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, 2018
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 every Interactive Data File required to be submitted 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, a smaller reporting company, or an emerging growth company. See the 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
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 Act). Yes o No ý

As of March 27, 2019, 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 2019 Annual Stockholders' Meeting 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



PART I
Item 1.	Business	3
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
Item 9A.	Controls and Procedures	72
Item 9B.	Other Information	72
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	73
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73
Item 13.	Certain Relationships and Related Transactions, and Director Independence	73
Item 14.	Principal Accounting Fees and Services	73
PART IV
Item 15.	Exhibits, Financial Statements and Schedules	74
	SIGNATURES	77

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. The Operating Partnership is 95.30% owned by SL Green Realty Corp., or SL Green, as of December 31, 2018. 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.

We are engaged in the acquisition, ownership, management and operation of commercial and residential real estate properties, principally office properties, and also own land for future development in the New York metropolitan area.

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.

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, our prior general partner. This transaction is referred to herein as the Merger.

As of December 31, 2018, we owned the following interests in properties in the New York metropolitan area, primarily in midtown Manhattan. Our investments located outside of Manhattan are referred to as the Suburban properties:



Location	Type	Number of Properties	Approximate Square Feet (unaudited)	Weighted Average Occupancy⁽¹⁾(unaudited)
Commercial:
Manhattan	Office⁽²⁾	15	8,303,245	94.9	%
	Retail⁽³⁾⁽⁴⁾	5	364,816	99.4	%
	Development/Redevelopment	1	160,000	96.0	%
	Fee Interest	—	—	—	%
		21	8,828,061	95.1	%
Suburban	Office	6	1,432,400	94.3	%
	Retail	1	52,000	100.0	%
		7	1,484,400	94.5	%
Total commercial properties		28	10,312,461	95.0	%
Residential:
Manhattan	Residential⁽³⁾	—	222,855	96.1	%
Total portfolio		28	10,535,316	95.0	%

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(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)	Includes one unconsolidated joint venture property at 919 Third Avenue comprised of approximately 1,454,000 square feet.

(3)

As of December 31, 2018, we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet of retail space and approximately 222,855 square feet of residential space. For the purpose of this report, we have included the building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.


(4)	Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet.

As of December 31, 2018, we also held debt, preferred equity and other investments with a book value of $2.0 billion.

Our corporate offices are located in midtown Manhattan at 420 Lexington Avenue, New York, New York 10170. As of December 31, 2018, SL Green employed 1,058 employees, 310 of whom were employed in SL Green's corporate offices. 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. The SEC maintains a website (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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018.

Declines in the demand for office space in the New York metropolitan area, and in particular midtown Manhattan, could adversely affect the value of our real estate portfolio and our results of operations and, consequently, our ability to service current debt 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 multifamily residential properties. As a result of the concentration of our holdings, our business is dependent on the condition of the New York metropolitan area economy in general and the market for office space in midtown Manhattan in particular. Future weakness and uncertainty in the New York metropolitan area 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.

We may be unable to renew leases or relet space as leases expire.

If tenants decide not to renew their leases upon 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, 2018, approximately 51.2% of the rentable square feet, is scheduled to expire by December 31, 2023 at our consolidated properties and as of December 31, 2018, these leases had annualized escalated rent totaling $320.4 million. In addition, changes in space utilization by 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 the New York metropolitan area. Manhattan is the largest office market in the United States. The number of competitive office properties in the New York metropolitan area, 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, 919 Third Avenue, 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 and own 50% of the fee position at 711 Third Avenue. The fee interest in the land at 919 Third Avenue is owned by SL Green. The average remaining term of these long-term leases as of December 31, 2018, including our unilateral extension rights on each of the properties, is 37 years. Pursuant to the leasehold arrangements, we, as tenant 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. Annualized cash rents, including our share of joint venture annualized cash rents, from properties held through long-term leases or operating sublease interests at December 31, 2018 totaled $304.0 million, or 43.8%, of our share of total Portfolio annualized cash rent. Unless we purchase a fee interest in the underlying land or extend the terms of these leases prior to 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. Rent payments under leasehold or operating sublease interests are adjusted, within the parameters of the contractual arrangements, at certain intervals. Rent adjustments may result in higher rents that could adversely affect our financial condition and results of operation.

We rely on five large properties for a significant portion of our revenue.

Five of our properties, 1185 Avenue of the Americas, 625 Madison Avenue, 919 Third Avenue, 750 Third Avenue, and 810 Seventh Avenue accounted for 51.3% of our share of office portfolio annualized cash rent, and 1185 Avenue of the Americas alone accounted for 14.9% of our share of total annualized cash rent for office properties as of December 31, 2018.

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Our revenue and cash available to service debt obligations and 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, 2018 for consolidated properties, as of that date, our five largest tenants, based on annualized cash rent, accounted for 16.2% of our share of portfolio annualized cash rent, with three tenants, Ralph Lauren Corporation, Debevoise & Plimpton, LLP and News America Incorporated, accounting for 4.7%, 3.6% and 3.0% of our share of Portfolio annualized cash rent, 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 business conditions in the industries in which our tenants are concentrated deteriorate, or economic volatility has a disproportionate impact on our clients, 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.

We are subject to risks that affect the retail environment.

Approximately 6.4% of our Portfolio 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 and preferences, consumer confidence, electronic retail competition 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.

Adverse economic and geopolitical conditions in general and the commercial office markets 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, economic, or political challenges experienced by the U.S. economy or the real estate industry as a whole, including changes in law and policy and uncertainty in connection with any such changes. Future periods of economic weakness or volatility could result in reduced access to credit and/or wider credit spreads. Economic or political uncertainty, including concern about growth and the stability of the markets generally and changes in the federal interest rates, 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. 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.

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 and make distributions to SL Green.

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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 face risks associated with property acquisitions.

Our acquisition activities may not be successful if we are unable to meet required closing conditions or unable to finance acquisitions and developments of properties on favorable terms or at all. Additionally, we have less visibility into the future performance of acquired properties than properties that we have owned for a period of time, and therefore, recently acquired properties may not be as profitable as our existing portfolio.

Further, 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.

Potential losses may not be covered by insurance.

We are 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, excluding nuclear, biological, chemical, and radiological terrorism ("NBCR")), within three property insurance programs and liability insurance. Separate property and liability coverage may be purchased on a stand-alone basis for certain assets. Additionally, SL Green's captive insurance company, Belmont Insurance Company, or Belmont, provides coverage for NBCR terrorist acts above a specified trigger. Belmont's retention is reinsured by SL Green's other captive insurance company, Ticonderoga Insurance Company ("Ticonderoga"). If Belmont or Ticonderoga are required to pay a claim under SL Green's insurance policies, SL Green would ultimately record the loss to the extent of required payments. However, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. Further, if we experience losses that are uninsured or that exceed policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Additionally, our debt instruments contain customary covenants requiring us to maintain insurance and we could default under our debt instruments if the cost and/or availability of certain types of insurance make it impractical or impossible to comply with such covenants relating to insurance. Belmont and Ticonderoga provide coverage solely on properties owned by SL Green or its affiliates.

Furthermore, with respect to certain of our properties, including properties held by joint ventures, or subject to triple net leases, insurance coverage is obtained by a third-party and we do not control the coverage. While we may have agreements with such third parties to maintain adequate coverage and we monitor these policies, such coverage ultimately may not be maintained or adequately cover our risk of loss.

The occurrence of a terrorist attack 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, 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. While under the Terrorism Risk

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Insurance Program Reauthorization Act of 2015, insurers must make terrorism insurance available under their property and casualty insurance policies, this legislation does not regulate the pricing of such insurance. The absence of affordable terrorism insurance coverage may adversely affect the general real estate lending market, lending volume and the market's overall liquidity and, in the event of an uninsured loss, we could lose all or a portion of our assets. 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.

We face possible risks associated with natural disasters and the physical effects of climate change.

We are subject to 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 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 and our indebtedness outstanding at our joint venture properties. The total principal amount of our outstanding consolidated indebtedness was $0.6 billion as of December 31, 2018, consisting of $615.6 million of non-recourse mortgages and loans payable on certain of our properties and debt and preferred equity investments. As of December 31, 2018, the total principal amount of non-recourse indebtedness outstanding at our unconsolidated joint venture properties was $641.0 million.

