4)
In May 2017, the Company contributed a mezzanine loan secured by a commercial property in midtown Manhattan to a joint venture and retained a 33.33% interest in the venture. The carrying value is net of $10.0 million that was sold, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting.
Acquisition, Development and Construction Arrangements
Based on the characteristics of the following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50% , we have accounted for these debt and preferred equity investments under the equity method. As of June 30, 2017 and December 31, 2016 , the carrying value for acquisition, development and construction arrangements were as follows (in thousands):

16

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

Loan Type
 
June 30, 2017
 
December 31, 2016
 
Maturity Date
Mezzanine Loan and Preferred Equity (1)
 
$
100,000

 
$
100,000

 
March 2018
Mezzanine Loan (2)
 
25,403

 
24,542

 
July 2036
 
 
$
125,403

 
$
124,542

 
 
(1)
These loans were extended in February 2017.
(2)
The Company has the ability to convert this loan into an equity position starting in 2021 and the borrower is able to force this conversion in 2024.
Sale of Joint Venture Interests or Properties
In May 2017, our investment in a joint venture that owned two mezzanine notes secured by interests in the entity that owns 76 11th Avenue was repaid after the joint venture received repayment of the underlying loans.
Joint Venture Mortgages and Other Loans Payable
We generally finance our joint ventures with non-recourse debt. In certain cases we may provide guarantees or master leases for tenant space, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The first mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at June 30, 2017 and December 31, 2016 , respectively, are as follows (amounts in thousands):
Property
 
Economic Interest (1)
 
Maturity Date
 
Interest
Rate (2)
 
June 30, 2017
 
December 31, 2016
Floating Rate Debt:
 
 
 
 
 
 
 
 
 
 
131-137 Spring Street
 
20.00
%
 
August 2020
 
2.56
%
 
$
141,000

 
$
141,000

Total joint venture mortgages and other loans payable
 
 
 
$
141,000

 
$
141,000

Deferred financing costs, net
 
 
 
 
 
 
 
(3,426
)
 
(3,970
)
Total joint venture mortgages and other loans payable, net
 
 
 
$
137,574

 
$
137,030

(1)
Economic interest represent the Company's interests in the joint venture as of June 30, 2017 . Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures note above.
(2)
Effective weighted average interest rate for the three months ended June 30, 2017 , taking into account interest rate hedges in effect during the period.
The combined balance sheets for the unconsolidated joint ventures, at June 30, 2017 and December 31, 2016 are as follows (in thousands):
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
Commercial real estate property, net
$
311,327

 
$
279,451

Debt and preferred equity investments, net
140,385

 
273,749

Other assets
15,766

 
18,922

Total assets
$
467,478

 
$
572,122

Liabilities and members' equity
 
 
 
Mortgages and other loans payable, net
$
137,574

 
$
137,030

Other liabilities
20,171

 
22,185

Members' equity
309,733

 
412,907

Total liabilities and members' equity
$
467,478

 
$
572,122

Company's investments in unconsolidated joint ventures
$
132,413

 
$
174,127


17

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

The combined statements of operations for the unconsolidated joint ventures for the three and six months ended June 30, 2017 and 2016 , are as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Total revenues
$
8,347

 
$
16,946

 
$
19,594

 
$
23,883

Operating expenses
243

 
804

 
454

 
1,178

Real estate taxes
318

 
565

 
632

 
848

Interest expense, net of interest income
909

 
1,409

 
1,734

 
2,107

Amortization of deferred financing costs
277

 
554

 
554

 
831

Depreciation and amortization
2,101

 
4,202

 
4,202

 
6,303

Total expenses
$
3,848

 
$
7,534

 
$
7,576

 
$
11,267

Net income
$
4,499

 
$
9,412

 
$
12,018

 
$
12,616

Company's equity in net income from unconsolidated joint ventures
3,180

 
3,666

 
7,435

 
6,123

7. Mortgages and Other Loans Payable
The first mortgages and other loans payable collateralized by the respective properties and assignment of leases or debt investments at June 30, 2017 and December 31, 2016 , respectively, were as follows (amounts in thousands):
Property
 
Maturity Date
 
Interest Rate (1)
 
June 30, 2017
 
December 31, 2016
Fixed Rate Debt:
 
 
 
 
 
 
 
 
919 Third Avenue (2)
 
June 2023
 
5.12
%
 
$
500,000

 
$
500,000

315 West 33rd Street
 
February 2027
 
4.24
%
 
250,000

 

Floating Rate Debt:
 
 
 
 
 
 
 
 
2016 Master Repurchase Agreement
 
July 2018
 
3.51
%
 
$
184,642

 
$
184,642

Total mortgages and other loans payable
 
 
 
 
 
$
934,642

 
$
684,642

Deferred financing costs, net of amortization
 
 
 
