Overview

SL Green Realty Corp., or the Company, a Maryland corporation, and SL Green Operating Partnership, L.P., or the operating partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. We are a self-managed real estate investment trust, or REIT, with in-house capabilities in property management, acquisitions, financing, development, construction and leasing. Unless the context requires otherwise, all references to "we," "our" and "us" means the Company and all entities owned or controlled by the Company, including the operating partnership.

On January 25, 2007, we completed the acquisition, or the Reckson Merger, of all of the outstanding shares of common stock of Reckson Associates Realty Corp., or Reckson, pursuant to the terms of the Agreement and Plan of Merger, dated as of August 3, 2006, as amended, the Merger Agreement, among SL Green, Wyoming Acquisition Corp., or Wyoming, Wyoming Acquisition GP LLC, Wyoming Acquisition Partnership LP, Reckson and Reckson Operating Partnership, L.P. or ROP. We paid approximately $6.0 billion, inclusive of transaction costs, for Reckson. ROP is a subsidiary of our operating partnership.

On January 25, 2007, we completed the sale, or Asset Sale, of certain assets of ROP to an asset purchasing venture led by certain of Reckson's former executive management, or the Buyer, for a total consideration of approximately $2.0 billion.

The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in this Quarterly Report on Form 10-Q and in Item 8 of our Annual Report on Form 10-K, Form 10-K/A No. 1 and Form 10-K/A No. 2 for the year ended December 31, 2008.

As of September 30, 2009, we owned the following interests in commercial office properties in the New York Metro area, primarily in midtown Manhattan, a borough of New York City, or Manhattan. Our investments in the New York Metro area also include investments in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban assets:

                                                                           Weighted
                                             Number of                     Average
Location                 Ownership           Properties   Square Feet   Occupancy (1)
Manhattan        Consolidated properties             21    13,782,200             95.6 %
                 Unconsolidated properties            8     9,429,000             95.7 %

Suburban         Consolidated properties             25     3,863,000             87.3 %
                 Unconsolidated properties            6     2,941,700             94.5 %
                                                     60    30,015,900             94.5 %

We also own investments in eight retail properties encompassing approximately 377,812 square feet, three development properties encompassing approximately 399,800 square feet and two land interests. In addition, we manage three office properties owned by third parties and affiliated companies encompassing approximately 1.0 million rentable square feet.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

Refer to our 2008 Annual Report on Form 10-K (including Amendment No. 1 and No. 2) for a discussion of our critical accounting policies, which include rental property, investment in unconsolidated joint ventures, revenue recognition, allowance for doubtful accounts, reserve for possible credit losses and derivative instruments. There have been no changes to these policies in 2009.

Results of Operations

Comparison of the three months ended September 30, 2009 to the three months ended September 30, 2008

The following comparison for the three months ended September 30, 2009, or 2009, to the three months ended September 30, 2008, or 2008, makes reference to the following: (i) the effect of the "Same-Store Properties," which represents all properties owned by us at January 1, 2008 and at September 30, 2009 and total 45 of our 60 consolidated properties, representing approximately 74% of our share of annualized rental revenue, (ii) the effect of the "Acquisitions," which represents all properties or interests in properties acquired in 2008 and all non-Same-Store Properties, including properties deconsolidated during the period, and (iii) "Other," which represents corporate level items not allocable to specific properties, the Service Corporation and eEmerge. Assets classified as held for sale, are excluded from the following discussion.

                                                              $        %
Rental Revenues (in millions)           2009      2008     Change    Change
Rental revenue                         $ 192.4   $ 196.8   $  (4.4 )   (2.2 )%
Escalation and reimbursement revenue      29.9      32.2      (2.3 )   (7.1 )
Total                                  $ 222.3   $ 229.0   $  (6.7 )   (2.9 )%

Same-Store Properties                  $ 220.2   $ 221.1   $  (0.9 )   (0.4 )%
Acquisitions                               1.4       6.5      (5.1 )  (78.5 )
Other                                      0.7       1.4      (0.7 )  (50.0 )
Total                                  $ 222.3   $ 229.0   $  (6.7 )   (2.9 )%

Occupancy in the Same-Store Properties was 95.9% at September 30, 2008, 95.3% at December 31, 2008 and 94.8% at September 30, 2009. The decrease in the Acquisitions is primarily due to certain properties being deconsolidated in 2008, and therefore, not included in the 2009 consolidated results.