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 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. At the present time, we intend to repay, refinance, or exercise extension options on 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. These restrictions could adversely affect operations (including reducing our flexibility and our ability to incur additional debt), our ability to pay debt obligations and our ability to make distributions to SL Green.

Rising interest rates could adversely affect our cash flow.

Advances under our master repurchase agreements bear interest at a variable rate. Our consolidated variable rate borrowings totaled $365.6 million at December 31, 2018. In addition, we could increase the amount of our outstanding variable rate debt in the future. 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, 2018, a hypothetical 100 basis point increase in interest rates across each of our consolidated variable interest rate instruments, including our variable rate debt and preferred equity investments which mitigate our exposure to interest rate changes, would decrease our net annual interest costs by $9.3 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.

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The potential phasing out of LIBOR after 2021 may affect our financial results.

The chief executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, has announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict the effect of these changes or the establishment of alternative reference rates.

The Alternative Reference Rate Committee ("ARRC"), a committee convened by the Federal Reserve that includes major market participants, and on which the SEC staff and other regulators participate, has proposed an alternative rate to replace U.S. Dollar LIBOR, the Secured Overnight Financing Rate (“SOFR”). Any changes announced by the FCA, ARRC, other regulators or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which U.S. Dollar LIBOR, SOFR, or any other alternative rates are determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the levels of interest payments we incur and interest payments we receive may change. In addition, although certain of our LIBOR based obligations and investments provide for alternative methods of calculating the interest rate if LIBOR is not reported, uncertainty as to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR rate was available in its current form.

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 leverage could adversely affect our cash flow.

SL Green considers its business as a whole in determining the amount of leverage for 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 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.

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 with an aggregate net book value of $2.0 billion at December 31, 2018. Some of these instruments may be recourse 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 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. 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.

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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-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. As of December 31, 2018, we had an aggregate cost basis in these joint ventures totaling $339.3 million.

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 governmental laws and regulations.

We are subject to various federal, state and local environmental and health and safety laws that can impose liability on current and former property owners or operators for the clean-up of certain hazardous substances released on a property or of contamination at any facility (e.g., a landfill) to which we have sent hazardous substances for treatment or disposal, without regard to fault or whether the release or disposal was in compliance 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.

Our properties may be subject to risks relating to current or future laws, including laws benefiting disabled persons, such as the Americans with Disabilities Act, or ADA, and state or local zoning, construction or other regulations. Compliance with such laws may require significant property modifications in the future, which could be costly and non-compliance could result in fines being levied against us in the future. Such costs could have an adverse impact on our cash flows and ability to make distributions to SL Green.

Compliance with changing or new regulations applicable to corporate governance and public disclosure may result in additional expenses, or affect our operations.

Changing or new laws, regulations and standards relating to corporate governance and public disclosure, including SEC regulations and NYSE 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.

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We are dependent on external sources of capital.

We need a substantial amount of capital to operate and grow our business. This need is exacerbated by the distribution requirements imposed on our parent company SL Green for it to qualify as a REIT. We therefore rely on third-party sources of capital, which may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including the market's perception of our growth potential and our current and potential future earnings. In addition, we anticipate raising money in the public debt markets with some regularity and our ability to do so will depend upon the general conditions prevailing in these markets. At any time, conditions may exist which effectively prevent us, or REITs in general, from accessing these markets. Moreover, additional debt financing may substantially increase our leverage.

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 satisfy our debt service obligations and to make distributions to SL Green.

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.

Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, who serves as a member and as the chairman emeritus of 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.

SL Green and its tenants accounted for 24.89% of Alliance's 2018 estimated total revenue, based on information provided to us by Alliance. 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.

SL Green's failure to qualify as a REIT would be costly and would have a significant effect on the value of our 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 SL Green’s control, can affect SL Green's 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 its 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 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, the funds available for distribution to its stockholders would be substantially reduced as 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 possibly increased state and local taxes.

Also, unless the IRS grants it relief under specific statutory provisions, SL Green would remain disqualified as a REIT for four years following the year in which it first failed to qualify. If SL Green failed to qualify as a REIT, SL Green would have to pay significant income taxes and we would therefore have less money available for investments or to service our debt obligations. This would have a significant adverse effect on the value of our securities. In addition, the REIT tax laws would no longer obligate SL Green to make any distributions to stockholders. 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.

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Changes to U.S. federal income tax laws could materially and adversely affect us and the value of our securities.

The Tax Cuts and Jobs Act (the ‘‘Tax Act’’), signed into law on December 22, 2017, made substantial changes to the Code. Among those changes are a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject to ‘‘sunset’’ provisions, the elimination or modification of various currently allowed deductions (including substantial limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes), and preferential rates of taxation on most ordinary REIT dividends and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers. The Tax Act also imposes certain additional limitations on the deduction of net operating losses, which may in the future cause SL Green to be required to make distributions that will be taxable to its stockholders to the extent its current or accumulated earnings and profits in order to comply with the annual REIT distribution requirements. The effect of these, and the many other, changes made in the Tax Act is highly uncertain, in terms of their effect on the value of our securities and the value of our assets or market conditions generally. Furthermore, many of the provisions of the Tax Act will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on us. Technical corrections to the Tax Act were proposed in 2018, and additional corrections may be proposed in 2019, the effect of which cannot be predicted and may be adverse to us, our parent company or our parent company's stockholders.

Additionally, the rules dealing with U.S. federal income taxation are continually under review by Congress, the IRS, and the U.S. Department of the Treasury. Any such changes could have an adverse effect on the value of our securities or on the market value or the resale potential of our assets.

Loss of our key personnel could harm our operations and the value of our securities.

We are dependent on the efforts of Marc Holliday, the chairman and chief executive officer of SL Green and president of WAGP, and Andrew W. Mathias, the president of SL Green. These officers have employment agreements which expire in January 2022 and December 2021, 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.

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, 2018, we did not have any unresolved comments with the staff of the SEC.

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ITEM 2. PROPERTIES

Our Portfolio

General

As of December 31, 2018, we owned or held interests in 15 commercial office buildings encompassing approximately 8.3 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, 2018, our portfolio also included ownership interests in 6 commercial office buildings encompassing approximately 1.4 million rentable square feet located in Brooklyn, Westchester County, and Connecticut. 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, 2018, we also owned in Manhattan, a mixed-use residential and prime retail property encompassing approximately 492,987 square feet. As of December 31, 2018, we also held debt, preferred equity, and other investments with a book value of $2.0 billion.

The following tables set forth certain information with respect to each of the Manhattan and Suburban office, prime retail, and residential properties and land interest in the portfolio as of December 31, 2018:

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	Year Built/ Renovated	SubMarket	Approximate Rentable Square Feet	Percent of Portfolio Rentable Square Feet	Percent Occupied⁽¹⁾	Annualized Cash Rent ⁽²⁾		Percent 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	2.2%	79.2%	$	10,170,723	1.7%	25	$	59.28
110 Greene Street⁽⁴⁾	1908/1920	Soho	223,600	2.3	77.3	13,933,096		2.1	59	82.50
125 Park Avenue	1923/2006	Grand Central	604,245	6.2	99.5	42,560,593		7.3	26	66.96
304 Park Avenue South	1930	Midtown South	215,000	2.2	100.0	16,810,271		2.9	11	78.49
461 Fifth Avenue⁽⁵⁾	1988	Midtown	200,000	2.1	79.0	14,739,342		2.5	10	91.27
555 West 57th Street	1971	Midtown West	941,000	9.7	99.9	43,578,630		7.5	9	43.07
625 Madison Avenue⁽⁵⁾	1956/2002	Plaza District	563,000	5.8	98.8	63,714,420		10.9	25	110.30
635 Sixth Avenue	1902	Midtown South	104,000	1.1	100.0	9,810,351		1.7	2	104.04
641 Sixth Avenue	1902	Midtown South	163,000	1.7	100.0	14,960,424		2.6	6	88.21
711 Third Avenue⁽⁵⁾	1955	Grand Central North	524,000	5.4	93.7	34,182,575		5.9	21	62.36
750 Third Avenue	1958/2006	Grand Central North	780,000	8.0	98.0	49,234,111		8.4	30	61.28
810 Seventh Avenue	1970	Times Square	692,000	7.1	97.6	48,957,570		8.4	51	67.68
919 Third Avenue⁽⁶⁾	1970	Grand Central North	1,454,000	14.9	100.0	98,481,218		8.6	9	65.78
1185 Avenue of the Americas⁽⁵⁾	1969	Rockefeller Center	1,062,000	10.9	85.5	87,029,341		14.9	13	93.25
1350 Avenue of the Americas	1966	Rockefeller Center	562,000	5.8	89.8	41,452,041		7.1	38	78.16
Subtotal/ Weighted Average			8,303,245	85.4%	94.9%	$	589,614,706	92.5%	335
Total / Weighted Average Manhattan Office Properties			8,303,245	85.4%	94.9%	$	589,614,706	92.5%	335