 
 
(13,466
)
 
(8,574
)
Total mortgages and other loans payable, net
 
 
 
 

 
$
921,176

 
$
676,068

(1)
Effective weighted average interest rate for the quarter ended June 30, 2017 .
(2)
We own a 51.0% controlling interest in the consolidated joint venture that is the borrower on this loan.
At June 30, 2017 and December 31, 2016 , the gross book value of the properties and debt and preferred equity investments collateralizing the mortgages and other loans payable, not including assets held for sale, was approximately $2.5 billion and $1.7 billion , respectively.
Master Repurchase Agreements
The Company has entered into two Master Repurchase Agreements, or MRAs, known as the 2016 MRA and 2017 MRA, which provide us with the ability to sell certain debt investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facilities permit valuation adjustments based on capital markets activity, and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to recollateralize the facility with additional assets from our portfolio of debt investments, our ability to satisfy margin calls with cash or cash equivalents and our access to additional liquidity through the 2012 credit facility, as defined below.
In June 2017, we entered into the 2017 MRA, with a maximum facility capacity of $300.0 million . The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate and has an initial one year term, with two one year extension options. At June 30, 2017 , the facility had a carrying value of $(1.3) million , representing deferred financing costs presented within other liabilities.

18

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

In July 2016, we entered into a restated 2016 MRA, with a maximum facility capacity of $300.0 million. The facility bears interest ranging from 225 and 400 basis points over 30-day LIBOR depending on the pledged collateral and has an initial two -year term, with a one year extension option. Since December 6, 2015, we have been required to pay monthly in arrears a 25 basis point fee on the excess of $150.0 million over the average daily balance during the period when the average daily balance is less than $150.0 million .
8. Corporate Indebtedness
2012 Credit Facility
In August 2016, we entered into an amendment to the credit facility that was originally entered into by the Company in November 2012, referred to as the 2012 credit facility. As of June 30, 2017 , the 2012 credit facility, as amended, consisted of a $1.6 billion revolving credit facility and a $1.2 billion term loan, with a maturity date of March 29, 2019 and June 30, 2019, respectively. The revolving credit facility has an as-of-right extension to March 29, 2020. We also have an option, subject to customary conditions, to increase the capacity under the revolving credit facility to $3.0 billion at any time prior to the maturity date for the revolving credit facility without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions.
As of June 30, 2017 , the 2012 credit facility bore interest at a spread over LIBOR ranging from (i) 87.5 basis points to 155 basis points for loans under the revolving credit facility and (ii) 95 basis points to 190 basis points for loans under the term loan facility, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of ROP.
At June 30, 2017 , the applicable spread was 125 basis points for the revolving credit facility and 140 basis points for the term loan facility. At June 30, 2017 , the effective interest rate was 2.27% for the revolving credit facility and 2.41% for the term loan facility. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. As of June 30, 2017 , the facility fee was 25 basis points.
As of June 30, 2017 , we had $80.8 million of outstanding letters of credit, $200.0 million drawn under the revolving credit facility and $1.2 billion outstanding under the term loan facility, with total undrawn capacity of $1.3 billion under the 2012 credit facility. At June 30, 2017 and December 31, 2016 , the revolving credit facility had a carrying value of $195.1 million and $(6.3) million , respectively, net of deferred financing costs. The December 31, 2016 carrying value represents deferred financing costs and is presented within other liabilities. At June 30, 2017 and December 31, 2016 , the term loan facility had a carrying value of $1.2 billion and $1.2 billion , respectively, net of deferred financing costs.
ROP, SL Green, and the Operating Partnership are all borrowers jointly and severally obligated under the 2012 credit facility. None of SL Green's other subsidiaries are obligors under the 2012 credit facility.
The 2012 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
Senior Unsecured Notes
The following table sets forth our senior unsecured notes and other related disclosures as of June 30, 2017 and December 31, 2016 , respectively, by scheduled maturity date (dollars in thousands):
Issuance
 
June 30,
2017
Unpaid
Principal
Balance
 
June 30,
2017
Accreted
Balance
 
December 31,
2016
Accreted
Balance
 
Coupon
Rate
(1)
 
Effective
Rate
 
Initial
Term
(in Years)
 
Maturity Date
August 5, 2011 (2)
 
$
250,000

 
$
249,916

 
$
249,880

 
5.00
%
 
5.00
%
 
7
 
August 2018
March 16, 2010 (2)
 
250,000

 
250,000

 
250,000

 
7.75
%
 
7.75
%
 
10
 
March 2020
November 15, 2012 (2)
 
200,000

 
200,000

 
200,000

 
4.50
%
 
4.50
%
 
10
 
December 2022
December 17, 2015 (2)
 
100,000

 
100,000

 
100,000

 
4.27
%
 
4.27
%
 
10
 
December 2025
 
 
$
800,000

 
$
799,916

 
$
799,880

 
 
 
 
 
 
 
 
Deferred financing costs, net
 
 
 
(3,974
)
 
(4,620
)
 
 
 
 
 
 
 
 
 
 
$
800,000

 
$
795,942

 
$
795,260

 
 
 
 
 
 
 
 
(1)
Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates.
(2)
Issued by SL Green, the Operating Partnership and ROP, as co-obligors.