At September 30, 2009, we estimated that the current market rents on our consolidated Manhattan properties and consolidated Suburban properties were approximately 6.4% and 4.8% higher, respectively, than the existing in-place fully escalated rents. Approximately 2.8% of the space leased at our consolidated properties expires during the remainder of 2009.

During the quarter, we signed or commenced 36 leases in the Manhattan portfolio totaling 278,819 square feet, of which 28 leases and 251,888 square feet represented office leases. Average starting Manhattan office rents of $47.31 per rentable square foot on the 251,888 square feet of leases signed or commenced during the third quarter represented a 5.2% increase over the previously fully escalated rents. The average lease term was 9.6 years and average tenant concessions were 6.9 months of free rent with a tenant improvement allowance of $56.19 per rentable square foot.

The decrease in escalation and reimbursement revenue was due to a reduction in recoveries at the Same-Store Properties ($2.2 million). The decrease in recoveries at the Same-Store Properties was primarily due to reductions in recoveries from operating expense escalations ($3.3 million) and electric reimbursements ($1.2 million) primarily due to lower operating and utility costs. This was offset by increases in real estate tax escalations ($2.3 million).

Investment and Other Income (in                                    $           %
millions)                                2009        2008        Change      Change
Equity in net income of
unconsolidated joint ventures          $    16.6   $    12.3   $      4.3       35.0 %
Investment and preferred equity
income                                      16.3        31.8        (15.5 )    (48.7 )
Other income                                11.0         7.6          3.4       44.7
Total                                  $    43.9   $    51.7   $     (7.8 )    (15.1 )%

The increase in equity in net income of unconsolidated joint ventures was primarily due to increased net income contributions from 388 Greenwich Street ($0.6 million), 1221 Avenue of the Americas ($2.7 million), 1515 Broadway ($2.8 million), 21 West 34th Street ($0.3 million), 16 Court Street ($0.3 million) and Mack-Green ($0.7 million). This was partially offset by lower net income contributions primarily from our investments in Gramercy ($1.2 million), 521 Fifth Avenue ($0.8 million), 100 Park Avenue ($1.0 million) and 800 Third Avenue ($0.3 million). Occupancy at our joint venture properties was 94.3% at September 30, 2008, 95.0% at December 31, 2008 and 95.4% at September 30, 2009. At September 30, 2009, we estimated that current market rents at our Manhattan and Suburban joint venture properties were approximately 10.9% and 3.9% higher, respectively, than then existing in-place

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

fully escalated rents. Approximately 1.6% of the space leased at our joint venture properties expires during the remainder of 2009.

Investment and preferred equity income decreased during the current quarter. The weighted average investment balance outstanding and weighted average yields were $610.0 million and 9.3%, respectively, for 2009 compared to $921.7 million and 10.6%, respectively, for 2008. The decrease was primarily due to the sale of structured finance investments as well as certain loans being placed on non-accrual status after September 30, 2008 and in 2009.

The increase in other income was primarily due to an increase in lease buy out income ($6.4 million). This was primarily offset by reduced fee income earned by GKK Manager, a former affiliate of ours and the former external manager of Gramercy (approximately $2.0 million).

                                                                 $        %
Property Operating Expenses (in millions)    2009     2008    Change    Change
Operating expenses                          $ 55.2   $ 60.7   $  (5.5 )   (9.1 )%
Real estate taxes                             34.8     31.4       3.4     10.8
Ground rent                                    7.9      7.7       0.2      2.6
Total                                       $ 97.9   $ 99.8   $  (1.9 )   (1.9 )%

Same-Store Properties                       $ 93.5   $ 95.2   $  (1.7 )   (1.8 )%
Acquisitions                                   0.7      0.7         -        -
Other                                          3.7      3.9      (0.2 )   (5.1 )
Total                                       $ 97.9   $ 99.8   $  (1.9 )   (1.9 )%

Same-Store Properties operating expenses decreased approximately $5.2 million. There were decreases in repairs and maintenance ($0.8 million), building payroll ($0.1 million) and utilities ($4.2 million). This was partially offset by increases in insurance costs ($0.1 million).