SUBURBAN OFFICE PROPERTIES
"Same Store" Westchester, NY
100 Summit Lake Drive	1988	Valhalla, Westchester	250,000	2.6%	97.5%	6,334,440		1.1	15	26.35
200 Summit Lake Drive	1990	Valhalla, Westchester	245,000	2.5	86.1	5,480,904		0.9	7	26.80
500 Summit Lake Drive	1986	Valhalla, Westchester	228,000	2.3	99.9	6,136,920		1.1	8	28.72
360 Hamilton Avenue	2000	White Plains, Westchester	384,000	3.9	100.0	15,465,022		2.6	22	40.45
Westchester, NY Subtotal/Weighted Average			1,107,000	11.3%	96.3%	$	33,417,286	5.7%	52
"Same Store" Connecticut
1055 Washington Boulevard⁽⁵⁾	1987	Stamford, Connecticut	182,000	1.9%	85.5%	$	5,812,236	1.0%	24	$	36.48
1010 Washington Boulevard	1988	Stamford, Connecticut	143,400	1.4	89.7	4,394,376		0.8	27	32.97
Connecticut Subtotal/Weighted Average			325,400	3.3%	87.4%	$	10,206,612	1.8%	51
Total / Weighted Average Suburban Office Properties			1,432,400	14.6%	94.3%	$	43,623,898	7.5%	103
Portfolio Grand Total / Weighted Average			9,735,645	100.0%	94.8%	$	633,238,604	100.0%	438
Portfolio Grand Total—ROP share of Annualized Cash Rent						$	583,589,497
PRIME RETAIL
115 Spring Street	1900	SoHo	5,218	1.2%	100.0%	$	3,406,360	8.4%	1	$	556.42
131-137 Spring Street - 20.0%	1891	SoHo	68,342	16.4	96.7	13,752,835		6.8	9	203.07
315 West 33rd Street - The Olivia	2000	Penn Station	270,132	64.8	100.0	17,695,595		43.4	10	64.20
752 Madison Avenue	1996/2012	Plaza District	21,124	5.1	100.0	15,051,768		37.0	1	712.54
Williamsburg Terrace	2010	Brooklyn, New York	52,000	12.5	100.0	1,801,412		4.4	3	34.62
Total/Weighted Average Retail Properties			416,816	100.0%	99.5%	$	51,707,970	100.0%	24

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DEVELOPMENT/REDEVELOPMENT	SubMarket	Approximate Rentable Square Feet	Percent of Portfolio Rentable Square Feet	Percent Occupied ⁽¹⁾		Annualized Cash Rent ⁽²⁾		Gross Total RE Book Value		Number of Tenants	Annualized Cash Rent Per Leased Square Foot ⁽³⁾
609 Fifth Avenue	Rockefeller Center	16,000	100	96.0	%	$	20,123,601	$	218,327	2	$	123.85



RESIDENTIAL PROPERTY	SubMarket	Usable Sq. Feet	Total Units	Percent Occupied⁽¹⁾		Annualized Cash Rent⁽²⁾		Average Monthly Rent Per Unit ⁽⁷⁾
315 West 33rd Street - The Olivia	Penn Station	222,855	333	96.1	%	$	16,306,174	$	4,260


(1)	Excludes leases signed but not yet commenced as of December 31, 2018.

(2)

Annualized Cash Rent represents the monthly contractual rent under existing leases as of December 31, 2018 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, 2018 for the 12 months ending December 31, 2019 will reduce cash rent by $42.3 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 own a 90% interest in this joint venture asset.


(5)	We hold a leasehold interest in this property.


(6)	We own a 51% interest in this joint venture asset.


(7)	Calculated based on occupied units.

Historical Occupancy

Historically SL Green has achieved consistently higher occupancy rates in its Manhattan portfolio as compared to the overall midtown Manhattan market, as shown over the last five years in the following table:



	Leased Occupancy Rate of Manhattan Operating Portfolio⁽¹⁾		Occupancy Rate of Class A Office Properties in the Midtown Manhattan Market⁽²⁾⁽³⁾		Occupancy Rate of Class B Office Properties in the Midtown Manhattan Market⁽²⁾⁽³⁾
December 31, 2018	94.5	%	91.1	%	89.4	%
December 31, 2017	93.8	%	90.5	%	90.3	%
December 31, 2016	94.9	%	90.0	%	92.2	%
December 31, 2015	94.2	%	90.9	%	91.3	%
December 31, 2014	95.3	%	89.4	%	91.6	%


(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.

(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.

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, 2023, the average annual lease expirations at our Manhattan operating properties is expected to be approximately 0.8 million square feet representing an average annual expiration rate of approximately 10.0% per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults).

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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, 2018 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)		Percentage of Annualized Cash Rent of Expiring Leases		Annualized Cash Rent Per Leased Square Foot of Expiring Leases(3)
2019⁽⁴⁾	41	696,905	8.5	%	$	55,953,217	9.5	%	$	80.29
2020	37	781,483	9.5		60,106,504		10.2		76.91
2021	50	1,255,483	15.2		85,313,257		14.5		67.95
2022	37	681,578	8.3		49,152,984		8.3		72.12
2023	36	698,068	8.5		42,973,151		7.3		61.56
2024	11	134,073	1.6		11,905,737		2.0		88.80
2025	25	504,912	6.1		50,534,762		8.6		100.09
2026	27	745,999	9.1		49,956,919		8.5		66.97
2027	24	389,992	4.7		32,563,793		5.5		83.50
2028 & thereafter	54	2,352,278	28.5		151,154,382		25.6		64.26
Total/weighted average	342	8,240,771	100.0	%	$	589,614,706	100.0	%	$	71.55


(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, 2018 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, 2018 for the 12 months ending December 31, 2019 will reduce cash rent by $39.8 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 8,934 square feet and annualized cash rent of $0.1 million occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2018.

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, 2023, the average annual lease expirations at our Suburban operating properties is expected to be approximately 0.2 million square feet, representing an average annual expiration rate of approximately 11.8% per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults).

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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, 2018 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)		Percentage of Annualized Cash Rent of Expiring Leases		Annualized Cash Rent Per Leased Square Foot of Expiring Leases(3)
2019⁽⁴⁾	19	250,916	18.8	%	$	7,727,268	17.7	%	$	30.80
2020	16	163,184	12.2		5,929,026		13.6		36.33
2021	20	207,724	15.6		7,693,464		17.6		37.04
2022	10	48,363	3.6		1,727,104		4.0		35.71
2023	15	114,436	8.6		3,829,074		8.8		33.46
2024	3	22,453	1.7		706,140		1.6		31.45
2025	2	29,439	2.2		1,067,678		2.4		36.27
2026	8	170,707	12.8		6,172,301		14.1		36.16
2027	3	180,213	13.5		4,540,701		10.4		25.20
2028 & thereafter	7	146,021	11.0		4,231,143		9.8		28.98
Total/weighted average	103	1,333,456	100.0	%	$	43,623,899	100.0	%	$	32.71


(1)	Tenants may have multiple leases.

(2)


(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 43,859 square feet and annualized cash rent of $1.6 million occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2018.