19

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

ROP also provides a guaranty of the Operating Partnership's obligations under its 3.00% Exchangeable Senior Notes due 2017.
Restrictive Covenants
The terms of the 2012 credit facility, as amended, and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, SL Green's ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that SL Green will not during any time when a default is continuing, make distributions with respect to SL Green's common stock or other equity interests, except to enable SL Green to continue to qualify as a REIT for Federal income tax purposes. As of June 30, 2017 and 2016 , we were in compliance with all such covenants.
Principal Maturities
Combined aggregate principal maturities of mortgages and other loans payable, 2012 credit facility and senior unsecured notes as of June 30, 2017 , including as-of-right extension options and put options, were as follows (in thousands):
 
Scheduled
Amortization
 
Principal
 
Revolving
Credit
Facility
 
Unsecured Term Loan
 
Senior Unsecured Notes
 
Total
Remaining 2017
$

 
$

 
$

 
$

 
$

 
$

2018

 
184,642

 

 

 
250,000

 
434,642

2019

 

 

 
1,183,000

 

 
1,183,000

2020

 

 
200,000

 

 
250,000

 
450,000

2021

 

 

 

 

 

Thereafter

 
750,000

 

 

 
300,000

 
1,050,000

 
$

 
$
934,642

 
$
200,000

 
$
1,183,000

 
$
800,000

 
$
3,117,642

              
Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest expense before capitalized interest
$
32,231

 
$
26,773

 
$
62,082

 
$
59,087

Interest capitalized
(122
)
 
(328
)
 
(502
)
 
(437
)
Interest income
(1
)
 
(2
)
 
(5
)
 
(6
)
Interest expense, net
$
32,108

 
$
26,443

 
$
61,575

 
$
58,644

9. Related Party Transactions
Cleaning/ Security/ Messenger and Restoration Services
Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements.
Income earned from profit participation, which is included in other income on the consolidated statements of operations, was $0.9 million and $1.7 million for the three and six months ended June 30, 2017 , and was $0.8 million and $1.7 million for the three and six months ended June 30, 2016 , respectively.

20

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

We also recorded expenses for these services, inclusive of capitalized expenses, of $2.4 million and and $4.4 million for the three and six months ended June 30, 2017 , respectively, for these services (excluding services provided directly to tenants), and $3.1 million and $4.8 million for the three and six months ended June 30, 2016 , respectively.
Allocated Expenses from SL Green
Property operating expenses include an allocation of salary and other operating costs from SL Green based on square footage of the related properties. Such amount was approximately $3.0 million and $6.2 million for the three and six months ended June 30, 2017 , respectively. The amount was $2.8 million and $5.4 million for the three and six months ended June 30, 2016 , respectively.
Insurance
We obtained insurance coverage through an insurance program administered by SL Green. In connection with this program, we incurred insurance expense of approximately $1.4 million and $2.8 million for the three and six months ended June 30, 2017 . We incurred insurance expense of approximately $1.4 million and $3.0 million for the three and six months ended June 30, 2016 .
10. Preferred Units
Through a consolidated subsidiary, we have authorized up to  109,161   3.50%  Series A Preferred Units of limited partnership interest, or the Greene Series A Preferred Units, with a liquidation preference of  $1,000.00  per unit. In August 2015, the Company issued  109,161  Greene Series A Preferred Units in conjunction with an acquisition. The Greene Series A Preferred unitholders receive annual dividends of  $35.00  per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Greene Series A Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible on a one-for-one basis, into the Series B Preferred Units of limited partnership interest, or the Greene Series B Preferred Units. The Greene Series B Preferred Units can be converted at any time, at the option of the unitholder, into a number of common stock equal to  6.71348  shares of SL Green common stock for each Greene Series B Preferred Unit. As of June 30, 2017 , no Greene Series B Preferred Units have been issued.
ASC 815 Derivatives and Hedging requires bifurcation of certain embedded derivative instruments, such as conversion features in convertible equity instruments, and their measurement at fair value for accounting purposes. The conversion feature embedded in the Subsidiary Series A Preferred Units was evaluated, and it was determined that the conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. The derivative is reported as a derivative liability in accrued interest and other liabilities on the accompanying consolidated balance sheet and is adjusted to its fair value at each reporting date, with a corresponding adjustment to interest expense, net of interest income. The embedded derivative for the Subsidiary Series A Preferred Units was initially recorded at a fair value of zero on July 22, 2015, the date of issuance. At December 31, 2016, the carrying amount of the derivative was adjusted to its fair value of zero , with a corresponding adjustment to preferred units and interest expense, net of interest income. At June 30, 2017 , the carrying amount and fair value of the derivative remained at zero .
11. Partners' Capital
Since consummation of the Merger on January 25, 2007, the Operating Partnership has owned all the economic interests in ROP either by direct ownership or by indirect ownership through our general partner, which is its wholly-owned subsidiary.
Intercompany transactions between SL Green and ROP are generally recorded as contributions and distributions.