The increase in real estate taxes was primarily attributable to the Same-Store Properties ($3.3 million) due to higher assessed property values and increased rates.

                                                                       $        %
Other Expenses (in millions)                     2009      2008     Change    Change
Interest expense, net of interest income        $  68.4   $  73.2   $  (4.8 )   (6.6 )%
Depreciation and amortization expense              57.0      53.5       3.5      6.5
Loan loss reserves                                 16.1       9.1       7.0     76.9
Marketing, general and administrative expense      18.9      20.9      (2.0 )   (9.6 )
Total                                           $ 160.4   $ 156.7   $   3.7      2.4 %

The decrease in interest expense was primarily attributable to lower LIBOR rates in 2009 compared to 2008 as well as the early repurchase of certain of our outstanding senior unsecured notes. The weighted average interest rate decreased from 4.95% for the quarter ended September 30, 2008 to 4.27% for the quarter ended September 30, 2009. As a result of the note repurchases and repayments, the weighted average debt balance decreased from $5.5 billion as of September 30, 2008 to $5.0 billion as of September 30, 2009. Interest expense for 2009 includes a one-time defeasance charge of approximately $10.5 million related to the prepayment of the mortgage at 420 Lexington Avenue.

The increase in loan loss reserves was primarily due to the mark to market of a structured finance investment which is held for sale.

Marketing, general and administrative expenses represented 7.6% of total revenues in 2009 compared to 7.8% in 2008.

Comparison of the nine months ended September 30, 2009 to the nine months ended September 30, 2008

The following comparison for the nine months ended September 30, 2009, or 2009, to the nine months ended September 30, 2008, or 2008, makes reference to the following: (i) the effect of the "Same-Store Properties," which represents all properties owned by us at January 1, 2008 and at September 30, 2009 and total 45 of our 60 consolidated properties, representing approximately 74% of our share of annualized rental revenue, (ii) the effect of the "Acquisitions," which represents all properties or interests in properties acquired in 2008 and all non-Same-Store Properties, including properties deconsolidated during the period, and (iii) "Other," which represents corporate level items not allocable to specific properties, the Service Corporation and eEmerge. Assets classified as held for sale, are excluded from the following discussion.

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations



                                                              $        %
Rental Revenues (in millions)           2009      2008     Change    Change
Rental revenue                         $ 580.0   $ 581.5   $  (1.5 )   (0.3 )%
Escalation and reimbursement revenue      94.9      91.8       3.1      3.4
Total                                  $ 674.9   $ 673.3   $   1.6      0.2 %

Same-Store Properties                  $ 663.7   $ 646.2   $  17.5      2.7 %
Acquisitions                               6.5      22.9     (16.4 )  (71.6 )
Other                                      4.7       4.2       0.5     11.9
Total                                  $ 674.9   $ 673.3   $   1.6      0.2 %

Occupancy in the Same-Store Properties was 95.9% at September 30, 2008, 95.3% at December 31, 2008 and 94.8% at September 30, 2009. The decrease in the Acquisitions is primarily due to certain properties being deconsolidated in 2008, and therefore, not included in the 2009 consolidated results.

At September 30, 2009, we estimated that the current market rents on our consolidated Manhattan properties and consolidated Suburban properties were approximately 6.4% and 4.8% higher, respectively, than the existing in-place fully escalated rents. Approximately 2.8% of the space leased at our consolidated properties expires during the remainder of 2009.

The increase in escalation and reimbursement revenue was due to the recoveries at the Same-Store Properties ($2.8 million) and the Acquisitions and Other ($0.3 million). The increase in recoveries at the Same-Store Properties was primarily due to increases in real estate tax escalations ($8.1 million). This was partially offset by reductions in operating expense escalations ($3.8 million) and electric reimbursements ($1.5 million).

During the nine months ended September 30, 2009, we signed or commenced 106 leases in the Manhattan portfolio totaling 938,032 square feet, of which 89 leases and 877,508 square feet represented office leases. Average starting Manhattan office rents of $50.56 per rentable square foot on the 877,508 square feet of leases signed or commenced during the nine months ended September 30, 2009 represented a 19.4% increase over the previously fully escalated rents. The average lease term was 8.6 years and average tenant concessions were 4.5 months of free rent with a tenant improvement allowance of $42.53 per rentable square foot.