Tenant Diversification

At December 31, 2018, our Manhattan and Suburban office properties were leased to 438 tenants, which are engaged in a variety of businesses, including, but not limited to, 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 10 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 our share of annualized cash rent as of December 31, 2018:



Tenant	Properties	Lease Expiration	Total Leased Square Feet	Percentage of Aggregate Portfolio Leased Square Feet		Percentage of Aggregate Portfolio Annualized Cash Rent
Ralph Lauren Corporation	625 Madison Avenue	2019	386,785	4.0	%	4.7	%
Debevoise & Plimpton, LLP	919 Third Avenue	2021	577,438	5.9		3.6
King & Spalding	1185 Avenue of the Americas	2025	218,275	2.2		3.0
News America Incorporated	1185 Avenue of the Americas	2020	165,086	1.7		2.6
National Hockey League	1185 Avenue of the Americas	2022	148,217	1.5		2.3
C.B.S. Broadcasting, Inc.	555 West 57th Street	2023	338,527	3.5		2.3
Giorgio Armani Collection	752-760 Madison Avenue	2024	21,124	0.2		2.3
Advance Magazine Group, Fairchild Publications	750 Third Avenue	2021	286,622	2.9		2.2
Amerada Hess Corp.	1185 Avenue of the Americas	2027	167,169	1.7		2.2
Infor (USA) Inc.	635 Sixth Avenue & 641 Sixth Avenue	2022, 2025, 2026 & 2027	149,119	1.5		1.9
Total			2,458,362	25.1	%	27.1	%

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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, an 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, 2018, we were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio which if adversely determined could have a material adverse impact on us.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

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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 27, 2019, 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, 2018, 2017 and 2016 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.

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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.



	Year Ended December 31,
Operating Data (in thousands)	2018			2017			2016			2015			2014

Total revenue	$	816,103		$	967,538		$	975,416		$	925,233		$	847,522
Operating expenses	131,212			164,219			166,137			163,969			154,374
Real estate taxes	130,532			156,967			152,010			143,873			133,567
Ground rent	19,798			20,941			20,971			20,941			20,941
Interest expense, net of interest income	62,081			123,969			109,208			119,342			129,356
Amortization of deferred finance costs	4,532			9,313			7,918			7,519			7,810
Depreciation and amortization	166,372			205,795			212,514			202,474			196,505
Loan loss and other investment reserves, net of recoveries	5,750			—			—			—			—
Transaction related costs	283			3			238			2,871			3,599
Marketing, general and administrative	627			496			720			464			372
Total expenses	521,187			681,703			669,716			661,453			646,524
Equity in net income from unconsolidated joint venture	4,198			14,192			14,509			8,841			4,491
Equity in net gain on sale of interest in unconsolidated joint venture	5,981			672			—			—			85,559
Purchase price and other fair value adjustment	54,860			—			—			—			—
(Loss) gain on sale of real estate	(54,095		)	69,826			(6,909		)	100,190			—
Depreciable real estate reserves and impairment	(106,376		)	(172,071		)	—			(9,998		)	—
Loss on early extinguishment of debt	—			—			—			(49		)	(7,385		)
Income from continuing operations	199,484			198,454			313,300			362,764			283,663
Discontinued operations	—			—			—			—			119,575
Net income	199,484			198,454			313,300			362,764			403,238
Net (income) loss attributable to noncontrolling interests	(718		)	17,440			(4,424		)	(9,169		)	(2,641		)
Preferred units dividend	(3,821		)	(3,819		)	(3,821		)	(1,698		)	—
Net income attributable to ROP common unitholder	$	194,945		$	212,075		$	305,055		$	351,897		$	400,597



	As of December 31,
Balance Sheet Data (in thousands)	2018		2017		2016		2015		2014

Commercial real estate, before accumulated depreciation	$	5,459,370	$	7,029,455	$	7,508,870	$	7,428,243	$	7,203,216
Total assets	7,009,297		8,541,508		8,754,613		8,833,317		8,303,773
Mortgage note and other loan payable, revolving credit facility and term loan and senior unsecured notes, net	607,569		1,730,715		2,650,849		2,660,297		2,893,001
Total capital	6,081,108		6,333,020		5,528,823		4,586,952		5,080,081

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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.

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.

Leasing and Operating

In 2018, SL Green's same-store Manhattan office property occupancy inclusive of leases signed but not commenced, was 95.7% compared to 95.8% in the prior year. SL Green signed office leases in Manhattan encompassing approximately 2.4 million square feet, of which approximately 1.3 million square feet represented office leases that replaced previously occupied space. SL Green's mark-to-market on the signed Manhattan office leases that replaced previously occupied space was 6.5% for 2018.

According to Cushman & Wakefield, leasing activity in Manhattan in 2018 totaled approximately 35.9 million square feet. Of the total 2018 leasing activity in Manhattan, the Midtown submarket accounted for approximately 23.7 million square feet, or approximately 66.0%. Manhattan's overall office vacancy went from 8.9% at December 31, 2017 to 9.2% at December 31, 2018 primarily as a result of increased vacancy in the Downtown submarket partially offset by decreased vacancy in the Midtown submarket. Overall average asking rents in Manhattan increased in 2018 by 0.04% from $72.25 per square foot at December 31, 2017 to $72.28 per square foot at December 31, 2018.

As of December 31, 2018, 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, and Connecticut, which are collectively known as the Suburban properties:



Location	Type	Number of Properties	Approximate Square Feet	Weighted Average Occupancy⁽¹⁾
Commercial:
Manhattan	Office⁽²⁾	15	8,303,245	94.9	%
	Retail⁽³⁾⁽⁴⁾	5	364,816	99.4	%
	Development/Redevelopment	1	160,000	96.0	%
		21	8,828,061	95.1	%
Suburban	Office	6	1,432,400	94.3	%
	Retail	1	52,000	100.0	%
		7	1,484,400	94.5	%
Total commercial properties		28	10,312,461	95.0	%
Residential:
Manhattan	Residential⁽³⁾	—	222,855	96.1	%
Total portfolio		28	10,535,316	95.0	%

____________________________________________________________________


(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)	Includes one unconsolidated joint venture property at 919 Third Avenue comprised of approximately 1,454,000 square feet.

(3)


(4)	Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet.

As of December 31, 2018, we also held debt, preferred equity and other investments with a book value of $2.0 billion.

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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

Real estate properties are presented at cost less accumulated depreciation and amortization. Costs directly related to the development or redevelopment of properties are capitalized. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

We recognize the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests in an acquired entity at their respective fair values on the acquisition date.

We incur a variety of costs in the development and leasing of our properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year after major construction activity ceases. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction.

On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.

We also evaluate our real estate properties for impairment when a property has been classified as held for sale. Real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded. See Note 4, "Properties Held for Sale and Dispositions."

Investments in Unconsolidated Joint Ventures

We account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures that we control or which are variable interest entities (each, a "VIE") and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the joint venture partner are both protective as well as participating. Unless we are determined to be the primary beneficiary in a VIE, these participating rights preclude us from consolidating these VIE entities. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. Equity in net income (loss) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture and includes adjustments related to basis differences that were identified as part of the initial accounting for the investment. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic interest. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. None of the joint venture debt is recourse to us. See Note 6, "Investments in Unconsolidated Joint Ventures."

We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at December 31, 2018.

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We may originate loans for real estate acquisition, development and construction, where we expect to receive some of the residual profit from such projects. When the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner, we account for these arrangements as real estate investments under the equity method of accounting for investments. Otherwise, we account for these arrangements consistent with the accounting for our debt and preferred equity investments.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets. We establish, on a current basis, an allowance for future potential tenant credit losses, which may occur against this account. The balance reflected on the consolidated balance sheets is net of such allowance.

We record a gain on sale of real estate assets when we no longer hold a controlling financial interest in the entity holding the real estate, a contract exists with a third party and that third party has control of the assets acquired.

Investment income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when, in the opinion of management, it is deemed collectible. Some debt and preferred equity investments provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management's determination that accrued interest is ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination, interest income above the current pay rate is recognized only upon actual receipt.

Deferred origination fees, original issue discounts and loan origination costs, if any, are recognized as an adjustment to the interest income over the terms of the related investments using the effective interest method. Fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield.

Debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of interest income becomes doubtful. Interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed. Interest is recorded as income on impaired loans only to the extent cash is received.

We may syndicate a portion of the loans that we originate or sell the loans individually. When a transaction meets the criteria for sale accounting, we derecognize the loan sold and recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold. Any related unamortized deferred origination fees, original issue discounts, loan origination costs, discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale, which is included in investment income on the consolidated statement of operations. Any fees received at the time of sale or syndication are recognized as part of investment income.

Asset management fees are recognized on a straight-line basis over the term of the asset management agreement.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required payments. If the financial condition of a specific tenant were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required.