21

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

12. Fair Value Measurements
We are required to disclose fair value information with regard to our financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practical to estimate fair value. The FASB guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. We measure and/or disclose the estimated fair value of financial assets and liabilities based on a hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date; Level 2 - inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 - unobservable inputs for the asset or liability that are used when little or no market data is available. We follow this hierarchy for our assets and liabilities measured at fair value on a recurring and nonrecurring basis. In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. Our assessment of the significance of the particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
We determine other than temporary impairment in real estate investments and debt and preferred equity investments, including intangibles primarily utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs.
The fair value of derivative instruments is based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well-recognized financial principles and reasonable estimates about relevant future market conditions, which are classified as Level 2 inputs.
The financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, debt and preferred equity investments, mortgages and other loans payable and other secured and unsecured debt. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses reported in our consolidated balance sheets approximates fair value due to the short term nature of these instruments. The fair value of debt and preferred equity investments, which is classified as Level 3, is estimated by discounting the future cash flows using current interest rates at which similar loans with the same maturities would be made to borrowers with similar credit ratings. The fair value of borrowings, which is classified as Level 3, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates, which is provided by a third-party specialist.
The following table provides the carrying value and fair value of these financial instruments as of June 30, 2017 and December 31, 2016 (in thousands):
 
June 30, 2017
 
December 31, 2016
 
Carrying Value (1)
 
Fair Value
 
Carrying Value (1)
 
Fair Value
 
 
 
 
 
 
 
 
Debt and preferred equity investments (2)
$
1,986,413

 
(3)  
 
$
1,640,412

 
(3)  
 
 
 
 
 
 
 
 
Fixed rate debt
$
2,349,916

 
$
2,442,024

 
$
2,099,880

 
$
2,183,042

Variable rate debt  
767,642

 
777,252

 
567,642

 
580,083

 
$
3,117,558

 
$
3,219,276

 
$
2,667,522

 
$
2,763,125

(1)
Amounts exclude net deferred financing costs.
(2)
Excludes investments with a book value of $130.4 million and $174.2 million as of June 30, 2017 and December 31, 2016 , respectively, which we accounted for under the equity method accounting and financing receivables with a book value of $123.7 million and $144.5 million as of June 30, 2017 and December 31, 2016 , respectively.
(3)
At June 30, 2017 , debt and preferred equity investments had an estimated fair value ranging between $2.0 billion and $2.2 billion . At December 31, 2016 , debt and preferred equity investments had an estimated fair value ranging between $1.6 billion and $1.8 billion .
Disclosure about fair value of financial instruments was based on pertinent information available to us as of June 30, 2017 and December 31, 2016 . Although we are not aware of any factors that would significantly affect the reasonable fair value amounts,

22

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
June 30, 2017
(unaudited)

such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
13. Financial Instruments: Derivatives and Hedging
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collar and floors, to manage, or hedge interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheets at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedge asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all of our designated derivative instruments are effective hedging instruments. As of June 30, 2017 , the Company had not designated any interest rate swap agreements on any debt investment.
Gains and losses on terminated hedges are included in accumulated other comprehensive loss, and are recognized into earnings over the term of the related senior unsecured notes. As of June 30, 2017 and December 31, 2016 , the deferred net losses from these terminated hedges, which are included in accumulated other comprehensive loss relating to net unrealized loss on derivative instruments, was approximately $1.4 million and $1.6 million , respectively.
Over time, the realized and unrealized gains and losses held in accumulated other comprehensive loss will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that $0.4 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense within the next 12 months.
The following table presents the effect of our derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the three months ended June 30, 2017 and 2016 , respectively (in thousands):
 
 
Amount of (Loss)
Recognized in
Other Comprehensive
Loss
(Effective Portion)
 
Location of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income
 
Amount of (Loss) Gain
 Reclassified from
Accumulated Other
Comprehensive Loss  into Income
(Effective Portion)
 
Location of Gain Recognized in Income on Derivative
 
Amount of Gain
Recognized into Income
(Ineffective Portion)