Investment and Other Income (in                                    $          %
millions)                                2009        2008       Change      Change
Equity in net income of
unconsolidated joint ventures          $    46.5   $    49.5   $    (3.0 )     (6.1 )%
Investment and preferred equity
income                                      48.7        73.6       (24.9 )    (33.8 )
Other income                                40.4        63.5       (23.1 )    (36.4 )
Total                                  $   135.6   $   186.6   $   (51.0 )    (27.3 )%

The decrease in equity in net income of unconsolidated joint ventures was primarily due to lower net income contributions from Gramercy ($11.3 million), 388 Greenwich Street ($3.9 million), 1250 Broadway ($2.4 million) and 717 Fifth Avenue ($1.7 million). This was partially offset by higher net income contributions primarily from our investments in 1515 Broadway ($8.4 million), 16 Court Street ($1.2 million), 21 West 34th Street ($0.6 million), Mack-Green ($2.2 million), 1221 Avenue of the Americas ($2.4 million) and 1604 Broadway ($1.0 million). Occupancy at our joint venture properties was 94.3% at September 30, 2008, 95.0% at December 31, 2008 and 95.4% at September 30, 2009. At September 30, 2009, we estimated that current market rents at our Manhattan and Suburban joint venture properties were approximately 10.9% and 3.9% higher, respectively, than then existing in-place fully escalated rents. Approximately 1.6% of the space leased at our joint venture properties expires during the remainder of 2009.

Investment and preferred equity income decreased during the current nine month period when compared to the same period in the prior year. The weighted average investment balance outstanding and weighted average yields were $654.5 million and 8.6%, respectively, for 2009 compared to $837.5 million and 10.2%, respectively, for 2008. The decrease was primarily due to the sale of structured finance investments as well as certain loans being placed on non-accrual status after September 30, 2008 and in 2009.

The decrease in other income was primarily due to reduced fee income earned by GKK Manager, a former affiliate of ours and the former external manager of Gramercy (approximately $4.2 million). In addition, in 2008, we earned an incentive distribution upon the sale of 1250 Broadway (approximately $25.0 million) as well as an advisory fee paid to us in connection with Gramercy closing its acquisition of AFR (approximately $6.6 million). This was partially offset by the recognition of an incentive fee (approximately $4.8 million) upon the final resolution of our original Bellemead investment in 2009 and other fee income ($8.7 million).

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations



                                                                   $        %
Property Operating Expenses (in millions)    2009      2008     Change    Change
Operating expenses                          $ 162.4   $ 168.4   $  (6.0 )   (3.6 )%
Real estate taxes                             108.0      96.2      11.8     12.3
Ground rent                                    24.0      23.8       0.2      0.8
Total                                       $ 294.4   $ 288.4   $   6.0      2.1 %

Same-Store Properties                       $ 281.6   $ 274.7   $   6.9      2.5 %
Acquisitions                                    2.4       2.6      (0.2 )   (7.7 )
Other                                          10.4      11.1      (0.7 )   (6.3 )
Total                                       $ 294.4   $ 288.4   $   6.0      2.1 %

Same-Store Properties operating expenses decreased approximately $4.8 million. There were decreases in repairs and maintenance ($1.6 million), utilities ($3.9 million) and various other costs ($0.4 million). This was partially offset by an increase in insurance costs ($0.5 million) and ground rent ($0.6 million).

The increase in real estate taxes was primarily attributable to the Same-Store Properties ($11.7 million) due to higher assessed property values and increased rates.