Allowance for loan loss and other investment reserves

The expense for loan loss and other investment reserves in connection with debt and preferred equity investments is the charge to earnings to adjust the allowance for possible losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality.

The Company evaluates debt and preferred equity investments that are held to maturity for possible impairment or credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor. Quarterly, the Company assigns each loan a risk rating. Based on a 3-point scale, loans are rated “1” through “3,” from less risk to greater risk, which ratings are defined as follows: 1 - Low Risk Assets - Low probability of loss, 2 - Watch List Assets - Higher potential for loss, 3 - High Risk Assets - Loss more likely than not.

When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired. A valuation allowance is measured based upon the excess of the recorded investment amount over the fair value of the collateral. 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.

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Debt and preferred equity investments that are classified as held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified investments, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment.

Derivative Instruments

In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collars and floors, to manage, or hedge, interest rate risk. Effectiveness is essential for those derivatives that we intend to qualify for hedge accounting. Some derivative instruments are associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.

To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Results of Operations

Comparison of the year ended December 31, 2018 to the year ended December 31, 2017

The following comparison for the year ended December 31, 2018, or 2018, to the year ended December 31, 2017, or 2017, makes reference to the effect of the following:


i.	“Same-Store Properties,” which represents all operating properties owned by us at January 1, 2017 and still owned by us in the same manner at December 31, 2018 (Same-Store Properties totaled 24 of our 25 consolidated operating properties),


ii.	“Acquisition Properties,” which represents all properties or interests in properties acquired in 2018 and 2017 and all non-Same-Store Properties, including properties that are under development or redevelopment,


iii.	"Disposed Properties" which represents all properties or interests in properties sold in 2018 and 2017, and


iv.	“Other,” which represents properties where we sold an interest resulting in deconsolidation and corporate level items not allocable to specific properties.

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(in thousands)	2018			2017			$ Change			% Change

Rental revenue, net	$	531,844		$	668,068		$	(136,224	)	(20.4	)%
Escalation and reimbursement	82,583			99,887			(17,304		)	(17.3	)%
Investment income	190,408			193,977			(3,569		)	(1.8	)%
Other income	11,268			5,606			5,662			101.0	%
Total revenues	816,103			967,538			(151,435		)	(15.7	)%

Property operating expenses	281,542			342,127			(60,585		)	(17.7	)%
Transaction related costs	283			3			280			9,333.3	%
Marketing, general and administrative	627			496			131			26.4	%
Total expenses	282,452			342,626			(60,174		)	(17.6	)%

Interest expense and amortization of financing costs, net of interest income	(66,613		)	(133,282		)	66,669			(50.0	)%
Loan loss and other investment reserves, net of recoveries	(5,750		)	—			(5,750		)	100.0	%
Depreciation and amortization	(166,372		)	(205,795		)	39,423			(19.2	)%
Equity in net income from unconsolidated joint ventures	4,198			14,192			(9,994		)	(70.4	)%
Equity in net gain on sale of interest in unconsolidated joint venture	5,981			672			5,309			790.0	%
Purchase price and other fair value adjustment	54,860			—			54,860			100.0	%
Gain (loss) on sale of real estate	(54,095		)	69,826			(123,921		)	(177.5	)%
Depreciable real estate reserves and impairment	(106,376		)	(172,071		)	65,695			(38.2	)%
Net income	$	199,484		$	198,454		$	1,030		0.5	%

Rental, Escalation and Reimbursement Revenues

Rental revenue decreased primarily as a result of the deconsolidation of 919 Third Avenue ($97.5 million) and the Disposed Properties ($29.9 million).

Escalation and reimbursement revenue decreased primarily as a result of the deconsolidation of 919 Third Avenue ($20.7 million), partially offset by higher recoveries at our Same-Store Properties ($7.9 million).

Investment Income

Investment income decreased primarily as a result of previously unrecognized income in the second quarter of 2017 net with 2018 income related to our preferred equity investment in 885 Third Avenue ($7.7 million), partially offset by a larger weighted average book balance and an increase in the LIBOR benchmark rate. For the twelve months ended December 31, 2018, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $2.0 billion and 9.0%, respectively. Excluding our investment in Two Herald Square which was put on non-accrual in August 2017, the weighted average debt and preferred equity investment balance outstanding and weighted average yield for the year ended December 31, 2017 were $1.9 billion and 9.3%, respectively. As of December 31, 2018, the debt and preferred equity investments had a weighted average term to maturity of 1.7 years excluding extension options.

Other Income

Other income increased primarily as a result of real estate tax refunds at our Same-Store Properties ($3.2 million) and lease termination income ($2.9 million).

Property Operating Expenses

Property operating expenses decreased primarily due to the deconsolidation of 919 Third Avenue and the Disposed Properties ($63.1 million), which was partially offset by increased real estate taxes at our Same-Store Properties ($6.6 million).

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

Interest expense and amortization of financing costs, net of interest income, decreased primarily as a result of the repayment of unsecured notes at maturity in August of 2018 ($42.7 million), and the deconsolidation of 919 Third Avenue ($26.5 million). The weighted average consolidated debt balance outstanding was $1.3 billion for the year ended December 31, 2018 as compared to $3.0 billion for the year ended December 31, 2017. The consolidated weighted average interest rate was 5.14% for the year ended December 31, 2018 as compared to 3.91% for the year ended December 31, 2017.

Depreciation and amortization

Depreciation and amortization decreased primarily as a result of the deconsolidation of 919 Third Avenue ($33.0 million) and Disposed Properties ($12.4 million), which included the sale of 16 Court Street ($2.9 million) in the fourth quarter of 2017, and the sale of 680/750 Washington Boulevard ($1.6 million) in the third quarter of 2017.

Equity in net income from unconsolidated joint ventures

Equity in net income from unconsolidated joint ventures decreased primarily as a result of the repayment and/or redemption of certain debt and preferred equity positions accounted for under the equity method ($8.7 million) and the deconsolidation of 919 Third Avenue ($5.0 million).

Purchase price and other fair value adjustments

In January 2018, the partnership agreement for our investment in 919 Third Avenue was modified resulting in our partner now having substantive participating rights in the venture and the Company no longer having a controlling interest in the investment. As a result the investment in this property was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $54.9 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles of the property.

Gain (Loss) on Sale of Real Estate

During the year ended December 31, 2018, we recognized a loss on the sale of 400 Summit Lake Drive ($36.2 million), a loss on the sale of 635 Madison Avenue ($14.3 million), a loss on the sale of Reckson Executive Park ($2.6 million), and a loss on the sale of 115-117 Stevens Avenue ($0.7 million). During the year ended December 31, 2017, we recognized a gain on the sale of 16 Court ($64.9 million) and a gain on the sale of our interests in 102 Greene Street ($4.9 million).

Depreciable Real Estate Reserves and Impairments

During the year ended December 31, 2018, we recorded a charge related to 6 suburban office properties comprised of 6 buildings ($106.4 million), which the company has stated it intends to dispose of. During the year ended December 31, 2017, we recorded a $172.1 million charge of depreciable real estate reserves and impairments related to Reckson Executive Park, Stamford Towers, 125 Chubb Avenue in Lyndhurst, New Jersey, 115-117 Stevens Avenue in Valhalla, New York, and 520 White Plains Road in Tarrytown, New York.

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Comparison of the year ended December 31, 2017 to the year ended December 31, 2016

The following comparison for the year ended December 31, 2017, or 2017, to the year ended December 31, 2016, or 2016, makes reference to the following:


i.	“Same-Store Properties,” which represents all operating properties owned by us at January 1, 2016 and still owned by us in the same manner at December 31, 2017 (Same-Store Properties totaled 32 of our 34 consolidated operating properties),


ii.	“Acquisition Properties,” which represents all properties or interests in properties acquired in 2017 and 2016 and all non-Same-Store Properties, including properties that are under development, redevelopment,


iii.	"Disposed Properties" which represents all properties or interests in properties sold or partially sold in 2017 and 2016, and


iv.	“Other,” which represents corporate level items not allocable to specific properties.



(in thousands)	2017			2016			$ Change			% Change

Rental revenue, net	$	668,068		$	652,629		$	15,439		2.4	%
Escalation and reimbursement	99,887			104,683			(4,796		)	(4.6	)%
Investment income	193,977			214,102			(20,125		)	(9.4	)%
Other income	5,606			4,002			1,604			40.1	%
Total revenues	967,538			975,416			(7,878		)	(0.8	)%

Property operating expenses	342,127			339,118			3,009			0.9	%
Transaction related costs	3			238			(235		)	(98.7	)%
Marketing, general and administrative	496			720			(224		)	(31.1	)%
Total expenses	342,626			340,076			2,550			0.7	%

Net operating income	624,912			635,340			(10,428		)	(1.6	)%

Interest expense and amortization of financing costs, net of interest income	(133,282		)	(117,126		)	(16,156		)	13.8	%
Depreciation and amortization	(205,795		)	(212,514		)	6,719			(3.2	)%
Equity in net income from unconsolidated joint ventures	14,192			14,509			(317		)	(2.2	)%
Equity in net gain on sale of interest in unconsolidated joint venture	672			—			672			100.0	%
Gain (loss) on sale of real estate	69,826			(6,909		)	76,735			(1,110.7	)%
Depreciable real estate reserves and impairment	(172,071		)	—			(172,071		)	100.0	%
Net income	$	198,454		$	313,300		$	(114,846	)	(36.7	)%

Rental, Escalation and Reimbursement Revenues

Rental revenue increased primarily as a result of increases in rents and occupancy at our Same-Store Properties ($26.4 million), which included 919 Third Avenue ($9.7 million), 711 Third Avenue ($7.7 million), and 125 Park Avenue ($3.5 million), partially offset by the Disposed Properties ($10.4 million), which included the sales of 680/750 Washington Boulevard in the third quarter of 2017 ($4.7 million) and 520 White Plains Road in the second quarter of 2017 ($2.7 million).

Escalation and reimbursement revenue decreased primarily as a result of the Disposed Properties ($1.7 million), which included the sales of 680/750 Washington Boulevard in the third quarter of 2017 ($0.8 million) and 520 White Plains Road in the second quarter of 2017 ($0.3 million) as well as lower recoveries at our Same-Store Properties ($3.9 million).

Investment Income

Investment income decreased primarily as a result of additional income recognized from the recapitalization of a debt investment ($41.0 million) in the third quarter of 2016, partially offset by income related to our preferred equity investment in 885 Third Avenue ($16.9 million) and a larger weighted average book balance. For the twelve months ended December 31, 2017, the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $1.9 billion and 9.3%, respectively, excluding our investment in Two Herald Square that was put on non-accrual in August 2017 compared to $1.5 billion and 9.7%, respectively, for the same period in 2016. As of December 31, 2017, the debt and preferred equity investments had a weighted average term to maturity of 2.2 years excluding extension options and our investment in Two Herald Square.

Other Income

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Other income increased primarily as a result of the reduction of tax expenses which were recognized in prior years as part of an expected tax refund ($1.6 million).

Property Operating Expenses

Property operating expenses increased primarily as a result of higher real estate taxes resulting from higher assessed values and tax rates at our Same-Store Properties ($6.5 million), partially offset by decreased operating expenses from our Disposed Properties ($3.9 million) which included the sale of 680/750 Washington Boulevard ($1.4 million) in the third quarter of 2017, and the sale of 520 White Plains Road ($1.2 million) in the second quarter of 2017.

Transaction Related Costs

The decrease in transaction related costs in 2017 is primarily due to the adoption of ASU No. 2017-01 in 2017, which clarified the definition of a business and provided guidance to assist in determining whether transactions should be accounted for as acquisitions of assets or businesses. Following the adoption of the guidance, most of our real estate acquisitions are considered asset acquisitions and transaction costs are therefore capitalized to the investment basis when they would have previously been expensed under the previous guidance. Transaction costs expensed in 2017 relate primarily to transactions that are not moving forward for which any costs incurred are expensed.

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

Interest expense and amortization of financing costs, net of interest income, increased primarily as a result of the refinancing of 315 West 33^rd Street in the first quarter of 2017 ($10.4 million) and increased interest expense related to our repurchase agreements ($1.1 million). The weighted average consolidated debt balance outstanding was $3.0 billion for the year ended December 31, 2017 as compared to $3.0 billion for the year ended December 31, 2016. The consolidated weighted average interest rate was 3.91% for the year ended December 31, 2017 as compared to 3.64% for the year ended December 31, 2016.

Depreciation and amortization

Depreciation and amortization decreased primarily as a result of the Disposed Properties ($7.8 million), which included the sale of 680/750 Washington Boulevard ($3.1 million) in the third quarter of 2017, the sale of 125 Chubb Way ($1.7 million) in the fourth quarter of 2017, and the sale of 520 White Plains Road ($1.6 million) in the second quarter of 2017.

Equity in net income from unconsolidated joint ventures

Equity in net income from unconsolidated joint ventures decreased primarily as a result of the second quarter 2017 repayment of a debt investment that was contributed to an unconsolidated joint venture in the third quarter of 2016 ($2.7 million), partially offset by the contribution of a debt investment to an unconsolidated joint venture in the second quarter of 2017 ($1.4 million).

Gain (Loss) on Sale of Real Estate

During the year ended December 31, 2017, we recognized a gain on the sale of 16 Court ($64.9 million) and a gain on the sale of our interests in 102 Greene Street ($4.9 million). During the year ended December 31, 2016, we recognized a loss on the sale of 7 International Drive, Westchester County, NY ($6.9 million).

Depreciable Real Estate Reserves and Impairments

During the year ended December 31, 2017, we recorded a $172.1 million charge of depreciable real estate reserves related to Reckson Executive Park, Stamford Towers, 125 Chubb Way in Lyndhurst, NJ, 115-117 Stevens Avenue in Valhalla, New York, and 520 White Plains Road in Tarrytown, NY.

Liquidity and Capital Resources

On January 25, 2007, we were acquired by SL Green. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" in SL Green and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2018 for a complete discussion of additional sources of liquidity available to us due to our indirect ownership by SL Green.

We currently expect that our principal sources of funds to meet our short-term and long-term liquidity requirements for working capital, acquisitions, development or redevelopment of properties, tenant improvements, leasing costs, repurchases or repayments of outstanding indebtedness (which may include exchangeable debt) and for debt and preferred equity investments may include:


(1)	Cash flow from operations;


(2)	Cash on hand;


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


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

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(5)	Proceeds from debt offerings by us.

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

We believe that our sources of working capital, specifically our cash flow from operations and SL Green's liquidity are adequate for us to meet our short-term and long-term liquidity requirements for the foreseeable future.

Cash Flows

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

Cash, restricted cash, and cash equivalents were $67.6 million and $77.1 million at December 31, 2018 and 2017, respectively, representing an increase of $9.6 million. The increase was a result of the following changes in cash flows (in thousands):



	Year ended December 31,
	2018			2017			Change

Net cash provided by operating activities	$	415,114		$	428,097		$	(12,983	)
Net cash provided by (used in) investing activities	$	121,010		$	(16,693	)	$	137,703
Net cash used in financing activities	$	(545,699	)	$	(437,693	)	$	(108,006	)

Our principal source of operating cash flow is related to the leasing and operating of the properties in our portfolio. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service, and fund quarterly dividend and distribution requirements. Our debt and preferred equity investments and joint venture investments also provide a steady stream of operating cash flow to us.

Cash is used in investing activities to fund acquisitions, development or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills, and invest in existing buildings that meet our investment criteria. During the year ended December 31, 2018, when compared to the year ended December 31, 2017, we used cash primarily for the following investing activities (in thousands):



Acquisitions of real estate	$	228
Capital expenditures and capitalized interest	(16,648		)
Net proceeds from sale of real estate/joint venture interest	(16,187		)
Joint venture investments	(19,961		)
Distributions from unconsolidated joint ventures	67,111
Debt, preferred and other investments	123,160
Net cash provided (used in) investing activities	$	137,703

Funds spent on capital expenditures, which are comprised of building and tenant improvements, increased from $120.8 million for the year ended December 31, 2017 to $137.4 million for the year ended December 31, 2018. The increased capital expenditures relate primarily to increased costs incurred in connection with the redevelopment of a property and the build-out of space for tenants.