                                                                       $        %
Other Expenses (in millions)                     2009      2008     Change    Change
Interest expense, net of interest income        $ 188.1   $ 225.5   $ (37.4 )  (16.6 )%
Depreciation and amortization expense             166.3     161.2       5.1      3.2
Loan loss reserves                                123.7      14.1     109.6    777.3
Marketing, general and administrative expense      54.7      70.8     (16.1 )  (22.7 )
Total                                           $ 532.8   $ 471.6   $  61.2     13.0 %

The decrease in interest expense was primarily attributable to lower LIBOR rates in 2009 compared to 2008 as well as the early repurchase of certain of our outstanding senior unsecured notes. The weighted average interest rate decreased from 5.14% for the nine months ended September 30, 2008 to 4.32% for the nine months ended September 30, 2009. As a result of the note repurchases and repayments, the weighted average debt balance decreased from $5.6 billion during the nine months ended September 30, 2008 compared to $5.2 billion during the nine months ended September 30, 2009.

The increase in loan loss reserves was primarily due to the realized loss on the sale of a structured finance investment (approximately $38.4 million) in 2009 as well as additional reserves on loans being held to maturity as well as held for sale.

Marketing, general and administrative expenses represented 7.2% of total revenues in 2009 compared to 8.7% in 2008. The decrease is primarily due to reduced stock-based compensation costs in 2009.

Liquidity and Capital Resources

We are currently experiencing a global economic downturn and credit crunch. As a result, many financial industry participants, including commercial real estate owners, operators, investors and lenders, continue to find it extremely difficult to obtain cost-effective debt capital to finance new investment activity or to refinance maturing debt. In the few instances in which debt is available, it is at a cost much higher than in the recent past.

We currently expect that our principal sources of working capital and funds for acquisition and redevelopment of properties, tenant improvements and leasing costs and for structured finance investments during the next twelve months and beyond will include:

(1) cash flow from operations;

(2) cash on hand;

(3) borrowings under our 2007 unsecured revolving credit facility;

(4) other forms of secured or unsecured financings;

(5) net proceeds from divestitures of properties and redemptions, participations and dispositions of structured finance investments; and

(6) proceeds from issuances of common or preferred equity or debt by us or our operating partnership (including issuances of limited partnership units in our operating partnership and trust preferred securities).

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 and operating escalations and recoveries from our tenants and the level of operating and other costs. Additionally, we believe that our joint venture investment programs will continue to serve as a source of capital.

Our combined aggregate principal maturities of our property mortgages, corporate obligations and our share of joint venture debt, including as-of-right extension options, as of September 30, 2009 are as follows (in thousands):

                   2009       2010        2011         2012         2013      Thereafter       Total
Property
Mortgages         $ 7,138   $  28,620   $ 269,131   $   152,528   $ 454,332   $ 1,687,667   $ 2,599,416
Corporate
obligations             -     114,236     123,607     1,553,689           -       524,719     2,316,251
Joint venture
debt                  100     461,545     191,050        33,969       1,182     1,222,032     1,909,878
Total             $ 7,238   $ 604,401   $ 583,788   $ 1,740,186   $ 455,514   $ 3,434,418   $ 6,825,545

As of September 30, 2009, we had approximately $671.1 million of cash on hand, inclusive of approximately $37.0 million of marketable securities. This includes approximately $387.2 million we raised as part of an equity offering of our common stock in May 2009. In June 2009, we further reduced the dividend on our common stock from an annualized rate of $1.50 per share to $0.40 per share. In addition, we expect to generate positive cash flow from operations for the foreseeable future. We also have the ability to access private and public debt and equity capital when the opportunity presents itself, although there is no guarantee we will be able to access this capital. Management currently believes that these sources of liquidity, along with potential refinancing opportunities for secured debt and continued repurchases of our senior unsecured notes at discounted prices, will allow us to satisfy our debt obligations, as described above, upon maturity, if not before.

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

We continue to monitor closely the financial viability of our largest tenant, Citigroup, which accounted for approximately 8.2% of our annualized rent as of September 30, 2009, paying particular attention to the potentially negative effects of its capital position and reductions in its headcount on its tenancy in our portfolio. During 2008 and 2009, Citigroup benefited from substantial U.S. government financial investments, including (i) raising capital through the sale of Citigroup non-voting perpetual, cumulative preferred stock and warrants to purchase common stock issued to the U.S. Department of the Treasury,
(ii) entering into a loss-sharing agreement with various U.S. government entities covering certain of Citigroup assets, and (iii) issuing senior unsecured debt guaranteed by the Federal Deposit Insurance Corporation. In 2009, Citigroup announced an exchange offer of its common stock for up to a . . .