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We generally fund our investment activity through the sale of real estate, property-level financing, master repurchase agreement facilities, senior unsecured notes, convertible or exchangeable securities, and construction loans. During the year ended December 31, 2018, when compared to the year ended December 31, 2017, we used cash for the following financing activities (in thousands):



Repayments under our debt obligations	$	1,727,613
Proceeds from debt obligations	(1,932,305		)
Contributions from common unitholder and noncontrolling interests	(1,571,740		)
Distributions to common and preferred unitholder and noncontrolling interests	1,683,094
Deferred loan costs and capitalized lease obligation	1,584
Other obligation related to mortgage loan participation	(16,252		)
Increase in cash used in financing activities	$	(108,006	)

Capitalization

All of our issued and outstanding Class A common units are owned by Wyoming Acquisition GP LLC or the Operating Partnership.

Indebtedness

2017 Credit Facility

In November 2017, the Company, SL Green and the Operating Partnership entered into an amendment to the credit facility, referred to as the 2017 credit facility, that was originally entered into in November 2012, or the 2012 credit facility. The amendment resulted in the Company no longer being a borrower, and instead is providing a guarantee of the facility. The 2012 credit facility had a carrying value of $1.2 billion, net of deferred financing costs, as of the amendment date and was removed from our consolidated balance sheet and shown as a non-cash capital contribution. In December 2018, the Company was removed as a guarantor on the facility.

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 and our ability to satisfy margin calls with cash or cash equivalents.

In June 2017, we entered into the 2017 MRA, with a maximum facility capacity of $300.0 million. In April 2018, we increased the maximum facility capacity to $400.0 million. The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate and has an initial one year term, with two one year extension options. In June 2018, we exercised a P1Y year extension option. At December 31, 2018, the facility had a carrying value of $299.6 million, net of deferred financing costs.

In July 2016, we entered into the 2016 MRA, with a maximum facility capacity of $300.0 million. In June 2018, we terminated the 2016 MRA. The facility bore interest ranging from 225 and 400 basis points over 30-day LIBOR depending on the pledged collateral and had an initial two-year term, with a one year extension option. Since December 6, 2015, we had been required to pay monthly in arrears a 25 basis point fee on the excess of $150.0 million over the average daily balance during the period when the average daily balance was less than $150.0 million.

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Senior Unsecured Notes

The following table sets forth our senior unsecured notes and other related disclosures as of December 31, 2018 and 2017, respectively, by scheduled maturity date (dollars in thousands):



Issuance	December 31, 2018 Unpaid Principal Balance		December 31, 2018 Accreted Balance		December 31, 2017 Accreted Balance			Coupon Rate	Initial Term (in Years)	Maturity Date
March 16, 2010 ^{(1) (4)}	$	—	$	—	$	250,000
November 15, 2012 ^{(2) (4)}	—		—		305,163
December 17, 2015 ^{(1) (4)}	—		—		100,000
August 5, 2011 ^{(1) (3)}	—		—		249,953
	$	—	$	—	$	905,116
Deferred financing costs, net			—		(4,049		)
	$	—	$	—	$	901,067


(1)	Issued by SL Green, the Operating Partnership and ROP, as co-obligors.


(2)	In October 2017, SL Green, the Operating Partnership, and ROP, as co-obligors, issued an additional $100.0 million of 4.50% senior unsecured notes due December 2022. The notes were priced at 105.334%.


(3)	Balance was repaid in August 2018.


(4)	In December 2018, ROP was released as a co-obligor from the senior unsecured notes.

Interest Rate Risk

We are exposed to changes in interest rates primarily from our variable rate debt. Our exposure to interest rate fluctuations are managed through either the use of interest rate derivative instruments and/or through our variable rate debt and preferred equity investments. Based on the debt outstanding as of December 31, 2018, a hypothetical 100 basis point increase in the interest rate curve would decrease our annual interest cost, net of interest income from variable rate debt and preferred equity investments, by $9.3 million. At December 31, 2018, 66.4% of our $2.0 billion debt and preferred equity portfolio is indexed to LIBOR.

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

Our long-term debt of $0.3 billion bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. Our variable rate debt as of December 31, 2018 bore interest at rates between LIBOR plus 234 basis points and LIBOR plus 340 basis points.

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Contractual Obligations

The combined aggregate principal maturities of mortgages and other loans payable, our share of joint venture debt, including as-of-right extension options and put options, estimated interest expense, and our obligations under our ground leases, as of December 31, 2018 are as follows (in thousands):



	2019		2020		2021		2022		2023		Thereafter		Total
Property mortgages and other loans	$	—	$	—	$	—	$	—	$	65,550	$	250,000	$	315,550
Master repurchase agreement	—		300,000		—		—		—		—		300,000
Ground leases	19,736		19,736		19,886		17,730		15,424		237,011		329,523
Estimated interest expense	22,367		14,460		14,400		14,441		13,221		33,064		111,953
Joint venture debt	—		28,200		—		—		255,000		—		283,200
Total	$	42,103	$	362,396	$	34,286	$	32,171	$	349,195	$	520,075	$	1,340,226

Off-Balance Sheet Arrangements

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

Capital Expenditures

We estimate that for the year ending December 31, 2019, we expect to incur $100.4 million of recurring capital expenditures and $13.4 million of development or redevelopment expenditures on existing consolidated properties. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect to fund these capital expenditures with operating cash flow, existing liquidity, or incremental borrowings. We expect our capital needs over the next twelve months and thereafter will be met through a combination of cash on hand, net cash provided by operations, potential asset sales, borrowings, or additional debt issuances.

Related Party Transactions

Cleaning/ Security/ Messenger and Restoration Services

Income earned from the profit participation, which is included in other income on the consolidated statements of operations, was $3.4 million, $3.4 million and $3.3 million for the years ended December 31, 2018, 2017 and 2016 respectively.

We also recorded expenses, inclusive of capitalized expenses, of $9.3 million, $10 million and $8.1 million for the years ended December 31, 2018, 2017 and 2016 respectively, for these services (excluding services provided directly to tenants).

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 $11.2 million, $12.8 million and $11.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.

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Insurance

We obtained insurance coverage through an insurance program administered by SL Green. In connection with this program, we incurred insurance expense of approximately $4.2 million, $5.4 million, and $5.9 million for the years ended December 31, 2018, 2017 and 2016 respectively.

Inflation

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

Accounting Standards Updates

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

Forward-Looking Information

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

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

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


•	the effect of general economic, business and financial conditions, and their effect on the New York City real estate market in particular;


•	dependence upon certain geographic markets;


•	risks of real estate acquisitions, dispositions, development and redevelopment, including the cost of construction delays and cost overruns;


•	risks relating to debt and preferred equity investments;

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•	availability and creditworthiness of prospective tenants and borrowers;


•	bankruptcy or insolvency of a major tenant or a significant number of smaller tenants or borrowers;


•	adverse changes in the real estate markets, including reduced demand for office space, increasing vacancy, and increasing availability of sublease space;


•	availability of capital (debt and equity);


•	unanticipated increases in financing and other costs, including a rise in interest rates;


•	our ability to comply with financial covenants in our debt instruments;


•	SL Green's ability to maintain its status as a REIT;


•	risks of investing through joint venture structures, including the fulfillment by our partners of their financial obligations;


•	the threat of terrorist attacks;


•	our ability to obtain adequate insurance coverage at a reasonable cost and the potential for losses in excess of our insurance coverage, including as a result of environmental contamination; and,


•	legislative, regulatory and/or safety requirements adversely affecting REITs and the real estate business including costs of compliance with the Americans with Disabilities Act, the Fair Housing Act and other similar laws and regulations.

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

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Rate Risk" for additional information regarding our exposure to interest rate fluctuations.

The table below presents the principal cash flows based upon maturity dates of our debt obligations and debt and preferred equity investments and the weighted-average interest rates by expected maturity dates, including as-of-right extension options, as of December 31, 2018 (in thousands):



	Long-Term Debt								Debt and Preferred Equity Investments ⁽¹⁾
	Fixed Rate		Average Interest Rate		Variable Rate		Average Interest Rate		Amount		Weighted Yield
2019	$	—	4.24	%	$	—	5.66	%	$	442,557	10.31	%
2020	—		4.24	%	300,000		5.81	%	1,273,679		8.21	%
2021	—		4.24	%	—		5.73	%	26,471		9.54	%
2022	—		4.24	%	—		5.79	%	61,516		8.55	%
2023	—		4.24	%	65,550		5.85	%	42,706		8.55	%
Thereafter	250,000		4.24	%	—		—	%	109,190		8.46	%
Total	$	250,000	4.24	%	$	365,550	5.73	%	$	1,956,119	8.76	%
Fair Value	$	249,919			$	374,387


(1)	Our debt and preferred equity investments had an estimated fair value ranging between $2.0 billion and $2.2 billion at December 31, 2018.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Schedules



RECKSON OPERATING PARTNERSHIP, L.P.
Report of Independent Registered Public Accounting Firm		37
Consolidated Balance Sheets as of December 31, 2018 and 2017		38
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016		40
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016		41
Consolidated Statements of Capital for the years ended December 31, 2018, 2017 and 2016		42
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016		43
Notes to Consolidated Financial Statements		44
Schedules
Schedule II-Valuation and Qualifying Accounts for the years ended December 31, 2018, 2017 and 2016		69
Schedule III-Real Estate and Accumulated Depreciation as of December 31, 2018		70
All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.

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Report of Independent Registered Public Accounting Firm

To the Partners of Reckson Operating Partnership, L.P.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Reckson Operating Partnership, L.P. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, capital and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company‘s auditor since 1997.

New York, New York

March 28, 2019

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Reckson Operating Partnership, L.P.

Consolidated Balance Sheets

(in thousands)



	December 31, 2018			December 31, 2017

Assets
Commercial real estate properties, at cost:
Land and land interests	$	1,214,535		$	1,704,142
Building and improvements	3,171,132			4,251,610
Building leasehold and improvements	1,073,703			1,073,703
	5,459,370			7,029,455
Less: accumulated depreciation	(1,316,217		)	(1,492,603		)
	4,143,153			5,536,852
Assets held for sale	—			67,228
Cash and cash equivalents	34,480			36,013
Restricted cash	33,075			41,117
Tenant and other receivables, net of allowance of $6,795 and $7,237 in 2018 and 2017, respectively	23,085			31,006
Deferred rents receivable, net of allowance of $9,535 and $11,189 in 2018 and 2017, respectively	180,253			233,300
Debt and preferred equity investments, net of discounts and deferred origination fees of $17,000 and $25,507 in 2018 and 2017, respectively, and allowance of $5,750 in 2018	1,956,119			2,114,041
Investments in unconsolidated joint ventures	339,302			130,217
Deferred costs, net of accumulated amortization of $84,741 and $77,176 in 2018 and 2017, respectively	81,863			106,136
Other assets	217,967			245,598
Total assets⁽¹⁾	$	7,009,297		$	8,541,508
Liabilities
Mortgages and other loans payable, net	$	607,569		$	829,648
Unsecured notes, net	—			901,067
Accrued interest payable	7,680			14,999
Other liabilities	87,077			92,514
Accounts payable and accrued expenses	57,608			60,819
Related party payables	—			23,808
Deferred revenue	18,302			134,650
Deferred land leases payable	1,689			1,888
Dividends payable	807			807
Security deposits	38,296			39,085
Liabilities related to assets held for sale	—			42
Total liabilities⁽¹⁾	819,028			2,099,327

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	December 31, 2018		December 31, 2017

Commitments and contingencies	—		—
Preferred units	109,161		109,161
Capital
General partner capital	6,056,226		6,012,134
Limited partner capital	—		—
Accumulated other comprehensive loss	—		(1,259		)
Total ROP partner's capital	6,056,226		6,010,875
Noncontrolling interests in other partnerships	24,882		322,145
Total capital	6,081,108		6,333,020
Total liabilities and capital	$	7,009,297	$	8,541,508

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: $45.1 million and $268.6 million of land, $0.2 billion and $1.3 billion of building and improvements, $23.7 million and $319.1 million of accumulated depreciation, $626.2 million and $143.9 million of other assets included in other line items, $0.0 million and $495.0 million of real estate debt, net, $0.0 million and $2.1 million of accrued interest payable, and $9.3 million and $48.8 million of other liabilities included in other line items as of December 31, 2018 and December 31, 2017, respectively.

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

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Reckson Operating Partnership, L.P.

Consolidated Statements of Operations

(in thousands)



	Year Ended December 31,
	2018			2017			2016

Revenues
Rental revenue, net	$	531,844		$	668,068		$	652,629
Escalation and reimbursement	82,583			99,887			104,683
Investment income	190,408			193,977			214,102
Other income	11,268			5,606			4,002
Total revenues	816,103			967,538			975,416
Expenses
Operating expenses, including $24,418 in 2018, $27,929 in 2017, and $25,193 in 2016 of related party expenses	131,212			164,219			166,137
Real estate taxes	130,532			156,967			152,010
Ground rent	19,798			20,941			20,971
Interest expense, net of interest income	62,081			123,969			109,208
Amortization of deferred financing costs	4,532			9,313			7,918
Depreciation and amortization	166,372			205,795			212,514
Loan loss and other investment reserves, net of recoveries	5,750			—			—
Transaction related costs	283			3			238
Marketing, general and administrative	627			496			720
Total expenses	521,187			681,703			669,716
Equity in net income from unconsolidated joint ventures	4,198			14,192			14,509
Equity in net gain on sale of interest in unconsolidated joint venture/real estate	5,981			672			—
Purchase price and other fair value adjustment	54,860			—			—
(Loss) gain on sale of real estate	(54,095		)	69,826			(6,909		)
Depreciable real estate reserves and impairment	(106,376		)	(172,071		)	—
Net income	199,484			198,454			313,300
Net (income) loss attributable to noncontrolling interests in other partnerships	(718		)	17,440			(4,424		)
Preferred units dividend	(3,821		)	(3,819		)	(3,821		)
Net income attributable to ROP common unitholder	$	194,945		$	212,075		$	305,055

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

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Reckson Operating Partnership, L.P.

Consolidated Statements of Comprehensive Income

(in thousands)



	Year Ended December 31,
	2018		2017		2016

Net income attributable to ROP common unitholder	$	194,945	$	212,075	$	305,055
Other comprehensive income:
Change in net unrealized gain on derivative instruments	—		359		598
Comprehensive income attributable to ROP common unitholder	$	194,945	$	212,434	$	305,653

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

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Reckson Operating Partnership, L.P.

Consolidated Statements of Capital

(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, 2015	$	4,201,872		$	—	$	387,296		$	(2,216	)	$	4,586,952
Contributions	4,490,682			—		—			—			4,490,682
Distributions	(3,857,767		)	—		(1,121		)	—			(3,858,888		)
Net income	305,055			—		4,424			—			309,479
Other comprehensive income	—			—		—			598			598
Balance at December 31, 2016	5,139,842			—		390,599			(1,618		)	5,528,823
Contributions	4,664,031			—		100			—			4,664,131
Distributions	(4,003,814		)	—		(51,114		)	—			(4,054,928		)
Net income	212,075			—		(17,440		)	—			194,635
Other comprehensive income	—			—		—			359			359
Balance at December 31, 2017	6,012,134			—		322,145			(1,259		)	6,333,020
Contributions	2,585,954			—		—			1,259			2,587,213
Distributions	(2,736,807		)	—		(841		)	—			(2,737,648		)
Deconsolidation	—			—		(297,140		)	—			(297,140		)
Net income	194,945			—		718			—			195,663
Balance at December 31, 2018	$	6,056,226		$	—	$	24,882		$	—		$	6,081,108

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

Table of Contents

Reckson Operating Partnership, L.P.

Consolidated Statements of Cash Flows

(in thousands)



	Year Ended December 31,
	2018			2017			2016

Operating Activities
Net income	$	199,484		$	198,454		$	313,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	170,904			215,108			220,432
Equity in net gain on sale of interest in unconsolidated joint venture/real estate	(5,981		)	(672		)	—
Equity in net income from unconsolidated joint ventures	(4,198		)	(14,192		)	(14,509		)
Distributions of cumulative earnings from unconsolidated joint ventures	3,850			14,613			10,430
Loan loss and other investment reserves, net of recoveries	5,750			—			—
Purchase price and other fair value adjustment	(54,860		)	—			—
Depreciable real estate reserves and impairment	106,376			172,071			—
(Gain) loss on sale of real estate, net	54,095			(69,826		)	6,909
Deferred rents receivable	6,037			(6,762		)	(23,768		)
Other non-cash adjustments

RECKSON OPERATING PARTNERSHIP LP 10-K